中國互聯(lián)網(wǎng)愿景：從拉動(dòng)到推動(dòng)

1、ChinaEquitiesChina Internet2020 Vision: From pull to pushAs the “push” model to target internet users goes mainstream, investments in content and technology will decide the leadersThe top debates? How much of the earnings recovery from this shift has been priced in; ESG is becoming topical tooAlibab

2、a, Tencent, Meituan preferred Buys to watch; Baidu (Buy), TME (Buy), Weibo (Reduce) may surprise upwardsTop debates: ESG becomes more topical; is the earnings recovery priced in? Theres a major shift underway among internet users. They increasingly rely on the “push” model and receive recommendation

3、s on everything from shopping to which videos to watch, instead of old “pull” approach where users gravitated by themselves to apps. This requires investments in content and targeted technology, which should drive more sustainable and faster earnings growth. However, we dont think this is entirely p

4、riced in as most are still trading below their five-year historical averages, while FY20-21 earnings growth should re-accelerate for some companies (Alibaba, Tencent, Meituan, Baidu), despite moderate delay (Thriver or survivor through Coronavirus dated 31 Jan 2020). A wave of Chinese internet US AD

5、Rs returning to domestic markets for listings (with higher multiples) may be positive for valuations (Alibaba is a good example).Laggards to surprise the market: We analyse the best performers in 2019 to identify which laggards might surprise the market in 2020, if their earnings beat the low consen

6、sus expectations. Baidu, TME and Weibo fall into this group (page 4).What else to watch in 2020:Ads Earnings revision risk: Expectations remain high (consensus expects +27% yoy in 20e, mildly decelerated from 29% in 19e), as advertisers turn cautious.E-commerce Lower tier cities: Fully fledged close

7、d-loop ecosystems along with a strong logistics infrastructure are key competitive advantagesLocal services Competition intensifies: Meituan is competing with Alibaba to encourage merchants to digitalise and capture closed-loop transactionsTechFin Diversification and higher profits: Broadening reven

8、ue and supporting the digitalisation of financial institutions are key to driving margins higherCloud Gain share but losses mounting: Faster topline, but losses to widenOnline games Going aboard: Enabling cross-selling to new overseas gamersVideo Regulations relief: Accelerating subscriber numbers a

9、nd recovery in adsThree stocks to watch for 2020Alibaba: Ecosystem synergies are more apparent with faster monetisation of new ad formats and other initiatives, losses of new initiatives should narrowTencent: Major businesses are turning around, earnings are set to beat on payments, social advertisi

10、ng and the ramp-up of WeChat monetisationMeituan: Margin improves on better order economics and a ramp-up of ads4 February 2020Binnie Wong*Head of Internet Research, Asia PacificThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:binnie.wong.hk binnie.wong.hk+852 282 22590Ritchie

11、Sun*Associate, Internet ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:ritchie.k.h.sun.hk ritchie.k.h.sun.hk+852 2822 4392Carson Lo*Associate, Internet ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:carson.lo.hk carson.lo.hk+852 2822 43

12、37Charlotte Wei*Associate, Internet ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:charlotte.wei.hk charlotte.wei.hk+852 2996 6539Cleo Zhang*Associate, Internet ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:cleo.zhang.hk cleo.zhang.hk+

13、852 2914 9935Peishan Wang*Associate, Internet ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:peishan.wang.hk peishan.wang.hk+852 3941 7008Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations13-15 M

14、ay 2020 | ShenzhenHSBC 7th Annual China ConferenceRegister nowDisclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Issuer of report: The Hongkong and Shanghai Banking Corporati

15、on LimitedView HSBC Global Research at:https: HYPERLINK / /Contents HYPERLINK l _TOC_250013 Focus charts 3 HYPERLINK l _TOC_250012 Top debate for 2020 Re-rating vs earnings reacceleration 5 HYPERLINK l _TOC_250011 ESG debate on Internet: With greater power comes greater responsibility 9 HYPERLINK l

16、_TOC_250010 ESG debate on China education 12 HYPERLINK l _TOC_250009 Six key risks that could be game changers 14 HYPERLINK l _TOC_250008 Where are we vs consensus? 16Advertising: Is a recoveryin sight? 17Ecommerce: All-in in lowertier cities 25 HYPERLINK l _TOC_250007 Local services: Competition ra

