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 Music (TME): Lower Margin in 2Q2019, Overvalued as Always

Tencent Music (TME): Anti-Trust Investigation May Take at Least USD2.80 Per Share

Tencent Music (TME): Risks Lower Growth for Both Business Lines, 21% Downside

Tencent Music (TME): Problems Come from Corporate Clients and In-House Contents, 35% Downside

Tencent Music: Short Idea on Consumption Slowdown Angle

Tencent Music 1Q19 Results Quick Take and the Looming US$4.85bn Lock-Up Overhang

Tencent Music 4Q18 Quick Note - Growth on Track, Margins Could Drag - Stock Price Needs a Breather

Equity Bottom-Up

<ul>
<li>The paying user growth in Social Entertainment Services declined significantly to 13% YOY in 1Q19 versus 23% YOY in 4Q18 (Exhibit 3).</li>
<li>The music user growth fell down to 27% YOY in 1Q19 from 39% YOY in 4Q18.</li>
<li>We believe that TME will grow further, but at the price of margin.</li>
<li>Compare with other the price / sales ratios of other internet companies and online entertainment companies, we believe there is a downside of 32% and a price target of USD11 for the year 2019.</li>
</ul>


The paying user growth in Social Entertainment Services declined significantly to 13% YOY in 1Q19 versus 23% YOY in 4Q18 (Exhibit 3).
The music user growth fell down to 27% YOY in 1Q19 from 39% YOY in 4Q18.
We believe that TME will grow further, but at the price of margin.
Compare with other the price / sales ratios of other internet companies and online entertainment companies, we believe there is a downside of 32% and a price target of USD11 for the year 2019.


Tencent Music (TME): Paying User Growth Tumbled in Both Business Lines, 32% Downside