> **来源：[研报客](https://pc.yanbaoke.cn)** # China Internet | Asia Pacific # 2026 Outlook: China's AI Path Is Brighter After the DeepSeek moment last year, we see China's AI Path as brighter in 2026, driven by both supply and demand. Besides AI, overseas expansion is another way to navigate macro, competitive, regulatory and geographical risks. Key OW: Tencent, BAB, PDD, TME; UW/EW: JD, BILI, KS, BIDU. China's AI Path looks brighter in 2026: Supply: We see significant improvement with potential import of Nvidia H200 (for training) and expansion of domestic chip production capacity (for inherencing). Demand: We expect breakthrough in agentic capabilities to drive a non-linear surge in consumer (2C) adoptions; our latest China CIO Surveys also signal positive inflection in enterprise (2B) spending for the first time since 2H21. We are less concerned about AI bubble risk in China given prudent capex with high focus on applications which are likely to yield better ROIC. Overseas expansion becomes more important as mature domestic market faces deflationary pressure and rising competitive/regulatory risks: This is pertinent to various segments – games (Tencent, NetEase), cross-border e-commerce (PDD, Alibaba), food delivery/quick commerce (Meituan), ride share (Didi, Not Covered), OTA (Trip.com), cloud (Alibaba, Tencent), robotaxi (Baidu), and AI models/ applications (Alibaba, Kuaishou). We estimate that overseas markets already contributed $10\%+$ share of revenue for Chinese internet companies in 2025, which is expected to expand in the next 2-3 years. # Macro climate, competition, regulation, and geopolitics remain the key risks: Worsening consumption since 4Q25 has already started to weigh on industry revenue growth (e-comm, local services, ads, payment, etc.) Competition in food delivery/quick commerce may bottom out but remain intense after the State Council's anti-involution investigation; We see continued disruption from ByteDance (e-comm, local services, cloud, music, AI, etc.), and expect step-up in investments in 2C AI applications from ByteDance (Doubao), Alibaba (Qwen/Quark), and Tencent (WeChat/Yuanbao). A recent antitrust probe into TCOM also reignited some regulatory concerns after a relative benign environment in 2023-25. Investment recommendations: Key OW: Tencent remains our Top Pick (resilient core businesses, best 2C AI applications play); BABA (best AI enabler play, cloud as key catalyst); PDD (cheap valuations, Temu on track to breakeven in 2026 but not in the price); TME (resilient business with potential upside from the proposed Ximalaya acquisition; attractive valuations after recent correction). Key UW/EW: JD (UW) (operating de-leverage from trade-in high base, elevated new businesses investments); BILI (EW) (low games visibility; rich valuations); Kuaishou (lukewarm core businesses, Kling already in the price); BIDU (EW) (Kunlunxin as near-term catalyst, but challenged core businesses). MORGAN STANLEY ASIA LIMITED+ Gary Yu Equity Analyst Gary.Yu@morganstanley.com +852 2848-6918 Eddy Wang, CFA Equity Analyst Eddy.Wang@morganstanley.com +852 2239-7339 Yang Liu Equity Analyst Yang.Liu@morganstanley.com +852 2239-1911 Rebecca Xu Equity Analyst Rebecca.Xu@morganstanley.com +852 2848-7359 Lydia Lin Equity Analyst Lydia.Lin@morganstanley.com +852 2239-1572 Kathy Zhu Research Associate Kathy.Zhu@morganstanley.com +852 3963-2618 Joanne Lau Research Associate Joanne.CY.Lau@morganstanley.com +852 3963-1592 Tom Tang Equity Analyst Tom.Tang@morganstanley.com +852 3963-1860 # CHINA INTERNET AND OTHER SERVICES Asia Pacific Industry View Attractive Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. # For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. + = Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. # Order of Preference Exhibit 1: Order of Preference <table><tr><td></td><td>Tencent 0700.HK</td><td>Alibaba BABA.N</td><td>PDD FOD.O</td><td>TME TME.N</td><td>NetExse NTES.O</td><td>Boss Zhipin BZ.O</td><td>Full Truck YMM.N</td><td>Meituan 3690.HK</td><td>Trip.com TCOM.O</td><td>Tongcheng 0780.HK</td><td>TAL TAL-N</td><td>KE Holdings BEKC.N</td></tr><tr><td>Rating</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td><td>Overweight</td></tr><tr><td>Trading Currency</td><td>HKD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>HKD</td><td>USD</td><td>HKD</td><td>USD</td></tr><tr><td>Price Target</td><td>735.0</td><td>180.0</td><td>148.0</td><td>25.0</td><td>168.0</td><td>27.0</td><td>14.0</td><td>120.0</td><td>87.0</td><td>29.0</td><td>14.6</td><td>20.0</td></tr><tr><td>Current Price</td><td>617.5</td><td>165.4</td><td>106.8</td><td>16.6</td><td>138.0</td><td>19.3</td><td>9.9</td><td>100.0</td><td>61.8</td><td>22.2</td><td>11.1</td><td>17.4</td></tr><tr><td>Upside/(Downside) (%)</td><td>19%</td><td>9%</td><td>39%</td><td>51%</td><td>22%</td><td>40%</td><td>41%</td><td>20%</td><td>41%</td><td>31%</td><td>32%</td><td>15%</td></tr><tr><td>Market Cap (in USD mm)</td><td>734,419.3</td><td>392,850.5</td><td>136,647.5</td><td>25,852.1</td><td>88,705.9</td><td>9,147.4</td><td>10,265.7</td><td>79,858.5</td><td>42,541.3</td><td>6,535.8</td><td>2,246.5</td><td>20,638.7</td></tr><tr><td>Avg Daily Traded Vol (in USD mm)</td><td>1,631.6</td><td>357.2</td><td>1,037.7</td><td>30.2</td><td>124.2</td><td>73.8</td><td>25.2</td><td>898.3</td><td>207.8</td><td>33.5</td><td>16.6</td><td>32.5</td></tr><tr><td colspan="13">Street View: Ratings</td></tr><tr><td>Buy/Overweight</td><td>93%</td><td>66%</td><td>65%</td><td>66%</td><td>88%</td><td>88%</td><td>88%</td><td>88%</td><td>65%</td><td>89%</td><td>89%</td><td>89%</td></tr><tr><td>Hold/Equal-weight</td><td>5%</td><td>12%</td><td>30%</td><td>14%</td><td>7%</td><td>13%</td><td>13%</td><td>29%</td><td>11%</td><td>11%</td><td>15%</td><td>11%</td></tr><tr><td>Sell/Underweight</td><td>2%</td><td>2%</td><td>2%</td><td>0%</td><td>5%</td><td>0%</td><td>7%</td><td>7%</td><td>0%</td><td>0%</td><td>0%</td><td>0%</td></tr><tr><td>Bull Case