Everbright Securities has released a research report expressing optimism regarding NetEase-S's new product pipeline. The report suggests that revenue contributions from these new titles are expected to materialize from 2026 onwards, with significant profit increments anticipated in 2027. Consequently, the firm forecasts the company's revenue for 2026-2028 to be RMB 124.9 billion, RMB 143.6 billion, and RMB 151.6 billion, respectively. Non-GAAP net profit for the same period is projected at RMB 41.2 billion, RMB 48.6 billion, and RMB 51.6 billion. Compared to prior estimates, the forecast for 2026 Non-GAAP net profit remains largely unchanged, while the 2027 Non-GAAP net profit forecast has been raised by 9.2%, with a new projection added for 2028. The current stock price corresponds to Non-GAAP P/E ratios of 13x, 11x, and 10x for 2026, 2027, and 2028, respectively, leading the firm to maintain its "Buy" rating.
Everbright Securities highlights three key investment theses for the company at this juncture: 1) New game releases may drive performance above expectations; 2) A strong product lineup could lead to valuation re-rating; and 3) Cost control and efficiency improvements are ushering in a new phase of quality-driven development.
Focusing on key upcoming titles, the report specifically mentions "The Forgotten Sea," "Infinity," and "Return to Tang." A near-term catalyst is the new round of closed beta testing for "The Forgotten Sea," scheduled to begin on May 28. Developed by NetEase's Joker Studio, known for "Identity V," "The Forgotten Sea" is a marine-themed open-world RPG featuring cross-platform compatibility, a distinct puppet-style aesthetic, and core gameplay elements like nautical exploration, dual-mode combat, and roguelike loops. Having obtained its license in April 2026 and with over 25 million pre-registrations currently, the report suggests its pre-registration numbers could surpass 30 million, placing it among the most anticipated titles. Drawing parallels with games like "Identity V," "Wuthering Waves," and "Different World," Everbright Securities estimates "The Forgotten Sea" could generate approximately RMB 5 billion in gross revenue in its first 12 months. Given its multi-platform release, particularly on PC with higher margins, the game could contribute an estimated profit increment of RMB 1.75 to 2.25 billion, accounting for 4.7% to 6% of the company's 2025 Non-GAAP net profit, assuming a 35%-45% profit margin.
Looking further ahead, "Infinity" is considered a more significant release, with "Return to Tang" also garnering considerable attention. "Infinity" is an urban open-world RPG currently in development, with over 17 million global pre-registrations. "Return to Tang," developed using Unreal Engine 5, is a buy-to-play action-adventure game inspired by historical events and targeted for global release on PC and console platforms, representing NetEase's inaugural foray into the AAA game segment.
The report also notes the initial effects of the company's quality-focused development strategy. Following founder Ding Lei's return to frontline management of the gaming business at the end of 2024, a series of cost-control and efficiency measures have been implemented. These efforts are reflected in disciplined expense management: the R&D expense ratio has been maintained around 16%, dropping to 14.7% in Q1 2026, indicating improved efficiency; the sales expense ratio remains stable; and the administrative expense ratio has decreased from 4.93% in Q2 2021 to 2.08%.
Furthermore, NetEase is poised to become eligible for inclusion in the Southbound Stock Connect program in 2027. This is contingent on the company's trading volume on the Hong Kong Exchange exceeding 55% of its global total for a consecutive year, which would trigger a formal shift to a dual-primary listing status on the HKEX.
The report concludes with risk warnings, including potential delays or quality issues with new game launches, and a slowdown in macroeconomic growth which could impact consumer spending.
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