DCF Studio

    9999.HK · HKG · Communication Services

    NetEase, Inc.

    Also onConsensus Drift

    Implied value per share

    HKD 215.90

    Market price

    HKD 183.60

    Implied upside

    +17.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · CNY model at 1.1708

    AdjustedReports in CNY, trades in HKD. Modelled in CNY, converted at the end.
    NoteRisk-free rate is an assumption: HKD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    HKD 215.90+17.6%
    Exit multiple
    HKD 228.59+24.5%
    Market price
    HKD 183.60

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn20bn40bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 118.6bnCNY 124.9bnCNY 131.5bnCNY 138.4bnCNY 145.7bn+5.3%
    EBITCNY 31.7bnCNY 33.4bnCNY 35.2bnCNY 37.0bnCNY 39.0bn+5.3%
    NOPATCNY 27.0bnCNY 28.4bnCNY 29.9bnCNY 31.5bnCNY 33.1bn+5.3%
    Add depreciation & amortisationCNY 3.0bnCNY 3.2bnCNY 3.4bnCNY 3.5bnCNY 3.7bn+5.3%
    Less capital expenditureCNY -3.2bnCNY -3.4bnCNY -3.5bnCNY -3.7bnCNY -3.9bn+5.3%
    Less increase in working capitalCNY 6.0bnCNY 6.3bnCNY 6.6bnCNY 7.0bnCNY 7.3bn-5.3%
    Free cashflow to firmCNY 32.7bnCNY 34.5bnCNY 36.3bnCNY 38.2bnCNY 40.2bn+5.3%
    Discount factor0.95710.87680.80320.73580.6741-
    Present valueCNY 31.3bnCNY 30.2bnCNY 29.2bnCNY 28.1bnCNY 27.1bn-3.5%
    Present Value Of The ForecastCNY 146.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.20%HKD assumption - no free live source available for this market (assumption)
    Equity risk premium7.00%Market assumption
    Beta0.859Reported 0.790, pulled toward 1.0 (Blume)
    Cost of equity9.22%Risk-free + beta x equity risk premium
    Cost of debt5.20%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationCNY 587.7bn98.9% of capital
    Total debtCNY 6.7bn1.1% of capital, book value as a proxy
    Tax rate15.0%Effective, capped at statutory
    WACC9.16%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareCNY 184.41

    67% of EV

    Forecast FCFF, final year
    CNY 40.2bn
    Capex at depreciation, working capital in reinvestment
    CNY 33.1bn
    Less reinvestment at g/ROIC (15.1% of NOPAT)
    CNY -5.0bn
    Capitalised
    CNY 28.1bn
    ROIC (reported)
    16.5%
    Terminal value, undiscounted
    CNY 432.6bn
    Terminal value, discounted
    CNY 291.6bn
    Enterprise value
    CNY 437.6bn
    Less net debt
    CNY -155.9bn
    Equity value
    CNY 593.5bn

    Exit at 11.3x EBITDA

    Value per shareCNY 195.25

    69% of EV

    Terminal value, undiscounted
    CNY 484.4bn
    Terminal value, discounted
    CNY 326.5bn
    Enterprise value
    CNY 472.5bn
    Less net debt
    CNY -155.9bn
    Equity value
    CNY 628.3bn

    Spread between methods: 6%.

    Sensitivity

    Value per share (CNY) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.16%218.83226.89236.63248.65263.90
    8.16%195.02200.06205.95212.94221.38
    9.16%177.38180.66184.41188.73193.77
    10.16%163.77165.97168.42171.20174.35
    11.16%152.94154.43156.07157.90159.93

    Outlined: this model. Green text: above today's price of 156.82. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.3%1.1%-4.2pp
    EBIT margin26.8%21.0%-5.8pp
    Discount rate9.2%11.1%+1.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.