Rating: Cautiously Bullish | Target Price: RMB 21.2–23.9 (base-case fair value range) | Current Price: RMB 20.88 (close on 2026-10-26) | Time Horizon: 6–12 months
Market Cap: RMB 39.684 billion (total share capital 1.90056 billion shares, after cancellation of repurchased shares in March 2026) | Industry: Online game development and operations (A-share)
At RMB 20.88, the market's pricing of Giant Network is already quite pessimistic: adjusting for net cash of approximately RMB 7.04 billion (RMB 3.70 per share, 17.7% of market cap) and back-solving from A-share peers' steady-state P/E, the market is paying only RMB 32.6 billion for operating business, implying "normalized net profit attributable to shareholders of approximately RMB 2.18–2.81 billion" — under which the long-term profit residual of Supernatural Action Squad, a phenomenon-level hit with over 200 million cumulative registrations, tens of millions of DAU, and over RMB 5 billion cumulative gross billings in 13 months, is priced at only about RMB 0.3–1.0 billion. The reality, however, is that the company posted H1 2026 revenue of RMB 4.689 billion (+182%) and non-GAAP net profit of RMB 2.236 billion, with quarterly profit still at high levels. A rare divergence has emerged between the market (sell-side consensus still expects +13.2% for 2027, with median target price of RMB 40) and the stock price (-53% YTD) — capital is pricing in "rapid hit decay" while research reports price in "moderate growth." The disagreement is not about direction but about the decay slope; the deciding variable is the Q3 report's contract liabilities and selling expenses on October 30. Our base case is moderate decay partially offset by a second growth curve, with a probability-weighted fair value of approximately RMB 22.0 across three scenarios (+5.2% vs. current price), plus a forward dividend yield of 6%–7% under the 70% payout commitment, for an expected total return of approximately 12%–13%. Key constraints: governance pressure from the controlling shareholder's share sales/pledges, an impairment landmine of approximately RMB 9.2 billion in the Playtika-related long-term equity investment, and the steep-decay precedent in casual competitive games (Yuan Meng Zhi Xing) that cannot be ruled out — this is a "configure after validation" play, with moderately positive odds and not a deep discount; cautiously bullish with limited confidence.
What has changed: The company is at a switch point between "hit-driven earnings surge" and "hit lifecycle validation." Behind the glory of +182% H1 2026 revenue growth, Q2 contract liabilities fell RMB 512 million from the end of Q1, and cash received from sales fell 27.6% QoQ — leading indicators of billings have already cooled, while recognized revenue and profit remain high due to deferred release (this is precisely the entire source of market panic and the bull-bear disagreement). At the same time, the overseas version of Tomb Busters has just launched in Japan, Korea, and the US (revenue not yet scaled, overseas share only 0.33%), the interim dividend of RMB 1.515 billion will be paid before November 11, and the Tengpeng share-sale plan has expired, entering a vacuum period.
Primary stock price driver: The billings decay slope of Supernatural Action Squad — this single variable determines whether 2027 net profit attributable lands at approximately RMB 2.3 billion (bear) or RMB 3.8–4.2 billion (bull), corresponding to a world of difference between RMB 12 and RMB 34 in share price. Leading indicators are quarter-end contract liabilities (a drop below RMB 1.3 billion at end-September would confirm a negative second derivative; stabilization above RMB 1.6 billion would refute a "billings collapse"), quarterly cash received from sales, and iOS top-grossing chart ranking.
Verifiable expectation gap: The current price implies a hit profit residual decay of approximately 49%–88% (wide range, magnitude depends on assumptions), while the company's current operational evidence (IP collaborations to drive monetization, channel expansion, overseas start-up, and the evergreen precedents of Zhengtu's 22 years and Battle Balls' 8 years) supports a flatter path — if contract liabilities stabilize in the Q3 report on October 30, the path toward the base-case fair value of RMB 21.2–23.9 opens; conversely, if contract liabilities fall below RMB 1.3 billion, the RMB 18 level (the pledge early-warning zone estimated by third parties) will be tested.
Validation catalysts and falsification conditions: The Q3 report on October 30 (contract liabilities / selling expenses / cash received — three metrics) is the nearest decision point; the interim dividend landing before November 11; Q4 IP-collaboration monetization and the 2027Q1 Garena launch in Southeast Asia and Latin America are medium-term catalysts. Falsification conditions: contract liabilities falling below RMB 1.3 billion, a major shareholder initiating a new pre-disclosure of >2% share sales, or the annual dividend ratio falling below 70%.