17、tionalising? 30New Retail: Loss drag to narrow?35Online travel: Worst not yet over 37 HYPERLINK l _TOC_250006 Payment: Evolving regulations a game changer? 43Cloud: Faster topline, but lossesto expand 49Online games: Global expansiona key driver 52 HYPERLINK l _TOC_250005 Game live-streaming: Compet

18、ition heats up from new players 58 HYPERLINK l _TOC_250004 Online video: Regulation relief 62 HYPERLINK l _TOC_250003 China education: Investments to drive expansion into online & competition intensifying 65Financials & valuation 70 HYPERLINK l _TOC_250002 Valuation and risks 78 HYPERLINK l _TOC_250

19、001 Disclosure appendix 80 HYPERLINK l _TOC_250000 Disclaimer 83Focus chartsExhibit 1: Except for Alibaba, Tencent and others trading below historical average501-yr fwd adj. P/E403020100Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19Jan-20 Alibaba Alibaba (5-yr avg)Tencent Tencent (5-yr

20、 avg)Industry (excl. Tencent and Alibaba)Industry excl. Tencent and Alibaba (5-yr avg)Source: Bloomberg consensusExhibit 2:premium justified by Alibaba delivering the fastest earnings growth501-yr fwd adj. P/E4030201001-yr fwd adj. EPS y-o-y 100%80%60%40%20%0%-20%Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17

21、Jan-18Jul-18Jan-19Jul-19Jan-20AlibabaTencentIndustry Alibaba (1-yr fwd adj. EPS y-o-y) Tencent (1-yr fwd adj. EPS y-o-y)Industry (1-yr fwd adj. EPS y-o-y)Source: Bloomberg consensusExhibit 3: China internet H-share P/E multiples at a premium vs US ADRs, due to Meituan listing1-yr fwd adj. P/E4030201

22、00Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19Jan-20H-shares H-shares (5-yr avg)ADR ADR (5-yr avg)Source: Bloomberg consensusOutperformers in 2019Potential outperformers in 2020VipshopTencent Music (TME)17 USD 1513119753RMB 9.0 208.0187.0166.0145.0124.0105.0RMBUSD4.54.03.53.0Jan-19 M

23、ar-19 May-19 Jul-19 Sep-19 Nov-19Share priceJan-19Apr-19Jul-19Oct-19Jan-20 Share priceConsensus 2020e non-GAAP EPS (RHS) Consensus 2020e non-GAAP EPS (RHS)Source: Bloomberg consensusSource: Bloomberg consensusMeituanBaidu12010080604020HKDRMB1.00.20.0210190170150130110907050USDRMB10

24、09080706050403020Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Share priceJan-19Apr-19Jul-19Oct-19Jan-20 Share priceConsensus 2020e non-GAAP EPS (RHS) Consensus 2020e non-GAAP EPS (RHS)Source: Bloomberg consensusSource: Bloomberg consensusNew OrientalWeibo140120100806040USDRMB3.080USD7

25、06050403020USD4.54.03.53.02.52.0Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Share priceJan-19Apr-19Jul-19Oct-19Jan-20Share priceConsensus FY20e non-GAAP EPS (RHS) Consensus 2020e non-GAAP EPS (RHS)Source: Bloomberg consensusSource: Bloomberg consensusTop debate for 2020 Re-rating vs earnings reacceler

26、ationReaccelerated earnings growth justifies its higher multipleAlibabas valuation remains attractive: Alibaba (BABA US, CMP USD206.59, Buy) is trading at a 23x forward adj. P/E, in line with its five-year average but still below Tencents (700 HK, CMP HKD373.00, Buy) five-year average of 27x. Howeve

27、r, in our view, Alibaba deserves to trade at a premium given its fast earnings growth of 32%, beating its four-year average of 27%, and more than double Tencents consensus one-year forward earnings growth of 14%.To put Alibabas valuation in even a wider context, the forward adj. P/E of the China int

28、ernet sector (including H-shares and ADR stocks with a market cap over USD1bn and positive earnings, excluding Tencent and Alibaba) is 17x, below the five-year average of 22x. For more details see Exhibit 1 to Exhibit 3 on page 3.Exhibit 4: User daily time spent: A rebound in Tencents HoK and WeChat

29、 may drive top line and support a re-rating(Daily time spent per user)180160140120100806040200HoK, 149WeChat, 86Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19WeChatTencent NewsPeacekeeper EliteKugou M

