Friday, August 19, 2005

NTES(72.19$,Strong Buy,12-Month Target $95)

Regarding my previous call on NetEase right after Q205 earning release, I realized I was too conservative. After careful rethinking, I am increasing my 12-month target from 78$ to 95$. The target price is derived by taking the average of two valuation methods: 16 times of projected 2006 EBITDA plus cash, 22 times of projected 2006 EPS.

I think taking an average of above two numbers makes sense, since in terms of PE, the multiple used is too low, but in terms of EBITDA, the multiple used is pretty fair. The discrepancy is caused by the fact that the Company is paying little tax and charging little on depreciation and amortization. In the long term, I expect policy makers of China to expose higher tax rates on companies such as NetEase since they are so profitable, also I expect the Company to charge more aggressively on depreciation since they will need more and more servers to support their games.

Here is the financial detail:

NTESQ205 Posted by Picasa


Anonymous bullishta said...

After reaching a recent intraday high of just over $81, NTES has been declining to today's close at $72.19, nearing its 20 DMA of $68.97. What price would be a good entry point? I enjoy your blog... Thanks!

9:57 PM  
Anonymous Anonymous said...

why snda is down big?

5:37 AM  
Anonymous Anonymous said...

In term of days, I really do not know where the price will go, nor will I be able to call what is the entry point. All I know is sometimes something becomes cheap, but could it be cheaper? God knows.


11:25 AM  
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5:54 PM  

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