中国互联网行业：中国玩家仍然愿意花钱

1、GlobalResearch1 March2019China Internet SectorUBSEvidenceLabinside:Chinesegamersarestill willing to spendWe are more positive on gamer spending growth despite tighter regulation UBSEvidenceLabsurveyindicatesChinesegamershavehighengagementcomparedto manydevelopedmarkets(morelikeKoreathanUSorJapan),dr

2、ivenbysocialfeatures ingames,innovationingameplay,ande-sportspopularity.WeexpectChinasmobile games market to maintain 15%+ growth over the next three years, driven by rising revenue per user (up 12-13% YoY in 2019-21E) and gradual expansion of the gamer base(up3-5%YoY).WeexpectthePCgamesmarkettorema

3、inflat,withflatgaming frequency and time spent and slight upside in ARPU from content update. The popularity of e-sports can help target new gamers and improve gamer engagement. Overall,TencentandNetEaselookbest-positionedforthelongterm.UBS Evidence Lab survey suggests better gamer engagement in Chi

4、naWearepositiveonChinasmobilegamesmarketgrowth,despiteshort-termregulatory headwinds.Inthesurvey,Chinasmobilegamingrespondentshavethehighestpaying ratioamongthesurveyedmarkets(93%inChinavs.59-76%forothers),andspending intentions (26% of mobile gamers claimed to spend more money now vs. 10-19% for ot

5、her markets). PC gaming respondents also have better engagement than their overseaspeers,intermsofplayingfrequency,timeaswellasspendonPCgames.Strong e-sports to help drive gaming engagement and games market growthE-sports is more popular in China with higher participation/viewing frequency. PC/mobil

6、e gamers (64%/59%) claimed to watch e-sports each month, far ahead of other markets. E-sports has multiple positive effects on the gaming industry. Of the ChinaPC/mobilegamerssurveyed,28%/40%playlongerafterwatchinge-sportsand many spent more money in game. E-sports also helps drive game live streami

7、ng engagement. We expect this to benefit Huya though competitive pressure keeps us Neutral on the stock.Generally positive on games companies due to potential catalystsThesurveyshowedTencentsdominanceinmobilegamesdistribution.25%ofmobile gamers claimed to download games from official websites, a pos

8、itive for companies with premium and innovative content (e.g., NetEase). Among the other gaming companies, Perfect World is relatively defensive, given its focus on quality content, while we believe Sanqi and Youzu have near-term upside due to potential new hit games.China online games company valua

9、tion summaryInternet ServicesChinaEquitiesJerry HYPERLINK mailto:jerry.liu Internet ServicesChinaEquities+852-29717493Angela Xu, CFA HYPERLINK mailto:angela.xu +852-37124671ZhijingLiu HYPERLINK mailto:zhijing.liu zhijing.liu+86-213-8668847Navin Killa HYPERLINK mailto:navin.killa +852-29717594Priceta

10、rgetSharepriceMarketcap PE EV/Sales 2018-20ECAGRRating(LC)(LC)(US$ m)2018E2019E2020E2018E2019E2020ESalesEarningsTencentBuy400.00340.20404,29535.9x30.9x25.2x8.7x6.8x5.5x26%20%NetEaseBuy280.00225.6229,78222.4x20.4x15.6x2.4x2.0 x1.6x22%20%Perfect WorldBuy33.6629.405,78521.9x18.9x16.5x4.4x3.9x3.5x13%15%

11、HuyaNeutral21.0025.795,19888.1x63.0 x36.9x7.4x4.8x3.7x41%74%SanqiBuy15.0013.434,31817.7x15.9x14.9x4.1x3.8x3.6x7%9%YouzuBuy21.4319.102,54017.9x16.6x15.4x4.4x3.6x3.0 x21%9%Note:Abovedataasat27February2019. Source:Datastream,UBSestimates HYPERLINK /investmentresearch /investmentresearchThisreporthasbee

12、npreparedbyUBSSecuritiesAsiaLimited. ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURESBEGIN ONPAGE39. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investo

13、rs should consider this report as only a single factor in making their investment decision.China Internet SectorInnovations to help industry reaccelerateUBS Research THESIS guide to our thinking and whats where inthis report HYPERLINK l _bookmark1 OUR THESIS INPICTURESMOSTFAVOUREDLEAST FAVOUREDTence

14、nt, NetEase,PerfectWorldNAPIVOTALQUESTIONSQ: Will Chinas mobile games market maintain above 15% growth over the next three years? Yes.WeremainpositiveonChinasmobilegamesmarket,drivenmainlybyincreasingARPUongamer engagement, despite some regulatory headwinds near term. We are cautious on near-termind

