Guotai Junan International raised its target price for NetEase Inc (09999) to HK$215 from HK$195 and maintained its "buy" rating.
The research house said NetEase's 4Q 2020 non-GAAP net income was lower than its expectations by 26.1%, mainly due to higher-than-expected net exchange losses. Overall gross margin in 4Q decreased by 2.8 ppts QoQ to 50.2%, mainly due to fluctuating gross profit margin from online games services.
Guotai Junan revised up online games services revenue from 2021 to 2022 by 0.3% and 2.3%, respectively, due to (1) expected stable cash flow from main existing titles, such as Fantasy Westward Journey, and (2) rich games pipeline. In addition, it expects NetEase to enter into a new signature games launch cycle.
With expected strong top-line growth and efficient marketing spend, Guotai Junan revised up its non-GAAP EPS forecasts from 2021 to 2022 by 1.8% and 3.6%, respectively.
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