Puyin International has issued a research report maintaining its 'Buy' rating on NetEase-S (09999). The report notes that as NetEase-S has met the requirements for transitioning to a primary listing in Hong Kong, the company is currently communicating with the Hong Kong Exchanges and Clearing to advance related matters. This move is expected to potentially attract inflows of southbound capital in the future.
Considering the anticipated launch schedule of the company's new games, Puyin International has adjusted its target price to HKD 236 / USD 151. This target price corresponds to a FY26E/FY27E P/E ratio of 16.8x/15.2x. The report states that the company's current valuation is attractive.
Key viewpoints from Puyin International are as follows:
Deferred revenue remained strong, indicating solid underlying operations. In the fourth quarter, the company achieved net revenue of RMB 27.5 billion, a year-on-year increase of 3.0%, with an adjusted net profit of RMB 7.1 billion. Underlying operations remained stable, while deferred revenue saw significant growth, increasing 34.1% year-on-year and 5.3% quarter-on-quarter to RMB 20.5 billion, reaching a record high. This reflects an increased proportion of game revenue with longer recognition cycles, meaning substantial cash flow has not yet been recognized as current period revenue, which is expected to provide strong support for future performance.
The game "Sea of the Forgotten" is planned for launch in the third quarter of this year, marking the anticipated start of a new product release cycle. Game revenue in the fourth quarter increased by 3.4% year-on-year, with PC client games performing notably well, indicating continued optimization of the revenue structure. Among its major game products, the PC client version of "Fantasy Westward Journey" showed strong performance in the fourth quarter, achieving record quarterly and annual revenue highs. Its mobile version also set a new annual revenue record, demonstrating strong long-term operational resilience. "Where Winds Meet" has surpassed 80 million global users, and "Marvel Rivals" has won several international awards. The global influence of the company's game products continues to rise. Puyin International expects the proportion of overseas revenue to gradually increase in the future, becoming a significant contributor to growth.
Looking ahead to 2026, "Sea of the Forgotten" is planned for a Q3 launch, with recent test feedback being positive. It is anticipated to potentially launch during the summer season. The closed beta data for "Once Human" in January met expectations, and the product is still in the polishing phase, with an aim for a simultaneous global, multi-platform release. With new products approaching, the company is expected to enter a new performance release cycle in the second half of the year.
Regarding market concerns about AI disruption, the company believes that while AI has lowered the barrier to content production, it has also significantly raised the success threshold for top-tier products. Game success is not solely about production capability but also hinges on integrated abilities in areas like numerical design, economic systems, and social ecosystems. The company's AI investments focus on vertical models within the gaming sector, deeply integrating AI into the entire process, including art, planning, and code generation, to enhance industrial efficiency and translate it into commercial value. Puyin International believes the company's long-term experience in data accumulation and operational capabilities, combined with its industrial integration capacity, is likely to be strengthened with AI empowerment.
Investment risks include game performance falling short of expectations and intensifying competition.