China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Thematic (Sector/Industry)

<ul>
<li>We recently visited some start-up game companies in China and concluded that the Chinese gaming market has entered a matured period of competition for existing users;</li>
<li>Tencent's games remain relatively stable, but information about new RMB 10bn level blockbusters is still unknown. New shooting games continue to appear, putting pressure on existing survival shooting games;</li>
<li>We (1) maintain our BUY for Tencent and Unity, (2) maintain SELL for Sea, and (3) downgrade Krafton to SELL to reflect the new competition that shooting games will face.</li>
</ul>


We recently visited some start-up game companies in China and concluded that the Chinese gaming market has entered a matured period of competition for existing users;
Tencent's games remain relatively stable, but information about new RMB 10bn level blockbusters is still unknown. New shooting games continue to appear, putting pressure on existing survival shooting games;
We (1) maintain our BUY for Tencent and Unity, (2) maintain SELL for Sea, and (3) downgrade Krafton to SELL to reflect the new competition that shooting games will face.


Tencent/SEA/Unity/Krafton: More Shooting Games Are Emerging, a Summary of Our Recent Channel Checks

<ul>
<li>LKNCY: Luckin Coffee opened No.10k store, and extended discount coupon coverage (-)</li>
<li>U US: Apple provides Unity with unique development privileges for Vision Pro (+)</li>
<li>CPNG US: a congestion in the customs clearance process at Pyeongtaek Port due to a surge in packages from Chinese e-commerce platforms.(-)</li>
</ul>


LKNCY: Luckin Coffee opened No.10k store, and extended discount coupon coverage (-)
U US: Apple provides Unity with unique development privileges for Vision Pro (+)
CPNG US: a congestion in the customs clearance process at Pyeongtaek Port due to a surge in packages from Chinese e-commerce platforms.(-)


China/Asia TMT Update- Luckin/Unity/Coupang:No.10k Store, Apple Vision Pro, Congestion at Pyeongtaek

Equity Bottom-Up

<ul>
<li>Unity’s 1Q23 top line was in line with our estimate, and  bottom line was USD 34mn, vs. our est./cons. of USD 4/(3)mn, due to headcount reductions.</li>
<li>We expect it to outperform in coming quarters because: 1) Create solutions are reducing low margin businesses with low churn rate, </li>
<li>2) Growth solutions continue to gain share driven by integrated Mediation platform, 3) announced AI products with accumulated R&amp;D further diversify Unity toolsets.</li>
</ul>


Unity’s 1Q23 top line was in line with our estimate, and  bottom line was USD 34mn, vs. our est./cons. of USD 4/(3)mn, due to headcount reductions.
We expect it to outperform in coming quarters because: 1) Create solutions are reducing low margin businesses with low churn rate, 
2) Growth solutions continue to gain share driven by integrated Mediation platform, 3) announced AI products with accumulated R&amp;D further diversify Unity toolsets.


[Unity Software (U US) Earnings Review]: Maintain BUY as AI Spending Offset by Topline Growth

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Private Capital Markets

Unity Software  / Private Capital Markets

<ul>
<li>Founded in 2022, Unity Software Shanghai Co. (Unity 3D/Unity China) is a Chinese company that provides a 3D development platform, and AR/VR solutions to the gaming industry.</li>
<li>The company is a subsidiary of <a href="https://www.smartkarma.com/entities/unity-software-inc" target="_blank" data-smartkarma-citation="entities:29267:1" rel="noopener">Unity Software (U US)</a> and focuses on localisation Unity’s products and services to the Chinese market.</li>
<li>The company was valued at around US$1bn at the time of its formation and based on deal terms, might go for a listing when its valuation hits US$3.6bn.</li>
</ul>


Founded in 2022, Unity Software Shanghai Co. (Unity 3D/Unity China) is a Chinese company that provides a 3D development platform, and AR/VR solutions to the gaming industry.
The company is a subsidiary of Unity Software (U US) and focuses on localisation Unity’s products and services to the Chinese market.
The company was valued at around US$1bn at the time of its formation and based on deal terms, might go for a listing when its valuation hits US$3.6bn.


Unity Software Shanghai: Localizing Products and Services for Game Developers in China

<ul>
<li>We suggest that AIGC will be a short-term driver for the major companies in the online gaming industry. It could assist the rise of small-to-mid-size companies in the long run.</li>
<li>In the next 1-2 years, we expect that Tencent and NetEase’s EPS may improve by 13%/24% because of AIGC.</li>
<li>By adding more AIGC functions, Unity may also increase customers’ retentions in the near term. Maintain BUY to Tencent, NetEase, and Unity.</li>
</ul>


We suggest that AIGC will be a short-term driver for the major companies in the online gaming industry. It could assist the rise of small-to-mid-size companies in the long run.
In the next 1-2 years, we expect that Tencent and NetEase’s EPS may improve by 13%/24% because of AIGC.
By adding more AIGC functions, Unity may also increase customers’ retentions in the near term. Maintain BUY to Tencent, NetEase, and Unity.


[Gaming Sector Update]: AIGC: Short-Term Catalyst, Long-Term Challenge

United States

Unity Software Inc. provides software solutions. The Company offers graphic tools to create, run, and monetize real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices. Unity Software serves customers worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Unity Software (U US)

Tencent/SEA/Unity/Krafton: More Shooting Games Are Emerging, a Summary of Our Recent Channel Checks

We (1) maintain our BUY for Tencent and Unity, (2) maintain SELL for Sea, and (3) downgrade Krafton to SELL to reflect the new competition that...

Blue Lotus Research Institute

China/Asia TMT Update- Luckin/Unity/Coupang:No.10k Store, Apple Vision Pro, Congestion at Pyeongtaek

LKNCY: Luckin Coffee opened No.10k store (-)；U US: Apple provides Unity with unique development privileges for Vision Pro (+)；CPNG US: a congestion...

Blue Lotus Research Institute