NetEase:Solid 1Q results &cautious near-term outlook Conclusion

1Q17 results beat as mobile game revenue (up 37% QoQ) was better thanexpected and PC games largely in line. Deferred revenue declined 8% QoQ,in line with MQ. In the pipeline, PC and mobile Minecraft notably will come outin July, and several major titles in late 2H17. E-Commerce/others were strongwith flat QoQ revenue growth despite Duobao exit. Inventory growth andlatest procurements suggest robust revenue growth (17E: 73% YoY). We lookforward to new pipeline titles on May 20 game conference and are cautiouson Onmyoji in the near term. We lift FY17 earnings by 3% and SOTP-basedTP from US$324 to US$330 to reflect solid 1Q17. Reiterate OP.

    Mobile modestly better than expected (or not as worse). 1Q17 mobilegame revenue grew 37% QoQ to RMB8.3bn on the back of revenue deferredfrom 4Q16, stable older mobile games in 1Q17 and modestly soft Onmyoji.

    That said, Onmyoji worryingly remains on the downtrend with latest iOSgrossing rank at ~10. And major game launches are back-end loaded in 2H17incl. Tribes and Empires and World of Tanks. We model 22% QoQ mobilegame revenue decline in 2Q17, and overall 48% YoY growth in 2017.

    PC in line