January 12, 2025 11:10 PM GMT Investor Presentation | Asia Pacific M Foundation Policy Undershoot Unless Social Dynamics Evolve Morgan Stanley Asia Limited • Insufficient monetary easing leads to financial market instability or worsens deflationary pressure Robin Xing Chief China Economist Robin.Xing@morganstanley.com +852 2848-6511 Zhipeng Cai Economist Zhipeng.Cai@morganstanley.com +852 2239-7820 For important disclosures, refer to the Disclosure Section, located at the end of this report. Foundation M In ...

Industry Overview * **Leisure Travel Leading Recovery**: Leisure travel has been the primary driver of the lodging recovery, with RevPAR ending 2023 up +5% YOY or +14% vs. 2019. Business transient and group travel have recovered more slowly. * **Supply Growth Below Average**: Construction starts remain below peak levels, leading to lower supply growth in the future. Industry estimates for supply growth over the next few years are lower than historical levels, with 2024E and 2025E growth expected at +1.3% and +1.5% respectively, compared to the long-term average of ~2%. * **Luxury Segment Underperforming**: Luxury RevPAR growth has been below average industry growth in recent years, potentially indicating a late stage in the lodging cycle. * **Top 25 Markets Driving Growth**: Future supply growth is concentrated in the top 25 markets, which have outperformed the US average in RevPAR growth historically. Company Analysis * **Hilton Worldwide Holdings, Inc. (HLT)**: * **Buy Rating**: UBS maintains a Buy rating on HLT, with a price target of $274. * **Unit Growth**: HLT is expected to show acceleration in unit growth in 2025, excluding acquisitions. * **Pipeline**: HLT's pipeline to existing footprint ratio is higher than Marriott's, indicating a potential gain in market share. * **Marriott International, Inc. (MAR)**: * **Neutral Rating**: UBS maintains a Neutral rating on MAR, with a price target of $294. * **Unit Growth**: Marriott's unit growth needs to accelerate to reach long-term 2025 targets. * **Pipeline**: Marriott has a larger share of the US hotel room pipeline but has a lower pipeline to existing footprint ratio compared to HLT. * **Host Hotels & Resorts Inc. (HST)**: * **Neutral Rating**: UBS maintains a Neutral rating on HST, with a price target of $19. * **Portfolio**: HST owns a portfolio of high-quality hotels with significant barriers to entry and limited supply growth. * **Transactions**: HST has been active in the transaction market, with a strong investment grade balance sheet and undrawn liquidity. * **Choice Hotels International, Inc. (CHH)**: * **Neutral Rating**: UBS maintains a Neutral rating on CHH, with a price target of $154. * **Business Model**: CHH operates a pure-play franchise model, providing a less volatile earnings stream. * **Acquisition**: CHH acquired the Radisson Hotel Group Americas, increasing its upscale and upper midscale exposure. * **Park Hotels & Resorts (PK)**: * **Neutral Rating**: UBS maintains a Neutral rating on PK, with a price target of $15. * **REIT**: PK is the second-largest lodging REIT, with a high concentration in the luxury and upper upscale segments. * **Management Contracts**: PK's management fees are structured in an atypical way, potentially benefiting the company early in a cycle. Conclusion The lodging industry is recovering from the impact of the pandemic, with leisure travel leading the recovery. Supply growth remains below average, and the luxury segment is underperforming. UBS maintains a Buy rating on HLT and a Neutral rating on MAR, HST, CHH, and PK, based on their respective strengths and market positions.

