It's 9 am in Shanghai, Shenzhen, and here in Hong Kong, you're watching the China show. I'm Annabelle Droulers with David Ingles. Good morning.We are counting down to the open of markets in greater China. Our top stories today, Asian stocks rising, treasuries sliding as traders trimming bets for a Fed rate cuts following a stronger than expected US jobs report. So the so-called scare trade spreads to this region with real estate services, biotech stocks, tracking declines among peers on Wall Street.Meanwhil ...

Core Viewpoint - NetEase reported its Q4 2025 unaudited financial results, showing a decline in net profit primarily due to increased expenses and investment losses, which fell short of market expectations [1][3]. Financial Performance - In Q4 2025, NetEase achieved net revenue of RMB 27.5 billion, a year-on-year increase of 3% [1]. - Gross profit for the same quarter was RMB 17.7 billion, up 8.7% year-on-year [1]. - Net profit attributable to shareholders was RMB 6.24 billion, down 28% from RMB 8.77 billion in the same period last year, missing market expectations [1][2]. - Total operating expenses reached RMB 9.37 billion, a significant increase of 10.9% year-on-year [1][2]. - The company recorded an investment loss of RMB 1.67 billion, an increase of over RMB 1.1 billion compared to the previous year [1]. Business Segments - NetEase's main business segments include gaming and related value-added services, Youdao, NetEase Cloud Music, and other innovative businesses [3]. - Gaming and related value-added services generated RMB 92.1 billion in net revenue for 2025, a growth of over 10% [3]. - In Q4, gaming revenue was RMB 22 billion, accounting for 80% of total revenue, but fell short of market expectations of RMB 23.42 billion [3][4]. - The decline in gaming revenue was attributed to a lack of new game releases and decreased revenue from existing titles [3]. Future Prospects - NetEase is developing new games, including the open-world game "Forgotten Sea," expected to launch in Q3 2025, and a closed beta for the urban open-world game "Infinite" has shown positive results [6]. - The CEO emphasized that while AI tools lower the entry barrier for game development, they also raise the success threshold for commercial titles [7]. - In non-gaming segments, Youdao and NetEase Cloud Music reported Q4 net revenues of RMB 1.6 billion and RMB 2 billion, respectively, with growth rates of 16.8% and 4.7% [7].

Core Insights - NetEase reported a robust financial performance for the fourth quarter and the entire year of 2025, achieving a revenue of 112.6 billion yuan, with its core gaming business demonstrating resilience, particularly with "Dream of the Red Chamber" achieving a quarterly revenue record after 23 years of operation [1] AI Strategy - The management emphasized that while generative AI lowers the entry barrier for game development, it raises the success threshold for top-tier products, shifting the competitive barrier from production capacity to integration capability [3][4] - High-quality private data is deemed more important than computational power, and the application of AI in specific business scenarios is prioritized over the scale of parameters [4] - By 2025, NetEase plans to deploy its AI-native pipeline across various stages of game development, achieving efficiency improvements of up to 300% in certain areas [4] Globalization and Product Success - "Yan Yun Sixteen Sounds," an open-world game, achieved significant global success, ranking second on Steam's global sales chart and topping the iOS download charts in over 60 markets, with over 80 million global users [5] - The success is attributed to the maturity of "Chinese stories, international expression," showcasing that localized cultural content can compete globally if the expression resonates with contemporary player aesthetics [5] Evergreen Game Strategy - "Dream of the Red Chamber" has defied typical industry trends by achieving a quarterly revenue high after 23 years, demonstrating a "counter-cyclical" growth strategy [6] - The management detailed a strategy for revitalizing classic gameplay while optimizing user experience and economic systems to engage both new and existing players [6] New Category Innovations - NetEase is advancing in new game categories, with anticipated releases like "Infinite" and "Forgotten Sea," the latter expected to launch in Q3 2026 [7] - The company is also exploring the auto-chess genre with a unique cultural angle based on Chinese mythology, aiming to differentiate itself in a crowded market [7]