This report's back-solved estimate: stripping net cash at the current price yields an operating value of RMB 32.644 billion; back-solving at A-share peers' steady-state P/E of 11.6–15x, the market implies normalized net profit attributable of RMB 2.18–2.81 billion; extrapolating the legacy-product base of RMB 1.623 billion non-GAAP profit in 2024 (a hit-free year) up to RMB 1.6–1.9 billion implies a long-term hit profit residual of only about RMB 0.3–1.0 billion, i.e., a decay of approximately 49%–88% from the roughly RMB 1.9–2.1 billion contribution in 2026. This back-solve is a simultaneous solution of "P/E tier × legacy-product split," with a wide range and non-robust magnitude — this report presents its limitations honestly. The key judgment: even under the most lenient parameter combination, the implied market decay is still about 49%, steeper than the moderate "Zhentu-style evergreen operations" path; but the casual competitive genre also has a steep-decay precedent in Yuan Meng Zhi Xing, which dropped out of the top-50 grossing chart within 3 months of launch — unilateral extrapolation in either direction is inadvisable. The Q2 non-GAAP +20.5% QoQ should be interpreted cautiously — the Q2 cash-from-sales/revenue ratio was only about 82% (Q1 was 115%), so the high profit level is partly supported by deferred-pool release, an accounting timing effect rather than a signal of operational improvement. The verdict rests with the Q3 report on October 30.
The five-year OCF/net profit sequence is 1.04 (2023) → 0.73 (2024) → 1.70 (2025) → 0.97 (2026H1), with solid cash conversion during the hit monetization period; adjusted net cash is approximately RMB 7.04 billion (cash of RMB 5.799 billion + trading financial assets of RMB 1.896 billion − double-counted wealth-management products of RMB 1.108 billion + entrusted wealth management of RMB 1.106 billion − interest-bearing debt of RMB 655 million), with no bank borrowings. The 70% payout is a conditional commitment: it drops to no less than 20% in the case of major investments (≥10% of most recent audited net assets) — and the company stated at the August 27 earnings call that it is "open" to M&A, leaving exit room in the clause. The forward dividend yield in the base case is about 6%–7% (70% × 2026E net profit attributable of RMB 3.53–3.98 billion), but if 2027 net profit attributable falls into the bear case of approximately RMB 2.4 billion, the yield drops to about 4.2% — the buffer is thinnest precisely in the scenario that needs it.
Company-level pledges account for 20.42% of total share capital (third-party basis, 4 transactions); two conflicting third-party figures — 50.67% and 68.2% — exist for the share of Giant Investment's holdings pledged, and the company has not disclosed per-shareholder pledge details — the precise margin-call risk cannot be verified, and the third-party estimated warning line near RMB 18 is unconfirmed by the company. The verifiable fact chain is: during a drawdown of over 60% from the January high of RMB 53.35, the company conducted no new secondary-market buybacks (the February–April 2026 share cancellation and ESOP transfers were existing-position disposals), and the Shi system obtained approximately RMB 2 billion in cash within three months through share sales (RMB 1.426 billion) plus the interim dividend (approximately RMB 560 million). The share-sale plan has expired, with no new pre-disclosure as of October 27, creating short-term selling vacuum; but Tengpeng's remaining 142 million unpledged shares (7.47%) leave the channel open at any time, and every valuation recovery could be interrupted by a new sale pre-disclosure.
The exact stake is not directly disclosed in periodic reports: the public ownership structure (Giant → 49% minority stake in Jukun → approximately 51% of Playtika) implies indirect equity of about 25%, while balance-sheet consistency (long-term equity investment of RMB 9.227 billion ≈ 61% of Jukun's net assets of RMB 15.056 billion) and P&L consistency (H1 associate investment income of RMB 257 million ≈ 68% of Jukun's net profit of RMB 379 million) imply effective equity of approximately 50%–70% — a large divergence between the two bases, requiring subsequent note verification. But under any basis the conclusion is the same: at Playtika's current market cap (approximately USD 790 million), the chain's fair value is only about RMB 1.3–3.6 billion, far below the RMB 9.221 billion book value, implying potential impairment exposure of approximately RMB 5.5–7.9 billion (approximately -RMB 3 to -4 per share); the book net assets per share of RMB 8.85 cannot be treated as a reliable asset floor. Offsetting fact: Jukun turned profitable in 2026H1, and Playtika's board established a special committee in April 2026 to launch a strategic review (a two-way event — potential whole sale or capital introduction) — the chain is not in continuous bleeding.
