Market sentiment has recently weakened, leading to a sector-wide correction, with valuations now between historical averages and the 25th percentile. Fundamentally, the sector maintains stable performance, with healthy growth in key segments like advertising and gaming. Leading companies such as Tencent (00700) continue to demonstrate improved profit margins and operating leverage. Despite lower valuations, the sector's fundamentals remain solid, and AI potential persists, enhancing its overall appeal.
CICC highlights Tencent as a core recommendation, alongside Kuaishou-W (01024), NetEase (09999), Chizicheng Technology (09911), and Bilibili (09626). The report notes that while AI is still in rapid development, domestic internet companies' investments are more pragmatic and sustainable compared to aggressive capital expenditures by overseas tech giants. AI is expected to become a key growth driver for select internet firms.
Most mainland online platform stocks now trade within a "reasonable" forward 2026 P/E range of 15x–20x. This suggests potential for dual upside in earnings and valuations if companies outperform expectations. Historically, Bilibili traded at premium valuations, while firms like BOSS Zhipin-W (02076), Tencent Music-SW (01698), and NetEase Cloud Music (09899) maintained mid-to-high multiples. CICC argues that for companies with strong long-term prospects and near-term earnings surprises, a P/E of 20x–25x remains justified. Current valuations across the sector provide fertile ground for future outperformers.
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