20210928-招银国际-China_Internet_Sector_Thoughts_on_updated_minors_protection_regulations_on_pan-entertainment_sector_3页_501kb

CMB International Securities | Equity Research | Sector Update Summary

Core Content and Key Points

This document provides an equity research update on the China Internet Sector, focusing on the impact of updated minors protection regulations on the pan-entertainment sector, including online games, livestreaming, video platforms, and social media. The report also includes valuation tables and investment ratings for several key companies within the sector.

Main Points

Minors Protection Regulations Update

• The State Council has announced tighter regulations on minors' online activities, emphasizing time spent, authority control, and consumption management.
• Online games have been subject to similar regulations for some time, with anti-addiction measures already in place since 1 September.
• The recent sector de-rating has already accounted for multiple regulatory headwinds, including minors protection, game licensing slowdown, and content regulation.

Video & Social Platforms

• The new regulations may shift regulatory focus from games to videos.
• Despite short-term sentiment pressure, the financial impact on video platforms is expected to be manageable.
• Kuaishou, Bilibili, and iQIYI are highlighted as being affected, but their protection tools (such as youth mode) have already been implemented.
• Minors account for low-single-digit percentages of total time spent and monetization on short videos, reducing the potential impact of the regulations.

Defensive Positions in the Market

• Meituan and Tencent are identified as relatively defensive due to their well-guided financials, regulatory compliance, and limited exposure to upcoming content regulations.
• The report reiterates the fundamental price floor for Tencent at HK$402 and Meituan at HK$180, suggesting a buy on dips strategy.

Valuation Table Highlights

• Tencent (700 HK): Mkt Cap $571,656M, Price HK$464, CMBI Rating: BUY, Target Price (TP): HK$640
• Meituan (3690 HK): Mkt Cap $195,851M, Price HK$249, CMBI Rating: BUY, TP: HK$383
• Alibaba (BABA US): Mkt Cap $394,353M, Price $145, CMBI Rating: BUY, TP: $285
• Baidu (BIDU US): Mkt Cap $54,496M, Price $157, CMBI Rating: BUY, TP: $248
• NetEase (NTES US): Mkt Cap $54,578M, Price $81, CMBI Rating: BUY, TP: $120
• JD (JD US): Mkt Cap $115,334M, Price $74, CMBI Rating: NA
• Kuaishou (1024 HK): Mkt Cap $43,467M, Price HK$81, CMBI Rating: BUY, TP: HK$110
• Pinduoduo (PDD US): Mkt Cap $118,498M, Price $95, CMBI Rating: BUY, TP: $175
• Didi (DIDI US): Mkt Cap $38,393M, Price $8, CMBI Rating: NA

Pan-Entertainment Sector Valuation

• Kuaishou, Bilibili, TME, iQIYI, and China Literature are evaluated in the pan-entertainment category.
• Kuaishou and Bilibili have a BUY rating, with TME also receiving a BUY rating.
• China Literature and Zhihu are noted for their PE and PS valuations, with Zhihu having a BUY rating and a target price of $15.
• The average PE and PS for pan-entertainment companies are 29.8 and 5.3, respectively.

Key Investment Recommendations

• Tencent and Meituan are considered defensive stocks with BUY ratings.
• Kuaishou, Bilibili, and TME are also rated BUY, with iQIYI and China Literature receiving BUY ratings.
• Zhihu is highlighted with a BUY rating and a target price of $15.
• Pinduoduo, Didi, and JD are also rated BUY in their respective categories.

Valuation Metrics

Company	Ticker	Mkt Cap (USD mn)	Price	PE (FY21E)	PE (FY22E)	PE (FY23E)	PS (FY21E)	PS (FY22E)	PS (FY23E)	EV/EBIT (FY21E)	EV/EBIT (FY22E)	EV/EBIT (FY23E)	EPS CAGR
Tencent	700 HK	571,656	464	27.4	22.4	18.5	6.4	5.4	4.5	21.1	20.4	16.4	14%
Meituan	3690 HK	195,851	249	NA	NA	70.5	6.9	5.0	3.8	NA	NA	86.6	NA
Alibaba	BABA US	394,353	145	15.0	12.6	10.5	2.8	2.3	1.9	17.1	12.7	9.7	13%
Baidu	BIDU US	54,496	157	17.4	14.2	11.5	2.8	2.4	2.1	18.8	14.5	10.2	14%
NetEase	NTES US	54,578	81	19.7	17.0	14.8	4.1	3.5	3.1	18.2	15.0	12.8	11%
Pinduoduo	PDD US	118,498	95	NA	89.1	36.0	7.0	5.0	3.7	NA	NA	61.2	NA
Kuaishou	1024 HK	43,467	81	NA	NA	NA	3.5	2.6	2.0	NA	NA	NA	NA
Bilibili	BILI US	27,186	71	NA	NA	NA	9.1	6.3	4.7	NA	NA	NA	NA
TME	TME US	11,983	7	19.8	18.8	15.5	2.4	2.2	1.9	21.4	18.7	16.7	11%
iQIYI	IQ US	6,275	8	NA	NA	NA	1.3	1.1	1.0	NA	NA	NA	NA
China Literature	772 HK	8,023	61	39.9	30.6	24.1	5.4	4.5	3.9	26.8	26.4	19.7	17%
Zhihu	ZH US	4,655	8	NA	NA	NA	10.1	5.5	3.2	NA	NA	NA	NA

Analyst Information

• Sophie Huang and Miriam Lu are the analysts responsible for this report.
• Contact details:
  • Sophie Huang: (852) 3900 0889 | sophiehuang@cmbi.com.hk
  • Miriam Lu: (852) 3761 8728 | miriamlu@cmbi.com.hk

Disclaimer and Risk Information

• The report is for informational purposes only and does not constitute investment advice.
• Investors should evaluate the information independently and consult a financial advisor.
• There are risks involved in trading any securities, and past performance is not indicative of future results.
• CMBIS may have investment banking relationships with the companies mentioned and may have conflicts of interest.
• The report is not an offer or solicitation to buy or sell any security and is not guaranteed in accuracy or completeness.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10%.
• SELL: Potential loss of over 10%.
• NOT RATED: Not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the benchmark.
• UNDERPERFORM: Industry expected to underperform the benchmark.

This summary highlights the key areas of focus, investment recommendations, and valuation insights for the China Internet Sector, particularly in light of the new minors protection regulations.