China / Hong Kong Industry Focus China Internet Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 31 Jul 2020

Accelerating momentum HSI: 24,711 • Expect internet sector’s revenue/earnings growth to accelerate to > 20%/>30% y-o-y in 2H20, driven

by e-commerce and online games ANALYST • E-commerce platforms will see a strong rebound Kennis Lau +852 36684153 [email protected] in 2H20, on the back of rising livestreaming e- Tsz-Wang TAM, CFA +852 36684195 [email protected] commerce Susanna Chui, CFA +852 36684194 [email protected]

• Online games sustain robust growth driven by IP* mobile game market and overseas revenue Recommendation & valuation • Our top pick is Alibaba (9988 HK/BABA US); we also like JD.com (9618 HK/JD US) and Tencent T arget Mk t PE (700 HK) Company Name Currency Price Price Recom Cap 21F Local$ Local$ US$m x Bullish on China Internet sector; revenue growth continues to Alibaba Group*# accelerate. We expect revenue and earnings growth among HKD 244.80 315.44 BUY 677,906 19.6 (9988 HK) China internet companies we track to grow by >20% and Alibaba Group*# USD 252.74 324.43 BUY 683,576 20.3 >30% y-o-y respectively in 2H20, on the back of improving (BABA US) economic activities and faster online penetration. Main drivers Baidu 'A' * USD 118.00 162.00 BUY 40,671 12.8 are e-commerce and online games. Thus, we raised our (BIDU US) JD.com* revenue forecasts of Alibaba, JD.com, Pinduoduo, Meituan, HKD 240.80 297.00 BUY 48,319 12.4 Tencent and Baidu for FY20F and 21F by 1-4% and 2%-14% (9618 HK) JD.com* respectively, leading to the TP upgrades. USD 62.29 77.00 BUY 96,870 24.9 (JD US) Meituan Dianping* Online advertising – the worst is over. Online advertising is HKD 195.00 227.00 BUY 147,882 54.9 recovering as China’s online physical product sales growth has (3690 HK) Pinduoduo* resumed its usual pace of c.24% y-o-y in May-June 2020. USD 84.94 95.00 BUY 101,726 32.3 (PDD US) According to iResearch, e-commerce platform is the preferred Tencent Holdings* channel for advertisers, where livestreaming is the fastest HKD 535.00 614.87 BUY 661,464 30.3 (700 HK) growing ad format, with its higher user conversion rates. Our top pick is Alibaba (9988 HK/BABA US) for its better-than-peers # FY20: FY21; FY21: FY22 performance as shown in the 618 shopping event. We also like Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)

JD.com (9618 HK/JD US) for revenue upside on its partnership with leading short-video platform, Kuaishou.

Online games – never-ending growth. Mobile games, the main contributor to the online game market, is still growing at a decent 24% y-o-y in April from over c.40% y-o-y in 1Q20, according to China’s Game Publishing Commission (GPC) and International Data Corporation (IDC). We believe the launch of popular IP game titles in 2H20 will support the momentum. Industry giants continue to dominate the scene with their rich IP reserves and increasing overseas revenue. We like Tencent (700 HK) for its strong IP pipeline and growing overseas presence.

Note*: IPs refer to intellectual property rights relating to cultural products or art works, such as icons from popular animations and novels, which have a significant fan base, market acceptance and commercial value.

ed-JS/ sa-CS / AH

Industry Focus

China Internet Sector

Bullish on internet sector game companies should be able to maintain steady growth at c.25%, due to the increasing popularity of IP mobile game We are bullish on the outlook of China’s internet sector in titles and growing overseas revenue. Online travel growth 2H2020, as revenue yearly growth momentum is projected to remains sluggish because of limited travels permitted across accelerate from 8% in 1H20 to 23%, driven by (i) online the world. Online games accounted for 38% of Tencent’s advertising, and (ii) online games. Revenue growth of e- revenue in 2019 while online advertising formed 44%, 18%, commerce companies should accelerate from 26% y-o-y in 7%, 89%, 15% and 73% of Alibaba’s, Tencent’s, JD’s, PDD’s, 1H20 to 46% in 2H20, supported by resumption of economic Meituan’s and Baidu’s revenue respectively. activities since COVID-19 outbreak in China, faster online penetration and popular live streaming e-commerce. Online

Chart 1: Revenue y-o-y growth estimates of internet Chart 2: Revenue y-o-y growth estimates by verticals, sector, 1H20 vs 2H20 1H20 vs 2H20

Online travel-49% -23%

1H20 8% Digital content 9% 14%

Search -10% 18%

E-commerce 26% 46% 2H20 23% Online game 19% 25%

-60% -40% -20% 0% 20% 40% 60% 0% 5% 10% 15% 20% 25% 1H20 2H 20 Source: Bloomberg Finance L.P., DBS HK Source: Bloomberg Finance L.P., DBS HK Chart 3: Revenue and earnings growth estimates, 1H20 vs 2H20

Rev enue Diluted Non-GAAP EPS YoY Growth YoY Grow th Company Name Stock code 1H CY20F 2H CY20F 1H CY20F 2H CY20F Alibaba* 9988 HK/ BABA US 30% 35% 10% 65% JD.com* 9618 HK/ JD US 21% 28% -35% 85% Pinduoduo* PDD US 90% 115% -270% 65% VIP Shop VIPS US -6% 12% -1% 61% Meituan Dianping* 3690 HK -5% 38% -11% 45% Tencent* 700 HK 24% 30% 26% 30% NetEase 9999 HK/ NTES US 13% 19% 21% 11% Zhejiang Century Huatong 002602 CH 22% 22% 2% 47% Baidu* BIDU US -15% 35% -30% 10% Sogo SOGO US -5% 1% -55% -78% Tencent Music Entertainment TME US 13% 20% 130% 130% China Literature 772 HK 26% 4% 31% 25% iQIYI IQ US 4% 6% 9% 8% Trip.com TCOM US -62% -28% -163% -138% Tongcheng Elong 780 HK -37% 5% -67% 121% A v erage 8% 23% -27% 32%

* DBS estimates as these companies are under DBS coverage Source: Bloomberg Finance LP, DBS HK

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Chart 4: Revenue mix of Alibaba, Tencent, Meituan, JD, PDD, Baidu

Revenue mix of Alibaba FY3/20 Revenue mix of Tencent FY19 II & DME** others*** Cloud 6% computing 1% Online 7% advertising 18%

Others 44%

Online Core games commerce* 38% 86%

Revenue mix of Meituan FY19 Revenue mix of JD.com FY19

Net service Others revenues & 18% others (3P)**** 12%

Online advertising 15% Commision Net 67% product revenues (1P) 88%

Revenue of PDD FY19 Revenue mix of Baidu FY19

Commission 11% Others 27%

Online advertising Online 73% advertising 89%

Notes: * Online advertising accounts for 43% of total revenue as we assume half of core commerce revenue is online advertising -related. ** DME means Digital media and entertainment *** II & others means Innovation initiatives and others **** Online advertising relevant revenue accounts for 7.4% of total revenue Source: Company, DBS HK

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Industry Focus

China Internet Sector

Online advertising – the worst is over which account for more than 80% of online advertising, will grow at a faster-than-industry rate of 25% in FY20. The trough in the online advertising market was most likely in

1Q20. Since then, the market has been improving but has yet Advertisers’ favourite platform to return to pre-COVID levels. Industry checks suggest that E-commerce platform are the preferred channel for advertisers, local advertisers are returning, and this is gradually driving up accounting for 39% of the online advertising market. E- prices. Online advertising recovery should continue to steadily commerce platforms’ consumption nature and multiple ad recover in 2H20, supported by improving economic activities formats offer shorter user conversion cycle with optimal and rebound in demand for discretionary products such as content capacity, thus satisfying the marketing needs of cosmetics, apparel and jewellery. The growing high frequency merchants. internet user base provides more fragmented time that merchants can monetise. According to iResearch, mobile ads,

Chart 5: Growth rate of online ads vs mobile ads Chart 6: 2019 Market share of China's online advertising

50% 48% 44% 45% Alibaba 40% 28%

35% Others 49% 30% 32% 25% 26% 30% 25% Baidu 11% 23% 24% 20% 2018 2019 2020F 2021F Tencent 12% Online advertising Mobile advertising

Source: iResearch Source: iResearch

Chart 7: Mobile advertising revenue by platform type

100% 15.0% 13.0% 11.1% 21.7% 80% 5.1% 14.8% 19.8% 23.0% 10.9% 9.5% 60% 8.9% 8.8% 11.5% 11.0% 10.4% 10.8% 40% 31.8% 37.7% 38.6% 38.5% 20% 19.0% 12.0% 9.3% 7.8% 0% 2018 2019 2020F 2021F Search E-commerce Social network Newsfeed Source: iResearch

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Industry Focus

China Internet Sector

Livestreaming is the new norm Among advertising formats on e-commerce platforms, Chart 10: 2020 User paying ratio on Taobao: livestreaming is gaining market traction, tripling its percentage Livestreaming users vs non-livestreaming users contribution to e-commerce platforms over the last two years 58% according to iResearch. E-commerce livestreaming has a higher user paying ratio of 56%, compared to non-livestreaming’s 55.6% 50%, as its shorter purchase cycle and popularity of key 56% opinion leaders (KOLs) are able to induce impulsive shopping. The multiple roles of hosts/KOLs (on advertising, sales, 54% entertainment and channels) can also help to optimise sales efficiency. For user conversion rates, this varies across live 52% streaming hosts as top KOLs can achieve c.65% while the rate 49.7% for a general merchant host is less than 1%. 50%

Chart 8: E-commerce ad revenue by ad formats 48%

100% 4.0% 46% 11.0% 6.0% 7.0% 12.0% Live streaming users Non-live streaming users 5.0% 15.0% 18.0% 80% 3.0% 9.0% 10.0% Source: Questmobile 25.0% 11.0% 22.0% 60% 18.0% 16.0% Top pick: Alibaba (9988 HK/BABA US, TP:HK$315/US$306) 40% The popularity of Alibaba (9988 HK/BABA US) and Tencent (700 HK) among merchants has been rising over the years, 56.0% 53.0% 51.0% 48.0% with online advertising market share of 28% and 12% 20% respectively in 2019. As merchants tend to allocate ad spending based on user base, Alibaba and Tencent with their 0% sizeable bases should be able to remain resilient amid the rising 2018 2019 2020F 2021F threat from short form video platforms. Search ad Banner ad

Newsfeed ad Live streaming ad With the rising popularity of livestreaming advertising and Source: iResearch growing concern of user conversion rates, Alibaba (9988

Chart 9. User conversion flow of traditional e-commerce HK/BABA US) should outperform peers as it has the highest vs livestreaming e-commerce presence of top KOLs, most comprehensive ad formats, solid analytic services, and most commonly used e-wallet. Traditional shopping Livestreaming shopping

1. Search for products 1. Watch live-streaming

2. Browse the Info 2. Put into the basket

3. Compare products 3. Check-out

4. Put into the basket

5. Check-out

Source: DBS HK

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Industry Focus

China Internet Sector

Online games – Never-ending growth top 200 chart, confirming a solid recovery in the mobile game business. Supported by the potential launch of popular IP We remain bullish on the online game sector, on the back of games in 2H20, such as DnF mobile, LoL mobile, Moonlight growing IP mobile game market. Mobile games grew at a Blade, and Revelation Mobile, we expect mobile game market decent 24% y-o-y in April even though this was slower than will grow by 24% in FY20. >40% in 1Q20. Revenue from existing titles, particularly from strong IPs such as Honour of Kings and Peacekeeper Elite/PUBG Industry leaders, such as Tencent (700 HK) and NetEase (9999 continue to be on the uptrend, reflecting extensive HK/NTES US), will continue to lead the market due to its monetisation, which is positive to a game’s life cycle and R&D leading mobile game titles and strong capability backed by spending. We also saw more new game titles entering the iOS solid blockbuster IP reserves.

