We forecast 6% YoY inline topline contributed by mixed -14% YoY game, +23% YoY online ad and +5% YoY VAS. ~RMB850m forcasted adj. operating profit (10.4% adj. OPM) beat consensus. We believe the Co. is committed to executing its high quality growth strategy on healthy user growth and richer mid-to-long content ecosystems in 2026. Despite dynamic game especially Ncard, we deem strong online ad momentum empowered by accelerated AI on the acquisitions of high LTV users will sustain in 2026. Maintain BUY and raise TP to US$35.0/ HK$278.0.
Key Factors for Rating
Ncard test post CNY; solid ad sustains; accelerated AI. We believe the Co. is dedicated to monetise its healthy user growth and richer mid-to-long content ecosystems with various high quality commercialistion channels including online ad, game and new VAS initiatives. Co. may continue its CCTV CNY Eve Gala procurement and will host major offline events in 2026. For 2026, we currently have relative low visibility on game especially Ncard, while we believe solid ad momentum and stable VAS will sustain. For game, we expect the public launch of Ncard to be in late 2Q26 as Co. plans to test post CNY due to its in-game monetisation optmisiations upon committed priotisations of DAU over S-T grossing. SanMou reached cross-season stablisation domestically with overseas version being sequentially released since 1Q26. Duckov PC expansion packs, console and mobile version are all under developments. New pipelines especially newly approved in-house “闪耀吧! 噜咪” will have their first round testing in mid 2026. For ad, we deem it will continue to deliver strong growth in 2026 mainly due to traffic, ad load and pricing growth contributed by ad tech enhancements and AI integrations to better acquire high LTV users. Games, eCommerce, auto, 3C, furniture, AI related sectors are key growth driving verticals. We believe the recent stricter tax scrutiny on ad and eCommerce will not impact Co.’s financials. Thus, we cut our FY2026E game estimates by 3% to reflect our new assumptions especially Ncard. We raise our FY2026-27E online ad forecasts by 3-4% and assume Co. will increase its AI investments in FY2026- 27E.
4Q25 preview: inline topline with profit beat. We model total revenue to grow at 6% YoY to RMB8.2bn, in line with consensus. Mobile game revenue will change -14% YoY/ +3% QoQ to RMB1.55bn considering over 3m copy sales of “Duckov”. Online ad revenue will remain solid, up 23% YoY similarly to RMB2.9bn. While VAS revenue will decelerate at 5% YoY to RMB3.2bn. Adj. operating profit will continue to reach historical peak at RMB849m, leading to 10.4% adj. OPM. Forecasted adj. NPM of 11.2% also beat streets’ expectation.
Key Risks for Rating
Downside: (i) slower-than-expected macro recovery; ii) Ineffective monetisation; (iii) content creator and user engagement; (iv) content supply and quality; and (v) regulations on games, streaming, advertising, data collection, taxation, etc.
Valuation
Maintain BUY and raise our PEG based TP to US$35.0/ HK278.0 on 0.9x 2026E PEG and 34% 2025E-27E adj. net profit CAGR, and US$1.13 2026E adj. EPADS. This implies 29x/ 21x FY2026/27E adj. PER.