9988-HK China Renaissance Securities (US) 08 Sep - 21

September 9, 2021
Strategy Focus
Strategy
The New Normal: How to live with disruption?

 Reschedule of a battle with the virus, restructure of mega-trends (digitalization,
new consumption patterns, automation), and an ongoing regulation push…
 …reset investment themes to focus on quality growth stocks with advanced

technologies and niche competitiveness, livelihood-related and green sectors.
 Our analysts also provide insights on sectors and stocks for the next 3-5 years.
Eighteen months after the outbreak of the COVID-19 pandemic, it is clearer that there will
likely be a “New Normal” rather than a return to the “old normal”, with a few changes. Amid
the reschedule of a prolonged battle with the virus (P.8), we find signs of restructure with
longer-term mega-trends (P.11), eg, increased digitalization, accompanied by shifts in
consumer behavior and consumption patterns, automation and robotization. We think
China will continue to climb the tech ladder and spur domestic consumption, although
regulation will remain an ongoing push to secure common prosperity, better governance,
more market fairness and healthy continued development of the whole economy (P.19).
To reset investment themes for the next three to five years, we suggest investors focus on
quality growth stocks, especially: 1) companies with advanced technologies and long-term
secular growth names in sectors of new infrastructure development; 2) companies with
strong R&D capacity, key technology in niche markets and high market recognition; 3)
livelihood-related sectors that align with policy priorities and demographic trends; and 4)
sectors that can ride the tide of China’s green development.
Within China Renaissance’s coverage, our sector analysts provide their thoughts and
views on how industries will be reshaped by the New Normal (P.6 & 23). They find that:
 For Internet sectors and tech firms, near-term regulatory pressure and
uncertainties may continue to suppress valuations and pose downside risks on
margin, profitability and growth (see Regulatory storm: Opportunities and disruptions,
July 16). They find the Healthcare, Consumer (F&B and Apparel) and Industrials
(Semiconductors, Advanced Manufacturing) sectors less impacted.
 National players with good brand names and more niche products, and
companies with accelerating overseas expansion may fare better in the era of
regulations. Macro uncertainties are also giving rise to new healthcare investment
themes such as internet healthcare and innovative drugs. Pent-up demand with an
educated customer base due to network effects and initiatives in new retail businesses
could help local services platforms thrive with more rational buying habits.
Research Team
Bruce Pang, PhD  Localization and domestic substitution, innovation and domestic consumption
China Renaissance Securities (HK) Ltd remain key to China’s continued growth. The industrial chain of new energy vehicles
+852 2287 1244 (NEVs) and autonomous driving is expected to see more policy support and
brucepang@chinarenaissance.com
opportunities from artificial intelligence (AI) and 5G breakthroughs. 5G rollout, auto
Melody Lai restocking and China localization amid higher levels of inventory as a new pattern
China Renaissance Securities (HK) Ltd remain key themes for the Semiconductors sector. The Software & Services sector
+852 2287 1605 could see increased virtual collaboration, digital transformation, cloud migration and
yeyelai@chinarenaissance.com integrated technology development. Amid continued domestic consumption upgrades
Louis Tsang and an aging population, the Healthcare sector could also benefit from domestic
China Renaissance Securities (HK) Ltd substitution, accelerated innovation, and the opening-up to the private sector.
+852 2287 1671
louistsang@chinarenaissance.com In Exhibit 1, we list 30 stocks that will ride the tide of “New Normal” in the medium term.
China Renaissance Securities (US) Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. Investors should consider this report as 1
only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not
registered/qualified as research analysts with FINRA.
PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING IN APPENDIX A

September 9, 2021
Strategy Focus
Table of Contents
Reset: investment themes – focus on quality growth stocks ..................................................................................................................6
Reschedule: A prolonged battle with the COVID-19 virus......................................................................................................................8
Resurgence of COVID-19 cases… ....................................................................................................................................................8
…continue to pressure the demand side and, especially, the supply side.........................................................................................9
Restructure: Identifying longer-term mega-trends ................................................................................................................................11
The strong could continue to get stronger........................................................................................................................................11
Consumer behavior and consumption patterns: large shifts ............................................................................................................11
Robotization: Changing not only the world, but also the people ......................................................................................................14
Automation with more robots is posing uneven pressure on sectoral employment.....................................................................14
China: A laggard with the catch-up effect in play.........................................................................................................................15
China climbing the tech ladder.........................................................................................................................................................16
Regulation: An ongoing push ...............................................................................................................................................................19
Rationale: The common prosperity campaign… ..............................................................................................................................19
…with better governance and more balance in the economy ..........................................................................................................20
Regulations are bearing fruit but it is still early days… ....................................................................................................................21
…with commitment to healthy and long-term economic growth.......................................................................................................21
Advanced Manufacturing......................................................................................................................................................................23
Semiconductors....................................................................................................................................................................................29
Healthcare ............................................................................................................................................................................................34
Software & Services .............................................................................................................................................................................39
Internet Retailing ..................................................................................................................................................................................42
Online Games.......................................................................................................................................................................................46
Fintech..................................................................................................................................................................................................50
Online Media ........................................................................................................................................................................................56
Live Streaming......................................................................................................................................................................................59
Education..............................................................................................................................................................................................63
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September 9, 2021
Strategy Focus
Exhibit 1: Stocks that will ride the tide of “New Normal” – CR sector analysts’ views
Company name Ticker Rating Target price Rationale
Advanced Manufacturing
Contemporary 300750 CH BUY RMB688.20 Well positioned for the carbon neutrality theme, given: 1) leading position in the
Amperex power battery sector; 2) fast growing energy storage business; 3) improving
Technology bargaining power with the development of lithium battery recycle business. Our
(CATL) target price is based on 88x 2022E P/E, in line with the stock’s 12-month average
forward P/E since Apr 2020, when the stock re-rated on NEV sentiment.
Lead Intelligent 300450 CH BUY RMB98.20 Key beneficiary of the carbon neutrality theme, given: 1) leadership in Li-ion
battery equipment with expanding product lines; 2) strong ties with the leading
power battery company CATL; 3) early-mover advantage in PV industry
expansion. Our target price is based on 43x 2022E P/E, 0.5 STD above its
historical one-year forward P/E average.
Desay SV 002920 CH BUY RMB143.20 Well positioned for smart driving trends, given: 1) rich technological accumulation
and customer resources in auto electronics sector; 2) strong competitive
advantage in smart cabin products; 3) fast developing software capability. Our
target price is based on 70x 2022E P/E, at +1.5SD of its past three-year average.
Joyson Electronic 600699 CH BUY RMB30.60 Key beneficiary of ongoing NEV and autonomous driving trends, given: 1) world’s
second-largest vehicle safety solutions provider with rich customer resources; 2)
breakthroughs in both software and hardware aspects of the auto electronics
sector; 3) fast developing software capability. Our target price is based on 25x
2022E P/E, at -0.5SD of its past three-year average.
BDStar 002151 CH BUY RMB60.40 Well positioned for smart driving trends, given: 1) key beneficiary of the BeiDou-3
Navigation navigation system; 2) breakthroughs in IoT and auto intelligent connectivity
products. Our target price is based on 96x 2022E P/E, at -0.5SD of its average
forward P/E during the BDS-1 and BDS-2 setup.
Semiconductors
TSMC 2330 TT BUY TWD875.00 TSMC should benefit from: 1) continued strong N5 orders driven by non-
smartphone demand; 2) Intel’s potential outsourcing delivering TAM expansion; 3)
its leading position in future advanced nodes (ie, N3/N2). Our target price of
TWD875 is based on one-year discounted 40x 2022E P/E.
SMIC-H/-A 981 HK BUY HK$42.00 We like SMIC for: 1) refocusing on legacy business, its core strength, which
688981 CH BUY RMB83.00 brings respite through potential valuation mean reversal; 2) client new tape-out
activities, which are healthy, adding weight to our expectations for business
continuity; 3) its A-share listing status, which helps attract onshore talent. Our
target price for SMIC-H is based on 2.5x 2021-22E P/BV; our target price for
SMIC-A is based on 19x 2021E P/S.
ASEH 3711 TT BUY TWD158.00 We like ASEH for: 1) its differentiated strategy (in-house IC substrate supply/ fine-
pitch WB focus), which brings healthy growth prospects; 2) the LTAs add margin
stability; 3) its backend business is still undervalued (implies 11x/10x 2021E/22E
P/E). Our target price for ASEH is based on 2.5x 2021-22E P/BV.
Silergy 6415 TT BUY TWD4,750.00 1) Silergy should be the biggest beneficiary of the next wave of China PMIC
localization; 2) its maiden autos contribution starts in 2021; 3) it is well placed to
benefit from its higher penetration in the data center market (high-ASP
motherboards); 4) a virtual IDM model and larger business scale should enable
Silergy to better manage the foundry supply shortage. Our Street-high target price
is based on a one-year discount to 65x 2022E P/E.
Healthcare
JDH 6618 HK BUY HK$143.74 Well positioned for post-pandemic internet healthcare trends, given it is a leading
internet healthcare player with strong technology-empowered supply chain
capabilities that provide closed-looped, full-service healthcare solutions. Our
DCF-based (WACC: 7.9%) target price implies 9.7x 2022E P/S.
Meyer 002690 CH BUY RMB62.37 Well positioned for localization trends, given that we project Meyer should sustain
its China CBCT market leader position, benefiting from strong oral care demand.
In addition, we are optimistic about Mindray’s expansion into the high-end color
ultrasound field. Our DCF-based (WACC: 8.2%) target price implies 52x 2022E
P/E.
Mindray 300760 CH BUY RMB573.16 Well positioned for localization and innovation trends, given that strong R&D,
sales channel and brand recognition are key competitive advantages in Mindray’s
success. Our DCF-based (WACC: 7.5%) target price implies 58x 2022E P/E.
Source: CRSHK estimates
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September 9, 2021
Strategy Focus
Exhibit 1 (Continued): Stocks that will ride the tide of “New Normal” – CR sector analysts’ views
Target
Company name Ticker Rating Rationale
price
Software
Weimob 2013 HK BUY HK$20.31 Weimob is one of the key facilitators for digital upgrades of retail, F&B and commercial
property industries in China, leveraging its CRM SaaS products. Our target price is
based on 18.9x FY22E P/GP.
Agora API US BUY US$68.04 We believe Agora will benefit from increased real-time engagement across the globe
and its technology infrastructure has strong competitive advantages. Our target price is
based on 28x 2022E P/S.
Kingsoft Corp. 3888 HK BUY HK$61.23 Kingsoft’s office software product should benefit from increased demand for online
collaboration and remote working. Our SOTP-based TP comprises our valuation for its
Office Software segment, Kingsoft Cloud (KC US, HOLD), Online Games segment, and
Cheetah Mobile (based on 30-day average market cap). We also apply a 15% holding
company discount.
Internet Retailing
JD.com, Inc. JD US BUY US$96.00 Well positioned for current trend, given: 1) strong performance especially in high-tier
cities; 2) social e-commerce tailwind; 3) opportunity in new initiatives. Our SOTP target
price is based on: JD Retail valuation of US$86 per share on a 2022E P/E of 25x; and
US$10 per share for major JD subsidiaries and investments.
Alibaba Group BABA US BUY US$270.00 Well positioned for current trend, given: 1) dominant market position; 2) diverse portfolio
Holding of platforms; 3) investments in lower-tier cities. Our SOTP target price is based on: 1)
US$556bn for core marketplace; 2) US$103bn for AliCloud; 3) US$110bn for strategic
assets; and 4) US$49bn net cash.
Meituan 3690 HK BUY HK$330.00 Well positioned for current trend, given: 1) dominant market position; 2) pent-up local
services demand; 3) new initiatives’ performance. Our SOTP target price is based on a
25x P/E for food delivery business, 25x 2022E P/E for in-store, hotel and travel
businesses, and 2x 2022E P/GMV for community e-commerce and intra-city retail
business.
Pinduoduo PDD US BUY US$157.00 Well positioned for current trend, given: 1) strong and high-quality performance; 2)
steady evolution of ecosystem; 3) new initiatives’ opportunity. Our SOTP target price is
based on 13.2x 2021E P/S for 3P business and 0.8x 2021E P/S for 1P business,
implying a blended 2021E P/S of 11.6x.
Vipshop VIPS US BUY US$35.70 Well positioned for current trend, given: 1) branding and price advantages; 2)
Holdings investments in new initiatives; 3) strong momentum in user growth. Our target price is
based on 25x 2021E P/E, 2SD above its five-year historical forward P/E.
Baozun Inc. BZUN US BUY US$48.00 Well positioned for current trend, given: 1) strong liquidity position; 2) adequate
resources for strategic investment; 3) initiatives and new channels expansion. Our
target price is based on 36x 2022E P/E, in line with past five-year average one-year
forward P/E.
Online Games
Tencent 700 HK BUY HK$725.00 We like the stock given: 1) strong content ecosystem around WeChat and mobile QQ,
Holdings with diversified monetization; and 2) a solid game pipeline in 2021. Our TP of
HK$725.00 is based on SOTP and implies a 30x 2022E P/E.
Fintech
360 DigiTech QFIN US BUY US$43.00 1) Well-established online consumer credit franchise in the near-prime segment; 2) the
360 brand name and strong support from its parent; 3) relatively low leverage amid
regulatory uncertainties with growing capital-light lending model; and 4) sound risk
management, as evidenced by strong financial results in 2020 despite the pandemic
impact. Our target price is based on 3.0x 2021E P/B derived from a three-stage Gordon
Growth Model.
Lexi Fintech LX US BUY US$18.00 1) Strong profitability recovery post-pandemic driven by asset quality turnaround; 2)
strong loan growth driven by new consumption strategy and a young customer cohort;
and 3) rapidly growing Buy Now Pay Later product, Maiya. Our target price is based on
2.8x 2021E P/B derived from a three-stage Gordon Growth Model.
Futu Holdings FUTU US BUY US$198.00 1) A competitive InvestmentTech platform that provides both closed-loop and low-cost
trading to retail customers, as well as a highly engaged social community; 2) growing
addressable market through overseas expansion and product cross-selling; 3)
continued share gain in existing markets in mainland China and Hong Kong (~15% retail
market penetration in HK as of 1Q21E; and 4) high operating leverage with 53% adj. net
profit margin in 1Q21. Our target price is based on 55x 2021E-22E average P/E.
UP Fintech TIGR US BUY US$38.50 1) Fast overseas expansion with over 50% new paying users in 1Q21 from overseas
markets; 2) upside potential in net margin as it further grows scale; and 3) key catalyst
from potential acquisition of Hong Kong license. Our target price is based on 60x
2021E-22E average P/E.
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September 9, 2021
Strategy Focus
Exhibit 1 (Continued): Stocks that will ride the tide of “New Normal” – CR sector analysts’ views
Online Media & Livestreaming
Bilibili Inc. BILI US BUY US$165.00 Well positioned for the current trend, given: 1) its unique content offerings; 2)
social e-commerce opportunity; 3) user growth potential outside the current
niche. Our target price is based on 15x 2022E P/S.
Kuaishou 1024 HK BUY HK$184.00 Well positioned for the current trend, given: 1) strong performance during
Technology pandemic which shows user upside potential; 2) social e-commerce tailwind; 3)
UGC platform tailwind; 4) attractive valuation. Our target price is based on 5x
2022E P/S.
JOYY YY US BUY US$74.00 Our BUY rating on JOYY rests on its undemanding valuation and dual growth
engines. Our SOTP-based TP reflects: 1) US$35 for Bigo, based on 1x 2022E
P/S; and 2) US$35/US$4 for net cash/equity investment with a 50% holding
discount.
HUYA HUYA US BUY US$18.20 We have a BUY rating on Huya, as SAMR’s decision enables investors to re-
focus on the company’s fundamentals, which we believe are user metrics,
revenue growth, and margin profile. Our TP is based on 2.4x 2021E P/S, which
is 1 SD below the historical trading P/S since 2018.
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September 9, 2021
Strategy Focus
Reset: investment themes – focus on quality growth stocks

In the next sections, we highlight disruption and uncertainties in the medium term that may
reconstruct the New Normal, such as:
 A prolonged battle with the COVID-19 virus and resurgence of new cases;
 Green shoots of innovation for the future, eg, digital and connectivity-driven dynamic, shifts of
consumer behavior and consumption patterns, robotization and China climbing up the tech
ladder;
 Regulation push that weighs on sector leaders and especially digital players amid the common
prosperity campaign and Beijing’s pledge for better governance and more balance in the
economy.
With China’s new emphasis on common prosperity, better governance and a more balanced
economy, as well as its re-commitment on the dual circulation strategy for sustainable growth and
development, we think China will continue to aim to spur domestic demand, innovation and self-
reliance (see 2021 Outlook: Recovery, Reform, New Economy-focused, January 14, 2021).
We suggest investors look closely at quality growth stocks in the following four categories, all of
which have been highlighted by China’s policymakers amid the New Normal of growth in the next
stage with a prolonged battle with the COVID-19 virus:
 Companies with advanced technologies and long-term secular growth names in sectors of new
infrastructure development: semiconductors, EV supply chains, digital transformation and
upgrade of traditional sectors such as logistics and autos, and AI.
 Companies with strong R&D capacity, key technology and specialties in niche markets, as
well as high market recognition.
 Livelihood-related sectors that align with policy priorities and demographic trends, such as
Consumer Staples (F&B and Apparel) and Healthcare.
 Sectors that can ride the tide of China’s green development, such as: clean and renewable
energy with more cost- and investment-competitiveness; energy storage, electricity
transmission and auto sector as beneficiaries of the green agenda; sectors with capacity cuts
and improving profitability (see A Greener China: The long journey, March 15, 2021).
Within China Renaissance’s coverage, our sector analysts also provide their thoughts and views on
how sectors and industries will be reshaped by the New Normal. They find that:
 The COVID-19 pandemic has: 1) boosted all online retail platforms’ gross merchandise volume
(GMV) and market penetration; 2) increased time spent on game live streaming, short-form and
vertical video platforms (with a focus on live content and strong interactivity), as well as
domestic online gaming time spent and in-game spending; 3) accelerated digitalization of
financial services (especially online lenders/online brokers/online insurers); and 4) deepened
online tutoring penetration and better facilitated education by the Software & Services industry.
 For Internet sectors and tech firms, near-term regulatory pressure and uncertainties may
continue to suppress valuations and pose downside risks to margin, profitability, and growth
(see Regulatory storm: Opportunities and disruptions, July 16, 2021). Yet, we think sectors
such as Healthcare, Consumer (F&B and Apparel), Industrials (Semiconductors, Advanced
Manufacturing) are less impacted by the latest regulatory storm.
 National players with good brand names and more niche products, as well as companies with
accelerating overseas expansion, may fare better in the era of regulations. Macro uncertainties
are also giving rise to new healthcare investment themes in areas such as internet healthcare,
medical devices and innovative drugs. Post-pandemic pent-up demand with an educated
customer base due to network effects and initiatives in new retail businesses could help local
services platforms thrive with more rational buying habits.
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September 9, 2021
Strategy Focus
 Localization and domestic substitution, innovation and domestic consumption remain the key
to China’s continued growth. For example, the industrial chain of NEVs and autonomous driving
is expected to see more policy support and opportunities from AI and 5G breakthroughs. 5G
rollout, auto restocking and China localization amid higher levels of inventory as a new pattern
remain key investment themes for the Semiconductors sector. The Software & Services sector
could see increased virtual collaboration, digital transformation, cloud migration and integrated
technology development. Amid continued domestic consumption upgrades and an aging
population, the Healthcare sector could also benefit from China’s call for localization and
domestic substitution, accelerated innovation in healthcare and device companies, and the
opening-up of medical institutions to the private sector.
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September 9, 2021
Strategy Focus
Reschedule: A prolonged battle with the COVID-19 virus
Resurgence of COVID-19 cases…