Value</td><td>900.0</td><td>260.0</td><td>202.0</td><td>28.0</td><td>213.0</td><td>34.0</td><td>24.0</td><td>200.0</td><td>106.0</td><td>39.0</td><td>21.9</td><td>26.0</td></tr><tr><td>Upside (%)</td><td>46%</td><td>57%</td><td>89%</td><td>69%</td><td>54%</td><td>76%</td><td>142%</td><td>100%</td><td>72%</td><td>76%</td><td>97%</td><td>49%</td></tr><tr><td>Bear Case Value</td><td>510.0</td><td>120.0</td><td>67.0</td><td>16.8</td><td>113.0</td><td>13.0</td><td>7.0</td><td>80.0</td><td>53.0</td><td>17.0</td><td>7.3</td><td>9.0</td></tr><tr><td>Downside (%)</td><td>-17%</td><td>-27%</td><td>-37%</td><td>1%</td><td>-18%</td><td>-33%</td><td>-29%</td><td>-20%</td><td>-14%</td><td>-23%</td><td>-34%</td><td>-48%</td></tr><tr><td>Risk/Reward Skew</td><td>2.6</td><td>2.1</td><td>2.4</td><td>(57.0)</td><td>3.0</td><td>2.3</td><td>4.9</td><td>5.0</td><td>5.0</td><td>3.2</td><td>2.8</td><td>1.0</td></tr><tr><td colspan="13">Morgan Stanley Estimates</td></tr><tr><td>FY26e</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>CNY</td><td>USD</td><td>CNY</td></tr><tr><td>Sales</td><td>829,515</td><td>1,021,964</td><td>479,696</td><td>36,989</td><td>120,621</td><td>9,333</td><td>12,794</td><td>425,537</td><td>70,153</td><td>21,939</td><td>3,102</td><td>93,570</td></tr><tr><td>EBITDA</td><td>360,164</td><td>122,094</td><td>117,066</td><td>12,770</td><td>42,936</td><td>4,779</td><td>5,058</td><td>13,738</td><td>21,571</td><td>5,533</td><td>220</td><td>7,812</td></tr><tr><td>EBIT</td><td>278,444</td><td>84,417</td><td>115,935</td><td>11,922</td><td>40,271</td><td>4,199</td><td>4,976</td><td>2,654</td><td>20,678</td><td>4,188</td><td>164</td><td>6,995</td></tr><tr><td>EPS</td><td>26.69</td><td>46.88</td><td>77.43</td><td>7.00</td><td>64.83</td><td>9.30</td><td>4.70</td><td>1.60</td><td>29.78</td><td>1.68</td><td>0.41</td><td>6.07</td></tr><tr><td colspan="13">FY27e</td></tr><tr><td>Sales</td><td>907,602</td><td>1,110,994</td><td>515,442</td><td>41,320</td><td>128,265</td><td>10,514</td><td>15,011</td><td>494,100</td><td>78,257</td><td>24,068</td><td>3,996</td><td>97,752</td></tr><tr><td>EBITDA</td><td>416,154</td><td>175,470</td><td>137,153</td><td>14,185</td><td>46,846</td><td>5,679</td><td>6,506</td><td>47,230</td><td>24,617</td><td>6,135</td><td>399</td><td>9,919</td></tr><tr><td>EBIT</td><td>316,116</td><td>117,396</td><td>135,851</td><td>13,449</td><td>43,847</td><td>5,039</td><td>6,420</td><td>35,312</td><td>23,687</td><td>4,739</td><td>333</td><td>8,928</td></tr><tr><td>EPS</td><td>30.69</td><td>44.80</td><td>87.95</td><td>7.92</td><td>70.71</td><td>10.97</td><td>5.91</td><td>6.15</td><td>33.71</td><td>1.84</td><td>0.59</td><td>7.39</td></tr><tr><td colspan="13">FY26 MSE vs. Consensus Mean</td></tr><tr><td>Sales</td><td>0.3%</td><td>-0.10699145</td><td>-4.0%</td><td>0.4%</td><td>-2.1%</td><td>-0.1%</td><td>-4.3%</td><td>2.8%</td><td>-0.5%</td><td>0.4%</td><td>2.6%</td><td>-2.5%</td></tr><tr><td>EBITDA</td><td>-4.6%</td><td>-37.1%</td><td>-7.8%</td><td>-1.1%</td><td>-2.3%</td><td>8.8%</td><td>-2.6%</td><td>-35.0%</td><td>-0.9%</td><td>3.8%</td><td>-9.8%</td><td>-2.2%</td></tr><tr><td>EBIT</td><td>-7.6%</td><td>-37.7%</td><td>-9.3%</td><td>0.1%</td><td>-0.5%</td><td>9.5%</td><td>0.1%</td><td>-63.1%</td><td>0.7%</td><td>-1.4%</td><td>-10.1%</td><td>6.4%</td></tr><tr><td>EPS</td><td>-15.7%</td><td>-22.9%</td><td>-12.6%</td><td>2.8%</td><td>-0.2%</td><td>6.0%</td><td>-5.5%</td><td>-3.3%</td><td>0.1%</td><td>1.1%</td><td>-10.8%</td><td>-1.0%</td></tr><tr><td colspan="13">FY27 MSE vs. Consensus Mean</td></tr><tr><td>Sales</td><td>-0.2%</td><td>-2.9%</td><td>-8.0%</td><td>-0.5%</td><td>-4.4%</td><td>-0.6%</td><td>-0.8%</td><td>4.4%</td><td>-1.6%</td><td>-0.1%</td><td>6.3%</td><td>-5.2%</td></tr><tr><td>EBITDA</td><td>-2.7%</td><td>-9.6%</td><td>-12.8%</td><td>-6.3%</td><td>-5.1%</td><td>13.3%</td><td>-0.7%</td><td>-0.3%</td><td>0.9%</td><td>2.3%</td><td>4.4%</td><td>0.2%</td></tr><tr><td>EBIT</td><td>-5.3%</td><td>-37.1%</td><td>-13.1%</td><td>-0.2%</td><td>-4.0%</td><td>7.0%</td><td>2.5%</td><td>0.7%</td><td>0.2%</td><td>-1.3%</td><td>13.8%</td><td>-1.5%</td></tr><tr><td>EPS</td><td>-13.4%</td><td>-26.3%</td><td>-14.8%</td><td>3.1%</td><td>-1.6%</td><td>6.8%</td><td>-2.0%</td><td>3.2%</td><td>-0.1%</td><td>-2.1%</td><td>-3.8%</td><td>-1.4%</td></tr><tr><td colspan="13">Valuation Multiples at Last Close</td></tr><tr><td colspan="13">FY26e</td></tr><tr><td>P/E</td><td>20.7x</td><td>24.6x</td><td>9.6x</td><td>16.5x</td><td>14.8x</td><td>14.4x</td><td>14.6x</td><td>55.9x</td><td>14.5x</td><td>11.8x</td><td>26.9x</td><td>20.0x</td></tr><tr><td>EV/EBIT</td><td>18.2x</td><td>30.1x</td><td>3.2x</td><td>11.4x</td><td>10.8x</td><td>9.6x</td><td>12.0x</td><td>163.1x</td><td>10.6x</td><td>7.9x</td><td>-7.5x</td><td>13.3x</td></tr><tr><td>EV/EBITDA</td><td>14.1x</td><td>20.8x</td><td>3.2x</td><td>10.7x</td><td>10.2x</td><td>8.4x</td><td>11.8x</td><td>31.5x</td><td>10.2x</td><td>6.0x</td><td>-5.6x</td><td>11.9x</td></tr><tr><td>EV/Sales</td><td>6.1x</td><td>2.5x</td><td>0.8x</td><td>3.7x</td><td>3.6x</td><td>4.3x</td><td>4.7x</td><td>1.0x</td><td>3.1x</td><td>1.5x</td><td>-0.4x</td><td>1.0x</td></tr><tr><td>FCF Yield</td><td>3.2%</td><td>-0.9%</td><td>13.3%</td><td>5.9%</td><td>8.1%</td><td>7.2%</td><td>8.0%</td><td>1.1%</td><td>6.4%</td><td>7.9%</td><td>22.4%</td><td>5.2%</td></tr><tr><td colspan="13">FY27e</td></tr><tr><td>P/E</td><td>18.0x</td><td>25.7x</td><td>8.5x</td><td>14.6x</td><td>13.6x</td><td>12.2x</td><td>11.6x</td><td>14.5x</td><td>12.8x</td><td>10.8x</td><td>18.8x</td><td>16.4x</td></tr><tr><td>EV/EBIT</td><td>15.5x</td><td>21.9x</td><td>1.7x</td><td>9.4x</td><td>9.2x</td><td>7.1x</td><td>8.5x</td><td>11.3x</td><td>8.5x</td><td>6.2x</td><td>-5.3x</td><td>10.1x</td></tr><tr><td>EV/EBITDA</td><td>11.8x</td><td>14.7x</td><td>1.7x</td><td>8.9x</td><td>8.6x</td><td>6.3x</td><td>8.4x</td><td>8.4x</td><td>8.2x</td><td>4.8x</td><td>-4.4x</td><td>9.1x</td></tr><tr><td>EV/Sales</td><td>5.4x</td><td>2.3x</td><td>0.4x</td><td>3.1x</td><td>3.1x</td><td>3.4x</td><td>3.6x</td><td>0.8x</td><td>2.6x</td><td>1.2x</td><td>-0.4x</td><td>0.9x</td></tr><tr><td>FCF