Chart 11: China’s mobile game market Chart 12: 2019 Market share of mobile game market

RMB bn 300 285.696 50% 238.08 250 40% 192 200 Others 165 30% 23% 150 24% 20% 100 20% 17% 10% Tencent 50 NetEase 57% 11% 20% 0 0% 2018 2019 2020F 2021F Market szie (LHS) Growth rate (RHS)

Source: iResearch, DBS HK Source: Analysys

Chart 13: No. of new games entering iOS top 200 chart Chart 14: Total revenue from game titles with presence of (May 2019-May 2020) more than a year

30 28 RMB bn 160 145.92 25 23 123.59 19 20 20 20 17 18 17 120 107.28 14 14 15 12 10 80 10 4 5 40

0 0

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Jul-19

Jan-20

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Aug-19 May-19 May-20 Grossing of >1yr games

Source: Analysys Source: Gamma, DBS HK

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Industry Focus

China Internet Sector

Expanding IP-based games Chart 15: Revenue from the top 100 grossing games IP-based games have been one of the major drivers in China’s IP-based vs non-IP based mobile game sector. Their contribution in the top 100 grossing games in terms of revenue is projected to expand to 75% in 120% FY20 from 61% in FY18. IP-based games have a more cost- efficient player acquisition process, as the innate fan base of IPs 100% can easily be converted into players of such games. The loyal 27% 25% 23% fan base tends to have stronger stickiness, which is positive to 80% 39% the game’s lifecycle compared to non-IP based games. IPs have thus become a core asset of game companies. Game 60% companies do not only increase revenue generated from their 40% games, but also develop pan-entertainment products, thereby 73% 75% 77% 61% diversifying their revenue source. 20%

Increasing overseas mix 0% The increasing time spent by overseas users during COVID-19 2018 2019 2020F 2021F offers opportunities for Chinese online game companies. In IP-based games Non-IP based games 1Q20, Chinese mobile games accounted for 19 games and 31 games of the top 100 highest-grossing games in the US and Source: Analysys, DBS HK Japan respectively. Tencent (700 HK), SJhuatong (002602 CH) and NetEase (9999 HK/NTES US) are the top three Chinese Chart 16: Revenue of China's mobile games in overseas game companies with overseas presence. Growing overseas markets presence can extend the game longevity and better utilise R&D RMB bn spending. For instance, PUBG, the first global Chinese game, 100 50% continues to generate revenue with steady growth of 25% y-o- 79.01 y in June, two years after launch. We believe Chinese game 80 40% companies will continue to expand their footprint overseas due 31% 64.23 to the policy tightening environment in China. 60 51.39 30% 42.12 All rounded platform having better advantages 40 25% 20% 23% We believe Tencent (700 HK) will have an advantage over 22% peers as it has a good balance of a leading publishing platform, 20 10% rich IP-based game portfolio, proven operational and R&D capability, and growing overseas network. Its popular titles - 0 0% 2018 2019 2020F 2021F Honour of Kings and Peacekeeper Elite/PUBG are still taking the lead in the domestic market, while its strong IP-based Market szie (LHS) Growth rate (RHS) mobile game pipeline, such as DnF Mobile, will provide upside Source: iResearch, DBS HK in the near term. The experience accumulated from operating the successful global game, PUBG, puts the company in a strong position to produce the next global blockbuster.

Chart 17: Solid popular IP game pipeline from market leaders, Tencent and NetEase

T encent NetEase Game name Developer/Company Game name Developer/Company DnF Mobile Tencent/Nexon Harry Potter: Magic Awakened NetEase/Warner Bros League of Legends : Wild Rift Tencent/Riot Games The Lord of the Rings: Rise to War NetEase/Warner Bros Moonlight Blade Mobile Tencent Marvel Super War NetEase JX2 Kingsoft Marvel Duel NetEase/Marvel Dragon Nest Mobile 2 Shanda Diablo: Immortal NetEase/ATVI Call of Duty Mobile Tencent/ATVI Revelation Mobile ATVI/ Tencent Fortnite Mobile Epic:Games Pokemon Quest The Pokemon Company/Game Freak

Source: Company data, DBS HK

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Industry Focus

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Stock recommendations factoring in stronger monetisation potential. Our new TP of US$95 is pegged to an unchanged 30x FY21F PE, which is 1 Top pick: Alibaba (9988 HK/ BABA US) BUY, TP:HK$315 standard deviation above the historical average of Alibaba. Buy. Alibaba should benefit the most from faster recovery in demand for discretionary products. This should underpin revenue upside Meituan Dianping (3690 HK) BUY, TP: HK$ 227 in 2H20 as the largest online advertising platform in China with We are positive on Meituan Dianping (MTDP). With loosening of 28% market share in 2019. We believe its 2Q20 results will social distancing measures, MTDP is seeing a recovery across its surprise the market. As the first mover in e-commerce businesses. Thanks to higher adoption of food delivery services livestreaming, Alibaba should take the lead to expand in this during COVID-19, food delivery could well account for 20% of sales channel in 2020. Its comprehensive marketing analytic the total dining market in FY20, up from 14% in FY19 according services based on its enormous database, coupled with its to Meituan Research Institute. Tapping into premium/branded payment and logistic services, differentiates Alibaba from its catering and hotel merchants during COVID will provide peers. monetisation upside to MTDP, leading to revenue uptrend in

2H20. We believe food delivery margins will be relatively stable in We rolled forward our valuation to FY3/22F non-GAAP EPS, the near term as market competition remains mild. leading to a higher TP of HK$315. Our new TP of HK$315 is based on SOTP methodology, with the following assumptions: (1) We raised our FY20/21F revenue and non-GAAP EPS by 2%/6%. 24x (pegged to historical average PE) on FY3/22F normalised net Our new TP of HK$227 is based on a SOTP methodology: (i) 6x profit from e-commerce (excl new retail, consumer services, and Price/Sales for food delivery segment (4x previously), 20% higher Cainiao; (2) fair value of substantial investee companies. Buy. than its peers, to reflect its high growth business, and (ii) 24x PE

for instore, hotel & travel business (20x previously), in line with JD.com (9618 HK/ JD US) BUY, TP: HK$297 industry peers. Buy. We expect JD’s 2Q results revenue will continue to top estimates (company’s guidance is 20-30%), supported by Tencent (700 HK) BUY, TP: HK$615 industry recovery, pent-up demand for discretionary items and We remain bullish on Tencent given near term catalyst from collaboration with Kuaishou, the second largest short video potential launches of several popular IP games, such as DnF streaming platform in China. Its robust GMV performance mobile, Moonlight Blade and LoL mobile. Together with strong during the 618 shopping event (+34% y-o-y), will further momentum from its existing leading game titles such as Honor of increase its revenue growth sequentially. Growing market Kings, Peacekeeper Elite and Brawl Stars, we expect online demand for logistic services (+37% y-o-y) in 2Q should help gaming revenue will have upside risk in 2H20F. Tencent will also improve JD’s margin further as it scales up. benefit from the stronger online advertising recovery in 2H20.

We raised non-GAAP EPS for FY20/21F by 6%/14%. to factor We raised our FY20F/21F revenue by 1%/2%, which led to in the better e-commerce recovery and increasing contribution 1%/4% increase in FY20/21F non-GAAP EPS, factoring in from live streaming e-commerce. Our new TP of HK$297 is based on SOTP methodology, with the following assumptions: stronger contribution from online games and advertising. This (1) 20x PE on FY21F e-commerce earnings); (2) market values leads to a lift in TP to HK$615 from HK$520 based on sum-of- for substantial investments, and (3) net cash at end-FY21F. the-parts (SOTP) valuation: (1) 35x PE (historical average over 10 Buy. years) on FY21F non-GAAP net profit, and (2) fair value of listed investee companies. Buy Pinduoduo (PDD US) BUY, TP: US$ 95 Pinduoduo remains the fastest growing e-commerce platform in Baidu (BIDU US) BUY, TP: US$162 terms of users among peers. Its generous subsidies have enabled We are optimistic on Baidu’s outlook, driven by online ad Pinduoduo to acquire users in a shorter time, leveraging on the market recovery. We have seen steady DAU growth of its nationwide social network, WeChat. We believe deepening its mobile APP, leading to higher monetisation potential riding on penetration in branded products will drive up traffic and attract more offerings from Baijiahao, mini programs, MP and AI more potential advertisers, implying revenue upside in the near DuerOS platform in a long run. We raised FY20/21F revenue by term. 1%/3% and increased FY20/21F non-GAAP EPS by 1%/3%, leading to a new TP of US$162. Our TP is based on SOTP We raised our FY20F/21F revenue by 4%/5% and increased methodology: (1) 15x FY21F PE; and (2) market values of FY20F/21F monetisation rate to 3.5%/3.7% from 3.4/3.6%. This iQIYI/Ctrip. Buy. led us to lift FY20F/21F non-GAAP net profit by 10%/32%,

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Industry Focus

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Valuation Table

Mk t PE PE P/S P/S P/Bk P/Bk EV/EBITDA ROE ROE Currency Price Cap F iscal 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F Company Name Code Local$ US$m Yr x x x x x x x x % % China internet platform 58 Com WUBA US USD 55.19 8,285 Dec 18.3 14.7 3.7 3.1 1.8 1.6 11.5 8.8 9.4 9.7 Alibaba Group*# 9988 HK HKD 244.8 677,906 Mar 26.3 19.6 6.8 5.0 4.8 3.6 32.4 21.9 20.7 21.0 Alibaba Group*# BABA US USD 252.74 683,576 Mar 28.9 20.3 6.9 5.0 5.1 3.8 33.4 23.2 20.6 21.5 Baidu 'A' * BIDU US USD 118 40,671 Dec 11.9 12.8 2.2 1.8 1.7 1.7 4.7 4.8 14.5 13.2 Bilibili BILI US USD 41.3 14,349 Dec n.a. n.a. 9.2 6.5 14.1 16.8 (60.5) (70.0) (24.8) (19.1) China Literature 772 HK HKD 50.25 6,586 Dec 34.8 29.4 4.9 4.3 2.2 2.1 25.7 21.4 5.4 7.3 Douyu International DOYU US USD 13.14 4,172 Dec 26.1 20.0 2.9 2.4 3.6 3.0 19.3 10.5 13.5 16.4 Huya HUYA US USD 23.43 5,190 Dec 32.6 22.8 3.2 2.6 3.9 3.3 22.4 14.4 12.2 14.9 JD.com* 9618 HK HKD 240.8 48,319 Dec 23.2 12.4 0.5 0.4 3.0 2.4 12.2 7.3 13.6 21.7 JD.com* JD US USD 62.29 96,870 Dec 46.4 24.9 0.9 0.7 6.1 4.8 27.5 17.1 13.6 21.7 Meituan Dianping* 3690 HK HKD 195 147,882 Dec 421.4 54.9 8.5 5.5 10.5 10.0 168.4 35.0 2.6 18.7 Netease 9999 HK HKD 139.8 2,493 Dec 25.4 21.5 0.2 0.2 5.7 4.9 n.a. n.a. 19.8 20.7 Netease NTES US USD 451.22 62,361 Dec 24.8 21.8 6.2 5.4 4.9 4.2 19.2 16.4 21.0 20.4 Pinduoduo* PDD US USD 84.94 101,726 Dec n.a. 32.3 12.8 7.4 32.2 16.1 (108.9) 26.4 (14.2) 66.6 Sogou SOGO US USD 8.45 929 Dec 136.3 29.5 0.8 0.7 3.0 2.7 19.9 6.6 3.0 10.0 Tencent Holdings* 700 HK HKD 535 661,464 Dec 38.3 30.3 9.8 7.8 7.7 5.6 26.2 21.6 23.4 21.4 Tencent Msc.Entm. Gp TME US USD 15.82 26,539 Dec 40.1 29.7 6.3 5.0 4.7 3.9 29.9 21.0 9.6 11.9 Tongcheng-Elong 780 HK HKD 14.3 3,954 Dec 26.7 14.1 4.2 2.9 2.0 1.8 18.0 9.3 6.5 11.8 Trip Com Group TCOM US USD 27.46 16,286 Dec n.a. 21.4 5.6 3.4 1.2 1.1 (483.1) 14.8 (2.9) 5.3 Vipshop Holdings VIPS US USD 21.79 12,853 Dec 16.8 13.8 0.9 0.8 3.6 2.9 10.9 8.7 23.9 23.4 A v erage 57.5 23.5 4.8 3.5 6.1 4.8 (9.0) 11.5 9.6 16.9

