研究报告全文：MN24Feb2023CMBInternationalGlobalMarketsEquityResearchCompanyUpdateNeteaseNTESUSAimingforlong-termgrowthTargetPriceUS11600NetEasereported4Q22resultson23Feb4Q22revenuewasupby4YoYtoPreviousTPUS11230RMB254bninlinewithourandconsensusestimateFull-yearrevenueinFY22UpDownside348grewby8YoYtoRMB965bnNon-GAAPnetincomedeclinedby27YoYCurrentPriceUS8605toRMB48bnin4Q22lowerthantheconsensusestimateofRMB52bnprimarilyduetothelower-than-expectedgrossmarginOverallGPMwasdownChinaInternetby08pctYoYto522vsconsensus552in4Q22mainlyduetotheone-SaiyiHECFAoffrecognitionofcRMB1bnroyaltyfeesrelatedtocertainlicensedgamesc485239161739oftotalrevenueWiththenormalisationofdomesticgamelicenseapprovalandhesaiyicmbicomhkaclearertimelineforthenewgamelaunchesweremainupbeatonNetEasesgamesrevenuegrowthinFY2324WeraiseFY23-24totalrevenueforecastbyWentaoLUluwentaocmbicomhk1-4tofactorinitsqualitytitlesplannedforlaunchinFY23EandthelongevityofitslegacytitlesOurSOTP-basedtargetpriceisUS1160previousYeTAOUS1123MaintainBUYfranktaocmbicomhkGamesshort-termdecelerationonhighbaseeyesonFY23pipelineStockDataOnlinegamesrevenuewasRMB191bnin4Q22withYoYgrowthslowingMktCapUSmn567244downto22Q223Q22159YoYduetonormalisationofrevenueAvg3mthstoUSmn800fromHarryPotterMagicAwakenedandNarakaBladepointwhichhave52wHighLowUS106845541beenlaunchedforoverayearPCgamesrevenuegrewby5YoYwhileTotalIssuedSharesmn6592SourceFactSetmobilegamesrevenuedeclinedby1YoYin4Q22Lookingaheadseveralgamesarelinedupforlaunchin2023includingJusticeMobileaimShareholdingStructuretolaunchin1H23WestwardJourneyReturnsandRacingMasterWilliamLeiDing442Invesco22ManagementnotedthattheoverseasbusinessremainsattheinvestmentSourceCompanydataphaseandtheyexpectmeaningfulrevenuewillonlycomeinFY25EorbeyondSharePerformanceAbsoluteRelativeNon-gamebusinessesdevelopingself-sustainedbusinessmodels1-mth-34-64CloudMusicrevenueincreasedby26YoYtoRMB24bnandaccounted3-mth314277for9oftotalrevenuein4Q22MusicGPMroseby137pctYoYand36pct6-mth0482QoQto178in4Q22primarilyduetotheenhancedeconomiesofscaleSourceFactSetandoptimizedcontentcoststructureYoudaorevenuewasupby9YoY12-mthPricePerformancetoRMB15bn6oftotalrevenueandachievedfirst-everpositiveoperatingprofitin4Q22thankstothesolidrevenuegrowthofnewlearningservicesandeffectivecostcontrolinitiativesInnovativebusinessesrevenuegrewby3YoYtoRMB24bnin4Q2210oftotalrevenuedrivenbygrowthinYanxuanrevenueExpectmodestmarginimprovementOverallGPMwasdownby08pctYoYand40pctQoQto522in4Q22mainlyattributabletotheone-offSourceFactSetrecognitionofroyaltyfeesrelatedtocertainlicensedgamescRMB1bnequivalentto4oftotalrevenueOperatingprofitwasdown4YoYtoRMB44bnwithOPMdraggeddownby14pctYoYto175in4Q22ManagementexpectmodestmarginimprovementoverthenextthreeyearsasenhancingCloudMusicandYoudaomarginwillbeoffsetbytheinvestmentinoverseasgamingbusinessesEarningsSummaryYE31DecFY21AFY22AFY23EFY24EFY25ERevenueRMBmn8760696496104473112024117924Grossmargin536547547551556AdjustednetprofitRMBmn197619228084227080252213272446EPSAdjustedRMB29713495347938644174ConsensusEPSRMB29713495356139664496PSx4541373533PEx266192200179163SourceCompanydataBloombergCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1MOREREPORTSFROMBLOOMBERGRESPCMBRGOORhttpwwwcmbicomhk24Feb2023Figure1NetEaseearningsrevisionCurrentPreviousChangeRMBbnFY23EFY24EFY25EFY23EFY24EFY25EFY23EFY24EFY25ERevenue10451120117910281075-1643-Grossprofit572618656560585-2056-Operatingprofit217244267210225-3584-Adjustednetprofit227252272215230-5598-AdjustedEPSRMB344383413327349-5498-Grossmargin547551556545545-02ppt07ppt-Operatingmargin208217226204209-04ppt08