Three weak links in this thesis must be honestly flagged: First, "unpriced" does not hold — 19 sell-side analysts' 2027 consensus of +13.2% has already built the second curve into models; the gap between current price and target prices reflects single-title risk discounting, a disagreement over realization probability rather than a cognitive blind spot. Second, all evidence for Tomb Busters is free-chart launch rankings — 5 months post-launch with no revenue disclosure, overseas revenue share of only 0.33%, and the Garena schedule is management guidance. Third, Ming Jiang Sha's monthly billings above RMB 10 million annualize to approximately RMB 120 million (about 1.3% of revenue) — insufficient in magnitude to offset even a one-percentage-point decay of the core product. The correct reading of this thesis is as a low-cost option: any ramp from an extremely low base (monthly billings in Japan/Korea/US reaching the RMB 50 million scale) is pure incremental value, while the pessimistic scenario implied by the current price has paid almost no premium for it.
| Metric | FY2023 | FY2024 | FY2025 | 2026H1 (latest period) |
|---|---|---|---|---|
| Revenue (RMB 100M) | 29.24 | 29.23 | 50.47 | 46.89 |
| YoY | +43.5% | -0.05% | +72.7% | +182.1% |
| Net profit attributable (RMB 100M) | 10.86 | 14.25 | 17.55 | 21.44 |
| YoY | +27.7% | +31.2% | +23.1% | +176.0% |
| Non-GAAP net profit (RMB 100M) | 13.73 | 16.23 | 21.27 | 22.36 |
| Gross margin | 88.9% | 87.3% | 91.0% | 95.8% |
| Net margin | 37.2% | 48.8% | 34.8% | 45.7% |
| Operating cash flow (RMB 100M) | 11.25 | 10.34 | 29.85 | 20.72 |
| Free cash flow (RMB 100M) | 10.36 | 8.47 | 28.74 | 20.14 |
| Cash + cash-like assets (RMB 100M, period-end) | 18.89 | 20.58 | 62.60 | 76.95 |
| Interest-bearing debt (RMB 100M, period-end) | — | — | ~6.6 | 6.55 |
| Debt-to-asset ratio | 12.3% | 12.8% | 18.7% | 17.1% |
Note: Cash-like assets = cash + trading financial assets (at end-2026H1 including securities investments in Cinda Securities / Beibu Gulf Port and wealth management products, of which approximately RMB 788 million were securities investments held for short-term profit); total share capital is 1.90056 billion shares after cancellation of 34.1886 million repurchased shares in March 2026; no bank borrowings, with interest-bearing debt mainly USD borrowings from Alpha Frontier of approximately RMB 651 million principal and interest. In 2025 the company sold 60.73 million ESOP shares to raise cash, providing a one-time boost to financing cash flow.
Reasons for metric changes (YoY ≥ ±20% summary): ① 2025 revenue +72.7%: Supernatural Action Squad became a hit after its January 2025 launch, mobile revenue +97.75%; management attributed this to "the phenomenon-level mobile game continuously contributing high-level revenue, plus stable long-term operations of the Zhengtu series and Battle Balls" (2025 Annual Report MD&A); ② 2025 selling expenses +70.3% to RMB 1.711 billion: "mainly due to increased advertising expenses," with the expense ratio of 33.9% flat vs. 2024 — user-acquisition spending scaled with the hit rather than deteriorating; ③ 2025 contract liabilities +169.9% to RMB 1.710 billion: "mainly due to increased deferred revenue from Supernatural Action Squad"; ④ 2025 operating cash flow +188.6%: "mainly due to rising game revenue"; ⑤ 2025 investment income -96.5: revaluation loss on SuperPlay's USD 380 million earnout recognized; ⑥ 2026H1 investing cash flow -RMB 2.141 billion: new securities investments of RMB 860 million (H1 unrealized loss of RMB 71 million) + wealth management + planned PE fund commitment, with cash declining to RMB 5.799 billion.
H1 revenue of RMB 4.689 billion (+182% YoY) and net profit attributable of RMB 2.144 billion (+176% YoY) — half a year's profit alone exceeds full-year 2024 (RMB 1.425 billion). But structural signals are mixed. The positives: gross margin rose to 95.8% (96.2% for mobile — the marginal cost of hit item monetization is extremely low), operating cash flow of RMB 2.072 billion moved in line with profit, and the interim dividend of RMB 1.515 billion was set at a 70.65% payout ratio. The concerns are threefold: Q2 revenue of RMB 2.360 billion grew only +1.4% QoQ (momentum flattening); contract liabilities fell from RMB 2.113 billion at end-Q1 to RMB 1.601 billion (Q2 revenue recognition outpaced new billings by RMB 512 million); and Q2 cash received from sales was RMB 1.935 billion, -27.6% QoQ. The company's statement that "the deferral cycle did not change" means this decline reflects genuine billings cooling rather than a change in recognition basis, and the company has guided for intensified Q3 summer user-acquisition spending with a sequential increase in selling expenses. The market's pricing of the Q3 report (October 30) is already highly defensive — no earnings pre-announcement was issued, which by rule implies Q3 net profit attributable YoY change within ±50% (base of RMB 640 million; rule-based inference, pending verification).
