A Better Year Ahead for Chinese Online Gaming Firms; We See Attractive Buying Opportunities

We expect 2023 to be a better year for Chinese online gaming companies, and we see attractive buying opportunities. Some of these firms struggled in 2022 due to a lack of new gaming licenses, but since mid-2022, the National Press and Publication Administration started handing out more licenses to publishers. In January 2023, the NPPA issued 88 new domestic gaming licenses, marking the highest monthly handouts since May 2021. Based on the latest approval data, we fine-tuned near-term forecasts for three publishers under our coverage (Tencent, NetEase, and CMGE), but maintained their fair value estimates. NetEase is our top pick in the online gaming sector for its strong portfolio of existing and upcoming games.