15、ustrygrowth (up 15% YoY in 2018E), and forecast 18% growth in 2019, slowing to the mid-teens by2021. We expect the mobile gamer base to grow 3-5% YoY in 2019-21 and ARPU 12-13%. HYPERLINK l _bookmark2 moreQ: Will PC games remain flat over the next three years?Likely. We believe PC gamers in China re

16、main highly engaged despite the shift to mobile. We think the PC gamer base has largely stabilised, with the remaining hard-core gamers preferring the large screenexperience.WeexpectflatPCgamesplayingfrequencyandtime,alongwithslightupsidein ARPU,aidedbycontinuedcontentupdateandofflinee-sportseventst

17、oimproveengagement. HYPERLINK l _bookmark3 moreQ: Will e-sports help drive the online games industry growth over time?Yes. We expect e-sports to continue driving gamer engagement (time and money), while attracting newgamers,andpotentiallycontributingtomarketrevenuegrowthviadirectmonetisation.TheUBS

18、Evidence Lab survey suggests higher acceptance and popularity of e-sports in China than in other markets,drivenbyagrowinge-sportsecosystemandpopularityofshortvideo/broadcasting. HYPERLINK l _bookmark4 moreUBSVIEWWe see 15%+ mobile gaming growth in the coming years, mainly due to growing ARPU, and ex

19、pect thePCgamesmarkettoremainflatduetobettergamerstickinessandcontentupdate.UBSEvidence LabdatasuggestsChinasonlinegamersstandoutagainstdevelopedmarketsingamingengagement, drivenmainlybysocialnetworking,innovation,e-sportspopularityandotherinitiativeswhichsuggest bettermonetisationcapabilities.Webel

20、ievelargeronlinegamescompanieswithleadingdistribution channels and/or innovation content are better positioned to benefit from industry re-rating, given increasing regulation.EVIDENCEThe survey suggests: 1) Chinas mobile games market began expanding rapidly only in 2013-14. Its mobile gamers have th

21、e highest paying ratio among global peers26% of Chinas mobile gamers nd me my w (0-% fr ter market)wle etter eagemet ad nvatn are theprimaryreasonstoincreasespend.2)ChinasPCgamersalsohavebetterengagementthantheir overseaspeersinplayingfrequency,playingtime,aswellmoneyspent.3)E-sportseffectivelyhelps

22、 improvemobilegamersengagementinChina,particularlyintermsofgamingtimeandmoneyspent on in-game purchases.WHATSPRICEDIN?Tencent is trading at 31x 2019E PE. We believe investors are pricing in low probability of PUBG monetisation, and high probability that regulations will permanently impact the value

23、of the gaming market. NetEase is trading at 20 x 2019E PE. We think this does not fully reflect the potential of its fundamentalsovertime.Potentialmajorcatalystswouldbesuccessfullaunchesofnewhitgames(eg, FWJ3D,DiabloImmortal)andfurtherregulatoryeasing.Forothercompanies,newgamesshoulddrive positivene

24、ar-termsentiment:PerfectWorld(PerfectWorld),Sanqi(YiDaoChuanShi),Youzu(Game ofThrones).Chinas mobile games market sizeSource: iResearch, UBS estimatesChinaInternetSectorUBSResearchOURTHESISINPICTURES HYPERLINK l _bookmark0 return 800600400200China mobile games market growth drivers100%80%60%40%20%Ch

25、inas mobile games growth driven by increasing spend per gamer, along with single-digit expansion in the gamer base, in our view00%2013 2014 2015 2016 2017 2018E 2019E 2020E 2021ENo. ofgamers(m)Revenue per gamer (Rmb)GamersYoY%ARPU YoY %Change in mobile games spend vs. 12 months ago - China9%5%9%5%4%

26、21%80%60%40%20%0%-2%China stands out as a market with robust consumption growth trends in mobile games, with 26% of mobile gamers surveyed claiming to have increased their money spend-20%TotalUSCNJPMoremoneynowAs much asbeforeLessmoneynowOnly started playingDontspendmoneyNet change (%)*Reasons for s

27、pending more time playing mobile gamesMorefriendsplaying Games are moreengagingMorenewgameshavebeenreleased Morewithcharactersfromanimations,etc. Moregamesarefreetoplay/trySocial community are engaging Paidgamesaremoreaffordable Newinnovativegenreofgamese-Sports games/offline eventsareengaging Moreg

28、amesaremoreaffordableLonger commute40%30%29%27%30%29%27%26%24%23%22%17%13%Social networking, gamer engagement, content update, pan-entertainment initiatives, innovation and e-sports are major motivations for Chinas mobile gamer to play moreImpact of watching mobile e-sports in China32%31%26%24%21%32

