CICC: Maintaining the NetEase S (09999) target price of HK$265, the net profit from non-GAAP in the third quarter is expected to increase 9% year-on-year

The Zhitong Finance App learned that CICC released a research report saying that NetEase's (09999) revenue for the third quarter of 2026 is expected to increase 4% year on year to 29.5 billion yuan, non-GAAP operating profit will increase 32% year on year to 11.7 billion yuan, and non-GAAP net profit to mother will increase 9% year on year to 10.4 billion yuan (institutions agree that 10.5 billion yuan). Considering that the company's new product “Infinity” in 2027 has a certain valuation premium, the target prices for US stocks and Hong Kong stocks are $171 and HK$265, respectively, with corresponding upward space of 39% and 36%, respectively.

CICC's main views are as follows:

Revenue for the third quarter of 2026 is expected to be steady year-on-year, and the fundamentals of flagship products are relatively resilient

The bank expects steady year-on-year revenue growth in the third quarter of 2026, and the fundamentals of flagship products are relatively resilient. In terms of product performance during the quarter, the bank estimates that: 1) the “Dream West Journey” mobile game was relatively stable, and the “Dream West Journey” PC playsuit revenue delay still contributed to the third quarter; 2) “Egg Boy Party” sales increased well. The bank judged that it was mainly driven by the 4th anniversary celebration (June 26 to July 24, continuing in three waves), compounded by summer dividends; 3) The remaining flagship products such as “Journey Against the Cold” and “Onmyoji” contributed more.

Operating profit is expected to remain strong

The bank estimates that gross margin for the third quarter of 2026 increased by 5 percentage points year on year, and is basically stable from month to month. Judging that it is still expected to benefit from factors such as game revenue structure and declining channel costs to maintain a high level. In terms of period expenses, the bank anticipates that the management rate will partially continue the trend of the second quarter, and there may be a slight decrease from the previous year, increasing operating profits accordingly. At the same time, the bank expects a positive increase in investment income in the third quarter compared to the second quarter.

Game reserves are abundant in 2027. “Infinity” will be launched in early 2027, and a variety of innovative products are ready to be launched on segmented tracks

“Infinity” is scheduled to be launched globally on January 15, 2027, with over 25 million pre-orders worldwide. As a major new product in Urban Open World, the bank believes it is expected to become an important source of revenue growth for the company in 2027. In terms of racetrack segmentation, the Chinese Zhi Monster “Search and Destroy”, and “Under the Sea of Fog” all completed their first tests in August 2026; the extreme sports competitive shooter game “Extreme Battlefield” (with version number) and the martial arts style SLG “Code Name: Strategy Martial Arts”, which were first revealed in October 2026, continue to differentiate and innovate; reserve projects such as the 3A stand-alone “Guitang” are also progressing in an orderly manner. The bank believes that the company has a rich game product pipeline in 2027, and “Infinity” will lead the multi-category innovation team. It is recommended to focus on investment opportunities in the new product cycle.

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