Yield</td><td>4.1%</td><td>0.5%</td><td>15.1%</td><td>6.6%</td><td>8.8%</td><td>8.6%</td><td>9.6%</td><td>5.5%</td><td>7.1%</td><td>8.7%</td><td>25.6%</td><td>6.6%</td></tr><tr><td colspan="13">Implied Multiples on MS Price Target</td></tr><tr><td colspan="13">FY26e</td></tr><tr><td>P/E</td><td>24.6x</td><td>26.8x</td><td>13.3x</td><td>24.9x</td><td>18.1x</td><td>20.2x</td><td>20.7x</td><td>67.1x</td><td>20.4x</td><td>15.4x</td><td>35.6x</td><td>23.0x</td></tr><tr><td>EV/EBIT</td><td>21.7x</td><td>33.0x</td><td>6.4x</td><td>19.1x</td><td>14.4x</td><td>15.7x</td><td>18.1x</td><td>205.0x</td><td>16.5x</td><td>11.2x</td><td>-3.1x</td><td>16.3x</td></tr><tr><td>EV/EBITDA</td><td>16.8x</td><td>22.8x</td><td>6.4x</td><td>17.8x</td><td>13.5x</td><td>13.8x</td><td>17.8x</td><td>39.6x</td><td>15.8x</td><td>8.5x</td><td>-2.3x</td><td>14.6x</td></tr><tr><td>EV/Sales</td><td>7.3x</td><td>2.7x</td><td>1.6x</td><td>6.2x</td><td>4.8x</td><td>7.1x</td><td>7.0x</td><td>1.3x</td><td>4.9x</td><td>2.1x</td><td>-0.2x</td><td>1.2x</td></tr><tr><td colspan="13">FY27e</td></tr><tr><td>P/E</td><td>21.4x</td><td>28.0x</td><td>11.7x</td><td>22.0x</td><td>16.6x</td><td>17.1x</td><td>16.5x</td><td>17.4x</td><td>18.0x</td><td>14.1x</td><td>24.9x</td><td>18.8x</td></tr><tr><td>EV/EBIT</td><td>21.6x</td><td>28.7x</td><td>10.7x</td><td>22.1x</td><td>19.2x</td><td>19.6x</td><td>17.4x</td><td>21.2x</td><td>19.4x</td><td>13.9x</td><td>15.7x</td><td>20.8x</td></tr><tr><td>EV/EBITDA</td><td>16.4x</td><td>19.2x</td><td>10.6x</td><td>21.0x</td><td>18.0x</td><td>17.3x</td><td>17.2x</td><td>15.8x</td><td>18.7x</td><td>10.8x</td><td>13.1x</td><td>18.7x</td></tr><tr><td>EV/Sales</td><td>7.5x</td><td>3.0x</td><td>2.8x</td><td>7.2x</td><td>6.6x</td><td>9.4x</td><td>7.5x</td><td>1.5x</td><td>5.9x</td><td>2.7x</td><td>1.3x</td><td>1.9x</td></tr><tr><td colspan="13">Stock Price Performance</td></tr><tr><td>1 Month</td><td>3.5%</td><td>10.8%</td><td>(2.1%)</td><td>(6.7%)</td><td>1.7%</td><td>(4.6%)</td><td>(13.0%)</td><td>0.5%</td><td>(12.9%)</td><td>1.7%</td><td>(1.0%)</td><td>5.8%</td></tr><tr><td>3 Month</td><td>(0.4%)</td><td>0.2%</td><td>(16.2%)</td><td>(26.7%)</td><td>(7.2%)</td><td>(10.4%)</td><td>(21.8%)</td><td>1.3%</td><td>(12.0%)</td><td>3.0%</td><td>0.6%</td><td>(4.6%)</td></tr><tr><td>1 Year</td><td>61.5%</td><td>102.3%</td><td>6.5%</td><td>59.4%</td><td>38.9%</td><td>39.0%</td><td>(11.9%)</td><td>(32.2%)</td><td>(6.1%)</td><td>22.5%</td><td>14.2%</td><td>4.4%</td></tr><tr><td>YTD</td><td>3.1%</td><td>12.8%</td><td>(5.8%)</td><td>(5.4%)</td><td>0.3%</td><td>(5.4%)</td><td>(8.1%)</td><td>(3.2%)</td><td>(14.1%)</td><td>(0.9%)</td><td>1.3%</td><td>10.6%</td></tr><tr><td></td><td>Baidu BIDU.O</td><td>Kuishou 1024.HK</td><td>JOYY JOYY.O</td><td>Autohome ATHM.N</td><td>Vipshop VIPS.N</td><td>IQyi IQ.O</td><td>EDU EDUN</td><td>Billbill BILL.O</td><td>Huya HUYA.N</td><td>JD.com JD.O</td><td>Weibo WE.O</td><td>Hello Group MOMO.O</td></tr><tr><td>Rating</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Equal-Weight</td><td>Underweight</td><td>Underweight</td><td>Underweight</td></tr><tr><td>Trading Currency</td><td>USD</td><td>HKD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td><td>USD</td></tr><tr><td>Price Target</td><td>130.0</td><td>73.0</td><td>68.0</td><td>26.0</td><td>18.0</td><td>2.1</td><td>53.0</td><td>26.0</td><td>3.1</td><td>24.0</td><td>8.6</td><td>5.7</td></tr><tr><td>Current Price</td><td>149.5</td><td>78.4</td><td>69.5</td><td>23.1</td><td>16.7</td><td>1.9</td><td>55.2</td><td>32.5</td><td>3.7</td><td>28.9</td><td>10.8</td><td>7.0</td></tr><tr><td>Upside(Downside) (%)</td><td>-13%</td><td>-7%</td><td>-2%</td><td>13%</td><td>8%</td><td>11%</td><td>-4%</td><td>-20%</td><td>-16%</td><td>-17%</td><td>-20%</td><td>-19%</td></tr><tr><td>Market Cap (in USD mm)</td><td>51,804.2</td><td>44,270.9</td><td>3,596.4</td><td>2,828.2</td><td>8,431.7</td><td>1,884.4</td><td>92,139.7</td><td>15,595.9</td><td>868.8</td><td>45,430.8</td><td>2,884.7</td><td>2,721.1</td></tr><tr><td>Avg Daily Traded Vol (in USD mm)</td><td>471.1</td><td>391.5</td><td>23.1</td><td>2.8</td><td>15.3</td><td>47.9</td><td>15.5</td><td>92.5</td><td>1.0</td><td>447.1</td><td>13.3</td><td>7.8</td></tr><tr><td colspan="13">Street View: Ratings</td></tr><tr><td>Buy/Overweight</td><td>78%</td><td>93% 0%</td><td>29%</td><td>45%</td><td>52%</td><td>69%</td><td>84%</td><td>63%</td><td>88%</td><td>56%</td><td>75%</td><td></td></tr><tr><td>Hold/Equal-weight</td><td>20%</td><td>7% 0%</td><td>71%</td><td>50%</td><td>39%</td><td>25%</td><td>14%</td><td>35%</td><td>10%</td><td>39%</td><td>13%</td><td></td></tr><tr><td>Sell/Underweight</td><td>3%</td><td>0%</td><td>0%</td><td>5%</td><td>9%</td><td>3%</td><td>2%</td><td>0%</td><td>2%</td><td>6%</td><td>13%</td><td></td></tr><tr><td>Bull Case Value</td><td>180.0</td><td>98.0</td><td>84.0</td><td>40.0</td><td>28.0</td><td>3.0</td><td>78.0</td><td>33.0</td><td>4.2</td><td>35.0</td><td>12.7</td><td>7.9</td></tr><tr><td>Upside (%)</td><td>20%</td><td>25%</td><td>21%</td><td>73%</td><td>68%</td><td>58%</td><td>41%</td><td>2%</td><td>14%</td><td>21%</td><td>18%</td><td>13%</td></tr><tr><td>Bear Case Value</td><td>80.0</td><td>47.0</td><td>52.0</td><td>15.0</td><td>10.0</td><td>1.3</td><td>26.0</td><td>16.0</td><td>2.3</td><td>13.0</td><td>6.9</td><td>4.2</td></tr><tr><td>Downside (%)</td><td>-46%</td><td>-40%</td><td>-25%</td><td>-35%</td><td>-40%</td><td>-32%</td><td>-53%</td><td>-51%</td><td>-38%</td><td>-55%</td><td>-36%</td><td>-40%</td></tr><tr><td>Risk/Reward Skew</td><td>0.4</td><td>0.6</td><td>0.8</td><td>2.1</td><td>1.7</td><td>1.8</td><td>0.8</td><td>0.0</td><td>0.4</td><td>0.4</td><td>0.5</td><td>0.3</td></tr><tr><td colspan="13">Morgan Stanley