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

Thematic (Sector/Industry)

<ul>
<li>TSLA/XPEV/1211: Tesla starts presales of revamped Model 3 in China at higher starting price (/-/-)</li>
<li>IQ：iQiYi’s drama pipeline was affected by lead actress Zu‘er(Lareina) Song’s tax evasion inspection (-)</li>
<li>Real Estate Industry Update/Beke: Beijing and Shanghai followed on implementing the housing loan loosening policy, transaction willingness improved immediately</li>
</ul>


TSLA/XPEV/1211: Tesla starts presales of revamped Model 3 in China at higher starting price (/-/-)
IQ：iQiYi’s drama pipeline was affected by lead actress Zu‘er(Lareina) Song’s tax evasion inspection (-)
Real Estate Industry Update/Beke: Beijing and Shanghai followed on implementing the housing loan loosening policy, transaction willingness improved immediately


China TMT Update-TSLA/XPEV/1211/IQ/Beke:Beijing and Shanghai Housing Loan Loosening;revamped Model 3

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

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 updated our revenue forecasts for ByteDance (China domestic) , with the industry models. We estimate that ByteDance's domestic ad revenue/eCommerce GMV/local lifestyle GTV will grow by 17%/50%/134% this year.</li>
<li>In the advertising space, we recommend Tencent and iQIYI. Both Tencent and iQIYI experienced a decline in their advertising revenue market share in 2022, followed by a rebound in 2023.</li>
<li>In transactional GMV/GTV, we prefer Meituan and Pinduoduo. Meituan's market share experienced a significant decline in 2022, but the decline rate is expected to narrow significantly this year.</li>
</ul>


We updated our revenue forecasts for ByteDance (China domestic) , with the industry models. We estimate that ByteDance's domestic ad revenue/eCommerce GMV/local lifestyle GTV will grow by 17%/50%/134% this year.
In the advertising space, we recommend Tencent and iQIYI. Both Tencent and iQIYI experienced a decline in their advertising revenue market share in 2022, followed by a rebound in 2023.
In transactional GMV/GTV, we prefer Meituan and Pinduoduo. Meituan's market share experienced a significant decline in 2022, but the decline rate is expected to narrow significantly this year.


[Blue Lotus Multi-Platform Sector Update]: ByteDance Forecasts and Implications for China Internet

<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

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)

China TMT Update-TSLA/XPEV/1211/IQ/Beke:Beijing and Shanghai Housing Loan Loosening;revamped Model 3

Tesla starts presales of revamped Model 3 in China ;iQiYi’s drama pipeline was affected by lead actress Zu‘er(Lareina) Song’s tax evasion...

Blue Lotus Research Institute

[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): 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

[Blue Lotus Multi-Platform Sector Update]: ByteDance Forecasts and Implications for China Internet

We estimate that ByteDance's domestic ad revenue/eCommerce GMV/local lifestyle GTV will grow by 17%/50%/134% this year. We prefer Tencent, iQiyi,...

Blue Lotus Research Institute

[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

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