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

BIDU – Break Down Q1 into Search Engine and IQiyi, Upside At Least 35%

Tencent (700 HK) – Investment Gains Not Sustainable, Reached Our Target, Upgrade to HOLD

Baidu 4Q17: Revenue & EPS Beat; 1Q18 Guidance Slightly Ahead; Planned IQiyi IPO

Baidu's Technology Is Impressive but yet to Monetize While the Core Search Business Remains Weak

Equity Bottom-Up

<ul><li>Operating cash inflows grew 48% in 2017.</li><li>Real cash balance increased above 20+% every year in past 3 years.</li><li>Revenue growth accelerated to 20% in 2017 versus 6% in 2016.</li><li>Operating margin improved to 18% in 2017 versus 14% in 2016.</li><li>The Company is traded at 21x versus 32x the 5-year historical average.</li></ul>

Operating cash inflows grew 48% in 2017.Real cash balance increased above 20+% every year in past 3 years.Revenue growth accelerated to 20% in 2017 versus 6% in 2016.Operating margin improved to 18% in 2017 versus 14% in 2016.The Company is traded at 21x versus 32x the 5-year historical average.

Fat Cash Inflows Yet Traded at 2/3 of Historical P/E Average