Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>'s share price retreated 3.2% overnight on news that China would restrict playing time for minors to 3 hours a week - that is, 8pm to 9pm time slots on Friday, Saturday and Sunday, with an extra hour on public holidays.  The share price erased these losses and recorded an intra-day gain of 3.3% by Tuesday's market close, suggesting that regulatory concerns were assuaged by Tencent's affirmation of low single-digit revenue contribution of minors. 
Insight Provider Mio Kato wrote a unique but sensible piece about how the market may have misunderstood the significance of the restrictions, with the implications for the long-term growth of the industry more severe and an appreciation of the relevant issues would come sooner.  A key thrust of the argument is that habit-formation of gaming at an early age would be disrupted to an extent that gaming habits and user time spent do not carry over into adulthood. 
Tencent's gaming revenue is derived primarily from the sales of in-game virtual items and the provision of adjacent services.  In this article, we expand on the above argument by highlighting how the habit-formation disruption not only affects user time spent but also have a knock-on impact with respect to in-game virtual item spending, subscription, and IP consumption. 
Further, Tencent's revenue recognition on the provision of online games heavily depends on management's assumptions of the gamer's usage profile, which was in turn determined based on past gaming habits. This was historically raised as a Key Audit Matter in Tencent's Audit Opinions. Accordingly, we also discuss in this article how the underlying management assumptions might change as a result of the regulations and consequent impact on Tencent's gaming revenues.

Tencent (700 HK)'s share price retreated 3.2% overnight on news that China would restrict playing time for minors to 3 hours a week - that is, 8pm to 9pm time slots on Friday, Saturday and Sunday, with an extra hour on public holidays.  The share price erased these losses and recorded an intra-day gain of 3.3% by Tuesday's market close, suggesting that regulatory concerns were assuaged by Tencent's affirmation of low single-digit revenue contribution of minors. 
Insight Provider Mio Kato wrote a unique but sensible piece about how the market may have misunderstood the significance of the restrictions, with the implications for the long-term growth of the industry more severe and an appreciation of the relevant issues would come sooner.  A key thrust of the argument is that habit-formation of gaming at an early age would be disrupted to an extent that gaming habits and user time spent do not carry over into adulthood. 
Tencent's gaming revenue is derived primarily from the sales of in-game virtual items and the provision of adjacent services.  In this article, we expand on the above argument by highlighting how the habit-formation disruption not only affects user time spent but also have a knock-on impact with respect to in-game virtual item spending, subscription, and IP consumption. 
Further, Tencent's revenue recognition on the provision of online games heavily depends on management's assumptions of the gamer's usage profile, which was in turn determined based on past gaming habits. This was historically raised as a Key Audit Matter in Tencent's Audit Opinions. Accordingly, we also discuss in this article how the underlying management assumptions might change as a result of the regulations and consequent impact on Tencent's gaming revenues. 

Tencent - An Analytical Framework For "Tomorrow's" Gaming Minors

Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

Equity Bottom-Up

<ul><li>NetEase, Inc. delivered a positive result and managed an all-around beat last quarter.</li><li>NetEase's classic legacy titles and newly launched games played a pivotal role in expanding its global footprint.</li><li>Looking ahead, NetEase anticipates the launch of Where Winds Meet, a highly anticipated AAA martial arts-themed action-adventure game.</li></ul>

NetEase, Inc. delivered a positive result and managed an all-around beat last quarter.NetEase's classic legacy titles and newly launched games played a pivotal role in expanding its global footprint.Looking ahead, NetEase anticipates the launch of Where Winds Meet, a highly anticipated AAA martial arts-themed action-adventure game.

NetEase Inc.: Inside the Strategies Fueling Their Gaming Industry Takeover! - Major Drivers

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>China announced game approval for the December batch. The number of games approved has increased compared to recent months.</li>
<li>The pace of China game approval appears to be accelerating, to the same level as pre-tightening.</li>
<li>Netease scored two approvals while Tencent scored one. Netease finished the year with the most games approved.</li>
</ul>


China announced game approval for the December batch. The number of games approved has increased compared to recent months.
The pace of China game approval appears to be accelerating, to the same level as pre-tightening.
Netease scored two approvals while Tencent scored one. Netease finished the year with the most games approved.


Tencent/Netease: Netease Tops '23 League Table with Most Games Approved

Blue Lotus Non US Internet research, Blue Lotus Research Institute

Ying Pan

Blue Lotus Non US Internet research

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

<ul>
<li>NetEase reported revenue/non-GAAP operating profit/GAAP net income inline/5.24%/16.2% vs. our estimation.</li>
<li>The bottom-line beats were primarily attributed to the operational efficiency achieved through the usage of AIGC tools, and reduced S&amp;M expenses resulting from organic traffic generated by high-quality game content.</li>
<li>We maintain our BUY rating and raised TP to $138 for future game releases, implying 19x PE, and it is currently trading at 17x PE in 2024</li>
</ul>


NetEase reported revenue/non-GAAP operating profit/GAAP net income inline/5.24%/16.2% vs. our estimation.
The bottom-line beats were primarily attributed to the operational efficiency achieved through the usage of AIGC tools, and reduced S&amp;M expenses resulting from organic traffic generated by high-quality game content.
We maintain our BUY rating and raised TP to $138 for future game releases, implying 19x PE, and it is currently trading at 17x PE in 2024


[NetEase, Inc.(NTES US,BUY,TP US$138)TP Change]: Raise TP for Upcoming and Highly Anticipated Titles

<ul><li>NetEase delivered a mixed set of results in the quarter, with revenues well below expectations, but managed an earnings beat.</li><li>Revenues from the Fantasy Westward Journey Saga continued to increase year over year in the quarter, again impressing the industry with this IP's enduring appeal.</li><li>In the second quarter, Cloud Music's GP margin increased significantly because of the growth of membership services and ongoing cost-cutting initiatives.</li></ul>

NetEase delivered a mixed set of results in the quarter, with revenues well below expectations, but managed an earnings beat.Revenues from the Fantasy Westward Journey Saga continued to increase year over year in the quarter, again impressing the industry with this IP's enduring appeal.In the second quarter, Cloud Music's GP margin increased significantly because of the growth of membership services and ongoing cost-cutting initiatives.

NetEase Inc.: New Gaming Studio Launch & Other Major Drivers

China

NetEase, Inc. is an Internet technology company that develops applications, services and other Internet technologies in China. The Company's core businesses consist of email service, web portal and online entertainment, including online gaming services. NetEase also offers online advertising, search, mobile applications and e-commerce.

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NetEase Inc (NTES US)

Tencent - An Analytical Framework For "Tomorrow's" Gaming Minors

Tencent's investors' response to latest online gaming restrictions have been measured due to small revenue contribution from minors. We discuss how...

Jason Yap, CFA

NetEase Inc.: Inside the Strategies Fueling Their Gaming Industry Takeover! - Major Drivers

NetEase, Inc. delivered a positive result and managed an all-around beat last quarter. NetEase's classic legacy titles and newly launched games...

Baptista Research

Tencent/Netease: Netease Tops '23 League Table with Most Games Approved

China's game approval process is picking up speed, with more games approved in December. Netease emerged as the leader in game approvals for the...

Ke Yan, CFA, FRM