Estimates</td></tr><tr><td>FY26e</td><td>CNY</td><td>CNY</td><td>USD</td><td>CNY</td><td>CNY</td><td>CNY</td><td>USD</td><td>CNY</td><td>CNY</td><td>CNY</td><td>USD</td><td>CNY</td></tr><tr><td>Sales</td><td>142,225</td><td>156,321</td><td>2,338</td><td>6,847</td><td>109,490</td><td>27,958</td><td>5,412</td><td>33,152</td><td>7,207</td><td>1,301,870</td><td>1,716</td><td>10,048</td></tr><tr><td>EBITDA</td><td>21,133</td><td>29,274</td><td>245</td><td>360</td><td>11,471</td><td>15,436</td><td>761</td><td>4,128</td><td>178</td><td>27,685</td><td>518</td><td>1,146</td></tr><tr><td>EBIT</td><td>14,191</td><td>20,538</td><td>180</td><td>313</td><td>9,946</td><td>1,635</td><td>581</td><td>2,021</td><td>117</td><td>17,131</td><td>454</td><td>1,073</td></tr><tr><td>EPS</td><td>44.86</td><td>5.16</td><td>5.54</td><td>2.96</td><td>14.56</td><td>1.00</td><td>3.55</td><td>6.88</td><td>0.90</td><td>19.10</td><td>1.65</td><td>7.48</td></tr><tr><td>FY27e</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Sales</td><td>156,300</td><td>169,553</td><td>2,604</td><td>6,700</td><td>111,977</td><td>28,601</td><td>5,893</td><td>36,001</td><td>7,815</td><td>1,360,642</td><td>1,713</td><td>10,067</td></tr><tr><td>EBITDA</td><td>25,648</td><td>34,585</td><td>193</td><td>333</td><td>11,961</td><td>15,866</td><td>857</td><td>5,361</td><td>293</td><td>33,010</td><td>522</td><td>1,088</td></tr><tr><td>EBIT</td><td>17,264</td><td>23,211</td><td>126</td><td>283</td><td>10,363</td><td>2,067</td><td>669</td><td>3,258</td><td>227</td><td>22,837</td><td>456</td><td>1,008</td></tr><tr><td>EPS</td><td>51.56</td><td>5.63</td><td>5.98</td><td>2.77</td><td>15.20</td><td>1.36</td><td>4.08</td><td>9.23</td><td>1.37</td><td>20.98</td><td>1.63</td><td>7.17</td></tr><tr><td colspan="13">FY26 MSe vs. Consensus Mean</td></tr><tr><td>Sales</td><td>4.9%</td><td>0.5%</td><td>2.1%</td><td>-1.7%</td><td>0.0%</td><td>0.0%</td><td>0.6%</td><td>0.3%</td><td>-0.4%</td><td>-5.4%</td><td>-2.4%</td><td>-1.5%</td></tr><tr><td>EBITDA</td><td>-16.6%</td><td>-12.8%</td><td>4.3%</td><td>-70.2%</td><td>4.9%</td><td>1170.2%</td><td>2.0%</td><td>-21.6%</td><td>-19.4%</td><td>-14.6%</td><td>-8.9%</td><td>-7.8%</td></tr><tr><td>EBIT</td><td>-19.2%</td><td>-15.3%</td><td>9.3%</td><td>-64.5%</td><td>5.7%</td><td>89.3%</td><td>-6.4%</td><td>-9.6%</td><td>-1.7%</td><td>-1.6%</td><td>-11.6%</td><td>-1.3%</td></tr><tr><td>EPS</td><td>-22.5%</td><td>-4.6%</td><td>-1.4%</td><td>-78.0%</td><td>-19.0%</td><td>45.7%</td><td>2.7%</td><td>-13.5%</td><td>-18.7%</td><td>-13.0%</td><td>-5.1%</td><td>15.8%</td></tr><tr><td colspan="13">FY27 MSe vs. Consensus Mean</td></tr><tr><td>Sales</td><td>8.1%</td><td>0.6%</td><td>4.3%</td><td>-6.3%</td><td>-0.1%</td><td>-1.1%</td><td>-0.7%</td><td>0.0%</td><td>-0.5%</td><td>-1.2%</td><td>-5.3%</td><td>-4.3%</td></tr><tr><td>EBITDA</td><td>-12.9%</td><td>-11.3%</td><td>-35.9%</td><td>-73.0%</td><td>5.3%</td><td>816.9%</td><td>-4.0%</td><td>-10.2%</td><td>-15.9%</td><td>1.9%</td><td>-10.5%</td><td>-17.2%</td></tr><tr><td>EBIT</td><td>-18.1%</td><td>-20.2%</td><td>-27.2%</td><td>-69.3%</td><td>5.1%</td><td>58.1%</td><td>-7.2%</td><td>-3.1%</td><td>-17.2%</td><td>-30.9%</td><td>-15.0%</td><td>-14.6%</td></tr><tr><td>EPS</td><td>-23.0%</td><td>-10.6%</td><td>-4.0%</td><td>-80.8%</td><td>-20.1%</td><td>19.7%</td><td>2.2%</td><td>-13.3%</td><td>-20.2%</td><td>-4.4%</td><td>-11.2%</td><td>2.4%</td></tr><tr><td colspan="13">Valuation Multiples at Last Close</td></tr><tr><td>FY26e</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>P/E</td><td>23.2x</td><td>13.6x</td><td>12.5x</td><td>54.3x</td><td>8.0x</td><td>13.5x</td><td>15.5x</td><td>32.9x</td><td>28.6x</td><td>10.5x</td><td>6.5x</td><td>6.5x</td></tr><tr><td>EV/EBIT</td><td>21.4x</td><td>13.2x</td><td>9.6x</td><td>-11.7x</td><td>3.1x</td><td>15.0x</td><td>156.0x</td><td>45.0x</td><td>38.0x</td><td>16.2x</td><td>4.3x</td><td>9.7x</td></tr><tr><td>EV/EBITDA</td><td>14.3x</td><td>9.2x</td><td>7.1x</td><td>-10.2x</td><td>2.7x</td><td>1.6x</td><td>119.1x</td><td>22.0x</td><td>24.9x</td><td>10.0x</td><td>3.8x</td><td>9.1x</td></tr><tr><td>EV/Sales</td><td>2.1x</td><td>1.7x</td><td>0.7x</td><td>-0.5x</td><td>0.3x</td><td>0.9x</td><td>16.8x</td><td>2.7x</td><td>0.6x</td><td>0.2x</td><td>1.1x</td><td>1.0x</td></tr><tr><td>FCF Yield</td><td>1.9%</td><td>4.6%</td><td>5.3%</td><td>8.1%</td><td>13.8%</td><td>-5.4%</td><td>0.3%</td><td>4.6%</td><td>4.7%</td><td>5.5%</td><td>16.1%</td><td>5.9%</td></tr><tr><td>FY27e</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>P/E</td><td>20.2x</td><td>12.4x</td><td>11.6x</td><td>58.1x</td><td>7.7x</td><td>9.9x</td><td>13.5x</td><td>24.5x</td><td>18.9x</td><td>9.6x</td><td>6.6x</td><td>6.8x</td></tr><tr><td>EV/EBIT</td><td>16.9x</td><td>10.7x</td><td>12.0x</td><td>-12.3x</td><td>2.7x</td><td>11.1x</td><td>134.6x</td><td>26.6x</td><td>14.6x</td><td>11.2x</td><td>3.7x</td><td>9.7x</td></tr><tr><td>EV/EBITDA</td><td>11.4x</td><td>7.2x</td><td>7.9x</td><td>-10.5x</td><td>2.3x</td><td>1.4x</td><td>105.1x</td><td>16.2x</td><td>11.3x</td><td>7.8x</td><td>3.2x</td><td>9.0x</td></tr><tr><td>EV/Sales</td><td>1.9x</td><td>1.5x</td><td>0.6x</td><td>-0.5x</td><td>0.2x</td><td>0.8x</td><td>15.3x</td><td>2.4x</td><td>0.4x</td><td>0.2x</td><td>1.0x</td><td>1.0x</td></tr><tr><td>FCF Yield</td><td>3.3%</td><td>5.3%</td><td>5.8%</td><td>7.8%</td><td>14.3%</td><td>12.5%</td><td>0.8%</td><td>5.3%</td><td>6.6%</td><td>8.1%</td><td>15.9%</td><td>5.6%</td></tr><tr><td colspan="13">Implied Multiples on MS Price