What will the success of "Black Myth: Wukong" bring to the Chinese game industry?

It not only shows the industry the value of product quality and the rise of game consumption power, but more importantly, it concretizes the entertainment, cultural, and technological values of games, making the market see a clear shift in industrial policy signals.

In fact, positive signals in the game industry have emerged even before "Black Myth: Wukong." The issuance of game licenses has entered a normal rhythm, domestic business is stable, and overseas business continues to grow, with both the product cycle and policy cycle affecting the development of the game industry starting to reverse.

As a result, the oversold game sector has officially entered a rebound stage. One of the most typical examples is Century Huatong, which has returned to the top of A-share game revenue.

In overseas markets, its subsidiary Dian Dian Interactive's "Whiteout Survival" topped the Chinese game export rankings; in the domestic market, Shanda Games focused on the Legend IP, with related revenue growing 80% year-on-year in the first half of the year.

In the first half of this year, Century Huatong achieved operating revenue of 9.276 billion yuan and net profit after deducting non-recurring gains and losses of 1.152 billion yuan, both growing at over 50%. If this growth rate is maintained, annual revenue is likely to exceed 20 billion yuan.

Leading Performance

In the first half of this year, China's game industry maintained steady growth. According to the "China Game Industry Report for January-June 2024," the actual sales revenue of the domestic game market was 147.267 billion yuan, up 2.08% year-on-year.

However, the industry exhibits a pattern of "squeezed growth" and "structural prosperity," with notable differentiation among both leading players and smaller companies.

With the release of the half-year results of all A-share listed companies on August 31, the title of "growth king" among China's mainstream game companies went to Century Huatong (002602.SZ).

In the first half of the year, the company achieved operating revenue of 9.276 billion yuan, up 53.33% year-on-year, net profit attributable to shareholders of listed companies of 1.158 billion yuan, up 33.41% year-on-year, and net profit after deducting non-recurring gains and losses of 1.152 billion yuan, up 56.33% year-on-year. Net cash flow from operating activities was 1.889 billion yuan, up 12.78% year-on-year.

Especially in the second quarter, the company achieved record-high quarterly revenue of over 5 billion yuan, taking its business potential to a new level.

In January-June 2024, the company's core business of online games generated operating revenue of 8.512 billion yuan, up 72.92% year-on-year. Among them, domestic business developed steadily; overseas business became the main growth engine, with revenue of 5.019 billion yuan, up 115.28% year-on-year.

At the product level, subsidiaries such as Dian Dian Interactive, Shanda Games, and Tianyou Software all achieved multi-point growth.

Dian Dian Interactive's star product "Whiteout Survival," launched just a few months ago, generated $370 million in revenue in 2023; since 2024, "Whiteout Survival" has consistently ranked first in China's mobile game export revenue rankings and successfully entered the global top 10, with cumulative revenue exceeding $1 billion as of early August. In the first half of the year, the company's comprehensive revenue related to the Legend IP grew by about 80% year-on-year. Among them, the number of active users of the "Mir 2" series of PC games surged 82% in the past two months, with revenue growing 108% year-on-year, mainly due to newly added open and innovative modes within the game.

The newly launched "Dragon Nest" retro server achieved a double harvest in terms of player numbers and reputation, with the number of active players in the first week growing 82% year-on-year and revenue growing 88% year-on-year.

Tianyou Software, which focuses on the vertical sports e-sports sector under Century Huatong, also continued to heat up its "Street Basketball" e-sports events, with registrations and viewership far exceeding previous levels. The highest-level Sino-South Korean Masters will also return within the year.

With a solid foundation in both domestic and overseas business, Century Huatong has also explored a strategy for the integrated development of these two markets.

In the first half of the year, the number of new players for the "Fallout" series of mobile games grew 48% year-on-year, with overseas growth at 578%. After "Whiteout Survival" became a hit in overseas markets, Dian Dian Interactive's WeChat mini-program game "Endless Winter" also achieved great success in China, consistently ranking first among mini-program games, replicating its excellent overseas performance.

Leading in Overseas Expansion

The domestic game market has entered a stage of steady development, but overseas markets remain vast and promising.

In the first half of 2024, China's self-developed game exports generated revenue of $8.554 billion, up 4.24% year-on-year. As a result, a large number of domestic game companies have embarked on a path of globalization from the Chinese market, cultivating a second growth curve.

After more than a decade of exploration, Chinese game exports entered a period of explosion around 2018. Century Huatong's Dian Dian Interactive, born out of overseas expansion, has become one of the pillars of Chinese game exports.

At that time, through products such as "Gunshine.net" and "King of Avalon: Dragon Warfare," Dian Dian Interactive generated substantial revenue for the listed company. At that time, Century Huatong was one of the few Chinese game giants, besides Tencent and NetEase, with overseas revenue exceeding 5 billion yuan.

Subsequently, Dian Dian Interactive entered a stable and normalized operation in overseas markets, successively launching works such as "Family Farm Adventure," "Live Topia," "Frozen City," and "Whiteout Survival."

