Summary of Baidu and IQIYI Conference Call Company and Industry Overview - **Companies Involved**: Baidu Inc. (BIDU.O) and iQIYI Inc. (IQ.O) - **Industry**: Internet and Other Services in Asia Pacific Key Points and Arguments Baidu's Advertising Performance - Core advertising revenue is expected to decline by **23% YoY** in Q3, worsening from a **15% decline in Q2** [1][2] - AI-related search results have increased from **50% in June to 64% in July**, but monetization remains limited [2] - Estimated **16% of advertising revenue** in Q2 came from AI, with **13% from AI agents** and **3% from digital humans** [2] - Cautious outlook for advertising recovery, with expectations of a **15% decline in Q4** [2] Baidu's Cloud Business - Cloud revenue reached **Rmb 6.5 billion**, growing **27% YoY** in Q2 [3] - Enterprise cloud growth is outpacing personal cloud, with subscription revenue growing over **50% YoY** [3] - Expected cloud growth of **30% YoY** in Q3, with margins maintained in the teens [3] Robotaxi Developments - Apollo Go operates in **16 cities globally** and has formed partnerships with Uber and Lyft [4] - Focus on expanding global operations with over **1,000 fleets** and **2.2 million rides in Q2** [4] - Limited financial contribution expected in the near term [4] Margin Pressures - Margins are under pressure due to declining ad revenue and increased investments in AI and robotaxis [5] - Operating profit for Q2 is expected to be **Rmb 2.2 billion**, down **66% YoY**, with an operating margin of **9.0%**, a decrease of **16.1 percentage points** [5] iQIYI's Financial Outlook - Price target raised from **US$1.7 to US$2.1**, maintaining an equal weight rating [6] - Despite recent financial struggles, potential for revenue growth exists due to regulatory relief [6] - Risks include competition in the long video and short drama segments [6] Baidu's Price Target and Earnings Estimates - Price target maintained at **US$100**, with a cautious outlook on core ads and margin pressures [7] - Core earnings estimates for 2025 lowered by **12%** [7] - Current price target implies an **11x P/E** for 2026, compared to **19-20x** for Tencent and NTES [7] Financial Performance Highlights - Baidu's total revenue fell **4% YoY**, with core revenue declining **2% YoY** [17] - Core marketing revenue dropped **15%**, while non-marketing revenue rose **34% YoY** [17] - iQIYI's revenue fell **11%** to **Rmb 6.6 billion**, missing estimates [17] Valuation Insights - Baidu's valuation derived from a sum-of-the-parts approach, with a **12% discount rate** and **3% terminal growth rate** [25] - iQIYI's valuation reflects weaker earnings growth visibility compared to peers [27] Additional Important Information - Baidu returned **US$232 million** in Q2 under its **US$5 billion share repurchase program** [17] - iQIYI's operating profit declined **88% YoY**, missing consensus estimates [17] - Baidu's gross margin decreased to **43.9%**, down **7.8 percentage points** YoY [17] This summary encapsulates the critical insights from the conference call, highlighting the challenges and opportunities faced by Baidu and iQIYI in the current market landscape.

August 14, 2025 10:16 AM GMT NetEase, Inc | Asia Pacific 2Q25 Results: Fast recovery of marketing intensity Reaction to earnings Unchanged In-line Largely unchanged Impact to our thesis Financial results versus consensus Direction of next 12-month consensus EPS Source: Company data, Morgan Stanley Research Key Takeaways 2Q25 revenue up 9%YoY to Rmb27.9bn with online game revenue up 15%YoY to Rmb22.1bn (2% above MSe). Game grossing was up 20% YoY from a low base, the strong contract liabilities pave a good f ...

