JP Morgan: Reiterates "Overweight" rating for NTES-S (09999) with a target price of HK$295

JPMorgan Chase released a research report stating that the valuation of NTES-S (09999) is attractive. After a recent pullback, NetEase currently has a P/E ratio of 13 times, a discount of 25% compared to its average level over the past five years. As a top game developer successful in global markets, the bank believes that NetEase's current valuation is attractive. The bank reiterated that NetEase is its top choice in the digital entertainment sector in China, maintaining a "hold" rating with a target price of HK$295. According to the bank's discussions with investors, the main concerns include the increase in Value-Added Tax (VAT), competition risks from Google Genie 3 for gaming companies, and the lack of specific catalysts in the short term. The bank believes that these concerns are being overly interpreted. For example, regarding the Value-Added Tax, the new VAT regulations effective from January 1, 2026 still apply a 6% VAT to online game virtual goods sales, and this tax rate has not changed. In terms of competition risks, JPMorgan Chase points out that online game development is a process that requires various professional knowledge, such as game design, in-game economy, multiplayer experience, game balance, and monetization models, which cannot be fully satisfied by a World model like Google Genie 3. Instead, the bank believes that the World model can actually help game developers optimize the development process, thereby promoting revenue and profit growth, specifically reflected in faster content development speed and lower development costs.