Deutsche Bank Markets Research Asia Periodical Date China 3 July 2012 Technology China TMT Daily Alan Hellawell III Alex Yao Research Analyst Research Analyst (+852) 2203 6240 (+86) 21 2080 1666 [email protected] [email protected] Mobile Commerce; also, 0700.HK, 0762.HK TOP CHINA TMT PICKS Company Rating Target Price (Please click through to the .pdf version of this document for a full overview of AsiaInfo-Linkage Hold USD 13.20 today's news and views.) China Telecom Buy HKD 5.85 ZTE Buy HKD 26.20 FEATURE: CHINA TMT STOCKS Mobile commerce becomes No.1 category in ever-growing mobile internet Company Rating Close 1D% 3M% space TELCOS as of 02/07 According to Pingdom, a Swedish internet research company, mobile internet China Comm Service Buy 3.8 0.3 -0.3 China Mobile Hold 84.8 1.9 0.3 traffic represented roughly 10% of overall web traffic in May, 2012. Asia topped all China Telecom Buy 3.4 1.8 -20.9 continental markets with mobile usage representing 17.8% of all web traffic in the China Unicom Buy 9.8 2.7 -26.4 region. According to iResearch, China's mobile internet market totaled RMB15.87b in 1Q12, up 18.7% QoQ and 167.2% YoY. Mobile commerce saw some 530% YoY INTERNET/ONLINE GAMING Baidu Buy 112.7 -2.0 -23.2 growth, reaching 42% of China’s mobile internet market in terms of market size, Ctrip.com Int'l Hold 16.5 -1.6 -24.1 and overtaking mobile value-added services (MVAS, 41.5%), and becoming the Netease.com Hold 59.0 0.3 -1.5 largest business model in transaction value. Phoenix New Media Buy 4.6 -3.3 -38.9 RenRen Sell 4.4 -2.2 -21.8 Mobile e-commerce sites Shanda Games Hold 4.0 -0.5 -26.4 At present, a number of e-commerce sites have launched mobile clients, including Sina Corp Buy 50.1 -3.4 -21.3 360Buy, Vancl, Vipshop, QQ Buy, etc., to support mobile users. According to Sohu.com Hold 42.8 -4.2 -21.2 iResearch, 360Buy captured some 7.2% of the mobile commerce market in 1Q12, SouFun Buy 15.2 -3.7 -20.6 Taomee Hold 4.3 -1.6 -25.4 becoming the second largest mobile commerce service provider in China, Tencent Buy 226.0 3.1 1.4 following industry leader Taobao (72%). Vancl, Amazon and Dangdang had 2.2%, 1.2% and 0.9% mobile market shares respectively. According to local news TECHNOLOGY reports, senior management at both 360Buy and Vancl expect their mobile AsiaInfo-Linkage Hold 11.7 -1.1 -2.4 commerce services to contribute roughly 25% of total sales in the near future. QQ AutoNavi Buy 13.3 -0.5 4.5 Foxconn Int'l Hldgs Hold 2.8 0.4 -49.7 Buy landed in the market less than a year ago, and launched a mobile client in May Lenovo Group Hold 6.5 0.8 -9.5 this year. Its market share remains insignificant for the time being. Synnex Technology Buy 72.0 -0.8 -1.8 ZTE Buy 14.9 1.4 -26.6 Tencent and mobile commerce Despite being a latecomer in mobile commerce, we expect Tencent to benefit Indices Close 1D% 3M% from the strong growth of China’s ecommerce market. Tencent has been rapidly as of 02/07 gaining ground in the e-commerce market, while specifically accumulating a fast HSI 21249.5 -0.3 2.4 growing user base on the mobile end. According to iResearch, Tencent's Paipai HSCEI 10987.1 -1.4 -5.3 Nasdaq 3024.3 -1.2 4.1 has managed to snap some 4.8% market share in C2C e-commerce market in 1Q12, second only to Taobao. With regard to B2C e-commerce, QQ Buy and Sources: DB, Bloomberg Finance LP 51Buy jointly represented 4.7% of the platform B2C (i.e. B2B2C or agent model) market. Meanwhile, 51Buy alone represented a 3.7% market share of "self- operated" B2C (i.e. the principal model). These developments in e-commerce should pave the way for Tencent to gain more usage in the mobile ecommerce sphere. Tencent has also built a strong foothold as an entry point for mobile traffic through portals such as its mobile browser, mobile social network, etc., all of which should support its initiatives in mobile commerce. The QQ Browser is one of the most popular mobile browsers across the smartphone user base, representing a 40.7% Continue on the next page ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012. 