Hope of improving outlook outweighs 3Q17 earnings miss.    3Q17 earnings missed, as we had previewed, but the stock may find better neartermsupport than we had worried over. We expect the stock narrative to shifttowards whether 3Q17 marks a trough in sequential momentum or not. Our basecase is to assume a gradual U-shaped recovery through 2018; sharp improvementvia new game in late 2017 could get us, and the stock, more excited earlier. Weremain positive on the stock over the mid-term. Between downside risk to neartermearnings and excitement for new games, we acknowledge the potential fornear-term volatility in the stock; retain Buy.    What was incremental for us from the 3Q17 print.    1) We had braced for a meaningful decline in deferred revenue, which was broadlyflat QoQ. The implied magnitude of decline for 4Q17 thus may not be as harsh aswe had initially thought. In fact, we see the possibility that 4Q mobile revenue issequentially up, not down, based on the current run-rate. 2) We thought NTES'4Q17 pipeline would have been light, but now note that Tribes & Empires, apromising title that had been delayed since the May announcement, and OnmyojiMOBA are on the roster of scheduled releases. Tribes & Empires is a mobileMMORPG, a genre NTES has historically excelled in, and could bear good results.    3) Start of Minecraft monetization could also brighten 2018 outlook. The bestscenario for NTES is to have a new strong successful title coming out of late 2017,proving meaningful earnings visibility into 2018's outlook. Compared to investorfeedback, our expectation for Wilderness Action or Terminator 2: Judgement Dayis rather light.    Valuation and key risks.    We update our probability-weighted valuation between bull/base/bear casescenario. In our base case, we assume NTES is able to secure a new #1~#2 title inChina from 2Q18 onward, implying a fair value of US$354. Our bull case assumesNTES can achieve 1.5 successful new games in the #1~#3 category, implying afair value of US$400. Our bear case assumes there are no new growth hereforth,implying US202. We make minor adjustments to our assumption, lifting targetprice by 3%. Key downside risks are deterioration of existing games or the failedlaunch of new ones.

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