China Internet and Other Services:Gaming in Focus,Tencent's

August highlights: 1) Tencent's key mobile game portfolio had mild growth inAugust, with 3% MoM growth, according to SensorTower. Tencent's portfolio wasfurther enhanced, with the number of top 20grossing games on iOS keepinggrowing and reaching 7.7in August. Tencent's Honor of Kings maintained strongperformance in August and its grossing reached a record high, up 6% MoM. Inaddition, Tencent also launched several successful new games in August such asJourney to the Fairyland, a MMORPG game based on PC IP, and King of Chaos, aSLG game based on the IP of Three Kingdoms. 2) The grossing ranking ofNetEase's top games tended to be stable in August. The grossing of NetEase's keygame portfolio was down 2% MoM in August, according to SensorTower.NetEase also launched Index, a Japanese RPG game, on August 31, however, theperformance of Index is limited by the niched gamer base. 3) The engagementlevel of key PC game titles declined in August, and OverWatch's popularitycontinued to decline after the free trial promotions in May.。

    Delay in game pipeline for both Tencent and NetEase. According to Kingsoft, JX3mobile, the highly anticipated title exclusively licensed by Tencent, is postponedto 2018. At the same time, NetEase also announced that some of the key titles inthe pipeline are likely to be launched by the end of 2017or early 2018.。

    Tencent officially launched its WeGame platform on September 1: The newplatform offers services such as digital game sales, online gaming support,community, and live streaming. The live streaming feature successfully combinedthe popular live streaming in China with online games, and it will help Tencent tobe differentiated from other game platforms such as Steam.。

    Investment conclusion: Among the key game players in China, our top pickremains Tencent. We cite sustained leadership of Honor of Kings and a strong2H17pipeline. We stay EW on NetEase; Onmyoji is experiencing structural declineand there's a lack of blockbuster titles in the pipeline. We remain EW onChangyou, whose chairman recently proposed a privatization plan.。

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