We deem official launch of FragPunk PC globally on 7 Mar has gained traction with consistent compliments and complaints. We see non- material grossing impact of FragPunk overseas console delay due to technical issues and currently assume RMB1.8bn grossing contribution of FragPunk (PC + Console) in 2025. We expect more divergent PC and mobile performances in 2025 with 44% YoY PC revenue forecasts while flattish YoY mobile estimates after assuming highly expected ‘Ananta’ to be launched in 2026. We will closely monitor potential mobile channel fee optimisation progress in the domestic game market and expect GPM to benefit amid downward pressure in 2025 due to revenue mix structural shift. Maintain BUY with new TP of US$124.0/ HK$195.0.
　　Key Factors for Rating
　　Delay of FragPunk console overseas non-material impact. Consistent compliments and complaints of FragPunk globally. Although FragPunk console overseas was officially postponed without exact launch date announced yet due to technical issues on 4 Mar, its PC version was successfully launched globally on 7 Mar. We see the game has gained traction among hardcore gamers globally with concurrent players peaking at 114K and 72% positive reviews among all 12K reviews on Steam so far . Key compliments appraise its unique cyberpunk art style, innovative shard card system and entertaining match design. While complaints primarily centred on slow movement speed, aggressive monetisation system and suspected AI utilisation in art creation . We currently estimate RMB1.8bn grossing for FragPunk in 2025 with non-material impact from temporary delay of its console overseas.
　　More divergent PC and mobile in 2025; Ananta to be launched in 2026. According to our updated pipeline and games’ grossing estimates, we expect more divergent PC and mobile performances to sustain in 2025, with strong PC delivering 44% YoY while soft mobile logging flattish YoY. By forecasting highly expected new game ‘Ananta’ (无限大) to be officially released in 2026 across all terminals, we expect lukewarm pipeline especially the domestic mobile market in 2025. New pipelines include Once Human (domestic launch in Apr 2025), Where Winds Meet console and overseas version, Destiny: Rising and Marvel Mystic Mayhem. Therefore, we trim our 2025-27E pure game forecasts by 2-3% contributed by 1-4% PC improvements while -5% mobile decline. We nudge down our 2025-27E game GPM by ~100bps to reflect revenue mix shift. We largely maintain our opex assumptions. We see potential mobile channel fee cut to be a potential positive catalyst for game GPM and will closely monitor.
　　Key Risks for Rating
Downside risks: i) weak macro and online discretionary spending recovery; ii) game regulations; iii) competition; iv) destructive investments; v) dampened partnerships; and vi) ADR delisting.
　　Valuation
Maintain BUY while slightly cut our TP to US$124.0/ HK$195.0 on: i) US$97.0 on unchanged 13.0x FY2025E adj. EPADS of US$7.5 (vs. US$7.7 previously); ii) US$4.0 from stake in Youdao (DAO US/NR) and Cloud Music (9899 HK/NR); and iii) US$23.0 from net cash.