As the COVID-19 Delta variant rages, many economies around the world are facing continued
headwinds and less room for policy maneuver. We believe a sustained and vibrant global recovery
will not be seen without higher vaccination rates and availability of booster shots.
The global economy is not out of the woods yet, given that the resurgent virus and the necessary
restrictions may lead to another round of disruption, not to mention fiscal constraints on more
support packages, diminishing monetary policy scope and headwinds on exports.
In terms of sequential momentum, global industrial and trade activity may have already peaked for
the year in 2Q21. The global economy in aggregate is still improving, but at a slower pace. If China’s
economic growth loses steam amid COVID-19 resurgence, the rest of the world could see a further
headwind to growth momentum – from supply chain disruption to slower-than-expected normalized
consumption, as well as Beijing’s potentially more generous policy support.
Mainland China has largely contained the new variant waves. In ASEAN, Thailand and Indonesia
have seen daily case numbers start to moderate recently as well. However, Vietnam, the
Philippines, and Malaysia continue to experience a surge in cases, leading to a continuation of
already stringent curbs. In other regions, given the Delta wave concerns, even economies with low
infection rates are reinstating some controls.
Exhibit 2: The world is experiencing a new wave of COVID-19 cases: daily new confirmed
COVID-19 cases per million people, 7-day average (as of September 4, 2021)
Source: COVID-19 Data Repository by the Center for Systems Science and Engineering (CSSE) at Johns
Hopkins University, Our World in Data
While the outbreak of the Delta variant remains a primary concern in Asia, the region’s experience
appears to be diverging. Almost all economies are facing disruptions from both the supply and
demand sides – signaled by plunging PMIs and trade-related sub-indexes – but case numbers vary
considerably. We expect the COVID resurgence and related uncertainties to drag the region’s
recovery pace, while the upward momentum in global trade may have peaked. We think the new
waves of COVID-19 cases have dampened both domestic and global demand, with consumption
expected to take the biggest hit. The recent surge in the virus poses downside risk to growth regional
and globally, as consumption-led activity remains subdued. China is one of the best examples (see
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Strategy Focus
China NBS PMI (Aug 2021): An overall softening, August 31, 2021; China 2Q21 GDP: Slowing V-
shaped recovery, July 15, 2021).
…continue to pressure the demand side and, especially, the supply side
We think the revival in consumer spending is now disrupted, with resumption of restrictions and
ongoing concerns in the job market. Furthermore, the pandemic continues to bring supply-chain
and logistics disruptions to businesses.
The global semiconductor shortage, for example, threatens economic recovery and poses an urgent
problem for economies and sectors. A drop in consumer demand for vehicles at the onset of the
pandemic prompted semiconductor suppliers to shift production to other products. Automakers and
suppliers are likely to consider significant strategic changes to head off a repeat.
The resurgence of COVID-19 has affected factory and port operations in the region, while the chip
shortage continues to impact auto production and trade. Ports around the world remain congested
with vessels facing long waiting times to berth. The lead time for semiconductors continues to
lengthen, while demand for chips is set to remain high through at least 2022. Manufacturing has
been impacted by factory closures and supply chain disruption, which has renewed capacity
pressures (see our “China and Coronavirus” series: Virus disruption on supply chain: Goes south,
April 28, 2020; Virus disruption on global supply chain: Boomerang from the West, April 2, 2020;
Virus disruption on supply chain goes global, March 13, 2020).
Exhibit 3: Global business activity in terms of PMIs showed Exhibit 4: China Containerized Freight Index also spiked
signs of slowdown amid the COVID resurgence amid logistic disruption and port congestion
65
3,500
60
55
3,000
50 2,500
45
2,000
40
35 1,500
30 1,000
25
500
2020-01
2020-02
2020-03
2020-04
2020-05
2020-06
2020-07
2020-08
2020-09
2020-10
2020-11
2020-12
2021-01
2021-02
2021-03
2021-04
2021-05
2021-06
2021-07
2021-08
Jan-2019
Mar-2019
May-2019
Jul-2019
Sep-2019
Nov-2019
Jan-2020
Mar-2020
May-2020
Jul-2020
Sep-2020
Nov-2020
Jan-2021
Mar-2021
May-2021
Jul-2021
PMI: Global PMI: China PMI: US
PMI: EU PMI: Korea PMI: Vietnam CCFI Index
PMI: Indonesia PMI: India PMI: Malaysia
Source: Wind, Bloomberg, CRSHK Source: Shanghai Shipping Exchange (SSE), CRSHK
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Exhibit 5: Global semiconductor shortage threatens economic recovery and poses an urgent problem: automotive
semiconductor sales lagged in 2020 yet growth in most other segments is expected to exceed pre-pandemic estimates
Source: IHS, Strategy Analytics
Eighteen months after the outbreak of the pandemic, it is clearer that there will likely be a “New
Normal” rather than a return to the “old normal” with a few changes. Despite the bad news, we find
green shoots of innovation for the future, such as digital and connectivity-driven dynamic shifts of
consumer behavior and consumption patterns, and robotization, to name a few.
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September 9, 2021
Strategy Focus
Restructure: Identifying longer-term mega-trends

We believe the pandemic has been the catalyst for a change that has been on the doorstep of
industry for a while now. “Business as usual” should become something better, more efficient and
more productive. Consumer behavior and consumption patterns could see large shifts. Robotization
can provide intelligent solutions for activities such as manufacturing, domestic tasks and medical
care, which will allow people to fully unleash their potential by lowering their cost of living and
removing the need to do meaningless repetitive work.
The strong could continue to get stronger

We continue to believe that as the global economy stutters back to life, the strong companies are
getting stronger sustainably, as a result of healthier financials, better R&D, consolidation and M&A,
and changes in consumer behavior. Yet governments are keeping a closer watch on tech giants
and industry leaders more than ever, with government intervention and regulations (see 2021
outlook: Recovery, Reform, New Economy-focused, January 14, 2021).
Thanks to the work-from-home (WFH) dynamic and the digital/connectivity-driven enablement of

working and shopping online amid social distancing, COVID-19 turned out to be a tipping point for
many new economy sectors, as it changed consumers’ behavior and catalyzed many 2-B business
models – and we think this will likely continue. From ecommerce to online education, from Fintech
to online entertainment, from Cloud, SaaS, to gene technology, we see many new opportunities
thanks to the WFH dynamic, and the digital-/connectivity-driven enablement of working and
shopping online, and the rise of telemedicine, online healthcare and wellness, and at-home fitness.
New is replacing old at a faster-than-ever speed, incubated by nimble enterprises and a market
flush with capital.
Not all industries and companies have been affected equally amid the COVID-19 crisis. The strong,
most of which are industry leaders with solid fundamentals, are likely to get stronger or want to get
stronger – both consumer-related and with structural changes (eg, consolidation and M&A,
automation).
For those that were hit the hardest, they have had to depend on balance sheet resilience throughout
the pandemic, or the extent to which this has been strengthened by subsequent refinancing
exercises. This could create an opportunity for industry leaders with healthier financial statements
to take market share from smaller operators and improve pricing power, which in turn could generate
higher levels of growth.
Consolidation and M&A could also be a catalyst for getting stronger, and companies in a number of
sectors that experienced difficulties could become acquisition targets. M&A priorities are likely to be
revisited in many sectors, we believe. While M&A activity had generally been suspended during the
crisis, companies are likely to reconsider the type of assets on which they focus their capital
allocation, as well as the motivation for acquisitions. Digital capability, geographic footprint and
balance sheet are likely to gain ground among the reasons to sell small B2B businesses to market
leaders, in our view.
Social distancing measures within factories are already forcing companies to focus on improving
efficiency and productivity, which could act as a catalyst for automation spending to offset the higher
cost of labor, especially for larger companies with more to spend on capex. However, for China this
may be a double-edged sword, given that some multinational companies may start to focus on the
idea of onshoring production back to developed economies as a viable proposition.
Consumer behavior and consumption patterns: large shifts

Despite COVID-19’s temporary pause in the world economy’s great demographic shift, the global
middle class – households where per-capita spending is between USD11 and USD110 a day – is
rising fast. Research from the World Data Lab shows that more than 1 billion Asians are set to join
the global middle class by 2030, while India and China, the most populous countries, are expected
to add about three-quarters of a billion members between them. China, India and the US are
projected to retain the top three rankings as the countries with the largest middle-class populations.
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Strategy Focus
The other biggest contributors are also in Asia. According to the research, Asian countries already
make up more than half of the world’s middle class, but they account for only 41% of that group’s
consumer spending. The share is set to exceed 50% by 2032. Furthermore, the pandemic does not
appear to be materially affecting Asia’s long-term growth trajectory, and half of global consumption
growth could also come from Asia over the next decade, according to the McKinsey Global Institute.
Exhibit 6: Beyond India and China, most of the biggest Exhibit 7: Therefore, half of global consumption growth
contributors where the global middle class is forecast to over the next decade is forecast to come from Asia
grow most over the next decade are also in Asia (million)
Indonesia 75.8 Share of global B2C and C2C

transactions, offline and online in 54% 16% 15% 16%
Pakistan 59.5 2025E
Bangladesh 52.4
Share of households with upper-
Philippines 37.5 middle income and above
55% 9% 19% 16%
Egypt 29.6
US 24.2 Share of global consumption growth
from 2020-2030E
50% 25% 14%11%
Vietnam 23.2
Brazil 20.6
0% 20% 40% 60% 80% 100%
Mexico 20.1
0 20 40 60 80 Asia North of America Europe Rest of World
Note: Numbers are in millions, representing size of middle class Note: Percentages represent regions’ shares of respective categories
estimated to gain in respective countries over the next 10 years. of consumption in stated periods.
Source: World Data Lab Source: McKinsey Global Institute
It seems that during times of crisis, consumers prefer to stick to the brands they know well and trust
the best, including players with established names and well-founded relationships, fortifying them
against competition from disruptors. Brand loyalty is also likely enjoyed by larger and trusted names;
again, bigger is probably better, in our view.
Besides consumers often being less adventurous during times of economic stress, the large brands
typically over-index in the mainstream retailers and likely gain competitive positions versus niche
competitors. China Renaissance analysts highlight the solid luxury spending power of Chinese
consumers shifting back to domestic sources and away from travel spending abroad, thanks to a
positive financial outlook, the government’s encouraging measures to boost consumption recovery
and internal travel, as well as discretionary income allocation (see Go local, go digital, January 5,
2021).
Exhibit 8: The pandemic has helped China’s e-commerce Exhibit 9: China’s luxury goods market could see 25%
YoY growth to outpace that of total retail sales YoY growth in market size in 2021E (by retail sales value)
20%
18%
15% 15%
14% 14%
12%
10% 10% 10% 10%
9%
8%
7%
6% 6%
5%
0%
2019 2020 2021E 2022E 2023E 2024E 2025E
-4%
-5%
% YoY E-commerce % YoY Retail sales
Source: Euromonitor, CRSUS estimates Note: 2015 market size was positively impacted by foreign exchange.
Source: Bain, CRSHK estimates
China is expected to build the foundation of a “new development paradigm” based on the dual
circulation model in which domestic and foreign markets support and reinforce each other, and
where the domestic market is set to become the vital component of the country’s economic policy.
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The potential of the domestic market should be fully tapped, calling for the expansion of
consumption oriented toward improving people’s quality of life. New consumption patterns can
already be seen, such as: rising ecommerce penetration, growing popularity of group buy/grocery
ecommerce, luxury sales shifting domestically, and the increasing influence of Generation Z.
China’s Gen-Z consumption accounts for a significantly higher proportion of total social
consumption than in other markets: Gen-Z expenditure accounted for 13% of total household
expenditure in China in 2018; yet per capita monthly disposable income of Gen-Z in 2018 was 49%
higher than the national average of RMB3,501. China Renaissance analysts estimate annual total
expenditure of Gen-Z in 2035E in China to reach RMB16trn.
The China University Media Union’s 2020 survey of college students across the country shows that
80% of the interviewed college students – all of which are Gen-Z – are willing to support domestic
products. Excellent quality, high cost-performance, good performance and high-quality appearance
are the reasons why they choose to buy domestic products. Among the co-branded consumer
products preferred by the post-95 generation, clothing, sports shoes, and beauty are the prominent
categories among Chinese culture fashion brands.
Exhibit 10: Generation Z expenditure as % of total Exhibit 11: Gen-Z college students’ attitude to domestic
household expenditure, by country (2018) brands
79.8% 83.8%
3%
3%
2%
10% 9.4% 10.8%
7%
5% 1%
2% Willing to support Enthusiastic in Product quality of Satisfied with
domestic brands spending on domestic brands domestic brands
China Brazil Global United States domestic brands still has room to
Direct expenditures Impact on expenditure improve
% of total
Source: OC&C, Kantar Worldpanel, CRSHK estimates Source: Source: China University Media Union, data as of October
2020
Another sign of a potential shift in China’s consumer landscape is the government’s stated
commitment to address what it sees as growing inequality. China pledges to fight to alleviate poverty
and promote common prosperity. At a top-level meeting of the Communist Party of China in August
2021, Chinese leaders vowed to pursue a goal of Chinese citizens sharing in the opportunity to be
wealthy as the main objective for its second centenary goal of fully building a modern socialist
country. “Common prosperity” is not the prosperity for just a few nor an absolute equal distribution,
and should be advanced step by step and to “properly deal with the relationship between efficiency
and fairness”.
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September 9, 2021
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Exhibit 12: Income inequality in China Exhibit 13: Evolution of wealth indicators in China
25% 500%
20% 400%
15% 300%
10% 200%
100%
5%
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
China's net private wealth as a % of national income
Bottom 50%'s share as a % of China's pre-tax national income
China's net public wealth as a % of national income
Top 1%'s share as a % of China's pre-tax national income
Note: Dotted lines represent unavailable data. Source: World Inequality Database
Source: World Inequality Database
Robotization: Changing not only the world, but also the people
Automation with more robots is posing uneven pressure on sectoral employment
Machines now perform all sorts of tasks. Even before the pandemic, automatization and the
adoption of new technologies had been identified as major drivers of change in labor markets and
the nature of jobs.
New evidence shows that firms are responding to the crisis by adopting more technology. Demand
for mechanical replacements that can do human chores has skyrocketed around the world. Given
concerns on worker health and safety, business leaders and policymakers are taking a much closer
look at how they are leveraging technology going forward – not just for efficiency, but sustainability.
An increasing number of businesses are seeking to protect their supply chains from potential
operational deficits that could damage the stability of production. In fact, the service robots sector
is expected to grow at an even higher rate than industrial robots, considering opportunities that lie
in medical and pharmaceutical applications, agriculture and an already booming e-commerce sector
that will continue to thrive post-COVID.
Exhibit 14: Regional variation of industrial robot market in Exhibit 15: Recovery of the industrial robot market also
recovery: China and Americas achieving the highest keenly dependent on underlying sector health
growth rates towards pre-pandemic level
EMEA Automotive
Chemical
Americas
Electronics
China Food & beverage
Plastic & rubber products
Japan
Semiconductor
Rest of APAC Others
85% 95% 105% 115% 125% 80% 90% 100% 110% 120% 130%
2020 2021E 2022E 2023E 2020 2021E 2022E 2023E
Note: Interact Analysis forecasts Source: Interact Analysis forecasts
We think that intelligent automation is the key not only to post-pandemic recovery, but to post-
pandemic growth and progress. And the employment picture is not rosy for all industries. As firms
incorporate new technologies, more and more of the labor market is quickly entering the digital
space, affecting workers differently.
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The good news is that companies usually don’t automate all of a worker’s tasks in one go, which
leaves time for workers to receive necessary training to upgrade their skills. And in industries where
businesses are becoming increasingly complex, more “human thinkers” with skills in software
coding and engineering design, for example, are needed to work in complementary roles with
machines and to help machines to improve their efficiency.
Robots will enable humans to focus on their unique human capacities rather on what machines can
do better. And there will still be jobs for humans in manufacturing. Employers will need human
workers to apply judgment and creativity to processes and decision making, redistributing the
repetitive and mechanical work back to the machines.
In fact, we believe automation may not destroy but rather create more jobs for companies and
economies that widely adopt industrial robots and service robots. Automation through robotics has
enabled individual companies and countries/regions to decrease production costs and/or improve
product quality, which ultimately boosts their competitiveness in the market and creates additional
demand for jobs. Moreover, despite the automation of repetitive tasks at factories and offices,
human beings are still much needed for creative duties that require judgement and problem solving.
There are many previous examples. In the upswing after the 2008 financial crisis, companies like
General Motors, Ford, Fiat-Chrysler and Tesla invested extensively in robotics and automation. As
a result, thousands of new jobs were created within the automotive industry. A 2015 workforce study
by Deloitte said that automation in the UK had created 3.5 million high-skilled jobs over the past 15
years ("From brawn to brain: The impact of technology on jobs in the UK", Deloitte, 2015). The
Asian Development Bank said that automation had created an extra 34 million jobs in Asia (“The
Future of Work: Regional Perspectives”, Asian Development Bank, 2018). Industrial employment in
Germany is expected to rise by 1.8% by 2021, according to Center for European Economic
Research (“Digitalization and the future of work: Macroeconomic-consequences for tomorrows
employment, unemployment and wages”, Centre for European Economic Research, 2018).
China: A laggard with the catch-up effect in play

China has showcased its robot technology, as well as its passion to accelerate the development
and deployment of robots. The strategic plan Made in China 2025 came as a blueprint to upgrade
the manufacturing capabilities of Chinese industries. Special projects of “Intelligent Robots” are
being deployed in accordance with the requirements of the “Innovation Chain” in order to promote
the rapid development of intelligent robot technology. The focus is on basic cutting-edge
technologies of intelligent robots, new-generation robots, key common technologies, industrial
robots, service robots and special robots.
Between 2014 and 2017, China added over 1,000 new robotics firms, according to China’s Ministry
of Industry and Information Technology. And for eight years, China has ranked as the world’s top
market for robotics equipment, installing 140,500 industrial robots in 2019. Its total is nearly triple
that of second-place Japan, which installed 49,900 units, according to the International Federation
of Robotics (IFR).
Data from IFR also show that nearly 167,000 industrial robots were delivered to China in 2020
including during the COVID-19 pandemic, up 19% YoY. During the pandemic, offices, malls and
medical centers have been adopting robots as enforcers of a new coronavirus hygiene protocol.
However, China’s automation drive is still at a very early stage and lags behind other developed
economies in other ways. According to IFR, China ranked 15th globally in “robot density” in 2019,
a measure of how many industrial robots versus human workers are used in the manufacturing
process. China has 187 robots installed per 10,000 employees, while global automation leaders
Singapore and South Korea have 918 and 868 robots installed per 10,000 workers, respectively.
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Exhibit 16: Robots for logistics sector, public environment Exhibit 17: China lags in robot density, but leads in
and domestic tasks are driving the upward trend industrial robot installations
300 45% 1500 1311 1287 150

1248
40%
250
35% 938
200 30% 1000 100
25%
150
20%
500 346 364 50
100 15% 228 273
199 139 187
10% 95
50
5%
0 0% 0 0
Logistic robots Robots for Medical robots Defense
public applications
Robots for
domestic
Entertaiment
robots
Germany US Japan China
environments tasks Automotive
General industries
2018 2019 2020 2021E 2022E 2023E CAGR 2020-23E (RHS) Overall density
Industrial robot installations ('000 units, RHS)
Note: Unit sales of logistic robots, robots for public environment, Note: Data as of end-2019. Robot density is defined as total number
medical robots and defense applications are in ‘000 units, while robots of robotic units to every 10,000 employees in a particular sector.
for domestic tasks and entertainment are in million units. Source: International Federation of Robotics (IFR)
Source: International Federation of Robotics (IFR) forecasts
Deploying more robots in manufacturing will be key to sustaining China’s annual GDP growth of 4%
to 5% in the next 10-15 years, in our view, since they can make the tasks done by China’s smaller
factory force faster and more efficient. More automation is necessary for China to realize its full
economic potential, but it also represents a “double-edged sword” for Chinese policy planners.
While automation can lift productivity, it may also suppress some of the demand for real labor, while
at the same time lowering workers’ wages and reducing the flow of new workers to factories. China
may need to retrain factory workers or transfer low-skilled jobs to more productive and higher-skilled
sectors to make up for automation and other technologies that will replace jobs. For China, we
expect this is not a simple task.
China climbing the tech ladder

We continue to believe that China will act as the primary engine and a vital stabilizer of the global
economy, while geopolitical risks and tensions are likely to persist. This will likely prompt Beijing to
focus on the “dual circulation” strategy – increasing domestic demand, thriving home-grown
innovation expanding value-added exports, as highlighted in its 14th Five Year Plan and Long-
Range Objectives Through the Year 2035. The country is at a pivotal stage of transforming its
growth model, in our view, to improve its economic structure and foster new growth drivers.
Consumption, as well as industrial upgrading and innovation, look set to benefit from government
policies, in our view, and become the new engines of China’s growth (see 2021 outlook: Recovery,
Reform, New Economy-focused, January 14, 2021).
Technology plays a vital role in China’s future development due to the concrete advantages brought
by the implementation of innovation to society in terms of improved productivity, and the government
has underlined the necessity to give priority to technologies that are considered strategic for the
nation’s success, such as semiconductors, AI, 5G and biotechnology.
We expect Sino-US tensions are unlikely to ease or increase significantly in the near term. We think
the likelihood of a materially tempered Sino-US relationship is unlikely, considering bipartisan
support in the US for pushing back on some of the advancements China has made despite the new
US administration. However, we think that shifts in regional production value chains into other
places are unlikely to materialize in the near term despite the increase in global trade tensions in
recent years.
Economic development requires the accumulation of knowledge on production and its use in more
complex industries. Growth is being driven by a process of diversification to enter more, increasingly
complex production chains. Poor countries produce few things that everyone knows how to produce,
while rich countries produce many things, including some things few countries know how to produce.
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The promotion of a hard decoupling impacted the global supply chain, especially the technology
sector. Given China’s current central role in global value chains (GVCs), as well as its unique
position in manufacturing and export of manufactured products, we believe it would be expensive
for any other country, or the rest of the world, to cut ties with China. This, in our view, is unlikely to
derail China’s established central position on the world stage.
Exhibit 18: China is a critical player in GVCs, Exhibit 19: China is deepening its domestic supply chain
considering its significant share of manufacturing and but continues to lag other countries
exports in the world (as of 2018)
30% 95%
25% 90%
20% 85%
15% 80%
10% 75%
5% 70%
0% 65%
60%
na
er n
M a
o
do a
Tu ia
Th ey
ilip nd
Vi es
m
an
pa
re
ic
di
U
na
55%
rk
n
hi
Ph ila
ex
ne
In
Ko
m
pi
Ja
C
et
a
05
06
07
08
09
10
11
12
13
14
15
16
G
In
20
20
20
20
20
20
20
20
20
20
20
20
Share of world manufacturing China US Germany
Share of world manufacturing exports Japan Korea Taiwan
Source: World Development Indicators - World Bank, CRSHK Note: Chart shows the percentage of domestic value added in gross
exports.
Source: Trade in Value Added Database (TiVA Database) –
Organization for Economic Cooperation and Development (OECD),
CRSHK
The diversity of tacit knowledge – or know-how – is what a successful society has at the heart of its
economic growth story. China is doing well on this front, in our view, and the increasing
technological level of its exports even amid trade tensions supports its diversifying of export
destinations.
Exhibit 20: China continued to improve its ranking of export complexity in the past two
decades, even amid trade tensions
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
0
10
20
30
40
50
60
Japan Germany US China India
Note: Index measures the diversity, technological sophistication and volume of exports. Source: Growth Lab at
Harvard University
China ranked 16th globally when judged by the complexity of its exports in 2019, moving up three
places since the onset of the trade war in 2018, according to the Economic Complexity Index (ECI)
released by Harvard University’s Growth Lab. It also made the greatest improvement among the
most complex countries in the past two decades, moving up from 42nd place in 2000. The ECI
measures the diversity and technological sophistication of goods exported by a country, as well as
the volume of exports, and is able to closely explain differences in country incomes. The US ranked
11th in 2019, with the gap between the world’s two largest economies more than halving over the
past decade.
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That said, it is time for China to move from taking know-how from across the world into self-driven
innovation, in our view. President Xi Jinping also pledged at the Global Trade in Services Summit
of the 2021 China International Fair to continue to support globalization, as well as to expand trade
in intangible products such as software, tourism and education, where it had a large deficit prior to
the pandemic. Xi also vowed to increase support for the growth of the services sector in Belt and
Road partner countries and share the country’s technological achievements with the rest of the
world.
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Regulation: An ongoing push