Business model: Asset-light integrated game development and operations, primarily self-developed, self-published, and self-operated, with item-based monetization and deferred revenue recognition. Revenue is highly "evergreen" — three tiers (Zhtu series, 22 years; Battle Balls, 8 years; Supernatural Action Squad, 1 year) contribute about 99.8% of game revenue; overseas revenue is only 0.33%, with overseas expansion at an extremely early stage. No channel-bundled heavy-asset investment; bargaining power is reflected in gross margin's steady climb from 87.3% → 91.0% → 95.8%.
Cash conversion of earnings: OCF/net profit 1.04 (2023) → 0.73 (2024) → 1.70 (2025) → 0.97 (2026H1); FCF/net profit 0.95 → 0.59 → 1.64 → 0.94. The low 2024 reading reflects rising labor costs and the deferred recognition pace (management explanation in the Annual Report MD&A), not systematic deterioration; during the hit monetization period, cash conversion returned to around 1, with book profits essentially converting to freely disposable cash. Accounts receivable are only about 4% of revenue, with no working-capital strain; goodwill is only RMB 132 million (0.78% of net assets attributable), and R&D is fully expensed (capitalization rate of 0%) — a conservative P&L basis. Two caveats: first, non-GAAP has been below reported profit for three consecutive years (2023–2025 non-recurring items of -RMB 286/-198/-373 million, mainly interest on borrowings and earnout revaluations in the Playtika chain of associates), meaning core operating profitability is stronger than reported attributable profit; second, the new RMB 860 million securities investment in 2026H1 (unrealized loss of RMB 71 million) has begun introducing side-business volatility into core earnings.
Return on capital: FY2025 ROIC approximately 10.6% (NOPAT of RMB 1.712 billion ÷ invested capital of RMB 16.087 billion) — but the denominator's RMB 9.221 billion of low-efficiency long-term equity investments drags down the reading; the pure games business generates significantly higher capital returns (estimated at the 20%+ level excluding long-term investments), and under the asset-light, low-capex model (annual capex of RMB 111 million; CapEx/D&A of 1.61), the core business's return is genuinely moat-level.
Capex quality: No major construction expansion; the Shanghai Giant campus has been placed into service; maintenance investment is minimal — a business shape with high FCF conversion.
Red flags and concentration: Top five customers account for 24.31% of revenue (2025, joint-operating-platform settlement basis), down from 32.54% in 2024 — an improvement in concentration. The main red flags are dependence on a single hit (see the industry-characteristics chapter) and the overweight investment-asset position (see C4).
Consistency between words and deeds: pragmatic and mostly delivered. Four commitment-vs-delivery comparisons: ① The 2024 annual report promised launch and promotion of Super Natural Action Squad in 2025 → launched on January 23, 2025, becoming a phenomenon-level hit with cumulative gross billings of RMB 5 billion+, delivered and exceeded expectations; ② The 2023 annual report promised scaling up the mini-program version of King's Journey → launched in February 2024 with annual billings of RMB 600 million, delivered; ③ Promise of billings recovery for Original Journey → not delivered in 2024; the mini-program version only returned to RMB 100 million in monthly billings in 2025, partially delivered (one year late); ④ The Three-Year Dividend Plan in August 2026 promised a payout ≥70% → interim dividend paid at 70.65%, delivered. Overall picture: high delivery rate on product pipeline commitments, occasional timetable slippage, no sign of inflated performance claims.
Shareholder friendliness: aggressive dividends, no buybacks — neutral-to-friendly but with caveats. Attributable-year payout ratio: FY2022 ~27% → FY2023 36.7% → FY2024 18.6% (profit grew while payout ratio halved) → FY2025 36.7% → 2026H1 70.65%. No follow-on offerings, rights issues, or convertible bonds since listing; share capital has only shrunk via buyback cancellations (-1.77%). But the structural flaw: the beneficiaries of the high payout overlap heavily with the sellers (the Shi family group holds 37.16%, receiving ~RMB 560 million from the interim dividend), and no new buybacks occurred during the period when the stock halved — a one-legged return toolkit.
