China Galaxy Securities: Performance-driven + AI-enabled as the core driver of the media industry Focus on AI applications and content sectors.

China Galaxy Securities released a research report stating that performance-driven + AI empowerment are still the core DRIVERS of growth in the media and internet industries. It is recommended to pay attention to Hong Kong-listed internet core assets with increasing AI investment, multiple long-term positive catalysts, AI applications with deepening empowerment, and related sub-sectors of the industry chain, as well as content sectors that continuously produce high-quality content with high performance certainty. It is recommended to focus on: 1) Hong Kong-listed internet companies; 2) AI applications and related industry chains; 3) content sectors. Key viewpoints of China Galaxy Securities are as follows: Film and Television The film and television supply is stable, with both the overall market and monthly performance improving. According to Beacon Professional Edition, in November 2025, the national box office revenue was 3.553 billion yuan (including service fees), an 89.29% year-on-year increase and a 36.03% month-on-month increase. In terms of specific film performance, "Zootopia" achieved a monthly box office revenue of 1.731 billion yuan, accounting for 54.32% of the monthly box office revenue and winning the title of that month's box office champion. Gaming Interactive dual-end games are driving growth, and the supply of game licenses is stable with growth. In October 2025, the actual sales revenue of the domestic game market was 31.359 billion yuan, a 7.8% year-on-year increase. The client games performed strongly with a revenue of 7.227 billion yuan, a 29.4% year-on-year increase; mobile game revenue was 22.633 billion yuan, a 2.4% year-on-year increase. Self-developed game overseas revenue was $1.799 billion, a 11.9% year-on-year increase. In terms of products, "Honor of Kings," "Delta Force," and "Endless Winter" ranked in the top three in terms of revenue. In November, 178 game licenses were issued, with a year-to-date total of 1532 licenses, an increase of over 29% year-on-year, showing continued improvement in the supply side. Marketing The overall market is stabilizing and improving, with trends in different sub-categories. According to CTR Media Intelligence data, from January to October 2025, the overall advertising market expenditure increased by 4.3% year-on-year, with a 10.6% year-on-year increase in advertising expenditure in October and no change month-on-month. In terms of changes in advertising expenditure by industry categories, from January to October 2025, the postal and telecommunications, personal products, entertainment and leisure, and IT products and office automation services industries increased their advertising spending by 80.8%, 52%, 29.1%, and 19.6% respectively year-on-year; while pharmaceuticals, alcoholic beverages, and cosmetics/bathroom products showed varying degrees of decline, with a -16.1%, -12.3%, and -6.1% year-on-year decrease respectively. Other industries showed minor fluctuations in advertising expenditure. In November, AI continued to iterate, with major companies focusing on long text, multimodal, and reasoning efficiency. In the overseas market, OpenAI launched the GPT-5.1 series, introducing a "compression" mechanism in the encoding scenario to support ultra-long continuous programming; Google Gemini 3 strengthened reasoning and multimodal capabilities, achieving "atmospheric programming"; Meta released an Omnilingual ASR system supporting 1600+ languages to enhance cross-lingual understanding efficiency. Domestic companies followed suit, with the launch of the Qianwen app, with over 10 million downloads in the first week of beta testing; Wenyi Yiyanyi 5.0 supports multimodal joint input and output; and iFLYTEK Star Fire X1.5 doubled reasoning efficiency. Risk Warning: Risks related to the development progress of AI technology being below expectations; content regulation risks; industry competition risks; risks of related technology applications falling below expectations.