Communications

Report by Arete Research

Arete upgrades the stock to Buy from Sell based on their outlook for chip business growth and AI Cloud revenue/profit. Kunlun (Baidu’s in-house AI chip) supports China’s national AI strategy in an undersupplied domestic market, with large orders from No.1 customer China Mobile. Arete sees Kunlun sales rising from RMB2bn in ’24 to RMB10-12bn in ‘26E. Kunlun should continue to drive Baidu’s AI Cloud business, with “Other Services” revenue rising at a ~15% CAGR over 2025E-31E. Arete raises their ‘26E EPS to US$6.1 from US$3.7. While they still see risk from declining Ad revenue, they think this is a long-running problem and well understood by the market. Their SOTP model shows Ads make up only 17% of Baidu’s total value vs. ~59% for AI silicon and Cloud services.

Report by Copley Fund Research

Allocations in China & HK equities among active EM investors have plummeted 10%+ in the space of 18-months (India, Taiwan and Mexico have been the biggest beneficiaries) - on a sector level, China Industrials and Consumer Staples are the overweights, with managers rotating into Financials and away from Consumer Discretionary. On a stock level, Alibaba remains a core holding; out-of-benchmark AIA Group and Midea Group are popular, and for Value managers, China Mobile and CNOOC are key overweights. Active managers have stayed away from both NIO and Xiaomi, so pressure to invest on the grounds of benchmark tolerance should be disregarded.

Communications

Report by Niko Partners

Positive sign for China’s video game market - Niko Partners forecast 500-700 games to be approved in 2022. Enforcement and compliance have become a major part of the NPPA’s role over the past couple of years and investors should continue to expect strengthening of policies and a crackdown on loopholes. Fortunately, ARPPU has been rising...this will be covered in Niko’s upcoming China PC Games Market and China Mobile Games Market reports, which will include a current market model and 5-year forecast, along with results of gamers surveys, interviews, trends analysis and M&A activity.

Communications

Report by New Street Research

New Street explains why they believe Chinese Telcos now offer the best risk:reward among large caps in the EM Telecoms sector. They are set to enter a multi-year period of outperformance and are likely to double on a 2-3 year view. Increases China Mobile target price to HK$90, China Telecom to HK$6.2 and China Unicom to HK$10.2. These are big upgrades and New Street do not take them lightly, but this is a very unusual situation. CT is considered the best near term pick, while CU has the most upside.