Risk signals: ① April 2026 warning letter from the Chongqing bureau of the CSRC (related-party transaction disclosure deficiencies at the controlling shareholder level, recorded in the integrity file); ② Templated responses on the investor interaction platform, with no direct quantitative answers to questions on DAU decline or buyback requests; ③ Concert parties just completed a 2.82% stake reduction.
| Segment | 2025 Revenue Share | 2026H1 Revenue Share | Gross Margin | 2026H1 YoY | Business Logic |
|---|---|---|---|---|---|
| Mobile games | 85.4% (RMB 4.312bn) | 93.2% (RMB 4.368bn) | 91.6%→96.2% | +236.2% | Super Natural + Journey mobile titles + Brawl, mainly self-operated |
| PC games | 12.4% (RMB 628m) | 5.6% (RMB 261m) | 88.1% (2025) | -17.7% | Long-running Journey PC franchise, natural shrinkage |
| Other game-related | 2.1% (RMB 108m) | ~1.2% | Not separately disclosed | — | AI server hosting/leasing, etc. |
Profit driver: Mobile games, with a 93.2% revenue share × 96.2% gross margin, contribute the absolute bulk of gross profit (roughly 97%+ of total), and virtually all of the increment comes from Super Natural Action Squad — a quantitative footnote to "single-hit dependence." PC (Journey) revenue is shrinking but users are stable — the legacy base of the brand and IP. The ~8 percentage point gross margin gap between mobile and PC stems from differences in PC revenue-sharing and operating cost structures; the continued rise in mobile gross margin reflects the zero-marginal-cost nature of hit-item monetization. The company does not disclose revenue by individual product; product-level breakdowns rely on gross billing disclosures (Super Natural cumulative RMB 5bn+ / King's Journey RMB 700m annual / Brawl five-year-high monthly billings), so precise product-level profit structure is unavailable.
Accounting red flags:
Cross-period consistency:
Overall judgment: No aggressive accounting on revenue recognition (R&D fully expensed; deferred accounting confirmed unchanged by IR). The main flaws concentrate in "cross-period distortion of investment asset gains/losses" and "disclosure quality of related-party funding arrangements" — the former makes attributable profit appear weaker than true operations (actually conservative), while the latter is a governance issue.
The scissors gap between gross billings and recognized revenue is the core signal for this name. A game company's revenue is recognized by deferring billings over item-consumption cycles; contract liabilities (the deferral pool) are a leading indicator of billings. Giant Network's contract liabilities: RMB 435m at end-2023 → RMB 634m at end-2024 → RMB 1.333bn at end-2025Q3 → RMB 2.113bn at end-2026Q1 (peak) → RMB 1.601bn at end-2026H1. Q2 saw a single-quarter net decrease of RMB 512m (-24.2%), with sales cash receipts of RMB 1.935bn in the same quarter, -27.6% QoQ — two independent metrics cross-confirm a Q2 billings cooldown; meanwhile Q2 recognized revenue of RMB 2.36bn and adjusted profit of RMB 1.222bn (+20.5% QoQ) remained elevated — precisely the "profit lags billings" pattern supported by deferral pool release. FY2025 sales cash receipts of RMB 5.936bn vs recognized revenue of RMB 5.047bn (an excess RMB 890m flowed into deferrals); 2026H1 cash receipts of RMB 4.608bn vs recognized revenue of RMB 4.689bn — the cash receipts/recognition ratio has fallen from 118% to 98%, with the scissors gap clearly converging. End-September contract liabilities (disclosed October 30) are the decisive variable: falling below RMB 1.3bn confirms a negative second derivative; stabilizing above RMB 1.6bn refutes the collapse narrative.
Paying rate/ARPU: The company does not disclose per-product paying rates or ARPPU; only qualitative evidence exists (Brawl Legends in 2024: "ARPU and paying penetration rose sharply YoY, with monthly billings hitting a five-year high"). Under the large-DAU/low-ARPU casual competitive model, monetization elasticity relies on collaborations/seasonal operations rather than pay-to-win mechanics — billings fluctuate relatively mildly but the ceiling is lower than hardcore MMOs.
Product lifecycle and pipeline: The company's lineup: Journey franchise (22 years, ~600m registered users, domestic benchmark for long-lived operations) → Brawl Legends (8 years) → Super Natural Action Squad (13 months, current cash cow) → Legendary Generals (launching, monthly billings in the tens of millions) → three new Journey titles + overseas versions. Pipeline risk is real: no new license approvals reported within the 90-day window, no launch timetable for new Journey titles, and the baseline assumption that "new products offset more than half of the decay" by 2027 could fail. Long-term live-ops capability is Giant's moat versus pure user-acquisition players — 22 years of Journey and 8 years of Brawl operating records are rare among domestic studios, and the "gentle decay + evergreen conversion" bull thesis for Super Natural rests on this precedent; however, category differences (nation-war MMO vs Chinese-style mildly-horror casual competitive) make the precedent's transferability questionable, and the rapid fade of DAU-driven products like Dream Star cannot be ruled out.
