JPMorgan issued a research report stating that NetEase-S (09999) offers attractive valuation. Following recent price adjustments, NetEase currently trades at a price-to-earnings ratio of 13 times, representing a 25% discount to its five-year historical average. As a top-tier game developer with proven success in global markets, the firm believes NetEase's current valuation is appealing. JPMorgan reiterated that NetEase remains its preferred pick in China's digital entertainment sector, maintaining an "Overweight" rating with a target price of HK$295.

Based on discussions with investors, primary concerns include potential increases in Value-Added Tax (VAT), competitive risks from Google Genie 3 for gaming companies, and a near-term lack of company-specific catalysts. JPMorgan views these concerns as overstated. Regarding VAT, the new regulations effective January 1, 2026, maintain the 6% VAT rate on sales of virtual items in online games, indicating no change to the current rate. Addressing competition risks, JPMorgan noted that online game development is a complex process requiring multifaceted expertise—such as gameplay design, in-game economics, multiplayer experiences, game balance, and monetization models—which cannot be fully replicated by World models like Google Genie 3. Conversely, the firm believes World models could actually assist game developers in optimizing their development processes, potentially boosting revenue and profits through accelerated content development and reduced costs.