29、%31%26%24%21%18%16%16%2%TiponlineSpendlesstimeonPC/Consolegames SubscribetoMobileeSportschannelsSpend lesstimeplaying AttendMobileeSportsmatchesSpend less monet on in-apppurchasesNoimpactSource:UBSEvidenceLab,iResearch,UBSestimates40%E-sports has been effective in improving mobile gamers engagement

30、in China, particularly in terms of playing time and money spent on in-game purchaseChinaInternetSectorUBSResearchPIVOTALQUESTIONS HYPERLINK l _bookmark0 return Q: Will Chinas mobile games market maintain above 15% growth over the next three years?UBS VIEWYes. We remain positive on the growth outlook

31、 for Chinas mobile games market, despite some short-term regulatory headwinds, driven mainly by growingARPUonimprovinggamerengagement.Wearemorecautiousabout near-term growth (up 15% YoY in 2018E compared with iResearchs 30%), and forecast higher growth of 18% in 2019, gradually slowing to the mid- t

32、eens by 2021. We expect the total mobile gamer base to grow 3-5% YoY over 2019-21 and ARPU to increase 12-13%YoY.EVIDENCEUBS Evidence Lab mobile games survey in January 2019 suggests Chinas mobile games market, which lagged the other countries in the survey, began expanding rapidly only in 2013-14.

33、Of the mobile gaming respondents in China, 96% play mobile games at least once a week, 74% spend more than 30 minutes per day playing mobile games, both higher than for their peers in overseas markets.hnas gmers he the hght png rato among the markets ureed 26% of Chinas mobile gamers now spend more

34、money compared with 10- 19% for the remaining markets. Most respondents in China (38-40% of the total) highlighted better engagement and social networking as the primary reasonstoplaymoremobilegames.Initiativesandinnovationarealsoamong the major reasons for increased moneyspend.Tencent continues to

35、dominate in mobile games distribution. 25% of gamer respondents still download games directly from companies official websites.WHATS PRICED IN?ThemarkethasturnedcautiousontheoverallmobilegamesmarketinChina, due mainly to regulatory concerns. There are early signs of improving regulations, but the ma

36、rket is still waiting for further relief from this overhang and more hit new games.Chinas mobile games marketper gamer spend to drive growth, gradual gamer base expansionWe forecast Chinas mobile games market growth trend to continue with a 15% five-year (2017-22) CAGR. The market has recorded robus

37、t growth, with a 76% CAGR over 2012-17, as per iResearch, fuelled by the popularity of smartphonesandmobileinternet,aswellasthePC-to-mobileshift.Marketgrowth has been slowing, but we remain positive on the growth potential of the mobile gamessector.Followingtherapidexpansionofthegamerbase,wethinkChi

38、nas mobilegamesmarketismaturingtothenextstage,withlesspopulationdividend. However, it is becoming essential to leverage operating capability to improve existing gamers engagement and thus increase per gamer spend, which will become a more important growth driver of Chinas online games market over th

39、e next few years, in our view. We are positive on the trend of rising mobile gamerARPU in China, aided by integration of social communities, e-sports, innovation, andpan-entertainmentinitiatives,alongwithagradualexpansionofgamerbase.Chinasmobilegamesmarketexperiencedshort-termheadwindsin2018,mainly

40、fromtighterregulations,particularlythesuspensionofthemobilegamesapproval process. We estimate total market growth slowed from 46% in 2017 to 15% in 2018,asperiResearch.Weexpectsomeindustryrecoveryin2019,particularlyin the second half, and forecast 18% YoY full-year growth, slowing to 16% and 15% in

41、2020 and 2021, respectively. We expect the total mobile gamer base to grow 3-5% YoY over 2019-21, and revenue per gamer to increase 12- 13% YoY during theperiod.Figure 1: China mobile gamesmarketsizeFigure 2: Key market growthdrivers-2702702342021711491025615282013 2014 2015 2016 2017 2018E 2019E 20

42、20E 2021E50%45%40%35%30%25%20%15%10%5%0%02013 2014 2015 2016 2017 2018E 2019E 2020E 2021E40%35%30%25%20%15%10%5%0%Revenue(Rmbbn)YoY %No. ofgamers(m)Revenue per gamer(Rmb)GamersYoY%ARPU YoY %Source:iResearch,UBSestimatesSource: iResearch, UBSestimatesMobile gamer growthstaying at low-to mid-single di

43、gitsThe UBS Evidence Lab mobile games survey suggests Chinas mobile games markets rapid expansion began only in 2013-14, prior to which it lagged othercountriesinthesurvey(seefollowingchart).Only10%ofsurveyedChinese gamersclaimedtohavestartedplayingmobilegamein2012orearlier,compared to 37% in the US

44、, 39% in Korea, and 28% in Japan. We also observe an accelerating trend in Chinas gamer base expansion over the years, with 26% of China mobile gamers surveyed claiming to have started playing games in 2018, higher than in overseas markets.Figure 3: First started playing mobile games in.30%25%20%15%

