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China Internet - Taiwan marketing takeaways

作者: Richard KO
时间: 2018年02月13日
重要性: 一般报告
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摘要: Report title:China Internet - Taiwan marketing takeaways
Analyst:Richard KO
Report type:Industry
Date:20180212
[Summary]

■ We met with over 20 institutional investors in Taiwan in the past few days to present our views on the recent market correction and China internet sector outlook. We reiterated our LT conviction buys: JD, Alibaba and Tencent (JAT)
■ The recent market correction gave little time for investors to react; therefore most clients didn’t reduce their positions. Many hedge fund already turned to market neutral beforehand, thus weren’t affected too much by the downfall.
■ Overall, we are still positive on global internet leaders, given their traffic monetization capability and innovation, we believe they are both more defensive as well as offensive.

Key questions from institutional investors
Q: Should investors unload high-growth, high-PE internet stocks now?
A: In our 2018 internet sector outlook report published on 11 Jan 2018, we have mentioned that Tencent and JD have recently increased more than 30% over the month, and (ST risk-reward) has turned less attractive. We also forecasted the rapidly increasing risk, and believed ST return was less attractive. Furthermore, we maintained our positive view on China internet sector leaders given their superior 1) traffic monetization, 2) innovation (AI, big data, cloud), and 3) overseas expansion. Thus, we are still positive on Tencent, BABA and JD in mid/long term, and believe the correction should pose good LT buy opportunity.

Q: Should investors concentrate on large cap stocks and underweight mid-small cap stocks?
A: Our conviction buys (JAT) have retreated 2-6% over the last week, while mid-small cap such as Kingsoft, IGG and Netdragon experienced avg pull-back of 10%. Previously, we have turned conservative about the overheated market, therefore didn’t follow the consensus to adjust up our TP during the rally of mid-small cap. As a result these mid-small names are also the ones that experienced dramatic fallback during the recent market correction. We addressed in our recent marketing road shows that on top of China internet leaders (JAT), investors can also pay attention to NetEase (NTES US) and Kingsoft (3888 HK) on pullback as they will benefit from new game commercialization.

Top stock picks and catalysts
Over the past week, China internet ETF was down 3.3% while US only down 0.1%. In terms of YTD, China internet ETF was down 0.2% vs US up 5% YTD. We believe China internet’s shaper correction vs US is similar to previous pullback in 4Q16 and 3Q15; and given our conviction buys Tencent and BABA have risen over 100% last year over US FAG’s 47%. In 16Q4, China internet stocks once retreated 20%, while US counterparts were down only by mid-single digit. Our LT conviction buys are as follows. Tencent (BUY, TP HK$500): 1) gaming: survival games, blockbuster RPGs and eSport, 2) non-gaming: pan-entertainment, advertising, SNS and payment. Alibaba (BUY, TP US$220): 1) algorithm improvement in 2018, 2) new retail driving leading to increased traffic online, and 3) LT capability in unlocking value of big data and AI. JD.com (BUY, TP US$58): 1) LT growth prospect and 2) LT margin expansion trajectory.

全文: CMS(HK) Research - China Internet - Taiwan marketing takeaways [OVERWEIGHT] ~ Richard KO.pdf
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