Huachuang Securities has issued a research report forecasting that XD INC (02400) will achieve net profits attributable to shareholders of RMB 2.18 billion, RMB 2.73 billion, and RMB 3.11 billion for the years 2026 to 2028, representing year-on-year growth rates of 42%, 25%, and 14%, respectively. Utilizing a PE valuation methodology and selecting a group of A-share and H-share gaming companies as comparables, the average PE ratios for these comparable companies for 2025-2027 are 20x, 15x, and 13x. Considering the long-term operational potential of the company's core self-developed products and the stability and sustainability of the TapTap platform, which warrant a higher valuation, the report assigns a target PE of 20x for 2026. This corresponds to a target market capitalization of RMB 43.55 billion and a target price of HK$100.9. Coverage is initiated with a "Strong Buy" rating.
The core investment thesis is based on a dual-engine growth model driven by the TapTap platform and self-developed games, which creates a unique competitive barrier. The company's operations are divided into two main segments: game development/publishing and the TapTap platform. Established in 2011, the company began with web game development and agency services. It transitioned to mobile game publishing alongside the growth of the mobile internet. Since 2019, it has focused on a self-development strategy, subsequently launching successful proprietary titles such as "Torchlight: Infinite," "Let's Go! Muffin," "Ragnarok M: Eternal Love," and "XD Town." Based on its understanding of the relationship between content and traffic and long-term value, the company launched the TapTap platform in 2016. With a "zero commission, ad-based monetization" business model, supplemented by continuously enriched developer services and player operations, the platform has evolved into a comprehensive gaming hub centered on community content, driven by algorithms, and fortified by developer services. The company aims to create a virtuous cycle where game R&D and publishing provide TapTap with high-quality exclusive content, which in turn drives user growth. TapTap's product and operational strengths then help retain users and generate revenue, which is subsequently reinvested to support first-party and third-party content creation, producing more premium content and further fueling TapTap's growth.
The self-developed game strategy is now focused on core genres, with signs of establishing long-lasting game franchises. Since 2019, the company significantly increased investment in self-development. Initially, due to a lack of genre focus, products in categories like side-scrolling fighting and shooting underperformed. Starting in 2022, it realigned its development team and strategy to concentrate on genres where it has accumulated R&D and publishing experience, such as casual, MMO, and idle games. This shift led to the successful launch of several self-developed titles including "Torchlight: Infinite," "Let's Go! Muffin," "Ragnarok M: Eternal Love," and "XD Town." Among these, "XD Town" and the "Torchlight" series are poised to become the company's flagship long-running games. 1) "XD Town": This is a self-developed and self-published 3D simulation game. Its domestic launch in July 2024 and overseas launch in January 2026 both demonstrated strong performance. Its success can be attributed to precise targeting, differentiated gameplay with micro-innovations, clear operational and commercialization pacing, and effective community content dissemination. 2) "Torchlight: Infinite": This is a self-developed and self-published action RPG in the Diablo-like genre. It launched overseas in October 2022 and domestically in May 2023, achieving successful operation for over three years. Its success factors include gameplay innovation (decoupling classes and skills, deep skill/equipment/talent systems), a redesigned commercialization model (shifting from "gacha" to "battle pass + cosmetics"), and operational innovation (parallel seasonal and permanent server design). In December 2025, the company acquired the "Torchlight" IP for $37.18 million, with plans to develop series products for long-term IP management.
Artificial Intelligence is expected to enhance the closed-loop ecosystem advantages of the TapTap platform. The platform stands to benefit from AI advancements, strengthening its integrated ecosystem spanning "upstream development services, midstream precise distribution, and downstream community operations." Upstream, by providing TDS and "TapTap Create" AI tools, it lowers development barriers and stimulates creative content. Midstream, leveraging Dirichlet (formerly Tap ADN) for ad aggregation and optimizing ad design and algorithms maximizes monetization efficiency for traffic owners without compromising user experience. Downstream, introducing AI assistants into community operations explores interactive game recommendations, providing players with more relevant and practical information.
Potential risks include delays in product launch schedules, intensified industry competition, macroeconomic fluctuations, and a downward shift in valuation benchmarks.