Credit Suisse has initiated coverage of Chinese Internet stocks. Its sector weighting is now listed as Overweight, but we have seen individual stocks with analyst calls that are mixed, from Neutral to Outperform. Mobile search and online travel information sites are expected to be the biggest gainers, as well as commerce sites.
Credit Suisse's Chinese Internet analyst report said:
We expect mobile search and online travel to be the focus areas over the next few quarters. Mobile eCommerce and mobile ads may take some time to take-off. Our stock picks are Baidu and Ctrip, and Changyou, Dangdang and Sohu as undervalued evolving business with potential catalysts.
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As you will see, some of the formal initiations are not as positive as the sector call may sound. In fact, there are more Neutral ratings than there were Outperform ratings.
- Youku Tudou Inc. (YOKU) was started as Neutral with a $26 price target, versus a $27 recent close.
- Vipshop Holdings Ltd. (VIPS) was started as Neutral with a $60 price target, versus a $58.36 close.
- NetEase Inc. (NTES) was reported as being Neutral and as Outperform, but the price target was listed as $85, versus a $72 recent price.
- Tencent Holdings, not listed in the United States, was started as Neutral.
- Sina Corp. (SINA) was started as Neutral with an $81 price target, versus a $82.50 close.
- Qihoo 360 Technology Co. Ltd. (QIHU) started as Neutral with an $89 price target, versus a $86.96 close.
- Shanda Games Ltd. (GAME) was started as Neutral with a $4.40 price target, versus a $4.18 close.
- Baidu Inc. (BIDU) was started as Outperform with a $180 price target, versus a $150.64 closing price.
- Changyou.com Ltd. (CYOU) was started as Outperform with a $43 price target, versus a $32.68 close.
- Ctrip.com International Ltd. (CTRP) was started as Outperform with a $60 price target, versus a $55.55 close.
- Sohu.com Inc. (SOHU) was started as Outperform with a $98 price target, versus a $73.88 close.
- E-commerce China Dangdang Inc. (DANG) was started as Outperform with a $12 price target, versus a $9.62 close.
The Outperform themes from being the beneficiaries of Internet economy expansion and mobile monetization include Baidu and Ctrip as the top picks. The undervalued evolving business with potential catalysts are Changyou, E-commerce China Dangdang and Sohu.
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The firm's position is that the Internet is becoming much more engaging in daily consumer life and that value creation from Internet-based businesses is taking a more important role in the overall economy. The firm also pointed beyond advertising and games, showing that monetization has rapidly gained pace in travel, tangible-goods e-commerce and local life services, and it also has emerged in frontier markets of Internet finance and online-to-offline applications.
Mobile search and online travel will thrive over the next few quarters, while mobile commerce and mobile advertising may take some time to take off. Looking into 2015, Credit Suisse expects that local services platforms and the international market will be the key potential areas for further opportunity.
As far as the companies being viewed as Neutral, there are some concerns here. The firm said that a structural slowdown of some sub-segments is occurring despite Internet economy expansion. It has a cautious stance against brand display ads, PC client-based multiplayer games and Internet gaming, competition in video and in search, and finally in future smart device evolution uncertainty.
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