CICC: Maintains NTES-S (09999) target price at HK$265, expects Q3 Non-GAAP net profit attributable to shareholders to grow 9% year-on-year

CICC released a research report stating that it expects NTES-S (09999) Q3 2026 revenue to grow 4% year-on-year to RMB 29.5 billion, Non-GAAP operating profit to grow 32% year-on-year to RMB 11.7 billion, and Non-GAAP net profit attributable to shareholders to grow 9% year-on-year to RMB 10.4 billion (consensus estimate RMB 10.5 billion). Considering that the company's 2027 new title "Ananta" carries a certain valuation premium, the firm maintains its target prices of US$171 and HK$265 for the US and Hong Kong shares, respectively, corresponding to upside of 39% and 36%. CICC's main views are as follows: Expects robust year-on-year revenue in Q3 2026, with solid fundamentals for flagship products The firm expects Q3 2026 revenue to maintain steady year-on-year growth, with solid fundamentals for flagship products. Regarding product performance during the quarter, the firm estimates: 1) "Fantasy Westward Journey" mobile game remained relatively stable, with deferred revenue from the "Fantasy Westward Journey" PC free-play server still contributing to Q3; 2) "Eggy Party" showed good gross billing momentum, which the firm attributes mainly to the strong boost from its fourth-anniversary celebration (June 26 to July 24, rolled out in three waves) plus summer season benefits; 3) several other flagship products such as "Justice Mobile" and "Onmyoji" contributed incremental gross billings. Expects operating profit to remain at a strong level The firm estimates Q3 2026 gross margin to rise 5 percentage points year-on-year and remain broadly stable quarter-on-quarter, which it believes will likely remain at a relatively high level benefiting from factors such as game revenue mix and lower channel costs. On operating expenses, the firm expects the management expense ratio to partially extend the Q2 trend, potentially declining somewhat year-on-year, thereby enhancing operating profit. Meanwhile, the firm expects Q3 investment income to show a positive sequential gain versus Q2. Rich game pipeline for 2027, "Ananta" to launch in early 2027, multiple innovative titles across niche genres in the pipeline "Ananta" has been scheduled for global launch on January 15, 2027, with global pre-registrations exceeding 25 million. As a major new urban open-world title, the firm believes it is poised to become an important source of revenue growth for the company in 2027. In niche genres, the Chinese-style supernatural "extraction shooter" "Guiying Cangfeng" and the Western-fantasy "extraction RPG" "Under the Misty Sea" both completed their first tests in August 2026; the extreme sports competitive shooter "Jixian Zhanchang" (which has obtained a license) first revealed in October 2026 and the wuxia-style SLG "Codename: Stratagem Wulin" continue the differentiated innovation approach; and reserve projects such as the AAA single-player title "Return to Tang" are also progressing in an orderly manner. The firm believes the company's 2027 game product pipeline is rich, with "Ananta" leading a tier of innovation across multiple categories, and suggests paying attention to investment opportunities around the new title cycle. Risk warnings Economic downturn, tighter regulation, poor game performance, intensified competition, foreign exchange and investment losses.