NTES(HK:09999) Huachuang Securities·2024-09-13 04:36Investment Rating - The report maintains a "Recommended" rating for NetEase-S (09999.HK) with a target price of 156 HKD, while the current price is 119.60 HKD [6][4]. Core Views - The company's Q2 2024 revenue reached 25.486 billion CNY, representing a year-over-year increase of 6.14% but a quarter-over-quarter decrease of 5.08%. The gaming and related services revenue was 20.056 billion CNY, up 6.69% year-over-year but down 6.54% quarter-over-quarter. The net profit attributable to shareholders was 6.759 billion CNY, down 18% year-over-year [1][11]. - The mobile gaming segment showed year-over-year growth of 16.06% but a quarter-over-quarter decline of 8.3%. The overall gross margin for gaming-related businesses improved to 70% in Q2 2024, an increase of 0.5 percentage points from the previous quarter [2][18]. - The report highlights the ongoing improvement in the profitability of Youdao and Cloud Music, with Youdao's revenue at 1.322 billion CNY (up 9.5% year-over-year) and Cloud Music's revenue at 2.041 billion CNY (up 4.74% year-over-year) [3][23]. Summary by Sections 1. Resilience of Existing Games and Impact of Exchange Rate Losses - NetEase's Q2 2024 revenue was 25.486 billion CNY, with gaming and related services revenue at 20.056 billion CNY. The company experienced a net profit of 6.759 billion CNY, impacted by exchange rate losses [1][11]. 2. Mobile Gaming Growth and Margin Improvement - Mobile gaming revenue was 14.73 billion CNY, showing a year-over-year increase of 16.06%. The overall gross margin for gaming-related services reached 70% [2][18]. 3. Profitability of Youdao and Cloud Music - Youdao's revenue was 1.322 billion CNY, with a narrowed net loss of 0.099 billion CNY. Cloud Music's revenue was 2.041 billion CNY, with a significant profit increase in the first half of the year [3][23]. 4. Gross Margin Trends - The overall gross margin for gaming-related businesses improved to 70% in Q2 2024, indicating a positive trend in profitability [2][26]. 5. Financial Forecasts and Valuation - The report adjusts profit forecasts for 2024-2026, predicting net profits of 29.8 billion CNY, 33.3 billion CNY, and 35.9 billion CNY respectively. The corresponding PE ratios are 11.8, 10.5, and 9.8 [4][30].