Zhong Jin Securities: Mid-year Report Performance Landing in August. Focus on New Content and Themes Catalysts for Undervalued Media Targets.

CICC released a research report stating that in August, the Shanghai Composite Media Index fell by 1.65%, with online games rising by 0.84%, TVB and publishing slightly declining, while advertising marketing, film and television theaters, and digital media experienced relatively larger declines. The overall valuation of the media sector has fallen to historically low levels, with the undervaluation of the media sector becoming more prominent under market pressure. With the release of interim report results, the market is focusing on the expectations for the second half of 2024 and 2025 for individual stocks, recommending attention to changes in new product cycles and the potential impact of industry topics on sector sentiment and the possibility of marginal valuation repair. Digital media: In August, the performance of top content broadcasting was mixed, and the competition in the long video industry was relatively intense. According to Yunhe data, "Tang Dynasty Ghost Record: Journey to the West," "Lonely Boat," and "The Prosecutor of the Nine Departments" ranked in the top three in the August hot drama list, with others including "Four Seas Reincarnation," "Liu Zhou Ji," and "Past Events at the Border Waters." Looking ahead, Tencent has "Dafeng Da Gengren" and "Flowing Water," iQIYI, Inc. Sponsored ADR Class A has "Fantasy Forest" and "Dangerous Her Season 2," and Youku has "Half-Ripe Men and Women" (scheduled for 9/19), "Shu Jin Ren Jia," and others. CICC believes that competition among top platforms in the long video industry remains intense, and recommends focusing on key content production and online performance. Online games: New games released in the summer vacation period drove industry heat; in August, 117 domestic game licenses were issued. The performance of new games in the summer vacation period was outstanding, with Gamma Data estimating that the top three new games in terms of first-month revenue were "Eternal Hell" (over 900 million RMB), "Zero" (over 600 million RMB), and "World Genesis" (over 100 million RMB). In August, in terms of game sales, Black Myth: Wukong sold over 10 million copies within three days of its release, while Lily's "Sword and Expedition: Setting Off" entered the top 10 in the August iOS game bestseller list. In terms of licenses, in August, 117 domestic game licenses were issued, with products from Tencent, Netease Inc Sponsored ADR, 37 Interactive Entertainment Network Technology Group, and many other listed companies passing the approval process. Marketing and advertising: Due to internal and external factors impacting business growth in the second quarter of 2024, the growth rate of company business has slowed down, with attention on the advertising trends during the Mid-Autumn Festival and National Day in the third quarter of 2024. The advertising revenue of listed companies in the second quarter grew slower year-on-year due to internal and external factors. It is recommended to pay attention to the operating conditions of upstream advertisers, budget increments in specific areas and benefiting media, as well as changes in the budget acquisition capabilities of various advertising media. In the third quarter of 2024, CTR data show that in July, advertising spending increased by 3.3% and 1.2% month-on-month and year-on-year respectively, based on the upcoming Mid-Autumn Festival and National Day holidays, recommending focus on the release of advertising demand driven by holiday consumption. Investment recommendations: A-share recommendations include Focus Media Information Technology (002027.SZ) as the top pick, focusing on undervalued assets such as G-bits Network Technology (603444.SH)/Kingnet Network (002517.SZ) in the gaming sector, Mango Excellent Media (300413.SZ), etc. Hong Kong and US stock recommendations include ALI PICTURES(01060)/MAOYAN ENT(01896) (good performance in the performance market)/KUAISHOU-W(01024)/NTES-S(09999)/iQIYI, Inc. Sponsored ADR Class A(IQ.US)/CHINA LIT(00772). Risk factors: Macroeconomic conditions lower than expected, changes in industry regulatory policies, slower profit recovery progress.