Mark Grammer Netease.com Inc NTES-Q BUY ON WEAKNESS Aug 16, 2005

This Hong Kong based online games developer has more than 100 million active monthly users in a space that is viewed as recession proof by analysts.  It trades at 18x earnings and supports a 22% ROE.  Quarterly cash reserves are growing while debt is retired and shares bought back.  Its dividend is backed by a payout ratio of 30% of cash flow.  Recommend setting a stop-loss at $86, looking to achieve $136 -- upside potential of 28%.  Yield 1.6%

Following the release of quarterly gross profit increasing 27% we reiterate NTES as a TOP PICK.  Quarterly cash reserves are growing as debt is retired and shares bought back.  It trades at 20x earnings and supports a 22% ROE.  The modest dividend is backed by a payout ratio under 30% of cash flow.  We continue to recommend a stop at $86, looking to achieve $133 — upside potential of 22%.  Yield 1.5%

Our PAST TOP PICK with NTES has triggered its stop at $85.  To remain disciplined, we recommend covering the position at this time.