网易（NTES）：凭借稳健的游戏业务和严格的运营支出控制，实现2025年第一季度强劲业绩。

NetEase (NTES US) Strong 1Q25 results on solid games businessand disciplinedopex control Target PriceUS$136.50(Previous TPUS$125.50)Up/Downside27.4%Current PriceUS$107.11 NetEaseannounced1Q25results:totalrevenuegrewby7%YoYtoRMB28.8bn,largely in line withconsensusestimate.Operatingprofit increasedby 37% YoY to RMB10.4bn, 25% ahead of consensus estimate, mainly due tothe disciplined opexcontrol (-14% YoY).Games business regains momentum,with reaccelerating and better-than-expected revenue growth in 1Q25 (+12%YoY),and the stronggrowthofcontractliabilitiesin 1Q25 (+19%/16% YoY/QoQ)shouldsupportthe growthofgames revenue in thecoming quarters, in our view.In view of the solidbusinessperformanceofgames, we raise FY25-27E revenueforecast by2-6%.Weliftour SOTP-derived target priceto US$136.5(previous:US$125.5). Maintain BUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Gamesrevenuegrowthreaccelerates.Games & related VAS revenuewas up by 12% YoY toRMB24.0bn in1Q25 (4Q24: +2% YoY)and 4%aheadofconsensusestimate,primarilydrivenby:1)incrementalcontribution from new titles likeWhere Winds MeetandMarvel Rivals; 2)growth in revenue from legacy games likeIdentity V.Where Winds Meetsurpassed30mnregistered players as of Mar2025;Marvel RivalstoppedSteam's global top seller chart after its Season 2 update in Apr 2025;OnceHumanmobile topped iOS download charts in over 160 regions after itslaunch in Apr 2025. Contractliabilitiesdeliveredstrong growth of 19%/16%YoY/QoQ as of Mar 2025, whichshouldsupport therevenuegrowthofgames inthecoming quarters, in our view. Looking ahead, several highly-anticipated titles are lined up for global launch, includingMARVEL MysticMayhem,Destiny: RisingandAnanta. Ye TAO, CFAfranktao@cmbi.com.hk Joanna Ma(852) 3761 8838joannama@cmbi.com.hk Stock Data Shareholding Structure William Lei Ding44.2%Source: Company data Non-gaming businessesimproveefficiency.NetEase’sCloud musicrevenuedeclinedby8% YoY to RMB1.86bn in1Q25,mainly due tothedecline in socialentertainment revenue; but music GPM rose by 4.8pptsQoQ to 36.7% in 1Q25 thanks to the effective cost control.Youdao’srevenuewas downby7% YoY to RMB1.30bn in1Q25, as the moredisciplinedcustomer acquisition approachled todecreasedrevenuefromlearning services.Innovative businessesand othersrevenuedecreased by18% YoY toRMB1.62bn in1Q25,mainly attributable to decreased revenuefrom Yanxuan and advertising businesses. Effectiveopex controlboostsprofitability.Overall OPM rose by 7.8pptsYoY and 7.0pptsQoQ to 36.2% in 1Q25, mainly ondisciplinedopex controland GPM expansion. S&M/G&A expenses were down by 33%/20% YoY in1Q25,equivalentto 9.4%/3.3% of total revenue (1Q24: 15.0%/4.5%). Weexpect NetEase will continue to maintain disciplined opex in addition to GPMexpansion in FY25E, whichshouldsupport OPM to improve by c.5.5pptsYoY in FY25E, based on our estimate.The enhancedprofitabilitywill offerroom for investment in futureopportunitiessuch as new game genres andoverseas market, in our view.NetEase currently trades at 14x FY25E non-GAAP PE, which is on par with 2-year historical average. Source: FactSet We use sum-of-the-parts (SOTP) valuation methodology to value NetEase’s four mainbusiness segments. Our SOTP-derived target price is US$136.5, comprising: 1) US$121.8for the online game business (89.2% of total valuation), based on16x 2025EEV/EBIT which ison par withthe industry average. 2) US$0.7for Youdao (0.5% of total valuation), based on1.0x 2025EEV/revenue, on parwith the industry average; 3) US$3.8(2.8% of total valuation) for theNetEaseCloud Music business, based on3.6x2025E EV/revenue,on par with the industry average; 4) US$1.6(1.2% of total valuation) for the innovative businessesand others, based on1.0x2025EEV/revenue, on par with the industry average; 5) US$8.7for net cash. RisksDecline in revenue of legacy games; intensifying competition; tighteningofregulationsinthegaming sector. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuerthat the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is,or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securitiesand Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business daysafter the date of issue of this report; (3) serve as an officer of any of the HongKong li