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The Ant Group IPO Is Coming! The Ant Group IPO Is Coming! How the Ant Group IPO is bringing the Chinese internet sector into the spotlight, the expansion of Southbound Connect, and a potential contrarian investment opportunity from US-China headlines. Q2 2020 China Internet Quarterly Earnings Report [email protected] +31 (6) 492 496 89 [email protected] +31 (6) 492 496 89 Table of Contents China Internet Recent Highlights 3 KWEB Performance 4 KWEB Top 10 Holdings Financials Summary 5 KWEB Key Metrics 6-7 Subsector Analysis 8-13 Theme Highlight 13-23 Top 10 KWEB Holdings: Quarterly Earnings Update 25-36 Tencent 25-26 Alibaba 26-27 Meituan Dianping 27-28 Pinduoduo 28-29 JD.com 30-31 Bilibili 31-32 Ali Health 32-33 TAL Education Group 33-34 Baidu 34-35 Netease 35-36 Citations 37 Definitions 38 kraneshares.eu 2 [email protected] +31 (6) 492 496 89 China Internet Recent Highlights: • E-Commerce accounted for 30% of all retail sales in China in the first half of 2020. The mix of products being sold online changed as virus-wary customers bought more daily necessities online rather than travelling to a local brick and mortar store. Online sales of food increased by 30% year-on-year during the period.1 • Prior to the pandemic, China already had one of the highest usage rates of online and mobile payments in the world, handling over $5 trillion worth of transactions in 2018, compared to under $1 trillion in the US.16 In response to the pandemic, the Payment & Clearing Association of China began an initiative to encourage the use of mobile, online, and barcode payments instead of cash to lower the risk of infection when transacting in the brick and mortar economy.2 The initiative neatly preceded the announcement that Ant Group, China’s largest online and mobile payments processor, would list publicly in Hong Kong and Shanghai. • We have identified three key areas of focus for the internet sector: Ant Group’s pursuit of what may prove to be the largest initial public offering (IPO) in world history in Hong Kong and Shanghai, the potential for Alibaba’s Hong Kong listing and other recent Hong Kong IPOs to be included in Southbound Connect, thereby opening their shares up to Mainland Chinese investors for the first time, and a potential contrarian investment opportunity stemming from US-China headlines. These areas of focus are the subject of this edition’s theme highlight. kraneshares.eu 3 [email protected] +31 (6) 492 496 89 KraneShares CSI China Internet UCITS ETF (Ticker: KWEB) Performance Cumulative % Data as of: 31/08/2020 Fund NAV Index 1 Month 6.46% 4.68% 3 Month 35.83% 33.77% 6 Month 47.20% 44.79% Since Inception 77.40% 77.13% Avg Annualized % Data as of: 31/08/2020 Fund NAV Index 1 Year 68.12% 66.20% Since Inception 38.05% 37.86% KWEB’s gross expense ratio is 0.75%. Inception Date: 20/11/2018. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. This information is being communicated by KraneShares, which is an appointed representative of DMS Capital Solutions UK Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom under the reference number 503325. Investing involves risk, including possible loss of principal. There can be no assurance that a Fund will achieve its stated objectives. The Funds are subject to political, social or economic instability within China which may cause decline in value. Fluctuations in currency of foreign countries may have an adverse effect to domestic currency values. Emerging markets involve heightened risk related to the same factors as well as increase volatility and lower trading volume. Narrowly focused investments typically exhibit higher volatility. