XD Inc. (2400.HK): Unique gaming platform at discounted valuation; Growth inflection and narrative shift from 2H26, upgrade to Buy

We upgrade XD to Buy as we see the company is now resetting for a growth inflection and a potential narrative shift starting from 2H26E, while the stock is trading at historically low valuation levels, even post the earnings cut following the 1H26 result. We believe XD (TapTap) remains a unique game distribution platform for gamers and developers, and in the era where gaming supply is becoming abundant with the help of AI creation tools and more license approvals, the platform's value will be better appreciated. Initiatives such as TapTap PC and TapTap Maker should enhance the community ecosystem, expand its user scale, and bring new revenue streams in the long run. In 1H26 XD's P&L was impacted by elevated AI spending and traffic cannibalization among AI created games, but as it re-directs traffic/monetization and with the progress of TapTap Maker, we see the platform serving as an important game creation, testing and distribution channel for the gaming industry, as well as a growing