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

Tencent Breakout and Overhead Trend Inflection Barriers

Tencent (700 HK): 2Q19 Stopped 3-Year Margin Decline, Mobile Game Growth Jumped to 27% from Zero

Tencent (700 HK): Margin Improved for First Time in 3 Years, All Business Lines Growing, 50% Upside

Tencent (700 HK): Key Game Actually Approved, WeChat Pay Grew Strongly, 27% Upside

Tencent Bull Case: Buy the Online Community Empire, Not Just a Game Operator

Tencent (700 HK): Recruiting “Recruiting Managers” for Recruiting Game Developers

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

Equity Bottom-Up

<ul>
<li>Tencent gave game distributors a new offer which reduces Tencent’s payment from 50% to 30%.</li>
<li>We believe most distributors will have to accept the offer because Tencent is the largest game developer.</li>
<li>We believe Tencent made the right decision as the Company needs to improve its margins.</li>
<li>We also believe it is the right time as distributors do not have many new game sources after one year’s new game suspension.</li>
</ul>


Tencent gave game distributors a new offer which reduces Tencent’s payment from 50% to 30%.
We believe most distributors will have to accept the offer because Tencent is the largest game developer.
We believe Tencent made the right decision as the Company needs to improve its margins.
We also believe it is the right time as distributors do not have many new game sources after one year’s new game suspension.


Tencent (700 HK): Decides to Pay Less to Outside Game Distributors