Industry/Company * **Industry**: Online gaming and entertainment * **Company**: NetEase, Inc. (NTES.O, NTES US) Key Points * **Marvel Rivals Season 1 Success**: The first season of Marvel Rivals, a new game launched by NetEase, has been a major success. The peak number of players reached over 644k on Steam, a new high and 35% more than the debut level. The game has topped Steam's global best-seller rankings and received positive feedback from players. * **Milestone for NetEase**: This success marks a significant milestone for NetEase's overseas expansion strategy, as it demonstrates the company's ability to develop and launch successful games for foreign players. * **Revenue Contribution**: The strong performance of Marvel Rivals suggests that it will contribute more than the current forecast of Rmb3.5bn annually to NetEase's revenue. * **Importance of Marvel Rivals**: Marvel Rivals is considered more important than another new title, Where Winds Meet, in terms of contributing to NetEase's 2025 growth. * **Upcoming Releases**: NetEase has a strong pipeline of upcoming games, including FragPunk, which is expected to be an important title for its overseas expansion. Additional Information * **Revenue Sharing Agreement**: NetEase's revenue-sharing agreement with Marvel may limit its profit margins from Marvel Rivals. * **Valuation**: NetEase is currently valued at 13.5x 2025e P/E, compared to 15-30x for US/EU publishers. * **Risks**: Risks to upside include slower growth, limited overseas exposure, and weaker-than-expected margins.

Industry and Company Overview * **Industry**: Biotechnology and pharmaceuticals * **Company**: Incyte Corporation * **Focus**: Drug development and commercialization Key Financial Highlights * **2024 Revenue**: $3.1 billion (up 14% Y/Y) * **Revenue Growth**: ~17% CAGR over the past 5 years * **Strong Balance Sheet**: ~$2 billion in cash and no debt Pipeline and Pipeline Programs * **Niktimvo™**: Approved for 3L+ cGVHD, with potential for label expansion into 1L cGVHD * **Retifanlimab**: sBLA submitted for SCAC, with potential to become the new standard of care * **Tafasitamab**: sBLA submitted for r/r FL, with potential for label expansion into 1L DLBCL * **Ruxolitinib Cream**: sNDA submitted for pediatric AD, with potential for label expansion into PN and HS * **Povorcitinib**: Phase 3 studies in HS, vitiligo, and prurigo nodularis, with potential for best-in-class efficacy * **mCALR**: Proof-of-concept data expected in 2025, with potential to eradicate the malignant clone in MF and ET patients * **CDK2 Inhibitor**: Phase 1 data in ovarian cancer, with potential for pivotal trial initiation in 2025 High Impact Pipeline Programs * **Povorcitinib**: Addressing significant unmet needs in HS, vitiligo, and prurigo nodularis * **mCALR**: Targeting mutated calreticulin in MF and ET patients * **CDK2 Inhibitor**: Targeting cyclin-dependent kinases in ovarian cancer Key Catalysts for 2025 * **Ruxolitinib Cream approval for pediatric AD** * **Povorcitinib data in HS, vitiligo, and prurigo nodularis** * **mCALR proof-of-concept data** * **CDK2 inhibitor pivotal trial initiation** * **Potential high impact launches by 2030** Conclusion Incyte is well-positioned for growth in 2025 and beyond, with a strong pipeline of innovative drugs addressing significant unmet needs in various indications. The company's focus on novel biology and high patient impact positions it for long-term success.

