[中报]三七互娱(002555):2024年半年度报告摘要（英文版）
原标题:三七互娱:2024年半年度报告摘要（英文版） 37 Interactive Entertainment Network Technology Group Co., Ltd. 2024 Interim Report August 2024 Part I Important Notes, Table of Contents and Definitions The Board of Directors (or the “Board”), the Supervisory Committee as well as the directors, supervisors and senior management of 37 Interactive Entertainment Network Technology Group Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee the truthfulness, accuracy and completeness of the contents of this Report, and shall be jointly and severally liable for any misrepresentations, misleading statements or material omissions therein. Xu Zhigao, the Company’s legal representative, and Ye Wei, the Company’s Chief Financial Officer & Board Secretary, hereby guarantee that the financial statements carried in this Report are truthful, accurate and complete. All the Company’s directors have attended the Board meeting for the review of this Report. Any plans, development strategies and other forward-looking statements in this Report shall not be deemed as earnings forecasts or promises to investors. Investors and other stakeholders shall be fully aware of the risk and understand the difference between plans, forecasts and promises. Possible risks facing the Company and countermeasures have been detailed in “VII Risks Facing the Company and Countermeasures” under “Part III Management Discussion and Analysis” herein, which investors are kindly reminded to pay attention to. The Company is subject to the disclosure requirements for listed companies engaged in software and IT services. The Board has approved an interim dividend plan as follows: based on the total issued share capital (exclusive of shares in the Company’s account for repurchased shares) on the date of record, a cash dividend of RMB 2.10 (tax inclusive) per 10 shares is planned to be distributed to all the shareholders of the Company, with no bonus issue from either profit or capital reserves. Table of Contents Part I Important Notes, Table of Contents and Definitions ............................................................................... 2 Part II Corporate Information and Key Financial Information ............................................................................ 4 Part III Management Discussion and Analysis ................................................................................................ 6 Part IV Corporate Governance................................................................................................................... 25 Part V Environmental and Social Responsibility............................................................................................ 28 Part VI Share Changes and Shareholder Information ..................................................................................... 30 Part VII Financial Statements .................................................................................................................... 37 Part II Corporate Information and Key Financial Information I Corporate Information
Indicate by tick mark whether there is any retrospectively restated datum in the table below. □ Yes ? No
□ Applicable ? Not applicable No difference for the Reporting Period. 2. Net Profit and Equity under CAS and Foreign Accounting Standards □ Applicable ? Not applicable No difference for the Reporting Period. V Non-recurring profits and losses ? Applicable □ Not applicable Unit: RMB
□ Applicable ? Not applicable No such cases for the Reporting Period. Explanation of why the Company reclassifies as recurrent a non-recurring profits and losses item listed in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Non-recurring Profits and Losses Items: □ Applicable ? Not applicable No such cases for the Reporting Period. Part III Management Discussion and Analysis I Principal Operations of the Company in the Reporting Period (I) Industry review 1. Industry information In 2024, according to the China’s Game Industry Report from January to June 2024 (hereinafter referred to as the “Report”) released by the Game Publishing Committee of China Audio-video and Digital Publishing Association (CADPA), China’s game industry maintained steady growth in the first half of this year. The actual sales revenue of China’s game market was RMB147.267 billion, a year-over-year (YoY) increase of 2.08%. During the same period, there were 674 million game players in China, with a YoY increase of 0.88%, hitting a new record high. In overseas markets, in the first half of this year, the actual sales revenue of China’s self-developed games was USD8.554 billion, up 4.24% YoY. The US, Japan and South Korea remained the major overseas markets for China’s mobile games, accounting for 33%, 15.66% and 8.82%, respectively, totalling 57.48%. Among the top 100 self-developed mobile games by overseas revenue, strategy games continued to dominate, making up 32.66% of the total, while simulation games experienced an increase from 5.28% last year to 9.97% this year. At the same time, multiplayer online battle arena (MOBA) games represented 9.07%, higher than last year’s 3.83%. Incremental games also saw a rise from 3.95% to 7.5%. These three categories showed notable revenue growth. In contrast, the share of role-playing games (RPGs) dropped substantially to 10.48%. Furthermore, global users’ behaviours and preferences become more fragmented in 2024, making lightweight games a major trend in the global game industry. In China, the number of applet games has surged, offering a variety of genres, theme s, and gameplay to meet players’ demands for lighter and more diverse forms of entertainment. This has injected new vitality into the game industry. According to the Report, in the first half of 2024, applet mobile games recorded RMB16.603 billion in revenue, marking a 60.5% YoY increase. 