Target</td></tr><tr><td>FY26e</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>P/E</td><td>20.2x</td><td>12.6x</td><td>12.3x</td><td>61.2x</td><td>8.6x</td><td>14.6x</td><td>14.9x</td><td>26.3x</td><td>23.9x</td><td>8.8x</td><td>5.2x</td><td>5.3x</td></tr><tr><td>EV/EBIT</td><td>18.0x</td><td>12.1x</td><td>9.2x</td><td>-2.4x</td><td>3.6x</td><td>15.7x</td><td>149.7x</td><td>34.3x</td><td>29.5x</td><td>13.1x</td><td>3.0x</td><td>6.4x</td></tr><tr><td>EV/EBITDA</td><td>12.1x</td><td>8.5x</td><td>6.8x</td><td>-2.1x</td><td>3.1x</td><td>1.7x</td><td>114.3x</td><td>16.8x</td><td>19.3x</td><td>8.1x</td><td>2.6x</td><td>6.0x</td></tr><tr><td>EV/Sales</td><td>1.8x</td><td>1.6x</td><td>0.7x</td><td>-0.1x</td><td>0.3x</td><td>0.9x</td><td>16.1x</td><td>2.1x</td><td>0.5x</td><td>0.2x</td><td>0.8x</td><td>0.7x</td></tr><tr><td>FY27e</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>P/E</td><td>17.6x</td><td>11.6x</td><td>11.4x</td><td>65.5x</td><td>8.2x</td><td>10.8x</td><td>13.0x</td><td>19.6x</td><td>15.8x</td><td>8.0x</td><td>5.3x</td><td>5.5x</td></tr><tr><td>EV/EBIT</td><td>21.2x</td><td>14.3x</td><td>56.4x</td><td>88.4x</td><td>6.9x</td><td>7.8x</td><td>269.9x</td><td>31.5x</td><td>26.1x</td><td>13.5x</td><td>11.4x</td><td>18.0x</td></tr><tr><td>EV/EBITDA</td><td>14.3x</td><td>9.6x</td><td>37.0x</td><td>75.2x</td><td>6.0x</td><td>1.0x</td><td>210.7x</td><td>19.2x</td><td>20.2x</td><td>9.4x</td><td>10.0x</td><td>16.7x</td></tr><tr><td>EV/Sales</td><td>2.3x</td><td>2.0x</td><td>2.7x</td><td>3.7x</td><td>0.6x</td><td>0.6x</td><td>30.7x</td><td>2.9x</td><td>0.8x</td><td>0.2x</td><td>3.0x</td><td>1.8x</td></tr><tr><td colspan="13">Stock Price Performance</td></tr><tr><td>1 Month</td><td>25.3%</td><td>22.2%</td><td>11.0%</td><td>(0.8%)</td><td>(12.7%)</td><td>1.0%</td><td>0.8%</td><td>33.2%</td><td>19.7%</td><td>0.2%</td><td>5.6%</td><td>6.9%</td></tr><tr><td>3 Month</td><td>23.7%</td><td>3.1%</td><td>22.1%</td><td>(16.6%)</td><td>(11.2%)</td><td>(5.8%)</td><td>(0.5%)</td><td>19.0%</td><td>27.5%</td><td>(11.7%)</td><td>(4.1%)</td><td>2.3%</td></tr><tr><td>1 Year</td><td>85.2%</td><td>92.0%</td><td>66.8%</td><td>(12.9%)</td><td>26.9%</td><td>3.7%</td><td>(6.8%)</td><td>91.3%</td><td>97.8%</td><td>(18.4%)</td><td>14.7%</td><td>6.0%</td></tr><tr><td>YTD</td><td>14.4%</td><td>22.5%</td><td>7.3%</td><td>3.7%</td><td>(5.5%)</td><td>1.0%</td><td>0.3%</td><td>32.1%</td><td>28.6%</td><td>0.7%</td><td>5.2%</td><td>6.7%</td></tr></table> Source: FactSet, Morgan Stanley Research (e) estimates. Pricing as of 16 Jan 2026 close. # China's AI Path – Brighter in 2026 AI chipset supply – improved: We expect improved supply of AI chipsets in 2026 from H200 approval as well as increased chipset localization progress. H200 is considered a high-performing GPU widely used in foundation model training which is currently irreplaceable by domestic chipsets. China's AI enablers and adopters will benefit from a potential approval of H200 access by the Chinese government in 2026 and we expect no pushback from the regulatory side. In addition, China's local chipset supply is also ramping up. Our Morgan Stanley Greater China Semiconductor team expects SMIC's leading-edge fab expansion to gradually remove the equipment bottleneck, and forecasts it to further raise China's local GPU self-sufficiency ratio from $27\%$ in 2025 to $39\%$ in 2026E. Growing model capabilities: Chinese AI foundation models have been keeping up with US frontier model intelligence in 2025 – at mere months behind – and we expect the performance gap to narrow further in 2026. And Chinese models will continue to lead in the open-weight and multi-modal categories, as well as cost efficiency. Agentic AI development and booming multi-modal scenarios will further boost token consumption in 2026. Non-linear surge in 2C adoption: We expect Al-native apps to continue to gain traction in 2026 with a non-linear surge driven by foundation model capability improvement and super app breakthroughs. Doubao is likely to remain the top in terms of MAUs. Meanwhile, we expect Qwen to gain traction in the 2C market with Alibaba establishing 2C BU, integrating Ali-ecosystem apps – including Taobao/Eleme (e-commerce/quick commerce, food delivery), Fliggy (travel), Amap (maps), and Alipay (payment) – is set to position Qwen as the one-stop AI super app and life assistant. In addition, Tencent's recent top-tier talent hires, launch of HY2.0, and upcoming HY3.0 in 1H26 may also trigger more aggressive investments from the company into AI. 2B AI – software gaining share from enterprise AI wallet: Our 2H25 CIO survey shows that enterprises are increasingly allocating more of their IT budgets to AI. Enterprise CIOs raised the average AI budget as a percentage of total IT budget from $7.7\%$ in 2025 to $13\%$ in 2026. We also see software gaining AI wallet share against hardware. We don't see any evidence that would support the "AI eating software" narrative. But the deflationary macro environment remained a hurdle to overall AI monetization on the enterprise side. Exhibit 3: Total capex by top hyperscalers Source: Company data, Morgan Stanley Research (E)stimates Exhibit 4: China - AI: GPU sufficiency rate Source: Morgan Stanley Research (E)stimates Exhibit 5: China vs. US - frontier model intelligence Source: Artificial Analysis Exhibit 6: China vs. US - open weight frontier model intelligence Source: Artificial Analysis Exhibit 7: Al-native App MAU Source:Questmobile Exhibit 8: Al-native App DAU Source:Questmobile Exhibit 9: Accelerating public cloud adoption in 2026 Source: AlphaWise, Morgan Stanley Research Exhibit 10: AI cloud penetration as % of public cloud spending Source: AlphaWise, Morgan Stanley Research Exhibit 11: AI IT spending penetration Source: AlphaWise, Morgan Stanley Research Exhibit 12: Al budget allocation Source: AlphaWise, Morgan Stanley Research # Overseas Expansion Is on the Way Exhibit 13: Overseas revenue as % of total revenue among internet companies (2026e/ FY27 MSe) <table><tr><td>Company</td><td>Overseas revenue as % of total revenue</td></tr><tr><td>Tencent</td><td>Low-teens%</td></tr><tr><td>Alibaba</td><td>High-teens%</td></tr><tr><td>PDD</td><td>35%</td></tr><tr><td>NetEase</td><td>HSD%</td></tr><tr><td>Trip.com</td><td>Mid-Twenties%</td></tr><tr><td>Meituan</td><td>LSD%</td></tr><tr><td>Baidu</td><td>LSD%</td></tr><tr><td>Kuaishou</td><td>LSD%</td></tr><tr><td>JOYY</td><td>95%</td></tr><tr><td>IQiyi</td><td>LSD%</td></tr><tr><td>JD.com</td><td>LSD%</td></tr><tr><td>Average</td><td>10%+</td></tr></table> Source: Company data, Morgan Stanley Research (E)stimates # 1) Games (Tencent, NetEase) We believe Chinese studios represent world class capability in game development (especially in mobile games) and will generate fast-rising revenue