Key Takeaways **1. Global Infrastructure Outlook**: * The FT Wilshire GLIO Developed Listed Infrastructure Index declined -4.8% in 4Q 2024, but still gained +10.4% for the year. * The MSCI World Index rose +0.4% in 4Q 2024, while the S&P 500 rose +3.0%. * Morgan Stanley Research's Global Listed Infrastructure Preferred OW List decreased a median -5.9% in 4Q 2024, but still gained +3.3% for the year. **2. Sector Views and Preferred OWs**: * The report provides detailed sector views and preferred Overweight (OW) picks across various regions and industries, including energy infrastructure, real estate, telecoms, transportation, and utilities. * The preferred OW list includes companies from Asia Pacific, Latin America, North America, and Europe. **3. Company-Specific Analysis**: * The report includes comprehensive financial data, valuation metrics, and performance analysis for each company on the preferred OW list. * Key metrics such as EV/EBITDA, P/E, EPS, dividend yield, and ROE are provided for each company. **4. Regional Analysis**: * The report provides a regional breakdown of the infrastructure sector, highlighting key trends and opportunities in each region. * Asia Pacific, Latin America, and North America are identified as key regions for infrastructure investment. **5. Upcoming Events**: * Morgan Stanley & the Global Listed Infrastructure Organisation will host the annual Global Listed Infrastructure Conference in Sydney, Australia on March 18, 2025. Key Points **1. Energy Infrastructure**: * GAIL (India), Larsen & Toubro Ltd, Petrobras, Vista Energy SAB de CV, Energy Transfer LP, Oneok Inc., Targa Resources Corp., Williams Companies Inc., EQT, and Cheniere Energy Inc. are among the preferred OW picks in the energy infrastructure sector. **2. Real Estate**: * China Resources Land Ltd., Mitsubishi Estate, Mitsui Fudosan, Sumitomo Realty & Dev., Tokyu Fudosan Holdings, GLP J-REIT, Phoenix Mills Limited, Sun Hung Kai Properties, Goodman Group, and British Land are among the preferred OW picks in the real estate sector. **3. Telecoms**: * Far Eastone, GDS Holdings Ltd, KDDI, Singapore Telecom, Helios Towers Plc, America Movil SAB de CV, Telefonica Brasil SA, SBA, AT&T, and T-Mobile US, Inc. are among the preferred OW picks in the telecoms sector. **4. Transportation**: * Aena SA, Eiffage SA, Getlink, OMA, Knight-Swift Transportation, and Transurban are among the preferred OW picks in the transportation sector. **5. Utilities**: * China Longyuan Power Group, ENN Energy Holdings Ltd, Tata Power Co, Tenaga Nasional, Hokkaido EP, Cleanaway Waste Management, Severn Trent, Eletrobras, Sabesp, and AES Corp are among the preferred OW picks in the utilities sector. **6. Valuation Metrics**: * The report provides valuation metrics such as EV/EBITDA, P/E, and dividend yield for each company on the preferred OW list. * The median EV/EBITDA multiple for the preferred OW list is 9.8x, while the median P/E multiple is 15.2x. **7. Performance Data**: * The report includes performance data for each company on the preferred OW list, including 10-day, 1-month, 3-month, 6-month, 1-year, and 3-year returns. * The median 1-year return for the preferred OW list is 13.8%, while the median 3-year return is 37.8%. **8. Regional Breakdown**: * Asia Pacific: 9.8x EV/EBITDA, 15.2x P/E, 13.8% 1-year return * Latin America: 4.3x EV/EBITDA, 5.3x P/E, 13.1% 1-year return * North America: 16.8x EV/EBITDA, 16.9x P/E, 14.2% 1-year return * Europe: 7.2x EV/EBITDA, 7.6x P/E, 7.4% 1-year return

Industry Overview * **2025 Outlook**: The document highlights that 2025 will be characterized by external uncertainties (tariffs, sanctions) and internal uncertainties (policy, competition). However, internet companies are expected to navigate these challenges through AI strategies, overseas expansion, and capital returns. * **Key Themes**: The document emphasizes the importance of AI, overseas expansion, and capital return as key strategies for internet companies to thrive in 2025. * **Market Outlook**: The document provides a bullish outlook for the internet and other services sector, with sector revenue expected to grow by 9% YoY and operating profit by 16% YoY in the base case scenario. Company Analysis * **Tencent (0700.HK)**: Tencent is identified as the top pick for the internet and other services sector. The document highlights Tencent's strong position in social and gaming, as well as its potential for growth through AI applications and capital management. * **Trip.com (TCOM.O)**: Trip.com is considered a preferred consumption recovery play with overseas opportunities. The document notes Trip.com's strong position in the online travel agency (OTA) market and its potential for growth through overseas expansion. * **Meituan (3690.HK)**: Meituan is also identified as a preferred consumption recovery play with overseas opportunities. The document highlights Meituan's strong position in the local services market and its potential for growth through overseas expansion. * **Alibaba Group Holding (BABA.N)**: Alibaba is rated equal-weight due to intense e-commerce and search competition. The document notes Alibaba's strong position in the e-commerce market and its potential for growth through AI and cloud computing. * **JD.com (JD.O)**: JD.com is rated equal-weight due to intense e-commerce and search competition. The document highlights JD.com's strong position in the e-commerce market and its potential for growth through AI and logistics. * **Kuaishou (1024.HK)**: Kuaishou is rated equal-weight due to intense e-commerce and search competition. The document notes Kuaishou's strong position in the short video market and its potential for growth through overseas expansion. * **Baidu (BIDU.O)**: Baidu is rated equal-weight due to intense e-commerce and search competition. The document highlights Baidu's strong position in the search engine market and its potential for growth through AI applications. Valuation and Shareholder Returns * **Valuation**: The document provides valuation metrics for various companies in the internet and other services sector, including market capitalization, price-to-earnings ratio, and price-to-book ratio. * **Shareholder Returns**: The document provides information on shareholder returns for various companies, including total capital return, dividend yield, and share buyback programs. Risks and Considerations * **External Uncertainties**: The document highlights external uncertainties such as tariffs, sanctions, and policy changes as potential risks for the internet and other services sector. * **Internal Uncertainties**: The document also notes internal uncertainties such as competition and regulatory changes as potential risks for the sector. * **Market Volatility**: The document acknowledges that market volatility can impact the performance of internet and other services companies. Conclusion The document provides a comprehensive analysis of the internet and other services sector, highlighting key themes, company analysis, valuation, and risks. The document offers valuable insights for investors looking to understand the potential opportunities and challenges in the sector.