US/Europe/Japan internet platform Alphabet A GOOGL US USD 1538.37 1,050,122 Dec 37.0 28.0 6.2 5.1 5.2 4.5 16.0 12.9 13.9 16.1 Amazon.Com AMZN US USD 3051.88 1,522,204 Dec 161.3 80.8 4.4 3.7 17.8 13.2 32.9 23.9 17.5 24.0 Booking Holdings BKNG US USD 1687.74 69,081 Dec 116.2 24.9 9.8 6.1 17.3 14.5 52.9 15.9 13.3 69.7 Delivery Hero DHEREUR EU EUR 95.58 22,547 Dec n.a. n.a. 7.9 4.8 10.4 12.9 (31.2) (73.4) (40.1) (24.2) eBay EBAY US USD 54.72 38,297 Dec 15.3 13.8 3.6 3.3 11.6 9.8 10.8 10.1 76.1 70.1 Expedia Group EXPE US USD 84.93 11,974 Dec n.a. 28.4 1.9 1.3 4.1 3.5 249.6 11.0 (20.8) 20.4 Facebook Class A FB US USD 234.5 668,747 Dec 32.1 24.1 8.6 6.9 5.5 4.5 15.6 12.1 20.6 20.7 Grubhub GRUB US USD 70.2 6,455 Dec n.a. 585.0 4.0 3.5 4.6 4.5 79.9 36.9 (2.9) 3.2 iQIYI Ads IQ US USD 20.66 15,157 Dec n.a. n.a. 3.4 2.9 64.2 n.a. 11.4 7.9 (142.9) 325.1 Just Eat Takeawa TKWYEUR EU EUR 90.98 16,030 Dec 126.7 69.9 6.9 5.5 1.8 1.8 52.1 33.0 1.3 2.8 Mercadolibre MELI US USD 1107.5 55,054 Dec n.a. 1044.8 17.8 13.0 28.8 27.9 (5556.7) 352.1 (2.7) 1.4 Netflix NFLX US USD 485.8 214,245 Dec 78.7 55.3 8.6 7.3 19.8 14.9 51.4 39.4 31.3 31.4 Nintendo# 7974 JP JPY 47300 59,467 Mar 20.2 19.3 4.7 4.7 3.3 3.1 11.2 11.0 17.8 16.5 Spotify Technology SPOT US USD 261.79 49,084 Dec n.a. n.a. 5.2 4.3 20.0 18.8 (237.6) 584.6 (28.1) (12.7) Tripadvisor 'A' TRIP US USD 21.03 2,822 Dec n.a. 31.8 4.3 2.6 3.1 2.8 (122.8) 10.7 (10.6) 9.8 Uber Technologies UBER US USD 30.24 52,798 Dec n.a. n.a. 4.1 2.9 5.4 6.0 (21.9) (3926.3) (50.2) (31.0) Yelp YELP US USD 24.99 1,797 Dec n.a. 210.0 2.2 1.9 2.2 2.0 17.9 8.5 (5.1) 2.1 A v erage 73.4 170.5 6.1 4.7 13.3 9.0 (315.8) (166.4) (6.6) 32.1

# FY20: FY21; FY21: FY22

Source: Thomson Reuters, *DBS HK

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Alibaba Group (9988 HK) PE chart Alibaba Group (BABA US) PE chart

x x 32 45

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28 35 +1SD: 34.7x +1SD: 27.4x 26 Avg: 25.8x 30 Avg: 26.9x 24 -1SD: 24.2x 25

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Page 10

Industry Focus

China Internet Sector

Tencent (700 HK) PE chart

x 60

50 +1SD: 39.9x 40 Avg: 33x 30 -1SD: 26.1x 20

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x x 6.0 8.0 5.8 5.6 7.0 5.4 +1SD: 6.3x +1SD: 5.3x 6.0 5.2 Avg: 5.3x 5.0 Avg: 5x 5.0 4.8 -1SD: 4.7x 4.6 4.0 -1SD: 4.2x 4.4 4.2 3.0 4.0

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x x 40.0 3.0 35.0 2.9 30.0 2.8 +1SD: 2.8x 25.0 2.7

20.0 2.6 Avg: 2.7x +1SD: 14.7x 15.0 2.5 10.0 -1SD: 2.6x Avg: 8.8x 2.4 5.0 -1SD: 2.9x 2.3

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Source: Companies, DBS HK

Page 11

Industry Focus

China Internet Sector

JD.com Inc (JD US) PB chart Meituan Dianping (3690 HK) PB chart

x x 7.0 12.0 11.0 6.0 10.0 +1SD: 6.5x 9.0 5.0 8.0 Avg: 4.6x +1SD: 4.3x 7.0 4.0 Avg: 3.6x 6.0 5.0 -1SD: 2.7x 3.0 -1SD: 2.9x 4.0 2.0 3.0 2.0 1.0 1.0

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Pinduoduo (PDD US) PB chart Tencent (700 HK) PB chart

x x 25.0 14.0

12.0 20.0 +1SD: 14.8x 10.0 +1SD: 9.4x 15.0 Avg: 10.8x 8.0 Avg: 7.3x 10.0 -1SD: 6.9x 6.0 -1SD: 5.2x 4.0 5.0 2.0 0.0

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Page 12

China Internet Sector Alibaba Group (HK)

Bloomberg: 9988 HK Equity | BABA US Equity | Reuters: 9988.HK | Refer to important disclosures at the end of this report BABA.N

H: BUY Eyeing momentum Last Traded Price (H) ( 30 Jul 2020): HK$244.80 (HSI : 24,711) • June quarter results could be a near-term catalyst Price Target 12-mth (H): HK$315 (28.9% upside) (Prev HK$306) • Improving cloud and fintech profitability US: BUY • Further share price upside from potential inclusions in Last Traded Price (A) ( 30 Jul 2020): US$252.74 (NASDAQ : Hang Seng Index and southbound stock-connect 10,588) • Reiterate our BUY rating with a higher TP of HK$315 Price Target 12-mth (A): US$324 (28.4% upside) (Prev US$315) Analyst Positive surprise in June quarter results. We believe Alibaba Kennis Lau +852 36684153 [email protected] will deliver a rosier than consensus June quarter results as Tsz-Wang TAM, CFA +852 36684195 [email protected] the trough for e-commerce platforms is over. Online sales of Susanna Chui, CFA +852 36684194 [email protected] physical goods have rebounded back to its usual pace of Price Relative c.20% y-o-y as seen during April and May, driven by pent- HK$ Relative Index US$ Relative Index up demand for discretionary items. Alibaba’s e-commerce 274.2 273.0 209 209 market leadership remains firm as its GMV of Rmb698 bn 253.0 189 189 224.2 233.0 169 169 during the 618 Shopping Festival is still multiple times more 213.0 149 174.2 149 than peers. Its first mover advantage in livestreaming to 193.0 129 129 124.2 173.0 109 109 capture a larger slice of the fastest-growing ad segment

153.0 89 74.2 89 Dec-19 Mar-20 Jun-20 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 should underpin upside in the second half of the year. We

Alibaba Group (HK) (LHS) Relative HSI INDEX (RHS) Alibaba Group (LHS) Relative CCMP INDEX (RHS) raised our FY3/21F EPS by 11% factoring in stronger demand of online advertising and enterprise solution. Forecasts and Valuation (H Shares) FY Mar (RMB m) 2019A 2020A 2021F 2022F Margin improvement potential. We expect to see margin Turnover 376,844 509,711 695,756 953,185 improvement in cloud business as it scaled up, backed by EBITDA 83,560 127,047 142,258 208,111 faster global digital transformation post COVID. Ramp-up of Pre-tax Profit 109,918 152,993 167,447 234,461 Net Profit 100,731 141,344 178,846 242,011 its fintech business, driven by growing credit and loan Net Pft (Pre Ex) (core services, will bring upside to margins. 87,600 149,263 163,920 225,619 profit) Further share price upside. As the stock is likely to be EPS (RMB) 4.88 6.73 8.43 11.29 EPS (HK$) 5.40 7.44 9.32 12.48 included in both the Hang Seng index and southbound Core EPS (HK$) 4.69 7.85 8.54 11.64 stock-connect, this implies that Alibaba will have a bigger Core EPS (RMB) 4.24 7.10 7.72 10.52 presence in index funds, adding upside to its share price. EPS Gth (%) 16.2 37.8 25.3 34.0 Core EPS Gth (%) 35.5 67.3 8.7 36.3 Reiterate BUY. We reiterate our BUY rating on Alibaba. We Diluted EPS (HK$) 4.62 7.73 8.41 11.46 rolled forward our valuation to FY3/22F non-GAAP EPS, DPS (HK$) 0.00 0.00 0.00 0.00 leading to a higher TP of HK$315. BV Per Share (HK$) 26.37 39.74 50.63 68.68 PE (X) 45.4 32.9 26.3 19.6 Our new TP of HK$315 is based on SOTP methodology, with Core PE (X) 52.2 31.2 28.7 21.0 the following assumptions: (1) 24x (pegged to historical P/Cash Flow (X) 30.3 25.8 21.7 18.3 average PE) on FY3/22F normalised net profit from e- P/Free CF (X) 39.6 31.4 34.3 23.9 EV/EBITDA (X) 55.4 35.8 32.2 21.8 commerce (HK$294/share); (2) fair value of substantial Net Div Yield (%) 0.0 0.0 0.0 0.0 investee companies. (HK$21). P/Book Value (X) 9.3 6.2 4.8 3.6 At A Glance Net Debt/Equity (X) CASH CASH CASH CASH Issued Capital (m shrs) 21,492 ROAE (%) 23.5 22.7 20.7 21.0 Mkt Cap (HK$m/US$m) 5,287,032 / 682,193 Earnings Rev (%): (3) (5) Major Shareholders (%) Consensus EPS (RMB) 7.47 9.69 SoftBank Group Corp 25.1 Other Broker Recs: B:20 S:0 H:1 Free Float (%) 74.9 Source of all data on this page: Company, DBS Bank (Hong Kong) Limited 3m Avg. Daily Val. (US$m) 791.93 (“DBS HK”), Thomson Reuters GICS Industry: Information Technology / Software & Services

Page 13 ed- JS / sa- CS / AH China Internet Sector

Alibaba Group (HK)

