We expect NTES to report 4Q24 result in end Feb 2025. We model 6% YoY pure online game revenue of RMB20.7bn, 3% beat consensus. We forecast PC and mobile games will show divergent trend, with revenue growth accelerating to +48% YoY and dipping -7% YoY respectively.
　　Forecasted GPM and adj. NPM are 61.3% and 29.8% respectively, both largely in line with consensus. We deem the initial success of Marvel Rivals in overseas and well-received WWW feedback domestically demonstrate Co.’s solid game competencies. We believe Co. will gradually enjoy the success from globalisation accelerations brought by their committed investments and strategies. We see market still underestimates 2025 PC momentum and model PC game revenue to deliver 42% YoY to RMB30.6bn. Maintain TOP BUY and raise our TP to US$127.0/ HK$198.0
　　Key Factors for Rating
　　Globalisation accelerations on solid core game competencies. We deem the outperformance of Marvel Rivals in overseas and well-received feedback of Where Winds Meet domestically so far both demonstrate Co’s core game competencies and initial success of light monetisation game operation strategies. We see Co. will gradually bear fruits and accelerate its globalisation progress, especially in key overseas regions apart from Japan. We are optimistic on Co.’s mid to long-term prospects and products globally despite Co.’s constant ROI-oriented adjustments in terms of projects, studios and investments. Based on our latest channel check and pipelines , we significantly raise our 2025/26E PC revenue estimates by 21%/ 23% respectively and model PC revenue to achieve RMB30.6bn (+42% YoY) in 2025. We slightly cut our 2025- 26E mobile revenue forecasts by 2%. At the same time, we raise our 2025/26E adj. EPADS forecasts by 5%/ 7% respectively due to higher GPM forecasts mainly on revenue mix shift with higher game revenue estimates and lower opex assumptions.
　　4Q24 preview: PC to significantly outperform. We model flattish YoY total revenue of RMB27.1bn, -1% below consensus. We forecast pure online game revenue will grow 6% YoY to RMB20.7bn, with divergent PC and mobile game sales. We model PC game revenue will accelerate at 48% YoY to RMB6.7bn mainly due to outperformed Marvel Rivals in overseas, Blizzard games’ domestic resumptions and solid Naraka globally. However, we expect mobile game revenue to drop by -7% YoY to RMB14.0bn. Forecasted GPM/ adj. NPM are 61.3%/ 29.8%, both largely meet streets’ expectation.
　　Key Risks for Rating
　　Downside risks: i) weak macro and online discretionary spending recovery; ii) game regulations; iii) competition; iv) destructive investments; v) dampened partnerships; and vi) ADR delisting.
　　Valuation
　　Maintain BUY and raise our TP to US$127.0/ HK$198.0 on: i) US$101.0 on uplifted 13.0x FY2025E adj. EPADS of US$7.8; 2) US$4.0 from stakes in Youdao and Cloud Music; and 3) US$22.0 from net cash (assign 20% discount on US$17bn net cash till end Sep 2024).