Recently, various regulatory agencies in China have begun to scrutinize companies in internet and
technology-related sectors on a range of issues, with myriad new rules and enforcement
mechanisms. We believe that Chinese companies may continue to be exposed to regulatory
uncertainty in cases relating to: anti-trust and anti-monopoly supervision; M&A irregularities; data
security; workers’ safety and labor rights; consumer protection; controversial industries and juvenile
protection; revamping of finance holding company and VIE structures; and overseas listing. We
anticipate short-term disruption to market sentiment and pressure on valuations of offshore-listed
Chinese companies in related sectors amid the risk of ongoing regulatory pressure (see Regulatory
storm: Opportunities and disruptions, July 16, 2021).
The crackdown on the technology sector in recent months has been mainly geared toward reducing
the sway of large firms and marking the evolution of its socialist market economy from a poor society
to a thriving economy. Beijing has signaled businesses should expect more regulation in years to
come. And Chinese firms have been strongly encouraged to focus on working for the common
prosperity, eyeing social value and ideological principles to avoid regulatory entanglement down the
road.
However, we think that in the medium to long term, China can balance the recent flurry of regulatory
measures with securing longer-term growth and addressing fairness, equality and justice with
greater efforts to build a modern regulatory environment and social governance framework. China’s
flourishing private sector can continue to grow and the country’s yawning wealth gap can be
narrowed, providing great credence to the “common prosperity” ideology, which is the realization of
Chinese socialism imposed upon market-based, modern activity, in our view.
The paradigm shift in growth, development and governance may speed China's economic
rebalancing towards consumption-driven growth to reduce reliance on exports and investment. We
believe the country can be more focused on grassroots consumption as a key economic multiplier
rather than capital-intensive investment, which has been popular in past decades.
But we think the authorities need to carefully manage the pace and intensity of the regulatory
campaign in order to complete major economic and social development targets set for this year and
the next 5-10 years. Officials can better communicate with the market about the motives behind the
regulatory push and telegraph future regulatory hotspots, in our view, since investor concerns may
be driven less by the substance of proposed regulations and more by cadence and communication.
China may learn from other economies’ models that are proven to be successful and operating
smoothly, in our view.
Rationale: The common prosperity campaign…

After concluding a campaign in 2020 to eliminate absolute poverty, China is now pledging to make
“solid progress” towards common prosperity by 2035 and “basically achieve” the goal by 2050.
At the meeting of the Communist Party’s Central Committee for Financial and Economic Affairs in
mid-August, President Xi highlighted the goal of common prosperity, allowing “some people to get
rich first and then guide and help others to get rich together”. The meeting also pledged to “smooth
social mobility to give more people opportunities to get rich and shape a development environment
where everyone can take part”.
The top-level meeting emphasized “the third distribution”, explicitly encouraging high-income
individuals and rich enterprises to contribute more to society through charity and donations to the
poor. Secondary income distribution measures such as taxation and other income redistribution
levers will also be enhanced, helping to expand the proportion of middle-income citizens, boost
incomes of the poor, “rationally adjust excessive incomes”, and ban illegal incomes. Other measures
would include improving public services and the social safety net.
Some corporate giants have already announced major voluntary gifts and charitable donations,
sharing wealth and redistributing ultra-high earnings. Firms have engaged in a wide variety of
endeavors, from investing in poverty alleviation to donating funds for COVID-19 relief or other social
causes.
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But common prosperity is not egalitarianism: To promote common prosperity, the focus has been
placed by policymakers on reducing large income differences in the form of regional gaps, urban-
rural gaps, and income gaps. Increasing incomes and improved public services would be positive
for consumption, and a better social safety net would lower precautionary savings.
The common prosperity concept also covers access to public services. That means the privatization
of public services such as education, elderly care and medical care will recede, and the government
will emphasize the role of inclusiveness and affordability among these service providers, and be
strict in monitoring prices.
There are an increasing number of regulations to protect the common good as well as induce
awareness and progress toward commitment to common prosperity among large Chinese firms,
aiming to inject a sense of fairness into economic practices. However, we believe that policymakers
are likely to tread cautiously so as not to derail a private sector that has been a vital engine of growth
and jobs in China’s economic opening-up.
“Common prosperity” as an idea is not new in China, but is undergoing a sharp escalation and
heightened commitment in recent official rhetoric. In our view, delivering common prosperity is not
just an economic objective but core to the Party State’s governing foundation. Under a hybrid policy
of “socialism with Chinese characteristics”, the regulatory environment in China is much more
concentrated and powerful than in developed economies and, in our view, is in some areas
ideologically led.
…with better governance and more balance in the economy

The President’s speech on common prosperity also called for better governance and more balance
in the economy. Recently, China released a five-year blueprint calling for greater regulation of vast
parts of the economy, providing a sweeping framework for the broader crackdown on key industries,
as well as giving definition to the time extent of the regulatory reset.
On August 11, 2021, the Central Committee of the China Communist Party and the State Council
of China jointly released a five-year plan to build a modern regulatory environment for strategic
sectors, including technology, public health, education, biosecurity, environmental protection and
anti-trust. Key points from the plan include:
 “Actively promote legislation” in areas such as national security, technological innovation,

public health, culture and education, ethnic religion, biosecurity, ecological civilization, risk
prevention, anti-monopoly, and foreign-related issues.
 “Intensify law enforcement in key areas related to the vital interests of the people”, including
food and medicine, public health, natural resources, ecological environment, safety production,
labor security, urban management, transportation, financial services, education and training.
 Ensure “healthy development of new business forms” with “good laws and good governance”
related to digital economy, internet finance, artificial intelligence, big data, and cloud computing.
 Use the internet and big data in law enforcement: “Strengthen the construction of the national
‘Internet + supervision’ system, and realize the integration and aggregation of data from
supervision platforms by the end of 2022.”
 Promote openness in government affairs: “Adhere to openness as the normal, non-openness

as the exception, and have the government become more open and transparent to win more
understanding.”
To secure growth and development, we think China’s policymakers would like to address and
resolve social issues effectively and efficiently to ensure social fairness, justice, equality and
national safety, as well as to prevent risks by providing more public goods and services, and making
a more active policy shift towards modernized social and economic governance, rather than
returning to a more nationalized economy that favors stability and protecting SOEs.
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Regulations are bearing fruit but it is still early days…
China has seen initial progress on preventing the disorderly expansion of capital, early results in its
crackdown on “big tech”, and steady improvement in fair competition, said President Xi Jinping at
the 21st meeting of the Central Committee for Deepening Overall Reform on August 30, 2021.
Xi mentioned fair competition is necessary to improve the social market economy and promote
common prosperity, underlining efforts to foster a level playing field, create broad development
space for all types of market entities, and better protect the rights and interests of consumers in
accordance with the strategic vision of fostering a new development paradigm, and promoting high-
quality development and common prosperity.
Yet the anti-monopoly mechanism should be improved and the anti-monopoly supervision force
should be strengthened, according to the meeting. To serve the “big picture” and the overall
interests of China’s economic and social development, measures should be taken to guide
enterprises under the leadership of the Party with “guide and supervise”, clear rules, effective
regulations and greater policy transparency.
The meeting stressed efforts to further strengthen law enforcement and jurisdiction in key areas,
including the platform economy, scientific and technological innovation, information security and
ensuring people’s livelihoods. Curbing the “disorderly expansion of capital”, first presented at a
central economic planning meeting in late-2020, was listed as one of the government’s eight most
important economic tasks for 2021, along with strengthening technological innovation, boosting
domestic demand and pursuing carbon neutrality.
We suggest investors keep a close eye on the following events as potential signals of near-term
easing of recent regulatory turbulence:
 The follow-up and release of detailed rules by authorities on Chinese companies’ overseas
listings, together with the amendment of the State Council’s special regulations on overseas
equity fundraising and listing (see Riding the tide: A more active and diversified market, July
30, 2021; Regulatory storm: Opportunities and disruptions, July 16, 2021);
 Chinese ADR companies with secondary listings in Hong Kong to be included in the Stock
Connect Scheme for southbound trading, with shorter waiting periods and fewer inclusion
criteria (see Hong Kong market: On the back of a rising giant, December 16, 2020; Southbound
inclusion: An expected roadmap, June 22, 2020);
 Any reciprocal agreements reached between China and the US regarding cross-border audit
supervision and capital markets’ enforcement cooperation (see Chinese companies’ VIE
structure: 10 Q&As, December 11, 2020; Chinese ADRs: The journey home, June 11, 2020;
An evolving storm on Chinese ADRs: 6 Q&As, May 18, 2020).
…with commitment to healthy and long-term economic growth

Chinese new economy companies are seeing a higher regulatory bar or stricter requirements in the
US. And there are more regulations for them at home as well, because it has taken these companies
decades to grow and thrive to the point at which they are perceived to have the potential to pose a
threat to fair competition.
We view the latest regulatory move as a continuing effort on China’s regulatory reform path, seeking
to achieve more market fairness and encourage healthy continued development of the whole
economy, as well as of areas where internet companies’ potential monopoly power has a material
impact. We think the background and timing of this round of regulation are in line with: 1) global
concerns around data monopolies, and generally increased scrutiny of technology companies
elsewhere; and 2) China’s prioritization of the “dual circulation” model, which calls for a better
business environment for the real economy, especially SMEs.
In recent years, China has encouraged innovation and development in the Internet sector. Adjusting
priorities now, to establish a fair environment for SME businesses in the e-commerce,
manufacturing, and service industries, is consistent with the focus on “dual circulation” of the country,
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September 9, 2021
Strategy Focus
in our opinion. Internet companies’ value creation to merchants and users should also be recognized
and appreciated by the authorities.
Exhibit 21: China – major regulatory updates in August 2021

Date Regulatory agency Key summary
Anti-trust
August 3, 2021 State Administration SAMR is launching an investigation into price gouging by distributors of automotive
for Market Regulation (SAMR) ICs.
August 15, 2021 State Administration SAMR issued draft regulations and detailed rules aimed at tackling unfair
for Market Regulation (SAMR) competition and companies’ handling of critical data. The regulator is seeking
public opinion on the new rules until Sep 15, 2021.
August 17, 2021 State Council The regulation for safe protection of critical information infrastructure was passed and
went into effect on Sep 1, 2021.
Financial market
August 1, 2021 China Securities Regulatory Chinese and US regulators shall continue to enhance communication under a
Commission (CSRC) principle of mutual respect and cooperation, and properly address the issues related
to the supervision of China-based companies listed in the US.
August 23, 2021 State Council China’s State Council published guidelines to tighten scrutiny over accounting firms in
a fight against financial forgery, vowing “zero tolerance” toward misconduct.
August 23, 2021 Ministry of Finance China’s Ministry of Finance will cooperate with the Ministry of Justice to push forward
long-stalled legislation on public-private partnerships (PPPs) as soon as possible.
August 24, 2021 Shanghai Municipal Government Shanghai issued the Fourteenth Five-Year Plan to upgrade its role as an international
finance hub by 2025 and further bolster its position in serving the development of
China’s economy.
Data security
August 20, 2021 National People’s Congress Standing China passed the Personal Information Protection Law (PIPL), which will take
Committee effect on Nov 1, 2021. The PIPL incorporates a comprehensive set of rules around
the collection, processing and protection of personal data, and bans illegal trade or
provision of personal information, etc.
August 20, 2021 5 departments including Cyberspace The Regulations on the Security Management of Automobile Data (for Trial
Administration of China (CAC) Implementation) was issued, and will take effect on Oct 1, 2021.
August 24, 2021 Cyberspace Administration of China Sheng Ronghua, vice minister of the CAC, said at the State Council briefing that the
(CAC) rules to protect critical infrastructure are for all companies, no matter what kind they
are or where they are listed, and they must be involved in ensuring network security.
August 27, 2021 Cyberspace Administration of China The CAC issued a new opinion on the regulation of algorithm recommendation in
(CAC) the Internet information service sector, stating that algorithm-suggested service
providers should not use the algorithms to falsify or highjack traffic; to withhold
information; to over-recommend or to manipulate relevant record charts. The
regulator is seeking public opinion on the new rules until Sep 26, 2021.
August 27, 2021 Tianjin State-owned Assets Tianjin has asked state-backed companies to migrate their data from private cloud
Supervision and Administration operators like Huawei, Alibaba and Tencent to a state-backed cloud system by
Commission (SASAC) September 2022.
Social governance
August 2, 2021 State Administration of Radio, Film and SARFT launched a one-month investigation into online variety shows, requiring strict
Television (SARFT) control of “idol cultivation programs” and online variety programs; and resisting bad
tendencies such as chasing stars, speculation and “money worship”.
August 17, 2021 President Xi Jinping President Xi made remarks at the 10th meeting of the Central Committee for
Financial and Economic Affairs: to promote common prosperity in the pursuit of
high-quality development and coordinate work on forestalling major financial risks.
August 30, 2021 National Press and Publication Online game providers can only offer one-hour of services to under-18s from 8pm
Administration (NPPA) to 9pm.on Fri-Sun and public holidays, in response to growing concern over gaming
addiction among minors.
August 30, 2021 State Administration SAMR will further regulate the sharing economy, a sector that includes companies
for Market Regulation (SAMR) facilitating ride-sharing, bike-sharing, home-sharing and even the pooling of battery
packs for phones.
August 31, 2021 Ministry of Housing and Urban-Rural The Housing Ministry aims to limit increases in urban rents to no more than 5% per
Development (MOHURD) year and make homes affordable to new immigrants and young people.
August 31, 2021 8 departments including National The departments jointly issued a guideline on pilot programs to deepen price reform
Healthcare Security Administration of healthcare services, aiming to have experience gained from pilot programs ready
(NHSA) and National Health for national adoption by 2025.
Commission (NHC)
Source: SAMR, State Council, CSRC, Ministry of finance, National People’s Congress Standing Committee, CAC, SASAC, SARFT, NPPA,
MOHURD, NHSA, NHC, CRSHK complied
22
s
Pls
September 9, 2021
Industry Update
Advanced Manufacturing
NEV and autonomous driving are key drivers of the post-

pandemic economy recovery
Top Picks Ticker Rating TP
CATL 300750 CH BUY RMB688.20  NEV sales to maintain strong momentum given global policy support.
 Auto chips shortage and rising cost of NEV raw materials are potential risks.
 Top sector pick: CATL (BUY).
Lessons learned: Global auto sales have been hampered by the supply chain disruption
caused by the COVID-19 pandemic, especially auto chips (ie, MCU). While we expect the
chip shortage will continue until late 2022E, global new energy vehicle (NEV) sales have
staged a strong rebound since 2H20 amid stimulative policies worldwide (including major
economies such as China, the EU and US), supporting electrification reforms with an aim
to revive the post-pandemic economy. We expect NEV demand growth to remain strong
in coming years.
Post-pandemic challenges: The new coronavirus variant continues to weigh on

operations for auto spare parts suppliers, as BOSCH suspended the operation of its factory
in Malaysia after a recent outbreak in the country. Rising raw material prices (eg. lithium)
due to strong global NEV demand could continue to squeeze midstream power battery
players’ margins and become a potential risk to China’s NEV supply chain.
Key sector themes: 1) Power batteries to benefit from robust NEV demand. Global
sales of NEVs reached 3.24mn units in 2020 according to CAAM, a threefold increase over
2016. China is the world’s second-largest NEV market by sales, accounting for 40-50% of
total global sales in 2020, according to EV Volumes. In the Development Plan for the NEV
Industry (2021-2035) published by the State Council in November 2020, NEVs should
represent around 20% of domestic new vehicle sales by 2025. Based on our estimates that
new car sales in China will reach 33mn units in 2025E (2020: 25mn), sales of NEVs could
reach 8mn in 2025E, implying a 45% five-year CAGR. Power batteries, as the most
important component of NEVs (40-50% of a NEV’s manufacturing cost per GGII), should
benefit from strong demand for NEVs, in our view. We estimate China’s installed power
battery capacity will exceed 500GWh by 2025E, implying a 50% five-year CAGR. 2)
Autonomous driving to see more opportunities from artificial intelligence (AI) and
5G breakthroughs. Rapid technological developments are not only pushing the pace of
autonomous driving rollout among new and traditional automakers globally, but also
resulting in a growing number of applications for automated driving features. That growth
should benefit auto parts makers and the new “technology OEMs”. We see Chinese
companies as well positioned, given their R&D and product development, to participate in
rising global demand, as well as the ongoing theme of domestic substitution. Against a
backdrop of robust industry development, solid growth and, in China, domestic substitution,
we see investment opportunities in Chinese players in the autonomous driving industry.
Stock ideas: We like CATL (BUY) and Lead Intelligent (BUY), which we consider key
beneficiaries of the fast-developing power battery sector under the ongoing NEV trend. As
for the autonomous driving theme, we like Desay SV (BUY), Joyson Electronic (BUY)
and BDStar (BUY), which are well positioned in the smart cabin, auto electronics and high-
Research Team precision positioning areas.
Yiming Wang
Sector risks: 1) weak auto sales recovery; 2) lower-than-expected NEV sales; 3) slower
China Renaissance Securities (China) Co., Ltd.
+86 21 6015 6850
development of autonomous driving; 4) prolonged semiconductor chip shortages.
ymwang@chinarenaissance.com
only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not 3

September 9, 2021
Industry Update
Exhibit 22: Stock ideas

Contemporary Amperex 300750 CH BUY RMB688.20 Well positioned for the carbon neutrality theme, given: 1) leading
Technology (CATL) position in the power battery sector; 2) fast growing energy storage
business; 3) improving bargaining power with the development of
lithium battery recycle business. Our target price is based on 88x
2022E P/E, in line with the stock’s 12-month average forward P/E
since Apr 2020, when the stock re-rated on NEV sentiment.
Lead Intelligent 300450 CH BUY RMB98.20 Key beneficiary of the carbon neutrality theme, given: 1)
leadership in Li-ion battery equipment with expanding product
lines; 2) strong ties with the leading power battery company CATL;
3) early-mover advantage in PV industry expansion. Our target
price is based on 43x 2022E P/E, 0.5 STD above its historical one-
year forward P/E average.
Desay SV 002920 CH BUY RMB143.20 Well positioned for smart driving trends, given: 1) rich
technological accumulation and customer resources in auto
electronics sector; 2) strong competitive advantage in smart cabin
products; 3) fast developing software capability. Our target price is
based on 70x 2022E P/E, at +1.5SD of its past three-year
average.
Joyson Electronic 600699 CH BUY RMB30.60 Key beneficiary of ongoing NEV and autonomous driving trends,
given: 1) world’s second-largest vehicle safety solutions provider
with rich customer resources; 2) breakthroughs in both software
and hardware aspects of the auto electronics sector; 3) fast
developing software capability. Our target price is based on 25x
2022E P/E, at -0.5SD of its past three-year average.
BDStar Navigation 002151 CH BUY RMB60.40 Well positioned for smart driving trends, given: 1) key beneficiary
of the BeiDou-3 navigation system; 2) breakthroughs in IoT and
auto intelligent connectivity products. Our target price is based on
96x 2022E P/E, at -0.5SD of its average forward P/E during the
BDS-1 and BDS-2 setup.
Accelerating NEV growth over the next five years

