NetEase:Minecraft beta,e-Com upside,1Q preview

类型：公司研究机构：麦格理证券股份有限公司研究员：麦格理证券研究所日期：2017-05-08

Event

    We expect 1Q17results to be in line (soft gaming from Onmyoji, WoW,Overwatch, and solid Kaola/Yan’s). Further, we have participated inMinecraft’s beta testing and feel positive about the one-stop shop set-up withrich content resources, cloud server hosting and a buddy system. We seelimited monetization initially from the marketplace model, but moreimportantly, Minecraft helps NetEase grab mind share among teenagegamers. Soft Onmyoji may weigh on the share price in the near term.However, we remain confident in its game development capability and solidpipeline in late 2017(e.g. Tribes and Empires). We cut our TP from US$372to US$324to reflect softer Onmyoji and the Duobao exit. Reiterate OP.

    Impact

    Minecraft beta gets us excited. We have participated in Minecraft’s PC Javabeta testing and feel positive about the one-stop shop set-up, with dedicatedsections for MOD resources, third-party servers, cloud server hosting, and abuddy system. However, a marketplace model hinges on original and qualitycontent from third parties, and so we tend to be prudent and model 1-3%game revenue contribution from PC Minecraft in 2018.

    Upside from e-commerce in 2017. We continue to see impressive NetEaseprocurement orders lately, for example, Kaola’s ?3bn in three years in Europeand Yan’s RMB10bn in China. We expect upside from e-commerce in 2017and lift our segment revenue growth estimate from 28% YoY to 41% YoY for2017on stronger Kaola and Yan’s despite the Duobao exit.

    Softer Onmyoji and game launches back-end loaded. Onmyoji’s iOSgrossing rank declined to about 8-10currently. However, we observe theweekly active users on Android held up better vs iOS (YTD down mid-30% intotal vs down mid-40% on iOS), and estimate the monthly grossing shouldstay at ~RMB400-600mn vs the peak of RMB1bn+. Major game launches areback end-loaded in 2H17incl. Tribes and Empires and World of Tanks. Wemodel 41% YoY mobile game revenue growth in 2017.

    Expect 1Q17results in line. We expect 1Q17revenue to grow 2% QoQ and56% YoY to RMB12bn, 4% above consensus. We expect mobile gamerevenue to grow 16% QoQ on Onmyoji (revenue deferred from 4Q16butpartly offset by decline since mid-1Q17), and expect PC game revenue todecline 10% QoQ due to WoW and Overwatch. Also, we project 5% QoQe-commerce/other revenue decline as NetEase steps up efforts on Kaola andYan’s, which both should see stronger-than-seasonal growth in 1Q17partlyoffset by the shutdown of Duobao. We expect non-GAAP profit to be flat QoQand grow 48% YoY to RMB3.9bn, 5% above consensus.

    Earnings and target price revision

    Cut 2017/18profit by 17% and cut TP from US$372to US$324

    Price catalyst

    12-month price target: US$324.00based on a Sum of Parts methodology.

    Catalyst: Game launches, e-com outlook, spin-offs and M&AAction and recommendation

    Reiterate OP.