Current market data (close of 2026-10-26): Share price RMB 20.88, market cap RMB 39.684bn. PE(TTM) 12.71x (TTM attributable profit RMB 3.122bn), adjusted TTM ~11.2x (TTM adjusted profit RMB 3.556bn), PE(2025A) 22.61x, PB 2.36x (63rd percentile of the past 5 years). Percentiles are for reference only: the earnings jump from the hit makes the historical percentile of PE(TTM) (0th percentile) mechanically distorted and not a headline cheap/expensive signal; the PB percentile is similarly distorted given questionable book value quality of the RMB 9.2bn in long-term investments within net assets. Forward basis: our own 2026E attributable profit midpoint of ~RMB 3.76bn implies a forward PE of ~10.6x; the sell-side consensus basis (2026E EPS RMB 2.28) implies ~9.2x.
Peer comparison (close of 2026-10-26):
| Company | PE(TTM) | 2026H1 Performance | Model Positioning |
|---|---|---|---|
| Giant Network | 12.7x | Revenue +182% / attributable +176% | Owned-IP long-term operations + single-hit blockbuster |
| Century Huatong | 11.6x | Revenue +28.5% / attributable +69.5% | Overseas SLG (Whiteout Survival), strongest A-share earner |
| 37 Interactive | 11.2x | Revenue -14.3% / attributable +26.1% | User-acquisition publishing model contracting |
| Kingnet | 14.0x | Revenue +86.1% / attributable +50.3% | Licensed Legend/MU IP |
| Tencent Holdings | 13.0x | Games revenue +22% (2025) | All-category dominant |
| NetEase | 15.7x | Games & value-added +10.2% (2025) | In-house MMO/shooters |
Giant's TTM valuation is in line with the peer median, below NetEase, above 37 Interactive/Huatong — the market has not assigned a "significantly below peers" discount; the cheapness lies in the forward basis (coverage of 2026E/2027E earnings) and net cash share.
Market-implied expectations: Market cap RMB 39.684bn − net cash RMB 7.04bn = operating value RMB 32.644bn. Solving backward at a peer steady-state PE of 11.6–15x implies normalized attributable net profit of RMB 2.18–2.81bn — versus 2026H1 adjusted profit alone of RMB 2.236bn for just six months. The current price requires the company's annualized earnings power of ~RMB 4.5–5.0bn to be compressed to roughly half and stay there permanently. Breaking it down: legacy products (Journey + Brawl + Legendary Generals) at steady state ~RMB 1.6–1.9bn (an uplift on the RMB 1.623bn no-hit base of 2024), implying a long-run residual net profit of ~RMB 0.3–1.0bn from Super Natural Action Squad (a decay of ~49%–88% from its ~RMB 1.9–2.1bn 2026 contribution). The limitations of this backward solve (joint PE band and decomposition assumptions; wide range) are noted in C1; but even in the most generous corner, the implied ~49% decay is steeper than the mild path — this is the mathematical expression of the divergence between "pessimism embedded in the current price" and "optimism in sell-side expectations." Against sell-side consensus (2027E attributable ~RMB 4.9bn, +13.2%), the current price is only 8.1x — the market voting with its feet in a "correction instead of collapse" (consensus net revision of -1.6% over the past 90 days).
Three-layer value (EPV): Asset value (book net assets) RMB 8.85/share — but only a stress reference, not a reliable floor, due to the Playtika chain revaluation exposure (C4); zero-growth EPV RMB 13.52/share (normalized FCFE ~RMB 2.7bn: legacy-product cash profit ~RMB 1.9bn + mid-term hit residual RMB 0.6–0.8bn + associate dividends actually received ~RMB 150m, discounted at a 10.5% cost of equity, equity basis). Current price RMB 20.88 − EPV ≈ RMB 7.36/share is the growth option (~35% of the current price). Roughly 2/3 of the current price is supported by zero-growth value, ~1/3 is growth/evergreen option — the option content (hit decays slower than implied + overseas expansion + new products + Playtika chain repair) has tangible support rather than pure narrative, but the share is not small; this is not the deep-value form of "the market pays only for zero growth."
Three scenarios and odds (12-month horizon; fair value range anchored on 2027E earnings × exit PE):
| Scenario | Probability | Fair Range | vs Current | Core Assumptions |
|---|---|---|---|---|
| Bear | 32% | RMB 12.1–12.6 | Midpoint -40.9% | 2027E attributable RMB 2.3–2.5bn × 10x: rapid hit decay (revenue -40%+) + deteriorating UA ROI + pipeline gap; 10x anchored below the peer low end (37 Interactive 11.2x/Huatong 11.6x, further discounted), growth premium zeroed out |
| Base | 44% | RMB 21.2–23.9 | Midpoint +8.0% | 2027E attributable RMB 3.1–3.5bn × 13x: mild decay (revenue -10%~-20%) + overseas/new products offsetting over half + 70% payout delivered; 13x anchored near the A-share peer TTM median (12.96x), below its own historical center (3-year 22x) since earnings include hit residual, warranting a lifecycle discount |
| Bull | 24% | RMB 32.0–35.4 | Midpoint +61.4% | 2027E attributable RMB 3.8–4.2bn × 16x: hit evergreen conversion (decay <5%) + Tomb Busters overseas ramp + Garena delivery; 16x anchored near Kingnet's 2025A static PE (17.5x) |
Probability-weighted fair value ~RMB 22.0 (+5.2%); adding a base-case forward dividend yield of 6%–7%, expected total return ~12%–13%. Odds structure: downside to bear midpoint -41% (partially cushioned by net cash + dividends), upside to bull midpoint +61% — risk/reward roughly symmetric and slightly positive: not a heavy bet worth slamming down on, nor a significantly undervalued bargain.