NEVs have entered a rapid development track globally despite the impact of COVID-19. Global
sales of NEVs reached 3.24mn units in 2020 according to CAAM, which was a threefold increase
over 2016. We believe NEV sales and penetration in China should continue to accelerate in the
coming five years:
 Globally, environmental policies related to carbon emissions are becoming increasingly

stringent. Many European countries have already published timelines for fully banning the sale
of traditional fuel-powered vehicles. For China, carbon emissions in the automotive industry are
expected to peak in 2028 and to fall back to 20% of peak levels by 2035.
 The three major system components of EVs, namely power battery, motor drive and motor
control systems, are gradually maturing. In particular, the advancement in power battery
technologies has led to significant improvements in mileage.
 Revolutionary changes in the automotive industry are being brought about by the introduction of
driverless vehicles.
As core components of NEVs, power batteries make up 40-50% of overall NEV production costs,
as per GGII. The high degree of technical know-how contributes to high entry barriers. We expect
the power battery market to consolidate over the next five years, given factors such as cost/
technology/ customer affinity. We estimate Chinese power battery shipments could reach 450GWh
in 2025E (2019-25E CAGR: 48%), with installed capacity for LFP batteries rising to ~50% global
share on better safety and performance.
24
September 9, 2021
Industry Update
Opportunities along with fast development of autonomous driving
Autonomous driving evolution is tracking technological progress. Internet of Vehicles (IoV) – an
interactive network tracking vehicle location, speeds, routes, etc. – integrates AI and radars to
facilitate precision, efficiency and improved safety; 5G and chipsets to augment communication; big
data and intelligent sensors to enhance navigation. We expect major global automakers will begin
L3 vehicle mass production in 2021-22E; in China, we see 3.3mn L3+ vehicles by 2025E (10%
penetration) and L4+ vehicles mass produced from 2025E.
Based on our forecasts, growth in China’s autonomous vehicle market scale should reach a 2020-
25E CAGR of 44%. Chinese players are participating in this trend, and the evolution of emerging
automobile market segments is bringing sweeping changes to the existing automobile industry
supply chain. Along with integrated communication technology (ie, 5G) and autochips, intelligent
connected vehicles are poised to revolutionize the global vehicle market, as well as driving itself.
Capabilities are built on AI-driven components and radar related to safety, efficiency and navigation,
as well as the IOV. As autonomous driving advances among global and Chinese automakers,
demand for technological products and services is expanding; and as technology continues to
evolve, so will the need for cutting-edge products – especially with regard to safety.
Against a backdrop of robust industry development and solid growth, we see investment
opportunities among sectors including smart cabin, high-definition (HD) maps, high-precision
positioning etc.
Exhibit 23: Schedules for banning the sale of fuel-powered Exhibit 24: Global NEV sales
vehicles by country
4.0 80%
Country Sales Ban Timeline Proposal
3.5 70%
Netherlands Ban sales of oil-fueled vehicles in 2025
3.0 60%
Norway Ban sales of oil-fueled vehicles in 2025
2.5 50%
India Ban sales of oil-fueled vehicles in 2030
Germany Full ban on selling internal combustion engine 2.0 40%
vehicles in 2030 1.5 30%
France Full ban sales of oil-fueled vehicles in 2040
1.0 20%
UK Full ban selling conventional diesel vehicles in
2040 0.5 10%
Ireland Full ban sales of oil-fueled vehicles in 2030 0.0 0%
Israel Full ban selling imported conventional petrol and 2013 2014 2015 2016 2017 2018 2019 2020 2021E
diesel vehicles in 2040
Global NEV Sales (in mn) YoY
Source: Autohome, CR Securities compiled Source: Marklines, CR Securities compiled
25
September 9, 2021
Industry Update
Exhibit 25: China’s NEV sales forecasts Exhibit 26: Installed capacity for power batteries in China
6.0 100% 300 100%

5.0 80% 250 80%
4.0 60% 200
60%
150
3.0 40% 40%
100
2.0 20% 20%
50
1.0 0%
0 0%
0.0 -20% 2018 2019 2020 2021E 2022E 2023E
FY18 FY19 FY20 FY21E FY22E FY23E
Power battery installed capacity (GWh)-LHS
NEV sales (in mn)-LHS YoY-RHS YoY-RHS
Source: CAAM, CR Securities estimates Source: China Automotive Battery Innovation Alliance, CR Securities
estimates
Exhibit 27: China ADAS market size, by sales (RMBbn)
800 60%
700
50%
600
40%
500
400 30%
300
20%
200
10%
100
0 0%
FY20 FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E
ADAS system (RMB Bn)-LHS YoY-RHS
Source: CAAM, CR Securities estimates
Exhibit 28: China ADAS market size breakdown (L1-L4), by sales (RMBbn)
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E
L1 L2 L3 L4
Source: CAAM, CR Securities estimates
26
September 9, 2021
Industry Update
Exhibit 29: Autonomous driving: The blue ocean in the AI era
Source: McKinsey, CR securities
Exhibit 30: Significant cost advantages of Robo Taxis
Source: CITIC, Didi forecasts
Exhibit 31: Size of ride-hailing services (2024E)
Source: NIO Capital, Roland Berger, Jingwei HiRain Technologies forecasts
27
September 9, 2021
Industry Update
Exhibit 32: Functional Upgrade of Autonomous Driving
Source: YOLE, Aptiv, Veoneer
Exhibit 33: Autonomous Driving Supply Chain
Source: YOLE, Aptiv, Veoneer forecasts; Note: Red refers to Chinese companies
28
s
September 9, 2021
Industry Update
Semiconductors
5G, autos and China localization still the key themes ahead
 Higher levels of inventory are a new norm post-pandemic.
TSMC 2330 TT BUY TWD875.00  Key themes remain: 5G rollout, auto restocking and China localization.
SMIC-H 981 HK BUY HK$42.00
SMIC-A 688981 CH BUY RMB83.00  Sector picks: TSMC, SMIC-H/-A, ASEH and Silergy.
ASEH 3711 TT BUY TWD158.00
Silergy 6415 TT BUY TWD4,750.00 Lessons learned: After recent chip shortages disrupted the global supply chain, high
inventory levels have become commonplace and we expect they will become the “new
normal” even after the COVID-19 pandemic abates. We expect the semiconductor industry
to diverge into two ecosystems – one in Greater China and the other in the US and Europe,
each pursuing a route to optimum efficiency and avoiding geopolitical risks.
Key sector themes: 5G rollout, auto restocking (after destocking since 2H18) and China
chip localization are the key themes we see ahead for the semi sector. We expect 5G
rollout and auto orders to fuel demand for legacy node foundry given the higher analog IC
content. TSMC should reap the most benefit from its advanced foundry dominance (N7/5),
in our view. We expect OSAT houses to focus on capability-proven/cash flow-generative
mainstream markets, as the advanced backend market is wafer fabs’ home turf. In the
PMIC fabless space, we see power IC localization as an irreversible trend: a more mature
ecosystem embracing the next and bigger wave led by new local-designed sockets post
qualification (vs rapid ramp-up of pre-qualified sockets in 2018-19) and strong support from
local clients are already in place. The impact of US-China tensions on the sector is unlikely
to change directionally, in our view, but may ease somewhat in areas the US deems to be
strategically less important (eg, legacy nodes).
Stock ideas: BUY TSMC, SMIC-H/-A, ASEH and Silergy: Patience should pay off for
market leader TSMC (BUY). Near-term volatility in the stock reflects the market’s valuation
appetite, while we consider it well supported by strong fundamentals that remain intact.
Our BUY rating on ASEH is based on its differentiation bringing healthy growth prospects,
with long-term agreements (LTAs) adding margin stability. Our BUY rating on SMIC-
H/SMIC-A is based on a possible valuation mean reversal as a result of its focus on its
core strength, the mature nodes. We believe Silergy (BUY) deserves to trade above its A-
share peers given its leading position in the PMIC market in China where it is positioned to
benefit most from the next wave of localization.
Sector risks: Escalation in the Sino-US trade war and weaker end-demand.
Research Team
Szeho Ng, CFA
China Renaissance Securities (HK) Ltd
+852 2287 1663
szehong@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 34: Stock ideas – Semiconductors

Foundry
TSMC 2330 TT BUY TWD875.00 TSMC should benefit from: 1) continued strong N5 orders driven by non-
smartphone demand; 2) Intel’s potential outsourcing delivering TAM expansion;
3) its leading position in future advanced nodes (ie, N3/N2). Our TP of TWD875
is based on one-year discounted 40x 2022E P/E.
SMIC-H/-A 981 HK BUY HK$42.00 We like SMIC for: 1) refocusing on legacy business, its core strength, which
688981 CH BUY RMB83.00 brings respite through potential valuation mean reversal; 2) client new tape-out
activities, which are healthy, adding weight to our expectations for business
continuity; 3) its A-share listing status, which helps attract onshore talent. Our
TP for SMIC-H is based on 2.5x 2021-22E P/BV; our TP for SMIC-A is based
on 19x 2021E P/S.
OSAT
ASEH 3711 TT BUY TWD158.00 We like ASEH for: 1) its differentiated strategy (in-house IC substrate supply/
fine-pitch WB focus), which brings healthy growth prospects; 2) the LTAs add
margin stability; 3) its backend business is still undervalued (implies 11x/10x
2021E/22E P/E). Our TP for ASEH is based on 2.5x 2021-22E P/BV.
Fabless
Silergy 6415 TT BUY TWD4,750.00 1) Silergy should be the biggest beneficiary of the next wave of China PMIC
localization; 2) its maiden autos contribution starts in 2021; 3) it is well placed
to benefit from its higher penetration in the data center market (high-ASP
motherboards); 4) a virtual IDM model and larger business scale should enable
Silergy to better manage the foundry supply shortage. Our Street-high TP is
based on a one-year discount to 65x 2022E P/E.
Exhibit 35: Mainland China SPE market size and self-sufficiency rate
Source: SEMI, ACMR prospectus, China Renaissance compiled
30
September 9, 2021
Industry Update
Exhibit 36: IC design market size – Global vs. China
Source: SEMI, CRSHK
Exhibit 37: Impact of 5G on China’s economy
Source: CAICT estimates, CRSHK
31
September 9, 2021
Industry Update
Exhibit 38: Edge computing market: growing at ~50% CAGR in the coming years
Source: Grand View Research forecasts, CRSHK
Exhibit 39: Global IoT items to reach 100bn units in next decade
Source: Gartner estimates, CRSHK
32
September 9, 2021
Industry Update
Exhibit 40: Global AI chip market growing fast, 2018-23E Exhibit 41: China AI market outpacing global AI chip market
growth, 2017-24E
34.3
4.3
2018 2023E
Source: Gartner forecasts Source: CCID Consulting forecasts
Exhibit 42: Major AI chip suppliers
Major chip type Major global suppliers Major China suppliers
Cloud computing GPU and ASIC Google, Microsoft, NVIDIA Huawei, Baidu
Auto AI chips require CPU, GPU and Huawei （MDC600, Black Sesame Tech
Self-driving Intel, NVIDIA
FPGA (Huashan-2)
Image recognition and video

Intelligent surveillance HiSilicon (IPC)
processing
Smartphone Application processor Qualcomm, Apple HiSilicon
Source: CRSHK
33
s
September 9, 2021
Industry Update
Healthcare
Definitive trends in a time of change

 During the post-pandemic period, China’s healthcare industry embraces growth
opportunities in localization, domestic substitution and innovation.
JDH 6618 HK BUY HK$143.74
Meyer 002690 CH BUY RMB62.37  Macro uncertainties are giving rise to new investment themes in areas such as
Mindray 300760 CH BUY RMB573.16 internet healthcare, medical devices and innovative drugs.
 Sector picks: JDH, Meyer and Mindray.
Lessons learned: The impact of COVID-19 has been felt in the healthcare industry, with
sales of healthcare companies globally falling by US$7.85bn in 2020 and the world’s top
15 companies accounting for 60% of the losses, according to data from Evaluate
Healthcare. However, in an environment in which multiple industries around the world have
been hit hard by the pandemic, the healthcare industry has been relatively less affected
due to inelastic demand. In addition, the pandemic has created significant development
opportunities as the world’s attention has turned to healthcare, and many specific growth
opportunities have been created, in vaccines and low-value medical consumables in
particular. After the outbreak of the pandemic, China’s healthcare industry adjusted its plan
to ensure the supply of medical materials and diagnostic reagents needed for the fight
against the pandemic, and government directives quickly took healthcare consultation
online to minimize interaction during early lockdown periods.
Post-pandemic challenges: China’s healthcare industry has been undergoing rapid

development, as supported by growing national healthcare expenditures amid continued
domestic consumption upgrades and an aging population. We see increasing macro
uncertainties globally creating economic and geopolitical tensions, which give rise to both
opportunities and challenges to China’s healthcare industry. China’s call for localization
and domestic substitution accelerates innovation in healthcare and device companies, and
the opening-up of medical institutions to the private sector as part of the reform creates
substantial business opportunities. However, we also see risks evolving in areas such as
data security and anti-trust regulations.
Key sector themes: Macro uncertainties are giving rise to new investment themes in areas
such as internet healthcare, medical devices and innovative drugs, and the pandemic
outbreak has further supported domestic healthcare development, in our view. With
increasing digitalization in the 5G era, we expect more healthcare services could be
delivered online, indicating strong expansion potential. Meanwhile, the lingering China-US
conflicts should promote more domestic substitution and innovation in the healthcare
industry, and we see considerable potential for domestic substitution in medical devices,
Research Team especially with the growing demand from primary hospitals.
Bing Zhao, PhD
Stock ideas: We like JD Health (JDH, BUY), an internet healthcare leader, for its strong
technology-empowered supply chain capabilities that provide closed-looped, full-service
+86 21 6015 6766
bingzhao@chinarenaissance.com healthcare solutions. In the medical devices sector, we like Mindray (BUY), a leader in
ICU devices and ultrasound technology, as we believe it is well positioned with strong R&D,
Haohan Xu sales channel, and brand recognition. Meyer (BUY) commands over 30% market share in
China Renaissance Securities (China) Co., Ltd. China’s CBCT (cone-beam computed tomography) equipment market, and we see it as a
+86 21 6016 6853
beneficiary of China’s strong oral care demand in China.
hhxu@chinarenaissance.com
Claire Wang Sector risks: 1) Policy uncertainty and evolving regulatory requirements; 2) reduced rate
China Renaissance Securities (HK) Ltd of localization; 3) intensified competition; and 4) lack of R&D advancement.
+852 2287 1213
clairewang@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 43: Stock ideas – Healthcare

JDH 6618 HK BUY HK$143.74 Well positioned for post-pandemic internet healthcare trends, given
it is a leading internet healthcare player with strong technology-
empowered supply chain capabilities that provide closed-looped,
full-service healthcare solutions. Our DCF-based (WACC: 7.9%)
target price implies 9.7x 2022E P/S.
Meyer 002690 CH BUY RMB62.37 Well positioned for localization trends, given that we project Meyer
should sustain its China CBCT market leader position, benefiting
from strong oral care demand. In addition, we are optimistic about
Mindray’s expansion into the high-end color ultrasound field. Our
DCF-based (WACC: 8.2%) target price implies 52x 2022E P/E.
Mindray 300760 CH BUY RMB573.16 Well positioned for localization and innovation trends, given that
strong R&D, sales channel and brand recognition are key
competitive advantages in Mindray’s success. Our DCF-based
(WACC: 7.5%) target price implies 58x 2022E P/E.
2020 has been a challenging year for China and the world, with the COVID-19 outbreak causing a
severe setback in the global economy. The China-US trade frictions also added to China’s economic
and trade development difficulties. Chinese President Xi Jinping introduced the “dual circulation”
development paradigm in 2020 whereby domestic and foreign markets can boost each other, with
the domestic market as the mainstay. Supportive policies for localization and domestic substitution
bode well for the development of domestic companies, including those in the healthcare industry.
In fact, we note China’s healthcare industry has been on a stable uptrend over the past decade in
terms of both market size and company profitability. The average market cap of the Chinese
healthcare companies included in the top 100 companies (in China by market cap) in 2020 almost
tripled to US$29.54bn from US$10.96bn in 2015, according to Wind data. We expect the industry
expansion to sustain going forward given the opportunities that China’s new development plan and
the pandemic have opened up.
New opportunities emerging in China’s healthcare industry development

1) Localization and domestic substitution: China’s healthcare industry, especially the
upstream supply segment, has been largely dominated by foreign players due to technology
insufficiencies of local companies. Against the backdrop of continued China-US trade conflicts,
we expect China to support more domestic healthcare companies with the goal of breaking the
current oligopoly to ensure self-sufficiency and sustainable supply. For instance, Mindray has
pioneered domestic medical device substitution in China, thanks to its strong R&D, sales
channel and brand recognition. In terms of ventilators, Mindray took market share from foreign
competitors such as Drager and Philips. As of 2019, it achieved market share of 14.0%, only
slightly lower than Drager’s 17.5%. And in monitors, Mindray achieved market share of 63.0%
in China in 2019, far higher than Phillips’s 20.0% and GE’s 4.0%.
2) Faster industry development post-pandemic: Compared with other countries, China

achieved more effective control of the COVID-19 outbreak in 2020, with its social and economic
activities returning to normal earlier than elsewhere. We note there has been an accelerated
shift in production capacity of active pharmaceutical ingredients (APIs) to China since last year,
which also supports the development of patented APIs in the country. As more multinational
healthcare companies shift to asset-light business models and engage contract research
organizations (CROs) and contract development and manufacturing organizations (CDMOs)
for patented drug APIs in pursuit of better efficiency and yield, we see considerable
development potential for China’s CRO and CDMO companies.
3) Development of innovation products: As China introduced the volume-based drug

procurement (VBDP) reform in Nov 2018, many pharmaceutical companies shifted their focus
to high-end biosimilar drugs and innovative drugs for better profits. For instance, Innovent Bio
(1801 HK, BUY, TP: HK$95.43) and Eli Lilly have reached a licensing-out deal for Sintilimab
injection; and I-Mab (IMAB US, BUY, TP:US$102.98) and AbbVie have established a global
strategic cooperation on the highly differentiated CD47 mAb lemzoparlimab (TJC4) for global
development and commercialization. With China’s increased investment in innovative drug
35
September 9, 2021
Industry Update
R&D and its policy support for the acceleration of application, review and listing, we expect
more high-quality China innovation products to emerge.
The pandemic outbreak has also further raised the market’s attention on innovation in
healthcare products and medical devices. The growing medical expenditure potential also
attracted investment from players in other industries, such as the real estate, insurance,
financials, and internet to capture emerging opportunities. The cross-industry collaborations
have promoted innovation in China’s healthcare industry.
Key sector investment themes

Internet healthcare a hotspot for investment
The National Healthcare Security Administration (NHSA) and the National Health Commission
(NHC) jointly issued guidance on promoting the development of internet + medical insurance
services for prevention and control of COVID-19 in early 2020, to reduce social contact during the
pandemic outbreak. By allowing insurance reimbursement of online medical services, the guidance
encouraged online diagnosis and treatment, and accelerated the development of internet +
healthcare services in China. We note that Guangxi province, as part of the country’s pilot scheme,
has recently introduced an internet + medical insurance platform where users (including medical
institutions and residents) can make medical appointments, check medical history, process medical
prescriptions and conduct other healthcare services through the system. With the initial success,
we expect the online platform approach to gradually expand to cover the entire country, which offers
significant investment opportunities for related players, in our opinion. We highlight that JD Health
is a comprehensive online healthcare platform offering online hospital services and consumer
healthcare services. Through optimizing the allocation of medical resources and satisfying users’
diverse needs, we believe JDH has become a trusted partner and the go-to platform for healthcare
services in China to date.
Domestic substitution of medical devices
The development of the domestic medical device industry is in line with the national plan to promote
the development of high-end innovative and technical manufacturing industries, and the country
has implemented a number of supportive policies over the past three years, such as: 1) accelerating
the approval and listing process of innovative medical devices; 2) offering subsidies and preferential
tax support; 3) “domestic-first” policy for medical device procurement of public hospitals; and 4)
formulation of a national procurement plan to support demand. Meanwhile, with the consumption
upgrade trend, and growing healthcare awareness of the population, we expect a continued
increase in the country’s medical demand and expenditure, which should support demand for
medical equipment. Furthermore, China’s media reform also encourages the opening-up of the
medical market to the private sector. New medical institutions create substantial demand for
domestic medical devices, in our view.
Currently, China’s medical device companies mainly focus on the production of low-end medical
equipment and consumables, and the country has a heavy reliance on imports for high-end medical
products (~70% of the current market, as per our channel checks). Under the multi-tiered diagnosis
and treatment system in China, medical institutions and hospitals are classified in a 3-tier system,
where primary hospitals are tasked with providing preventive care, and rehabilitation services, and
tertiary hospitals provide specialist health services and scientific research. Given the nature of these
hospitals, we believe it may take longer for domestic medical devices to penetrate the tertiary
hospitals. However, we see large potential for domestic substitution in lower-tier hospitals,
especially primary hospitals, as they are more price sensitive and have a more urgent need to
procure more medical devices given the current insufficiency. We believe that Mindray and Meyer
can benefit from this trend given their products’ good price-performance, robust distribution
networks and timely after-sales services.
Development of API and IVD

We highlight that the API and in vitro diagnostic devices (IVD) segments show strong development
potential. For API, as we discussed earlier, many pharmaceutical companies turned to Chinese
specialty API companies for API orders following the pandemic as China was among the first to
contain the COVID-19 outbreak. The cost benefit of API production in China (due to lower labor
costs) should also continue to attract new orders from foreign pharmas in the next three to five
36
September 9, 2021
Industry Update
years. As domestic players gradually accumulate more experience in this area and develop a more
complete industry chain locally, we expect better bargaining power and profitability ahead.
China’s IVD industry has been expanding rapidly, and we expect the growing end-user demand and
domestic substitution to continue to support the industry development. The pandemic outbreak has
spurred demand for China’s IVD services both domestically and globally. While the pandemic-driven
demand may be short-term and temporary, we believe the long-term demand for IVD products will
be driven by the country’s consumption upgrade cycle increasing healthcare awareness, as
diagnosis services are required in the entire cycle of disease prevention and treatment. We see
particularly strong potential in biochemical and chemiluminescence areas, and we favor Mindray for
its expansion in chemiluminescence reagents, further promotion of chemiluminescence instrument
CL-6000i and the biochemical immune assembly line.
Exhibit 44: Internet healthcare: New direction for pharmaceutical industry
Source: CRSHK
Exhibit 45: Localization rate and average annual market size of main medical imaging and
ICU equipment (2020 24E)
37
September 9, 2021
Industry Update
Exhibit 46: Localization opportunities for domestic manufacturers of key medical devices
Source: CRSHK
Exhibit 47: China’s medical industry entered a period of Exhibit 48: Factors driving steady growth in China’s
rapid development from 2015 healthcare Industry
Number of TOP100 companies in the healthcare

industry (companies, LHS)
Average market value of TOP100 companies in
the healthcare industry (US$bn, RHS)
7
7 35.00
6 29.54 30.00
5 25.00
4 20.00
3 15.00
2 10.96 10.00
1
1 5.00
0 -
2015 2020
Source: Wind, CRSHK Source: CIC estimates, CRSHK
38
s
September 9, 2021
Industry Update
Software & Services
Short-term pain, long-term gain

