China Internet:South Korea marketing takeaways

We met with more than 20 institutional investors in South Korea earlier this weekto present our views on China internet sector and we reiteratedour LT conviction buys: JD, Alibabaand Tencent (JAT)。

    Many long only funds are maintaining their maximum 10% holding on Tencent & BABA, but some are worried that political risk, tightenedgov regulation, stretchedvaluationmay trigger a sector sell-off。

    Our discussion mainly focused onChina’s competitivelandscapein: 1) cloud, 2) pmtand 3) big data/AI.Overall, investors are cautiously optimistic on CN’s internetsector; we suggest investorsto stayOW

    Key questions from institutional investors。

    Q: Chinasector leaders have outperformed, continue to overweight?

    A: We reiterated our view that“Chinainternet’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, wethink continued outperformance will be fueledby accelerated traffic monetization & innovation.We believe BAT are rapidly catching up on innovation vs. US peers, espon products/services in the areas ofsocial-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 inCICC, whatare thesynergies?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 potentialareas of cooperation, includingaccurate targeted marketing, big data analysis in an effort to expand client base and provide personalized wealth managementproducts and services. We believe Tencent has just started to tap into its massive social network, leveragingits competency in payment and FinTech, as well as cooperating with leading financial institutions such as CICC. Payment may stillappear asan infrastructure business toTencent, however we think it will start to catch up with BABA byexpeditingits monetizationfrom wealth management, financing and data insights.。