China’s Internet sector has declined by over 18% ytd, trading at an average of 21x forward PE, Below NASDAQ internet index P/E of 34x and against its historical average of 24x.
E-commerce: Maintain MARKETWEIGHT on the sector. During the 3Q21, China recorded slower ecommerce gross merchandise value (GMV) growth of 10.1% yoy vs 2Q21: 18% yoy growth and 3Q20: 11.7% yoy growth. The weaker retail sales numbers were mainly dragged by sluggish growth from apparels and auto sales. Most of the companies under our coverage had hinted the ongoing profitability will continue to remain challenge due to the increase investment towards new initiatives segment and slowing macro environment. On the hindsight, we expect the revenue growth will largely coming from growth from New Initiatives segment given that the market had undergo consolidation in July’21 in the online grocery segment.
Gaming: Maintain MARKETWEIGHT on the sector. We expect the industry to record slower revenue growth in 2021 due to the high base from 2020, new game approval halt, tightening regulatory on minor time/money spent on the online game platform offset by robust growth from overseas gaming revenue. We expect online gaming companies to increase their attention towards overseas gaming market due given the domestic market growth will be slower.