Dongfang Securities: The transformation of products from rebranding to long cycles enhances the growth certainty of the gaming industry

According to the Zhitong Finance APP, Dongfang Securities released a research report stating that the gaming industry has strong resilience against long-term macro headwinds. In Q1 2025, China's domestic gaming industry grew by 18% year-on-year, significantly outperforming the 4.6% growth of social retail. Recently, attention has been drawn to changes in Apple's channel fees, as the implementation in China is expected to significantly boost profits in the gaming sector. Additionally, gaming channels that were previously restricted by Apple are likely to benefit from this reopening. Firstly, the firm recommends focusing on manufacturers that have advantages in gaming channels and long-cycle categories. Secondly, it suggests paying attention to manufacturers with key project reserves this year. Key points from Dongfang Securities are as follows: Domestic Market: Prefer enterprises with R&D advantages in long-cycle tracks The Chinese gaming market is quite unique, as it is policy-driven on the supply side, with the number of licenses directly determining industry growth and corporate project confidence. There will be significant regulatory changes by 2025, with local processing of license trials accelerating product modifications and approvals, leading to a monthly increase in the issuance of licenses. Against the backdrop of rapid overall growth in the gaming industry, different categories still show differentiation—low ARPU products have stronger anti-deflation capabilities, with growth in traffic and payment behaviors for low ARPU categories such as competitive and elimination games, while high ARPU categories like RPGs face macro pressure. Furthermore, as AI accelerates game version updates, the market share of leading games is increasing, extending their lifecycle, while the survival space for short-cycle games continues to be squeezed. Therefore, the firm recommends focusing on enterprises with development advantages in long-lifecycle tracks—quantitative analysis suggests that the half-life of leading competitive, elimination, turn-based, and SLG tracks is relatively long. Overseas Market: Chinese gaming manufacturers' market share abroad continues to rise and is expected to grow further In industries with decreasing marginal costs, the firm believes that the country with the largest domestic market share will have an absolute competitive advantage in overseas expansion—this allows for higher single-project development budgets, resulting in products that can effectively compete with overseas counterparts. The market share of Chinese mobile games abroad has increased from 22% in 2018 to 28% in 2024, with Chinese manufacturers expected to occupy 12 out of the top 16 spots in the list of leading games launched in 2024. Policy support and incentives for overseas expansion have led to a continuous increase in the proportion of global products, with priority given to overseas launches to strengthen product risk resistance. In terms of tracks, as WeChat mini-games grow, the advantageous categories for overseas expansion have expanded from traditional SLG and esports to casual synthesis categories. On the other hand, as the development budget for Chinese mobile games increases year by year, some leading projects have already exceeded the budgets of traditional AAA console games, making it foreseeable that the proportion of multi-platform products will continue to grow, thereby beginning to pose competitive advantages to overseas manufacturers in the PC and console fields. Industry Catalysts: Global leading markets are launching lawsuits and regulatory adjustments regarding Apple's closed-source and high channel fees, and the Chinese market is also expected to see a significant increase in gaming industry profit margins after implementation. Risk Warning Risks of game delays, product competition risks, policy risks, changes in assumptions affecting calculation results, and risks of game revenue falling short of expectations