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, evolving industry standards and frequent new product productions. Such changes may have an adverse impact on performance. This material is for information only and does not constitute an offer or recommendation to buy or sell any investment, or subscribe to any investment management or advisory service. It is not, under any circumstances, intended for distribution to the general public. You are accessing information which constitutes a financial promotion under section 21 of the Financial Services and Markets Act 2000 (“FSMA”). In relation to the United Kingdom, this information is only directed at, and may only be distributed to, persons who are “Investment Professionals” (being persons having professional experience in matters relating to investments) within the meaning of article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Financial Promotion Order ”), persons to whom any of paragraphs (2)(a) to (d) of article 49 (high net worth companies, unincorporated associations eatc.) of the financial promotion order apply, or persons to whom distribution may otherwise lawfully be made. Any investment, and investment activity or controlled activity, to which this information relates is available only to such persons and will be engaged in only with such persons. Persons that do not have professional experience should not rely or act upon this information unless they are persons to whom any of paragraphs (2)(a) to (d) of article 49 apply to whom distribution of this information may otherwise lawfully be made. For additional fund documentation, please visit www.DMSGovernance.com kraneshares.eu 4 [email protected] +31 (6) 492 496 89 KWEB Top 10 Holdings Q2 2020 Financials Summary KWEB Net Revenue Net Earnings Top 10 KWEB Revenue Weight Income Growth Margin per Share Holdings ($ B) (%) ($ B) (%) (%) ($) Tencent (700 HK) 9.25 16.20 4.67 29 29 0.42 Alibaba (BABA) 9.14 21.69 6.71 34 31 2.45 MeituanDianping 7.69 3.50 0.31 9 9 0.05 (3690 HK) Pinduoduo (PDD) 6.80 1.72 -0.13 67 -7 -0.11 JD.com (JD) 6.53 28.40 2.32 34 8 1.48 Bilibili(BILI) 4.37 0.37 -0.08 70 -22 -0.23 Ali Health(00241) 4.18 0.60 0.00 119 -0.5 0.00 TAL Education Group 3.83 6.43 0.08 35 9 0.13 (TAL) Baidu (BIDU) 3.82 3.67 0.50 -1 14 1.46 NetEase(NTES) 3.81 2.57 0.64 20 25 4.88 Total Weighted Average (%) 59.4285.15 15.02 39.31 11.96 1.00 Data frfromom BlBloombergoomberg as as of of 08/31/2020. 31/08/2020. F undFund holdings holdings ar aree subject subject to tochange. change. kraneshares.eu 5 [email protected] +31 (6) 492 496 89 KWEB Key Metrics 1. 60 1. 40 1. 20 1. 00 KWEB Valuation vs. US Internet 0. 80 0. 60 0. 40 0. 20 Price0. to Earnings Growth (PEG) 00 31-JUL-2013 31-DEC-2013 30-MAY-2014 DataData fromfr Factset as of 15/09/20. 31-OCT-2014 DefinitionsDefinitions arare available on page 38. 31-MAR-2015 om F 31-AUG-2015 actset as of 9/15/20 PE 29-JAN-2016 e availabl KW G us 30-JUN-2016 Do EB in w 30-NOV-2016 25 e on page 38. Av g 0 Jo FY 28-APR-2017 20 Average Performancene YTDer By Subsector1 0 ag PE % 15 s e 29-SEP-2017 0 In 10 te an 28-FEB-2018 0 rn d 50 et FY 31-JUL-2018 1 Co to 0 31-DEC-2018 -5 mp FY 0 os 2 31-MAY-2019 it Gr e ow 31-OCT-2019 In kraneshares.euCloud Infrastructure de th 31-MAR-2020 Data from Bloomberg as of 20/08/2020 x Data fr Education Av 31-Aug-20 er om Bl Healthcare ag e oomber E-Commerce g as of 8/20/2020 Gaming Live streaming Search Entertainment Fintech Social / Online ads Classifieds Travel Autos & Transportation 6 [email protected] +31 (6) 492 496 89 300 250 200 150 % 100 50 -5 0 -1 0 -1 00 YoY EPS Growth 50 Education DataData from fr Bloomberg as of 13/08/2020Search om Bl Cloud Infrastructure oomber Software Gaming g as of 8/13/2020 TransportationAutos & Live streaming 2.89% Healthcare Subsector Weights in KWEBeC ommerce Fintech Classifieds 3.16% Social / Online ads Entertainment Live streamingSearch 4.38% Travel Fintech Autos & Transportation 4.07% 4.47% 2.67% Gaming Cloud Classifieds Healthcare 6.02% Data fr Software Infrastructure Travel Data from BloombergSocial as 6.74%/of Online 13/08/2020 ads 0.13% 0.78% kraneshares.euom Bl Education 10.44% 6.27% oomber g as of 8/13/20 E-Commerce 36.92% Entertainment 11.06% 7 [email protected] +31 (6) 492 496 89 Subsector Analysis Cloud Infrastructure has been the top-performing subsector year- to-date based on KWEB’s holdings as of Q2 end. While multiple KWEB holdings are involved in the cloud business, 21 Vianet is the only holding that operates the data centers that are the lifeblood of the business. Investors’ enthusiasm for the company is strong and understandably so considering the increased demand for cloud computing services due to work-from-home. 21 Vianet operates carrier-neutral data centers, which house cloud computing and other types of data that can be accessed using any internet service provider.
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