Overview of the 2025 Gaming Industry Landscape

The Chinese gaming industry is poised for a dynamic year in 2025, driven by themes such as high-quality blockbuster releases, overseas market expansion, and deeper integration of artificial intelligence (AI). These trends are reshaping the sector, with Chinese developers emerging as premium third-party content providers for global brands.

According to Gamma data, the domestic gaming market revenue grew by 7.5% year-on-year (yoy) in 2024, reaching RMB 325.8 billion. Meanwhile, Chinese-developed games achieved overseas revenue growth of 13.4% yoy, setting a record at USD 18.6 billion. The sector also witnessed a resurgence in PC and console games, alongside growth in mini-games and AI-empowered innovations.

NetEase: A Rising Star with a Promising Game Pipeline

Recommendation: BUY | Target Price: HK\$193.00 | Current Price: HK\$157.00

NetEase has demonstrated significant progress in 2024 and is set for a re-acceleration in 2025. The company’s recent game launches, including Marvel Rivals and Where Winds Meet (WWM), have delivered strong results:

• Marvel Rivals: Launched on 6 December 2024, this self-developed superhero PVP team shooter achieved a global bestseller rank on Steam within four hours of release. Twitch game popularity rankings also placed it first. Estimated first-year grossing is USD 400 million (RMB 2.9 billion), contributing 4% to NetEase’s total grossing.
• Where Winds Meet (WWM): Released on 9 January 2025, this martial arts-themed game offers cross-platform data synchronization across PC and mobile. It is projected to generate RMB 4 billion in 2025, split between RMB 2.3 billion for mobile and RMB 1.7 billion for PC, contributing 3% to mobile game revenue and 7% to PC game revenue.

Despite challenges with Legend of the Condor Heroes and Justice Mobile, NetEase remains well-positioned to achieve 6% and 11% yoy growth in online game revenue for 4Q24 and 2025, respectively. Upcoming releases like FragPunk, Rusty Rabbit: A New Journey, and MARVEL Mystic Mayhem further bolster its diversified portfolio.

NetEase is trading at 12x 2025F PE, aligned with its historical mean of 15.3x. The company’s non-GAAP net profit is forecasted to grow 16%/12% yoy to RMB 8.6 billion/RMB 36.2 billion in 4Q24/2025.

Tencent: Rejuvenating Evergreen Titles and Expanding Overseas

Recommendation: BUY | Target Price: HK\$551.00 | Current Price: HK\$382.40

Tencent continues to showcase resilience and sustainable growth across economic cycles. Its overseas gaming revenue is nearing 50% of domestic online game revenue, supported by strong performances from flagship titles:

• Honor of Kings (HoK) and Peacekeeper Elite: These evergreen titles rebounded strongly in January 2025 after a modest decline in December.
• Delta Force: Released in 3Q24, this multi-platform first-person shooter achieved high user retention and monetization rates, outperforming other large-scale PVP games at launch.

Projected online game revenue growth for Tencent is 20% and 10% yoy in 4Q24 and 2025, reaching RMB 49 billion and RMB 217 billion, respectively. Upcoming titles like HoK World, HoK Breaking Dawn, and Monster Hunter Outlanders Mobile are expected to drive further growth.

Tencent is trading at 14.3x 2025F PE, which is 1.4 standard deviations below its historical mean of 25x. Its non-GAAP net profit is projected to rise 30%/13% yoy to RMB 55.4 billion/RMB 229.9 billion in 4Q24/2025.

Other Notable Companies in the Sector

Kingsoft (3888 HK)

Kingsoft is trading at higher valuation multiples with a 2025F PE of 22.8x. Its growth potential remains robust, driven by strategic investments in cloud computing and online gaming. However, its comparatively lower ROE of 6.0% signals room for improvement.

IGG (799 HK)

IGG presents an attractive valuation with a 2025F PE of just 5.4x, making it one of the most cost-effective options in the sector. The company boasts a high ROE of 28.6%, indicating strong profitability.

Bilibili (9626 HK)

Bilibili continues to invest heavily in user engagement and content creation. However, its negative ROE of -18.7% reflects ongoing challenges in achieving profitability.

NetDragon (777 HK)

NetDragon shows remarkable efficiency with a 2025F PE of 4.3x. Despite its smaller market capitalization, the company remains a strong contender in the online gaming sector.

XD (2400 HK)

XD trades at a 2025F PE of 14.3x, with a focus on innovative gameplay experiences. Its ROE of 1.7% underscores steady but modest returns for investors.

Sector Catalysts and Risks

Key catalysts driving the sector include increasing user stickiness, a growing number of paying users, and the launch of new game genres. However, risks remain, including regulatory changes, unconventional distribution channels, and geopolitical uncertainties from US sanctions.

Conclusion

The Chinese gaming sector is entering a transformative phase in 2025, underpinned by innovation, overseas expansion, and AI integration. NetEase and Tencent are well-positioned to capitalize on these trends, making them attractive opportunities for investors. While risks remain, the sector’s resilience and growth potential offer significant upside for those looking to invest in this dynamic space.