网易-S(09999.HK):《蛋仔》创新突破助业绩稳增长 期待新品表现

NetEase -S (09999.HK): Innovative breakthroughs in “Egg Boy” help performance grow steadily and look forward to new product performance

中金公司 ·  05/07  · Researches

Revenue is predicted to increase 8% year over year in 1Q23

We expect the company's 1Q23 revenue to increase 8% year over year to 25.3 billion yuan, and non-GAAP net profit to the mother to increase 17% year over year to 6 billion yuan. The company announced that 1Q23 results will be released on May 25.

Key points of interest

The basic game is stable, and the new main product is advancing on a new track. We expect the company's 1Q23 revenue to increase 8% year over year, with mobile games increasing 12% year over year to 12.7 billion yuan. We determine that the main increase comes from: 1) The contribution of the new “Egg Party” tour increased year-on-year. We expect the total volume of water flowing from January to March to be in the 2.5 to 3 billion yuan range. Within the quarter, the product achieved daily recovery/record highs through new season updates, collegiate co-creation contests, and joint activities. We believe that the product is the company's new experiment at the Grand DAU Sports Circuit. Judging from the operation in recent months, it has achieved initial success and is expected to become the company's new basic market. 2) Flagship products such as “Dream Westward Journey” are steadily rising, laying a good foundation.

Cloud Music maintained high growth, and was affected by the pandemic or was under some pressure during the quarter. In terms of cloud music, we expect Q1 revenue to increase 19% to 2.45 billion yuan, mainly benefiting from the continued return of copyright, the continued construction of a community atmosphere, and holiday factors. On the other hand, considering that the first quarter is still in the early stages of restoration, and offline channels (educational hardware), literacy, and adult courses are still under pressure, we expect Yudao's Q1 revenue to drop by 4%.

The innovative nature of the “Against Water Cold” mobile game test has been verified, and pipeline visibility is expected to gradually become clear throughout the year as the test progresses and the release number is issued. The company's key MMO blockbuster “Against the Cold Water” mobile game began a second test on a scale of 50,000 people on April 28. It has several main characteristics: 1) the picture performance is excellent, showing vivid expression in terms of character facial details, clothing, lighting and shadow effects; 2) Diversified gameplay, integrating various types of main/side gameplay content, diverse combat movements, and new gameplay modes to enhance the flexibility of game users' choices; 3) Intelligent NPC applications that can interact with users, support AIGC's face-pinching lyrics, etc., to enhance the freedom and immersion of the user experience; 4) Balance the user experience; 4): The overall use of relatively friendly recharge points/ Level design, and there is no mandatory requirement for long-term investment. The product is scheduled to be tested on June 30. Currently, the number of pre-orders has exceeded 30 million. We believe that the “Against Water Cold” mobile game will break through the MMO category in a new round and increase revenue for the company's performance. In addition, the company already has products with obvious gameplay or model breakthroughs in segmented tracks, such as “Amazing Pioneer” (which is expected to be scheduled for June of this year) and “Pinnacle Speed” (all have editions), and has conducted many rounds of testing in the first half of the year. We believe the products all have plans to go live during the year, which is expected to contribute to the increase in turnover.

Profit forecasting and valuation

Considering that the sales performance of products such as “Egg Party” exceeded expectations, the normalization of the pace of release numbers is expected to boost performance. The 2023/24 non-GAAP net profit forecast was raised by 4%/4% to 24.1 billion yuan/26.6 billion yuan.

The current Hong Kong/US stock prices all correspond to the 2023/24 non-GAAP P/E 16/14 times, respectively. Maintaining an outperforming industry rating and a target price of HK$175/$112 based on the SOTP valuation method correspond to the 2023/24 non-GAAP P/E of Hong Kong/US stocks 22/20 times, respectively. Upside space 25%/26%.


The macroeconomic economy is sluggish, regulatory policies are becoming stricter, the game's launch process or performance has fallen short of expectations, cost investment has exceeded expectations, and overseas competition has intensified.

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