Income Statement (RMB m) Balance Sheet (RMB m) FY Mar 2019A 2020A 2021F 2022F FY Mar 2019A 2020A 2021F 2022F Turnover 376,844 509,711 695,756 953,185 Net Fixed Assets 92,030 103,387 155,700 213,310 Cost of Goods Sold (206,929) (282,367) (396,581) (519,486) Invts in Assocs & JVs 84,454 189,632 285,585 391,252 Gross Profit 169,915 227,344 299,175 433,699 Other LT Assets 518,319 557,043 838,905 1,149,29 Other Opng (Exp)/Inc (112,831) (135,914) (178,809) (263,079) Cash & ST Invts 193,238 362,842 392,643 537,9219 Operating Profit 57,084 91,430 120,366 170,620 Inventory 8,518 15,479 16,750 22,948 Other Non Opg (Exp)/Inc 221 7,439 0 0 Debtors 58,590 84,229 91,147 124,871 Associates & JV Inc 566 (5,733) 0 0 Other Current Assets 9,927 373 404 553 Net Interest (Exp)/Inc 38,916 67,776 32,155 47,449 Total Assets 965,076 1,312,98 1,781,13 2,440,15 Dividend Income 0 0 0 0 5 4 4 Exceptional Gain/(Loss) 13,131 (7,919) 14,926 16,392 ST Debt 22,695 25,344 21,669 18,527 Pre-tax Profit 109,918 152,993 167,447 234,461 Creditors 23,360 3,014 3,853 4,443 Tax (16,553) (20,562) (11,439) (16,355) Other Current Liab 161,614 213,514 357,143 501,282 Minority Interest 7,652 8,913 22,839 23,905 LT Debt 111,834 120,276 108,248 97,424 Preference Dividend (286) 0 0 0 Other LT Liabilities 36,990 80,289 170,054 283,850 Net Profit 100,731 141,344 178,846 242,011 Shareholder’s Equity 492,257 755,401 972,002 1,331,64 Net Profit before Except. 87,600 149,263 163,920 225,619 Minority Interests 116,326 115,147 148,164 202,9853 EBITDA 83,560 127,047 142,258 208,111 Total Cap. & Liab. 965,076 1,312,98 1,781,13 2,440,15 Sales Gth (%) 50.6 35.3 36.5 37.0 5 4 4 EBITDA Gth (%) 21.0 52.0 12.0 46.3 Non-Cash Wkg. Cap (107,939) (116,447) (252,696) (357,352) Opg Profit Gth (%) (17.6) 60.2 31.6 41.8 Net Cash/(Debt) 58,709 217,222 262,726 421,970 Net Profit Gth (%) 17.4 40.3 26.5 35.3 Effective Tax Rate (%) 15.1 13.4 6.8 7.0 Cash Flow Statement (RMB m) Rates & Ratio FY Mar 2019A 2020A 2021F 2022F FY Mar 2019A 2020A 2021F 2022F Pre-Tax Profit 80,234 140,350 141,081 201,714 Gross Margins (%) 45.1 44.6 43.0 45.5 Dep. & Amort. 37,080 42,427 79,725 61,506 Opg Profit Margin (%) 15.1 17.9 17.3 17.9 Tax Paid 3,060 2,538 4,769 3,679 Net Profit Margin (%) 26.7 27.7 25.7 25.4 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 23.5 22.7 20.7 21.0 (Pft)/ Loss on disposal of FAs 4 (10,042) (18,870) (14,558) ROA (%) 12.0 12.4 11.6 11.5 FAFAsiaries/InvestmentsChg in Wkg.Cap. (-/+) (10,185) (43,386) (81,527) (62,896) ROCE (%) 7.0 8.4 8.9 9.5 Other Operating CF 40,782 48,720 91,550 70,629 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Net Operating CF 150,975 180,607 216,728 260,074 Net Interest Cover (x) NM NM NM NM Capital Exp.(net) (35,482) (32,550) (79,713) (61,838) Asset Turnover (x) 0.4 0.4 0.4 0.5 Other Invts.(net) (54,412) (10,339) (25,320) (19,642) Debtors Turn (avg days) 49.3 51.1 46.0 41.4 Invts in Assoc. & JV (35,434) (14,536) (35,598) (27,615) Creditors Turn (avg days) 26.6 19.4 3.3 3.1 Div from Assoc & JV (11,578) (24,410) (59,779) (46,374) Inventory Turn (avg days) 11.7 17.6 15.7 15.0 Other Investing CF (14,154) (26,237) (64,253) (49,845) Current Ratio (x) 1.3 1.9 1.3 1.3 Net Investing CF (151,060) (108,072) (264,662) (205,314) Quick Ratio (x) 1.2 1.8 1.3 1.3 Div Paid 0 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt 9,255 14,863 13,377 12,039 Capex to Debt (%) 26.4 22.4 61.4 53.3 Capital Issues (10,872) 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (10,876) 52,890 57,714 62,556 N.Cash/(Debt)PS (RMB) 3.15 11.43 13.69 21.76 Net Financing CF (12,493) 67,753 71,091 74,595 Opg CFPS (RMB) 7.81 10.66 14.05 15.06 Currency Adjustments 3,245 4,100 4,305 4,520 Free CFPS (RMB) 5.60 7.04 6.45 9.25 Chg in Cash (9,333) 144,388 27,462 133,876 Segmental Breakdown (RMB m) / Key Assumptions FY Mar 2019A 2020A 2021F 2022F Revenues (RMB m) E-commerce 323,400 436,104 591,392 810,207 Cloud computing 24,702 40,016 53,225 72,919 Digital media and 24,077 26,948 48,703 66,723 entertainment Innovation initiatives and 4,665 6,643 2,435 3,336 othersTotal 376,844 509,711 695,756 953,185 Adjusted EBITA (RMB m) E-commerce 136,167 165,800 224,783 308,404 Cloud computing (1,158) (1,414) (1,917) (2,630) Digital media and (15,796) (11,116) (15,070) (20,677) entertainment Innovation initiatives and (5,971) (8,815) (11,951) (16,397) othersTotal 113,242 144,455 195,844 268,700 Adjusted EBITA Margins (%) E-commerce 42.1 38.0 38.0 38.1 Cloud computing (4.7) (3.5) (3.6) (3.6) Digital media and (65.6) (41.2) (30.9) (31.0) entertainment Innovation initiatives and (128.0) (132.7) (490.8) (491.5) othersTotal 30.1 28.3 28.1 28.2 Key Assumptions Annual active customers (m) 654.0 726.0 787.7 846.8 Average annual spending per 378.6 458.3 545.1 687.0 customer China e-commerce (Retail) 5,727.0 6,589.0 6,665.4 8,895.4 GMV (Rmb b) Monetisation rate (%) 4.3 5.0 6.4 6.5 Source: Company, DBS HK

Page 14 China Internet Sector Baidu Inc

Bloomberg: BIDU US EQUITY | Reuters: BIDU.OQ Refer to important disclosures at the end of this report Back in the game BUY • 1Q20 results above market expectations, optimistic Last Traded Price ( 30 Jul 2020):US$118.00 (NASDAQ : 10,588) 2Q20 guidance Price Target 12-mth: US$162 (37.3% upside) (Prev US$158) • Recovery on track, on the back of improving industry Analyst dynamics Kennis Lau +852 36684153 [email protected] Tsz-Wang TAM, CFA +852 36684195 [email protected] • Confident on its expanding ecosystem in the long run Susanna Chui, CFA +852 36684194 [email protected] • Reiterate BUY. Raised FY20/21F non-GAAP EPS by 3% leading to a new TP of US$162

Price Relative US$ Relative Index China’s largest search platform, on the way to recovery. We 211 275.3 191 remain positive on Baidu’s outlook due to a recovery in 171 online advertising, steady daily active user (DAU) growth on 225.3 151 131 its mobile app and monetisation of short video, mini 175.3 111 91 programs and AI initiatives. Driving traffic to its own channels 125.3 71 and having good cost discipline will help improve its margins, 51 75.3 31 and support CAGR of c.6% in non-GAAP net profit over Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 FY20-22F. Baidu Inc (LHS) Relative NASDAQ (RHS) Newsfeed monetisation, with potential from new offerings. Forecasts and Valuation FY Dec (RMB m) 2019A 2020F 2021F 2022F The market is concerned about Baidu’s loss of traffic and Turnover 107,413 128,058 154,424 175,132 stagnant online ad revenue growth under the mobile era EBITDA 15,721 40,040 39,271 62,715 versus PC era. However, Baidu App’s DAUs expanded by Pre-tax Profit (340) 24,046 23,541 46,131 13% CAGR during FY17-19 led by AI capabilities Net Profit 2,057 24,279 22,537 45,076 Net Pft (Pre Ex) (core accumulated on Baidu Search, Baidu Feed and Smart Mini 2,057 24,279 22,537 45,076 profit) Program. We expect Baidu’s core revenue to grow at 12% EPS (RMB) 5.91 69.70 64.70 129.40 CAGR during FY20-22F, and contribute 75% of FY20F EPS (US$) 0.84 9.94 9.23 18.46 revenue, as expansion of Baijiahao, mini programs and Core EPS (US$) 0.84 9.94 9.23 18.46 managed pages should broaden Baidu's user base and Core EPS (RMB) 5.91 69.70 64.70 129.40 EPS Gth (%) (92.5) 1,080.3 (7.2) 100.0 content moat. Core EPS Gth (%) (92.5) 1,080.3 (7.2) 100.0 Diluted EPS (US$) 0.84 9.93 9.22 18.44 Reiterate BUY with a new TP of US$162. We raised FY20/21F DPS (US$) 0.00 0.00 0.00 0.00 revenue by 1%/3% and increased FY20/21F non-GAAP EPS BV Per Share (US$) 67.46 69.72 69.71 69.68 by 1%/3%, leading to a new TP of US$162. Our TP is based PE (X) 140.1 11.9 12.8 6.4 Core PE (X) 140.1 11.9 12.8 6.4 on SOTP methodology: (1) 15x FY21F PE (US$124); and (2) P/Cash Flow (X) 10.1 10.1 10.0 10.0 market values of iQIYI/Ctrip (US$38). Buy. P/Free CF (X) 13.1 13.4 13.7 14.2 EV/EBITDA (X) 12.1 4.7 4.8 3.0 Net Div Yield (%) 0.0 0.0 0.0 0.0 At A Glance P/Book Value (X) 1.7 1.7 1.7 1.7 Issued Capital (m shrs) 346 Net Debt/Equity (X) CASH CASH CASH CASH Mkt Cap (US$m) 40,671 ROAE (%) 1.3 14.5 13.2 26.5 Major Shareholders (%) NIL Earnings Rev (%): 248 44 New Free Float (%) 100.0 Consensus EPS (RMB) 45.10 58.96 71.15 3m Avg. Daily Val. (US$m) 0.0 Other Broker Recs: B:29 S:0 H:12 GICS Industry: Information Technology / Software & Services Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters

