Shenwan Hongyuan Group Co., Ltd. has initiated coverage on XD INC (02400) with a "Buy" rating. The firm projects the company's revenue for fiscal years 2025-2027 at 64.31/79.27/90.59 billion yuan, representing year-over-year growth of 28%/23%/14% respectively. Adjusted net profit attributable to shareholders is expected to reach 17.02/22.26/27.60 billion yuan, with growth rates of 94%/31%/24% respectively. Under the SOTP valuation method, the corresponding Hong Kong stock market capitalization is valued at 54.9 billion HKD.

Shenwan Hongyuan's main investment thesis includes:

**TapTap's Value in Gaming Promotion Revolution** The gaming industry has seen a significant increase in sales expense ratios due to the recovery in game license supply and channel transformation. TapTap has gradually become an important channel for game promotion, with online promotion service revenue of 976 million yuan in the first half of fiscal 2025, representing an estimated market share of approximately 3.27% in the mobile game advertising market.

TapTap's value to developers includes: 1) Zero or low revenue sharing, making it developer-friendly for small and medium-sized studios. 2) As users' mobile time becomes increasingly fragmented, app stores are no longer the sole channel for game promotion, with mainstream social media and vertical communities like TapTap emerging. Compared to mainstream social media, TapTap is more vertical (users spend more time and money on games) and professional (ratings have become important references for gaming content), increasingly becoming a promotion channel for small, independent, and hardcore games. 3) Providing one-stop services including analytics, testing, marketing, and promotion.

TapTap's growth drivers include domestic license improvements, self-developed progress, PC and overseas expansion, with AI democratization as a long-term catalyst. The developer-user flywheel effect has already formed: TapTap currently hosts over 240,000 developers and 300,000+ games online. The Chinese version APP averaged 43.6 million MAU in the first half of fiscal 2025, with user advertising ARPU growing 37% year-over-year.

Growth catalysts include: 1) A total of 1,195 game licenses issued from January to September 2025, up 25% year-over-year, with more product launches driving promotion demand. 2) XD INC's self-developed gaming progress benefits TapTap platform value enhancement (exclusive products attract users while creating demonstration effects for other developers), with TapTap reciprocally supporting self-developed games. 3) TapTap's active strategic expansion into multi-platform and international versions. 4) AI empowering game development, achieving creative democratization, with content supply-side prosperity benefiting TapTap. The firm estimates TapTap's revenue could reach 5 billion yuan by 2030 through both volume and price increases in advertising.

**XD INC's Self-Developed Gaming Capabilities Gradually Validated** 1) Product cycle upturn since 2024 validates the correctness of previous R&D adjustment strategies: After 2022, the company strategically contracted its scope, reduced costs and improved efficiency, with product R&D focused on its strong categories through selective optimization. Huang Xiwei's return as head of overseas publishing has established global distribution capabilities, with overseas markets continuing to contribute incremental growth. "Torchlight," "Muffin," "Heartopia," and "ICEY" continue to validate strategic correctness.

2) "Heartopia" and "Torchlight" validate the ability to develop evergreen games: resource focus on advantageous categories + continuous optimization + high-frequency updates + overseas expansion.

3) Pipeline review shows XD INC has definitive reserves for new games: the two-dimensional strategy card mobile game "ICEY" launched in China in September, with subsequent reserves including "Heartopia" international version and the first open-world MMO "Ragnarok RO: Guarding Eternal Love 2."