Investment Rating - The report reiterates Tencent Holdings Ltd. as a "Top Pick" with an "Overweight" rating and raises the price target from HK$650.00 to HK$700.00, implying a 19% upside potential from the current price of HK$586.00 [1][6][48]. Core Insights - The successful deployment of AI across all business lines is expected to drive solid revenue growth, alleviating concerns about margin pressure from AI investments due to a favorable mix shift [1][12]. - The report highlights a strong performance in the second quarter (2Q), with revenue growth of 14.5% year-over-year, driven by significant contributions from online games and advertising [19][17]. - The management's focus on tracking AI effectiveness through various metrics indicates a strategic approach to leveraging AI for business growth [3][12]. Summary by Sections Financial Performance - Tencent reported a 2Q revenue of Rmb184.5 billion, a 14.5% increase year-over-year, with online games growing by 22.1% and advertising revenue increasing by 19.7% [17][19]. - Gross profit margin reached a record high of 56.9%, reflecting a 3.6 percentage point increase year-over-year [19][17]. - Non-IFRS operating profit grew by 19%, beating estimates, while net profit increased by 16.8% year-over-year [19][17]. Capital Expenditure and Growth Projections - The company maintained its capital expenditure guidance at a low teens percentage of total revenue for 2025, estimating Rmb97 billion for the year [2][3]. - Expectations for 3Q revenue growth are set at 12%, with non-IFRS operating profit growth projected at 14% [3][12]. Game and Advertising Segments - The gaming segment is expected to continue its momentum, with a projected 16% year-over-year growth in 3Q, driven by the launch of Valorant Mobile and strong performance from existing titles [4][3]. - Advertising revenue is anticipated to grow by 20% in 3Q, supported by successful AI ad technology deployment [4][12]. Valuation and Investment Strategy - The price target of HK$700 is derived from a sum-of-the-parts valuation, with HK$613 attributed to core businesses and HK$87 to associate investments, applying a 30% discount to investment value [38][39]. - The report emphasizes Tencent's position as a leading AI adopter with high ROI potential, particularly in consumer-facing AI applications [12][39].

Summary of PDD Holdings Inc Conference Call Company and Industry Overview - **Company**: PDD Holdings Inc (PDD.O) - **Industry**: China Internet and Other Services - **Market Cap**: US$143.406 billion as of August 4, 2025 - **Stock Rating**: Overweight - **Price Target**: US$130.00, representing a 16% upside from the current price of US$112.04 [11][11][11] Key Metrics and Financial Performance - **Fiscal Year Ending**: December - **Earnings Per Share (EPS)**: - 2024: 76.01 RMB - 2025 Estimate: 53.52 RMB - 2026 Estimate: 69.64 RMB - 2027 Estimate: 79.39 RMB [11][11][11] - **Revenue (Net)**: - 2024: 393.836 billion RMB - 2025 Estimate: 438.816 billion RMB - 2026 Estimate: 462.191 billion RMB - 2027 Estimate: 484.373 billion RMB [11][11][11] - **Price-to-Earnings (P/E) Ratio**: 9.3 for 2024 [11][11][11] - **Return on Equity (ROE)**: 60.0% for 2024 [11][11][11] - **Free Cash Flow Yield Ratio**: 10.0% for 2024 [11][11][11] User Engagement Metrics for Temu - **Monthly Active Users (MAU)**: - Global MAU reached 445.7 million in July 2025, up 46% year-over-year and 7% month-over-month - US MAU decreased by 20% year-over-year but increased by 41% month-over-month - EU MAU increased by 53% year-over-year and 4% month-over-month - Latin America MAU increased by 84% year-over-year and 10% month-over-month [13][13][13] - **Daily Active Users (DAU)**: - Global DAU reached 74.9 million in July 2025, up 47% year-over-year and 5% month-over-month - US DAU decreased by 41% year-over-year but