Among them, the "Family Farm" self-created IP series had accumulated over 150 million users by the end of 2023, setting a new record for simulation management mobile game exports.

"Whiteout Survival" in 2023 not only took the lead in occupying the ice and snow apocalypse survival track, becoming the global champion in the SLG mobile game bestseller list, but also topped the Chinese mobile game export revenue rankings from December 2023 onwards.

Driven by this hit product, Dian Dian Interactive not only consistently ranked in the top 5 of China's global mobile game publisher revenue rankings but also entered the global top 10, becoming the main driver of Century Huatong's overseas business surge.

The recently launched new game "TruckStar" also performed well, achieving monthly revenue of tens of millions of dollars in its first four months of operation.

More importantly, from "Gunshine.net" and "King of Avalon: Dragon Warfare" to "Whiteout Survival" and "Truck Star," Dian Dian Interactive has proven to have a relatively complete game export methodology and the ability to continuously launch hit games.

After all, Chinese game exports have moved beyond the early "Copy to Global" stage. Overseas markets differ significantly in culture, habits, and the development of the game industry, and even payment methods are vastly different from the domestic game market. Successful overseas expansion requires innovative localization based on local conditions.

Dian Dian Interactive, with thousands of global game talents, has top products in the three major categories of casual, role-playing, and strategy, demonstrating its "export power" with professionalism and results, laying a solid industrial foundation for future game exports.

As Chinese game exports are poised to enter a golden period of stable development, Century Huatong will also enter its own era of great navigation.

Reassessing Value

In the A-share game sector, Century Huatong is an all-rounder.

Its subsidiary Shanda Games focuses on domestic business. After the return of veteran Peng Cheng earlier this year, the company adjusted its strategy to make the Legend IP its main focus.

In 2001, Shanda Games' predecessor, Shanda Interactive Entertainment, introduced "Mir 2," which became a hit and established itself as one of the founders of China's online game market.

Today, the game market derived from the Legend IP is still worth 20-30 billion yuan and has even indirectly driven the development of two listed companies, Kingnet and Z4 Game (Tanwan Games). The entire Legend IP has a potential economic value exceeding 100 billion yuan.

With the "unification" of the Legend IP in the Chinese mainland market, Shanda Games has promoted the integration of licensing, publishing, and development of the Legend series IP, making it a new growth engine for the company. This has already made significant progress in the first half of this year.

At the same time, as an established game giant, Shanda Games' "Mir 2," "Dragon Nest," "MapleStory," and "Final Fantasy XIV" continue to contribute stable performance.

The upcoming "Hungry Wilds" received a high score of 9.0 on the TapTap platform during its first national server test, with over 10 million game reservations across platforms, indicating a high probability of becoming a hit.

Dian Dian Interactive focuses on overseas business, and its hit product "Whiteout Survival," launched in 2023, has entered a peak revenue period since 2024, securing clear growth in overseas business.

With the combined efforts of these two business segments, Century Huatong's operating revenue in Q2 2024 exceeded 5 billion yuan. If the current growth rate is maintained, it is highly likely that annual operating revenue will reach 20 billion yuan. In addition to the strong performance of its main business revenue, the listings of Z4 Game and Fourth Paradigm, in which Century Huatong has invested in recent years, have not only synergized with the company's game and AI businesses but also directly boosted the performance of the listed company through value realization.

As the game market warms up, Century Huatong has taken the lead in achieving significant revenue growth, indicating that the product cycle of the game market has gradually emerged from its trough. Another positive factor is that the policy cycle of the game industry is also reversing.

The pace of game license issuance, which has always been regarded as an indicator of game industry policy, has gradually returned to normal and accelerated since its restoration in 2022. On August 30, 117 domestic online games received licenses; so far this year, a total of 850 domestic online games have received licenses in eight approvals. It is expected that the annual issuance of game licenses will return to normal levels seen before 2021.

In fact, games, internationally recognized as the seventh art form, have long transcended their sole entertainment attribute in the Chinese market, rising to encompass cultural and technological attributes.

The popularity of "Black Myth: Wukong" and official support have concretized these attributes and transmitted this awareness from the game industry to the capital market.

At the corporate level, Century Huatong is actively working to support the market's cognitive upgrade. In January this year, the company announced a share repurchase plan, intending to invest 50-100 million yuan within 12 months. In February, the company's chairman Wang Ji and president Xie Fei, among other core executives, planned to invest no less than 20 million yuan to increase their shareholdings in the company, which has already been executed.

Business upgrades, policy support, and the confidence invested by the company and management all point to one thing: Century Huatong is on the eve of a period of cyclical reversal.

In 2020, a banner year for games, Century Huatong's business was also at its peak. Tencent increased its stake to become the second-largest shareholder and positioned the company as its most important layout in the A-share game sector, pushing Century Huatong's market value above 100 billion yuan.

Today, as the clouds over the game market gradually disperse, high-quality development, globalization, and AI support are giving Century Huatong a new look. The light of 2024 shines on the scale of 2020. This moment is just like that time.