 COVID-19 negatively impacted the sector’s short-term revenue growth but also
facilitated education of the market, supporting long-term growth.
Weimob 2013 HK BUY HK$20.31
Agora API US BUY US$68.04  Increased virtual collaboration, digital transformation, cloud migration and
Kingsoft 3888 HK BUY HK$61.23 integrated technology development are the key sector themes.
 Weimob, Agora and Kingsoft Corp are long-term beneficiaries.
Lessons learned. The outbreak of COVID-19 had a profound impact on the China
software sector. In the short term, the pandemic disrupted business operations and
dragged down the growth in IT expenditure of Chinese enterprises. Most software
companies’ revenue growth stalled in 2020 and some of them have not yet recovered to
the pre-COVID level. However, the long-term impacts may be more beneficial, we believe.
COVID-19 uncovered three key IT and operational issues faced by Chinese enterprises:
1) inability of existing IT infrastructure to support large-scale remote working; 2) incomplete
business continuity plans; and 3) slow digital transformation of traditional businesses. The
China enterprise market has become more educated on the significance of cloud-based IT
systems and digitalization upgrades during the course of the pandemic.
Post-pandemic challenges. The impact of COVID-19 on enterprises’ IT spending

continues to weigh on the sector’s revenue growth, compounded by the slow recovery of
some downstream verticals, such as retail and F&B.
Key sector theme. We identify four medium- to long-term themes: 1) accelerated

migration to cloud-based software and IT systems; 2) continued digital transformation of
old economy companies; 3) increased level of remote working and collaboration; and 4)
deeper integration of AI, cloud computing, robotics and other emerging technologies.
Localization accelerated by the disrupted supply chain amid COVID-19. Riding on

China’s supportive policies for localization amid the geopolitical changes in recent years,
software companies have enjoyed even more tailwinds since the COVID-19 outbreak,
which brought further disruption to the technology supply chain in China. We have seen
accelerated localization progress in office software, middleware, database, network
security, ERP and many other software product segments over the past year.
Stock ideas: We believe Weimob (BUY), Agora (BUY) and Kingsoft Corp (BUY) are
positioned as long-term sector beneficiaries post-pandemic. We regard Weimob as one of
the key facilitators for digital upgrades in the retail, F&B and commercial property industries
in China, leveraging its CRM SaaS products. We believe Agora will benefit from increased
real-time engagement across the globe given the strong competitive edge of its technology
infrastructure. And we expect Kingsoft Corp, to benefit from the increased demand for
online collaboration and remote working, particularly its office software segment.
Research Team Sector risks: Weaker IT expenditure, slower-than-expected migration to cloud and
Colin Liu increase in cloud demand; unexpected product development postponement; slower-than-
China Renaissance Securities (HK) Ltd expected localization progress.
+852 2287 1635
colinliu@chinarenaissance.com
Regan Chen
+86 21 6015 6725
yfchen@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 49: Stock ideas – Software & Services

Weimob 2013 HK BUY HK$20.31 Weimob is one of the key facilitators for digital upgrades of retail,
F&B and commercial property industries in China, leveraging its CRM
SaaS products. Our target price is based on 18.9x FY22E P/GP.
Agora API US BUY US$68.04 We believe Agora will benefit from increased real-time engagement
across the globe and its technology infrastructure has strong
competitive advantages. Our target price is based on 28x 2022E P/S.
Kingsoft Corp. 3888 HK BUY HK$61.23 Kingsoft’s office software product should benefit from increased
demand for online collaboration and remote working. Our SOTP-
based TP comprises our valuation for its Office Software segment,
Kingsoft Cloud (KC US, HOLD), Online Games segment, and
Cheetah Mobile (based on 30-day average market cap). We also
apply a 15% holding company discount.
Exhibit 50: DAU trend for main telecoms software in China (unit: 10,000 users)
16,496
14,829
10,583
8,280
7,745
4,764
4,433 4,405
3,679
3,230 3,636 3,980
2,418 3,172
2,094 2,341 2,381 2,026
1,170 1,256 1,119 1,523 1,5661,6591,409 1,327
721 353 364
4
DingTalk Corporate WeChat Tencent Meeting WPS Baidu Netdisk
Jan-20 Feb-20 Mar-20 Apr-20 Jul-20 Jan-21
Source: QuestMobile
Exhibit 51: China database market share (2019) Exhibit 52: China Big Data market size forecasts (US$bn)
14.40% 25
21
20
18.4% CAGR
4.30% 47.30%
15
7.30% 9
10
8.70%
5
10.10%
Oracle IBM Microsoft SAP

0
Teradata DM Gbase Shentong Data 2019 2024E
UXSino KingBase Others
Source: CCID Consulting Source: IDC forecasts
40
September 9, 2021
Industry Update
Exhibit 53: China security service expenditure forecasts (US$bn)
18 25%
16
14 20%
12
15%
10
8
10%
6
4 5%
2
0 0%
2019 2020 2021E 2022E 2023E 2024E
Security service expenditure % YoY growth
Source: IDC forecasts
Exhibit 54: Key sectors of domestic substitution in China Software & Services industry
Source: CRSHK
41
s
September 9, 2021
Industry Update
Internet Retailing
Pandemic-induced market penetration uptrend

 Stay-at-home orders boosted all online retail platforms’ GMV and their market
JD.com JD US BUY US$96.00
PDD PDD US BUY US$157.00
penetration. Post-pandemic pent-up demand helps local services platforms
thrive.
Meituan 3690 HK BUY HK$330.00
 We expect more rational buying habits among consumers after the pandemic.
Consumers will likely adapt to the multi-player e-commerce landscape,
including by actively comparing prices and product lines.
 JD.com, Meituan and Pinduoduo (BUY) stand to benefit from a more educated
customer base due to network effects and initiatives in new retail businesses.
Lessons learned: Online retail continues to penetrate the Chinese consumer goods
market. According to the National Bureau of Statistics, the online penetration of physical
goods rose from 24% in Dec 2019 to 29% as of Jun 2021. From Jan 2020 to Jun 2021, the
food e-commerce retail monthly average YoY growth was 33%, apparel e-commerce was
9% and others was 17%. As the pandemic lingers in the short term, we believe more
consumers will recognize the convenience of online retail and the diversity of products
compared to that of in-person shopping. In our opinion, this is a permanent shift in people’s
spending habits and will not retreat as pandemic risks mitigate.
Post-pandemic challenges: The recent market regulation is a double-edged sword for e-

commerce platforms. Since the Chinese State Administration for Market Regulation levied
an anti-trust fine of RMB18.2bn against Alibaba and launched an investigation into Meituan
in Apr 2021, both have stopped their forced exclusivity practices and, in our view, the
overall level of anti-trust regulatory risk in the sector has diminished. At the same time, we
believe existing and newly introduced regulations will challenge platforms to develop their
core business strengths, rather than acquire new customers through anti-competitive
behavior or aggressive cash subsidies. A healthier industry landscape should help these
platforms focus on sourcing, supply chain, food safety and delivery, which should ultimately
streamline their businesses and allow their bottom lines to grow more sustainably.
Key sector themes: 1) We expect the shift to online retail from physical shopping to
continue and forecast 45% online retail penetration by 2025E driven by the rise of private
domain, community-based retail and live-streaming suggestion channels. As consumers
spend more time online, an ecosystem of products’ official websites, KOL communities,
WeChat, short-form video platforms and e-commerce platforms will likely occupy more of
their attention, and they will likely transfer more daily activities and expenditure online. The
future of online retail will also see a stronger presence of social and suggestion-based
platforms, while search-based e-commerce may dominate to a lesser extent. 2) The rise
of internet retail-empowered local services signals a new top-line driver. We believe there
is post-pandemic pent-up demand for socializing and returning to the local community, and
that companies such as Meituan and Pinduoduo are best positioned to capture that rise in
Research Team
demand. We believe new initiatives such as beauty have seen more than 100% YoY
growth since the pandemic.
Ella Ji, CFA
China Renaissance Securities (US) Inc. Stock ideas: We believe JD.com, Meituan and Pinduoduo (all BUY-rated) have been
+1 212 554 2966
successfully capturing the market opportunity since the pandemic.
ellaji@chinarenaissance.com
Charlie Chen Sector risks: Competition, macro uncertainty, higher market expansion expense, and
China Renaissance Securities (HK) Ltd poor execution of business plans.
+852 2287 1245
charliechen@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 55: Stock ideas – Internet Retailing

JD.com, Inc. JD US BUY US$96.00 1) Strong performance especially in high-tier cities; 2) social e-
commerce tailwind; 3) opportunity in new initiatives. Our SOTP
target price is based on: JD Retail valuation of US$86 per share on
a 2022E P/E of 25x; and US$10 per share for major JD subsidiaries
and investments.
Alibaba Group Holding BABA US BUY US$270.00 1) Dominant market position; 2) diverse portfolio of platforms; 3)
investments in lower-tier cities. Our SOTP target price is based on:
1) US$556bn for core marketplace; 2) US$103bn for AliCloud; 3)
US$110bn for strategic assets; and 4) US$49bn net cash.
Meituan 3690 HK BUY HK$330.00 1) Dominant market position; 2) pent-up local services demand; 3)
new initiatives’ performance. Our SOTP target price is based on a
25x P/E for food delivery business, 25x 2022E P/E for in-store, hotel
and travel businesses, and 2x 2022E P/GMV for community e-
commerce and intra-city retail business.
Pinduoduo PDD US BUY US$157.00 1) Strong and high-quality performance; 2) steady evolution of
ecosystem; 3) new initiatives’ opportunity. Our SOTP target price is
based on 13.2x 2021E P/S for 3P business and 0.8x 2021E P/S for
1P business, implying a blended 2021E P/S of 11.6x.
Vipshop Holdings VIPS US BUY US$35.70 1) Branding and price advantages; 2) investments in new initiatives;
3) strong momentum in user growth. Our target price is based on
25x 2021E P/E, 2SD above its five-year historical forward P/E.
Baozun Inc. BZUN US BUY US$48.00 1) Strong liquidity position; 2) adequate resources for strategic
investment; 3) initiatives and new channels expansion. Our target
price is based on 36x 2022E P/E, in line with past five-year average
one-year forward P/E.
Source: CRSUS estimates
Exhibit 56: 2020 online retail GMV growth

Brand e-commerce GMV E-commerce platform GMV Local service GMV
2,000 4,000
Rmb 1,700bn
1,500 3,000
RMB in bn
1,000 2,000
Rmb 800bn
500 1,000
- -
2019 2020
Source: Euromonitor
43
September 9, 2021
Industry Update
Exhibit 57: WeChat mini program brand e-commerce market share
GMV Mini - program brands direct GMV (RMB mn) % of total e-commerce
4,000 20%
17%
16%
15%
3,000 13% 15%
10%
2,000 10%
7%
1,000 5%
3%
- 0%
2019 2020 2021E 2022E 2023E 2024E 2025E
Source: Euromonitor, CRSUS estimates
Exhibit 58: E-commerce platform projections in terms of GMV
2019 2025E
13%
29%
11%
55%
76% 16%
Search-based e-commerce platforms : 19-25E CAGR = 7% YoY

Recommendation-based e-commerce platforms : 19-25E CAGR = 21% YoY
Social- & community-based e-commerce platforms : 19-25E CAGR = 29% YoY
Exhibit 59: E-commerce and retail YoY growth rate – appliances
Appliances - retail and e-commerce GMV YoY Appliances - online, O2O and offline GMV
growth penetration
% YoY - Retail % YoY - E-commerce
15%
10% 10% 10% 10% 10% 10% 10% 10%
7% 8% 9%
10% 6%
5%
5% 8% 9% 9% 9%
8%
0% -3% 65% 66% 67% 68% 69% 70%
59%
-5%
-4%
-10%
2019 2020 2021E 2022E 2023E 2024E 2025E
-15% -12%
2019 2020 2021E 2022E 2023E 2024E 2025E % online penetration % O2O penetration % offline
44
September 9, 2021
Industry Update
Exhibit 60: E-commerce and retail YoY growth rate – electronics
Electronics - retail and e-commerce GMV YoY Electronics - online, O2O and offline GMV
growth penetration
% YoY - Retail % YoY - E-commerce % online penetration % O2O penetration % offline
20% 16%
15%
8% 9% 8%
10% 4% 5% 6% 7%
6% 6% 6% 6% 3%
2%
5%
8%
5% 5% 5% 5%
0% 62% 63% 63% 64% 65% 65%
53%
-5% -2%
-10% -7%
2019 2020 2021E 2022E 2023E 2024E 2025E 2019 2020 2021E 2022E 2023E 2024E 2025E
Exhibit 61: E-commerce and retail YoY growth rate – apparel
Apparel - retail and e-commerce GMV YoY Apparel - online, O2O and offline GMV
growth penetration
% YoY - Retail % YoY - E-commerce % online penetration % O2O penetration % offline
30%
20%
20% 15%
9% 8% 7%
10% 7%
11% 6% 7% 8% 8%
0% 4% 5%
0% 5% 6% 6% 6% 5% 2%
46% 47% 48% 49% 50% 50%

-10% 41%
-11%
-20%
2019 2020 2021E 2022E 2023E 2024E 2025E 2019 2020 2021E 2022E 2023E 2024E 2025E
Exhibit 62: E-commerce and retail YoY growth rate – FMCG
FMCG - retail and e-commerce GMV YoY growth FMCG - online, O2O and offline GMV penetration
% YoY - E-commerce % YoY - Retail
% online penetration % O2O penetration % offline
50%
39%
40%
30% 25%
22% 47%
19% 18% 40%
20% 16% 33%
14% 26%
19%
10% 12%
8% 32% 35%
22% 26% 29%
14% 19%
6% 7% 5% 5% 5%
0% 5% 5%
2019 2020 2021E 2022E 2023E 2024E 2025E 2019 2020 2021E 2022E 2023E 2024E 2025E
45
s
September 9, 2021
Industry Update
Online Games
Bigger TAM as giants eye global markets

 COVID-19 boosted domestic online gaming time spent and in-game spending in
2020, but also set a tough comparison base for 2021.
Top Pick Ticker Rating TP  Going forward, we expect China’s game companies to accelerate overseas
Tencent 700 HK BUY HK$725.00 expansion given a larger TAM, longer game lifecycle and better cross-platform
development technologies.
 Top sector pick: Tencent (BUY).
Lessons learned: China’s mobile game time spent rose 4.9% YoY in 2020, and then
declined 29.1% YoY in 7M21, based on QuestMobile data. Given China’s online game
penetration had reached 52.4% as of Dec 2020 (per CNNIC), we believe time spent growth
in 2020 was driven by increased per player time rather than an inflow of new players. This
leads to a tough comparison base in 2021. In contrast, COVID-19 has accelerated
overseas players’ adoption of mobile games since April 2020, and we note that overseas
mobile game penetration was lower than in China according to data from Newzoo.
Post-pandemic challenges: China’s domestic mobile game grossing grew by only 9% in

7M21, according to data from CNG, on a high base effect. However, we expect a rich
pipeline in 2H21E – including LoL Mobile, Undawn, Harry Potter and The Lord of the
Rings– to help the sector to continue to grow. Key players are likely to face downward
pressure on margins as we expect them to invest more in R&D to reach a bigger TAM.
Key sector themes: We expect China’s online game companies to accelerate their pace
of global expansion. Based on CNG data, China’s export game market reached grossing
of US$15.5bn in 2020 (+33% YoY), accounting for a 12% share of the global game market
outside China. We forecast China’s export game market to reach US$34bn (21% share) in
2025E, growing at a 2020-25E CAGR of 17%, which compares to an 11% CAGR in the
domestic game market. The bigger TAM should lead to higher R&D budgets and global
investment by the key players. We estimate the industry’s premium mobile game
development budget to grow from RMB100mn to over RMB300mn per title by 2025E.
Investment in game studios with expertise in certain genres or with strong IP franchises
could further enhance competitiveness of China’s game companies, in our view.
On the regulatory front, the recent tightening on protection of minors is an extension of

2019’s revisions of the Minors Protection Laws in China. Per a CNNIC report, there were
183mn minor internet users in 2020; and online gaming penetration in the user group
stands at 62.5%. On August 30, the National Press and Public and Administration (NPPA)
issued a regulation requiring online game companies to only provide service to minors
during 8-9pm on Friday, Saturday, Sunday and China’s public holidays. Minors under 16
accounted for 2.6% of Tencent’s China game grossing in 2Q21, while minors under 18
accounted for less than 1% of NetEase’s game grossing, according to company data.
Hence, we believe recent regulation will have limited financial impact; instead, it should
Research Team
promote quality long-term growth for the industry.
Yiwen Zhang, CFA
China Renaissance Securities (HK) Ltd Stock ideas: We believe BUY-rated Tencent is best positioned to capture rising wallet
+852 2287 1624 share in the global game market, while it has a rich game pipeline and a strong content
yiwenzhang@chinarenaissance.com ecosystem.
Ella Ji, CFA
China Renaissance Securities (US) Inc. Sector risks: Further regulatory restrictions on gaming and weaker-than-expected
+1 212 554 2966 monetization from new games.
ellaji@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 63: Stock idea – Online games

Tencent Holdings 700 HK BUY HK$725.00 We like the stock given: 1) strong content ecosystem around
WeChat and mobile QQ, with diversified monetization; and 2) a solid
game pipeline in 2021. Our TP of HK$725.00 is based on SOTP
and implies a 30x 2022E P/E.
Bigger TAM justified by longer life cycle, improving IP value and better
cross-platform development tools
China’s domestic video game market was worth US$43bn in grossing terms in 2020, while the
global market was worth US$176bn, according to data from Newzoo. For the game market outside
China (US$133bn), China’s companies accounted for 12% market share. We forecast this share to
improve to 21% in 2025E, considering the leading Chinese duo of Tencent and NetEase (NTES
US, BUY, TP: US$116.00) are accelerating globalization.
Among China’s top-10 iOS grossing game chart (App Annie data), FWJ and HoK were launched in
2015; Peacekeeper Elite and SanGuoZhi were launched in 2019. Some of the titles have a proven
lifecycle comparable to PC/console game IP. In addition, game companies are exploring spin-off
games based on mobile game IP. This benefits top online game companies, as they could build a
game portfolio around their core game IP.
Leveraging on better cross-platform development technologies available, popular role-playing game

(RPG) game Genshin Impact was co-launched on mobile, PC and PlayStation platforms in late
2020. In the past, mobile games were often migrated from PC platforms, where they launched first,
only after several years.
We view a minimum R&D investment of RMB500mn per year as necessary for China’s game
companies to stay competitive globally, given one single title could cost approximately RMB300mn
(three-year development cycle). This spending is justified by the larger TAM, improving game
longevity and better cross-platform development technologies available.
Tencent started investing overseas more than a decade ago, and it has made investments in most
renowned game studios globally, from game developers, game technology companies and game
distributors. Tencent usually acquires a minority stake in investee companies and does not seek
involvement in operations but would seek game licensing rights in China. NetEase adopts a similar
strategy, although its investment scale has been smaller than Tencent’s. NetEase relies more on
its in-house R&D team for its game portfolio.
47
September 9, 2021
Industry Update
Exhibit 64: China mobile game mobile time spent
10bn mins
Time spent (RHS) YoY (%)
120% 140
100%
120
80%
100
60%
40% 80
20% 60
0%
Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 40
-20%
20
-40%
-60% 0
Source: QuestMobile, CRSHK
Exhibit 65: China’s export game market (in grossing Exhibit 66: China’s games market share in ROW (in
terms) grossing terms)
40 35% 25%
35 21%
30%
20% 19%
30 18%
25%
25 16%
20% 15% 14%
20 12%
15%
15 9% 9% 9%
10%
10%
10
5 5% 5%
0 0%
2017 2019 2021E 2023E 2025E 0%
Export game market (US$ bn) YoY % chg (RHS) 2017 2019 2021E 2023E 2025E
Source: CNG, CRSHK estimates Source: Newzoo, CNG, CRSHK estimates
Exhibit 68: Global game market breakdown (in grossing

Exhibit 67: Global game market (in grossing terms)
terms, 2017 vs 2020)
250 (US$ bn)

China (2017) 57% 43%
200
ROW (2017) 45% 27% 27%
150 154
160
145
139
133 127
100 126
108
90 China (2020) 75% 25%
50
59 65 72
31 31 33 43 47 53 ROW (2020) 52% 20% 28%
0
2017 2019 2021E 2023E 2025E 0% 20% 40% 60% 80% 100%
China ROW Mobile PC Console
Source: Newzoo, CNG, CRSHK compiled Source: Newzoo, CNG, CRSHK compiled
48
September 9, 2021
Industry Update
Exhibit 69: Tencent mobile game revenue breakdown