Page 15 ed-JS/ sa- CS / AH China Internet Sector

Baidu Inc

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 107,413 128,058 154,424 175,132 Net Fixed Assets 18,331 28,929 32,640 37,803 Cost of Goods Sold (62,850) (67,584) (84,933) (78,102) Invts in Assocs & JVs 0 0 0 0 Gross Profit 44,563 60,474 69,491 97,030 Other LT Assets 117,423 118,776 121,330 123,176 Other Opng (Exp)/Inc (38,256) (40,979) (50,960) (56,042) Cash & ST Invts 147,331 149,060 150,873 152,773 Operating Profit 6,307 19,495 18,531 40,988 Inventory 0 0 0 0 Other Non Opg (Exp)/Inc (8,493) 1,000 1,000 1,000 Debtors 7,416 7,453 7,490 7,528 Associates & JV Inc (1,254) 0 0 0 Other Current Assets 10,815 12,980 14,927 17,166 Net Interest (Exp)/Inc 3,100 3,551 4,010 4,143 Total Assets 301,316 317,199 327,260 338,447 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 2,618 2,644 2,671 2,697 Pre-tax Profit (340) 24,046 23,541 46,131 Creditors 32,701 38,654 44,452 51,120 Tax (1,948) (2,045) (2,148) (2,255) Other Current Liab 22,061 24,267 26,694 29,363 Minority Interest 4,345 2,278 1,144 1,200 LT Debt 38,090 38,357 38,625 38,896 Preference Dividend 0 0 0 0 Other LT Liabilities 33,031 34,935 36,497 38,138 Net Profit 2,057 24,279 22,537 45,076 Shareholder’s Equity 164,708 170,231 170,206 170,114 Net Profit before Except. 2,057 24,279 22,537 45,076 Minority Interests 8,107 8,111 8,115 8,119 EBITDA 15,721 40,040 39,271 62,715 Total Cap. & Liab. 301,316 317,199 327,260 338,447 Sales Gth (%) 5.0 19.2 20.6 13.4 EBITDA Gth (%) (61.6) 154.7 (1.9) 59.7 Non-Cash Wkg. Cap (36,531) (42,487) (48,728) (55,788) Opg Profit Gth (%) (59.4) 209.1 (4.9) 121.2 Net Cash/(Debt) 106,623 108,059 109,577 111,181 Net Profit Gth (%) (92.5) 1,080.3 (7.2) 100.0 Effective Tax Rate (%) N/A 8.5 9.1 4.9 Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit (2,288) 12,854 32,641 45,965 Gross Margins (%) 41.5 47.2 45.0 55.4 Dep. & Amort. 19,161 19,544 19,740 20,727 Opg Profit Margin (%) 5.9 15.2 12.0 23.4 Tax Paid (1,948) (2,045) (2,148) (2,255) Net Profit Margin (%) 1.9 19.0 14.6 25.7 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 1.3 14.5 13.2 26.5 (Pft)/ Loss on disposal of FAs (1,254) (1,317) (1,383) (1,452) ROA (%) 0.7 7.9 7.0 13.5 FAFAsiaries/InvestmentsChg in Wkg.Cap. (-/+) 3,922 4,314 4,745 5,220 ROCE (%) 2.5 7.1 6.6 15.2 Other Operating CF 10,865 (4,750) (24,853) (39,318) Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Net Operating CF 28,458 28,600 28,743 28,887 Net Interest Cover (x) NM NM NM NM Capital Exp.(net) (6,428) (7,071) (7,778) (8,556) Asset Turnover (x) 0.4 0.4 0.5 0.5 Other Invts.(net) (6,956) (6,608) (6,939) (7,286) Debtors Turn (avg days) 22.8 21.2 17.7 15.6 Invts in Assoc. & JV 0 N/A 0 0 Creditors Turn (avg days) 284.4 271.1 232.6 304.0 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) N/A N/A N/A N/A Other Investing CF (6,590) (6,495) (5,467) (4,353) Current Ratio (x) 2.9 2.6 2.3 2.1 Net Investing CF (19,974) (20,174) (20,184) (20,194) Quick Ratio (x) 2.7 2.4 2.1 1.9 Div Paid 0 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt 350 100 100 100 Capex to Debt (%) 15.8 17.2 18.8 20.6 Capital Issues 676 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (3,706) (6,854) (6,904) (6,950) N.Cash/(Debt)PS (RMB) 43.67 44.26 44.88 45.54 Net Financing CF (2,680) (6,754) (6,804) (6,850) Opg CFPS (RMB) 70.44 69.72 68.89 67.94 Currency Adjustments 1 0 0 0 Free CFPS (RMB) 63.24 61.81 60.19 58.37 Chg in Cash 5,805 1,672 1,756 1,844

Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F Revenues (RMB m) Baidu core 79,711 84,088 94,418 105,899 iQIYI 28,994 43,970 60,006 69,233 Intersegment adjustments (1,292) 0 0 0 Total 107,413 128,058 154,424 175,132 Gross Profit (RMB m) Baidu core 15,261 32,247 34,733 61,066 iQIYI (9,258) (12,751) (16,202) (20,078) Intersegment adjustments 304 0 0 0 Total 6,307 19,495 18,531 40,988 Gross Profit Margins (%) Baidu core 19.1 38.3 36.8 57.7 iQIYI (31.9) (29.0) (27.0) (29.0) Intersegment adjustments (23.5) N/A N/A N/A Total 5.9 15.2 12.0 23.4 Key Assumptions Baidu App daily active users 194.8 208.4 228.0 250.0 (m) Baidu core revenue per daily 409.2 481.8 546.2 572.9 active users (m) Baidu core-Other revenue 29,320.0 29,661.1 32,411.8 34,817.8 (Rmb m) Non-GAAP net profit margin 18.1 12.0 11.0 10.0 (%) Source: Company, DBS HK

Page 16 China Internet Sector JD.com Inc (HK)

Bloomberg: 9618 HK Equity | JD US Equity | Reuters: 9618.HK | JD.O Refer to important disclosures at the end of this report

H: BUY Catalysts ahead Last Traded Price (H) ( 31 Jul 2020): HK$240.80 (HSI : 24,711) • Expect optimistic 2Q20 results supported by industry recovery Price Target 12-mth (H): HK$297 (23.3% upside) • Margin upside on collaboration with Kuaishou, China’s second US: BUY largest short video streaming platform • Logistics to benefit from operating leverage Last Traded Price (A) ( 31 Jul 2020): US$62.29 (NASDAQ : 10,588) • Maintain BUY with higher TP of US$77; introduced HK$-based Price Target 12-mth (A): US$77.00 (23.6% upside) (Prev TP of HK$297 US$66.00) Expect optimistic 2Q20 results. We expect JD’s 2Q revenue will Analyst continue to top estimates (vs. company’s guidance of 20-30%), Kennis Lau +852 36684153 [email protected] supported by industry recovery. Pent-up demand for discretionary Tsz-Wang TAM, CFA+852 36684195, [email protected] items such as large electronic items has bounced back, implying Susanna CHUI, CFA+852 36684194, [email protected] strong 2Q20 results for JD. Its robust GMV performance during the Price Relative 618 shopping event (+34% y-o-y), will further increase its revenue HK$ Relative Index US$ Relative Index growth sequentially. Growing market demand for logistic services 220 220 261.3 200 67.3 200 (+37% y-o-y) in 2Q should help improve JD’s margin further as it 180 180 251.3 57.3 160 160 scales up. 241.3 47.3 140 140 120 231.3 37.3 120 Gaining presence in video streaming. Its recent strategic partnership 100 100 221.3 27.3 80 80 211.3 60 with the second largest short video platform after Douyin, Kuaishou, 17.3 60 Jul-20 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 will enable JD to catch up with its peers on livestreaming e- JD.com Inc (HK) (LHS) Relative HSI INDEX (RHS) JD.com Inc (LHS) Relative CCMP INDEX (RHS) commerce. With over 300 million daily active users (DAUs), we believe Kuaishou can help JD penetrate further in lower tier cities and Forecasts and Valuation (H Shares) broaden its non-3C product categories via leveraging on wider FY Dec (RMB m) 2019A 2020F 2021F 2022F Turnover 576,888 721,687 926,646 1,153,674 product verticals of Kuaishou and its supply chain advantage. EBITDA 21,384 21,097 33,070 47,729 Valuation catalyst from potential subsidiaries' listing. JD may consider Pre-tax Profit 13,693 14,256 26,289 40,948 spinning off a few subsidiaries in the next three years as stated in its Net Profit 12,184 13,837 26,057 42,061 Net Pft (Pre Ex) (core HK listing prospectus. This could mean that its biggest subsidiaries, JD 12,184 13,837 26,057 42,061 profit) Digits, JD Logistics and JD Health, may be preparing for an IPO . EPS (RMB) 8.37 9.41 17.54 28.03 Hence, taking these subsidiaries public will unlock their value, EPS (HK$) 9.25 10.40 19.39 30.99 impacting positively to JD’s valuation. Core EPS (HK$) 9.25 10.40 19.39 30.99 Core EPS (RMB) 8.37 9.41 17.54 28.03 Maintain BUY; TP lifted to HK$297. We maintain our BUY rating on EPS Gth (%) N/A 12.4 86.4 59.8 JD and lift our TP to HK$297/US$77 from HK$257/US$66. We raised Core EPS Gth (%) N/A 12.4 86.4 59.8 2020/21F revenue by 1%/4% and increased non-GAAP EPS by Diluted EPS (HK$) 9.08 10.21 19.04 30.43 1/17%, to factor in the better e-commerce recovery and potential DPS (HK$) 0.00 0.00 0.00 0.00 BV Per Share (HK$) 74.26 79.10 100.56 123.96 revenue from livestreaming e-commerce. Our TP of HK$297 is based PE (X) 26.0 23.2 12.4 7.8 on SOTP methodology, with the following assumptions: (1) 20x PE on Core PE (X) 26.0 23.2 12.4 7.8 FY21F e-commerce earnings (HK$219); (2) market values for P/Cash Flow (X) 12.8 11.8 11.9 12.0 substantial investments (HK$59), and (3) net cash at end-FY21F P/Free CF (X) 12.6 11.6 11.8 11.9 (HK$19). EV/EBITDA (X) 12.6 12.2 7.3 4.6 Net Div Yield (%) 0.0 0.0 0.0 0.0 At A Glance P/Book Value (X) 3.2 3.0 2.4 1.9 Issued Capital (m shrs) 2,924 Net Debt/Equity (X) CASH CASH CASH CASH Mkt Cap (HK$m/US$m) 704,099 / 48,319 ROAE (%) 14.0 13.6 21.7 27.7 Major Shareholders (%) Tencent Holdings Ltd 19.8 Earnings Rev (%): 1 17 5 Walmart Inc 10.9 Consensus EPS (RMB) 5.19 7.63 10.33 Free Float (%) 69.3 Other Broker Recs: B:4 S:0 H:0 3m Avg. Daily Val. (US$m) 183.81 Source of all data on this page: Company, DBS Bank (Hong Kong) GICS Industry: Information Technology / Software & Services Limited (“DBS HK”), Thomson Reuters

Page 17 ed- JS / sa- CS / AH China Internet Sector

JD.com Inc (HK)

