20220525-招银国际-Eyes_on_new_titles_launch_4页_816kb

NetEase Inc. (NTES US) Summary

Core Content and Key Information

NetEase Inc. (NTES US) reported a strong 1Q22 financial result, with revenue and adjusted net profit exceeding expectations. The company's performance highlights its resilience against the ongoing impact of the epidemic and its robust business drivers.

• Revenue Growth: 1Q22 revenue increased by 15% YoY, surpassing both consensus and the analyst's estimate.
• Adjusted Net Profit: Rose by 1.2% YoY to RMB5.14bn, driven by higher-than-expected gross margin and effective operating leverage.
• Dividend Yield: Maintained a stable yield of 1.1% to 1.4% for FY22E to FY24E, indicating a strong shareholder return policy.
• Target Price: Remains at US$132, with a potential upside of +37.5% from the current price of US$96.0.

Main Points and Views

1. Strong Financial Performance

• Revenue: 1Q22 revenue reached RMB23,556 million, slightly below the previous quarter's revenue but above the consensus estimate.
• Online Game Segment: Contributed significantly to revenue growth, with a 15% YoY increase.
• Gross Margin: Improved to 54.5%, reflecting better cost control and pricing power.
• Operating Margin: Increased to 23.4%, showing enhanced operational efficiency.

2. Strategic Highlights

• New Titles Launch: The company is expected to benefit from the release of major titles such as Diablo: Immortal (launching on 3 Jun for global and 23 Jun for China), Harry Potter (overseas version), and the console and mobile versions of Naraka: Bladepoint.
• Pipeline and Catalysts: Strong game pipeline is anticipated to drive performance in 2H22E, with Diablo: Immortal as a key near-term catalyst.
• Overseas Expansion: The overseas launch of Harry Potter and potential international growth are seen as significant growth drivers.

3. Earnings and Valuation

• Earnings Estimates: CMBIGM maintains its earnings estimates, with a target price of US$132, implying a P/E ratio of 27.6x for FY22E and 24.2x for FY23E.
• Consensus vs. CMBIGM Estimates: CMBIGM estimates are slightly lower than consensus for FY22E, but the gap narrows in subsequent years.
• Valuation Metrics: The P/S ratio has been declining, indicating improving efficiency and revenue growth.

Financial Highlights

Revenue Trends

Adjusted Net Profit

EPS and P/E

Key Ratios

Shareholder and Market Information

• Market Cap: US$63,624 million.
• Shareholding Structure:
  • Invesco: 2.47%
  • UBS AG: 1.47%
  • Lei Ding: 1.35%
• Share Performance:
  • 1-mth: +12.8%
  • 3-mth: +6.0%
  • 6-mth: -14.5%

Analyst Recommendation

• Rating: BUY
• Justification: Strong pipeline, resilience against the epidemic, clear growth drivers, better margin outlook, and high dividend yield.
• Catalysts: Launch of Diablo: Immortal, overseas expansion, and next batch of game licenses.

Risk and Disclaimer

• Investment Risk: The report highlights that there are risks involved in transacting in any securities, and past performance does not guarantee future results.
• Disclaimer: The information in this report is not tailored to individual investors and should not be construed as an offer or solicitation to buy or sell any securities.
• CMBIGM's Liability: CMBIGM is not liable for any loss, damage, or expense incurred from reliance on the information provided.

Conclusion

NetEase Inc. (NTES US) is positioned for continued growth, supported by its strong game pipeline, resilience in the face of the epidemic, and a solid financial outlook. The company's financial performance and strategic initiatives make it an attractive investment, with a BUY rating maintained by CMBIGM. Investors are advised to monitor upcoming title launches and overseas expansion for further upside potential.