ppt-Adjustednetmargin217225231209214-08ppt11ppt-SourceCMBIGMestimatesFigure2CMBIGMestimatesvsconsensusCMBIGMConsensusDiffRMBbnFY23EFY24EFY25EFY23EFY24EFY25EFY23EFY24EFY25ERevenue10451120117910371137127607-15-76Grossprofit572618656578634704-10-25-69Operatingprofit217244267224254281-30-39-52Adjustednetprofit227252272233256294-25-15-72AdjustedEPSRMB344383413356397450-33-35-81Grossmargin547551556557557552-10ppt-06ppt04pptOperatingmargin208217226216223221-08ppt-06ppt06pptAdjustednetmargin217225231224225230-07ppt00ppt01pptSourceBloombergCMBIGMestimatesFigure3NetEasekeyfinancialdataforecastsRMBmn2Q213Q214Q211Q222Q223Q224Q22ConsDiffCMBIDiffOnlinegamesrevenue1577517146187921864218140186991908619664-29YoY51147298157150911640Asoftotalrevenue769773771791783766753Youdaorevenue129313871334120195614021454136764YoY1075548205-104-261119025Asoftotalrevenue63635551415757CloudMusicrevenue16931925188920672192235723762434-24YoY386295225258288Asoftotalrevenue82877888959794Innovativebusinesses17641733235916461872196824382485-19YoY-194-2360642611363479Asoftotalrevenue86789770818196Totalrevenue20525221912437423556231592442725354253300125950-23YoY1291892331481281014065Grossprofitmargin545532530545559563522526SMexpensesratio147141135124143154135145RDexpensesratio166169158144155162161160Non-GAAPNPM206174271217234306190176Non-GAAPnetprofit42283858659651185410747048115229-80456255YoY-19151312807280936-271-308SourceCompanydataCMBIGMestimatesNoteNon-GAAPnetprofitreportedbyNetEaseincludeinvestmentincomelossandexchangegainlossPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE224Feb2023Weusesum-of-the-partsSOTPvaluationmethodologytovalueNetEasesfourmainbusinesssegmentsOurSOTPderivedtargetpriceisUS1160comprising1US1063fortheonlinegamebusiness916oftotalvaluationbasedon16x2023EEVEBITwhichisapremiumovertheindustryaverage15xThepremiuminourviewisjustifiedbyNetEasesstrongcontentdevelopmentcapabilityandsoliddeploymentintheoverseasmarket2US11forYoudao09oftotalvaluationbasedon16x2023EEVrevenueonaparwiththeindustryaverage3US4135oftotalvaluationfortheCloudMusicbusinessbasedon30x2023EEVrevenueatapremiumovertheindustryaverageduetoitsrelativelystrongrevenuegrowthoutlookoverFY23-24E4US2724oftotalvaluationfortheinnovativebusinessesandothersbasedon15xEV2023Erevenueonaparwiththeindustryaverage5US17fornetcashFigure4NetEaseSOTPValuationValuationShareholdingValuationtoValuationperRMBmnMultiplex2023Esales2023EEBITValuationbasisNetEaseADSUSOnlinegamesEVEBIT160794483019048304510004830451063YoudaoEVrevenue1659169465529500711CloudMusicEVrevenue3010789323675771867641InnovativebusinessesEVrevenue1583201248010001248027Enterprisevalue519207Netcash787517Equityvalue527082RMBUS690TargetvaluationUSmn76444NoofADSsmn659ValueperADSUS1160SourceCompanydataCMBIGMestimatesFigure5PeercomparisononlinegamesPriceEBITgrowthYoYEVEBITxCompaniesTickerLocalFY22EFY23EFY24EFY22EFY23EFY24ETencent700HK3560261312191715iDreamSky1119HK396783877na179ActivisionBlizzardATVIUS771211610181614ElectronicArtsEAUS111724168121513TakeTwoTTWOUS111212181302626Nexon3659JP2973042414181513Nintendo7974JP53120181348910BandaiNamco7832JP8421022146141212PerfectWorld002624CH14799162218151237Interactive002555CH23011613141210AverageEVEBIT171513SourceBloombergconsensusestimatesCMBIGMNotedataasof22FebmarketclosePLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE324Feb2023Figure6Peercomparisoneducationonlinemusicande-commercePriceRevenuegrowthYoYEVrevenuexCompaniesTickerLocalFY22EFY23EFY24EFY22EFY23EFY24EEducationNewOrientalEDUUS425261016121311TALEducationTALUS7527719041916AveragePS081614