COREBarclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 162.Equity Research2 November 2021Restricted - InternalChina TechnologyToo Important to Be Ignored; Initiating CoverageWe are initiating coverage of the China Technology sector with a Positive view.As China is the second largest economy in the world (the largest if using PPP), investors cannot ignore or not invest in China, in our view. Chinese internet and tech companies have permeated nearly every aspect of the Chinese economy, partly driven by the absence of a legacy offline economy, so any investor keen to invest in China should not overlook this sector.We believe the Chinese government aims to make its home-grown internet and tech companies stronger not weaker, particularly in markets outside of China. Thus, we believe the recent new regulations from the government are meant to strengthen the competitiveness and longer term growth prospects for these companies, while improving the sector’s overall health. We would view the regulations as being a bitter pill for “short term pain but long term gain.”The recent selloff of China internet and tech companies has driven their valuations to the most attractive levels in recent memory, which we believe offers a good entry point for patient investors. We are initiating coverage of Alibaba, Tencent, Baidu, JD, KE Holdingsand SEA with Overweight ratings, PDD at Equal Weight, and Meituan at Underweight. Our Top Pick is BABA.There are several risk factors when investing in Chinese tech and internet companies including: 1) geopolitical risks – internationally, regionally in Asia or within China – which have been top of investors’ minds; 2) recent government regulations targeted at the sector which could negatively impact companies and the sector in the short term, sometimes severely (eg the crackdown in after school tutoring); and 3) the rapid pace of innovation and changing competitive dynamics can alter a company’s positioning in a sector quite meaningfully, and without warning.BABA (OW) – significantly below intrinsic value with cloud and Ant stake free optionsBEKE (OW) – It is effectively China’s MLS and dominant positioning in world’s biggest real estate marketBIDU (OW) – all the exciting nuggets overlooked by market – AI, AD, cloud, IoT, chipsJD (OW) –the largest retailer (online & offline) in China getting largerMPNGF (UW) – further upside in monetization may be a challenge plus expense pressurePDD (EW) – incredible innovator in transi...
