Several domestic game products demonstrated positive performance on leaderboards in May, with analysts optimistic about the long-term operational effects of high-quality games. Entering May, high-DAU casual games began leveraging the May Day holiday window to boost commercialization. Given their user base predominantly consists of younger demographics, these high-DAU casual products are poised to potentially reach a new peak during the upcoming summer season. The gaming industry's prosperity has been on an upward trajectory since Q1 2025. Considering the stable performance of top-tier companies' premium products in April and May, it is anticipated that this positive trend will likely continue into the second quarter of 2026. With the industry's prosperity continuing to rise, there is a favorable outlook for companies with positive earnings expectations that are currently trading at relatively low valuations. The key perspectives are outlined as follows:
Positive May Rankings for Multiple Games, Long-Term Operations Viewed Favorably
According to Qimai data, the launch of version 1.1 for Perfect World's '异环' (Yihuan) propelled it to the top of Japan's iOS game bestseller chart and fourth in South Korea on June 3rd. Previously, on May 28th, the new version also drove it to fifth place on China's iOS game bestseller chart, setting new post-launch highs. This demonstrates the significant impact major version updates can have on revenue for long-running games. Century Huatong's 'Kingshot' and 'Whiteout Survival' maintained stable rankings within the top 10 of the US iOS game bestseller chart throughout May, with peak positions at second and fourth, respectively. Their casual title 'Tasty Travels' held steady around 15th place, showing improvement from its mid-April position. G-bits' 'Sword x Staff' (the Western version of '仗剑传说') stabilized around 40th on the US iOS game bestseller chart after its mid-May launch. Following a new version update on June 2nd, its ranking improved to 34th, indicating a positive trend.
High-DAU Casual Games Show Recovery in May, Summer Peak Expected
High-DAU casual games started focusing on monetization during the May Day holiday period. Due to their concentration of younger users, these games could experience a new wave of popularity in the summer. For instance, Giant Network's '超自然行动组' (Supernatural Action Team) reached 12th on the iOS game bestseller chart after its May 1st update. XD Inc.'s '心动小镇' (Heartbeat Town) climbed to 19th on May 30th. Additionally, 'Goose Goose Duck', published by Kingsoft Shiyou and Huya, continued its commercialization efforts, reaching a peak of 17th on the May iOS bestseller chart. Both '超自然行动组' and '心动小镇' launched overseas versions this year, which are expected to gradually contribute incremental growth.
Industry Prosperity Rising Since Q1 2025, Valuations at Historically Low Levels
Based on listed company financial reports, the gaming industry's revenue has maintained a year-on-year growth rate of approximately 20% for five consecutive quarters since Q1 2025. Over the same period, net profit attributable to shareholders also showed significant year-on-year improvement (around 50% growth in Q1 2025 and Q1 2026, over 100% in Q2-Q3 2025, with a notable narrowing of losses in Q4 2025). Given the stable performance of leading companies' quality products in April and May, it is projected that this trend will likely persist into Q2 2026. From a valuation perspective, using weekly closing prices against forecasted net profit for the nearest fiscal year (Wind consensus estimates), the PE ratio for the gaming (Shenwan) industry stood at 20.68x as of the close on June 3rd, marking its lowest level in the past three years. PE valuations for other major gaming companies mostly range between 11x and 15x, placing them below the 35th percentile over the past three years (Giant Network at 0%, Kingnet Network at 9%, G-bits at 17%, Perfect World at 22%, Yaoji Technology at 23%). This suggests a certain margin of safety at the current point in time.
Risk warnings include higher-than-expected product marketing expenditures and a slowdown in the pace of revenue recognition.