from overseas markets. According to CNG, Chinese games' overseas revenue reached US\(16.4bn in 2025 through November, which accounted for almost a third of the revenue generated by Chinese game companies. Going into 2026, we expect Chinese game companies to continue their overseas expansion, with the next stage driven by more quality titles across both mobile and PC/console. Tencent: Tencent is well positioned in the overseas mobile market, boasting a highly diverse global investment portfolio which includes hundreds of studios. Coupled with its strengths in data, tools, authenticity, longevity, creativity and in-house IP expertise, international games may expand to $35\%$ of the company's mix in 2027e from $32\%$ in 2025, driving a revenue CAGR of $13.5\%$ 2025-27e, per our estimate. NetEase: NetEase views going overseas as top priority in its corporate development strategy, and adjusted its strategy from mainly relying on overseas studios to its domestic development capabilities. In 2025, it achieved huge success thanks to Marvels Rivals and Where Winds Meet. We estimate that overseas markets contribute a high-single-digit share of NetEase's total revenue. Looking into 2026, we expect Where Winds Meet to continue its strong performance while the two key upcoming titles – Ananta and Sea of Remnants – are both planned for launch globally, making overseas again an important contributor to NetEase's 2026 grossing upside. We think that in future, most of NetEase's new games will have $25 - 50\%$ revenue coming from overseas markets. Exhibit 14: Chinese game revenue overseas Source: CNG, Morgan Stanley Research. Exhibit 15: Tencent - game revenue mix Source: Company data, Morgan Stanley Research # 2) Cross-border E-commerce (PDD, Alibaba) Temu: Temu's U.S. disruption in May 2025 proved temporary, with a tariff truce enabling recovery and U.S. engagement rebounding while global MAUs surged to 520mn by October, underscoring the platform's resilience and international momentum. With normalized S&M intensity, improving ad ROI, and merchant advertising adding a high-margin layer, Temu is positioned for accelerating monetization and operating leverage, driving 2H26 EBIT break-even and full-year profitability in our base case. If tariffs remain stable and ad scaling outpaces expectations, upside could be substantial as Temu transitions from aggressive growth to a highly profitable global e-commerce leader. In 2025, Temu performed as follows: Global MAU +76% yoy to 493mn: US +3%, EU +76%, LatAm +104%. MAU mix: US 14%, EU 33%, LatAm 25% (Exhibit 16) - Global DAU +77% yoy to 84mn: US -5%, EU +88%, LatAm + 107%. DAU mix is the same as MAU mix (Exhibit 16) Annual downloads -9% yoy to 446mn: US -44%, EU -25%, LatAm +5%. Downloads mix: US 8%, EU 22%, LatAm 30% - Accumulated downloads reached 1.27bn Alibaba: Alibaba AIDC revenue accounts for $\sim 15\%$ of group revenue. AIDC's international commerce retail businesses continued to diversify and enrich product offerings by onboarding local merchants and partners, while leveraging the supply chain advantage of the Alibaba ecosystem. AliExpress launched the "Brand+ program in 2QF26, providing go-to-market solutions to Chinese brands going overseas. We expect the key focus of the international business on profitability enhancement; the segment has achieved break-even in the latest quarter's results. Despite seasonal fluctuations, we expect the international business to break even in F27. Exhibit 16: Temu - MAU Source: SensorTower, Morgan Stanley Research Exhibit 17: Temu - DAU Source: SensorTower, Morgan Stanley Research Exhibit 18: Alibaba AIDC - revenue Source: Company data, Morgan Stanley Research estimates Exhibit 19: Alibaba AIDC - EBITA Source: Company data, Morgan Stanley Research estimates # 3) Food Delivery / Quick Commerce (Meituan) Meituan: Keeta had expanded into all GCC countries and three cities in Brazil (Santos, São Vicente, São Paulo) by end-2025. Meituan has committed to investing US1bn over five years in Brazil. HK has reached break-even within 2.5 years of launching operations, ahead of schedule. We see GCC online food delivery market GMV at US $30bn for 2028 and expect Meituan to capture \(20 \%$ market share at US\)6bn GMV. The Middle East appears to be an attractive market, with 1) robust market growth; 2) rising online food penetration; 3) high profitability (high AOV, high take rates, low delivery costs); 4) a fragmented market leaving room for consolidation; and 5) favorable demographics (see related report). We forecast incremental revenue from the GCC of Rmb11.5bn (US$1.5bn) by 2028e and profitability breakeven by 2028. We are expecting a faster, if not similar break-even timeline for GCC given better economics. We expect an F26 loss of Rmb10bn. Exhibit 20: Meituan - New initiatives OP Source: Company data, Morgan Stanley Research estimates Exhibit 21: Keeta - Middle East GMV estimates Source: Company data, Morgan Stanley Research estimates # 4) OTA (Trip.com) Trip.com: The ongoing antitrust investigation in the domestic market brings substantial uncertainty in the near term. Even so, we remain excited about Trip.com's global expansion and see ample room ahead to gain share in APAC markets. We think its target of becoming No.1 in APAC (ex-China, ex-India) is aspirational but achievable in the long run. We forecast Trip.com to sustain a very high growth rate of $\sim 40\%$ in 2026. More importantly, we see one more step towards trip.com's profitability in 2026, with narrowing overall net loss margin and one or two more markets breaking even (likely Thailand, Malaysia, or South Korea). However, with near-term valuation framework based on P/E rather than SOTP, investors' focus is still the near term margin dilution from Trip.com. The broader mix of revenue could bring some margin headwind to the firm's margin profile. We currently expect 2026E OPM to stay largely flat on a YoY basis. Exhibit 22: Trip.com - MAU globally Source: Sensor Tower, Morgan Stanley Research. Exhibit 23: