UBS: Optimistic about the future of NTES-S (09999) games, expects new releases to contribute revenue of 6 billion yuan.

UBS released a research report stating that NTES-S (09999) will release the annual blockbuster "The Legend of the Condor Heroes" on March 28. It is preliminarily estimated that the new release will contribute approximately 6 billion RMB in revenue in the first 12 months, which is 6% of NetEase's total revenue in 2023. It is expected to generate revenue of 800 million to 1 billion RMB in the first month. The report indicates a positive outlook on NetEase's prospects in the game launch sector, and believes that the current forward P/E ratio of 15 times is an ideal starting point for a revaluation. The bank stated that the forecast for "The Legend of the Condor Heroes" is only half of the initial performance of the mobile game "Blood Sword River", and is not overly optimistic. It mentioned concerns in the market about competition for "Blood Sword River", but the bank is not overly worried about it, mainly because the penetration rate of Wuxia role-playing games (RPG) and massive multiplayer online role-playing games (MMORPG) in China is not saturated like multiplayer online battle arena games (MOBA) or shooting games, believing that this sub-market still has room for growth. "The Legend of the Condor Heroes" and "Blood Sword River" have different market positioning, both being MMORPGs, but the former focuses more on single-player gameplay style, content, and storyline. The report mentioned that Blizzard Entertainment's main games may return to the Chinese market within a month, still operated by NetEase. NetEase once operated Blizzard's main games in China, including "Overwatch", "World of Warcraft", "StarCraft 2", "Hearthstone", etc., until the end of 2022 when the cooperation between the two sides was terminated. At that time, NetEase's management mentioned that Blizzard's games only contributed low single-digit profits to the group. The report predicts that the return of these games may have even lower profit contributions, but the mobile version of "World of Warcraft" may have a chance to return to NetEase's development pipeline.