2. Changes in the industry’s policy environment and their impact on the Company In August 2024, the State Council issued the Guideline on Boosting High-quality Development of Service Consumption (hereinafter referred to as the “Guideline”). The Guideline outlined several key tasks aimed at boosting the vitality of life- enhancing consumption, including cultural and entertainment consumption. Furthermore, the Guideline calls for more efforts to “improve the quality of online literature, online performances, online games, radio and television programmes, and online audiovisual services” and “encourage the development of new business formats such as immersive experiences, script-based entertainment, digital art, and online performance live-streaming”. These initiatives are expected to further boost high-quality development in the industry. In July 2024, the Third Plenary Session of the Twentieth Central Committee of the Communist Party of China approved the Decision of the Central Committee of the Communist Party of China on Further Deepening Reforms in a Comprehensive Way and Promoting Chinese-Style Modernisation, which put forward further requirements for improving the systems and mechanisms for promoting high-quality economic development and deepening the reform of the cultural system. In March 2024, the State Council unveiled the Regulation on the Implementation of the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests. This regulation further refines and adjusts the provisions regardin g consumer rights and interests, business obligations, and penalties based on the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests. The Company attaches great importance to compliance in both game operations and promotional activities. By continuously improving its internal systems for content compliance and risk control, the Company safeguards consumers’ rights and interests and strictly prevents risks. The Company has stringent review processes in place f or user rights and interests protection, account management, personal data protection, identification and handling. Additionally, the Company has established a dedicated customer service portal for complaints on its website. This has enabled quick and timely handling of user complaints, provision of necessary protection and assistance services, and reporting to relevant authorities. In terms of protection for minors, apart from implementing the real-name authentication system and anti-addiction requirements required by competent authorities, the Company has strengthened protection for minors by consistently improving and upgrading its protection system for minors. We have always advanced various tasks in a proactive and positive manner to ensure minors are well-protected in cyberspace. The Company has rolled out an upgraded version of the "real-name registration and anti-addiction system for minors" for our proprietary platforms. Additionally, we have optimised the logo and wording of the "age-appropriate prompt". Meanwhile, the Company has refined and upgraded our "Parent Monitoring Platform", optimised our customer service procedures, and aided guardians in queries and verification, all aimed at creating a clean and healthy cyberspace for minors. The game industry continues to enhance the guiding role of online games in disseminating positive values and uplifting content and drive healthy and orderly development. Against this background, the unswerving pursuit of boutique, premium, and healthy products in the industry has led to a constant stream of exceptional works, substantially contributing to the preservation and promotion of traditional Chinese culture. In response to national policies, the Company has earnestly implemented management requirements. On one hand, it delved into the essence of traditional culture in game R&D and operational strategies. And it has sought to integrate cultural significance into player experiences and apply innovative technologies. On the other hand, the Company continuously excavated historical and cultural resources, hoping to showcase the beauty of Chinese traditional culture in an integrated way through "Games+", thereby enabling mutual empowerment of both cultural and industrial values. For example, the Company incorporated Peking opera facial makeup, Cantonese culture, and the ancient Maritime Silk Road into its globally