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JPM Believes Shr Price Reaction to CN Opinion Draft as Overdone, Thus It Creates Attractive Entry Pt for Tencent & Netease
JP Morgan, in its report, wrote that it thinks the short-term sell-off in game stocks in HK may continue in the coming days, but viewed that the market overreacted to China's draft of the Measures for the Administration of Online Games, which is open for public consultation. Thus, JP Morgan considered this creates an attractive entry point for $TENCENT (00700.HK)$ and $NTES-S (09999.HK)$ .
The broker expected the draft to have an adverse impact on Tencent's and NetEase's game monetization, but the impact will be minimal. Between the two, the broker expected to see a relatively more negative impact on NetEase than on Tencent. The broker gave NetEase a target price of $195 and a rating of Overweight.
On the financial side, JP Morgan believed that the draft will have little negative impact on Tencent and NetEase, as it expected the measures in the draft to have a greater impact on game developers and publishers with lower-quality content and higher monetization. Tencent and NetEase's games are generally of higher quality than those of their peers in the industry.
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