Our own earnings forecast (reconciliation anchor): 2026E revenue RMB 8.5–9.1bn (+68%~+80%), attributable RMB 3.53–3.98bn (H2 revenue RMB 3.81–4.41bn, down 6%~19% QoQ; net margin 38%–43%, narrowing on stepped-up user acquisition); 2027E revenue RMB 8.0–8.8bn (-6%~0%), attributable RMB 3.1–3.5bn. Versus sell-side consensus (2026E RMB 4.33bn / 2027E RMB 4.9bn), this is ~10%–37% lower — the core of the divergence is the decay slope. Our forecast sits below the sell side and above the bear case, forming the central anchor for quarterly reconciliation.
Conclusion: reasonably cheap, mildly so. The current price is below the base-case fair value floor of RMB 21.2 (margin of safety only ~+2%, extremely thin); expected total return of ~12%–13% is driven mainly by dividends and validation-driven repair. Neither the quality (evergreen operating record + cash conversion + dividend commitment) nor the price (peer-in-line forward multiples + net cash) alone constitutes a deep discount; the only re-rating lever is quarterly validation of the decay slope. Cautiously bullish; wait for the Q3 report on October 30 before deciding on the pace of position additions.
Industry size: In 2025, China's gaming market generated actual sales revenue of RMB 350.789 billion, up +7.68% YoY, a record high (China Audio-Video and Digital Publishing Association Game Working Committee & Gamma Data, "2025 China Gaming Industry Report"). The structure is notably bifurcated: mobile games RMB 257.076 billion (+7.92%, 73.3% of total), client games RMB 78.160 billion (+14.97%), mini-program games RMB 53.535 billion (+34.39%, the largest source of incremental growth for the overall market for two consecutive years—it grew +99.18% in 2024), and consoles RMB 8.362 billion (+86.33%); self-developed games overseas generated USD 20.455 billion (+10.23%, exceeding RMB 100 billion for 6 consecutive years). Momentum accelerated further in 2026: H1 domestic revenue RMB 188.45 billion (+12.17%), overseas USD 12.372 billion (+30.22%), and Q3 domestic RMB 92.522 billion (mobile +5.33%)—the overall market has shifted from single-digit to double-digit growth, with overseas expansion and mini-games confirmed as a dual-engine upcycle. The user base of 684 million has essentially peaked (+1.35%), and growth drivers have fully shifted to four channels: ARPU uplift, category migration (shooters' share of TOP100 mobile game revenue rose from 18.29% in 2025 to 26.23% in 2026H1), mini-game expansion, and overseas growth.
Industry chain and value distribution: R&D (labor + engine + compute) → publishing (user acquisition / content-driven) → channels (Apple 30%, domestic Android hard channels up to 50%, Douyin/WeChat mini-game fees substantially lower) → player payments. Giant sits at the integrated R&D-publishing-operations (CP + publishing) stage, and its self-operation plus multi-platform layout (APP + Douyin/WeChat mini-games) gives it significantly lower channel-revenue-share pressure than pure user-acquisition-driven peers—Supernatural Task Force reaching TOP3 on the Douyin mini-game center in July 2026 is a realization of this low-fee channel. Its bargaining power over downstream channels is relatively weak (an industry-wide issue; Android's 50% revenue share persists), but mini-gaming is structurally shifting value back to content providers; bargaining power over upstream (user-acquisition platforms) is limited—user-acquisition costs for top-100 mobile games by gross revenue rose +86.6% YoY in 2025H1; traffic inflation is the biggest threat to industry-wide margins and the industry backdrop for Giant's guidance of higher Q3 selling expenses QoQ. Gross profit accrues mainly at the R&D + self-operation stages, which is precisely the industry foundation of Giant's 95.8% gross margin.