published game Trading Legend (叫我大掌柜), helping overseas players gain a deeper understanding of Chinese culture. Furthermore, it actively explored the "Games+" integrated development model of "technology + cultural tourism". The Company has launched the “City Walk Programme” with an innovative model that combines the virtual character "CongMei" and real-world cultural tourism scenarios to facilitate the promotion of cultural tourism in cities such as Guangzhou and Wuhu. The ultimate goal is to advance the digital promotion and preservation of traditional culture and new consumer scenarios of cultural tourism in the new era. The Company adheres to technology-driven innovation, closely follows the latest trends in scientific and technological innovation, and explores the potential for deep integration of AI and other emerging technologies with the Company's business . Also, it improves work efficiency and promotes organic innovation capabilities. At the same time, focusing on promoting the cross- industry integration of game technologies, the Company launched a series of popular science games with rich themes covering medicine, traditional Chinese medicine, aerospace, intangible cultural heritage, and more to maximise the positive social impact of games by leveraging the unique interactivity and vividness of games. In this July, the Company’s aerospace-themed educational game Fei Tian Meng Xiang Qi Hang (飞天梦想启航) was awarded the “Best Innovative Social Value Award” at the 4th China Game Innovation Competition for its creative and engaging presentation of aerospace science. During the Reporting Period, leveraging its business strengths and early arrangements in artificial intelligence (AI), the Company played a significant role in drafting the association standard—Compliance Guidelines for Data Application of Generative Artificial Intelligence. This standard offers companies a valuable reference for their compliant application of generative AI, helping to enhance their data security capabilities. The Company has remained focused on its core business and deepened its "integration of R&D and operation" strategy. We have continued to enhance our capability of producing quality games, solidify our core competitive edge in overseas expansion , and explore possibilities of integrating technology into our business by leveraging resources both within and outside the technology domain. With steady strides, we have advanced high-quality and sustainable business development, dedicated to offering the public a wealth of premium cultural content. (II) The Company’s principal operations and products The Company specializes in the development and publishing of games for global players, with the excellent game development brand “Three Seven Games”, as well as professional game publishing brands “37Mobile”, “37GAMES” and “37Online”. The Company precisely grasped the industry development trends, made continuous improvements in operation, and remained a top performer in the industry, while adhering to the "boutiqueization, diversification and globalization" strategy. For the Reporting Period, the Company recorded operating revenue of RMB 9.232 billion, a YoY increase of 18.96%, and a net profit attributable to its shareholders after deducting non-recurring profits and losses of RMB 1.275 billion, a YoY increase of 14.27%. The Company's business development has accelerated significantly. 37 Interactive Entertainment
1. Continuously enhancing the long-term operation of diverse products In response to industry trends, the Company has consistently adhered to the "diversification" strategy, understanding the demands of diverse user bases and continuously expanding its user base. By tapping into new markets and nurturing new growth drivers, we have continuously pushed back the boundaries of our game genres. In addition to delving into the existing four primary genres: Massive multiplayer online role playing games (MMORPGs), strategy games, gacha games, and business simulation games, we have developed games where RPG, casual, and puzzle elements are incorporated. These diverse and lightweight games have diversified player experiences. During the Reporting Report, the Company celebrated the third anniversary of its self-developed card mobile game The Soul Land: Hun Shi Dui Jue (斗罗大陆：魂师对决). To mark that special occasion, the Company introduced new soul masters and gameplay revolving around the “Tang San’s Journey to Becoming a God” storyline in the original work. This update evoked a sense of nostalgia among users for the IP, increasing the number of the game’s daily active users and prolonging the product life cycle. Regarding the mobile game Fan Ren Xiu Xian Zhuan: Ren Jie Pian (凡人修仙传：人界篇), the Company launched its anniversary version in mid-2024, which featured new content of the Immortality Chapter and was published using a traffic management-centric approach. This has not only helped the Company expand its active user base but has also allowed it to continuously improve the game’s ecosystem and enrich players’ experiences. The game has thus become a flagship product in the