China Merchants Securities (Hong Kong) Research Department publishes investment report today

China Merchants Securities (Hong Kong) Research Department today issued an investment report to maintain NetEase (nasdaq:ntes) Buy rating, to increase the target price to 85.5 U.S. dollars.

The main contents of the report are as follows:

August 14, 2013, NetEase released 2013 years of Q2 performance, sales growth of 20.4%, to 2.413 billion yuan, net profit of 1.095 billion yuan, the year-on-year increase of 25.1%. Company August 19, announced the United China Telecom released mobile chat products "easy letter."

Based on the company's second half of the game expansion package launched, we adjusted 2013 years of EPS from $4.98 to $5.56. The introduction of "easy letter" to facilitate the company to integrate mobile end products, the rise of its valuation has helped to increase the target price from $68.5 to $85.5, maintain the ' buy ' rating.

2013 Q2 Performance Review

Online games: Benefit from the independent research and Development game, the game business sales reached 2.06 billion U.S. dollars, an increase of 18.18%, 3 consecutive quarterly positive growth; revenue costs: The proportion of Warcraft in the game business, revenue costs fell by 11.6% Sales market costs: Game promotion and portal advertising business promotion costs increase, pushing up the sales market costs 61.7%.

Game launch plan for the second half

The second half of the company will launch Dahua West Tour II, Dahua West Tour III, new flying, fairy tales, such as self-help research and development of the game expansion pack; The company will also launch the first generation of shooting games "crisis 2015" in the second half of the year. Management believes that Tencent's stake in the "Dynamic View of Blizzard" 6% of the shares, for NetEase and the latter has no impact, the company currently in addition to "World of Warcraft", but also added "StarCraft" and "Stone Legend" two from Blizzard's game.

Actively layout mobile end and cloud computing to drive online advertising business

2013 Q2, NetEase's online advertising business sales of 272 million yuan, an increase of 33.3%. The good development of advertising business benefits from the improvement of macroeconomic environment, at the same time, in recent years, the company's active layout of mobile and cloud computing to enhance the stickiness of NetEase portal users, while the future of NetEase to promote mobile data based enterprise Services laid the foundation.

Easy letter is beneficial to the integration of company Mobile end products

The introduction of Ishin makes NetEase's mobile internet layout more complete, becoming a platform and entrance of NetEase mobile products. The Ishin function should reach the micro-letter more than 3.0 version, 50 million registered users will be a market point of concern. Mobile chat software is just emerging, the user's habits, software functions are far from mature, there are many innovative, improved space and market segments. We have reason to believe that Ishin in the guarantee of user experience and have a certain characteristics of the premise, occupy a certain mobile chat market share in China.

Performance forecasts

We expect that with a variety of games expansion packs in 2013 Q3 launched, the company Q3 overall sales still have 19.4% year-on-year growth, to 2.441 billion yuan, of which game business growth of 17.5%, advertising business growth of 25%.

Investment Strategies and Recommendations:

Combined DCF and comparative valuation methods, the company's valuation of 85.5 U.S. dollars per share than the current share price of 75.4 U.S. dollars have 14% of the upward space to maintain its ' buy ' rating.