3 July 2012 China TMT Daily market share in 2011, according to CNNIC. Tencent also has developed a broad user base through mobile social network apps such as Weixin, mobile Weibo, etc. KEY TELCO KPIs Net Adds (mln) Sep 11 MoM YoY China Mobile 5.4 -8.8% 2.1% DAILY NEWS China Telecom 3.3 -2.3% 32.0% China Unicom 3.3 13.9% 92.7% Updated monthly Tencent renews website Sun Zhonghuai, Vice President of Tencent revealed that the company began to Subscribers (mln) Total M/S China Mobile 638.9 67.1% reorganize its website on Jul 3. Meanwhile, Online Media Group (OMG) of China Telecom 120.3 12.6% Tencent declared that it will launch a deep cross-platform integrating strategy China Unicom 192.4 20.2% across its portal, micro-blog, video and mobile services. The rearrangement Total 951.6 allows a user to one-key login the platforms of Tencent including social network, Updated monthly video, portal, etc. The homepage of tech.qq.com incorporates the biggest Blended ARPU (RMB) 3Q11 QoQ YoY change to display the most important news every day, allowing a user to access China Mobile 71.3 -1.2% -2.1% them in less than 10 minutes. (techweb.com.cn, 2 Jul, 2012) China Telecom 52.0 -3.5% -1.9% China Unicom 48.4 0.5% 8.1% Sougou repurchases 10.88% stake Updated quarterly Wang Xiaochuan, CEO of Sougou, revealed that Sougou’s parent company Sohu Source: Company data had reached an agreement to repurchase the outstanding shares held by a large e-commerce group. The deal totals USD25.8m and represents 10.88% stake in INTERNET/ONLINE GAME KPIs Top Online Games Ranking Sougou. Sougou is the search engine arm of Sohu and has been operating Games Operator Up/Dn independently since two years ago. (tech.163.com, 2 Jul, 2012) 1 Cross Fire Tencent 1 Youku designates new President 2Dungeon Fighter Tencent 1 Youku announced on Monday that Liu Dele, the company’s former CFO and 3 QQ Speed Tencent 1 4 QQ Dancer Tencent -3 Senior Vice President has been promoted to be the new President, succeeded by 5 WoW Netease 1 Xu Ge, former Senior Financial Vice President. Liu joined Youku in 2006 as the 6 League of Legends Tencent -1 CFO and Senior Vice President. Prior to this Liu served as an investment 7 TLBB Sohu -2 manager in RiChina Capital and the Vice President of Power Corporation, 8 Dragon Nest Shanda - 9 Qian Nv Netease - undertaking capital market business. (tech.sina.com.cn, 2 Jul, 2012) 10 ZhuXian Perfect World - Baidu limits low-quality sites in search results Baidu announced that it had launched some updates since the end of June to Top 5 movers Current ranking Chg Ba Zhe Wu Shuang 71 -13 limit the appearance of low-quality websites in search results. According to Immortal Faith 72 -13 Baidu, a low-quality site refers to a site with no original content or generating Zhu Xian 2 45 7 large-scale content using machine. These sites are usually designed for obtaining Tianxia II 52 -5 QQ Dancer 4 -3 traffic from search engines instead of serving users. Baidu said the updates will Updated on: July 02, 2012 affect roughly 5% of its traffic, but will improve the search efficiency by offering Source: icafe, Baidu, Barchina, Sougou, Xunlei, 17173 more precise and high-quality search results. (it.sohu.com, 2 Jul, 2012) China Unicom signs memorandum with GAPP KEY TECH KPIs China Unicom and General Administration of Press and Publication (GAPP) of CHINA PC MARKET China signed a memorandum on promoting China’s digital press industry. 3Q11 Units (m) QoQ YoY Shipments 19.7 6.6% According to the memorandum, GAPP will support China Unicom to provide network techniques and digital products operation service and will entitle Top PC OEMs M/S relevant qualifications to China Unicom. Lu Yimin, General Manager of China 1. Lenovo 31.8% Unicom revealed that the company’s “Wo reading” base (the mobile literature 2. Dell 9.7% 3. Acer 8.6% service of China Unicom) had reached cooperation with over 200 publishing 4. Asus 7.5% groups and content providers, introducing more than 150k volumes of digital 5. HP 7.4% books and its annual PV reaching 4b in 2011.