Company’s cultivation-themed massively multiplayer online role-playing game (MMORPG) lineup. Trading Legend (叫我大掌柜), a Chinese-style simulation mobile game of the Company, has successfully converted new players through an engaging and nostalgic marketing approach and intellectual property (IP) collaborations. By creating a long- term ecosystem with a focus on user interactions, this game has consistently sparked a boom. On the game’s third anniversary, a “palace version” featuring ancient palace elements was released. In this version, players role-play as minor palace characters and climb the ranks. This version has helped the Company expand its user base and prolong the game’s life cycle, further demonstrating the Company’s capability of long-term operation. We adopted an innovative marketing approach combined with top-tier celebrity endorsements for Ba Ye (霸业), one of our self-developed strategy mobile games on the theme of the Three Kingdoms. With a constant stream of creative materials, this game saw a growing player base, helping the Company stabilise the structure of its strategy game portfolio. During the Reporting Period, the Company released the anniversary version of its Chinese-style fun cultivation game Xun Dao Da Qian (寻道大千). Combining teamwork-based social interaction with strategy gameplay, this version featured deepened content and increased engagement, enhancing user stickiness. This version also saw an in-depth collaboration between the game Xun Dao Da Qian (寻道大千) and other popular IPs, such as the novels Soul Land and A Record of a Mortal’s Journey to Immortality, and the animated movie Ne Zha. The differentiated content and customised integration have offered players immersive experiences and new unique gameplay. As a result, the game achieved long-term operation through brand empowerment and social interaction, and helped the Company garner leading experience in the mini-game domain. Through the deconstruction of IP content and the innovative fusion of mini-game play, Ling Hun Xu Zhang (灵魂序章), the self-developed game based on the Soul Land IP, has displayed robust potential since its launch, further reinforcing the Company's competitive edge in the mini-game industry. Regarding the 3D realistic ant-themed strategy mobile game, Underground Kingdom (小小蚁国), the Company has continuously optimised its mechanics to help players gather resources more efficiently and make the overall gaming experience more seamless. This optimisation has reduced the daily quest burden on players, improved long-term player retention, and ensured steady operations. In August 2024, the modern-themed simulation mobile game Shi Guang Za Huo Dian (时光杂货店) was published by the Company as the agent. Fully recreating the 1990s, the game offers players a chance to relive childhood memories. To ensure better immersive experiences for players, the Company forged collaborations between the game and popular film and TV productions. This has further enhanced the Company’s edge in publishing and operating business simulation games. The Company consistently adheres to long-term operation, providing players with meticulous and comprehensive long-term services. It deeply integrates the highlights of its intellectual property (IP) to continuously innovate in terms of reflow methods and activities, consistently prolonging the product life cycle and igniting product vitality. During the Reporting Period, the highest monthly gross billing of the Company’s globally published mobile games exceeded RMB 2.3 billion. Games such as Puzzles & Survival, Trading Legend (叫我大掌柜), and The Soul Land: Hun Shi Dui Jue (斗罗大陆：魂师对决), which have been launched for over three years, continued to perform well, demonstrating the Company’s strong capabilities of long-term game operation. 2. Continuously exploring global market opportunities During the Reporting Period, the Company achieved overseas operating revenue of RMB 2.898 billion. The Company, drawing upon its years of experience in overseas expansion, has continuously explored its overseas markets in line with the "tailored games" strategy. We have consolidated our strengths in sectors such as MMORPGs, strategy games, gacha games, and business simulation games, and opened up opportunities in the casual game market, thereby boosting the steady growth of our overseas business. Puzzles & Survival, a phenomenal product launched overseas by the Company, integrates "Match-3 gameplay + SLG". It demonstrates the continuous efforts made by the Company to explore the in-depth integration of creative elements and games. This game has become a benchmark for long-term operation within the Company. For example, the “Volcano Journey” version released this year took players on a thrilling escape adventure using the design of volcanic eruptions and crises, leading to increased player satisfaction for this version. Since its release in 2020, Puzzles & Survival has generated over RMB10 billion in gross billing, consistently ranked among Japan’s top ten bestsellers and the top 30 in Europe and the US. The ant-themed game Ant Legion aims to represent a realistic