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 576,888 721,687 926,646 1,153,67 Net Fixed Assets 20,654 24,713 31,732 39,506 Cost of Goods Sold (492,467) (613,434) (777,456) (961,011)4 Invts in Assocs & JVs 35,575 42,567 54,656 68,047 Gross Profit 84,421 108,253 149,190 192,664 Other LT Assets 64,400 77,057 98,941 123,182 Other Opng (Exp)/Inc (75,426) (93,819) (122,317) (151,131) Cash & ST Invts 61,033 76,000 97,584 121,492 Operating Profit 8,995 14,434 26,873 41,532 Inventory 2,940 3,661 4,701 5,852 Other Non Opg (Exp)/Inc 5,375 0 0 0 Debtors 4,078 5,078 6,520 8,118 Associates & JV Inc (1,738) (2,089) (2,555) (2,555) Other Current Assets 71,044 88,466 113,590 141,420 Net Interest (Exp)/Inc 1,061 1,911 1,971 1,971 Total Assets 259,724 317,542 407,724 507,617 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 0 0 0 0 Pre-tax Profit 13,693 14,256 26,289 40,948 Creditors 90,428 111,862 143,631 178,820 Tax (1,803) (713) (526) 819 Other Current Liab 49,589 61,343 78,764 98,062 Minority Interest 294 294 294 294 LT Debt 10,051 10,051 10,051 10,051 Preference Dividend 0 0 0 0 Other LT Liabilities 9,031 26,033 36,281 47,633 Net Profit 12,184 13,837 26,057 42,061 Shareholder’s Equity 97,819 105,236 135,124 168,229 Net Profit before Except. 12,184 13,837 26,057 42,061 Minority Interests 2,804 3,017 3,873 4,822 EBITDA 21,384 21,097 33,070 47,729 Total Cap. & Liab. 259,722 317,542 407,724 507,617 Sales Gth (%) 24.9 25.1 28.4 24.5 EBITDA Gth (%) 410.1 (1.3) 56.8 44.3 Non-Cash Wkg. Cap (61,955) (76,000) (97,584) (121,492) Opg Profit Gth (%) (443.5) 60.5 86.2 54.6 Net Cash/(Debt) 50,982 65,949 87,533 111,441 Net Profit Gth (%) N/A 13.6 88.3 61.4 Effective Tax Rate (%) 13.2 5.0 2.0 N/A Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit 11,890 13,543 25,763 41,767 Gross Margins (%) 14.6 15.0 16.1 16.7 Dep. & Amort. 1,210 900 591 (5,732) Opg Profit Margin (%) 1.6 2.0 2.9 3.6 Tax Paid (1,802) (1,918) (209) 2,029 Net Profit Margin (%) 2.1 1.9 2.8 3.6 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 14.0 13.6 21.7 27.7 (Pft)/ Loss on disposal of FAs 0 0 0 0 ROA (%) 5.2 4.8 7.2 9.2 FAFAsiaries/InvestmentsChg in Wkg.Cap. (-/+) 21,869 23,269 2,538 (24,613) ROCE (%) 7.5 10.4 16.0 20.0 Other Operating CF (8,385) (8,535) (1,424) 13,808 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Net Operating CF 24,781 27,259 27,259 27,259 Net Interest Cover (x) NM NM NM NM Capital Exp.(net) 429 317 247 222 Asset Turnover (x) 2.5 2.5 2.6 2.5 Other Invts.(net) (5,492) (4,054) (3,161) (2,847) Debtors Turn (avg days) 2.5 2.3 2.3 2.3 Invts in Assoc. & JV (5,957) (4,398) (3,429) (3,089) Creditors Turn (avg days) 64.2 61.1 60.7 61.8 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 2.3 2.0 2.0 2.0 Other Investing CF (13,623) (10,057) (7,841) (7,063) Current Ratio (x) 1.0 1.0 1.0 1.0 Net Investing CF (24,644) (18,193) (14,185) (12,777) Quick Ratio (x) 0.5 0.5 0.5 0.5 Div Paid 0 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt (4,368) 0 0 0 Capex to Debt (%) (4.3) (3.1) (2.5) (2.2) Capital Issues 9,901 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (2,961) 0 0 0 N.Cash/(Debt)PS (RMB) 38.71 49.57 65.15 82.12 Net Financing CF 2,572 0 0 0 Opg CFPS (RMB) 2.00 2.71 16.64 34.57 Currency Adjustments 0 0 0 0 Free CFPS (RMB) 17.31 18.75 18.51 18.31 Chg in Cash 2,709 9,066 13,075 14,482

Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F Revenues (RMB m) 1P retail 510,734 627,868 769,116 946,013 3P and advertising 66,154 93,819 157,530 207,661 Total 576,888 721,687 926,646 1,153,67 Gross Profit 4 1P retail 38,305 42,067 43,840 44,463 3P and advertising 46,116 66,186 105,350 148,201 Total 84,421 108,253 149,190 192,664 Gross Profit Margins (%) 1P retail 7.5 6.7 5.7 4.7 3P and advertising 69.7 70.5 66.9 71.4 Total 14.6 15.0 16.1 16.7 Key Assumptions Number of annual active 362.0 418.3 453.9 487.9 users (m) Average annual spending 1,594.0 1,726.0 2,042.0 2,365.0 per customer Gross merchandise value 2,086.0 2,609.0 3,324.0 4,002.0 (Rmb b) Third-party marketplace (3P) 7.1 7.9 9.7 9.7 monetisation (%) Non-GAAP net margin (%) 1.9 2.2 2.9 3.8 Source: Company, DBS HK

Page 18 China Internet Sector Meituan Dianping

Bloomberg: 3690 HK Equity | Reuters: 3690.HK Refer to important disclosures at the end of this report

BUY Upwardly mobile Last Traded Price ( 31 Jul 2020):HK$195.00 (HSI : 24,711) • Positive on 2Q20 results led by revenge consumption post Price Target 12-mth: HK$227 (16.4% upside) (Prev HK$156) COVID-19 • Structural change in food delivery market brings higher Analyst Kennis Lau +852 36684153 [email protected] monetisation potential Tsz-Wang TAM, CFA +852 36684195 [email protected] • Therefore, we raised our FY20/21F revenue and non-GAAP EPS Susanna Chui, CFA +852 36684194 [email protected] by 2%/6% and 2%/8% respectively. • Reiterate BUY, lift TP to HK$227 from HK$156

Price Relative 2Q results could surprise on the upside. Though food delivery HK$ Relative Index demand has yet to return to normal levels, order frequency and 241 225.2 205.2 221 order value have been trending up, implying potential upside to 185.2 201 2Q20 revenue. Meituan Dianping (MTDP) is benefitting from 165.2 181 145.2 161 revenge consumption spending from loosening of social distancing 125.2 141 measures. The return of domestic advertisers after 1Q points to more 105.2 121 online advertising revenue generated given MTDP’s platform enjoys 85.2 101 65.2 81 high traffic. We expect these trends will continue in 2H20 due to the Nov-19 Feb-20 May-20 e-commerce peak season. Hotel business is gradually recovering. Meituan Dianping (LHS) Relative HSI (RHS) Monetisation trending up. We believe food delivery’s ASP will Forecasts and Valuation FY Dec (RMB m) 2019A 2020F 2021F 2022F continue to trend up as MTDP had started to tap into the low- Turnover 97,528 121,910 188,961 253,207 penetrated premium/branded restaurant segment during COVID. EBITDA 6,970 5,584 26,390 42,357 These restaurants tend to self-deliver their orders (3P delivery), saving Pre-tax Profit 2,762 2,058 21,811 37,090 MTDP from spending on riders. Also, this segment generally has a Net Profit 2,236 2,438 18,896 29,878 higher advertising budget, laying a good platform to capture Net Pft (Pre Ex) (core 2,236 2,438 18,896 29,878 advertisers for future growth. profit) EPS (RMB) 0.39 0.42 3.21 5.03 Reiterate BUY with higher TP of HK$227. We reiterate our BUY EPS (HK$) 0.43 0.46 3.55 5.56 rating and lift our TP to HK$227 from HK$156. We raised our EPS Gth (%) N/A 7.9 667.3 56.6 FY20/21F revenue by 2%/6%, leading to an increase of 2%/8% in Diluted EPS (HK$) 0.42 0.45 3.46 5.41 FY20/21F non-GAAP EPS. Our new TP of HK$227 is based on a SOTP DPS (HK$) 0.00 0.00 0.00 0.00 methodology: (i) 6x FY21F Price/Sales for food delivery segment(4x BV Per Share (HK$) 17.66 18.52 19.54 21.21 PE (X) 454.8 421.4 54.9 35.1 previously), 20% higher than its peers, to reflect its high growth P/Cash Flow (X) 182.5 175.5 168.8 162.4 business (HK$147/share), and (ii) 24x FY21F PE for instore, hotel & P/Free CF (X) 1,458.2 285.3 266.4 249.4 travel business (20x previously), in line with industry peers EV/EBITDA (X) 137.5 171.3 35.6 21.4 (HK$80/share). Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 11.0 10.5 10.0 9.2 At A Glance Net Debt/Equity (X) CASH CASH CASH CASH Issued Capital (m shrs) 5,808 ROAE (%) 2.5 2.6 18.7 27.4 Mkt Cap (HK$m/US$m) 1,132,560 / 147,882 Major Shareholders (%) Earnings Rev (%): 2 6 5 Tencent Holdings Ltd 20.5 Consensus EPS (RMB) 0.48 2.61 4.16 Sequoia Capital Partners 7.7 Other Broker Recs: B:41 S:0 H:8 Baillie Gifford & Co. 5.0 Source of all data on this page: Company, DBS Bank (Hong Kong) Free Float (%) 66.7 Limited (“DBS HK”), Thomson Reuters 3m Avg. Daily Val. (US$m) 660.75 GICS Industry: Consumer Discretionary / Retailing

Page 19 ed-JS / sa- CS / AH China Internet Sector

Meituan Dianping

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 97,528 121,910 188,961 253,207 Net Fixed Assets 5,376 6,570 9,165 10,917 Cost of Goods Sold (65,208) (82,777) (117,156) (151,924) Invts in Assocs & JVs 2,284 2,791 3,893 4,637 Gross Profit 32,320 39,133 71,805 101,283 Other LT Assets 42,218 51,594 71,974 85,729 Other Opng (Exp)/Inc (29,641) (37,548) (52,153) (65,074) Cash & ST Invts 62,832 74,607 101,186 145,274 Operating Profit 2,679 1,585 19,652 36,209 Inventory 8,760 10,402 14,108 20,254 Other Non Opg (Exp)/Inc 107 500 2,000 500 Debtors 677 804 1,090 1,565 Associates & JV Inc 0 0 0 0 Other Current Assets 9,866 11,715 15,889 22,812 Net Interest (Exp)/Inc (24) (27) 159 382 Total Assets 132,013 158,483 217,305 291,188 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 3,553 3,553 3,553 3,553 Pre-tax Profit 2,762 2,058 21,811 37,090 Creditors 0 0 0 0 Tax (523) (1,029) (2,181) (3,709) Other Current Liab 33,040 39,116 39,908 47,089 Minority Interest (3) 1,409 (734) (3,503) LT Debt 467 467 467 467 Preference Dividend 0 0 0 0 Other LT Liabilities 2,899 17,820 69,449 126,137 Net Profit 2,236 2,438 18,896 29,878 Shareholder’s Equity 92,112 97,590 103,994 114,015 Net Profit before Except. 2,236 2,438 18,896 29,878 Minority Interests (58) (62) (66) (72) EBITDA 6,970 5,584 26,390 42,357 Total Cap. & Liab. 132,013 158,483 217,305 291,188 Sales Gth (%) 49.5 25.0 55.0 34.0 EBITDA Gth (%) N/A (19.9) 372.6 60.5 Non-Cash Wkg. Cap (13,737) (16,195) (8,822) (2,458) Opg Profit Gth (%) (124.2) (40.8) 1,140.0 84.3 Net Cash/(Debt) 58,813 70,588 97,167 141,255 Net Profit Gth (%) N/A 9.0 675.0 58.1 Effective Tax Rate (%) 18.9 50.0 10.0 10.0 Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit 2,239 1,029 19,630 33,381 Gross Margins (%) 33.1 32.1 38.0 40.0 Dep. & Amort. 2,926 3,026 3,256 3,361 Opg Profit Margin (%) 2.7 1.3 10.4 14.3 Tax Paid (526) (761) 2,128 4,249 Net Profit Margin (%) 2.3 2.0 10.0 11.8 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 2.5 2.6 18.7 27.4 (Pft)/ Loss on disposal of FAs (107) (107) (107) (107) ROA (%) 1.8 1.7 10.1 11.8 FAFAsiaries/InvestmentsChg in Wkg.Cap. (-/+) 939 1,359 (3,799) (7,587) ROCE (%) 2.3 0.7 11.9 15.5 Other Operating CF 103 1,307 (14,962) (26,845) Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Net Operating CF 5,574 5,853 6,145 6,453 Net Interest Cover (x) 111.6 59.1 NM NM Capital Exp.(net) (4,876) (2,251) (2,251) (2,251) Asset Turnover (x) 0.8 0.8 1.0 1.0 Other Invts.(net) (6,906) (2,269) (325) 2,001 Debtors Turn (avg days) 2.1 2.2 1.8 1.9 Invts in Assoc. & JV (1,366) (449) (64) 396 Creditors Turn (avg days) N/A N/A N/A N/A Div from Assoc & JV 13 1,627 2,162 2,802 Inventory Turn (avg days) 38.9 44.1 39.8 42.9 Other Investing CF 2,961 0 0 0 Current Ratio (x) 2.2 2.3 3.0 3.8 Net Investing CF (10,174) (3,342) (479) 2,947 Quick Ratio (x) 1.7 1.8 2.4 2.9 Div Paid 0 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt 1,532 0 0 0 Capex to Debt (%) 121.3 56.0 56.0 56.0 Capital Issues 0 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (407) 0 0 0 N.Cash/(Debt)PS (RMB) 11.27 13.40 18.26 26.28 Net Financing CF 1,125 0 0 0 Opg CFPS (RMB) 0.80 0.77 1.69 2.36 Currency Adjustments (173) 0 0 0 Free CFPS (RMB) 0.12 0.62 0.66 0.71 Chg in Cash (3,648) 2,511 5,667 9,400

Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F Revenues (RMB m) Food delivery 54,843 75,584 113,376 146,860 In-store, hotel and travel 22,275 28,039 48,185 72,164 New initiatives 20,410 18,287 27,399 34,183 Total 97,528 121,910 188,961 253,207 Gross margin (RMB m) Food delivery 10,233 11,593 20,092 25,891 In-store, hotel and travel 19,746 23,016 41,786 63,866 New initiatives 2,341 4,524 9,927 11,526 Total 32,320 39,133 71,805 101,283 Gross margin (%) Food delivery 18.7 15.3 17.7 17.6 In-store, hotel and travel 88.6 82.1 86.7 88.5 New initiatives 11.5 24.7 36.2 33.7 Total 33.1 32.1 38.0 40.0 Key Assumptions Gross transaction volume 682,100. 840,100.0 1,100,00 1,371,91 (Rmb Number b) of transacting users (m) 450.50 496.1 565.40.0 650.38.0 Average food transaction 45.0 46.6 50.4 49.5 value per users (Rmb) No. of food delivery 8,722.1 10,989.7 13,737.5 17,171.9 transactions Overall monetisation rate (%) 14.3 14.5 17.2 16.2 Source: Company, DBS HK

Page 20 China Internet Sector / Industry Focus Pinduoduo Inc

Bloomberg: PDD US Equity | Reuters: PDD.O Refer to important disclosures at the end of this report

BUY Grow like Topsy Last Traded Price ( 30 Jul 2020):US$84.94 (NASDAQ : 10,588) • Revenue upside from strong user growth momentum Price Target 12-mth: US$95.00 (11.8% upside) (Prev US$82.00) • Potential margin improvement from further penetration Analyst into branded products Kennis Lau +852 36684153 [email protected] Tsz-Wang TAM, CFA +852 36684195 [email protected] • Reiterate BUY on a higher TP of US$95 Susanna Chui, CFA +852 36684194 [email protected] Robust user growth momentum. Pinduoduo is the fastest growing e-commerce platform in terms of monthly active Price Relative

US$ Relative Index user growth in June according to Questmobile. We believe

95.4 PDD’s generous subsidies and the e-commerce peak season 381 85.4 331 in the second half will keep the momentum steady. Robust 75.4 65.4 281 traffic growth implies higher advertising demand and greater 55.4 231 45.4 181 potential of user purchases, leading to revenue upside in 35.4 131 25.4 2H20 and FY21. We raised FY20/21F revenue by 4%/5% 15.4 81 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 from our previous estimates. Pinduoduo Inc (LHS) Relative NASDAQ (RHS) Increasing proportion of branded products. Industry checks Forecasts and Valuation and discussions suggest strong potential of branded FY Dec (RMB m) 2019A 2020F 2021F 2022F merchants, especially in the category of FMCG and groceries, 105,02 Turnover 30,142 55,645 96,801 3 joining PDD’s platform due to its high traffic and social e- EBITDA (8,364) (5,560) 21,169 26,489 commerce nature. We lifted our monetisation rate Pre-tax Profit (6,968) (3,270) 23,724 30,571 assumption to 3.5%/3.7% from 3.4/3.6% in FY20/21F due Net Profit (6,968) (3,270) 21,352 27,514 to potential upside on its ad revenue and traffic driven by Net Pft (Pre Ex) (core (4,410) 1,452 29,566 36,426 branded merchants. profit) EPS (RMB) (6.02) (2.83) 18.46 23.78 Reiterate BUY, higher TP of US$95. We reiterate our BUY call EPS (US$) (0.86) (0.40) 2.63 3.39 on Pinduoduo. We raised our FY20F/21F revenue by 4%/5% Core EPS (US$) (0.54) 0.18 3.65 4.49 and expanded FY20F/21F monetisation rate to 3.5%/3.7% Core EPS (RMB) (3.81) 1.26 25.56 31.49 from 3.4/3.6%. This led us to lift FY20F/21F non-GAAP net EPS Gth (%) 56.6 53.1 N/A 28.9 profit by 10%/32%, factoring in stronger monetisation Core EPS Gth (%) 18.1 N/A 1,936.0 23.2 potential. Our new TP of US$95 is pegged to an unchanged Diluted EPS (US$) N/A N/A N/A N/A 30x FY21F PE, which is 1 standard deviation above the DPS (US$) 0.00 0.00 0.00 0.00 BV Per Share (US$) 3.04 2.64 5.27 8.66 historical average of Alibaba. PE (X) nm nm 32.3 25.0 At A Glance Core PE (X) nm 474.2 23.3 18.9 Issued Capital (m shrs) 1,198 P/Cash Flow (X) nm 33.9 13.3 20.4 Mkt Cap (US$m) 101,726 P/Free CF (X) nm 35.5 14.7 24.1 Major Shareholders (%) EV/EBITDA (X) nm nm 26.4 20.0 Free Float (%) 100.0 Net Div Yield (%) 0.0 0.0 0.0 0.0 3m Avg. Daily Val. (US$m) 89.02 P/Book Value (X) 27.9 32.2 16.1 9.8 GICS Industry: Consumer Discretionary / Retailing Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) (32.1) (14.2) 66.6 48.7

Earnings Rev (%): nm 45 New Consensus EPS (RMB) (4.92) 2.95 9.67 Other Broker Recs: B:25 S:4 H:12 Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters

Page 21 ed-JS/ sa- CS / AH China Internet Sector

Pinduoduo Inc

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 30,142 55,645 96,801 105,023 Net Fixed Assets 41 963 5,803 11,054 Cost of Goods Sold (6,315) (11,486) (17,689) (18,948) Invts in Assocs & JVs 0 0 0 0 Gross Profit 23,827 44,159 79,112 86,075 Other LT Assets 3,015 2,430 1,845 1,259 Other Opng (Exp)/Inc (32,365) (49,772) (58,035) (59,686) Cash & ST Invts 68,635 88,645 136,077 165,286 Operating Profit (8,538) (5,613) 21,077 26,389 Inventory 0 0 0 0 Other Non Opg (Exp)/Inc 146 0 0 0 Debtors 1,051 1,940 3,375 3,662 Associates & JV Inc 29 53 92 100 Other Current Assets 3,316 3,316 3,316 3,316 Net Interest (Exp)/Inc 1,396 2,291 2,555 4,082 Total Assets 76,057 97,294 150,415 184,578 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 0 0 0 0 Pre-tax Profit (6,968) (3,270) 23,724 30,571 Creditors 29,926 54,433 83,830 89,794 Tax 0 0 (2,372) (3,057) Other Current Liab 15,841 15,841 18,214 18,898 Minority Interest 0 0 0 0 LT Debt 5,207 5,207 5,207 5,207 Preference Dividend 0 0 0 0 Other LT Liabilities 436 436 436 436 Net Profit (6,968) (3,270) 21,352 27,514 Shareholder’s Equity 24,647 21,377 42,729 70,243 Net Profit before Except. (4,410) 1,452 29,566 36,426 Minority Interests 0 0 0 0 EBITDA (8,364) (5,560) 21,169 26,489 Total Cap. & Liab. 76,057 97,294 150,415 184,578 Sales Gth (%) 129.7 84.6 74.0 8.5 EBITDA Gth (%) 22.6 33.5 N/A 25.1 Non-Cash Wkg. Cap (41,401) (65,018) (95,353) (101,715) Opg Profit Gth (%) (20.9) (34.3) (475.5) 25.2 Net Cash/(Debt) 63,428 83,439 130,870 160,080 Net Profit Gth (%) 32.3 53.1 N/A 28.9 Effective Tax Rate (%) N/A N/A 10.0 10.0 Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit (6,968) (3,270) 23,724 30,571 Gross Margins (%) 79.0 79.4 81.7 82.0 Dep. & Amort. 0 0 0 0 Opg Profit Margin (%) (28.3) (10.1) 21.8 25.1 Tax Paid 0 0 (2,372) (3,057) Net Profit Margin (%) (23.1) (5.9) 22.1 26.2 Assoc. & JV Inc/(loss) (29) (53) (92) (100) ROAE (%) (32.1) (14.2) 66.6 48.7 (Pft)/ Loss on disposal of FAs 0 0 0 0 ROA (%) (11.7) (3.8) 17.2 16.4 FAFAsiaries/InvestmentsChg in Wkg.Cap. (-/+) (7,960) 23,617 30,335 6,362 ROCE (%) (34.8) (19.6) 50.3 38.2 Other Operating CF 0 0 0 0 Div Payout Ratio (%) N/A N/A 0.0 0.0 Net Operating CF (14,956) 20,294 51,594 33,776 Net Interest Cover (x) NM NM NM NM Capital Exp.(net) (12) (922) (4,840) (5,251) Asset Turnover (x) 0.5 0.6 0.8 0.6 Other Invts.(net) 585 585 585 585 Debtors Turn (avg days) 7.9 9.8 10.0 12.2 Invts in Assoc. & JV 29 53 92 100 Creditors Turn (avg days) 1,364.1 1,340.4 1,426.4 1,672.3 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) N/A N/A N/A N/A Other Investing CF (838) 0 0 0 Current Ratio (x) 1.6 1.3 1.4 1.6 Net Investing CF (236) (284) (4,163) (4,566) Quick Ratio (x) 1.5 1.3 1.4 1.6 Div Paid 0 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt 5,207 0 0 0 Capex to Debt (%) 0.2 17.7 93.0 100.9 Capital Issues 12,792 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF 0 0 0 0 N.Cash/(Debt)PS (RMB) 7.82 10.29 16.14 19.74 Net Financing CF 17,999 0 0 0 Opg CFPS (RMB) (6.05) (2.87) 18.38 23.70 Currency Adjustments 0 0 0 0 Free CFPS (RMB) (12.94) 16.75 40.42 24.66 Chg in Cash 2,806 20,011 47,431 29,210

Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F Revenues (RMB m) Online marketplace services 26,814 50,662 88,845 96,271 Commission fees 3,328 4,983 7,956 8,752 Transaction services 0 0 0 0 Total 30,142 55,645 96,801 105,023 Gross profit (RMB m) Online marketplace services 26,009 49,142 87,068 94,827 Commission fees (2,615) (4,983) (7,956) (8,752) Transaction services 0 0 0 0 Total 23,394 44,159 79,112 86,075 Gross profit Margins (%) Online marketplace services 97.0 97.0 98.0 98.5 Commission fees (78.6) (100.0) (100.0) (100.0) Transaction services N/A N/A N/A N/A Total 77.6 79.4 81.7 82.0 Key Assumptions Annual active buyers (m) 585.0 659.7 805.2 885.7 Average annual spending per 1,720.7 2,517.8 3,293.7 3,293.7 buyer (Rmb) GMV (Rmb bn) 1,006.6 1,661.0 2,652.1 2,917.3 Monetisation rate (%) 3.0 3.4 3.7 3.6 Non-GAAP net profit margin (%) (26.3) (14.6) 2.6 30.5 Source: Company, DBS HK