increased by 25% month-over-month - EU DAU increased by 65% year-over-year and 4% month-over-month - Latin America DAU increased by 93% year-over-year and 8% month-over-month [13][13][13] - **Monthly Downloads**: - Global monthly downloads were 36 million in July 2025, down 28% year-over-year but up 3% month-over-month - US downloads decreased by 66% year-over-year but increased by 109% month-over-month - EU downloads decreased by 39% year-over-year but increased by 5% month-over-month - Latin America downloads decreased by 20% year-over-year but increased by 9% month-over-month [13][13][13] - **Cumulative Downloads**: - Global cumulative downloads reached 1.1 billion in July 2025 [13][13][13] Risks and Opportunities - **Upside Risks**: - Faster-than-expected user growth driven by consumption trends - Better-than-expected unit economics for Temu - Reduced competition leading to lower operating expenses [16][16][16] - **Downside Risks**: - Increased competition affecting margin improvements - Potential drop in user engagement as subsidy levels normalize - Regulatory challenges impacting Temu's growth [16][16][16] Conclusion PDD Holdings Inc shows strong potential for growth in the China Internet and Other Services sector, with significant user engagement metrics for its platform Temu. The company is positioned favorably with an attractive stock rating and a solid price target, although it faces risks from competition and regulatory environments.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Internet and Other Services, specifically focusing on the food delivery sector - **Key Players**: Meituan, Alibaba (BABA), JD.com (JD) Core Insights and Arguments 1. **Government Regulation**: Shanghai market regulators have engaged with food delivery platforms to address ultra-low-price promotions and improve price governance, indicating potential government intervention in the competitive landscape [1][2] 2. **Competition Dynamics**: The heightened competition in the food delivery market is drawing increased government scrutiny, suggesting that price competition may peak in Q3 2025, with subsidies likely to decrease thereafter [2][3] 3. **Investment Projections**: Expected food delivery investments for Q2 2025 are approximately RMB 10 billion across three major players, with projections for Q3 2025 being RMB 12 billion for Meituan, RMB 20 billion for Alibaba, and RMB 15 billion for JD [3] 4. **Profitability Forecasts**: Anticipated year-over-year declines in operating profit margins for Meituan, Alibaba, and JD are projected at -48%, -20%, and -63% for Q2 2025, and -77%, -44%, and -73% for Q3 2025, respectively [3] 5. **Market Preferences**: The preference ranking among e-commerce players is BABA > Meituan > JD, with expectations for Alicloud's growth to drive share price increases [4] Additional Important Information 1. **Competitive Timeline**: A detailed timeline of competitive actions among food delivery services highlights significant events, such as JD's subsidy program and Meituan's aggressive promotions, which have escalated competition [4] 2. **Regulatory Concerns**: The People's Daily has criticized the sustainability of the ongoing price war, emphasizing the need for rational competition among major players [4] 3. **Long-term Margin Estimates**: Long-term gross transaction value (GTV) margin estimates for Meituan and Instashopping have been revised down to below 3% and 2%, respectively, reflecting the impact of competitive pressures [2] Conclusion The food delivery sector in China is experiencing intense competition, prompting regulatory attention and leading to significant investment and profitability challenges for major players. The evolving landscape suggests a potential shift in competitive strategies as companies adapt to regulatory pressures and market dynamics.