Profit margin by segment Source: Company data, Morgan Stanley Research estimates. # 5) Cloud (Alibaba, Tencent) Both Alicloud and Tencent Cloud have been expanding overseas rapidly. Alicloud has maintained a strong position as one of the largest IAAS providers globally. Alibaba Cloud recently has announced plans to establish new regions in Brazil, France, and the Netherlands, with additional data centers planned for Mexico, Japan, South Korea, Malaysia, and Dubai within the coming year. The company is also establishing new regional service centers in Indonesia and Germany to provide 24/7 multilingual customer support. Tencent Cloud International operates 64 availability zones spread across 22 regions globally. According to Tencent 2025 Global Digital Ecosystem, Tencent cloud is adopted by $90\%+$ of leading Chinese internet companies going overseas and has achieved double-digit growth in international cloud business. Tencent aims to upgrade its cloud internationalization strategy across three areas — infrastructure, technology products, and service capabilities. We expect international cloud to continue to expand in the mix for both Alicloud and Tecnant, with rapid growth. We estimate total Alicloud revenue to be $+40\%$ in F27 and Tencent business service revenue to be $+25\%$ in F26. # 6) Robotaxi (Baidu) Apollo Go is the global leader in robotaxi services with $>250\mathrm{K}$ weekly average fully driverless operational rides as of 3Q25, benchmarking with global peers. It now operates in 22 cities, following recent debuts in Dubai, Abu Dhabi, and Switzerland. Baidu continues with its asset-light model by partnering with Uber and Lyft globally. But we expect revenue scale to remain limited, with increasing investments needed. Exhibit 24: Apollo Go globally expansion map # Accelerating Global Expansion $\checkmark$ Uber partnership: initial rollouts in Asia & the Middle East $\checkmark$ Lyft partnership: initial deployments in Germany & the UK 22 Cities Global footprint # Europe In Switzerland, established a strategic partnership with PostBus # The United Arab Emirates Abu Dhabi: received fully driverless commercial operation permits $\checkmark$ Dubai: open-road testing in designated areas # Chinese Mainland $\checkmark$ $100\%$ fully driverless operations $\checkmark$ Beijing, Shanghai, Shenzhen, Wuhan, Chengdu, Chongqing, Haikou, Sanya, etc. # Hong Kong $\checkmark$ Open-road testing areas incl. the Southern District, North Lantau, Kowloon and Kwun Tong District # 7) AI Models / Applications (Alibaba, Kuaishou) Qwen: Alibaba's Qwen model has achieved significant international traction since its open-source release. Qwen has emerged as the world's most downloaded AI model, surpassing Western peers including Meta's Llama in cumulative downloads on the Hugging Face platform. As of January 2026, the model had recorded 700 million downloads. In December 2025, Qwen's downloads exceeded the combined total of the next eight most popular models, including those from Meta, DeepSeek, OpenAI, Zhipu.AI, Moonshot, etc. It is believed that the Qwen series has become the AI model family with the most derivative models worldwide from Hugging Face platform. Kling: As tool-type software with global leading performance, we think Kling will generate most of its revenue from overseas markets. It will inevitably face more competition (from US and Chinese hypercalers and AI startups) in AI video generation. Underlying model capability iteration will remain the battlefield. Kling's B2B progress in overseas markets is another key variable to watch after it built up the sales team. We forecast 2026 Kling revenue to grow \(\sim 80 \%\) YoY, to US\(270mn, and expect overseas markets to contribute \(70 - 80 \%\) of revenue. Exhibit 25: Video model leaderboard <table><tr><td>↑↓</td><td>Creator ↑↓</td><td>Model ↑↓</td><td>ELO ↑↓</td><td>95% CI</td><td>Samples ↑↓</td><td>Released ↑↓</td><td>API Pricing1 ↑↓</td></tr><tr><td>1</td><td>■ Runway</td><td>Runway Gen-4.5</td><td>1,238</td><td>-9/+9</td><td>9,730</td><td>Dec 2025</td><td>Coming soon</td></tr><tr><td>2</td><td>Kuaishou KlingAl</td><td>Kling 2.5 Turbo 1080p</td><td>1,229</td><td>-10/+10</td><td>6,133</td><td>Sept 2025</td><td>$4.20 /min</td></tr><tr><td>3</td><td>Google</td><td>Veo 3 (No Audio)</td><td>1,226</td><td>-12/+13</td><td>3,562</td><td>Jul 2025</td><td>$12.00 /min</td></tr><tr><td>4</td><td>Google</td><td>Veo 3.1 Preview (No Audio)</td><td>1,222</td><td>-10/+11</td><td>5,851</td><td>Oct 2025</td><td>$12.00 /min</td></tr><tr><td>5</td><td>Google</td><td>Veo 3.1 Fast Preview (No Audio)</td><td>1,220</td><td>-10/+11</td><td>6,030</td><td>Oct 2025</td><td>$9.00 /min</td></tr><tr><td>6</td><td>OpenAI</td><td>Sora 2 Pro (No Audio)</td><td>1,212</td><td>-10/+10</td><td>6,417</td><td>Sept 2025</td><td>$30.00 /min</td></tr><tr><td>7</td><td>Luma Labs</td><td>Ray 3</td><td>1,209</td><td>-9/+9</td><td>6,502</td><td>Sept 2025</td><td>$13.20 /min</td></tr><tr><td>8</td><td>OpenAI</td><td>Sora 2 (December, No Audio)</td><td>1,206</td><td>-12/+13</td><td>4,050</td><td>Sept 2025</td><td>$6.00 /min</td></tr><tr><td>9</td><td>Kuaishou KlingAl</td><td>Kling 2.6 Pro (No Audio)</td><td>1,199</td><td>-13/+15</td><td>3,196</td><td>Dec 2026</td><td>$4.20 /min</td></tr><tr><td>10</td><td>Kuaishou KlingAl</td><td>Kling O1 Pro</td><td>1,196</td><td>-12/+13</td><td>3,411</td><td>Dec 2025</td><td>$10.08 /min</td></tr></table> Source: Artificial Analysis, Morgan Stanley Research. # Competition Remains Intense # 1) Food Delivery / Quick Commerce We expect competition in the segment to remain intense, with Alibaba stepping up investments and launching Al life assistant (Qwen) as it aims to capture the top market share. But we see early signs of competition bottoming out, with the recent step in of the State Council Investigation (report), following the food delivery platform guidelines published by SAMR in Dec 25. Alibaba: We expect quick commerce loss to reach Rmb90bn in F26 and Rmb60bn in F27. The market has become