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China Internet - South Korea marketing takeaways

作者: Richard KO,Ryan YU
时间: 2017年09月22日
重要性: 一般报告
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摘要: Report title:China Internet - South Korea marketing takeaways
Analyst:Richard KO,Ryan YU
Report type:Industry
Date:20170922
[Summary]

■ We met with more than 20 institutional investors in South Korea earlier this week to present our views on China internet sector and we reiterated our LT conviction buys: JD, Alibaba and Tencent (JAT)
■ Many long only funds are maintaining their maximum 10% holding on Tencent & BABA, but some are worried that political risk, tightened gov regulation, stretched valuation may trigger a sector sell-off
■ Our discussion mainly focused on China’s competitive landscape in: 1) cloud, 2) pmt and 3) big data/AI. Overall, investors are cautiously optimistic on CN’s internet sector; we suggest investors to stay OW
Key questions from institutional investors
Q: China sector leaders have outperformed, continue to overweight?
A: We reiterated our view that “China internet’s YTD outperformance (67% vs. US 27%) was driven by 1) accelerated traffic monetization, 2) mobile internet time spent expansion, and 3) fast rising eC and micropayment penetration”. Looking ahead, we think continued outperformance will be fueled by accelerated traffic monetization & innovation. We believe BAT are rapidly catching up on innovation vs. US peers, esp on products/services in the areas of social-centric mobile games, short video, live broadcasting, cloud services, big data and AI, which have led to sector’s rally in our view.
Q: Tencent invests in CICC, what are the synergies?
A: Tencent will invest HK$2.86bn to subscribe CICC’s newly issued H shares and hold 4.95% of CICC. The 2 parties have signed a strategic partnership agreement that will layout the potential areas of cooperation, including accurate targeted marketing, big data analysis in an effort to expand client base and provide personalized wealth management products and services. We believe Tencent has just started to tap into its massive social network, leveraging its competency in payment and FinTech, as well as cooperating with leading financial institutions such as CICC. Payment may still appear as an infrastructure business to Tencent, however we think it will start to catch up with BABA by expediting its monetization from wealth management, financing and data insights.
Top stock picks and catalysts
Tencent (BUY, TP HK$400): 1) solid game grossing, 2) robust growth in advertising revenue, and 3) LT growth potential in cloud, SNS and payment.
Alibaba (BUY, TP US$220): 1) robust online marketing services growth driven by continued improvement in algorithm and user engagement; 2) cloud biz breakeven driven by scale; 3) eC and payment globalization.
JD.com (BUY, TP US$55): 1) China’s fast rising eC penetration in 2H17/2018E, 2) accelerated GMV growth and continued margin expansion.
NTES (BUY, TP US$355): Minecraft monetization, solid eC business.

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