and detailed insect world. By delving into player demands through preliminary research and considering the R&D and operational capacity, the Company has developed an immersive, ant world-themed version. In this version, players build ant colonies, fend off predators, and lead their ant armies to conquer the challenging natural environment, securing victories one after another. These continuous breakthroughs have led to a steady rise in player satisfaction. During the Reporting Period, the Company continued to explore player preferences and market trends within the strategy game genre to iterate high-quality products through theme diversification and gameplay differentiation. For example, as an iteration of Puzzles & Survival, Puzzles & Chaos integrates “Match-3 gameplay + SLG” while retaining the core experiences of Puzzles & Survival. Compared to its predecessor, Puzzles & Chaos features greatly enhanced art design and special effects. Since its launch, the game has consistently broken new ground in overseas markets, ranking among the top 20 strategy games in different regions worldwide multiple times. Likewise, in Mecha Domination, a mechanised beast-themed mobile strategy game launched in Europe and the US in April this year, the highly free gameplay of beast capture and initial city-building simulation have enhanced the sense of immersion, attracting a diverse range of players and greatly expanding the user base of traditional strategy games. These have earned the game a top five spot on the Google free strategy game chart in 23 countries and regions on a cumulative basis. The Company has also implemented a strategy of "lightening hardcore games and intensifying light games" to create differentiated competitive edges. For example,?? M focuses on highlighting the core enjoyment through "simplification", thus establishing a distinctive edge in the gaming experience. This approach has enabled the game to stand out in the fiercely competitive mobile MMORPG market in South Korea, contributing to sustained and robust gross billing. And this game has become a flagship product in the Company's overseas MMORPG segment. The Company has deeply integrated the gameplay themes and promotional materials of its products with excellent traditional Chinese culture. This approach creates a communication method that resonates with diverse regional, national, and audience groups, promoting the global expression of Chinese stories. For example, the ancient-style simulation mobile game Trading Legend (叫我大掌柜) has demonstrated the Company’s commitment to carrying forward traditional Chinese culture. During the Reporting Period, the Company initiated collaborations between the game with the classic costume drama The Legend of Zhen Huan and the Chinese comic book Fox Spirit Matchmaker. The goal is to bring distinctive gameplay to global players, giving them an immersive taste of Chinese culture. The casual incremental mobile game Xiao Yao Wen Dao (小妖问道) features meticulously customised promotions in localities and thematic packaging. Through collaboration with popular fantasy IPs such as Soul Land and A Record of a Mortal’s Journey to Immortality, this game has contributed to cultural exchanges, achieved impressive market performance, and garnered positive feedback from international players. These have laid a solid foundation for the Company’s expansion into overseas markets of casual incremental games. 3. Building a rich product pipeline with self-developed and agency games The Company focuses on its core gaming business. On one hand, it continuously expands the boundaries of self- development capabilities, actively expands into various categories, and develops products with a global perspective. It carefully works out details regarding gameplay design, art quality, music effects, etc., continues to invest in product iteration, user experience and other aspects, and has formed professional layouts in MMORPGs, strategy games and light games. Remaining "Dedicated to Making Premium Games", it has a strong pipeline of refined self-developed mobile games. On the other hand, based on its self-developed brands, the Company consistently prioritises high-quality content as its strategic direction. Through multi-dimensional approaches such as investment empowerment and business support, the Company has carried out in-depth collaborations with reputable game developers such as EyuGame and Yanqu Network. This approach has allowed the Company to accumulate abundant external R&D reserves, which is conducive to its diversified arrangements for product supply. This year, the Company has published several new games, including Shi Guang Za Huo Dian (时光杂货店), Heroes of the Three Kingdoms: Hong Hu Ba Ye (三国群英传：鸿鹄霸业), Mecha Domination, Primal Conquest: Dino Era, and Yes Your Highness. Currently, the Company has built a portfolio of games across genres such as MMORPGs, strategy games, gacha games, and business simulation games. These games cover diverse themes, including Western fantasy, Oriental fantasy, Three Kingdoms, modern themes, and ancient themes. Among these games, several mobile games have been officially licensed in China, including the Chinese comic oriental fantasy MMORPG The Soul Land: Lie Hun Shi Jie (斗罗大陆：猎魂世界), the traditional Chinese ink painting-themed business simulation game Zhui Xu (赘婿), and the picture book-style business simulation game on a Chinese cultural theme Shi Guang Da Bao Zha (时光大爆炸). They are progressing towards launch. We hope to deliver diverse gaming experiences to players. Certain key games in the pipeline are presented below:
