UOB Kay Hian
Date of Report: 3 July 2025

China’s Online Gaming Sector Set for Summer Surge: Tencent, NetEase, and Kingsoft Poised for Growth in 2025

Sector Overview: Online Gaming in China on a Roll Amid Summer Season and New Game Releases

The Chinese online gaming sector is primed for robust performance in the second half of 2025, with the seasonal summer holiday boosting user engagement and a slate of high-quality new releases set to drive revenue. Against a backdrop of geopolitical uncertainties, the sector stands out as a resilient, countercyclical play. UOB Kay Hian maintains an OVERWEIGHT rating for the sector, with a particular preference for Tencent due to its strong growth momentum and leading role in AI-driven gaming innovation.

Key Sector Drivers for 2H25

• Peak Seasonality: The summer holidays mark a high point for user activity, supported by abundant advertising inventory and strong monetization prospects. Tencent forecasts a 10-15% increase in game-related ad traffic exposure, with Smart Ads for Mini-Games upgraded for advanced ROI bidding and hybrid monetization.
• Deferred Revenue Growth: Tencent’s deferred revenue climbed 15% year-on-year to Rmb122.9 billion in Q1 2025. NetEase reported a 30% jump, up sharply from 3% in Q4 2024, signaling vigorous revenue momentum for the year ahead.
• AI Integration: Tencent is leveraging AI in flagship titles like Honor of Kings and Peacekeeper Elite, driving user engagement and streamlining game development productivity.
• Strong Launch Pipeline: Upcoming game releases from major players are expected to further supplement sector performance.

Tencent: Dominant Position with Innovative Titles and AI-Driven Growth

Tencent is strategically positioned to benefit from the summer boom with a robust line-up of releases:

• Star Resonance: This anime-style game, developed by Bokura and published by Tencent, is slated for July release. It acts as a spiritual successor to Blue Protocol and is highly anticipated by fans worldwide.
• Carbon Island: An eco-themed casual game recognized by the United Nations, Carbon Island is part of Tencent’s “Social Value Exploration” initiative, combining environmental awareness with casual gameplay and a unique “carbon baby” collection feature.

Tencent’s existing titles also continue to evolve. On 3 July, Honor of Kings introduces its S40 season, a new hero (Sun Quan), revamped classic characters, and new faction-based gameplay. Delta Force: Hawk Ops launches a new season with maps, operators, and a crossover skin.
Additionally, Supercell (a Tencent partner) is expanding on Tencent’s WeChat platform, making Brawl Stars and, soon, Clash Royale available as installation-free mini games – a move expected to boost user engagement by leveraging WeChat’s vast ecosystem.

NetEase: Accelerated Growth and an Ambitious Pipeline

NetEase is also making waves with new releases and revenue acceleration:

• Forgotten Seas: Developed by NetEase’s Joker Studio over six years, this title is a hybrid of extraction shooter, roguelike, and open-world adventure, now entering its first public test.
• Collaboration Events: Identity V will host a collaboration with supernatural puzzle hit Paper Bride, aiming to deepen engagement with its core fanbase.

NetEase’s online game revenue is forecast to grow by 16% year-on-year to Rmb23.3 billion in Q2 2025, and by 13% to Rmb94.6 billion for the full year. Non-GAAP net profit is expected to surge 29% in Q2 and 21% for the year, reaching Rmb10.1 billion and Rmb40.4 billion, respectively.

Kingsoft: New Titles Fueling Incremental Revenue

Kingsoft is poised for incremental gains from its new gaming titles:

• Mecha Break: Entered public beta on 2 July after a successful global testing phase with 2.26 million participants and a peak of 317,000 concurrent users. Projected to generate Rmb500 million in 2025 revenue.
• Fate of Sword: Zero: This mobile entry in the classic Sword series is set for release in 2H25, aiming to capture the legacy of martial arts culture.
• Goose Goose Duck: With a dedicated following on Steam and 20,000 monthly active players, this title received its game approval license in June and will begin beta testing. Kingsoft is the exclusive publisher for China.

Kingsoft’s online games revenue is expected to rise 15% year-on-year to Rmb2.8 billion in Q2, but adjusted net profit may dip 7% to Rmb456 million due to increased AI investment.

Favorable Regulatory Environment: Game License Approvals Up

The National Press and Publication Administration (NPPA) has maintained a steady pace of approvals:

• 147 domestic games approved in June 2025, up from 130 in May and 118 in April.
• Imported game licenses are steady, with 55 approved in 1H25 (down slightly from 60 in 1H24) but monthly issuance remains consistent.
• In total, 757 domestic and 55 imported licenses were issued in 1H25, marking a 20% increase over the previous year and the highest volume in recent years.

Valuations and Recommendations: Attractive Upsides Across Major Players

• Tencent Holdings (700 HK): BUY rating with a target price of HK\$650. Trading at 15.9x 2025F PE, which is one standard deviation below its historical mean of 24.5x. Expected online game revenue growth of 12% to Rmb222 billion, non-GAAP net profit up 11% to Rmb246 billion, with potential margin improvements as revenue sharing fees fall.
• NetEase Inc (9999 HK): BUY rating, target price HK\$233. Trading at 15x 2025F PE versus a target valuation of 16.6x. Accelerating deferred revenue supports the robust forecast for both top-line and profit growth in 2025.
• Kingsoft (3888 HK): BUY rating, target price HK\$47. Trading at 20x 2025F PE, below its historical mean of 41x, with new game launches expected to drive incremental grossing contributions.

Peer Comparison Table

Additional Sector Catalysts and Risks

Catalysts:

• Increasing user stickiness and engagement.
• Rising number of paying users.
• Expansion into new game genres and launch of expansion packs.

Risks:

• Potential for regulatory tightening, including restrictions on time or money spent by players.
• Competition from unconventional distribution channels.
• Ongoing geopolitical uncertainties, such as US sanctions.

Conclusion: Strong Momentum and Attractive Valuations Make Chinese Online Gaming a Top Pick for 2025

With strong seasonal tailwinds, innovative new releases, and a favorable regulatory environment, China’s online gaming sector is set for a standout second half in 2025. Tencent, NetEase, and Kingsoft are well-positioned to capitalize on these trends, offering growth and value for discerning investors. UOB Kay Hian’s BUY recommendations across these names reflect both their individual strengths and the sector’s overall resilience and appeal.