GLONGHUI, March 4 | China Merchants Securities released a report stating that NetEase's revenue for the fourth quarter of last year was 27.1 billion yuan, up 7% year on year, lower than expected, mainly due to a 29% year-on-year growth lower than expected; non-GAAP (non-GAAP) operating profit margin and adjusted net profit increased 45% and 52% year-on-year, mainly due to increased gross margin of games and cloud music. For this year, the bank expects NetEase's existing games to continue to perform well, such as “Against the Cold”, “Egg Boy Party”, “Top Speed”, and “All-Star Street Ball Party.” Meanwhile, new games with potential to launch later this year, such as “16 Sounds of Yan Yun”, “Mission Zero”, and “Shoot Out”, as well as “Everlasting Mobile Game,” which received a version number in February and is expected to be released in the second season, are all highly anticipated by the market. The bank expects NetEase's revenue to grow at an average compound annual rate of 12% from 2023 to 2025, and core operating profit to meet the growth rate of 18%. Furthermore, in the second half of last year, Cloud Music's revenue fell 16% year-on-year to 3.9 billion yuan, and the net increase of online music subscribers was 2.3 million to 44 million, driving online music revenue to increase 22% year over year, in line with expectations. The bank expects a compound annual revenue growth rate of 11% from 2023 to 2025, and the core operating profit margin is 55%, because the bank expects Cloud Music to gradually narrow the gap with Tencent Music (21% last year) in terms of core operating profit margin (5% last year). The bank raised NetEase's ADR target price from $134 to HK$136, and raised the NetEase H share target price from HK$209 to HK$212. It believes that the company's fourth quarter results last year were slightly lower than expected, but it did not change the optimistic outlook for this year, and is optimistic about NetEase's strong game development capabilities, rich game reserves, and measures to continuously improve profit margins, as well as the growth of cloud music paying users and increasing profit margins.