UBS Positive on China's Internet Sector; Alibaba, Tencent Among Top Stock Picks

Seekingalpha2023-11-02

UBS assumed coverage of Alibaba (NYSE:BABA), PDD (NASDAQ:PDD), JD.com (NASDAQ:JD), Tencent (OTCPK:TCEHY) (OTCPK:TCTZF) and Meituan with Buy ratings.The analysts are positive on China's internet sector...

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BernardLL
2023-11-02
BernardLL
The sharks already set up their positions in China heavyweights

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With strong free cash flow, or FCF, generation for core operations and Capital expenditure, or CAPEX, discipline, many internet companies are also stepping up their shareholder returns through buybacks and dividends, lifting return on equity, or ROE, and earnings per share, or EPS, according to the analysts.Secondly, continuous earnings upgrades despite weak macro. The analysts said that their covered internet companies have on average seen consensus earnings upgraded by around 15% year-to-date in FY23, mainly on margin expansion. They think room for further operational enhancement (such, generative AI-related savings), spending discipline (on sales and marketing and staffing) and rational competition offer upside potential.Lastly, supportive macro policies and relatively light investor positioning. With the Chinese government turning more pro-growth, internet companies could be one of the prime beneficiaries across their key consumer-facing businesses (such as e-commerce, advertising, online games), the analysts added.UBS' China strategy team's tracking of foreign long-only funds indicate their positions in China are already below September 2022 levels. If global investors increase their weighting, the domestic internet sector should benefit as one of China's liquid proxies, the analysts noted.The analysts assumed coverage of Tencent, Meituan (OTCPK: MPNGF) (OTCPK: MPNGY) Alibaba, PDD and JD with Buy ratings, noting that they favor names which — are more sensitive to China's macro recovery and stimulus and have room for operational and cost optimisation, offering topline and margin upside.They also favor names which have undemanding valuations, strong balance sheets and proactive share buybacks; are big caps which may benefit from global fund flows increasing China's position, and are potentially underappreciated opportunities in 2024, leaving room for earnings surprises.The analysts' top stock picks are Meituan, Alibaba, Tencent, EDU, Trip.com (TCOM), PDD and JD.Alibaba (BABA) has a Strong Buy rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' average rating is Buy and the average Wall Street analysts' rating is Strong Buy.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":237073476722728,"gmtCreate":1698914805086,"gmtModify":1698914809648,"author":{"id":"3567412323589940","authorId":"3567412323589940","name":"BernardLL","avatar":"https://community-static.tradeup.com/news/3eb1ecb8182a3c31f7f8d7a53d00163b","vip":1,"hat":"https://static.tigerbbs.com/0a8758340a08196056f8bc1e54805193","crmLevel":6,"crmLevelSwitch":1,"idStr":"3567412323589940","authorIdStr":"3567412323589940"},"htmlText":"The sharks already set up their positions in China heavyweights","listText":"The sharks already set up their positions in China heavyweights","text":"The sharks already set up their positions in China heavyweights","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/237073476722728","repostId":2380069545,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":9,"commentSize":1,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2380069545"}