China/Asia TMT

Shawn Yang

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

<ul>
<li>IQ reported 2Q23 revenue and non-GAAP net income 0.2%/28.5% vs cons.</li>
<li>We cut our projections for 3Q23's membership services revenue, but increased estimations for online ads services revenue, and raised margin forecasts for 2023.  </li>
<li>We maintain our US$ 6.25 TP, implying 16.2X PE in 2023.</li>
</ul>


IQ reported 2Q23 revenue and non-GAAP net income 0.2%/28.5% vs cons.
We cut our projections for 3Q23's membership services revenue, but increased estimations for online ads services revenue, and raised margin forecasts for 2023.  
We maintain our US$ 6.25 TP, implying 16.2X PE in 2023.


[iQIYI, Lnc. (IQ US, BUY, TP US$6.25) Review]: Ads Revenue Will Continue to Have Fair Growth

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>Despite soft season and content delay, IQ still delivered solid 2Q23 results with in-line topline and upbeat margin.</li><li>Market concern may lie on its low subs retention and limited visibility on 2H23E subs net adds, but we believe its rich, high-quality and exclusive content would support long-term subs value.</li><li>We forecast 3Q23E rev +8% YoY (in which subs/ads +20%/37% YoY), with adj. OP at RMB815mn. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Despite soft season and content delay, IQ still delivered solid 2Q23 results with in-line topline and upbeat margin.Market concern may lie on its low subs retention and limited visibility on 2H23E subs net adds, but we believe its rich, high-quality and exclusive content would support long-term subs value.We forecast 3Q23E rev +8% YoY (in which subs/ads +20%/37% YoY), with adj. OP at RMB815mn. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

iQIYI (IQ US) – Prioritizing on long-term subs value

Greater China Equity Long/Short Analyst

Eric Chen

<ul>
<li>IQiyi failed to give its share price a lift with  stronger-than-expected 2Q results except for slight miss in paying subscribers .</li>
<li>We believe that investors are expecting the end of its remarkable turnaround story and embracing a stable and moderate growth stage.</li>
<li>While iQiyi trades at ~10x our FY23 earnings, the cheap valuation by itself doesn’t stand out among China internet peers as a group. We would wait for better entry points.</li>
</ul>


IQiyi failed to give its share price a lift with  stronger-than-expected 2Q results except for slight miss in paying subscribers .
We believe that investors are expecting the end of its remarkable turnaround story and embracing a stable and moderate growth stage.
While iQiyi trades at ~10x our FY23 earnings, the cheap valuation by itself doesn’t stand out among China internet peers as a group. We would wait for better entry points.


IQIYI (IQ US): Embracing Moderate yet Stable Growth

<ul>
<li>We raise iQIYI’s membership/ads growth in 2Q23 from 12.9%/10.6% to 15.7%/22.4% YoY because of high quality content and recovery of major advertisers.</li>
<li>We upgrade iQIYI’s rating to BUY because:1) iQIYI exhibits advantages in content quality and production capabilities. 2) Major advertisers are expected to increase their advertising budgets continuously.</li>
<li>Emergency of mini drama is another variable for the Chinese online video industry. However, we anticipate the impact on iQIYI is relatively limited currently.</li>
</ul>


We raise iQIYI’s membership/ads growth in 2Q23 from 12.9%/10.6% to 15.7%/22.4% YoY because of high quality content and recovery of major advertisers.
We upgrade iQIYI’s rating to BUY because:1) iQIYI exhibits advantages in content quality and production capabilities. 2) Major advertisers are expected to increase their advertising budgets continuously.
Emergency of mini drama is another variable for the Chinese online video industry. However, we anticipate the impact on iQIYI is relatively limited currently.


[iQIYI (IQ US, BUY, TP US$6.25) Rating Change]: Competitive Advantage Is Established, Raise to BUY

<ul><li>Despite soft season and content delay, we expect IQ to deliver in-line 2Q23E, with rev +17% YoY (subs/ads +15%/25% YoY) and adj.</li><li>OP at RMB783mn (OPM at 10%). IQ outperformed than peers in Jun &amp; Jul, backed by popularity of Destined &lt;长风渡&gt; (viewership mkt share at 20%-30%).</li><li>After subs sequential decline in 2Q23E, we expect strong summer content to boost 3Q23E momentum (e.g. upcoming Mysterious Lotus Casebook). </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Despite soft season and content delay, we expect IQ to deliver in-line 2Q23E, with rev +17% YoY (subs/ads +15%/25% YoY) and adj.OP at RMB783mn (OPM at 10%). IQ outperformed than peers in Jun &amp; Jul, backed by popularity of Destined &lt;长风渡&gt; (viewership mkt share at 20%-30%).After subs sequential decline in 2Q23E, we expect strong summer content to boost 3Q23E momentum (e.g. upcoming Mysterious Lotus Casebook). Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

IQIYI (IQ US) – Moving into 3Q23E Strong Pipeline

China

iQIYI, Inc. offers video entertainment services. The Company provides movies, television dramas, variety shows, and other video contents. iQIYI offers services worldwide.

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iQIYI Inc (IQ US)

[iQIYI, Lnc. (IQ US, BUY, TP US$6.25) Review]: Ads Revenue Will Continue to Have Fair Growth

We cut our projections for 3Q23's membership services revenue, but increased estimations for online ads services revenue, and raised margin...

Blue Lotus Research Institute

iQIYI (IQ US) – Prioritizing on long-term subs value

Market concern may lie on its low subs retention and limited visibility on 2H23E subs net adds, but we believe its rich, high-quality and exclusive...

CMB International

IQIYI (IQ US): Embracing Moderate yet Stable Growth

IQ reported stronger-than-expected 2Q results, yet investors are expecting the end of remarkable turnaround and embracing moderate growth.

Eric Chen

[iQIYI (IQ US, BUY, TP US$6.25) Rating Change]: Competitive Advantage Is Established, Raise to BUY

We upgrade iQIYI’s rating to BUY:1) iQIYI exhibits advantages in content quality and production capabilities. 2) Major advertisers are expected to...

Blue Lotus Research Institute

IQIYI (IQ US) – Moving into 3Q23E Strong Pipeline

Despite soft season and content delay, we expect IQ to deliver in-line 2Q23E, with rev +17% YoY (subs/ads +15%/25% YoY) and adj.

CMB International

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