网易-S(09999.HK):游戏业务收入稳健增长 期待多款新产品上线

NetEase -S (09999.HK): Game business revenue is growing steadily and we look forward to the launch of many new products

天風證券 ·  06/03  · Researches

Event: The company released 23Q1 results on May 25th. NetEase's 23Q1 revenue was 25.046 billion yuan (3.647 billion US dollars), YOY +6.3%. Gross profit reached 14.897 billion yuan (US$2,169 million), YOY +16.0%. Gross margin reached 59.48%, yoy+4.98 pct, mainly due to changes in revenue mix.

Return to the mother's net profit was 6.755 million yuan (US$994 million), and YOY +53.72%. The net interest rate was 26.97%, yoy+8.31pct. 23Q1 operating expenses were 7.676 billion yuan, YOY +4.74%. 23Q1 sales expenses were 2,905 million yuan, YOY -0.36%, sales expenses ratio 11.60%, YOY-0.78pct. 23Q1 management expenses were 1,022 million yuan, YOY +0.58%, management fee rate 4.08%, yoy-0.23pct.

23Q3 R&D expenses were 3.750 billion yuan, YOY +10.35%, R&D expenditure rate 14.97%, YOY+0.55pct.

The game business is growing strongly, and the unique content of “AIGC+UGC” co-creates ecology-driven long-term business development. 23Q1 online gaming revenue was 18.601 billion yuan, YOY +7.64%. The gross profit margin for games and related value-added services in 23Q1 was 66.7%, yoy+4.6pct. The year-on-year increase was mainly due to changes in revenue mix. 23Q1 mobile game revenue was 13.448 billion yuan, YOY +16.33%, accounting for 72.3% of online game revenue. Based on a self-developed engine, the UGC map editing tool created by “Egg Party” helped the game maintain strong growth. It reached the top of the Chinese iOS download list, with more than 30 million daily active players and more than 100,000 new maps per day, creating an ecological barrier for highly sticky and social content. The “Against Water Cold” mobile game pioneered a number of cutting-edge AIGC technologies. Based on NetEase's Fuxi AI big model technology, the intelligent NPCs in the game will have their own personalities, emotions, and memories, be able to actively socialize with players and other intelligent NPCs, and form a network of relationships that iterate and update themselves in an open world. The mobile game “Against Water Cold” will be publicly tested on all platforms on June 30, which is expected to set a new industry benchmark in the MMORPG game field.

Cloud Music innovates business cooperation models and continues to develop healthily. 23Q1 Cloud Music's net revenue was 1,960 million yuan, YOY -5.19%. The gross profit margin was 22.4%, yoy+10.2pcts, mainly due to the continuous improvement of cost control. The company continues to innovate business cooperation models, including reaching a partnership with China Mobile Video Ring, upgrading the Dolby Atmos Zone experience, and covering more IoT terminals.

The quality of NetEase's carefully selected products has been further improved, and NetEase Media has launched a new metaverse marketing solution.

23Q1 NetEase's innovation and other business revenue was 1,858 billion yuan, YOY +12.83%. NetEase carefully selected and deepened the supply chain model, built multiple independent production lines for pet, household cleaning and other categories, and created multiple joint R&D laboratories to further improve product quality, production capacity, and R&D capabilities, and accelerate physical manufacturing upgrades. Among them, the independent pet food production line produced 60 tons per day, helping carefully select cat food to dominate multi-channel sales rankings. NetEase Media recently launched the pan-entertainment experience space “NetEase NETALAND” to provide brands with new metaverse marketing solutions.

The revenue of Youdao Learning Services is facing challenges, and the self-developed AI model is expected to take the lead in implementing the domestic education scene. 23Q1 NetEase Youdao's revenue was 1,163 million yuan, YOY -3.10%. The gross profit margin was 51.7%, yoy-1.4pct, mainly due to a decrease in net income from learning services. The company quickly iterates on functions such as the “AI Speaking Teacher” developed based on the self-developed model “Ziyue”, and will take the lead in implementing AIGC technology in domestic education scenarios.

Investment advice: At present, the company's various businesses are developing steadily, and the reserves of new products and subsequent IP are abundant. Considering the long-term operation of “Egg Party” and the launch of the blockbuster IP mobile game “Against Water Cold,” we have slightly raised our profit forecast for 23 years. NetEase's revenue for 23 years is estimated to be 110.7 billion yuan (previous value was 109.2 billion yuan), YOY +14.77%; NON-GAAP net profit is 24.197 billion yuan (previous value was 21.9 billion yuan), YOY +6.09%. The reasonable valuation range given to NetEase based on the SOTP valuation method was HKD5702-6913/USD719-87.2 billion, with the median corresponding target price of HKD182.55/USD118.56

Risk warning: Risk of increased market competition, risk of new game products being launched or falling short of expectations, version distribution falling short of expectations

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