Guosen: The cycle of new game products continues to grasp the bottom opportunity of film and AI applications.

Guosen released a research report stating that they are optimistic about the strong new product cycle in the gaming sector and the emergence of a policy inflection point in the film and television industry, with a focus on the bottom opportunity for AI applications. 1) They continue to be bullish on the new product cycle in the gaming sector and the potential turnaround in the film and television sector, looking for individual stocks with alpha. The strong new product cycle is expected to drive the performance and valuation of the gaming sector upward, grasping the product cycle and performance from the bottom up; the IP trend in gaming remains strong, with continued diversification of audiences and categories; on the media side, they are focusing on the growth in advertising due to the economic recovery; the "21 regulations on radio and television" are expected to significantly improve content supply and enhance industry vitality, with the film and television industry poised for a bottom reversal. 2) Focus on the application opportunities of AI, with a focus on gaming, toys, advertising, education, social media, etc. Main points of Guosen's report: Review of first half of 2025: Significant rebound in net profit 1) In the first half of 2025, A-share media companies (classified by the Shenwan media industry, the same below) achieved total operating income of 254.9 billion yuan and net profit attributable to mother of 21.8 billion yuan, an increase of 4.06% and 28.70% respectively, compared to the same period last year. Revenue showed a slight improvement compared to the same period last year, while net profit improved significantly; this was partly due to the low base effect of the same period last year, and also due to a significant decrease in expenses (management expenses/taxes, etc.); 2) The sector's gross profit margin remained stable, increasing by 0.9 percentage points to 32.90% year-on-year; net profit margin increased by 1.7 percentage points to 8.65% year-on-year; management expense ratio remained stable at 7.20%, a decrease from last year; sales expense ratio increased slightly by 0.59 percentage points to 13.27% year-on-year; the tax rate returned to normal in 2025, with an overall tax rate of about 11% in the first half of the year, similar to before; specifically, the tax rate had the most significant impact on the publishing (from 25% to 2%) and digital media (from 17% to -28%) subsectors; 3) Looking at the subsectors, the gaming and film industries achieved high growth in net profit attributable to mother, while digital media and TVB experienced significant declines. Q2 of 2025 continues the upward trend from Q1 1) In the second quarter of 2025, A-share media companies achieved total operating income of 129.1 billion yuan and net profit attributable to mother of 10.7 billion yuan, an increase of 2.59% and 19.53% respectively, year-on-year. Net profit attributable to mother saw a significant turnaround and increase after four consecutive quarters of decline since Q1 of 2024; revenue also showed a moderate increase after a continuous decline since Q3 of 2024; this was mainly due to the significant improvement in net profit year-on-year in the gaming sector driven by new games and the turn to positive net profit after the continuation of tax benefits in the publishing industry; 2) Gross profit margin remained stable, increasing by 0.62 percentage points to 32.49% year-on-year; net profit margin increased by 1.35 percentage points to 8.44% year-on-year; management expense ratio remained stable at 7.10%, similar to last year; sales expense ratio increased by 0.91 percentage points to 13.45% year-on-year; 3) In terms of growth rates, the gaming and publishing sectors achieved positive growth, increasing by 104.47% and 5.66% respectively year-on-year, while other industries experienced varying degrees of decline. Sub-sector performance: Gaming industry achieves high growth, focus on potential turnaround in film and television sectors 1) In Q2 of 2025, A-share media gaming sector companies achieved total operating income of 27.7 billion yuan and net profit attributable to mother of 4.6 billion yuan, an increase of 22.40% and 104.47% respectively year-on-year; net profit growth turned positive and accelerated upwards since Q1 of 2025; revenue continued to show an upward trend; this was mainly attributed to the excellent performance of new products from some listed companies (such as Century Huatong, etc.); in terms of trends, leading companies in the gaming industry have the potential for continuous performance and valuation improvement driven by new products, with a focus on the performance of new games; 2) Affected by the cooling trend in the Q2 movie box office market, A-share film and television companies achieved total operating income of 5.57 billion yuan and net profit attributable to mother of -592 million yuan, a decrease of 21.7% and 70.3% respectively year-on-year; the State Administration of Radio, Film, and Television issued the implementation of several measures to enrich content on television screens to promote the supply of radio and television content, including "canceling the 40-episode limit," "not strictly limiting the number of historical dramas," "promoting the production of high-quality documentaries," "strongly supporting the production of high-quality animated films," and 21 other reform measures; this is expected to continuously improve content supply and gradually drive demand recovery, with the film and television industry poised for a bottom turnaround. Risk Warning: Performance below expectations, technological progress below expectations, regulatory policy risks, etc.