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

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

Tencent Breakout and Overhead Trend Inflection Barriers

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

Tencent Bear Case: An Over-Played Hand (Part 2)

Tencent Bear Case: The Growth Illusion (Part 1)

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

Equity Bottom-Up

<ul>
<li>Players find that the approved new game, Game for Peace, is almost the same as the unapproved popular game PUBG. Therefore, we believe game revenues will recover in 2019.</li>
<li>WeChat Pay revenue growth comes out to be very strong after Tencent takes it out of “other revenues”.</li>
<li>We believe revenues will grow 23% in 2019 and 2020. We also believe the operating margin will improve 4 pp in 2019 and 2020.</li>
<li>The historical P/E ratios for 10 years suggest upside of 27% and a price target of USD475.</li>
</ul>


Players find that the approved new game, Game for Peace, is almost the same as the unapproved popular game PUBG. Therefore, we believe game revenues will recover in 2019.
WeChat Pay revenue growth comes out to be very strong after Tencent takes it out of “other revenues”.
We believe revenues will grow 23% in 2019 and 2020. We also believe the operating margin will improve 4 pp in 2019 and 2020.
The historical P/E ratios for 10 years suggest upside of 27% and a price target of USD475.


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