45、10%5%0%USCNJPKR 20182017201620152013-142011-122010 orearlierSource: UBS Evidence LabWe forecast Chinas online gamer base to grow at low- to mid-single digits over the next few years. At a more mature development stage, Chinas mobile games marketisfocusingonoptimisingtheexistinggamerbasestructure.How

46、ever,we remain positive on new initiatives appealing to a new audience of potentialgamers.Webelieveinnovationsanddifferentiation,pan-entertainment initiatives, along with e-sport development, will help Chinas mobile games companies to continue expand TAM, although at a slowerpace.Innovative genres/g

47、ameplays. We expect the development of innovative games(eg,survivalgames,indiegames,andinnovativegameplays)tobring incremental gamers to Chinas mobile games market. And innovative gameplaycouldalsobroadentheaudienceevenforMMORPG(eg,ChuLiu Xiang), in our view.Differentiation. Mobile games focused on

48、certain niche segments could better target potential new gamers, and migrate non-gamers to mobile gamers,eg,gamestargetingatACG(Animation,ComicsandGames)users (Onmyoji and GFO), and female gamers (Love and Producer). We expect gamescompaniestocontinuewiththeirdifferentiationinitiativestoseeknew grow

49、th drivers.e-sports & live streaming. We believe e-sports and tournament-related gamescouldpotentiallycreateanewaudienceandhittitles.Thesuccessof Honor of Kings has helped increase the user penetration rate of mobile multiplayer online battle arena (MOBA) games inChina.Regarding the motivations to s

50、tart playing mobile games, most China mobile gamers surveyed (35% of total) cited the integration with the characters from animation,TVshowsandmovies,andbettergamingexperienceasmajordrivers, respectively. Moreover, 26% and 21% of respondents began playing mobile gamesafterwatchingmobilee-sportsandfr

51、iendsplayinggames,respectively.ToToplayoutthecharactersfromanimations,etc.Better mobile gaming experience Can play anytime, anywhereStartedplayingafterwatchingmobileeSportsGameslookfun Topasstimeduringcommute Paid games are moreaffordableFriends/family memberswereplaying Somegamesarefreetoplay/tryTo

52、 network sociallyTorelax35%35%24%22%22%21%20%19%16%0% 5% 10% 15% 20% 25% 30% 35% 40%Source: UBS Evidence LabARPPUinitiatives to encourage gamers to play more & spend moreChinas mobile games market is turning more focused on games content and quality,pursuinghigh-qualitygamesandinnovativecontent/game

53、playstoimprovegamerstickiness,andthusincreasetheconversionrateandmonetisationpotential. Also, we believe the combining and integration of mobile e-sports offline events with live streaming could improve gamer engagement. Despite the slowdown in gamer base expansion, games companies are taking initia

54、tives to cultivate and improve gamers paying habits.IntheUBSEvidenceLabsurvey,Chinasmobilegamershavedemonstratedgood gamingengagement.Weareencouragedbytheincreasingconsumptiontrendfor Chinas mobile gamers, and are increasingly positive on their improving gamer engagementandstickinessthatwillhelpdriv

55、epergamerspendingovertime.We are positive on the increasing ARPPU trend among Chinas mobile games, although the upside is partly offset by the genre shift to tournament-related genres and other new innovative genres that have lower ARPPU than traditional hard-core role-playing game (RPG)games.Social

56、 networking, engagement, and innovation to drive up spendingCompared with other markets, some new initiatives have helped drive up mobile gamer engagement in China, such as the integration of social communities, e- sports, and pan-entertainment initiatives, as suggested by the survey.A strong social

57、 networking element is a major differentiator in Chinas online games market, in our view. We think one of the major drivers are the strong social networking platforms in China. Tencent has been the pioneer in incorporating more social networking in Chinas games market, leveraging its leading social

58、network platforms. Also, the emergence of some games-focused livestreamingplatformssuchasYY.com(supportingvoicechattingwithingames) aswellassomelivestreamingplatformsmorerecentlyhelptoimproveinteraction among gamers at the early stage. On the other side, e-sports games (such as MOBA and shooting) ar

59、e more popular in China, and require more group-based battles.Moreover,formassivelymultiplayeronlinerole-playinggames(MMORPG) titles in China, game companies normally try to incorporate social relationship in reality into games, to improve interconnection among gamers. Thus, social networkingandcomm

60、unicationismoreessentialforgamersinChina,inourview.Most mobile gamer respondents in China highlighted engagement and social networking as primary reasons to spend more time on mobile games. Of the respondents, 40% and 38% claimed more friends are playing and games are more engaging as the reasons fo