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>NTES: NetEase testing a new magic academy simulation game in Japan (+)</li>
<li>PDD: PDD officially launches 6.18 event, but there aren't many surprises (-)</li>
<li>NIO/LI: NIO announces pricing details of all-new ES6 (- / +)</li>
</ul>


NTES: NetEase testing a new magic academy simulation game in Japan (+)
PDD: PDD officially launches 6.18 event, but there aren't many surprises (-)
NIO/LI: NIO announces pricing details of all-new ES6 (- / +)


China TMT Update May 31 - NTES/PDD/NIO/LI-PDD Officially Launches 6.18 Event (-)

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>The June rebalance of the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">HSI</a>, <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">HSCEI</a> and <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">HSTECH</a> indices will use today's closing prices to cap the index constituent weights at 8%. This will lead to large flows.</li>
<li>The largest inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/zijin-mining-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:6358:1" rel="noopener">Zijin Mining (2899 HK)</a>, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a>, <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com (9961 HK)</a> and <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a>. </li>
<li>The largest outflows will be on <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a>, <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a>, <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> and <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>. </li>
</ul>


The June rebalance of the HSI, HSCEI and HSTECH indices will use today's closing prices to cap the index constituent weights at 8%. This will lead to large flows.
The largest inflows will be on Meituan (3690 HK), JD.com (9618 HK), Zijin Mining (2899 HK), Baidu (9888 HK), Trip.com (9961 HK) and JD Logistics (2618 HK). 
The largest outflows will be on HSBC Holdings (5 HK), Li Auto (2015 HK), Kuaishou Technology (1024 HK), China Construction Bank H (939 HK) and NetEase (9999 HK). 


HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (June 2023)

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.

Equity Bottom-Up

<ul><li>NetEase reported 1Q23 results on 25 May. Total revenue increased by 6% YoY to RMB25.0bn in 1Q23, in line with our/consensus estimate.</li><li>Non-GAAP net income grew by 48% YoY to RMB7.6bn in 1Q23, beating our/consensus estimate by 36/33%, mainly attributable to the solid gross margin improvement (+5pct YoY) and effective control in marketing expenses.</li><li>We raise FY23-25E non-GAAP net income forecast by 8-10% mainly on more positive games GPM outlook and operating leverage. </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.

NetEase reported 1Q23 results on 25 May. Total revenue increased by 6% YoY to RMB25.0bn in 1Q23, in line with our/consensus estimate.Non-GAAP net income grew by 48% YoY to RMB7.6bn in 1Q23, beating our/consensus estimate by 36/33%, mainly attributable to the solid gross margin improvement (+5pct YoY) and effective control in marketing expenses.We raise FY23-25E non-GAAP net income forecast by 8-10% mainly on more positive games GPM outlook and operating leverage. 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.

NetEase (NTES US) – Solid mobile games and margin improvement support strong 1Q23 results

<ul><li>China’s online game market revenue was RMB22.5bn in Apr 2023, down by 2% YoY but up by 3% MoM, according to CNG.</li><li>The online game market revenue declined at a slower rate in April compared to 1Q23 (-15% YoY), mainly due to the launch of several highly-anticipated mobile games and the resilient performance of PC game market.</li><li>With the normalization of game license approval, more quality new game supply resumed in 4M23, which shall support China’s domestic online game market recovery to positive territory from 2Q23E onwards. </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.

China’s online game market revenue was RMB22.5bn in Apr 2023, down by 2% YoY but up by 3% MoM, according to CNG.The online game market revenue declined at a slower rate in April compared to 1Q23 (-15% YoY), mainly due to the launch of several highly-anticipated mobile games and the resilient performance of PC game market.With the normalization of game license approval, more quality new game supply resumed in 4M23, which shall support China’s domestic online game market recovery to positive territory from 2Q23E onwards. 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.

China Internet – April online game market recap

<ul>
<li>NetEase reported in-line revenue for 1Q23, while non-GAAP net income exceeded our estimate by 22%. </li>
<li>&lt;Justice Mobile&gt; is set to launch by the end of June. We anticipate that investors may need to wait for some time after June for NetEase's next potential hit title. </li>
<li>Maintain a BUY with TP unchanged, implying 18X PE in 2023.</li>
</ul>


NetEase reported in-line revenue for 1Q23, while non-GAAP net income exceeded our estimate by 22%. 
&lt;Justice Mobile&gt; is set to launch by the end of June. We anticipate that investors may need to wait for some time after June for NetEase's next potential hit title. 
Maintain a BUY with TP unchanged, implying 18X PE in 2023.


NetEase (NTES US, BUY, TP US$106) Earnings Review: Justice Mobile Is the Next Catalyst

China

NetEase, Inc. operates as an leading internet technology company providing online services including content, community, communication, and commerce. The Company develops and operates online games, electronic commerce, internet media, innovative business, and other businesses. NetEase expands its businesses to Japan, North American, and other other international markets.

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NetEase (9999 HK)

China TMT Update May 31 - NTES/PDD/NIO/LI-PDD Officially Launches 6.18 Event (-)

NetEase testing a new magic academy simulation game in Japan (+)/NIO/LI: NIO announces pricing details of all-new ES6 (- / +)/ PDD: PDD officially...

Blue Lotus Research Institute

HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (June 2023)

The June rebalance of the Hang Seng family of indices will use todays closing prices for capping. The one-way trade across all stocks across the...

Brian Freitas

NetEase (NTES US) – Solid mobile games and margin improvement support strong 1Q23 results

NetEase reported 1Q23 results on 25 May. Total revenue increased by 6% YoY to RMB25.0bn in 1Q23, in line with our/consensus estimate.

CMB International

China Internet – April online game market recap

The online game market revenue declined at a slower rate in April compared to 1Q23 (-15% YoY), mainly due to the launch of several highly...

CMB International

NetEase (NTES US, BUY, TP US$106) Earnings Review: Justice Mobile Is the Next Catalyst

The upcoming key title, Justice Mobile , is set to launch by the end of June. We anticipate that investors may need to wait for some time after...

Blue Lotus Research Institute

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