Core Viewpoint - The report from CICC maintains the Non-GAAP net profit forecast for NetEase-S (09999) for 2027, with a target price of HKD 265 / USD 171, indicating an upside potential of 36% / 38% for Hong Kong and US stocks respectively [2][8]. Revenue and Growth - Deferred revenue showed significant growth, with a net increase of CNY 1.04 billion in Q4 2025, exceeding market expectations, suggesting potential revenue release in the future [3][9]. - Game and related value-added service revenue increased by 3% year-on-year in Q4 2025, driven by stable operations of long-standing IPs like "Dream of the Red Chamber" and contributions from "Yanyun Sixteen Sounds" and "Marvel Showdown" [3][9]. - Youdao's revenue grew by 17%, reflecting the effective implementation of its AI-driven strategy, while Cloud Music revenue increased steadily by 5% [3][9]. Profitability and Cost Management - The gross margin improved to 64.2% in Q4 2025, indicating strong cost control capabilities [4][9]. - The absolute amount of operating expenses met expectations, with the sales expense ratio rising to 14%, aligning with the overall marketing investment strategy [4][9]. Shareholder Returns - The dividend for Q4 2025 was USD 1.16 per ADS, with a payout ratio of 83%, maintaining an annual dividend ratio of around 40% [5][9]. - The company has extended its share repurchase program (up to USD 5 billion) until January 2029, having repurchased approximately USD 2 billion by the end of 2025 [5][9].

Core Viewpoint - The report from CICC maintains the 2027 Non-GAAP net profit forecast for NetEase-S (09999), with target prices set at HKD 265 and USD 171, indicating an upside potential of 36% and 38% for Hong Kong and US stocks respectively [1] Group 1: Revenue and Growth - Quarterly deferred revenue shows high growth, with a net increase of CNY 1.04 billion in Q4 2025, better than market expectations, indicating potential revenue release in the future [2] - Revenue from games and related value-added services increased by 3% year-on-year in Q4 2025, driven by stable operations of long-standing IPs like "Fantasy Westward Journey" and contributions from new titles [2] - Youdao's revenue grew by 17%, reflecting the effective implementation of its AI-driven strategy, while Cloud Music's revenue increased steadily by 5% [2] Group 2: Profitability and Cost Management - The gross margin improved to 64.2% in Q4 2025, demonstrating the company's cost control capabilities [3] - The absolute amount of operating expenses met expectations, with the sales expense ratio rising to 14%, aligning with the overall marketing investment strategy [3] Group 3: Shareholder Returns - The dividend for Q4 2025 was USD 1.16 per ADS, with a dividend payout ratio of 83%, maintaining an annual dividend ratio of around 40% [4] - The company has extended its share repurchase program (up to USD 5 billion) until January 2029, having repurchased approximately USD 2 billion by the end of 2025 [4]

Core Insights - NetEase reported Q4 revenue of RMB 27.5 billion and annual revenue of RMB 112.6 billion, highlighting its strategic focus on AI technology, overseas market expansion, and long-term game operations during the earnings call [1] AI Technology Application - NetEase aims to become the "most knowledgeable AI expert in gaming," with AI-native gameplay already implemented in several flagship products. The management noted that while AI lowers the entry barrier for game development, it raises the success threshold for top-tier products, shifting the core barrier from mere production capacity to integration capability [2][3] - The company plans to maintain high investment in vertical models, AI-native gameplay, and talent development, emphasizing that high-quality private data is more critical than computing power in vertical fields [2] Overseas Market Expansion - The success of "Yan Yun Shi Liu Sheng" in overseas markets validates NetEase's ability to express Chinese stories internationally. The game reached the second position on Steam's global sales chart and topped the iOS download charts in over 60 markets, with global users exceeding 80 million [4] - The management expressed confidence in cultivating high-quality creative talent in China, which has the largest pool of game development professionals globally [4] Long-term Game Operations - NetEase demonstrated strong long-term operational capabilities, with "Dream of Dreams" PC version achieving record quarterly revenue in its 23rd year. The successful launch of the "Chuang Wan" server provided new insights for long-term game operations [5] - The management outlined three key strategies for revitalizing long-standing games: restoring classic gameplay, restructuring the economic system while maintaining free trade, and optimizing the overall experience [5] Upcoming Products - Anticipated releases include "Forgotten Sea," expected to launch in Q3, and "Infinite," which has met testing expectations. Both products aim for global simultaneous release across multiple platforms [6] - The management highlighted the potential in the auto-chess genre, planning to create a unique game based on Chinese mythology, emphasizing strong narrative and aesthetic elements [7]

Core Viewpoint - The article provides a forecast for Kingsoft Software's Q4 2025 performance, indicating a revenue decline in gaming but growth in office software, highlighting a structural differentiation in business performance [4]. Group 1: Gaming Business - The gaming revenue is expected to decline by 29% year-on-year in Q4 2025, primarily due to the high base effect of the core product "Jian Wang 3" and the underwhelming performance of the new game "Jie Xian Ji" [5]. - For the full year of 2025, gaming revenue is projected to decrease by 27% to 3.8 billion yuan [5]. - The new game "E-Duck Kill," set to launch in 2026, shows strong social attributes and potential, with 5 million new users on the first day of public testing and over 10 million within six days [5]. Group 2: Office Business - The office business is anticipated to grow by 15% year-on-year in Q4 2025, driven by three main business lines [6]. - The personal business segment, with WPS Office achieving 669 million monthly active devices, shows a significant increase in user engagement, particularly on PC [6]. - WPS365 is expected to continue high double-digit revenue growth due to its integrated "collaboration + AI" advantages [7].

