Sealand Securities has released a research report maintaining an "Overweight" rating on NetEase-S (09999) with a target price of HK$250. The report forecasts the company's revenue for 2026-2028 to be RMB 121.1 billion, RMB 131.5 billion, and RMB 141.9 billion, respectively. Adjusted net profit attributable to shareholders is projected at RMB 41.2 billion, RMB 43.9 billion, and RMB 46.7 billion for the same period, corresponding to adjusted EPS of RMB 13, RMB 14, and RMB 15. The adjusted P/E ratios are estimated at 12.3x, 11.5x, and 10.8x, respectively. The valuation is based on a sum-of-the-parts (SOTP) analysis, applying premiums or discounts according to the profitability and competitive landscape of each business segment.

Key financial metrics for Q1 2026 show NetEase achieved revenue of RMB 30.6 billion, a year-on-year increase of 6.1% and a sequential increase of 11.1%. Net profit attributable to shareholders was RMB 10.7 billion, up 3.6% year-on-year and 71.0% quarter-on-quarter. Non-GAAP net profit attributable to shareholders reached RMB 11.3 billion, rising 0.3% year-on-year and 59.4% quarter-on-quarter. The gross margin improved year-on-year to 69.4%, while the sales expense ratio was 11.2%, the R&D expense ratio was 14.7%, and the administrative expense ratio was 2.1%.

The Games and Value-added Services segment reported revenue of RMB 25.7 billion in Q1 2026, up 7.1% year-on-year and 16.8% quarter-on-quarter. Performance remained robust, driven by strong player engagement and revenue from major titles such as the "Fantasy Westward Journey" series, "Identity V", "Eggy Party", "Justice" mobile game, and "Where Winds Meet". Global expansion deepened with popular titles like "Where Winds Meet" and "Marvel Rivals" continuing to grow their international presence. Major new games, including "Once Human" and "Infinity", are progressing steadily. "Once Human" received positive feedback in its latest test and is scheduled for a third test on May 28, potentially becoming a significant growth driver in the second half of the year.

NetEase Youdao reported Q1 2026 revenue of RMB 1.3 billion, a 3.8% year-on-year increase. The company continues to enhance its Confucius large language model and integrate AI more deeply across its ecosystem. AI subscription service sales surpassed RMB 100 million, and milestone AI Agent products, Youdao LobsterAI and Youdao Treasure Vault, were launched, establishing a comprehensive AI Agent matrix. The Learning Services segment progressed steadily, supported by strong growth in Youdao Smart Learning and AI-driven subscription products. Online marketing services benefited from increased demand for performance-based advertising, with AI tools enhancing precision targeting and streamlining content creation.

NetEase Cloud Music achieved Q1 2026 revenue of RMB 2.0 billion, up 6.6% year-on-year and 2.0% quarter-on-quarter. Its gross margin rose to 37.1%, showing a slight improvement from 36.7% a year ago, indicating ongoing progress in content cost control. User engagement remains high, supported by the platform's vibrant music community ecosystem.

Innovation and Other Businesses generated Q1 2026 revenue of RMB 1.5 billion. NetEase Yanxuan maintained leading positions in core categories such as pet supplies, air care, and home goods. Its pet category ranks at the top across major platforms, home cleaning product sales achieved double-digit year-on-year growth, and best-selling home products continue to lead sales charts on multiple platforms.

Risk factors include: regulatory risks related to game content, tightening of game license policies, potential delays in game development and launch, slower-than-expected overseas game expansion, intensifying competition, possible widening of losses in the Youdao business, and slower-than-expected expansion of Youdao's online courses and smart hardware business.