Blue Lotus China New Economy Research, Blue Lotus Research Institute

Eric Wen

Blue Lotus China New Economy Research

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

<ul>
<li>The key takeaway from this earning season on the topic of generative AI (GAI) is that in-house generated content has the greatest potential for cost savings;</li>
<li>Taking a step further, mid-sized video platforms can also use AI to skip the curator layer, similar to Pinduoduo using algorithm to bypass small merchants to connect directly to factories;</li>
<li>We also notice that general media platforms with ample advertising inventories tend to perform better with AI's help, which is why ads of Tencent's advertising performed better than Baidu's.</li>
</ul>


The key takeaway from this earning season on the topic of generative AI (GAI) is that in-house generated content has the greatest potential for cost savings;
Taking a step further, mid-sized video platforms can also use AI to skip the curator layer, similar to Pinduoduo using algorithm to bypass small merchants to connect directly to factories;
We also notice that general media platforms with ample advertising inventories tend to perform better with AI's help, which is why ads of Tencent's advertising performed better than Baidu's.


A Few Generative AI Takeaways From C1Q24 Earnings

Blue Lotus Non US Internet research, Blue Lotus Research Institute

Ying Pan

Blue Lotus Non US Internet research

<ul>
<li>Tencent reported C1Q24 revenue, IFRS operating profit, and IFRS net income in-line, 9.1%, 26% vs. our estimates and in-line, 16%, 21% vs. consensus;</li>
<li>Game revenues were below our expectations while advertising was above, leading to a gross margin beat of 2.73ppt, powered by video account and AI. </li>
<li>We raised our TP to HK$450 to reflect the shift to better-margin revenue mix and upcoming revenue acceleration.</li>
</ul>


Tencent reported C1Q24 revenue, IFRS operating profit, and IFRS net income in-line, 9.1%, 26% vs. our estimates and in-line, 16%, 21% vs. consensus;
Game revenues were below our expectations while advertising was above, leading to a gross margin beat of 2.73ppt, powered by video account and AI. 
We raised our TP to HK$450 to reflect the shift to better-margin revenue mix and upcoming revenue acceleration.


[Tencent (700 HK, BUY, TP HK$450) TP Change]: Market Finally Starting to Recognize Tencent’s Value

Andy Fu

Thematic (Sector/Industry)

<ul>
<li>Today, multiple cities in China introduced property stimulus measures to encourage buying new over existing homes. These policies also discourages people from selling their homes.</li>
<li>Past measures encouraged home purchases by lowering mortgage rates and down payments, resulting in an increase in existing home transactions, because new home has developer default risks.</li>
<li>This time, we saw for the first time, local Chinese governments introduced supplemental policies to guide new home purchases. We believe more of such measures can be on its way.</li>
</ul>


Today, multiple cities in China introduced property stimulus measures to encourage buying new over existing homes. These policies also discourages people from selling their homes.
Past measures encouraged home purchases by lowering mortgage rates and down payments, resulting in an increase in existing home transactions, because new home has developer default risks.
This time, we saw for the first time, local Chinese governments introduced supplemental policies to guide new home purchases. We believe more of such measures can be on its way.


Beike (BEKE US): New Government Measures Aimed at Promoting New Home Sales Warrants Attention

<ul>
<li>NTES US : NetEase's &lt;Marvel Rivals&gt; has commenced its first round of testing, with players providing positive feedback.（+）</li>
<li>4689 JP/4755 JP/4385 JP: PayPay QR-code system crashed for three hours (-/+/+)</li>
<li>BABA US /BIDU US/700 HK: China's generative AI starts price war mode, led by ByteDance and High-Flyer（/////）</li>
</ul>


NTES US : NetEase's &lt;Marvel Rivals&gt; has commenced its first round of testing, with players providing positive feedback.（+）
4689 JP/4755 JP/4385 JP: PayPay QR-code system crashed for three hours (-/+/+)
BABA US /BIDU US/700 HK: China's generative AI starts price war mode, led by ByteDance and High-Flyer（/////）


[Blue Lotus Daily - TMT Update]:NTES US/4689 JP/4755 JP/4385 JP/BABA US /BIDU US/700 HK

<ul>
<li>1810 HK/ZK US/NIO US/TSLA US/XPEV US/600104 SH: Xiaomi to start double-shift production of the SU7 in June （+/-/-/-/-）</li>
<li>1810 HK/1211 HK/ LI US/ NIO US/ XPEV US: The data shows that only 2% of FSD12 users are converted to paying users, which is good for China's automatic driving(//////////)</li>
<li>LI US / NIO US/1810 HK :Li Auto takes the lead in sales in the 18th week of 2024, while Xiaomi continues to lag behind（/////）</li>
</ul>


1810 HK/ZK US/NIO US/TSLA US/XPEV US/600104 SH: Xiaomi to start double-shift production of the SU7 in June （+/-/-/-/-）
1810 HK/1211 HK/ LI US/ NIO US/ XPEV US: The data shows that only 2% of FSD12 users are converted to paying users, which is good for China's automatic driving(//////////)
LI US / NIO US/1810 HK :Li Auto takes the lead in sales in the 18th week of 2024, while Xiaomi continues to lag behind（/////）


[Blue Lotus Daily]:1810 HK/ZK US/NIO US/TSLA US/XPEV US/600104 SH/1211 HK/ LI US/LKNCY US