Key Points **Industry Overview** 1. **Sector Performance in 2024**: European Insurance was the second best performing sector in 2024, up c.25% and outperforming the market by c.15%. This was driven by pricing momentum and favorable market conditions. 2. **Sector Outlook for 2025**: The outlook for the insurance sector in 2025 is more cautious. Key themes include lower bond yields, peak pricing levels, and increased M&A activity. 3. **Downgrade in Industry View**: The industry view has been downgraded from Attractive to In-Line due to the current stage in the interest rate cycle and pricing cycles, as well as higher valuations. **Key Themes** 1. **Lower Bond Yields**: Bond yields are expected to fall through 2025, which could negatively impact insurance earnings, particularly for P&C businesses. This is due to the new accounting methodology (IFRS 17) making insurance earnings more sensitive to interest rate movements. 2. **Peak Pricing**: Most lines of business and industries are at or near peak pricing levels, with the risk of further declines in pricing. This is particularly evident in commercial and reinsurance sectors. 3. **M&A Activity**: Insurers will need to focus on volume growth to drive top-line and bottom-line momentum, leading to increased M&A activity. This is expected to be driven by in-market consolidation rather than large-scale transactions. **Top Picks** 1. **a.s.r.**: a.s.r. is highlighted as a Top Pick due to its strong balance sheet, potential for positive surprises from the Aegon integration and PIM approval, and higher PRT business appetite. 2. **AXA**: AXA is another Top Pick, offering attractive total distribution yields and a free cash flow yield of c.9.2% in 2026e. The company is also well-positioned to benefit from the sale of AXA IM to BNP. 3. **Hannover Re**: Hannover Re is a quality compounder with a strong track record of outperforming in softer pricing environments. The company is well-positioned to benefit from the expected decline in reinsurance pricing in 2026. **Downgrades** 1. **NN Group**: NN Group is downgraded to Underweight due to ongoing pressures on its Dutch Life solvency position, which is sensitive to financial market movements. 2. **Zurich**: Zurich is downgraded to Underweight due to limited upside to valuation and its leverage to a decelerating commercial lines pricing environment. **Other Important Points** 1. **Solvency**: The insurance sector is well capitalized, with strong solvency ratios. However, there could be some volatility in solvency ratios through 2025 due to falling bond yields. 2. **Debt Leverage**: Debt leverage levels have improved in recent years, with the sector generally in good shape. However, there is a risk of higher interest costs if bond yields were to rise. 3. **Asset Risk**: The insurance sector is exposed to potential financial asset market shocks, particularly in the event of a major credit shock. However, the risk of this is considered low at present. 4. **Technology**: Technology is expected to play a key role in the need for consolidation within the insurance sector, with companies that are further ahead of the curve in this respect being better positioned to benefit.