4. Bolstering R&D and operations and improving quality and efficiency using AI technology With the rapid advancement of technology, AI has brought limitless possibilities and profound impacts to the game industry. Embracing the application of AI in the game industry, the Company has adopted a "Three-step AI" strategy. First, pioneering arrangements for AI applications have been made to progressively incorporate AI into various business processes. Second, leveraging accumulated experience, the Company has striven to achieve tool- and module-based development, thereby establishing a more automated and intelligent pipeline of game industrialisation. Third, the Company has explored more possibilities of enriching gameplay through AI. In 2018, the Company made ongoing efforts to explore the application of industrialised AI in gaming. By deeply integrating cutting-edge technologies such as AI and big data into its business, the Company effectively empowered various processes, ranging from product proposal, content generation, publishing and operation to asset accumulation. This has allowed the Company to enhance efficiency and accumulate a wealth of data and technological advantages over the years. We have bolstered the tool-based and module-based development of our capabilities in alignment with our business procedures, integrating discriminant AI and generative AI into each process of our business. This has culminated in the development of a digitalised and intelligent product portfolio that runs through our entire R&D and operational procedures. This portfolio covers platforms including "Zeus", "Athena", "Poseidon", "Ares", and "Cupid" on the R&D end and "Turing", "Quantum", "Destiny", and "Yi Lan" on the ends of promotion and operations, significantly improving the industrialisation of the game R&D and operation network. Take the "Turing" platform for example. By carrying out consistent training of its proprietary art assets garnered over the years, the Company has experienced substantial efficiency improvements in 2D art-related tasks through AI empowerment, with a combined monthly output of over 280,000 AI-generated 2D drawings across R&D and publishing business lines. In the concept design process for characters, the Company has implemented a new process of AI-generated 2D drawings, resulting in an average saving of 60% to 80% in working hours. And this platform can produce over 80 videos and 200 audios per week. In terms of R&D, the Company has utilised its intelligent R&D platform "Cupid" to conduct a variety of technological studies and applications, including AI balance testing, the translation of art materials, AI imitation learning, game Q&A assistant, natural language processing (NLP) public opinion analysis, and data trend forecasting. Moreover, AI algorithms have been employed to capture high-precision and high-performance motions, and the capture function for facial expressions has been introduced, addressing the pain points such as high costs and overly long periods typically identified with specialised traditional motion capture equipment. This has enhanced both R&D efficiency and quality. Many of our self-developed products such as The Soul Land: Hun Shi Dui Jue (斗罗大陆：魂师对决), Ba Ye (霸业), and The Soul Land: Lie Hun Shi Jie (斗罗大陆：猎魂世界) have benefited from the AI-assisted stat balance testing function, resulting in improved player experiences and prolonged game life cycles. AI technology has been deeply integrated into each business type of the Company, notably enhancing the operational efficiency of each process. During the Reporting Period, the Company upgraded its self-developed internal AI office tool “Xiao Qi” into a smart office assistant capable of handling complex tasks. The upgraded tool has enhanced the automatic decision-making features of the Company’s digitalised and intelligent products, covering features such as search queries, graphic design, document creation, translation, customer service, data analysis, and team analysis. Used by over 90% of employees, with each employee using it 15 times per week on average, the tool has improved the Company’s office collaboration and overall operational efficiency substantially. Furthermore, as to the exploration of AI's potential for enriching gameplay, the Company is wholeheartedly embracing the AI trend, continually delving into novel gameplay mechanics and experiences internally. For example, ongoing efforts are made by the Company to research the development of an intelligent NPC system that integrates large language models, AI voice, and AI motion capture technologies. The system aims to enhance