MusiccommunityTMETMEUS791648272624SpotifySPOTUS1201181215171513BiliBiliBILIUS21942120312621Kuaishou1024HK55581616201715AveragePS242118E-commerceAlibabaBABAUS94841110151413JDJDUS46521914040403PinduoduoPDDUS834242620463731VipshopVIPSUS1361966040404AveragePS181513SourceBloombergconsensusestimatesCMBIGMNotedataasof22FebmarketclosePLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE424Feb2023FinancialSummaryINCOMESTATEMENT2020A2021A2022A2023E2024E2025EYE31DecRMBmnRevenue736678760696496104473112024117924Costofgoodssold346844063543730473135025252350Grossprofit389834697152766571596177265573Operatingexpenses244453055433138354163741638915Sellingexpense107041221413403144171512315566Adminexpense337242644696491050415189RDexpense103691407615039160891725218160Operatingprofit145381641719629217432435626659Investmentgainloss1610294854000Othergainslosses737710847000Interestincome159915202150222324222680Foreignexchangegainloss31124901571000Pre-taxprofit153722110424250239662677829339Incometax304241285032479353565868Aftertaxprofit123301697619218191732142223471Minorityinterest267119494192214235Netprofit120631685719713193652163623706Adjustednetprofit147061976222808227082522127245BALANCESHEET2020A2021A2022A2023E2024E2025EYE31DecRMBmnCurrentassets107831113120117766127421139433152948Cashequivalents91171449810304105221238415107Restrictedcash305128773020317133303497Accountreceivables457655085946630866296839Inventories6219651038112311931243Prepayment611262366731714275057742STbankdeposits7107970755778308561394175103592Othercurrentassets132731228212896135411421814929Non-currentassets340444052450303556656028565407PPE4555543464827732922311001Othernon-currentassets294883509043821479335106354406Totalassets141875153644168069183086199719218356Currentliabilities467435050151156524215377055764Short-termborrowings195051935217213156831454814672Accountpayables11349851060114712181269Taxpayable428345374997541158026107Othercurrentliabilities144841626617812192812062621656Accruedexpenses7338936110074108991157612060Non-currentliabilities133737194036436846554869Othernon-currentliabilities133737194036436846554869Totalliabilities480815422055192567885842560632Totalshareholdersequity8212795328109900123513138723155387Minorityinterest1166740963599340731932958Totalequityandliabilities141875153644168690183708200341218978PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE524Feb2023CASHFLOW2020A2021A2022A2023E2024E2025EYE31DecRMBmnOperatingProfitbeforetaxation153722110424250239662677829339Depreciationamortization345832762717324138664611Taxpaid304241285032479353565868Changeinworkingcapital477131881788193617311374Others432914870000Netcashfromoperations248882492723723243502701929456InvestingCapitalexpenditure327330383696442352906324Netcashfrominvesting29192707819869166991743719648FinancingDividendpaid428042405766575264277041Netborrowings40413992214015301135124Proceedsfromshareissues2191222970000Others11759100400000Netcashfromfinancing9913125867905728275626917NetchangeincashCashatthebeginningoftheyear63981216917376133241369315714Exchangedifference162550000Others000000Cashattheendoftheyear121691737613324136931571418604GROWTH2020A2021A2022A2023E2024E2025EYE31DecRevenue244189101837253Grossprofit235205123838162Operatingprofit5412919610812095Netprofit4333971691811796Adjnetprofit613441540411180PROFITABILITY2020A2021A2022A2023E2024E2025EYE31DecGrossprofitmargin529536547547551556Operatingmargin197187203208217226Adjnetprofitmargin200226236217225231ReturnonequityROE168190192166165161GEARINGLIQUIDITYACTIVITIES2020A2021A2022A2023E2024E2025EYE31DecNetdebttoequityx070706070707Currentratiox232223242627Receivableturnoverdays227229225220216212Payableturnoverdays1198888888888VALUATION2020A2021A2022A2023E2024E2025EYE31DecPE306266192200179163PEdiluted310270194202181165PB454734312825SourceCompanydataCMBIGMestimatesNoteThecalculationofnetcashincludesfinancialassetsPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE624Feb2023DisclosuresDisclaimersAnalystCertificationTheresearchanalystwhoisprimaryresponsibleforthecontentofthisresearchreportinwholeorinpartcertifiesthatwithrespecttothesecuritiesorissuerthattheanalystcoveredinthisreport1alloftheviewsexpressedaccuratelyreflecthisorherpersonalviewsaboutthesubjectsecuritiesorissuerand2nopartofhisorhercompensationwasisorwillbedirectlyorindirectlyrelatedtothespecificviewsexpressedbythatanalystinthisreportBesidestheanalystconfirmsthatneithertheanalystnorhisherassociatesasdefinedinthecodeofconductissuedbyTheHongKongSecuritiesandFuturesCommission1havedealtinortradedinthestockscoveredinthisresearchreportwithin30calendardayspriortothedateofissueofthisreport2willdealinortradeinthestockscoveredinthisresearchreport3businessdaysafterthedateofissueofthisreport3serveasanofficerofanyoftheHongKonglistedcompaniescoveredinthisreportand4haveanyfinancialinterestsintheHongKonglistedcompaniescoveredinthisreportCMBIGMRatingsBUYStockwithpotentialreturnofover15overnext12monthsHOLDStockwithpotentialreturnof15to-10overnext12monthsSELLStockwithpotentiallossofover10overnext12monthsNOTRATEDStockisnotratedbyCMBIGMOUTPERFORMIndustryexpectedtooutperformtherelevantbroadmarketbenchmarkovernext12monthsMARKET-PERFORMIndustryexpectedtoperformin-linewiththerelevantbroadmarketbenchmarkovernext12monthsUNDERPERFORMIndustryexpectedtounderperformtherelevantbroadmarketbenchmarkovernext12monthsCMBInternationalGlobalMarketsLimitedAddress45FChampionTower3GardenRoadHongKongTel85239000888Fax85239000800CMBInternationalGlobalMarketsLimitedCMBIGMisawhollyownedsubsidiaryofCMBInternationalCapitalCorporationLimitedawhollyownedsubsidiaryofChinaMerchantsBankImportantDisclosuresTherearerisksinvolvedintransactinginanysecuritiesTheinformationcontainedinthisreportmaynotbesuitableforthepurposesofallinvestorsCMBIGMdoesnotprovideindividuallytailoredinvestmentadviceThisreporthasbeenpreparedwithoutregardtotheindividualinvestmentobjectivesfinancialpositionorspecialrequirementsPastperformancehasnoindicationoffutureperformanceandactualeventsmaydiffermateriallyfromthatwhichiscontainedinthereportThevalueofandreturnsfromanyinvestmentsareuncertainandarenotguaranteedandmayfluctuateasaresultoftheirdependenceontheperformanceofunderlyingassetsorothervariablemarketfactorsCMBIGMrecommendsthatinvestorsshouldindependentlyevaluateparticularinvestmentsandstrategiesandencouragesinvestorstoconsultwithaprofessionalfinancialadvisorinordertomaketheirowninvestmentdecisionsThisreportoranyinformationcontainedhereinhavebeenpreparedbytheCMBIGMsolelyforthepurposeofsupplyinginformationtotheclientsofCMBIGMoritsaffiliatestowhomitisdistributedThisreportisnotandshouldnotbeconstruedasanofferorsolicitationtobuyorsellanysecurityoranyinterestinsecuritiesorenterintoanytransactionNeitherCMBIGMnoranyofitsaffiliatesshareholdersagentsconsultantsdirectorsofficersoremployeesshallbeliableforanylossdamageorexpensewhatsoeverwhetherdirectorconsequentialincurredinrelyingontheinformationcontainedinthisreportAnyonemakinguseoftheinformationcontainedinthisreportdoessoentirelyattheirownriskTheinformationandcontentscontainedinthisreportarebasedontheanalysesandinterpretationsofinformationbelievedtobepubliclyavailableandreliableCMBIGMhasexertedeveryeffortinitscapacitytoensurebutnottoguaranteetheiraccuracycompletenesstimelinessorcorrectnessCMBIGMprovidestheinformationadvicesandforecastsonanASISbasisTheinformationandcontentsaresubjecttochangewithoutnoticeCMBIGMmayissueotherpublicationshavinginformationandorconclusionsdifferentfromthisreportThesepublicationsreflectdifferentassumptionpoint-of-viewandanalyticalmethodswhencompilingCMBIGMmaymakeinvestmentdecisionsortakeproprietarypositionsthatareinconsistentwiththerecommendationsorviewsinthisreportCMBIGMmayhaveapositionmakemarketsoractasprincipalorengageintransactionsinsecuritiesofcompaniesreferredtointhisreportforitselfandoronbehalfofitsclientsfromtimetotimeInvestorsshouldassumethatCMBIGMdoesorseekstohaveinvestmentbankingorotherbusinessrelationshipswiththecompaniesinthisreportAsaresultrecipientsshouldbeawarethatCMBIGMmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreportandCMBISwillnotassumeanyresponsibilityinrespectthereofThisreportisfortheuseofintendedrecipientsonlyandthispublicationmaynotbereproducedreprintedsoldredistributedorpublishedinwholeorinpartforanypurposewithoutpriorwrittenconsentofCMBIGMAdditionalinformationonrecommendedsecuritiesisavailableuponrequestForrecipientsofthisdocumentintheUnitedKingdomThisreporthasbeenprovidedonlytopersonsIfallingwithinArticle195oftheFinancialServicesandMarketsAct2000FinancialPromotionOrder2005asamendedfromtimetotimeTheOrderorIIarepersonsfallingwithinArticle492atodHighNetWorthCompaniesUnincorporatedAssociationsetcoftheOrderandmaynotbeprovidedtoanyotherpersonwithoutthepriorwrittenconsentofCMBIGMForrecipientsofthisdocumentintheUnitedStatesCMBIGMisnotaregisteredbroker-dealerintheUnitedStatesAsaresultCMBIGMisnotsubjecttoUSrulesregardingthepreparationofresearchreportsandtheindependenceofresearchanalystsTheresearchanalystwhoisprimaryresponsibleforthecontentofthisresearchreportisnotregisteredorqualifiedasaresearchanalystwiththeFinancialIndustryRegulatoryAuthorityFINRATheanalystisnotsubjecttoapplicablerestrictionsunderFINRARulesintendedtoensurethattheanalystisnotaffectedbypotentialconflictsofinterestthatcouldbearuponthereliabilityoftheresearchreportThisreportisintendedfordistributionintheUnitedStatessolelytomajorUSinstitutionalinvestorsasdefinedinRule15a-6undertheUSSecuritiesExchangeActof1934asamendedandmaynotbefurnishedtoanyotherpersonintheUnitedStatesEachmajorUSinstitutionalinvestorthatreceivesacopyofthisreportbyitsacceptancehereofrepresentsandagreesthatitshallnotdistributeorprovidethisreporttoanyotherpersonAnyUSrecipientofthisreportwishingtoeffectanytransactiontobuyorsellsecuritiesbasedontheinformationprovidedinthisreportshoulddosoonlythroughaUS-registeredbroker-dealerForrecipientsofthisdocumentinSingaporeThisreportisdistributedinSingaporebyCMBISingaporePteLimitedCMBISGCompanyRegnNo201731928DanExemptFinancialAdviserasdefinedintheFinancialAdvisersActCap110ofSingaporeandregulatedbytheMonetaryAuthorityofSingaporeCMBISGmaydistributereportsproducedbyitsrespectiveforeignentitiesaffiliatesorotherforeignresearchhousespursuanttoanarrangementunderRegulation32CoftheFinancialAdvisersRegulationsWherethereportisdistributedinSingaporetoapersonwhoisnotanAccreditedInvestorExpertInvestororanInstitutionalInvestorasdefinedintheSecuritiesandFuturesActCap289ofSingaporeCMBISGacceptslegalresponsibilityforthecontentsofthereporttosuchpersonsonlytotheextentrequiredbylawSingaporerecipientsshouldcontactCMBISGat6563504400formattersarisingfromorinconnectionwiththereportPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE7