Liang Xiangyi, Managing Director of Asia Telecommunications and Internet Research at Citic Lyon Securities, stated that the performance of China's technology industry in the first half of the year was good, with mid-term profits increasing by 37% year-on-year. Many companies' second-quarter performance exceeded market expectations. However, the average valuation of the technology sector as of the end of August was only 10.6 times, reaching a historical low.
She expects that Chinese technology companies will continue to deliver steady performance, making them a value investment choice at the current low valuation. The previous share reduction by overseas institutional investors was mainly due to a bearish outlook on China's macroeconomic and consumer market prospects. It is believed that when the economy improves and consumer demand rebounds with the continued support of the authorities, funds will flow back into the technology sector.
Considering the weak macroeconomic outlook in China as a major potential negative factor, the bank is more bullish on defensive sectors in the technology industry that benefit from domestic demand growth, including gaming, tourism, and low-cost e-commerce. Tencent (00700.HK), Ctrip (09961.HK), Xiaomi (01810.HK), PDD Holdings (PDD.US), Meituan (03690.HK), and Alibaba (09988.HK) are the preferred stocks.
In the gaming industry, the bank is more inclined to choose Tencent over Netease (09999.HK). Liang Xiangyi predicts that driven by popular games such as Dungeon and Fighter, Tencent's online gaming business revenue could achieve double-digit growth in the second half of the year, with faster growth in international gaming business. In the low-cost e-commerce sector, she points out that PDD Holdings and Alibaba have consistently outperformed JD.com (09618.HK) and Kuaishou (01024.HK).
Looking ahead, she believes that domestic demand and overseas visitors to China will continue to support the growth of OTA businesses. In addition, considering the enormous size of the Chinese market, she predicts that the sales volume of Xiaomi automobiles could reach 1 million vehicles in as little as 5 years, faster than Tesla, which took 6 years to increase sales volume from 0.1 million vehicles to 1 million vehicles. She also points out that Xiaomi already has a sales network in multiple countries and regions worldwide, which is believed to help expand overseas automotive sales and estimates that Xiaomi automobiles could turn profitable by 2027.