The restart of edition number boosted the industry and market confidence. Since July 22, 2021, the General Administration of press and publication has not issued the game version number for eight consecutive months. We believe that the resumption of the issuance of the edition number is a booster for the industry and will stimulate the overall recovery of the game industry. In the eight months since the suspension of the issuance of the edition number, major game companies have experienced multiple storms, such as halving development projects, reducing layoffs to efficiency, frequent bottoming of share prices, bankruptcy of small and medium-sized enterprises and so on. The resumption of the issuance of the edition number means that the new game has the opportunity to operate online, which has released a positive signal to the game industry and revitalized the market’s confidence in the game sector.
The valuation is expected to be repaired in the short term, and the number of editions need not be too worried. It is not the first time in history to stop issuing the version number. We reviewed the impact of the restart of the game version number in 2018 on the market. After the release of the version number was announced on December 21, 2018, Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , Perfect World Co.Ltd(002624) , G-Bits Network Technology(Xiamen)Co.Ltd(603444) and other A-share game leading companies had a certain correction in the short term, which belongs to the performance after the expected release of the market. However, we believe that history will not simply repeat itself. Before the release of this edition, the market has experienced rumors of issuing edition numbers for many times. The market expectation is inconsistent compared with that in 2018. We believe that there is still a valuation repair market in the short term.
At the same time, we note that the number of version numbers released this time is only 45, lower than 109 and 86 in the same period of 2020 and 2021. Moreover, the number of version numbers released this time does not include the products of large companies such as Tencent and NetEase. There are concerns about the number of distribution in the market. We believe that this release of version number is a restart after a suspension of up to 8 months. In the future, regulators will be able to make diversified regulation on the release rhythm and number. The number and company of this release may not necessarily represent an orientation of the regulators. Therefore, we believe that the market need not worry too much. The “version number barrier lake” is expected to be solved within the year, and the industry will gradually enter a recovery cycle.
Industry regulation is normalized, market competition is more intense, and products are still king. Although the restart of edition number issuance is beneficial to the overall game industry, through the analysis of the number of edition number issuance and game products, we judge that the industry supervision will be normalized in the future. Since 2018, as an important tool for the regulation and supervision of the game industry, the total amount of game edition has been decreasing for four consecutive years, highlighting the trend of strict supervision of the supply of the game industry by regulators. In addition to the issuance of version numbers, the supervision of version numbers has also increased year by year in recent years. The regulatory authorities have strictly investigated and dealt with violations such as no version number and copy number, and a total of more than 500 games have been punished. In the long run, strong regulation of the game industry has a positive impact on the industry as a whole, which is conducive to promoting the advocacy of high-quality national game research and development, long-term operation and expansion of going to sea.
At the same time, more standardized and strict industry supervision will bring more fierce market competition. We judge that the version number will maintain the positioning of scarce resources in the industry for a long time. Under the background of total regulation of the version number, companies in the game industry are facing a more intense “competition” for the version number. In the long run, game companies will pay more attention to the compliance of game content in order to win the smooth approval of their game products. At the same time, they will actively understand all approval links to reduce unnecessary modification processes. We believe that the head company has a more perfect internal audit mechanism and a more smooth regulatory communication channel, which is conducive to its smooth access to version number resources in the fierce competition. By comparing and analyzing the distribution of the edition number and the proportion of the approved items of the edition number of A-share listed companies in the current month in 2021, we find that the examination and approval of the edition number is gradually converging to the head company, which is confirmed by the prominent trend.
Investment suggestion: there is a valuation repair market in the short term, and the product performance still depends on the long term. From the perspective of investment, after the restart of the version number in December 2018, the big market in the game industry started one month after the release of the version number. We think that the market is more recognition of the product logic after the release of the version number. The product is still the king and performance driven guidance behind the implementation of the game. We believe that after the short-term valuation repair, the game industry will enter a performance driven market and differentiate according to different products of different companies. .
Risk tip: repeated game supervision policies; The number of game version numbers issued is less than expected; The company’s game development progress is less than expected; The approval process was less than expected.