incrementally more concerned about Alibaba's cash burn owing to intensifying competition, as opposed to previous expectations of more gradual competition in CY26 vs. CY25. Meituan: We expect Meituan's on-demand loss to be Rmb27bn in F25, followed by a profit of Rmb5bn in 2026. Though we see early signs of Meituan bottoming out, we note that competitive pressure from in-store (mainly from Douyin) and increasing overseas investments should continue to weigh on near-term margins. Exhibit 26: Alibaba vs. Meituan - QC quarterly OP Note: Quarterly calendarized for Alibaba. Source: Company data, Morgan Stanley Research estimates # 1) E-commerce In 2026, we expect e-commerce competition to remain intense on both the demand and supply sides, driven by slowing consumption momentum, platform strategy rebalancing, and persistent focus on maintaining ecosystem health. On the demand side: - High base effect from home appliance trade-in subsidies has already led to a visible deceleration in parcel volume and NBS online retail sales growth in 4Q25, a trend we expect to extend into 1Q–3Q26 as the smartphone category also enters a high base period. This backdrop is likely to prompt platforms to increase promotional intensity in order to stimulate discretionary spending. - FD/QC are showing limited incremental contribution to core e-commerce revenue, which may drive a reallocation of budgets from FD/QC back to core e-commerce subsidies and traffic investments. - Douyin's rapid e-commerce expansion—with reported GMV growth of $\sim 30\%$ YoY in 10M25 and its ascent to No. 2 by GMV scale—is likely to further pressure incumbent platforms to step up investments to defend their core market share. On the supply side: - Regulatory framework on anti-involution and anti-monopoly may continue to cap excessive monetization. - New e-commerce taxation framework could put pressure on merchants' margins and dampen their willingness to pay for ads/commissions. - PDD's slower-than-expected OMS revenue growth in 3Q25, despite a low base following a year of merchant subsidy programs, suggests that investments in ecosystem support and merchant burden reduction remain structurally elevated, limiting near-term monetization leverage across the industry. Exhibit 27: China - e-commerce market share Source: Company data, Morgan Stanley Research Estimates Exhibit 28: NBS online retail sales of goods Source: NBS, Morgan Stanley Research # 3) Local Services Competition became increasingly intense with Alibaba's increased efforts in local services. Alibaba Launched Street Stars function within Amap in September 2025 and announced Rmb1bn investments of in Amap to encourage user spending on car rides, dining, and other services. Amap's DAU reached a historical high of 360mn in October. Taobao group buy has also launched services in Shanghai, Shenzhen, and Zhejiang, and is planning to further penetrate into Tier 1+2 cities. ByteDance: On the other hand, Douyin has been stepping up investments in local services with the launch of "Suixin Tuan", an upgraded group purchase delivery service. According to local news, Douyin local service grew over $60\%$ in the first 10 months of 2025; full-year GTV is estimated to reach over Rmb800bn in 2025. Meituan: As such, we estimate Meituan's in-store margins to be under pressure with increasing competition, estimated at $26.5\%$ in F26 vs. $29.5\%$ in F25. # 4) Music With the sustained user expansion of Soda Music and the marginal weakness of Cloud Music's MAU trend in late 2025, the market now recognizes that the music streaming market is no longer a duopoly without competition. Going into 2026, we expect the competition in the low-end market to continue, no meaningful subsiding or intensifying (Douyin will continue to divert traffic to Soda, but will not change the long-term strategy for Soda as the music version on Douyin and will not increase content investment massively). TME: We think that as a high-end premium player, TME's Green Diamond and SVIP membership programs are somewhat protected from competition by its most comprehensive music library as well as its content ecosystem initiatives. We expect TME's music subscription revenue growth will slow down 3-4ppt, and content revenue will contribute more to growth, which will dilute margin. Exhibit 29: China - music streaming MAU trend of key players Source: QuestMobile, Morgan Stanley Research # 5) OTA In 2026, the result of antitrust investigation into TCOM is likely to change the segment's competitive dynamics, and current visibility remains quite low. With this backdrop, we think competitors are likely to get more aggressive in seeking market share. Returning to previous mild competition becomes a new bull case. In overseas markets, we think Trip.com will remain competitive (similar or just slightly lower marketing intensity vs. 2025), gaining market share fast from offline channels and local players. Exhibit 30: Key OTA market share <table><tr><td>Market share</td><td>Unit</td><td>2018</td><td>2019</td><td>2020</td><td>2021</td><td>2022</td><td>2023</td><td>2024</td><td>2025</td></tr><tr><td>Travel intermediates GMV - APAC</td><td>US$mn</td><td>477,348</td><td>493,207</td><td>225,365</td><td>258,600</td><td>266,638</td><td>421,658</td><td>482,952</td><td>536,600</td></tr><tr><td>Online</td><td></td><td>263,136</td><td>277,894</td><td>140,937</td><td>173,177</td><td>178,316</td><td>292,370</td><td>345,009</td><td>390,465</td></tr><tr><td>Online penetration %</td><td></td><td>55%</td><td>56%</td><td>63%</td><td>67%</td><td>67%</td><td>69%</td><td>71%</td><td>73%</td></tr><tr><td>Travel intermediates GMV - China</td><td>US$mn</td><td>218,276</td><td>223,271</td><td>132,152</td><td>170,265</td><td>114,357</td><td>191,439</td><td>218,816</td><td>242,199</td></tr><tr><td>Online</td><td></td><td>141,497</td><td>145,545</td><td>90,189</td><td>122,423</td><td>87,843</td><td>146,705</td><td>174,883</td><td>198,101</td></tr><tr><td>Online penetration %</td><td></td><td>65%</td><td>65%</td><td