China Galaxy Securities: Actively paying attention to the summer box office, and continue to be bullish on the gaming sector.

China Galaxy Securities released a research report stating that in the first half of 2025, the overall performance of the media and internet industry showed significant improvement compared to the same period in 2024, and key high elasticity sectors have high certainty in their future performance. Recommendations include: 1) Hong Kong media and internet stocks: focus on businesses with steady growth, solid fundamentals, and internet video platform companies with continuous improvement in profitability; 2) AI + vertical industry: focus on companies related to content production under the empowerment of AI: AI + film and television, AI + gaming, AI + advertising, AI + e-commerce; 3) State-owned enterprises. Key points from China Galaxy Securities are as follows: The film market is basically in line with expectations, with a focus on the performance of new films in the summer box office in July. According to Lighthouse Professional Edition, the box office revenue in June was 1.906 billion yuan (including service fees), a 35.39% decrease year-on-year but a 9.60% increase month-on-month. In addition, several animated films performed well, such as "How to Train Your Dragon: The Hidden World" contributing 295 million yuan, accounting for 12.1% of the box office, "Detective Conan: The Scarlet Bullet" with a box office revenue of 156 million yuan, accounting for 9.1%, and "Doraemon: Nobita's Painting Odyssey" with a box office revenue of 83 million yuan, accounting for 4.9%. After the hot market during the Spring Festival season, the film market cooled down from March to June, but several high-quality films drove the market, showing an increase month-on-month. The gaming market continues to grow, with a significant increase in mobile games. According to Gamma Data, in May 2025, the actual sales revenue of the gaming market in China was 28.051 billion yuan, a month-on-month increase of 2.56% and a year-on-year increase of 9.86%. The main driving force behind the market growth in this month is widespread, with new, relatively new, and mature products all contributing to the growth. The gaming market industry is still growing. In terms of sub-markets, the market size of mobile games in a single month was 21.177 billion yuan, a month-on-month increase of 3.69% and a year-on-year increase of 11.96%; for client games, the market size in China was 5.819 billion yuan, a month-on-month increase of 0.34% and a year-on-year increase of 1.59%. Faced with a global gaming market with slowing growth and increasingly fierce international competition, domestic gaming companies have actively responded and performed well. The advertising market is undergoing stage adjustments, with trends in segmented categories diverging. In May 2025, the advertising market saw a year-on-year increase of 1.7%. Looking at the changes in advertising spending by industry (major categories), in January-May 2025, the entertainment and leisure, personal care products, and toiletry/bathroom products industries significantly increased their advertising spending, with year-on-year increases of 69.6%, 34.5%, and 33.5% respectively. There is high attention in the IP derivative product market, with multiple companies preparing for listing. Currently, there is high attention in the IP derivative product market, and in addition to the already listed companies POP MART and BLOKS, companies such as KAYOU and Lezi Tiancheng (52TOYS) have also submitted listing applications to the Hong Kong Stock Exchange. The bank believes that as Generation Z grows, it is gradually becoming a core force in the consumer market. Different consumption concepts and logic are driving the intergenerational replacement of consumer groups and the transformation of consumption structure, which will continue to drive the vigorous development of emerging consumption fields represented by IP derivative products. Risk warnings: Risks of AI technology development progress falling short of expectations; content regulation risks; risks of industry competition; risks of related technology applications falling short of expectations.