Overseas Chinese Equities, Aequitas Research

Ming Lu

A veteran with 19-year experience in equity research.

Geographical coverage:
* Companies operating in China, but listed in Hong Kong and the U.S.
* Previously China A-share (listed in mainland China).

Equity sector coverage:
* Chinese App / Internet-based consumption in China, e.g., Alibaba, Tencent, etc.
* Previously covered education, transportation, telecom, power, bank, advertisement, hotel, etc.

Research methods:
* Generally bottom-up.
* Talk to related people on the ground.  Talk to readers and independent writers for analyzing a news portal.  Talk to parents and teachers for analyzing a tutoring school. 
* Visit stores and show photos as evidence in notes.
* Do technical analysis when finding a short-seller attacking an equity.

Languages:
* English
* Mandarin Chinese (Official language of China)
* Shanghainese (Language of Shanghai, the most developed city in China)
* Cantonese (Language of Hong Kong and Canton Province, one of the most developed provinces in China)

Overseas Chinese Equities

Baidu (BIDU): The Way Back to Search Engine Will Be Cut Off by ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants

Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google

IQiyi (IQ): Margin Significantly Recovered After Dismissing a Floor of Employees

Baidu (BIDU): Obituary - Review the Way to First Loss Since IPO

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Equity Bottom-Up

<ul>
<li>The 2Q19 results are not as stable as it looks.</li>
<li>The operating margin of the search business improved to 11% in 2Q19 versus 6% in 1Q19 at the expense of the search revenue decline for the first time since the IPO.</li>
<li>We believe that -22% will be the best operating margin that iQiyi can do.</li>
<li>We believe BIDU should sell iQiyi for the strategic transformation.</li>
<li>We also believe BIDU is worth its tangible book value, which is 40% lower than the market price.</li>
</ul>


The 2Q19 results are not as stable as it looks.
The operating margin of the search business improved to 11% in 2Q19 versus 6% in 1Q19 at the expense of the search revenue decline for the first time since the IPO.
We believe that -22% will be the best operating margin that iQiyi can do.
We believe BIDU should sell iQiyi for the strategic transformation.
We also believe BIDU is worth its tangible book value, which is 40% lower than the market price.


Baidu (BIDU): IQiyi (IQ) Became a Burden, 40% Downside to Book Value