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The Company through its subsidiaries, operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet portal and wireless value-added services businesses.
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ohkrlll (24.12) Submitted: 3/08/07 3:38 PM : Start Price: $21.18 NTES Score: 21.12
Let's see. Suppose first of all that we forget about growth and all.It is difficulte to find an 'industry average' P/E for this stock but, let's say a P/E of 20 is a fair pricing.Then if we take the 2006 diluted earnings of 0.355 CNY/share = 1.1357..$/ADR (1ADR=25 shares) then NTES's price should be 22.71$We might instead decide that last quarter's earning's is more representative of the value of NTES (earnings have been on a continuous rise). then we annualised earnings of 1.21455$/ADR and therefore NTES should be valued at 24.29$.So from this we see that NTES is very undervalued @ 19$. Now if we take into consideration that NTES has exceeded Wall Street's expectations 12 times out of the last 13. And that it is opperating in an expanding market. And that it's main product, MMORPG, is a favorite of Chinese people in general. And that it will be coming out this quarter with TianXia2, the first Chinese MMORPG with 3d-graphics; the first Chinese MMORPG that really acheives the quality-level of western games. That its game western journey has shattered it's all time record peak number of users this march. etc. etc.Possible risks: 1) competition (The9 SNDA) but they either offer non-chinese games (The9) or games of lesser quality (SNDA)2) Government regulation: governement is trying to minimise the game addiction (more than 4hour per day or something); so far the only measure taken is not delivering any new licences to open internet cafe's in 2007 but seeing as the number of internet cafe's in the past few years has stayed relatively constant that is not much trouble. Anyways the government taking preventive measures so that there is no abuse is really a good thing, you don't wan't internet addiction getting out of controle and then having to really crack down hard on it. Moderation garantees stable growth. Saying that governement regulation will depress the stock is like saying that making drinking and driving illegal should have a depressing effect on alcohol stocks.
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ohkrlll (24.12) Submitted: 3/11/07 9:00 PM
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oh.... and did I forget to mention a ROE of more than 50% and annual growth of around 30% for the past years?
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ohkrlll (24.12) Submitted: 5/19/07 12:22 AM
Actually. From what I can see by comparing similar companies, it seems that the industry average P/E is 30 !!!On another note, it seems that the irrational slide of NTES is over but there seems to be psychological blockage @ around $18.20. If it can get past 18.3 I would imagine it should run up fast. Also I guess that should happen by the time it reports its 1Q which should be around the end of the month.
ohkrlll (24.12) Submitted: 5/21/07 10:04 PM
Hmmm... Even though NTES did better than expected (0.29$ earnings per ADR vs. 0.27$) in 1Q (as usual) it still took a small hit in after hour trading. Weird. Well, I guess that just creates more opportunities for the rest of us in this inefficient market. -------------------------------------------------------------------------------------------------------------------------------------------------------What I find very very weird though is that that for about the same forcasted earnings and growth (~25%), SNDA is valued at 30 P/E while NTES is valued at 15 P/E. Plus, NTES has two major games in the pipeline, one of which (Westward Journey III) will already have a big user base (ported from WJ II).The only major interesting thing that SNDA has, as far as I am concerned is that it is planning to develop a SecondLife type game. But the results of that are quite speculative. ---------------------------------------------------------------------------------------------------------------------------------------------------------The only think I can think of that would explain such a disparity is that investors prefer SNDA's pay for in game items model better than NTES pay to play model (the conference call seems to hint at this). I am not certain that this good jugement on their part: what would you prefer for a game you were really into? A game where people progress by skill and work only or a game where the most powerful players are so because they paid more than you did? It kind of takes the point out of the game.
ohkrlll (24.12) Submitted: 5/21/07 10:28 PM
Actually? this is very funny, here is some data from Reuters (http://www.reuters.com/investing):----------------------------------------------------------------------------------------------------------------------------------------------------------NTES : EPS: 1Q = 0.29$, 2007 = 1.18; Long term Growth Rate Estimate: 21%; P=18$; P/E(ttm) = 15.39----------------------------------------------------------------------------------------------------------------------------------------------------------SNDA : EPS: 1Q = 0.30$, 2007 = 1.35; Long term Growth Estimate: 27.29%; P=27.82$; P/E(ttm) = 29.05-----------------------------------------------------------------------------------------------------------------------------------------------------------ERTS: EPS: 1Q = -0.34$(sic), 2008(sic)= 1.12; LT Growth Estimate: 18.39%; P=49.21$; P/E(ttm)=214.9-----------------------------------------------------------------------------------------------------------------------------------------------------------It seems to me that shorting Electronic Arts (ERTS) to buy Netease (NTES) is a good play.
ohkrlll (24.12) Submitted: 6/04/07 10:49 AM
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BTW, if you want to check it out, its new proprietary (still in development) search engine is here: youdao.comIt is not so.163.com its currently available search engine in partnership with google.
ohkrlll (24.12) Submitted: 7/11/07 9:13 PM
It has already regained a bit of it's value but I think that this news: http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=ef12915d806b3110VgnVCM100000360a0a0aRCRD&vgnextfmt=teaser&ss=technology&s=businesswill make it pop the psychological barrier of 19.30$ tommorrow.
des52 (< 20) Submitted: 7/17/07 5:08 PM
Good research ohkrlll. To give my opinion of why the stock hasn't taken off yet is wall street analysts job is to upgrade and down grade stocks in their particular sector regardless of the growth of the sector. So for example the Chinese internet sector is taking off. Its quite spectacular really. (Reminds me of the early 90's here in America). So the whole sector is great. But by the numbers it seems analysts haven't recommended the entire sector like they should have. Instead they have upgraded BIDU (up 70% on the year). Wall street is picking up on the internet growth in China but as usual they are inefficient in how they are investing in it (only going for analyst recommended stocks rather than the sector). Which is why we can find such great deals in great sectors sometimes. NTES might be the best Chinese internet company to invest in. Management just announced a 120 million dollar buy back (1/10th of the market cap). So long and short of it stay long on NTES. When it moves it is likely to gather quite a bit of momentum. I can never time the when or how of things but it look cheep now so why not buy:) Thanks for the good research too. You brought to my attention a couple of things I hadn't found out yet.
ohkrlll (24.12) Submitted: 7/23/07 1:37 PM
I guess you are right. These analysts seem to have a really big influence on the market!On an other note, here is a funny article stating that BIDU is losing market shares to NTES (yodao.com) in porn searches ;-) http://www.pacificepoch.com/newsstories/102384_0_5_0_M/
ohkrlll (24.12) Submitted: 8/18/07 6:21 PM
There are rumours that Google might try to buyout NTES. Maybe this will put a halt to the slaughter ...
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