PayPal - PayPal shares fell nearly 20% following the announcement of CEO Alex Chris's departure, which was unexpected by investors [1][2] - The board's dissatisfaction with Chris's performance, particularly regarding the Brandi Checkout initiative, contributed to the leadership change [1][2] - Under Chris, PayPal's stock had declined approximately 27% since he took over, and nearly 43% from its peak a year ago [1] - The new CEO, Enrique Lores, has not demonstrated significant success at HP, raising concerns about his ability to lead PayPal effectively [1][2] - PayPal's shares are now trading at a price-to-earnings ratio of around 8.5, significantly lower than the market average, indicating potential value [2][3] Gaming Industry - Google's Project Genie, an AI game design tool, has negatively impacted the stock prices of major gaming companies like Roblox, Nintendo, and Unity [6][7] - Project Genie can create games from prompts using AI models, leading to concerns that easier game creation will devalue existing gaming platforms [6][7] - The gaming industry is massive, with global revenues surpassing those of film, music, and professional sports, but growth is slow, comparable to global GDP growth [6][7] - The introduction of AI in game development may lead to both winners and losers, with established platforms likely to leverage AI for efficiency [6][7] - Roblox's new ad format aims to enhance engagement by integrating ads into the gaming experience, which could benefit from increased game content due to AI advancements [11][12]

Core Insights - The gaming sector is experiencing a mixed performance, with MGM reporting a solid quarter despite a challenging 2025, while expectations for Wynn and DraftKings are cautiously optimistic as they prepare for upcoming earnings reports [1][2][3]. MGM Insights - MGM faced a difficult 2025 with high single-digit declines in visitation and gross gaming revenue, but anticipates a better performance in 2026, particularly in the latter half of the year [2][3]. - Growth in Macau and the digital business is highlighted as a positive aspect of MGM's diversified operations, despite the stock underperforming in 2025 [3][4]. Wynn Insights - Wynn is positioned as a luxury play within the gaming sector, expected to perform better than mid-tier operators, with positive outlooks for both its Vegas operations and the recovering Macau market [5][6]. - The stock is trading at approximately 20 times earnings, with significant luxury assets and plans to open a property in the UAE by late 2026 [7]. DraftKings Insights - DraftKings is expected to exceed Q4 expectations, driven by a strong December performance, although guidance for 2026 may be slightly below expectations due to investments in prediction markets [9][10]. - The company is rolling out a prediction product in markets where sports betting is not available, and initial tracking indicates positive reception [11]. Market Trends - The luxury segment in the gaming and lodging industry is showing growth, while other segments are declining, reflecting a K-shaped economic recovery [5]. - The Chinese market is seen as a bright spot for gaming companies, particularly with the upcoming Chinese New Year [8].

Group 1: Financial Performance - Sony Group Corporation reported Q3 FY2025 revenue of ¥3.71 trillion ($23.68 billion), reflecting a 1% year-over-year growth and surpassing the expected ¥3.69 trillion [1] - Operating profit increased by 22% year-over-year to ¥515 billion ($3.28 billion), exceeding analyst consensus estimates of approximately ¥469 billion [2] - The company raised its FY2025 operating profit forecast by 8% to ¥1.54 trillion, supported by sustained profitability in entertainment and semiconductor businesses [3] Group 2: Strategic Initiatives - Sony Music Group and Singapore's sovereign wealth fund GIC Pte Ltd established a joint venture to acquire and manage high-quality music catalog assets, with an expected investment of $2 billion to $3 billion [4] - Under the agreement, GIC will provide long-term capital and investment expertise, while Sony Music will contribute operational capabilities and global distribution infrastructure [5] Group 3: Business Segments - Sony Group Corporation operates across various segments including Electronics Products & Solutions, Game & Network Services, Music, Pictures, and Imaging & Sensing Solutions [6]