30、usicWeSingQQ MusicKuwo MusicWeishiCross Fire MobileQQ ReaderTencent SportsQQHonour of KingsTencent VideoQQ BrowserSource: QuestMobile. Note: HoK Honor of KingsOther key debates to watchMainland China internet US ADRs returning to Hong KongAfter Meituan (3690 HK, CMP HKD99.30, Buy) listed in Hong Kon

31、g in January 2019, mainland China internet H-share peers P/E multiples actually rallied, while mainland China internet US ADR peers P/E multiples were largely unchanged. We believe this might be due to a scarcity premium, given only a handful of mainland China internet companies are listed in Hong K

32、ong. After Alibaba completed its second listing in Hong Kong, we believe this might drive even more US ADRs to consider a second listing in Hong Kong (see Exhibit 3 for more details).Less crowded stocks that may become outperformers in 2020We look at earnings revisions vs share prices and explore if

33、 any of the less crowded stocks under our coverage could have the potential to outperform their peers in 2020.Lessons learnt from the outperformers in 2019Among the stocks we covered, Vipshop (VIPS US, USD12.73, Hold), Meituan Dianping (3690 HK, HKD99.30, Buy) and New Oriental (EDU US, USD121.55, Bu

34、y) outperformed peers, by 160%, 147% and 119%, in 2019, respectively, vs 29% return of S&P500 during the same period. From the performance of these stocks, we find: 1) they are the laggards in the previous year (2018 in our case), and 2) those that have the potential for earnings upgrades have the p

35、otential to outperform.Exhibit 5: Vipshop was the best performer in 2019 (up 160%), while the Streets estimates increased 65% from a low in FebruaryExhibit 6: Meituan was up 147% in 2019, while the Streets estimates increased 171% from the low in May17 USD 1513119753RMB 9.08.07.06.05.04.012010080604

36、020HKDRMB1.00.20.0Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19Share priceConsensus 2020e non-GAAP EPS (RHS)Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Share priceConsensus 2020e non-GAAP EPS (RHS)Source: Bloomberg consensus, HSBCSource: Bloomberg consensus, HSBCExhibit 7: New Oriental w

37、as up 119% in 2019, while the Streets estimates increased 12% during the same periodUSDRMB140130120110100908070605040Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Share priceConsensus FY20e non-GAAP EPS (RHS)3.0Source: Bloomberg consensus, HSBC

38、We see Baidu, Tencent Music and Weibo potentially outperforming in 2020, if they can beat the low consensus expectationsUsing the two criteria above, we shortlist three less crowded stocks in the China internet space that could outperform peers in 2020, as: 1) they are the laggards in 2019, with sha

39、re prices down 22% (Baidu; BIDU US, USD123.56, Buy), 21% (Weibo; WB US, USD42.62, Reduce), and 10% (Tencent Music; TME US, USD12.69, Buy); and 2) we believe the three stocks have catalysts for earnings upside in 2020 from top-line revisions and/or margin expansion (2020 consensus earnings for the th

40、ree stocks have been at a low level so far this year).Exhibit 8: Baidus share price performance vs earnings consensusExhibit 9: TMEs share price performance vs earnings consensus210190170150130110907050USDRMB10020908018701660501440123020105.0RMBUSD4.54.03.53.0Jan-19Apr-19Jul-19Oct-19Jan-20 Share pri

41、ceConsensus 2020e non-GAAP EPS (RHS)Jan-19Apr-19Jul-19Oct-19Jan-20 Share priceConsensus 2020e non-GAAP EPS (RHS)Source: Bloomberg consensus, HSBCSource: Bloomberg consensus, HSBCExhibit 10: Weibos share price performance vs earnings consensusUSDUSD80706050403020Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun

42、-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20Share priceConsensus 2020e non-GAAP EPS (RHS)4.54.03.53.02.52.0Source: Bloomberg consensus, HSBCOn the other hand, we flag Pinduoduo (PDD; PDD US, USD35.22, Hold) as an outlier in terms of the correlation between share price performance and consens

43、us earnings, as we see its share price remained resilient in December 2019, while the Street revised down consensus earnings. One potential explanation could be that investors focus on the top line rather than earnings, as we see consensus revenue was increasing during the same period.However, if in

44、vestors are going to turn their focus to earnings going into 2020 (as management guided to breakeven in 2021), this may create downward pressure on PDDs share price as the current valuation may seem too stretched.Exhibit 11: PDDs share price performance vs earnings consensusExhibit 12: PDDs share pr

