CICC: Maintains Netease (09999) outperform rating with a target price of HK$265.

CICC report states that it will maintain NetEase's Non-GAAP net profit forecast for 2026/2027 at 42.2/46.7 billion yuan. The current price corresponds to a Hong Kong stock P/E of 13/12x and a US stock P/E of 13/11x for 2026/2027 Non-GAAP P/E. Maintain an outperform industry rating and a target price of 265 Hong Kong dollars/171 US dollars, corresponding to a Hong Kong/US stock P/E of 17.5/15.5x for 2026/2027 Non-GAAP P/E, with an upside potential of 33/38% for Hong Kong/US stocks. The bank believes that NetEase's multiple flagship products demonstrate its ability to operate sustainably, and the current timing of new product cycles and globalization progress will be key variables to observe; at the capital level, the company announced that it will become a dual-primary listing company on the Hong Kong Stock Exchange from June 30, 2026, and will be included in the Hong Kong Stock Connect on the same day. CICC's main points are as follows: Three major upgrade paths constitute a flagship IP value reconstruction system NetEase has developed three reusable upgrade paths for its flagship products: 1) technology rewrite/version reconstruction: by replacing engines, cross-platform interoperability, upgrading aesthetics, and reconstructing gameplay, it eliminates the technical debt and experience gap of old products. Representative cases include "Tianxia: Wanxiang" and "Nishuihan: Shanghai New World". 2) Service layering/dual-service parallel: deploying two sets of low-threshold and high-depth server systems under the same IP, widening the user funnel while retaining core paid content. A representative case is the PC version of "Fantasy Westward Journey". 3) Building a platform/ecosystem: sinking content production and dissemination functions to players and external partners through UGC tools, IP linkage, and competition systems. Representative cases include "Egg Party" and "Identity V". Technology, talent, and management form a structural barrier trio The bank believes that NetEase's ability to systematically transform flagship products is rooted in the accumulation of three layers of capabilities: 1) technology: nearly 20 years of self-developed engine iteration, providing underlying tools for engine rewriting and cross-platform interoperability; 2) talent: a reservoir of producers cultivated for over ten years internally, which the bank believes has formed a redundant and replaceable talent pool; 3) organization: a data-driven decision-making system, clear growth paths, and effective incentive mechanisms operate synergistically. The common feature of these three layers of capabilities is their long generation cycle: engine iteration for nearly twenty years, producer training for over ten years, and decision models validated through decades of product history, making it difficult to replicate with short-term investments or external introductions. This set of capabilities not only supports the reassessment of the value of long-standing IP but also provides certainty for differentiated innovation in new games. Risk warning: macroeconomic and consumer weakness, product performance below expectations, intensified market competition, and changes in industry policies.