A research report indicates that CICC maintains its earnings forecast and outperform rating for IGG (00799). At current share price levels, the stock trades at 8.6x/8.4x 2025/2026 Non-IFRS net profit multiples. Considering the valuation premium from the excellent initial performance of new products, the target price has been raised 26% to HK$5.23, corresponding to 10.0x/9.8x 2025/2026 Non-IFRS P/E, with 16% upside potential.

Key observations include:

**1H25 Results Largely Met Expectations, Dividend + Buyback Ratio Increased to 61%**

The company announced 1H25 results: revenue declined 1% year-over-year to HK$2.721 billion; net profit attributable to shareholders was HK$322 million, with Non-IFRS net profit of HK$332 million, broadly in line with expectations. The company declared interim and special dividends totaling HK$0.139 per share, representing approximately 50% of 1H25 net profit. Share buybacks in the first half amounted to about 11% of net profit.

**SLG Fusion Game "Fate War" Launched, Focus on User Acquisition and Revenue Performance After Version Updates**

The company's new SLG + simulation management game "Fate War" launched in early August. Management indicated that the game generated HK$20 million in revenue during its first three weeks. Looking ahead, attention should be paid to game version iterations and corresponding user acquisition performance. Management announced at the earnings briefing that a new version will be released on September 30, with optimization focusing on: 1) technical updates to make the game compatible with lower-performance devices; 2) streamlining daily operational processes to encourage users to spend more time on core gameplay elements like social interaction and combat. The company also indicated it will conduct large-scale user acquisition campaigns after the new version launch. These two optimizations are expected to help capture a broader user base, warranting attention to subsequent user numbers and retention performance.

**Established Products Show Stable Performance, Focus on Gameplay Adjustments and Collaboration Progress**

In 1H25, the company's core established products performed as expected. "Lords Mobile" revenue declined 14% year-over-year in 1H25, primarily due to the product entering its mature phase. Management indicated at the earnings briefing that gameplay adjustments will be made by year-end, with attention needed on the impact of these changes on new user acquisition costs and user retention. 1H25 revenues for "Doomsday" and "Viking Rise" increased 6% and 18% year-over-year respectively, while declining 1% and 2% quarter-over-quarter compared to 2H24, largely meeting expectations. "Doomsday" collaborated with the movie "Godzilla" in the first half, and management disclosed a collaboration with "Attack on Titan" scheduled for December. These collaboration activities combined with marketing campaigns may help expand the customer base and increase payment depth.

**Profit Met Expectations, Dividend Ratio Increased**

The company's 1H25 Non-IFRS net profit of HK$323 million largely met expectations. Gross margin increased 4 percentage points year-over-year, sales expense ratio increased 5 percentage points year-over-year, and adjusted net margin declined 0.5 percentage points year-over-year. The company announced an interim dividend of HK$0.083 per share and a special dividend of HK$0.056 per share, with total dividends representing 50% of 1H25 net profit, up from approximately 30% in 1H24.

**Risk Factors**: New games and business segments underperforming expectations, declining revenue from major products, higher-than-expected expenses, geopolitical and regulatory risks, macroeconomic pressures.