Tenc ent Mobile Game Rev enue ex c l. Superc ell
RMB (mn) 2018 2019 2020 2021E
Total mobile game rev enue ex c l. Superc ell 77,800 90,700 134,900 156,800
YoY net add 15,000 12,900 44,200 21,900
YoY% 23.9% 16.6% 48.7% 16.2%
Legac y titles launc hed before 2019 77,800 63,100 78,500 77,000
YoY net add 15,000 (14,700) 15,400 (1,500)
YoY% 23.9% (18.9%) 24.4% (1.9%)
Honor of the Kings (王者荣耀） 25,200 29,000 43,000 50,000
YoY net add 1,300 3,800 14,000 7,000
YoY% 5.4% 15.1% 48.3% 16.3%
QQ Speed (QQ飞车) 6,000 4,000 5,000 3,500
YoY net add 5,900 (2,000) 1,000 (1,500)
YoY% n.m. (33.3%) 25.0% (30.0%)
MMORPG titles c ombined (thos e launc hed before 2019) 28,500 20,000 17,000 13,500
YoY net add 1,500 (8,500) (3,000) (3,500)
YoY% 5.6% (29.8%) (15.0%) (20.6%)
Others (inc luding SLG, c ard, etc ) 18,100 10,100 13,500 10,000
YoY net add 6,300 (8,000) 3,400 (3,500)
YoY% 53.4% (44.2%) 33.7% (25.9%)
Mobile games launc hed in 2019 27,600 47,500 50,000
YoY net add 27,600 19,900 2,500
YoY% 72.1% 5.3%
Peac ek eeper Elite (和平精英) 6,000 22,000 28,000
Launch time May 2019 May 2019 May 2019
Average monthly grossing 857 1,833 2,333
PUBG Mobile Ov ers ea Rev enue (绝地求生手游非中国收入） 4,500 8,500 10,000
Launch time Mid 2018 Mid 2018 Mid 2018
Average monthly grossing 375 708 833
Other legac y titles launc hed in 2019 15,100 12,000 7,000
YoY net add (3,100) (5,000)
YoY% (20.5%) (41.7%)
Mobile games launc hed in 2020 8,900 14,300
New titles revenue as % of total revenue 7% 9%
COD Mobile (使命召唤手游中国收入)* 700 4,000
Launch time Dec 2020 Oct 2020
Average monthly grossing 700 333
J X2 Mobile (剑网二剑歌行) 400 500
Launch time Aug 2020 Aug 2020
Yi Ren Zhi Xia (一人之下手游） 1,800 1,000
Launch time May 2020 May 2020
Moonlight Blade (天涯明月刀）* 1,800 6,000
Launch time Oct 2020 Oct 2020
Braw l Stars (荒野乱斗） 2,000 1,500
Launch time June 2020 June 2020
Dragon Nes t 2 (龙之谷2） 1,000 500
Launch time Aug 2020 Aug 2020
Hong Tu Zhi Xia (鸿图之下） 1,200 800
Launch time Oct 2020 Aug 2020
Mobile games launc hed in 2021 15,500
New titles revenue as % of total revenue 10%
Others (inc luding Undaw n, Dynas ty Warriors Dominate) 5,000
Launch time n/a
Average monthly grossing
League of Legends Mobile China Rev enue (英雄联盟手游国内收入）* 4,500
Launch time Aug 2021
Average monthly grossing 900
League of Legends Mobile Non-China Rev enue (英雄联盟手游海外收入）* 6,000
Launch time Jan 2021
Average monthly grossing 500
Note: * = not yet launched; Tencent records Net Revenue instead of Gross Revenue from COD Mobile non-China launch
Source: Company data, CRSHK and CRSUS estimates
49
s
September 9, 2021
Industry Update
Fintech
Benefiting from acceleration of digitalization

 COVID-19 has accelerated digitalization of financial services; the trend has
benefited online lenders/online brokers/online insurers more than offline
QFIN QFIN US BUY US$43.00 merchant acquirers.
LX LX US BUY US$18.00
Futu FUTU US BUY US$198.00  Near-term regulatory pressure may impact certain Fintech verticals, such as
UP Fintech TIGR US BUY US$38.50 online lending, online insurance and payment.
 BUY online lenders (QFIN/LX) and online brokers (FUTU/TIGR).
Lessons learned: Fintech companies in general have benefited from the accelerated pace
of financial services digitalization amid the COVID-19 outbreak, a trend that we see as
unlikely to reverse post-pandemic. For instance, top online lenders (e.g., QFIN and LX)
grew their credit balances much faster than traditional banks as of 1Q21, despite temporary
asset quality pressure at the start of the COVID-19 outbreak; online brokers under our
coverage also have seen a sharp boost in their new user growth and trading volume since
1Q20. In contrast, offline payment merchant acquirers saw persistent fee rate pressure
post-pandemic, with rising competition to acquire small merchants. Meanwhile, we are
monitoring regulatory risks on certain Fintech verticals (eg, online lending and online
insurance) as regulations in China are catching up with the fast industry development.
Post-pandemic challenges: The government aims to place Fintech companies under a

comprehensive regulatory framework, as evidenced by the regulators jointly summoning
Ant Group (private) and 13 other Fintech platforms in April 2021 and asking them to review
and rectify any noncompliant business practices. A key item to watch, in our opinion, is the
requirement for Fintech lenders to conduct personal credit scoring through licensed
entities, which could bring uncertainty to their loan facilitation models. Meanwhile, the
regulators also asked banks and payment companies to lower payment fees for small
merchants from Sep 30, 2021, which may put further pressure on merchant acquirers’ take
rates, in our view. In the online insurance sector, we expect mid-end medical policies,
which enjoyed tailwinds during COVID-19 on rising demand for health insurance, to endure
pressure from both tightening regulations and greater competition from Huiminbao
products (inclusive medical insurance supported by local governments). For online
brokers, we see some challenges arising in new user acquisition if tighter rules are
introduced on overseas listings causing a slowdown in the US/HK IPO pipeline.
Key sector themes: 1) Strong earnings for top online lenders fueled by better asset quality
and robust loan growth; 2) Fintech platforms’ self-check and rectification progress; 3) online
brokers’ overseas expansion and new product cross-selling (e.g., cryptocurrency trading);
4) take-rate trend and competition among payment merchant acquirers; and 5) health
insurance premium growth and regulatory impact.
Stock ideas: We like QFIN and LX (both BUY) as leading online lenders that we believe
have proven track records in past regulatory tightening cycles. Among online brokers, we
like FUTU and TIGR (both BUY) given their structural growth prospects as next-generation
online investment platforms with balanced exposure in both the HK and US stock markets.
Within the payment space we prefer Lakala (BUY) given its already low payment take rate
and more reasonable valuation, while we are relatively cautious on Yeahka (HOLD) given
Research Team
it faces payment take rate pressure post-pandemic despite its fast-growing VAS revenue.
Eric Lu
China Renaissance Securities (HK) Ltd Sector risks: Lower demand for Fintech services, stricter-than-expected regulations, and
+852 2287 1209 deterioration in the consumer credit cycle.
ericlu@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 70: Stock ideas – Fintech sector

360 DigiTech QFIN US BUY US$43.00 1) Well established online consumer credit franchise in the near-prime
segment; 2) the 360 brand name and strong support from its parent; 3)
relatively low leverage amid regulatory uncertainties with growing
capital-light lending model; and 4) sound risk management, as
evidenced by strong financial results in 2020 despite the pandemic
impact. Our target price is based on 3.0x 2021E P/B derived from a
three-stage Gordon Growth Model.
LexinFintech LX US BUY US$18.00 1) Strong profitability recovery post-pandemic driven by asset quality
turnaround; 2) strong loan growth driven by new consumption strategy
and a young customer cohort; and 3) rapidly growing Buy Now Pay
Later product, Maiya. Our target price is based on 2.8x 2021E P/B
derived from a three-stage Gordon Growth Model.
Futu Holdings FUTU US BUY US$198.00 1) A competitive InvestmentTech platform that provides both closed-
loop and low-cost trading to retail customers, as well as a highly
engaged social community; 2) growing addressable market through
overseas expansion and product cross-selling; 3) continued share gain
in existing markets in mainland China and Hong Kong (~15% retail
market penetration in HK as of 1Q21E; and 4) high operating leverage
with 53% adj. net profit margin in 1Q21. Our target price is based on
55x 2021E-22E average P/E.
UP Fintech TIGR US BUY US$38.50 1) Fast overseas expansion with over 50% new paying users in 1Q21
from overseas markets; 2) upside potential in net margin as it further
grows scale; and 3) key catalyst from potential acquisition of Hong Kong
license. Our target price is based on 60x 2021E-22E average P/E.
Exhibit 71: COVID-19’s short-term and long-term impact on the Fintech sector
Short-term impact Long-term impact

Online lending - Consumption loan demand declined while personal - Rising online lending with accelerated industry consolidation
operation loan demand grew. as top online lenders with brand/traffic advantages and
- Delinquency rate surged with higher unemployment competitive products to take market share.
rate. - Traditional financial institutions to strengthen online lending
- Funding costs for online lenders fell due to monetary services resulting in intensifying competition.
easing policies. - Regulators to strengthen consumer protection, credit
reference system, and Fintech regulations.
Online insurance - Higher demand for health insurance with increasing - Traditional insurers will likely seek digital transformation
online conversion rate. more aggressively with help from InsurTech companies.
- Offline insurance growth slowed in areas such as auto - Long-term life insurance providers may explore sales
and long-term life insurance policies. through online and telemarketing channels.
- Online health insurance should maintain fast growth
momentum while the supply-inclusive policies may increase
(eg, Huiminbao).
Payment - Offline transaction volume decreased with merchants - Accelerated development of both domestic and cross-border
facing operational difficulties. ecommerce to benefit online payment players.
- Offline acquirers experienced intensifying competition - Higher demand from merchants for omni-channel money
on payment fee rates. collection and digitalized operations.
- Online transaction volume increased. - Offline acquirers are expected to accelerate consolidation.
Online wealth - Demand for online wealth management grew as offline - Online wealth management platforms with traffic advantage,
management/ channels were less available. comprehensive products and strong service capabilities to
online brokerage - Monetary easing policies to benefit equity asset consolidate the market.
allocation. - Robot investment advisory services are expected to grow
rapidly.
Source: CRSHK
51
September 9, 2021
Industry Update
Online lenders
Exhibit 72: QFIN and LX provided upbeat loan volume Exhibit 73: QFIN/LX saw faster loan balance growth than
guidance for 2021 traditional banks and some smaller Fintech lenders
100% 87% Total loan balance YoY change 2Q21
Loan origination volume 80%
60% 50% 46%
2020 2021E 2022E 2023E
RMB bn Loan volume guidance in 2021 40% 30% 28%
2020-23E 22% 17%
1,000 QFIN: RMB310-330bn, 26-34% YoY 10% 9%
CAGR: 16% 886 20% 8%
900 LX: RMB240-250bn, 36-41% YoY
LU: RMB145-155bn, 5-13% YoY (2Q21) 0%
800 759
-20%
700 640 -40%
2020-23E 565
600 2020-23E CAGR: 28% -60%
CAGR: 26% 491
500 413 -80%
372 -77%
400 310 338 -100%
300 255 247 FINV QFIN LX CANG XYF Credit LU CN CN Credit QD
177 card credit banks card
200 loans - card ST loans -
100 CMB loans retail PAB
loans
0
LX QFIN LU Note: 2Q21 data was adopted for 360 DigiTech, LexinFintech, Lufax,
FinVolution (FINV US, NC), Cango (CANG US, NC), Qudian (QD US,
Note: Lufax (LU US, BUY, TP: US$17.00). Source: Company data,
TP: US$1.90), China banks ST retail consumption loans, PingAn Bank
CRSHK estimates
(000001 CH, NC) credit card and CMB (3968 HK, NC) credit card. 1Q21
data was adopted for X Financial (XYF US, NC) and China credit card
loans.
Source: Company data, PBOC, CRSHK calculations
Exhibit 74: QFIN has seen steady improvement in asset Exhibit 75: Capital-light lending model accounted for
quality since Feb 2020 56%/40% of new loans for QFIN/LX in 2Q21
"Capital light" loan facilitations as % total loan volume
QFIN - early asset quality indicators 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
D1 delinquency rate 30-day collection rate (RHS) 100%

89%
10.0% 100% 90%
9.0% 80%
91% 90%
88% 88% 90% >90% >90% 70%
8.0% 80% 86%
60% 56%
80%
7.8% 7.3%
7.0% 50%
6.5% 40%
70%
6.0% 6.2% 40%
5.3%
5.2% 30%
5.0% 5.0% 60%
5.0%
20%
4.0% 50% 10%
Pre- Feb-20 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
pandemic 0%
QFIN LX LU
Source: Company data, CRSHK compiled Note: LU number shown is non-risk taking loan balance as % of total
loan balance. Source: Company data, CRSHK calculations
52
September 9, 2021
Industry Update
Online brokers
Exhibit 76: Futu/Tiger saw significant growth in new paying Exhibit 77: We expect Futu/Tiger total paying user growth
users since 1Q20 to be strong in 2021E-23E
Number of new added paying users

Number of total paying users
'000 FUTU TIGR FUTU TIGR
'000
300 273 3,000 2020-23E CAGR:
2021 full year guidance: 2,780
FUTU: 700k FUTU: 75%
250 TIGR: 350K 2,500 TIGR: 77%
2,020
200 2,000
150 1,435
115 117 1,500 1,300
99 1,035
100 1,000
65 655
40 47 44 517
50 22 34 500 259
139 16 9 1516 8 6 166 16 12 21 133 82 198113
7 7 11 80 42
0 0
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2017 2018 2019 2020 2021E 2022E 2023E
Source: Company data, CRSHK compiled Source: Company data, CRSHK estimates
Exhibit 78: Futu – Breakdown of new paying clients Exhibit 79: Tiger – Breakdown of new paying clients
acquired by region acquired by region
Mainland China HK Overseas Mainland China Overseas

'000 '000
900 450
783 396 400
760 380
800 720 400
700 350
38%
600 42% 300
44% 62% 60%
500 250 63%
400 318 200

34% 26% 273 146
300 28% 150 117
48% 25% 22%
200 100
40 38% 40% 55%
53 66 32% 45% 32 37%
100 28% 28% 50 78%
26% 47% 52%
30% 100% 100% 45%
0 74% 53% 0
2018 2019 2020 2021E 2022E 2023E 1Q21 2018 2019 2020 2021E 2022E 2023E 1Q21
Source: Company data, CRSHK estimates Source: Company data, CRSHK estimates
53
September 9, 2021
Industry Update
Online insurance
Exhibit 80: ZhongAn – GWP growth rebounded in 1H21 Exhibit 81: ZhongAn – Ant Group channel fee rate as % of
GWP is expected to rise especially for Health policies
1H19 2H19 1H20 2H20 1H21 2021E 2022E 2023E
250%
192%
200%
159%
150%
100% 85%
52%
50% 29% 26% 28% 35%
15% 23%
5% 4% 5%
0%
-1%
-17%
-50% -33%
-100%
Health Consumer finance Auto Digital lifestyle
Note: ZhongAn Online (6060 HK, HOLD, TP: HK$41.00). Note: Ant channel fee rates charged to ZhongAn in 2021 are estimated
Source: Company data, CRSHK estimates by the company based on latest channel fee rates in 2H20. Source:
Company data, CRSHK estimates
Payment – merchant acquirers

Exhibit 82: MAU of major financial institutions’ apps increases in 2020
MAU of major financial institutions' APPs
mn Dec-19 Dec-20
100 26% 56%

39%
30%
80
38%
60
40 16%
147%
20 99%
0
CCB ICBC ABC CMB BOC PAB Tiantian Fund Huatai
Securities
Source: QuestMobile, CRSHK calculations
54
September 9, 2021
Industry Update
Exhibit 83: Number of branches of Big Four Banks is Exhibit 84: Number of employees in Big Four Banks is
decreasing dropping
Number of branches of Big Four Banks Number of employees of Big Four Banks
'000 '000
66.2 66.1 1,600
-0.8%
66.0 -0.8%
1,579
65.8 1,580 -0.5%
1,566
65.6
65.5 -0.8%
1,558
1,560
65.4
65.2
65.0 1,540
65.0
64.8 1,520
64.6
64.4 1,500
2018 2019 2020 2018 2019 2020
Note: Big Four Banks represents CCB, BOC, ABC and ICBC. Source: Note: Big Four Banks represents CCB, BOC, ABC and ICBC. Source:
Company data, CRSHK calculations Company data, CRSHK calculations
Exhibit 85: We expect Lakala/Yeahka’s payment take rate to Exhibit 86: Third-party payment companies’ payment
face persistent pressure volume grew 42% YoY in 1Q21
Gross and net take rates of Lakala and Yeahka RMB trn Non-bank payment TPV YoY% (RHS)
Net take rate - Lakala Net take rate - Yeahka 90 84 86 100%

79
bps Gross take rate - Lakala Gross take rate - Yeahka 80
69 70
16.0 70 64 80%
14.3 13.9 61
14.0 12.9 12.5 60 57 58 59
51 52
12.0 10.2 10.3 10.4 46 48 60%
13.3 50
12.1 12.4 39
10.0 42%
10.7 40
8.0 6.7 10.0 10.0 10.0 31 40%
6.1 5.6 30 26
6.0 4.9
3.2 3.5 3.5 3.3 3.0 2.4 3.1 3.2 20 20%
4.0 2.5 2.5
2.0 10
0.0 - 0%
2017 2018 2019 2020 2021E 2022E 2023E
Source: Company data, CRSHK estimates Note: TPV processed by non-bank companies excludes entertainment-
related TPV such as red packets. Offline QR code TPV started to be
recorded under bank card payment volume from 2Q18.
Source: Company data, CRSHK calculations
55
s
September 9, 2021
Industry Update
Online Media
Stock
A tale of two trends among traditional and new video platforms

 Stay-at-home mandates boosted total time spent (TTS), particularly on short-
form and vertical video platforms, with a focus on live content and strong
BILI BILI US BUY US$165.00 interactivity. Traditional video platforms face headwinds.
Kuaishou 1024 HK BUY HK$184.00
 We believe the videoization of content is still at an early stage, with companies
offering more niche products to vast numbers of internet users and increasing
content commerce solutions.
 Sector picks: Bilibili and Kuaishou (both rated BUY).
Lessons learned: Total time spent has surged during the pandemic but has shown a flight-
to-quality divergence among online media platforms. Although there was an industry-wide
tailwind for online media platforms at the beginning of the pandemic lockdown in China in
1H20, short-form video and Anime, Comic, Gaming (ACG) platforms have since
outperformed traditional media and continue to occupy a larger share of TTS even as the
lockdown has ended. According to QuestMobile, as of June 2021, TTS for Bilibili,
Kuaishou, and Douyin was up 107%/79%/81%, respectively, relative to Dec 2019, while
iQiYi’s, Tencent Video’s and Youku’s TTS contracted by 9%/33%/33%. We believe this
trend shows that user-generated content and niche diversity of supply and demand,
together with more time to find one’s preferences, have been the catalysts dividing the
performance of media platforms. As user interests become more diversified, the algorithm-
based video suggestions become even more tailored to meet their expectations.
Post-pandemic challenges: The challenge we see for the industry now is how to
monetize existing users while acquiring new users in an ROI-conscious manner. We
believe online media platforms can no longer rely on the surge in TTS or on the relatively
easy-going way they acquired customers during the lockdown. Instead, they will need to
find other drivers for top-line growth. On the advertising front, increasing TTS helps drive
ARPU higher, albeit with a diminishing customer experience. On the e-commerce front,
according to our channel checks, media platforms are seizing the online shopping habits
used during the pandemic to develop a more diversified portfolio of product offerings. What
is more challenging, however, is acquiring lower-tier city users who generate limited ARPU.
As China has reopened over the past year, we have seen a rise in sales & marketing
expense among top video platforms, and we expect the costs will continue to edge higher
as the marginal cost of acquisition increases.
Key sector themes: Recent market regulations could benefit e-commerce newcomers, in
our view. The impact of anti-trust investigations and recent regulatory actions has been
significant. Allowing merchants to join more platforms and offer diversified portfolios of
goods, streamline logistics and serve different demographics should benefit next-
generation social e-commerce initiatives, and may have potential to raise industry ARPU.
Stock ideas: We continue to prefer user-generated content (UGC) platforms and believe
Research Team
Bilibili (BUY) and Kuaishou (BUY) have successfully captured the market opportunity since
Ella Ji, CFA the pandemic.
China Renaissance Securities (US) Inc.
+1 212 554 2966 Sector risks: Stricter content regulation, poor execution on monetization diversification,
ellaji@chinarenaissance.com higher S&M expenses, and worse-than-expected performance of new initiatives.
Yiwen Zhang, CFA
+852 2287 1624
yiwenzhang@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 87: Stock ideas – Online Media

Bilibili Inc. BILI US BUY US$165.00 Well positioned for the current trend, given: 1) its unique content
offerings; 2) social e-commerce opportunity; 3) user growth
potential outside the current niche. Our target price is based on 15x
2022E P/S.
Kuaishou Technology 1024 HK BUY HK$184.00 Well positioned for the current trend, given: 1) strong performance
during pandemic which shows user upside potential; 2) social e-
commerce tailwind; 3) UGC platform tailwind; 4) attractive valuation.
Our target price is based on 5x 2022E P/S.
Source: CRSHK and CRSUS estimates
Exhibit 88: China online media – trend in total time spent (TTS)
Total Time Spent since December 2019
1,400
1,200
1,000
Minutes in bn
800
600
400
200
Douyin Kuaishou Bilibili iQiYi Youku Tencent Video
Source: QuestMobile, CRSUS and CRSHK
Exhibit 89: China online media, TTS relative to pre-pandemic levels
Total Time Spent Growth Relative to December 2019