Summary of NetEase, Inc. Conference Call Company Overview - **Company**: NetEase, Inc (NTES.O) - **Industry**: Internet Entertainment - **Market Cap**: US$87.283 billion - **Current Share Price**: US$136.12 - **Price Target**: Raised from US$145.00 to US$151.00, indicating an 11% upside potential [5][21] Key Financial Metrics - **2Q25 Revenue Growth**: Expected to be 12% YoY for game revenue and 20% for non-GAAP profit [2][8] - **Adjusted Net Profit**: Projected to grow 20% YoY to RMB 9.4 billion [8] - **EPS Estimates**: Slight increases of 1-2% for 2025-2027 [3][20] - **Revenue Projections**: - 2025: RMB 114,060 million - 2026: RMB 118,798 million - 2027: RMB 123,673 million [5][24] Business Developments - **Game Titles Performance**: - **Marvel Rival S3**: Popularity rebound, ranked 2 on Steam in July [7] - **Once Human**: Strong PC gross ranking post mobile launch, estimated annual revenue contribution of RMB 800 million to 1 billion [7] - **New Titles**: Five new games scheduled for summer 2025, expected to contribute marginally in 3Q [7] Market Positioning - **Competitive Landscape**: NetEase is well-positioned amid fund inflows from the food delivery segment, with positive business developments justifying its outperformance [1] - **Marketing Strategy**: Focus on long-term marketing expense ratio rather than short-term savings [2] Valuation and Risk Assessment - **Valuation Method**: Sum of the parts (SOTP) with a target P/E of 15x for the games business [30] - **Risk Factors**: - Shorter-than-expected life cycle of games - Weaker-than-expected margins due to loss-making businesses [41] Investment Thesis - **Overweight Rating**: Reiterated with a focus on market share gains through development capabilities and global expansion [31] - **Margin Improvement**: Expected from a favorable revenue mix and better cost control, leading to operating profit margin expansion towards 34% [31] Additional Insights - **Revenue Growth Drivers**: Anticipated acceleration in game revenue driven by localized content and new titles [32] - **Consensus Rating Distribution**: 90% Overweight, 10% Equal-weight [34] Conclusion - **Outlook**: Positive growth trajectory with a focus on game revenue and margin expansion, supported by a strong pipeline of new titles and strategic market positioning [43]

Investment Rating - The report maintains an "Overweight" rating for Tencent Holdings Ltd. and reiterates it as a "Top Pick" with a price target raised to HK$650.00 from HK$630.00, reflecting a 31% upside potential from the current price of HK$496.60 [6][8][24]. Core Insights - The report anticipates solid revenue growth of 11% and non-IFRS operating profit (OP) growth of 14% for 2Q25, driven by strong performance in online games and advertising sectors, while also noting a slight recovery in FinTech and Business Services (FBS) [1][2][4]. - Online games are expected to grow by 16% in 2Q25, with international game growth outpacing domestic growth, supported by strong grossing receipts from previous quarters [2]. - Advertising revenue is projected to grow by 18% year-over-year, bolstered by AI-driven ad technology improvements and enhanced user engagement through Weixin Search [3]. - FBS is expected to see a 6.5% year-over-year increase, with solid business service growth of 15% and gradual expansion in international cloud services [4]. - The report highlights a narrowing leverage between revenue and operating profit growth due to increased AI-related costs, while gross profit is expected to reach Rmb98 billion, up 15% year-over-year [5]. Summary by Sections Revenue and Profit Estimates - Total revenues for 2Q25 are estimated at Rmb179.018 billion, reflecting an 11.1% year-over-year increase, with gross profit expected at Rmb98.314 billion, a 14.5% increase [12]. - Non-IFRS operating profit is projected at Rmb66.580 billion, up 13.9% year-over-year, with an operating margin of 37.2% [12]. Financial Projections - For the fiscal year ending December 2025, revenue is estimated at Rmb732.526 billion, with a projected net profit of Rmb207.054 billion [8][40]. - The report also provides a detailed breakdown of expected earnings per share (EPS) growth, projecting Rmb22.11 for 2025 and Rmb26.29 for 2026 [8]. Valuation and Price Target - The price target of HK$650 is derived from a sum-of-the-parts valuation, including a DCF value of HK$569 per share for core businesses and HK$81 per share for associate investments, applying a 30% discount to the investment value [20][24].

