NTES-S(09999.HK)：PC GAMES AND MUSIC DROVE 1Q2022 REVENUE GROWTH-格隆汇

机构：国泰君安国际
研究员：Vincent Liu

NetEase’s total revenue in 1Q2022 increased by 14.8% yoy to RMB23,556 million, higher than our and market expectations by 1.6% and 4.1%, respectively. Overall growth was mainly due to strong performance of PC games and Cloud Music, while Youdao suffered yoy decline due to termination of after-school tutoring business. Gross profit margin increased to 54.5%. Non-GAAP shareholders' net profit amounted to RMB5,118 million, up 0.7% yoy. Non-GAAP net profit margin was 21.7%, mainly dragged down by investment loss. The management also announced a quarterly dividend of US$0.0644 per share.
We expect 2022 revenue from online games, Youdao, Cloud Music and innovative businesses and others to increase by 12.1%, -3.2%, 41.2% and 6.2%, respectively. We expect online games to outperform in 2022, considering gradual recovery of the domestic market due to resumption of license approval, upcoming new flagship titles and strong PC games billings. We expect growth of Cloud Music to be supported by increasing number of paying users and which we expect will improve NetEase’s overall growth and profitability. We expect the influence from after-school tutoring business to fade and Youdao to resume higher growth.
We maintain our investment rating as "Buy" but decrease our target price to HK$190.00. We expect non-GAAP shareholders’ net profit in 2022-2024 to be RMB20,339 million, RMB24,288 million and RMB27,039 million, respectively, representing yoy growth of 2.9%, 19.4% and 11.3%. Our target price represents 26.2x, 22.3x and 20.2x 2022-2024 non-GAAP PER.