150%
Bilibili, +107%
100%
Kuaishou,
Douyin, +81%
50%
iQiYi, -9%
0%
Tencent Video, -33%
Youku, -33%
-50%
Douyin Kuaishou Bilibili iQiYi Youku Tencent Video
Source: QuestMobile, CRSUS and CRSHK
57
September 9, 2021
Industry Update
Exhibit 90: China non-game video TTS breakdown by category and platform
100%
24.8%
80% 36.9%
9.7%
60% 8.3%
12.9% 3.7%
1.6%
2.1%
40%
53.4%
46.4%
20%
0%
2020 2025E
Short video Bili WeChat Channels Entertainment video Others
Note: * Entertainment video includes Tencent Video, iQiyi, Youku and Mango.
Source: iResearch, QuestMobile, CRSUS and CRSHK estimates
Exhibit 91: China video ad market share, by platform

100%
11% 9% 7%
15% 3%
22% 3% 3%
29% 2% 5% 7% 9%
80% 2% 3%
1% 1%
0%
60%
40% 80% 82% 81% 81%

70% 75%
20%
0%
2020 2021E 2022E 2023E 2024E 2025E
Short video WeChat Channels Bili Others
Source: Company data, CRSUS and CRSHK estimates
58
s
September 9, 2021
Industry Update
Live Streaming
Showroom saturated; game live streaming margin slippage

 COVID-19-related lockdown led to increasing time spent on game live streaming
and disrupted content supply to showroom live streaming.
Top Picks Ticker Rating TP  Showroom live streaming faces traffic saturation, while game live streaming
JOYY YY US BUY US$74.00 should maintain single-digit growth in 2021E; tighter regulations and likely
HUYA HUYA US BUY US$18.20 margin compression pose downside risks.
 Sector picks: JOYY (BUY) and Huya (BUY).
Lessons learned: COVID-19-related lockdown led to increasing time spent on game live
streaming and disrupted content supply to showroom live streaming. In 3M20, total time
spent on live streaming gained 14% YoY, according to data from iResearch, in which game
live streaming increased 33% while showroom declined 2% YoY. For full-year 2020, live
streaming time spent growth slipped 2% YoY.
Post-pandemic challenges: Competition for time spent with video platforms continues,
while the regulatory overhang on spending limit persists. Showroom live streaming faces
traffic as a growth bottleneck, while game live streaming needs to explore a non-tipping
monetization model to diversify revenue streams.
Key sector themes: We forecast China’s live streaming gifting market revenue to grow
from RMB160bn in 2020 to RMB200bn in 2025E, implying a CAGR of 5%. We consider
live streaming overall to be mature, with user penetration reaching 62% at end-2020.
Standalone showroom live streaming started to become saturated in 2019, as traffic
became a bottleneck to growth. Additionally, regulations further tightened in 2021. In Feb
2021, CAC and six other government departments jointly issued a guideline to further
strengthen regulations on live streaming, in various aspects including content quality,
protection of minors, and tipping cap. In July 2021, the Ministry of Culture and Tourism
expanded its oversight on multi-channel networks (MCNs) and issued a draft regulation
banning MCNs from self-tipping with the aim of inducing viewers to spend. Under the
current regulatory environment, we expect platforms to adopt a cautious operation model,
which could adversely affect short-term revenue growth.
We forecast standalone game live streaming will grow at a single-digit percentage YoY in
2021E. However, higher content cost and revenue sharing will likely lead to margin
compression. Regulatory uncertainty around the pending Huya-Douyu merger has now
lifted following the State Administration for Market Regulation’s (SAMR) decision to block
the deal, allowing both companies to shift their focus to their respective business
operations.
Stock ideas: We are cautious on the live streaming sub-sector in light of traffic
saturation, regulatory overhang and likely margin compression. That said, we have a BUY
rating on JOYY, given its attractive valuation and dual growth engines (ie, Bigo Live and
Likee). We also like BUY-rated Huya, as SAMR’s decision lifts the uncertainty overhang
and allows investors to focus on the company’s fundamentals, such as user metrics,
revenue growth and margin profile. Sector risks include: traffic saturation, regulatory
overhang and likely margin compression.
Research Team
Yiwen Zhang, CFA
+852 2287 1624

September 9, 2021
Industry Update
Exhibit 92: Stock ideas – Live streaming

JOYY YY US BUY US$74.00 Our BUY rating on JOYY rests on its undemanding valuation and
dual growth engines. Our SOTP-based TP reflects: 1) US$35 for
Bigo, based on 1x 2022E P/S; and 2) US$35/US$4 for net
cash/equity investment with a 50% holding discount.
HUYA HUYA US BUY US$18.20 We have a BUY rating on Huya, as SAMR’s decision enables
investors to re-focus on the company’s fundamentals, which we
believe are user metrics, revenue growth, and margin profile. Our
TP is based on 2.4x 2021E P/S, which is 1 SD below the historical
trading P/S since 2018.
Standalone showroom live streaming

The standalone showroom live streaming sub-sector faced an inflection point in 2019, when mobile
internet traffic growth slowed and competition with video platforms for users’ time intensified. We
consider the current monetization rate (ie, 8-10% quarterly paying ratio and RMB500-700 quarterly
ARPPU, using company data) to be mature. Therefore, new growth opportunities need to be found,
for example in new traffic products, including social apps (dating or audio/social), or vertical live
streaming products targeting specific user groups. Overseas expansion is another possibility, where
JOYY is a pioneer, particularly following the sale of its domestic assets in 2020. JOYY generated
US$2.2bn in revenue from overseas markets in the 12 months ended Jun 2021.
Meanwhile, a regulatory overhang persists as the market waits for details of implementation
following the Cyberspace Administration of China and six other government departments’ joint
release in Feb 2021 of a guideline on strengthening oversight of the live streaming sector. The focus
is on rational spending: the guideline states platforms should set a limit on value per virtual gift and
per time spent, and should remind users if their daily spending reaches a certain threshold. In
addition, a “cooling down” period should be established when necessary that restricts users from
spending again after accumulating a certain amount of spending. Lacking details on where the limit
will be set, platforms have kept ahead of any pending regulation by lowering top spenders’ revenue
contribution and adjusting certain gift features.
Standalone game live streaming

Increasing mobile game penetration in China (654mn mobile game players in 2020, based on CNG
data) and the growing influence of esports are tailwinds for the game live streaming industry,
although some of the benefits are diluted by video platforms. For example, Kuaishou (1024 HK,
BUY, TP: HK$184.00, covered by Ella Ji and Yiwen Zhang) announced it had MAU of 220mn and
300mn in game live streaming and game short video as of May 2020, respectively. We believe many
casual viewers are drawn to the Kuaishou platform, while Douyu (DOYU US, HOLD, US$6.00) and
Huya remain attractive to hard-core game viewers, given the breadth and depth of their game
content.
We expect further integration between games and live streaming, even though the proposed Huya-
Douyu merger was blocked. In-game live streaming could become a standard module, while game
live streaming spenders could also enjoy some privileges within games. If cloud gaming becomes
feasible and commercially affordable, game live streaming could also play a bigger role in game
distribution in future.
The flip side is higher content cost from tournament broadcasting rights, reflecting the higher
commercial value of this content. For example, Huya paid RMB2.013bn for broadcasting and
sublicensing rights to the 2021-25 LPL (League of Legends Pro League), LPL All-Star and LDL
(League of Legends Development League) tournaments, according to a company disclosure. This
compares to tens of millions of renminbi per year for non-exclusive broadcasting rights previously.
This expense could weigh on Huya’s gross margin, in our view. In addition, game video is another
investment area that could provide alternative content to attract new users to standalone game live
streaming platforms.
60
September 9, 2021
Industry Update
Exhibit 93: China live streaming mobile time spent
10bn mins
Time spent (RHS) YoY (%)
60% 14
50%
12
40%
10
30%
20% 8
10% 6
0%
Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 4
-10%
2
-20%
-30% 0
Source: QuestMobile, CRSHK
Exhibit 94: China’s live streaming market, by revenue Exhibit 95: China’s live streaming market breakdown, by
sub-sector
250 (RMB bn) 70% 100%

194 200 60%
189 80% 35% 37% 40%
200 173
181 41% 41% 42% 43% 44%
160 50%
150
140 60% 10%
12%
40% 13% 13% 14% 14% 15% 15%
87 30% 40%
100
55% 51%
20% 20% 46% 46% 45% 44% 42% 41%
50
10%
0%
0 0% 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
2018 2020 2022E 2024E Video-extended live streaming
Live streaming market YoY chg % (RHS) Standalone game
Standalone showroom
Source: iResearch, company data, CRSHK estimates Source: iResearch, company data, CRSHK estimates
Exhibit 96: China’s standalone showroom live streaming Exhibit 97: China’s standalone game live streaming
MAU MAU
140 (mn) 90 (mn)

120 80
100 70
80 60
50
60
40
40
30
20
20
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q20
2Q20
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q20
2Q20
Momo (RHS) Huya Douyu

Hello Group (MOMO US, HOLD, TP: US$14.70). Source: Company Source: Company data, CRSHK
data, CRSHK
61
September 9, 2021
Industry Update
Exhibit 98: Key operating metrics of major live streaming platforms in China
600 Mobile MAU (mn)

506
500 474
400
300
236 221
209
200 153
112 116
76 78 58 61
100
0
KS TME Bili Momo Huya Douyu
2Q20 2Q21
16.0% Monthly Paying Ratio (%)

14.0% 12.9%
12.0%
10.0% 8.9%
8.0% 7.1% 6.7%
6.0% 5.2% 5.2% 5.3% 5.3%

4.4% 4.6%
3.4% 3.1%
4.0%
2.0%
0.0%
KS Momo Douyu TME Bili Huya
2Q20 2Q21
350 Monthly ARPPU (RMB)

304
300 282
250
189
200 171
153 160 149 142
150 125
100 86
46 54
50
0
Huya TME Bili Douyu Momo KS
2Q20 2Q21
Note: CRSHK adjusts quarterly paying ratio for Momo, Douyu, and Huya into monthly paying ratio, by dividing a factor calculate by sum of four-
quarter paying users / annual paying users x 3 / 4. Tencent Music Entertainment (TME US, BUY, TP: US$11.70); Bilibili (BILI US, BUY, TP:
US$165.00).
Source: Company data, CRSHK
62
s
September 9, 2021
Industry Update
Education
Education: Overshadowed by tightening regulation

 COVID-19 lockdowns triggered a huge jump in online tutoring penetration…
 …yet regulators have tightened controls on the sector and there may be more
restrictions on tutoring to come.
 National players with good brand names may fare better in the post-regulation
era given their ability to adapt and explore non-academic tutoring options.
Lessons learned: Like many other industries, education has benefited from faster
acceptance of online modes of delivery because of the COVID-19 pandemic. Online
tutoring penetration increased dramatically as parents and students became familiar with
distance learning during the lockdown period in China when students had to study entirely
via online classrooms. Previously, some parents and students had been reluctant to take
the first step in trying online tutoring products given preconceived notions of distance
learning’s ineffectiveness. We estimate that online tutoring penetration in China jumped
from 27% in 2019 to 45% in 2020. To put this 18ppt increase in context, the online tutoring
penetration rate only increased by 10ppt over the period 2016-19. We observe the pick-up
in online adoption being primarily driven by users in lower-tier cities (tier-3 or below) as the
offer of free tutoring class during the lockdown period opened the door to online learning
for them. We estimate 70% of students in free online tutoring classes in the 2020 lockdown
period were from lower-tier cities.
Post-pandemic challenges: Following the July 24, 2021 announcement of the “double
reduction” policy, K-9 academic tutoring is now prohibited in China during weekends,
summer and winter breaks, and national holidays. In addition, K-9 academic tutoring
agencies are required to become not-for-profit and are prohibited to be listed or controlled
via a VIE structure. Thus, we see a high probability that listed companies will have to
dispose of their economic interests in onshore K-9 academic tutoring, albeit gradually. In
our view, the process may follow a path similar to what some companies did to dispose of
private onshore kindergarten assets after the 2018 policy announcement banned such
holdings.
Navigating the new landscape: As a result of the recent regulatory clampdown, listed
tutoring companies will likely have to expand in other related areas, to make up for the loss
in academic tutoring revenue, including: 1) non-academic K-12 tutoring classes (eg, music,
arts, coding); 2) overseas test prep and consulting; and 3) postgraduate and adult
education. Regulators now appear to be supportive of tutoring in non-academic subjects,
with no time constraints.
Against the backdrop of regulatory tightening on academic tutoring, we expect most

industry players to be negatively affected. Nevertheless, we believe the largest players with
nationwide reach and strong brand names are likely to fare better given they should benefit
from strong brand awareness among students and parents to ramp up in the above-
mentioned areas.
Research Team
Don Lau
+852 2287 1243
donlau@chinarenaissance.com

September 9, 2021
Industry Update
Exhibit 99: A dramatic increase was seen in large-class online tutoring players’ MAU
during the pandemic lockdown period
(10 thousand)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
May-20
Feb-19
Mar-19
May-19
Jul-19
Jul-20
Mar-21
May-21
Apr-19
Oct-19
Feb-20
Mar-20
Apr-20
Oct-20
Feb-21
Apr-21
Nov-20
Dec-20
Jan-19
Jun-19
Aug-19
Sep-19
Nov-19
Dec-19
Jan-20
Jun-20
Aug-20
Sep-20
Jan-21
Xueersi.com Yuanfudao Gaotu (GSX) Zuoyebang Youdao
Note: Xueersi is the online tutoring arm of TAL Education.

Source: QuestMobile
64
September 9, 2021
Industry Update
China Renaissance Equity Research

STRATEGY AND ECONOMICS INFORMATION TECHNOLOGY PROPERTY
Bruce Pang, PhD Szeho Ng, CFA Yating Zhou
China Renaissance Securities (HK) Ltd China Renaissance Securities (HK) Ltd China Renaissance Securities (China) Co., Ltd.
+852 2287 1244 +852 2287 1663 +86 21 6015 6852
brucepang@chinarenaissance.com szehong@chinarenaissance.com ytzhou@chinarenaissance.com
Melody Lai Kevin Chen
China Renaissance Securities (HK) Ltd China Renaissance Securities (HK) Ltd ASEAN NEW ECONOMY
+852 2287 1605 +852 2287 1696 Yisin Ngoh
yeyelai@chinarenaissance.com kevinchen@chinarenaissance.com China Renaissance Securities (HK) Ltd
Louis Tsang Colin Liu +65 9781 9221
China Renaissance Securities (HK) Ltd China Renaissance Securities (HK) Ltd yisinngoh@chinarenaissance.com
+852 2287 1671 +852 2287 1635
louistsang@chinarenaissance.com colinliu@chinarenaissance.com
Yiming Wang
CONSUMER China Renaissance Securities (China) Co., Ltd.
Charlie Chen +86 21 6015 6850
China Renaissance Securities (HK) Ltd ymwang@chinarenaissance.com
+852 2287 1245 Regen Chen
charliechen@chinarenaissance.com China Renaissance Securities (China) Co., Ltd.
+86 21 6015 6725
Xuefeng Jiang
yfchen@chinarenaissance.com
+86 21 6015 6632
xfjiang@chinarenaissance.com INTERNET
Tracy Dai Ella Ji, CFA
China Renaissance Securities (HK) Ltd China Renaissance Securities (US) Inc.
+852 2287 1247 +1 212 554 2966
tracydai@chinarenaissance.com ellaji@chinarenaissance.com
Yiwen Zhang
Summer Fang, CFA
+852 2287 1624
+852 2287 1242
summerfang@chinarenaissance.com
Eileen Lin
EDUCATION
+852 2287 1649
Don Lau eileenlin@chinarenaissance.com
+852 2287 1243 Eric Lu
donlau@chinarenaissance.com China Renaissance Securities (HK) Ltd
+852 2287 1209
ericlu@chinarenaissance.com
HEALTHCARE
Bing Zhao, PhD LOGISTICS
+86 21 6015 6850 Charlie Chen
bingzhao@chinarenaissance.com China Renaissance Securities (HK) Ltd
+852 2287 1245
Claire Wang charliechen@chinarenaissance.com
Tracy Dai
+852 2287 1213
clairewang@chinarenaissance.com
+852 2287 1247
Haohan Xu tracydai@chinarenaissance.com
Summer Fang, CFA
+86 21 6016 6853
hhxu@chinarenaissance.com
+852 2287 1242
summerfang@chinarenaissance.com
65
September 9, 2021
Strategy Focus
Appendix A
Analyst Certification
We, Bing Zhao, PhD, Bruce Pang, PhD, Charlie Chen, Claire Wang, Colin Liu, Don Lau, Ella Ji, CFA, Eric Lu, Haohan Xu, Louis
Tsang, Melody Lai, Regan Chen, Szeho Ng, CFA, Yiming Wang, Yiwen Zhang, CFA, certify that the views expressed in this research
report accurately reflect our personal views about any and all of the subject securities or issuers featured in this report. Furthermore,
no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this
report.
One or more research analysts responsible for this publication are not registered or qualified as research analysts with the Financial
Industry Regulatory Authority ("FINRA") and may not be associated persons of China Renaissance Securities (US) Inc. and therefore
may not be subject to applicable restrictions under FINRA rules on communications with a subject company, public appearances and
trading securities held by a research analyst account.
Important Disclosures
Legal entities disclosures for global distribution
China Renaissance Securities (US) Inc. (“CRSUS”) is registered with the Securities and Exchange Commission as a U.S. broker-
dealer under Section 15 of the Securities Exchange Act of 1934 and is a member of FINRA and SIPC (http://www.sipc.org). CRSUS
is located at 600 Fifth Avenue, 21st Floor, New York, NY 10020. China Renaissance Securities (Hong Kong) Limited (“CRSHK”) is
licensed by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, and advising on
Corporate Finance. CRSHK is located at Units 8107-08, Level 81 International Commerce Centre, 1 Austin Road West, Kowloon,
Hong Kong. China Renaissance Securities (China) Co., Ltd. (“CR Securities”) is licensed by the China Securities Regulatory
Commission for conducting securities investment consulting business. CR Securities is located at 25th Floor, Trinity Tower, No. 575
Wusong Road, Hongkou District, Shanghai, China (CRSUS, CRSHK and CR Securities are referred to as “China Renaissance”
collectively).
The research group of China Renaissance produces and distributes research products for clients of China Renaissance on a global
basis. Analysts based in China Renaissance offices around the world produce equity research on industries and companies, and
research on macroeconomics and portfolio strategy. This research report is disseminated in Hong Kong by CRSHK; and in the
United States of America by CRSUS. CRSUS has approved and agreed to take responsibility for any research report prepared by
CRSHK or CR Securities if and to the extent CRSUS distributes it in the United States.
Country and Region-specific Disclosures
Distribution in the United States: See Company-specific Regulatory Disclosures below for any of the following disclosures required
for companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for
certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity
securities, market making and/or specialist role. China Renaissance trades or may trade as a principal in debt securities (or in related
derivatives) of issuers discussed in this report. In addition to 1% ownership positions in covered companies that are required to be
specifically disclosed in this report, China Renaissance, its affiliates, and their respective officers, directors or employees, other than
the analyst(s) who prepared this report, may have a long position of less than 1% or a short position or make purchases or sales as
principal or agent in the securities discussed herein, related securities or in options, futures or other derivative instruments based
thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set
forth below, may at times give rise to potential conflicts of interest.
Unless prohibited by the provisions of Regulation S of the U.S. Securities Act of 1933, this publication is distributed in the U.S. in
accordance with the provisions of Rule 15a-6, under the U.S. Securities Exchange Act of 1934 for Major Institutional Investors, as
such term is defined in Rule 15a-6. To the extent that this publication is distributed to U.S. Institutional Investors other than Major
Institutional Investors, this publication is distributed by CRSUS but not CRSHK or CR Securities (whether directly or indirectly). Any
transactions by U.S. persons with CRSHK or CR Securities in any security discussed in this research report will be effected through
CRSUS, in compliance with the requirements of paragraph (a)(3) of Rule 15a-6 of the U.S. Securities Exchange Act of 1934.
The following are additional required disclosures: Ownership and material conflicts of interest: China Renaissance’s policy
prohibits its analysts, professionals reporting to analysts and members of their households from owning positions in securities of any
company in the analyst’s area of coverage. Analyst compensation: Analysts are paid in part based on overall revenues of China
Renaissance, which includes investment banking revenues. Analyst as officer or director: China Renaissance’s policy prohibits its
analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member
or employee of any company in the analyst’s area of coverage. Non-U.S. Analysts: Non-U.S. analysts are not registered or qualified
66
September 9, 2021
Strategy Focus
as research analysts with FINRA. They may not be associated persons of CRSUS and therefore may not be subject to FINRA Rule
2241 or FINRA Rule 2242 restrictions on communications with subject company, public appearances and trading securities held by
the analyst.
Distribution in by Hong Kong: This research report has been prepared solely for professional investors (as defined in the Securities
and Futures Ordinance (CAP 571 of the Laws of Hong Kong) whose business involves the acquisition, disposal or holding of securities
whether as principal or agent. This research report is not intended for disclosure to, and should not be relied upon by, any person
other than a professional investor. For professional investors in Hong Kong, please contact CRSHK for all matters and queries relating
to this report.
See Company-specific Regulatory Disclosures below for the disclosures which are made by CRSHK as per paragraph 16 of the Code
of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“SFC Code of Conduct”), and
capitalized terms used below bear the same meanings as defined in paragraph 16 of the SFC Code of Conduct. A copy of the SFC
Code of Conduct can be found on: www.sfc.hk.
Analyst Conflict of Interest
The research analyst(s) responsible for the preparation of this report receives compensation based upon a variety of factors, including
the quality and accuracy of research, internal/client feedback, and overall firm revenues, which include investment banking revenues.
Research analysts do not receive compensation based upon revenues from specific investment banking transactions
Company-specific Regulatory Disclosures