Investment Rating - The investment rating for Meituan is Overweight (OW) with a price target reduced to HK$150.00 from HK$160.00, indicating a potential upside of 26% from the current price of HK$118.60 [8][27]. Core Insights - The report anticipates a significant decline in operating profit (OP) for Meituan, estimating a 48% year-over-year decrease in 2Q25 to Rmb8 billion, with further declines expected in subsequent quarters due to intensified competition [1][2][3]. - Long-term profitability forecasts have been adjusted downward, with the food delivery gross transaction value (GTV) margin now projected at 2.4% and the unit economics (UE) at Rmb1.15, reflecting a decrease from previous estimates [5][39]. - The total revenue for 2025 is forecasted at Rmb276 billion, representing a 10% year-over-year growth, but with a significant drop in operating profit expected [4][26]. Financial Estimates - For 2Q25, CLC revenue is estimated at Rmb67 billion, a 10% increase year-over-year, while operating profit is expected to decline to Rmb8 billion [2]. - The full-year 2025 estimates include total revenues of Rmb371.6 billion and an operating profit of Rmb30 billion, down 43% year-over-year [4][26]. - Adjusted EBITDA forecasts have been cut by 43% for 2025 and 27% for 2026, reflecting the anticipated challenges in profitability [6]. Market Position and Competition - Meituan is expected to maintain its dominance in the food delivery market, although market share may decrease to over 65% from the current 70-75% due to increased competition [5][38]. - The total addressable market (TAM) for quick commerce is projected to expand, but the market is likely to be fragmented among multiple players [5][38]. Valuation Methodology - The valuation is based on a discounted cash flow (DCF) model with a weighted average cost of capital (WACC) of 12% and a terminal growth rate of 3% [27][32].

Investment Rating - The investment rating for Kuaishou Technology is Equal-weight [6] Core Insights - The competition in the AI video generation sector has intensified with the launch of ByteDance's Seedance 1.0 pro, which has achieved the top ranking in both text-to-video and image-to-video categories, outperforming competitors like Google's Veo 3.0 and Kuaishou's Kling 2.0 [2][3] - The pricing of Seedance 1.0 pro is competitive at Rmb3.67 for a 5-second video, which is 60-70% lower than similar market offerings, and it generates videos relatively quickly at approximately 40 seconds for a 5-second output [2][3] - The report suggests that while the recent releases from ByteDance and Minimax could significantly increase competition, it is premature to determine the long-term market leader in AI video generation [3] - Kuaishou's Kling model has shown strong financial performance year-to-date, which has positively influenced its share price, but there is a caution against overvaluing Kling before the competitive landscape stabilizes [3] Summary by Sections Industry Overview - The AI video generation market is experiencing heightened competition with new entrants and advancements in technology [1][3] Company Performance - Kuaishou Technology's Kling model is expected to exceed revenue guidance, reflecting strong market demand [4] - Financial projections for Kuaishou indicate a revenue increase from Rmb127 billion in 2024 to Rmb165 billion by 2027, with EBITDA growing from Rmb20 billion to Rmb37 billion in the same period [6] Valuation Metrics - The price target for Kuaishou Technology is set at HK$60.00, with a slight upside of 1% from the current price of HK$59.40 [6] - Key financial metrics include a projected P/E ratio of 11.2 for 2025 and an EV/EBITDA ratio of 7.1 for the same year [6]

Investment Rating - The investment rating for Kanzhun Ltd is Overweight (OW) [1][67]. Core Insights - Improving recruitment demand is observed in April-May, with expectations for cash billing growth to accelerate from Q2 2025. The limited impact of tariffs on the industry is also noted [1]. - Enhanced operating efficiency and cost control measures are anticipated to contribute to earnings upside in 2025 [1]. Summary by Relevant Sections - **Industry View**: The industry is viewed as attractive, with positive indicators for recruitment demand and operational improvements [1]. - **Valuation Methodology**: The valuation is based on a discounted cash flow model, utilizing a 12% WACC and a 3% terminal growth rate, reflecting the company's commitment to share buybacks and potential dividends [8]. - **Analyst Stock Ratings**: Kanzhun Ltd is rated as Overweight, indicating that its total return is expected to exceed the average total return of its industry coverage over the next 12-18 months [33][67].