We expect NTES to report 2Q25 results in late August 2025. We forecast 11% YoY topline and 16% YoY pure online game revenue, -1% and -2% below consensus. PC game will jump 67% YoY to RMB7.6bn and mobile game will be flattish YoY at RMB14.8bn. Cash revenue will grow 17% YoY to RMB20.6bn. Adj. net profit will rise 28% YoY to RMB10.0bn, 4% beat consensus. We expect 2025 adj. profit to grow at 20% YoY to RMB40.3bn despite relatively light new pipelines. We deem 2026 will be a shining year with launches of highly expected cross terminal franchises “Ananta” and “Sea of Remnants” globally. Maintain BUY with uplifted TP of US$150.0/HK$236.0.
　　Key Factors for Rating
　　Sustainable profitable growth and margin expansion in 2025; highly expected “Ananta” and “Sea of Remnants” in 2026. We expect Co. will go through a relatively light pipeline in 2025 with “Marvel Mystic Mayhem (漫威 秘法狂潮)” overseas in end June, “Supervive (头号追击)” and “Destiny: Rising (命运：群星)” globally in end July and August, as well as the launch of “WWW” console and “Wildgate (无主星渊)” globally. However, we deem Co. will achieve a sustainable profitable growth with adj. net profit rising 20% YoY to RMB40.3bn in 2025 driven by i) stable existing game franchises; ii) channel optimisations; iii) game revenue mix structural shift; iv) GPM optimisation of non-game businesses especially music and Youdao; and v) decreased opex on ROI-oriented investments and streamlined operations. According to our latest forecasts on existing game grossings and new games expected launch date, we nudge down our FY2025-27E online game revenue by 0-2% with -2% mobile game estimates cut and -1%~+3% PC game estimates change. We raise our adj. EPADS by 0-2% to reflect improved GPM estimations and decreased opex assumptions.
　　2Q25 preview: strong PC; flattish YoY mobile; profit beat. We model total revenue will hike 11% YoY to RMB28.2bn, -1% below consensus. We forecast pure online game revenue will jump 16% YoY to RMB22.4bn, -2% below consensus. PC game revenue will grow at 67% YoY to RMB7.6bn, continuously contributed by Marvel Rivals in overseas, domestic Blizzard games and Where Winds Meet PC domestically. Mobile game revenue will be flattish YoY at RMB14.8bn mainly affected by Justice Mobile being offset by Where Winds Meet mobile and Naraka Mobile. We forecast cash revenue to increase 17% YoY to RMB20.6bn. Forecasted GPM/ adj. NPM are 63.8%/ 35.4%, both exceeding street’s expectation.
　　Key Risks for Rating
Downside risks: i) weak pipelines; ii) weak macro and online discretionary spending recovery; iii) game regulations; iv) competition; v) destructive investments; vi) dampened partnerships; and vii) ADR delisting.
　　Valuation
　　Maintain BUY and uplift our TP to US$150.0/HK$236.0 on: 1) US$123.0 on 14.0x FY2025E adj. EPADS of US$8.8; 2) US$7.0 from stake in Youdao and Cloud Music; and 3) US$20.0 from net cash.