character-player interaction. Meanwhile, based on the multimodal artificial intelligence generated content (AIGC) algorithm, the Company is working to develop a platform for generating game community content (such as game fight reports, music, and videos), thereby improving the quality and efficiency of content creation within the game community. During the Reporting Period, the Company developed a casual tile-matching game of which the game plot, materials, voice-overs, music and other elements were completed by AI, and continued to explore the possibility of producing a game completely by AI. Meanwhile, the Company is also optimising AI applications on the user experience side. This move aims to offer users a more immersive and personalised experience by integrating discriminant and generative AI technologies with game content. 5. Empowering business innovation and sustainable development through investment Benefiting from our pioneering strides in the exploration of AI applications, we have remained open-minded about transformations in industry technologies and ecosystems. Marching forwards steadily and surely, we have insisted on a progressive layout of AI applications and continuously iterated and optimised innovative tools in better alignment with the Company's business development requirements. Furthermore, taking into consideration the requirements of each business process, we have been exploring the in-depth integration of advanced technologies and business. In recent years, the global AI technology sector has entered a new stage of development. Riding the technological transformation trend, the Company advances both independent exploration and internal development. Meanwhile, the Company focuses its investment arrangements in such areas as foundational large models, AIGC, “AI + computility”, and interactive sensors. This approach helps the Company capture innovation opportunities for cutting-edge technologies and promote collaboration and connection between its investment activities and principal business. The Company invests in large language models and application layers and continually explores the applicability of these models to the Company’s R&D line. Specifically, the Company has, directly or indirectly, invested in leading companies such as Zhipu AI, Baichuan AI, Moonshot AI, aiXcoder, DeepLang AI, Yahaha, Studio 51, and DeepMirror Technology. Supported by foundational large models, the Company strives to unlock the potential of AIGC to empower diverse vertical scenarios. Furthermore, the Company is actively expanding into the “AI + computility” sector. To this end, it has invested in firms such as CIX, Tingyu Tech, Huixi, HYQ, and Eeasy Tech. These investments aim to build an integrated industrial chain, linking computility infrastructure, large language model algorithms, and AI applications. The Company continuously monitors hardware and technological advancements, with a strong focus on hard & core technology, and emphasises business synergy. It has invested in cultural, entertainment, and high-tech sectors, such as computility, optical displays, extended reality (“XR”) devices, cultural and entertainment content, semiconductors and materials, spatial computing engines, AI, new sensing technology, and AIGC-based social platforms for games. The Company’s goal is to empower innovative and sustainable business growth through investments, thereby forging new competitive edges in the industry. (III) The Company’s principal operations and business models The Company is principally engaged in the development, publishing, and operation of online games (mostly mobile and browser games). The business models of the Company’s online games mainly include independent operation and third-party joint operation. Under the independent operation mode, the Company obtains the licenses of games through independent R&D or being an operator of other games, and publishes and operates these products through its own or third-party channels. The Company is fully responsible for the operation, promotion and maintenance of the games; providing unified management services for online promotion, online customer service and top-up payment; and updating games along with game developers based on the real-time feedback of users and games. Under the third-party joint operation mode, the Company cooperates with one or more game operators or game application platforms to jointly operate games. And the aforesaid parties are responsible for the management of their own channels, including operation, promotion, the recharge and charge system, while the Company provides technical support services along with game developers. (IV) The Company’s presence on the market and primary growth drivers Focusing on cultural and creative businesses based on the development, publishing, and operation of online games, the Company is an excellent comprehensive entertainment provider in China’s A-stock market. It is a Key Cultural Export Company of China, Demonstration Base for China’s Cultural Industry, Civilized Institution in Guangdong Province, and Top 30 Cultural Enterprise （未完）  |