China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Thematic (Sector/Industry)

<ul>
<li>We updated our revenue forecasts for ByteDance (China domestic) , with the industry models. We estimate that ByteDance's domestic ad revenue/eCommerce GMV/local lifestyle GTV will grow by 17%/50%/134% this year.</li>
<li>In the advertising space, we recommend Tencent and iQIYI. Both Tencent and iQIYI experienced a decline in their advertising revenue market share in 2022, followed by a rebound in 2023.</li>
<li>In transactional GMV/GTV, we prefer Meituan and Pinduoduo. Meituan's market share experienced a significant decline in 2022, but the decline rate is expected to narrow significantly this year.</li>
</ul>


We updated our revenue forecasts for ByteDance (China domestic) , with the industry models. We estimate that ByteDance's domestic ad revenue/eCommerce GMV/local lifestyle GTV will grow by 17%/50%/134% this year.
In the advertising space, we recommend Tencent and iQIYI. Both Tencent and iQIYI experienced a decline in their advertising revenue market share in 2022, followed by a rebound in 2023.
In transactional GMV/GTV, we prefer Meituan and Pinduoduo. Meituan's market share experienced a significant decline in 2022, but the decline rate is expected to narrow significantly this year.


[Blue Lotus Multi-Platform Sector Update]: ByteDance Forecasts and Implications for China Internet

Equity Bottom-Up

<ul>
<li>We raise iQIYI’s membership/ads growth in 2Q23 from 12.9%/10.6% to 15.7%/22.4% YoY because of high quality content and recovery of major advertisers.</li>
<li>We upgrade iQIYI’s rating to BUY because:1) iQIYI exhibits advantages in content quality and production capabilities. 2) Major advertisers are expected to increase their advertising budgets continuously.</li>
<li>Emergency of mini drama is another variable for the Chinese online video industry. However, we anticipate the impact on iQIYI is relatively limited currently.</li>
</ul>


We raise iQIYI’s membership/ads growth in 2Q23 from 12.9%/10.6% to 15.7%/22.4% YoY because of high quality content and recovery of major advertisers.
We upgrade iQIYI’s rating to BUY because:1) iQIYI exhibits advantages in content quality and production capabilities. 2) Major advertisers are expected to increase their advertising budgets continuously.
Emergency of mini drama is another variable for the Chinese online video industry. However, we anticipate the impact on iQIYI is relatively limited currently.


[iQIYI (IQ US, BUY, TP US$6.25) Rating Change]: Competitive Advantage Is Established, Raise to BUY

<ul>
<li>We suggest that both Tencent and NetEase will launch blockbuster new games in their pipelines during this year's summer vacation, with NetEase slightly surpassing Tencent.  </li>
<li>Although iQIYI, Kuaishou, and BILI each have new games, their contributions are relatively small, so we maintain a SELL rating for these three companies;</li>
<li>Investors can also pay attention to Nexon and Netmarble, two Korean game companies that are expected to benefit from the launch of new games;  </li>
</ul>


We suggest that both Tencent and NetEase will launch blockbuster new games in their pipelines during this year's summer vacation, with NetEase slightly surpassing Tencent.  
Although iQIYI, Kuaishou, and BILI each have new games, their contributions are relatively small, so we maintain a SELL rating for these three companies;
Investors can also pay attention to Nexon and Netmarble, two Korean game companies that are expected to benefit from the launch of new games;  


Blue Lotus Entertainment Sector Update: Tencent, NetEase and Kingsoft Have Strong Pipeline

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>The June rebalance of the <a href="https://www.smartkarma.com/entities/kraneshares-csi-china-internet-etf" target="_blank" data-smartkarma-citation="entities:28208:1" rel="noopener">KraneShares CSI China Internet ETF (KWEB US)</a> will take place at the close of trading today.</li>
<li>There are a couple of deletions and one inclusion. Plus there will be capping changes on the other stocks, but the impact of those changes is not large.</li>
<li>The stocks have already been moving in the right direction during the day and the pre-positions could be flipped to the ETF at the close.</li>
</ul>


The June rebalance of the KraneShares CSI China Internet ETF (KWEB US) will take place at the close of trading today.
There are a couple of deletions and one inclusion. Plus there will be capping changes on the other stocks, but the impact of those changes is not large.
The stocks have already been moving in the right direction during the day and the pre-positions could be flipped to the ETF at the close.


KWEB Index Rebalance: Few Changes at the Close Today

<ul>
<li>IQIYI's 1Q23 top line beat our est. by 8.5%, while its non-GAAP net income beat our est./cons by 95%/82%, largely due to its blockbuster &lt;Knockout&gt;. </li>
<li>However, we expect its content pipeline is weaker compared with other key competitors in Q2. </li>
<li>Our top and bottom lines in 2Q23 are (3.4%)/(7.4%) vs cons, due to the fierce competition. Maintain SELL and cut TP to US$ 5.0, implying 16.7X PE in 2023.</li>
</ul>


IQIYI's 1Q23 top line beat our est. by 8.5%, while its non-GAAP net income beat our est./cons by 95%/82%, largely due to its blockbuster &lt;Knockout&gt;. 
However, we expect its content pipeline is weaker compared with other key competitors in Q2. 
Our top and bottom lines in 2Q23 are (3.4%)/(7.4%) vs cons, due to the fierce competition. Maintain SELL and cut TP to US$ 5.0, implying 16.7X PE in 2023.


[iQIYI, Lnc. (IQ US, SELL, TP US$5) Target Price Change]: Content Pipeline Weakens After

China

iQIYI, Inc. offers video entertainment services. The Company provides movies, television dramas, variety shows, and other video contents. iQIYI offers services worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

iQIYI Inc (IQ US)

[Blue Lotus Multi-Platform Sector Update]: ByteDance Forecasts and Implications for China Internet

We estimate that ByteDance's domestic ad revenue/eCommerce GMV/local lifestyle GTV will grow by 17%/50%/134% this year. We prefer Tencent, iQiyi,...

Blue Lotus Research Institute

[iQIYI (IQ US, BUY, TP US$6.25) Rating Change]: Competitive Advantage Is Established, Raise to BUY

We upgrade iQIYI’s rating to BUY:1) iQIYI exhibits advantages in content quality and production capabilities. 2) Major advertisers are expected to...

Blue Lotus Research Institute

Blue Lotus Entertainment Sector Update: Tencent, NetEase and Kingsoft Have Strong Pipeline

We suggest that both Tencent and NetEase will launch blockbuster new games in their pipelines during this year's summer vacation, with NetEase...

Blue Lotus Research Institute

KWEB Index Rebalance: Few Changes at the Close Today

The KWEB ETF rebalances at the close today. There are 2 adds & 1 delete. There will be capping changes and funding flows across the other index...

Brian Freitas

[iQIYI, Lnc. (IQ US, SELL, TP US$5) Target Price Change]: Content Pipeline Weakens After

We expect its content pipeline is weaker compared with other key competitors in Q2. Our top and bottom lines in 2Q23 are (3.4%)/(7.4%) vs cons, due...

Blue Lotus Research Institute

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)