Industry Overview * **Internet Sector Performance**: The internet sector experienced a flat performance last week, with the S&P 500 and NASDAQ indices remaining unchanged, while the Dow Jones Industrial Average fell by 1%. Notable outperformers included SNAP (+9%), CHWY (+6%), UBER (+6%), and LYFT (+7%). * **Valuation Multiples**: The valuation multiples for AMZN, GOOGL, and META were 34x, 21x, and 23x, respectively, for 2025 EPS, compared to TTM averages of -7%, -1%, and flat, respectively. * **Sector Outlook**: Morgan Stanley maintains an attractive outlook for the internet sector in North America. Company Analysis * **Digital Media**: The digital media sector saw significant growth in EV/EBITDA multiples, with an average increase of 40% when treating SBC as cash. Notable companies in this sector include BMBL, CRTO, META, GOOGL, IAS, KIND, MTCH, PINS, SSTK, TTD, DV, RDDT, and YELP. * **eCommerce/Marketplace**: The eCommerce sector also experienced a notable increase in EV/EBITDA multiples, with an average increase of 22% when treating SBC as cash. Notable companies in this sector include AMZN, CHWY, EBAY, ETSY, FIGS, PTON, RVLV, WW, CART, DASH, and LYFT. * **Shared Economy/Rideshare**: The shared economy/rideshare sector saw a moderate increase in EV/EBITDA multiples, with an average increase of 5% when treating SBC as cash. Notable companies in this sector include CART, DASH, LYFT, and UBER. * **Gaming/Mobile App**: The gaming/mobile app sector experienced a significant increase in EV/EBITDA multiples, with an average increase of 26% when treating SBC as cash. Notable companies in this sector include APP, EA, PLTK, RBLX, TTWO, and U. * **Travel**: The travel sector saw a moderate increase in EV/EBITDA multiples, with an average increase of 42% when treating SBC as cash. Notable companies in this sector include ABNB, BKNG, DASH, EXPE, LYFT, UBER, and Z. * **Real Estate Tech**: The real estate tech sector saw a significant increase in EV/EBITDA multiples, with an average increase of 42% when treating SBC as cash. Notable companies in this sector include COMP, Z, OPEN, and RE Tech. Valuation Methodology * **EV/EBITDA Multiples**: The report utilizes EV/EBITDA multiples to value companies in the internet sector, comparing them to historical averages and industry benchmarks. * **EV/Sales Multiples**: The report also considers EV/Sales multiples as a valuation metric, comparing them to historical averages and industry benchmarks. Conclusion The report provides a comprehensive analysis of the internet sector in North America, highlighting key trends, company performance, and valuation metrics. The attractive outlook for the sector is supported by strong growth in EV/EBITDA multiples across various sub-sectors.

Industry Overview * **WFE Market**: Expected to contract in 2025 with a -6% YoY growth rate, but expected to recover with a +6% growth rate in 2026. [4] * **Front-End SPE**: Demand is solid for cleaning equipment, particularly from companies like Tokyo Electron and SCREEN Holdings. [8] * **Back-End SPE**: Demand is more robust than front-end, driven by strong demand for AI devices and CoWoS applications. [9] * **Advanced Packaging**: Evolving rapidly with various types of advanced chip package technologies like 3D, 2.5D, and 2.1D/2.2D/2.3D. [10] * **Hybrid Bonding**: Increasingly adopted in advanced packaging, with Disco leading in hybrid bonding systems. [12] * **Plasma Dicing**: A promising technology in hybrid bonding, with KLA leading in commercialization and Panasonic Connect pursuing the technology. [15] Company Analysis * **Advantest**: Tester market bottomed out and expected to grow as demand for devices with long test times increases. Target P/E of 20.0x. [21] * **Disco**: Strong position in hybrid bonding processes with several systems for high-cleanliness grinders and edge trimmers. Target P/E of 25.1x. [18] * **Tokyo Electron**: Production lines for cleaning systems at full capacity, expecting high demand to continue. [8] * **SCREEN Holdings**: Production lines for cleaning systems at full capacity, expecting high demand to continue. [8] Risks * **Upside Risks**: SiC related equipment taking off, growth for HBM grinders, recovery in smartphone and semiconductor markets. [19, 22] * **Downside Risks**: Sluggish global demand for electronics, longer replacement cycle for smartphones, commoditization of SPEs. [20, 23]

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