NetEase Scores Upgrade To Buy From Daiwa

Daiwa Capital Markets has upgraded NetEase Inc (ADR) (NASDAQ: NTES) from Buy to Outperform based on multiple catalysts. Analysts John Choi and Alex Liu also boosted the price target from $235 to $290 on the expectation of better revenue growth in the second half of the current year.

The brokerage pointed out that the stock gained 15 percent month-to-date primarily because of its mobile games. Significantly, in China, four out of the top five games grossing in iOS were developed by the company. Daiwa believes the company could generate more revenue from mobile game in third quarter than the Street estimates.

Related Link: Credit Suisse Assumes Coverage On NetEase With Neutral Rating

In a research note, the lead analyst said, "We have noted that Onmyoji (launched on 2 September) has been well received by gamers in China and currently ranks as No. 2 game for iOS. We are impressed by Onmyoji's visual quality and engaging game-play design, and see it has gained strong mind share among hard-core ACG fans in China."

The brokerage pointed out that NetEase's FWJ and WWJ mobile games have been consistent in revenue uptick and that the pipeline until the first half of the fiscal year 2017 remains solid. Aside from this, Daiwa expects significant growth from PC game "Overwatch" in the third quarter, which would be first full quarter of operation.

The lead analyst concluded by saying he is more positive on the company's game life cycle, be it mobile or PC, than the market.

Following the upgrade, the stock jumped $6.17, or 2.53 percent, to $250.31 at time of writing.