CICC released a research report that maintained NetEase-S (09999) "outperform industry" rating, with a target price of HK $206m. The company's 1Q24 revenue increased 7% to 26.9 billion yuan (game revenue increased 10%), and Non-GAAP net profit increased 12%.SafariSpinSafari.5 to 8.5 billion yuan, in line with the bank's expectations. And declared a 1Q24 dividend of 0.SafariSpinSafari.099 US dollars per share (0.495 US dollars per ADS, with a dividend of about 30 per cent).

The main points of CICC are as followsSafariSpinSafari:

The quarterly revenue of a number of flagship mobile games reached a record high, and the new tour of the subdivided track contributed to the growth.

Mobile game 1Q24 revenue also increased 19% to 16.1 billion yuan, the bank believes that: 1) long-term flagship games continue to contribute to the increase, the company said that "Fantasy Journey to the West" mobile games, "Fifth Personality" 1Q24 income reached a new high, "lead the shores" 1Q24 revenue reached a three-year highSafariSpinSafari2) the new games such as women to the game "out of the World" expand the user increment for the company and achieve a breakthrough in the new track. The bank also observed a net increase of 1.55 billion yuan in the company's 1Q24 deferred revenue, laying the foundation for the company's subsequent quarterly revenue recognition. In view of the recent "Dream Journey to the West" computer version of part of the system and play, part of the game treasure pavilion mechanism adjustment, the company will say that the purpose of the adjustment is the game long-term operation, there is no need to worry too much about the short-term impact.

Gross profit margin rose steadily, sales expense rate fell month-on-month, and interest income contributed to profit increment.

From the point of view of the profit situation of the split sector, the game business is sound; youdao business achieved net profit for the first two consecutive quarters; and cloud music gross profit margin also increased significantly compared with the previous month. According to the index, the gross profit margin of 1Q24 has increased to 63%, of which: the game business is basically stable, while Cloud Music has increased 8ppt to 38% compared with the same period last year, mainly due to the one-time adjustment of copyright fees to increase the gross profit margin of 1Q24. At the same time, cost control has also continued to advance. 1Q24 sales expenses are higher than the bank expected, and the bank believes that the month-on-month decline of 5% to 4 billion yuan, indicating that the game promotion costs than 4Q23 launch has a certain saving, but in view of the Spring Festival, winter vacation and other marketing nodes in the first quarter, still maintain a certain scale of continuous launch. In addition, the company's 1Q24 interest income also increased due to the increase in the net cash balance, with a contribution of 1.28 billion yuan in a single quarter.

Pay attention to the progress of new products and accelerate the globalization of layout.

The core focus of the new products: 1) the performance of the PC public test of "Yanyun Sixteen tones" on July 26, the company will say that the mobile game version is currently doing performance optimization and testing, which will be launched a little later than the PC side; 2) the progress of "forever robbing forever" mobile games, the company will say that it is expected to be launched this summer; 3) products such as "Seven days World" and "broken Land"; 4) Blizzard's first game returns to performance this summer. At the same time, the company accelerates the globalization of layout, on the one hand, it strengthens the overseas distribution of new products developed by itself, such as "Top Speed", "all-Star Street Ball Party" (the best-selling list of iOS games launched in Hong Kong, Macao and Taiwan is less than 15 on April 10); on the other hand, it continues to introduce overseas best-selling games such as raid: shadow Legend, Marvel Ultimate reversal, etc. In addition, it has also jointly launched products with overseas manufacturers, such as the Legend of the Holy Sword (NetEase Sakura Studio and SquareEnix).