45、ice performance vs top line consensus50USD 403020100RMB 12108642050USD 403020100RMB 7570656055Jan-19Apr-19Jul-19Oct-19Jan-20 Share priceConsensus 2021e non-GAAP EPS (RHS)Jan-19Apr-19Jul-19Oct-19Jan-20 Share priceCon. 2021e revenue (RMBbn, RHS)Source: Bloomberg consensus, HSBCSource: Bloomberg consen

46、sus, HSBCESG debate on Internet: With greater power comes greater responsibilityTechnological advances, complexity and globalisation make ESG more significantTechnology to reduce pollution and become more environmentally friendlyEnvironmental, Social and Governance (ESG) issues are increasingly vita

47、l in the eyes of investors. We think the practical ESG concerns faced by global internet companies serve as a useful reference that China internet companies might also face in their markets, given their access to a digital footprint of a population of over 1bn (not counting the companies overseas pr

48、esence) across a number of verticals. Social media: Facebook (FB US, CMP USD201.91, Reduce) is working to alleviate privacy concerns, disinformation campaigns, election interference, hate speech and online extremism, the working conditions of contractors, and social media addiction (see A collision

49、course with regulators?, 4 December 2019, for more details). Ride-hailing: Uber (UBER US, CMP USD36.29, Buy) and Lyft (LYFT US, CMP USD47.48, Buy) have been facing stricter regulations due to concerns, including safety/driver background checks, traffic, driver pay, congestion, insurance coverage and

50、 liability for accidents, and loss of revenues for major cities (e.g., parking fees, taxi medallion sales) (see Initiate at Hold: Ten-year ETA, 22 July 2019, for more details). Internet conglomerate: Prosus (PRX NA, CMP EUR65.23, Hold) has a dual share class structure that allows for only limited in

51、fluence by ordinary shareholders (see Initiate at Hold: Just Eat your own discount, 17 December 2019, for more details).As such, we highlight the key ESG debates and how Alibaba, Tencent and Meituan address these issues.EnvironmentalWaste creation, sorting and disposal: The food delivery and e-comme

52、rce industries are heavy users of plastic packaging/boxes, utensils and other materials that are not suitable for recycling. We think as awareness of environmental conservation continues to rise, these businesses must adapt to the use of more environmentally friendly materials and minimise unnecessa

53、ry wastage. Also, it is in the interest of these companies to create a more sustainable environment so as to enhance the longevity of their business model. Examples include: Meituan Dianping: 1) cooperates with institutions, governments and experts to develop environmentally friendly packaging; 2) p

54、romotes the use of reusable packaging and tableware; and 3) promotes waste sorting recycling methods for merchants and users; 4) supports merchants in purchasing environmentally friendly materials by screening suppliers information for merchants to choose from and offers a lower cost centralised pro

55、curement; and 5) helps the authorities to set the industry standards for food delivery meal boxes (replacing plastic meal boxes with film-coated paper meal boxes). Alibaba: 1) has its Cainiao network working towards a goal of replacing 50% of all packing materials with 100% eco-friendly or biodegrad

56、able packaging materials. Leveraging a packaging optimisation algorithm, it has reduced the use of packaging materials by 15% on average; and 2) has Alipay promote the use of e-payments instead of paper invoices as well as public transportation, biking or walking instead of driving, and by allowing

57、users to collect points that can be used for planting trees in China. As at May 2018, 55m trees have been planted, while 350m users participated.Emissions from the use of data centres and servers: The use of technology infrastructure can increase the carbon footprint and the use of energy and other

58、resources. Meituan Dianping, Alibaba and Tencent, for example, all have measures in place for energy savings at office buildings and data centres (e.g., lights, air-conditioning, cooling of servers, etc.). We think for businesses involved in delivery, there are incentives to adopt energy-efficient v

59、ehicles and find more efficient ways for delivery (e.g., leveraging a smart dispatch system).Enabler of traditional enterprisesSocialJobs creation: Technology eliminates some traditional jobs in the market via automation, but also creates job opportunities that previously never existed. Alibaba crea

60、tes jobs for merchants and services providers in logistics, marketing, consulting, operations outsourcing, training and other online and e-commerce professions. According to a report by Chinas Renmin University, it created 36m jobs in 2017 via its retail ecosystem (14m jobs for online retailers and