Page 22 China Internet Sector Tencent

Bloomberg: 700 HK Equity | Reuters: 0700.HK Refer to important disclosures at the end of this report Let the games begin BUY • Incremental revenue momentum contribution from Last Traded Price ( 31 Jul 2020):HK$535.00 (HSI : 24,711) strong game pipeline and online advertising recovery Price Target 12-mth: HK$615 (14.9% upside) (Prev HK$520) in 2H20

Analyst • Margin improvement from self-developed games Kennis Lau +852 36684153 [email protected] Raised our FY20F/21F revenue by 1%/2%, which led Tsz-Wang TAM, CFA +852 36684195 [email protected] to 1%/4% increase in FY20/21F non-GAAP EPS Raised Susanna Chui, CFA +852 36684194 [email protected] our FY20/21F non-GAAP EPS estimates by 1%/4% respectively Price Relative

HK$ Relative Index • Reiterate BUY with a higher TP of HK$615

611.7 267 561.7 Steady revenue momentum. We remain bullish on Tencent 247 511.7 227 given near term catalyst from potential launches of several 461.7 207 411.7 blockbuster IP mobile games, such as DnF mobile, Moonlight 187 361.7 167 Blade and LoL mobile. We raised online game revenue for 311.7 147 261.7 127 FY20/21F by 4%/8%, expecting steady monetisation of 211.7 107 161.7 87 Tencent’s top mobile game titles, such as Honour of Kings, Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Peacekeeper Elite/PUBG. We also lifted online advertising Tencent (LHS) Relative HSI (RHS) revenue for FY20/21F by 2%/3% as our channel checks Forecasts and Valuation suggested the ad pricing has returned to pre-COVID level, FY Dec (RMB m) 2019A 2020F 2021F 2022F and potential ad load increase on WeChat moment and Mini Turnover 377,289 475,384 591,853 722,061 Program. EBITDA 155,276 177,958 215,187 255,275 Pre-tax Profit 110,441 135,663 168,396 202,258 Margin upside We believe the increasing contribution from Net Profit 94,351 120,371 152,331 186,321 its self-developed new titles such as Lol mobile should drive Net Pft (Pre Ex) (core 93,310 118,371 150,331 184,321 the margins as Tencent should save the cost from developing profit) EPS (RMB) 9.97 12.63 15.96 19.45 game content, which is generally 15-30% of revenue. EPS (HK$) 11.02 13.96 17.65 21.51 Reiterate BUY with a higher TP of HK$615. We raised our Core EPS (HK$) 10.90 13.73 17.42 21.28 Core EPS (RMB) 9.86 12.42 15.75 19.25 FY20F/21F revenue by 1%/2%, which led to 1%/4% EPS Gth (%) 21.5 26.7 26.4 21.9 increase in FY20/21F non-GAAP EPS, factoring in stronger Core EPS Gth (%) 18.2 26.0 26.9 22.2 contribution from online games and advertising. We reiterate Diluted EPS (HK$) 10.74 13.59 17.20 21.02 our BUY rating on Tencent and lift our TP to HK$615 from DPS (HK$) 0.97 1.10 1.39 1.70 HK$520 based on sum-of-the-parts (SOTP) valuation: (1) BV Per Share (HK$) 50.54 69.36 95.75 131.87 PE (X) 48.6 38.3 30.3 24.9 unchanged 35x PE on FY21F non-GAAP net profit (HK$559), Core PE (X) 49.1 39.0 30.7 25.1 and (2) fair value of listed investee companies (HK$56). P/Cash Flow (X) 30.8 29.6 26.9 24.5 P/Free CF (X) 43.8 44.1 39.9 36.2 EV/EBITDA (X) 29.9 26.2 21.7 18.3 At A Glance Net Div Yield (%) 0.2 0.2 0.3 0.3 Issued Capital (m shrs) 9,553 P/Book Value (X) 10.6 7.7 5.6 4.1 Mkt Cap (HK$m/US$m) 5,110,855 / 661,464 Net Debt/Equity (X) 0.0 CASH CASH CASH ROAE (%) 25.0 23.4 21.4 18.9 Major Shareholders (%) Naspers Ltd 31.0 Earnings Rev (%): 1 4 5 Ma (Huateng) 8.4 Consensus EPS (RMB) 12.41 15.36 18.60 Free Float (%) 60.6 Other Broker Recs: B:52 S:0 H:4 3m Avg. Daily Val. (US$m) 1362.17 GICS Industry: Information Technology / Software & Services Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters

Page 23 ed-JS/ sa- CS / AH China Internet Sector

Tencent

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 377,289 475,384 591,853 722,061 Net Fixed Assets 77,215 92,658 111,190 133,428 Cost of Goods Sold (209,756) (266,134) (334,898) (408,575) Invts in Assocs & JVs 221,894 266,273 319,527 383,433 Gross Profit 167,533 209,250 256,956 313,486 Other LT Assets 400,909 481,091 577,309 692,771 Other Opng (Exp)/Inc (55,153) (75,694) (94,238) (114,971) Cash & ST Invts 212,750 248,918 291,233 340,743 Operating Profit 112,380 133,557 162,717 198,515 Inventory 718 840 983 1,130 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 35,839 41,932 49,060 56,419 Associates & JV Inc (1,681) (607) 2,115 (995) Other Current Assets 4,661 5,453 6,380 1,513 Net Interest (Exp)/Inc (1,299) 714 1,564 2,738 Total Assets 953,986 1,137,16 1,355,68 1,609,43 Dividend Income 0 0 0 0 4 3 6 Exceptional Gain/(Loss) 1,041 2,000 2,000 2,000 ST Debt 22,695 21,296 16,443 5,548 Pre-tax Profit 110,441 135,663 168,396 202,258 Creditors 136,398 127,991 98,823 33,342 Tax (13,512) (14,293) (15,065) (14,937) Other Current Liab 81,063 76,066 58,731 19,816 Minority Interest (2,578) (1,000) (1,000) (1,000) LT Debt 191,161 200,719 210,755 221,293 Preference Dividend 0 0 0 0 Other LT Liabilities 33,845 35,537 37,314 39,180 Net Profit 94,351 120,371 152,331 186,321 Shareholder’s Equity 432,706 598,000 826,436 1,142,13 Net Profit before Except. 93,310 118,371 150,331 184,321 Minority Interests 56,118 77,555 107,181 148,1244 EBITDA 155,276 177,958 215,187 255,275 Total Cap. & Liab. 953,986 1,137,16 1,355,68 1,609,43 Sales Gth (%) 20.7 26.0 24.5 22.0 4 3 6 EBITDA Gth (%) 20.5 14.6 20.9 18.6 Non-Cash Wkg. Cap (176,243) (155,832) (101,131) 5,904 Opg Profit Gth (%) 20.7 18.8 21.8 22.0 Net Cash/(Debt) (1,106) 26,902 64,036 113,903 Net Profit Gth (%) 21.8 27.6 26.6 22.3 Effective Tax Rate (%) 12.2 10.5 8.9 7.4 Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit 95,888 119,371 151,331 185,321 Gross Margins (%) 44.4 44.0 43.4 43.4 Dep. & Amort. 57,912 57,375 43,647 10,246 Opg Profit Margin (%) 29.8 28.1 27.5 27.5 Tax Paid (17,008) (17,741) (14,734) (3,772) Net Profit Margin (%) 25.0 25.3 25.7 25.8 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 25.0 23.4 21.4 18.9 (Pft)/ Loss on disposal of FAs 2,532 1,761 975 166 ROA (%) 11.2 11.5 12.2 12.6 FAFAsiaries/InvestmentsChg in Wkg.Cap. (-/+) 8,336 8,336 8,336 8,336 ROCE (%) 15.4 14.3 13.9 13.3 Other Operating CF 930 (13,082) (17,933) (11,513) Div Payout Ratio (%) 8.8 7.9 7.9 7.9 Net Operating CF 148,590 156,020 171,621 188,784 Net Interest Cover (x) 86.5 NM NM NM Capital Exp.(net) (43,921) (51,451) (55,896) (60,685) Asset Turnover (x) 0.4 0.5 0.5 0.5 Other Invts.(net) (29,313) (34,338) (37,305) (40,501) Debtors Turn (avg days) 31.1 29.9 28.1 26.7 Invts in Assoc. & JV 1,417 1,660 1,803 1,958 Creditors Turn (avg days) 284.1 218.2 145.5 68.8 Div from Assoc & JV 1,318 1,544 1,678 1,822 Inventory Turn (avg days) 1.2 1.3 1.2 1.1 Other Investing CF (45,671) (53,500) (58,123) (63,102) Current Ratio (x) 1.1 1.3 2.0 6.8 Net Investing CF (116,170) (136,085) (147,844) (160,509) Quick Ratio (x) 1.0 1.3 2.0 6.8 Div Paid (401) (401) (401) (401) Net Debt/Equity (X) 0.0 CASH CASH CASH Chg in Gross Debt 540 0 0 0 Capex to Debt (%) 20.5 23.2 24.6 26.8 Capital Issues 28 28 28 28 Z-Score (X) N/A N/A N/A N/A Other Financing CF 1,505 2,046 2,046 2,046 N.Cash/(Debt)PS (RMB) (0.13) 3.12 7.42 13.15 Net Financing CF 1,672 1,674 1,674 1,674 Opg CFPS (RMB) 14.81 15.49 17.11 18.84 Currency Adjustments 1,085 1,000 1,000 1,000 Free CFPS (RMB) 11.05 10.97 12.13 13.38 Chg in Cash 35,177 22,608 26,452 30,949

Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F Revenues (RMB m) Value-added service 199,991 246,642 298,574 355,187 Online advertising 68,377 84,654 104,242 127,170 FinTech, business services & 108,921 144,088 189,037 239,704 others Total 377,289 475,384 591,853 722,061 Gross Profit (RMB m) Value-added service 105,905 132,949 161,296 194,447 Online advertising 33,517 43,056 53,761 66,611 FinTech, business services & 28,111 33,245 41,899 52,428 othersTotal 167,533 209,250 256,956 313,486 Gross Profit Margins (%) Value-added service 53.0 53.9 54.0 54.7 Online advertising 49.0 50.9 51.6 52.4 FinTech, business services & 25.8 23.1 22.2 21.9 othersTotal 44.4 44.0 43.4 43.4 Key Assumptions WeChat and Weixin MAU 1,164.8 1,236.1 1,311.8 1,392.1 (m) Mobile game paying gamer 149.2 157.5 163.2 166.3 Mobile game ARPU mid- 200.0 216.2 233.7 252.7 point China online advertising 627.3 783.7 959.8 1,154.3 marke Onlinet (bn) advertising market 10.9 10.8 10.8 11.1 share % Source: Company, DBS HK

Page 24 Industry Focus

China Internet Sector

DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 31 Jul 2020 12:29:38 (HKT) Dissemination Date: 31 Jul 2020 19:57:19 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

Page 25 Industry Focus

China Internet Sector

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Alibaba (HK) (9988 HK), JD.com Inc (9618 HK), Meituan Dianping (3690 HK), NetEase Inc (9999 HK) and Tencent Holdings Ltd (700 HK) recommended in this report as of 28 Jul 2020.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services: DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Alibaba (HK) (9988 HK) as of 30 Jun 2020.

4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Alibaba (HK) (9988 HK) in the past 12 months, as of 30 Jun 2020.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

5. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 26 Industry Focus

China Internet Sector

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate International Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank (Hong Kong) Limited 13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: (852) 3668-4181, Fax: (852) 2521-1812

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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