JPMorgan has released 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 global market success, the firm views NetEase's current valuation as compelling. JPMorgan reaffirmed that NetEase remains its preferred pick in China's digital entertainment sector and maintained an "Overweight" rating with a target price of HK$295.

Based on discussions with investors, primary concerns include potential value-added tax increases, competitive risks from technologies like Google Genie 3 for gaming companies, and a near-term absence of company-specific catalysts. The report suggests these concerns are overstated. Regarding VAT, for instance, 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 tax treatment.

Addressing competition risks, JPMorgan highlighted that online game development is a complex process requiring multifaceted expertise—such as gameplay design, in-game economies, multiplayer experiences, game balance, and monetization models—areas where world models like Google Genie 3 cannot fully substitute. Conversely, the firm believes such world models could actually assist game developers in optimizing development pipelines, potentially boosting revenue and profits through accelerated content production and reduced development costs.