NTES(09999) 国信证券·2024-11-18 12:31Investment Rating - The report maintains an "Outperform" rating for NetEase-S (09999 HK) [2][5][28] Core Views - NetEase's PC gaming revenue showed strong growth, while mobile gaming revenue declined due to a high base effect [3][19] - The company's gaming business is stabilizing, with key focus on the upcoming game "Yanyun Sixteen Sounds" [3][21] - NetEase's old games like "Fantasy Westward Journey" remain stable, while "Identity V" and "Naraka: Bladepoint" continue to perform well [3][21] - The company's game development capabilities and pipeline are strong, with multiple new games set to launch [5][21] Financial Performance - In Q3 2024, NetEase reported revenue of RMB 26 2 billion, down 4% YoY, with Non-GAAP net profit of RMB 7 5 billion, down 13% YoY [2][10] - The company's gaming revenue was RMB 20 2 billion, down 1% YoY, with PC gaming revenue up 29% YoY to RMB 5 9 billion [3][19] - NetEase's deferred revenue grew 10% YoY to RMB 15 5 billion [3][20] - Youdao's revenue increased 2% YoY to RMB 1 6 billion, with advertising revenue up 46% YoY [4][22] - NetEase Cloud Music's revenue grew 1% YoY to RMB 2 billion, with gross margin improving 5 6 percentage points to 32 8% [4][26] Business Segments Gaming - PC gaming revenue growth was driven by the return of "World of Warcraft" and the strong performance of "Naraka: Bladepoint" [3][19] - "World of Warcraft" saw a 50% increase in daily active users compared to pre-shutdown levels, while "Hearthstone" saw a 150% increase in active users [3][21] - New games like "Marvel Rivals" and "Yanyun Sixteen Sounds" are set to launch in December 2024 [3][21] Youdao - Youdao's learning services revenue declined 19% YoY to RMB 770 million due to business restructuring and optimization [4][22] - Smart device revenue grew 25% YoY to RMB 320 million, driven by new product launches [4][22] - Advertising revenue increased 46% YoY to RMB 490 million, supported by the application of AI technology [4][22] NetEase Cloud Music - NetEase Cloud Music's gross margin improved significantly, reaching 32 8% in Q3 2024, up 5 6 percentage points YoY [4][26] - The improvement was attributed to increased music subscription revenue and better cost control [4][26] Valuation and Forecast - The report revised down NetEase's profit forecasts for 2024-2026, with adjusted net profit estimates of RMB 32 billion, RMB 36 1 billion, and RMB 38 billion, respectively [5][28] - The target price was adjusted to HKD 157-181, representing a 22% reduction [5][28] - The valuation is based on a 13-15x PE ratio for 2025 [5][28]