Zhongtai Securities: The game industry's growth rate shift sector's profit is still high

The Zhitong Finance App learned that Zhongtai Securities released a research report stating that there are 684 million domestic game users (2026H1, +0.82%), with 1,708 models from January to October (+26%). The supply is sufficient, and the increase comes more from leading new products and long-term operations. Self-developed overseas was US$35.772 billion, +15.6% YoY (H1 +30.2%). The game sector's valuation is at its lowest since 2014, profits are still high, and the cost of new products was confirmed ahead of Q3.

The views of Zhongtai Securities are as follows:

Key points of the 3Q26 quarterly report

The industry's growth rate changed gears — domestic Q3 +5.1% year over year, maintaining double digits; 14 A-share sample revenue of 27.78 billion yuan, a record high for three consecutive quarters, +13.0%; centralized product launch raised the sales expense ratio to 39.5%, minus 4.74 billion yuan, -6.3% year on year, still the fourth highest since 2019; contract debt was +22.8%, and reserves increased; the sector was 13.3 times higher than PE, the lowest since 2014. (Note: Finance selects 14 A-share game companies) Domestic: From high growth to stability. In 3Q26, the domestic market was 92,522 billion yuan, or -4.1% in the same period last year. The growth rate was +0.8% for two years. The growth rate was slower than in the first half of the year; after a high increase in 2025, clients returned to +1.3% year on year, and mobile was +5.3%. With 684 million users (2026H1, +0.82%) and 1,708 models from January to October (+26%), supply is sufficient, and the increase comes more from leading new products and long-term operations.

Overseas: It is still the main increase, and the share continues to increase

Self-developed overseas was US$35.772 billion, +15.6% YoY (H1 +30.2%); the share of Chinese manufacturers in Sensor Tower's global TOP100 increased from 35.0% to 42.0%. Overseas revenue in the sample 2026H1 was +44.7% year-on-year, and the share of overseas increased from 37.2% to 44.0%. We need to pay attention to the appreciation of the RMB (USD +9.4%, RMB +4.1%) and the increase in the unit price of the purchase volume.

Finance: Expenses in front, profit behind

Q3 added $3.20 billion in year-on-year revenue and $2.69 billion in sales expenses, mainly pre-launch of long-term new products; operating cash flow/revenue of 19.9%, in the normal range of 18% to 23% in the third quarter of 2020-2024 (3Q25 was a high of 29.0%); contract debt of 8.32 billion yuan, +22.8% year-on-year, higher than revenue growth, providing reserves for revenue recognition in subsequent quarters.

Valuation: Profit is high, valuation is at the bottom

The pure gaming sector (15 A-share companies accounting for more than 50% of game revenue) deducted 13.3 times non-PE, the lowest since 2014. There were 6 periods in history where PE was lower than 24.8 times. After 4, it rose the year after 4, with a maximum loss of 29% after the purchase; the two times that did not rise (-3% in 2018 and -8% in 2021), profits fell by more than 30% in the following year.

Risk warning: risk of delayed product launch; risk of product launch falling short of expectations; risk of industry policy and regulatory risk; risk related to forecasting assumptions and data statistics; risk of untimely update of research report usage information