Zhi Tong Cai Jing·2025-09-04 13:56Core Viewpoint - UBS has updated its investment themes and stock picks in the Chinese internet sector based on Q2 earnings, suggesting bullish strategies on Trip.com, NetEase, and Pinduoduo due to low volatility and favorable market sentiment [1][2]. Group 1: Industry Insights - The Q2 earnings season for Chinese internet companies ended with varied performances, leading to an optimistic market sentiment despite lowered profit expectations for 2025 due to increased investments by e-commerce giants [1]. - Key themes highlighted include: - Growth differentiation, with emotional consumption (gaming, music) outperforming online physical goods, which in turn outperformed offline physical goods [1]. - E-commerce competition is expected to persist into Q4, with structural declines in user economic benefits, although the impact on profits seems to be priced in [1]. - Continued investment in artificial intelligence by major internet companies, with significant improvements in profitability across cloud computing, advertising, and verticals like video and gaming [1]. Group 2: Regulatory and Market Conditions - The overall regulatory environment is currently favorable, with attention on the progress of anti-evolutionary theories, particularly in the Q-commerce sector [2]. - As merchants gain clarity on tariff impacts, cross-border e-commerce is expected to accelerate, with Pinduoduo resuming a fully managed model in the U.S. [2]. Group 3: Stock Recommendations - UBS's stock selection framework emphasizes monetization of AI, emotional consumption, regulatory support, and strong fundamentals with catch-up potential. Current top picks include Tencent, Trip.com, NetEase, Kuaishou, and Pinduoduo, focusing on vertical industry leaders and low-entry positions [2]. - Specific bullish strategies include: - Trip.com: Recognized as a leader in the domestic travel industry with potential for margin expansion and strong international growth, currently undervalued [3]. - NetEase: Favored for its gaming business with expected acceleration in growth and numerous new game releases in 2026, alongside low valuation [4]. - Pinduoduo: Seen as having significant upside potential with recovery from challenging periods and expansion into new cross-border models [5].