Supply-demand and competitive structure: Demand is growing moderately (single-digit → accelerating to double-digit) while supply is expanding visibly—1,771 licenses were issued in 2025 (up over 20% from 1,416 in 2024, a seven-year high), and 1,147 licenses were issued in January–July 2026, with 197 in July alone. The overall picture is "total volume loose, structure tight": traffic and user time are scarce, hits and evergreen products are in short supply, while mediocre products are in oversupply. Tencent management publicly warned in March 2026 of "industry oversupply and a quantity bubble." Concentration remains a stable duopoly: Tencent ~50%, NetEase ~28% (2025H1 actual sales revenue basis). The A-share tier: Century Huatong (RMB 37.898 billion, far ahead in first place) > 37 Interactive Entertainment (RMB 15.966 billion) > Perfect World (RMB 6.660 billion) ≈ Sunriver (RMB 5.821 billion) > Kingnet (RMB 5.325 billion) ≈ Giant Network (RMB 5.047 billion, sixth in 2025 revenue; net profit attributable to parent of RMB 1.755 billion ranks fourth among A-share gaming companies). Giant's 2026H1 revenue of RMB 4.689 billion already exceeded its full-year 2024 total, and its share of the domestic market jumped from ~1.44% in 2025 to ~2.49%, with full-year revenue potentially entering the A-share top three—the company is in a period of rapid rank ascension. Barriers to entry: license approval + 3–5-year development cycles + capital at the hundred-million level + IP and community assets + user-acquisition funding requirements; new entrants find it hard to replicate evergreen IPs.
Cycle and regulation: The industry is in a new upcycle of "normalized license approvals + AIGC cost reduction + accelerating overseas expansion"; leading indicators include monthly license counts, Gamma Data's monthly overall market YoY, monthly overseas revenue, gross billings of leading titles, and user-acquisition cost growth. Regulation is neutral to favorable: normalized license approvals eliminate the risk of 2018/2021-style policy shocks; minor protection has entered a steady state (in 2025, 71% of minors were limited to ≤3 hours per week, stable for 4 consecutive years), so the marginal drag on revenue has largely been cleared; overseas expansion and "AI + gaming" receive clear policy encouragement. The only bearish factor is intensifying competition from supply expansion. Within Giant's own recent window (~90 days), no new license approvals for the company have been reported, and its pipeline has no supply-side increments—regulation is friendly but has not yet converted into new-product ammunition.
Company positioning within the industry: Second-tier among A-share gaming companies, an "evergreen-operations content provider" moving up the ranks. Four moats: ① two decades of long-term operations of the ZT Online IP in national-war MMOs (cumulative gross billings across the franchise exceed RMB 30 billion); ② dual positioning in the casual competitive segment (Battleship Ball with 600 million cumulative installs + Supernatural Task Force with 200 million registrations); ③ AI transformation leading among A-share peers (Qianying multimodal model suite open-sourced, AI-generated 2D art exceeding 80%, "AI bots" as native gameplay surpassing 400 million matches—a supply-side efficiency advantage, not yet a revenue advantage); ④ Shi Yuzhu's controlling stake + centralized decision-making + high dividends. Weaknesses: rising dependence on a single hit (93.2% of mobile revenue), overseas revenue share of only 0.33% not yet scaled (compared with Century Huatong's 58.63% overseas share—the gap is the upside), and user-acquisition efficiency facing industry-wide traffic inflation. Share trend: rising (market share 1.44% → 2.49%), but the sustainability of that gain equally hinges on the Supernatural life cycle—industry standing and single-product risk are two sides of the same coin.
Overall view: cautiously bullish (confidence 0.50), 6–12 month horizon. Giant Network is a "perception-gap play during hit monetization": the market prices in rapid decay (implied residual hit decay of ~49%–88%), sell-side models assume moderate growth (2027E +13.2%), while we take a moderately conservative path (2027E net profit attributable to parent of RMB 3.1–3.5 billion); baseline fair value of RMB 21.2–23.9 implies +8% vs. the current price (midpoint), probability-weighted approximately +5%, with a 6%–7% dividend boosting total return to 12%–13%. Strategically, positioning after validation beats front-running: contract liabilities in the October 30 Q3 report (RMB 1.3 billion / 1.6 billion thresholds) and selling expenses are the nearest verdict points; stabilization points toward a reversion to baseline fair value, while a breakdown would test the RMB 18 pledge-warning zone (third-party estimate, unconfirmed by the company), at which point reassessment rather than mechanical averaging-down is required.
Risk warnings: ① accelerating decay of Supernatural Task Force billings (bear case -41%); ② resumption of share reductions by the controlling shareholder's system or materialization of pledge risks; ③ Playtika-related impairments (exposure of approximately RMB -3 to -4 per share); ④ rising user-acquisition costs eroding margins; ⑤ pipeline gap (no new licenses in 90 days); ⑥ industry regulation and category competition.
Tracking calendar:
This report is based on public information (company periodic reports, announcements, investor relations records, industry data, and sell-side research summaries); figures labeled "our estimate" in this report are independently derived, with key assumptions noted in the text. This report does not constitute investment advice.