Furui: It is expected that the reduction of App Store commissions will have a small positive impact on the profitability of mainland entertainment companies.

Furui released a research report stating that Apple Inc. (AAPL.US) has lowered the commission rate for the China App Store, including reducing the commission rate for in-app purchases and paid app transactions from 30% to 25%. The firm believes that these measures are a positive factor for the overall entertainment sector and is expected to have a low single-digit impact on the earnings of major companies this year. Taking Tencent (00700) as an example, the market expects smartphone game revenue to increase by 11.7% to 256 billion RMB this year, accounting for 31% of total revenue. The firm estimates that seventy percent of this revenue comes from the domestic market, amounting to approximately 180 billion RMB. Assuming thirty percent of the revenue comes from iOS, and the commission rate is reduced from 30% to 25%, it is expected to have a low single-digit positive impact on earnings by 2026. As for Netease Inc Sponsored ADR (09999), the market expects game revenue to increase by about 8.5% to 97 billion RMB this year, accounting for 80% of total revenue. The firm estimates that ninety percent comes from the domestic market, with forty percent of game revenue coming from iOS. Considering that the new measures took effect in mid-March, the expected impact on earnings for this year is less than 3%. Regarding Kuaishou-W (01024), the market expects livestreaming revenue to remain at 39.4 billion RMB this year, accounting for 25% of total revenue. Assuming twenty-five percent comes from iOS, the positive impact of the commission rate reduction on earnings for this year is less than 2%. As for online music platforms, the firm predicts that the adjustments will have a positive impact on the earnings of Tencent Music Entertainment Group Sponsored ADR Class A (01698) and Netease Music (09899) of about 1% and 2% respectively.