BRI: China Internet Initiation – The Next Chapter: Buy for Long-term Value

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China Internet Initiation – The Next Chapter: Buy for Long-term Value

Jefferies is bullish on the China Internet sector and believes the industry slowdown is now reflected in the price. The sector average P/E has pulled back to 22x, below the 10-year average 23x P/E and close to the 21x in the PC-based era of 2008-10. The firm is positive on the sector’s outlook with the market having reset expectations for growth rates among different sub-sectors. With the slowdown in user traffic, long-term value rather than just earnings growth has emerged as a key consideration to buy into the sector. Jefferies initiates coverage on 25 China Internet stocks. While the sector’s days of high growth and multiples have passed with the industry cooling down, this looks priced in given the de-rating since 2018. With the narrative now shifted to its third phase, long-term value, Jefferies selects its top 6 picks using a ‘three-tiered’ approach: Dominant leadership and execution (Alibaba, Tencent); Margin expansion (JD, Ctrip); Monetization capability (Meituan, PDD).  FULL REPORT

Thomas Chong, China TMT