CICC has reiterated its Non-GAAP net profit forecasts for NetEase-S (09999) for 2026 and 2027. The current share price implies 12.7x and 11.3x 2026/2027 Non-GAAP P/E for the Hong Kong-listed shares, and 12.8x and 11.5x for the US-listed shares. The firm maintains an Outperform industry rating and a target price of HK$265 (US$171), corresponding to 19x and 17x 2026/2027 Non-GAAP P/E for both listings. This represents potential upside of 46% for the Hong Kong shares and 44% for the US shares. CICC forecasts a 3% year-on-year revenue increase for NetEase in the first quarter of 2026.

Key points from CICC are as follows: NetEase's flagship product portfolio demonstrated operational resilience in Q1 2026, with expectations for steady revenue growth. The PC version of "Fantasy Westward Journey" announced a record high of over 3.9 million concurrent users on March 1st. According to the firm's observations, the PC game "World of Xia" also delivered strong gross billing and payer conversion rates in Q1. For mobile games, data from Qimai indicates that iOS gross billing for titles including "Fantasy Westward Journey," "Eggy Party," "Invasion: Sandstorm," and "Where Winds Meet" achieved year-on-year growth in the first quarter.

An improvement in gross margin and a normalization of sales expense ratios are anticipated. CICC believes healthy deferred revenue growth and an increasing contribution from high-margin self-developed games and official servers support medium-to-long-term profitability. On expenses, sales expenses in the same period last year were relatively low due to temporary factors; in Q1 2026, they normalized with seasonal marketing activities, leading to increases in both absolute amount and ratio year-on-year.

Focus for the year includes overseas expansion and progress on the new game "Sea of the Lost," alongside monitoring the process for a primary listing in Hong Kong. Looking ahead: 1) For international expansion, the international server for "Where Winds Meet" launched a new version, "Liangzhou," in early April, re-entering the top three on Steam's global best-sellers list. "Marvel Rivals" also performed relatively well in its sixth season. 2) The new open-world game "Sea of the Lost" obtained a license in late April and began recruitment for a paid beta test. Management indicated during the FY2025 earnings call that the title is scheduled for release this summer, which CICC views as a potential significant contributor to second-half performance. 3) Development of "Infinity" is ongoing.

CICC assesses that the current valuation largely reflects cautious expectations, and the launch of new games in the second half could drive a valuation re-rating. Furthermore, NetEase's previously announced plan to switch its Hong Kong listing from secondary to primary status is seen as potentially paving the way for inclusion in the Stock Connect program, which may serve as a catalyst for the share price.