在线音乐快速增长，盈利持续改善。根据财报，云音乐1H24 在线音乐收入yoy+27%，部分被直播业务的战略收缩抵消（社交娱乐yoy-20%）。Q2 云音乐毛利率yoy+5pct至32%，盈利能力持续改善。音乐赛道受宏观影响小，格局好，鉴于云音乐相对较低的付费墙比例其收入增长和盈利改善空间仍大。此外，有道Q2 收入yoy+9.5%，创新业务收入yoy+0.5%。Key points of investment:
Q2 Mobile games grew better than the industry, and the performance was steady. According to financial reports, NetEase 2Q24's revenue was 25.5 billion, YoY +6%; operating profit was 7 billion yuan, yoy +15%. Q2 Gaming and value-added business revenue yoy +6.7% to 20.1 billion, gross margin yoy +2.6pct to 70%, further increasing the high level. By category, mobile game revenue was 14.7 billionyoy +16%, PC game revenue was 4.55 billion the same year over year, and value-added business was 0.78 billionyoy -50% (CC live streaming adjustment). The double-digit growth of mobile games continues to be better than that of the industry (mobile game industry Q2YoY -5.7%). According to point data, Q2 “Dream Mobile Games” and “Fifth Personality” had strong year-on-year growth. “Mobile Games Against the Water Cold” contributed more year-on-year, but “Duckboy” declined more significantly. We achieved a 5% year-on-year increase in flow caliber based on delayed backtesting Q2. Q2, which has fewer new products, is already good.
Fundamental expectations have bottomed out, and mobile games are expected to drive growth in the second half of the year. Looking ahead, in terms of mobile games, according to point data, “Mobile Game Against the Cold” has a month-on-month trend, but we still need to observe the changes in “The Egg Boy”; the “Eternity” mobile game went live in July, breaking the new record for the first day. In terms of mobile games, the impact of the revisions of the core old products “Dream” and “Big Tales”, which the market was previously worried about is manageable; “Once Human” (Once Human) went on Steam in July and had a good reputation; the Super English PVP shooter game “Marvel Battle” is scheduled for December 6; and the martial arts open world “16 Sounds of Yan Yun” is expected to be launched within the year. Furthermore, Blizzard products have been restarted one after another, “World of Warcraft” has returned on August 1, and “Hearthstone” has been scheduled for September 25th. We expect rich mobile game products to be an important driver for the growth of the gaming business in the second half of the year.
Online music is growing rapidly, and profits continue to improve. According to financial reports, Cloud Music 1H24's online music revenue yoy +27% was partially offset by a strategic contraction in the live streaming business (social entertainment yoy -20%). Q2 Cloud Music's gross margin yoy+5pct reached 32%, and profitability continued to improve. The music circuit is less affected by the macro, and the pattern is good. Given Cloud Music's relatively low paywall ratio, there is still plenty of room for revenue growth and profit improvement. In addition, YouDao Q2 revenue yoy +9.5%, and innovation business revenue yoy +0.5%.
Q2 Repurchases have been accelerated. According to financial reports, the company's Q2 cash dividend was 0.435 USD/ADR, with a total dividend of nearly 2 billion RMB, with a dividend ratio of about 26% (Q1 27%). In 23, the company's dividend of 1.65 billion plus buyback 0.69 billion totaled about 2.3 billion US dollars, corresponding to 4.7% shareholder return. NetEase Q2 repurchased 0.29 billion US dollars (vs 1Q24 0.17 billion, 4Q23 0.06 billion, 3Q23 0.05 billion), and repurchases accelerated. The 23-25 repurchase plan of no more than 5 billion US dollars has repurchased 1.1 billion as of 1H24, and there is still a 3.9 billion limit. If subsequent repurchases continue to increase, the return to shareholders is expected to increase significantly.
Maintain a buy rating. Considering fluctuations in old game products (such as the “Dream” mobile game) and new product pipeline developments (such as the “Yanyun” extension), we adjusted the profit forecast. The estimated 24-26 revenue is 107.6/119.6/127.2 billion (original forecast 112.2/122.5/128.6 billion), and the adjusted net profit to the mother is 32.8/36.4/39.7 billion yuan (original forecast 34.1/37.9/40.9 billion yuan). Compatible with 24-26 PE 11/10/9x. Considering that the company's valuation is low, fundamentals are bottoming out, and shareholder returns are expected to accelerate, we have given a target price of HK$177 per share, maintaining the buying rating based on 47% room for growth.
Risk warning: Macroeconomic recovery falls short of expectations, marginal changes in game regulation policies, and the life cycle of games is shorter than expected.
