以下为报告摘要： Market
constantly beats estimates and to continue doing
so
At end-2013, iResearch estimated the size of the mobile games
market would reach Rmb20.92bn in 2014; the actual number was much
higher at Rmb27.6bn.
In 2014, iResearch forecast that 2015 revenue would be
Rmb41bn, but it again outpaced estimates, actually rising 103.7%
YoY to Rmb56bn. According to GPC IDC and CNG data, total actual
sales in the Chinese mobile market rose 87.2% YoY to Rmb51.4bn. The
market has surprised several times, and we expect its rapid growth
to last for some time.
We expect the mobile game industry’s revenue to reach
Rmb167bn in 2018e, assuming:
China’s population grows 0.5% p.a. over 2016~18, to
reach 1.395bn in 2018e.
The number of mobile internet users increases to
780mn in 2018, 55.9% of the total population and 97.5% of internet
users (vs. 45.1% and 90.1% in 2015).
The number of mobile game players rises to 515.1mn
in 2018, 66% of mobile internet users (vs. 62.1% in
2015).
Monthly mobile-game ARPU grows to Rmb27 in 2018,
reaching 75% that of client-based games (vs. 30% in
2015).
We expect the mobile-game industry’s concentration
ratio to be higher than that of PC.
Globalization: next growth engine for Chinese
CPs
To generate 2x~3x revenue from overseas mobile game
market
As the local market has been carved up by big
players, local CPs are seeking growth opportunities in overseas
markets, where they will have less competition. On October
3, NetEase announced it would roll out the Chinese version of
Onmyoji in foreign countries’ app stores, including the US, Canada,
the UK and Australia.
NetEase: to benefit from industry trends and
solid governance
EPS undervalued: current Bloomberg Consensus
estimates non-GAAP EPS to be US$14.7 in 2017 vs. our estimate of
US$17.2.
Rerating to be expected Compared to EA and Blizzard, NetEase has much higher
revenue and profit growth, better position in mobile, and pays out
more dividends (EA does not pay dividends; ATVI pays out 20%, vs.
NTES 25%). However, NTES is trading at a discount in terms of
forward P/E, we believe the gap will gradually disappear as NTES
has repeatedly proved its R&D capability in the game industry,
as well as its publishing ability in global
markets.
Valuation and
recommendation
TP of $345 under SOTP-based
valuation
P/E ratio and valuation of global
peers
We now forecast NetEase’s revenue will grow 68%/28%/24% in
2016/17/18, with non-GAAP net income growing 68%/22%/20%. Our TP
represents 20x 2017 PER (17x ex-cash).
Bloomberg consensus has EA’s net profit growing 13% in 2017,
while it is trading at 21x 2017 PER; and the same source has ATVI
net profit growing 10% in 2017 while it is trading at 20x 2017 PER.
Thus, we believe NetEase deserves to be rerated to at least the
level of EA and ATVI, given its repeated success in hit games and
stronger layout in mobile.
