The current valuation of domestic Internet companies has not fully reflected AI expectations.$NETDRAGON (00777.HK)$Leading companies are expected to continue closing the gap in AI technology capabilities with globally leading companies.
According to Zhitong Finance APP, Tianfeng has released a research report stating that$Hang Seng Index (800000.HK)$And$Hang Seng TECH Index (800700.HK)$the significant valuation advantage. As of July 1, 2025, the price-to-earnings ratio (TTM) of the Hang Seng Index is 10.68, with a ten-year historical price-to-earnings ratio percentile of 63.98% and a dividend yield as high as 3.93%. The price-to-earnings ratio (TTM) of the Hang Seng TECH Index is 20.10, with a historical price-to-earnings ratio percentile of 8.95%, reflecting a historically low valuation level. Compared to major global markets, the Hong Kong stock market has posted significant gains year-to-date and ranks among the top globally, but in terms of valuation levels, the price-to-earnings ratios of the Hang Seng Index and the Hang Seng TECH Index are attractive compared to other major markets.
China's AI has global competitiveness, unlocking the medium to long-term valuation center.
The current valuation of domestic Internet companies has not fully reflected the expectations of AI, and leading domestic Internet enterprises are expected to continue to narrow the gap in AI technical capabilities with globally leading companies. As AI enters the application exploration stage, the technological accumulation and business practices of domestic Internet companies are gradually deepening, and their overall competitiveness may narrow compared to overseas Internet leaders, with hopes of achieving differentiated breakthroughs in certain scenarios. Chinese AI models such as DeepSeek and Tongyi Qianwen are approaching the capabilities of top global models; the domestic AI commercialization represented by Kuaishou KeLing is rapidly taking off, with the annual revenue running rate (ARR) breaking 0.1 billion dollars just 10 months after its launch. Tianfeng believes that with the rapid development of domestic Internet AI technologies, AI valuations are expected to be fully priced.
Gaming Industry: Clear signals of policy support, focus on product cycle changes.
In 2025, the issuance of gaming licenses will continue to grow. In the first quarter of 2025, the actual sales revenue of China's gaming market was 85.704 billion yuan, an increase of 17.99% year-on-year. At the policy level, the normalization of license issuance has alleviated concerns about the gaming industry to some extent. In the first quarter of 2025, a total of 362 domestic gaming licenses and 21 import gaming licenses were issued. Considering that the increase in license issuance in 2024 provides a good supply foundation, concerns about resident consumption on the demand side are expected to gradually improve, and it is anticipated that the overall revenue of China's gaming market (domestic + overseas) will still maintain high single-digit growth in 2025.
Advertising Industry: Economic fluctuations have slowed down industry growth, but some companies still have incremental growth.
Due to the high previous base, the growth rate of the advertising industry has slowed down, but some companies have outpaced industry growth mainly due to incremental growth in niche segments and their own improvements in advertising efficiency. AI is expected to bring new increments to the industry. Tianfeng believes that the domestic Internet advertising industry is likely to emulate the AI commercialization path of overseas tech giants, benefiting from AI in two dimensions: 1) continuously improving recommendation systems using AI to bring more precise placements, thereby enhancing user experience and average usage duration; 2) the introduction of AI advertising tools is expected to significantly optimize the creative process for advertisers, leading to a substantial increase in advertisers' ROAS (Return on Advertising Spend), thereby boosting advertising expenditure.
Local Life Industry: Flash sales + overseas expansion open up a second growth curve, and unmanned delivery is expected to bring a billion-dollar cost saving.
The grocery delivery market in Saudi Arabia is in a high growth phase, expected to grow to 2.77 billion dollars by 2028 at a compound annual growth rate of 18.2%. Tianfeng believes: 1) The overall mobile Internet penetration rate in the Middle East is relatively high and is currently in a period of rapid development, with a large influx of foreign population creating a favorable basis for the delivery environment; 2) Players like Keeta are expected to further increase delivery penetration; 3) The local take rate is relatively high with a good payment base for merchants, further opening up payment space. On the other hand, unmanned delivery is expected to become a new trend, potentially leading to a saving of billions in costs.
E-commerce Industry: Intensely competitive but relatively rational, returning to advantageous areas.
Tianfeng believes that the overall growth rate of the e-commerce industry has slowed down, mainly due to consumers being relatively cautious under the impact of the macro economy; on the other hand, the U.S. tariff policy has brought short-term shocks to e-commerce exports, but in the long run, e-commerce overseas expansion can shift costs through some price increases. After the implementation of the new tax rates, the order volume of fully managed business is expected to gradually recover, with an overall limited impact. It is expected that as various platforms gradually return to their advantageous areas and platform promotions become more normalized, the online penetration rate is expected to steadily increase year-on-year; Tianfeng believes that the e-commerce overall will continue four trends: 1) Consumers are rationally consuming, with continued demand for highly attractive products, while the average order value (AOV) of each platform may decline; 2) The gap in GMV growth rates and monetization rates between different platforms may narrow; 3) Different e-commerce platforms will focus more on supporting high-quality supply-side/merchant side while ensuring the quality of user-side services, emphasizing the suitability of their own strategies and platform resource endowments; 4) The old-for-new policy creates incremental industry growth.
Risk warning: Macroeconomic downturn; AI development not meeting expectations; geopolitical risks.
Editor/Lee
