NetEase Saw Solid Start to 2022; Upcoming Release of Diablo Paves Way for Growth Acceleration

Narrow-moat NetEase had a solid start to the year, reporting 29% operating income growth for the first quarter of 2022. We expect the strong financial performance to continue for the rest of 2022, supported by the release of Diablo Immortal in June. More importantly, the record-breaking performance at Fantasy Westward Journey (launched in 2003) reaffirms our view that the company has a moat around its legacy franchises. Coupled with the firm's industry-leading capability in developing new games, we see plenty of revenue opportunities (both inside and outside of China) for the firm to grab. We maintain our fair value estimate at $139 and view NetEase shares as very undervalued.