In the past twelve months, China Renaissance co-managed a public offering of the securities for: JD Health (6618 HK), Kuaishou
Technology (1024 HK), Pinduoduo Inc. (PDD US)
In the past twelve months, China Renaissance received compensation for investment banking services from: JD Health (6618 HK),
JD.com, Inc. (JD US), Kuaishou Technology (1024 HK), Pinduoduo Inc. (PDD US)
In the next three months, China Renaissance expects to receive or intends to seek compensation for investment banking services
from: 360 DigiTech (QFIN US), ASE Technology Holding (3711 TT), Agora Inc. (API US), Alibaba Group Holding (BABA US), BDStar
Navigation (002151 CH), Baozun Inc. (BZUN US), Bilibili Inc. (BILI US), Contemporary Amperex Technology (300750 CH), Desay SV
Automotive (002920 CH), Futu Holdings (FUTU US), HUYA Inc. (HUYA US), JD Health (6618 HK), JD.com, Inc. (JD US), JOYY Inc.
(YY US), Joyson Electronic (600699 CH), Kingsoft Cloud (KC US), Kingsoft Corporation Ltd (3888 HK), Kuaishou Technology (1024
HK), Lakala Payment (300773 CH), Lead Intelligent Equipment (300450 CH), LexinFintech Holdings Ltd (LX US), Meituan (3690 HK),
Meyer Optoelectronic (002690 CH), Mindray Bio-Medical (300760 CH), Pinduoduo Inc. (PDD US), SMIC-A (688981 CH), SMIC-H
(981 HK), Silergy Corp. (6415 TT), TSMC (2330 TT), Tencent Holdings (700 HK), UP Fintech Holding Ltd (TIGR US), Vipshop
Holdings (VIPS US), Weimob Inc. (2013 HK), Yeahka Ltd (9923 HK)
China Renaissance own more than 1% interests in: 360 DigiTech (QFIN US), LexinFintech Holdings Ltd (LX US)
The following securities (“Sanctioned Securities”) are subject to the Executive Order 14032 issued by the President of the U.S. (the
“E.O.”), which prohibits, among other things, U.S. persons (as defined in the E.O.) from the purchase or sale of such Sanctioned
Securities, unless any such transactions are solely to effect the divestment of such Sanctioned Securities within the specified
divestment period as permitted by the E.O. Clients should consider their own obligations under applicable sanctions when making
their own investment decisions. This report does not contain any legal or compliance advice, and nothing herein should be read or
construed as encouraging, approving or promoting investment or dealing in any Sanctioned Securities: SMIC-A (688981, CH), SMIC-H
(981 HK)
Distribution of Ratings and Investment Banking Relationships
Below is the distribution of research recommendations as of September 09, 2021.
Rating Count Percent IB Count IB%

Buy 128 74% 20 16%
Hold 39 23% 0 0%
Sell 6 3% 0 0%
67
September 9, 2021
Strategy Focus
China Renaissance assigns stock ratings of Buy, Hold and Sell. See ‘Stock ratings and definitions’ and ‘Sector ratings and definitions’
below.
Stock ratings and definitions: Stock ratings of Buy, Hold and Sell have a time horizon of twelve to eighteen months from the
publishing date of the initiation or subsequent rating/price target change report issued for the subject company’s stock. The following
rating definitions were last updated on December 31, 2019:
Buy – The expected return on the subject company’s stock price should outperform the typical benchmark market index for the subject
company’s primary listing exchange (e.g. the S&P 500 for U.S.-listed stocks) over the above-defined time horizon from the publishing
date of the initiation of coverage or subsequent report announcing a rating change.
Hold – The stock price of the subject company is not expected to either appreciate or depreciate meaningfully from the typical
benchmark market index for the subject company’s primary listing exchange (e.g. the S&P 500 for U.S.-listed stocks) during the
above-stated time horizon.
Sell – The expected return on the subject company’s stock price should underperform the typical benchmark market index for the
subject company’s primary listing exchange (e.g. the S&P 500 for U.S.-listed stocks) over the above-defined time horizon from the
publishing date of the initiation of coverage or subsequent report announcing a rating change.
Rating Suspended – China Renaissance has temporarily suspended the rating and, if applicable, the price target, for the subject
company’s stock because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints
around publishing, an investment rating or price target. The previous rating and, if applicable, the price target, should no longer be
relied upon. A Rating Suspended designation is not a recommendation or a rating.
Not Covered – a company for which China Renaissance research report has not been published.
Sector ratings and definitions: Sector Ratings of Overweight, Neutral and Underweight are applied to the designated sector
coverage group with a time horizon of twelve to eighteen months from the date of report publication. The following rating definitions
were last updated on January 19, 2019:
Overweight – Expect sector to outperform the relevant market. Neutral – Expect sector to perform in line with the relevant market.
Underweight – Expect sector to underperform the relevant market.
Stocks Mentioned (Stock Code / Date / Price / Rating)
360 DigiTech (QFIN US, Sep 8, 2021, US$25.06, BUY)

ASE Technology Holding (3711 TT, Sep 8, 2021, TWD119.50, BUY)
Agora Inc. (API US, Sep 8, 2021, US$32.02, BUY)
Alibaba Group Holding (BABA US, Sep 8, 2021, US$170.71, BUY)
BDStar Navigation (002151 CH, Sep 8, 2021, RMB42.45, BUY)
Baozun Inc. (BZUN US, Sep 8, 2021, US$22.96, BUY)
Bilibili Inc. (BILI US, Sep 8, 2021, US$85.80, BUY)
Contemporary Amperex Technology (300750 CH, Sep 8, 2021, RMB503.00, BUY)
Desay SV Automotive (002920 CH, Sep 8, 2021, RMB82.38, BUY)
Futu Holdings (FUTU US, Sep 8, 2021, US$108.50, BUY)
HUYA Inc. (HUYA US, Sep 8, 2021, US$10.84, BUY)
JD Health (6618 HK, Sep 8, 2021, HK$79.90, BUY)
JD.com, Inc. (JD US, Sep 8, 2021, US$81.73, BUY)
JOYY Inc. (YY US, Sep 8, 2021, US$64.56, BUY)
Joyson Electronic (600699 CH, Sep 8, 2021, RMB19.51, BUY)
Kingsoft Cloud (KC US, Sep 8, 2021, US$33.97, HOLD)
Kingsoft Corporation Ltd (3888 HK, Sep 8, 2021, HK$32.90, BUY)
Kuaishou Technology (1024 HK, Sep 8, 2021, HK$99.25, BUY)
68
September 9, 2021
Strategy Focus
Lakala Payment (300773 CH, Sep 8, 2021, RMB27.19, BUY)
Lead Intelligent Equipment (300450 CH, Sep 8, 2021, RMB68.75, BUY)
LexinFintech Holdings Ltd (LX US, Sep 8, 2021, US$6.80, BUY)
Meituan (3690 HK, Sep 8, 2021, HK$261.00, BUY)
Meyer Optoelectronic (002690 CH, Sep 8, 2021, RMB42.41, BUY)
Mindray Bio-Medical (300760 CH, Sep 8, 2021, RMB333.00, BUY)
Pinduoduo Inc. (PDD US, Sep 8, 2021, US$104.72, BUY)
SMIC-A (688981 CH, Sep 8, 2021, RMB57.00, BUY)
SMIC-H (981 HK, Sep 8, 2021, HK$23.25, BUY)
Silergy Corp. (6415 TT, Sep 8, 2021, TWD4,095.00, BUY)
TSMC (2330 TT, Sep 8, 2021, TWD619.00, BUY)
Tencent Holdings (700 HK, Sep 8, 2021, HK$524.50, BUY)
UP Fintech Holding Ltd (TIGR US, Sep 8, 2021, US$13.26, BUY)
Vipshop Holdings (VIPS US, Sep 8, 2021, US$15.01, BUY)
Weimob Inc. (2013 HK, Sep 8, 2021, HK$12.98, BUY)
Yeahka Ltd (9923 HK, Sep 8, 2021, HK$35.95, HOLD)
Rating and Target Price Charts
Rating and Target Price Charts for stocks discussed in this report are available at https://research.chinarenaissance.com/en/disclaimer.
Valuation and Risks - 360 DigiTech (QFIN US)
Valuation: Our target price for QFIN is US$43.00. We use a three-stage Gordon Growth Model (P/B = (ROE-g)/(COE-g)) to derive
our target 2021E P/B of 3.0x.
Risks: 1) Tighter regulations on loan facilitation model and lending rate cap; 2) worse-than-expected asset quality deterioration that
leads to slower loan growth and shrinking margins; 3) failure to compete effectively to retain existing borrowers; 4) lower-than-expected
synergies generated with the bank license acquired by its affiliate; 5) increasing selling pressure from existing shareholders.
Valuation and Risks - ASE Technology Holding (3711 TT)
Valuation: Our target price of TWD158.00 is based on 2.5x 2021-22E P/BV.
Risks: 1) More industry rivalry; 2) less robust IDM sourcing; and 3) slower-than-expected synergy effects from SPIL.
Valuation and Risks - Agora Inc. (API US)
Valuation: We use P/S valaution for Agora. Our TP of US$68.04 is based on 28.0x FY22E sales.
Risks: Slower-than-expected RTE adoption, fiercer-than-expected competition, unexpected new entrants, higher-than-expected
infrastructure costs, and online education regulatory uncertainty.
Valuation and Risks - Alibaba Group Holding (BABA US)
Valuation: Our US$270 target price is based on SOTP valuation of: 1) US$556bn for core marketplace; 2) US$103bn for AliCloud;
3) US$110bn value for strategic assets; and 4) US$49bn net cash. The valuation equates to 26x FY23E P/E.
Risks: 1) Competition from established rivals as well as emerging platforms, in e-commerce, content and social media. Challengers
may slow its GMV and/or revenue growth. 2) Third-party merchants' product quality risk, which could cause revenues to suffer. 3)
Business services competition in the cloud business, as well as risk of regulatory penalty and reputational damage from any potential
security breach. 4) Regulatory risk relating to the draft e-commerce regulation proposed in December 2016, which may increase tax,
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September 9, 2021
Strategy Focus
security, and compliance costs to Alibaba and its vendors. 5) Prolonged COVID-19 impact on China’s economy and consumer
spending.
Valuation and Risks - BDStar Navigation (002151 CH)
Valuation: Our target price of RMB60.40 is based on 96x 2022E target P/E.
Risks: 1) Weaker-than-expected domestic auto sales; 2) weak commercial application of the Beidou Satellite Navigation System; 3)
slower 5G technology development or infrastructure buildout; 4) weak development of auto connectivity business.
Valuation and Risks - Baozun Inc. (BZUN US)
Valuation: Our target price for BZUN is US$48.00, based on 36x 2022E P/E.
Risks: 1) Margin compression is a risk, as the company's take-rate profile is dependent on category mix; 2) prolonged risk to
international brand sales if boycott by Chinese consumers continues; 3) operational failures could be costly to BZUN's brand equity
and affect customer acquisition; 4) increasing competition could pressure margins and revenue profile; 5) macro risks, such as a
slowdown in online consumption and consumer spending, could put downward pressure on revenue growth; 6) prolonged COVID-19
outbreak; and 7) slower-than-expected new channel expansion.
Valuation and Risks - Bilibili Inc. (BILI US)
Valuation: Our target price of US$165.00 is derived from a P/S framework. We use a 15x 2022E P/S multiple and net cash of
RMB19.0bn to value Bilibili.
Risks: 1) Worse-than-expected new mobile game launches; 2) Increase in spending on content purchases; 3) competition from other
forms of online/offline entertainment; and 4) tighter government regulations
Valuation and Risks - Contemporary Amperex Technology (300750 CH)
Valuation: Our target price of RMB688.20 is based on 88x 2022E P/E, which is at its average 12-month forward P/E since April 2020.
Risks: 1) Weaker-than-expected sales of new energy vehicles; 2) Intensifying competition; 3) Fluctuation in raw material prices; 4)
Concentrated market risk.
Valuation and Risks - Desay SV Automotive (002920 CH)
Valuation: We assign a 70x 2022E target P/E multiple at +1.5SD of its past three-year average to derive our target price of
RMB143.20 for Desay SV.
Risks: 1) Weaker-than-expected global auto sales; 2) slower development of smart service business; 3) chip supply shortage; 4)
intensifying competition in auto electronics sector.
Valuation and Risks - Futu Holdings (FUTU US)
Valuation: Our target price of US$198.00 is derived from a target P/E of 55x based on average Non-GAAP net profit in 2021E and
2022E.
Risks: Key downside risks include: 1) market downturn and reduced participation of retail investors; 2) intensifying competition; 3)
tightening capital control in mainland China; 4) slower-than-expected overseas expansion; 5) further raise of stamp duty on stock
trading in Hong Kong; 6) credit risks.
Valuation and Risks - HUYA Inc. (HUYA US)
Valuation: Our TP of US$18.20 is based on 2.4x 2021E P/S, which is 1 SD below the historical trading average forward P/S since
2018.
Risks: 1) Greater-than-expected competition in the industry, leading to higher spending/investment by Huya, affecting its margins. 2)
Higher-than-expected user base attrition. 3) Regulators tightening the curbs on inappropriate content and behaviour of live streaming
hosts. 4) Higher-than-expected investment in technology and R&D.
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September 9, 2021
Strategy Focus
Valuation and Risks - JD Health (6618 HK)
Valuation: Our target price is HK$143.74, based on a two-stage DCF approach. The first stage of our DCF is from 2021E to 2028E,
and the second stage is from 2029E to perpetuity. Our analysis applies a WACC of 7.9%, beta of 0.9 and terminal growth rate of 3%.
This valuation implies a 2022E P/S ratio of 9.7x.
Risks: 1) Strained resources impede growth and strategy implementation; 2) new and evolving regulatory requirements; 3) inability
to attract and retain users; 4) group conflict of interests; 5) direct sales model operational risk.
Valuation and Risks - JD.com, Inc. (JD US)
Valuation: Our SOTP-based target price is US$96 based on: JD Retail valuation of US$86 per share based on 25x 2022E P/E. 2)
Other JD subsidiaries and investments at US$10 per share.
Risks: 1) Competition with established companies as well as those from different categories could slow GMV and/or revenue growth.
2) COVID-19 outbreak-related macro impact could result in a retail slowdown and reduced spending demand on JD.com. 3) JD’s core
ecommerce business margin upside: new businesses and technology investment may impede its margin enhancement trajectory.
Valuation and Risks - JOYY Inc. (YY US)
Valuation: Our target price of US$74.00 is derived from an SOTP framework. We use: 1) US$35 for Bigo on 1x 2022E P/S; 2) US$35
for net cash applying 50% holding discount; 3) US$4 for equity investment applying 50% holding discount.
Risks: 1) Acquisition of YY Live by Baidu might not go through. 2) Slower Bigo growth due to political risks. 3) Higher-than-expected
user base attrition. 4) Worse-than-expected execution on new launches. 5) Higher-than-expected investments in technology and R&D.
Valuation and Risks - Joyson Electronic (600699 CH)
Valuation: We assign a 25x 2022E target P/E multiple at -0.5SD of its past three-year average to derive our target price of RMB30.60
for Joyson.
Risks: 1) Weaker-than-expected global auto sales; 2) intensifying competition in auto electronics; 3) slow automotive connectivity
business development; 4) ongoing chip supply shortage.
Valuation and Risks - Kingsoft Cloud (KC US)
Valuation: Our US$34.61 target price is derived from a DCF (discontinued cash flow) valuation methodology as we believe free cash
flow is a key indicator for Kingsoft Cloud’s business. Our DCF inputs include: a risk free rate of 2.0%, an equity risk premium of 7.0%,
a beta of 1.0 given no historical beta, which leads to a cost of equity of 9.0%, a cost of debt of 7.0%, a tax rate of 15%. These inputs
lead to a blended WACC of 8.1%. We assign a terminal growth rate of 5.0%.
Risks: Upside risks include: 1) Favorable changes in product mix 2) Stronger-than-expected demand from online gaming and video
industries could boost KC’s revenue growth. 3) Lower-than-expected capital expenditure needed to support revenue growth. 4) Better
progress in government and traditional enterprise customers. Downside risks include: 1) Greater competition in the IaaS industry
putting increased pressure on KC's product pricing, revenue growth and gross profit margin. 2) Slower-than-expected development
progress of private and hybrid cloud products. 3) Higher-than-expected bandwidth and data center usage costs.
Valuation and Risks - Kingsoft Corporation Ltd (3888 HK)
Valuation: Our TP of HK$61.23 is based on sum of parts (SOTP) valuation: 1) Office Software at RMB102bn based on 43.7% discount
to 30-day avg. market value; 2) Kingsoft Cloud (KC US, HOLD) at RMB50.2bn, based on our current valuation; 3) Online Games at
RMB9.4bn on 15x FY22E adjusted earnings; and 4) Cheetah Mobile at RMB2.0bn based on 30-day avg. market value. We also apply
a 15% holding company discount.
Risks: Key risks include: slower-than-expected office software localization progress; slower-than-expected online game and office
software product development; higher-than-expected marketing expenses; lower-than-expected dividend.
Valuation and Risks - Kuaishou Technology (1024 HK)
Valuation: Our target price of HK$184.00 is based on 5x 2022E P/S plus net cash.
Risks: 1) Greater-than-expected competition in the live streaming industry. 2) Stricter regulation of live streaming spending cap and
regulation of inappropriate content. 3) Worse-than-expected execution on monetization diversification. 4) Slower-than-expected ramp-
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September 9, 2021
Strategy Focus
up of ecommerce revenue due to underdeveloped back-end capability. 5) Higher-than-expected S&M investment. 6) High level of
earnings cyclicality. 7) Prolonged economic impact from COVID-19.
Valuation and Risks - Lakala Payment (300773 CH)
Valuation: We apply a target 2022E EV/EBITDA multiple of 20x to derive our RMB50.00 target price for Lakala Payment.
Risks: 1) Tighter-than-expected regulations on 3P payments and Fintech industry in general may affect payment business model and
Fintech license acquisition; 2) intensifying competition from internet giants may pressure payment market share and take rate; 3)
increasing bargaining power from ISOs/ISVs may reduce revenue sharing and net take rate; 4) slower-than-expected growth in
merchant operation services and Fintech revenue; 5) prolonged impact from COVID-19.
Valuation and Risks - Lead Intelligent Equipment (300450 CH)
Valuation: Our target price of RMB98.20 is based on 43x 2022E target P/E, 0.5 STD above its historical one-year forward P/E
average.
Risks: Weaker NEV sales; raw materials supply shortage; customer concentration risk.
Valuation and Risks - LexinFintech Holdings Ltd (LX US)
Valuation: Our target price for LX is US$18.00. We use a three-stage Gordon Growth Model (P/B = (ROE-g)/(COE-g)) to derive our
target 2021E P/B of 2.8x.
Risks: 1) Tighter regulations on loan facilitation model and lending rate cap; 2) worse-than-expected asset quality could result in
lower margins and slower loan growth; 3) failure to compete effectively in the consumer finance market and losing market share to
banks or lenders; 4) slower-than-expected rollout of new consumption platform strategy.
Valuation and Risks - Meituan (3690 HK)
Valuation: Our SOTP-based target price of HK$330.00 reflects our valuation for four segments: 1) Food delivery: 25x (was 35x)
2023E P/E; 2) in-store, hotel & travel: 25x (was 30x) 2023E P/E; 3) community ecommerce: 2x (unchanged) 2022E GMV; and 4)
other new initiatives: 2x (unchanged) 2022E P/S.
Risks: 1) Slower-than-expected recovery from COVID-19 outbreak; 2) intensified peer competition may impede market share
expansion; 3) higher than expected rider costs may pressure margins; and 4) investments in new initiatives may pressure margins.
Valuation and Risks - Meyer Optoelectronic (002690 CH)
Valuation: We value Meyer using a two-stage DCF valuation. Our key WACC assumptions include a risk-free rate of 3.2%, equity
risk premium of 7.0%, the beta of 0.83, cost of debt of 4.7%, a marginal tax rate of 25%, and debt/total capital ratio of 15%, which
produces WACC of 8.2%. Our DCF valuation derives a target price of RMB62.37.
Risks: 1) Increased competition; 2) foreign exchange risk; 3) raw material price fluctuation; 4) prolonged impact of COVID-19; and 5)
inability to retain key staff.
Valuation and Risks - Mindray Bio-Medical (300760 CH)
Valuation: We value Mindray using a two-stage DCF valuation. Our key WACC assumptions include a risk-free rate of 3.2%, equity
risk premium of 7.0%, the beta of 0.62, cost of debt of 4.7%, a marginal tax rate of 25%, and debt/total capital ratio of 0.0%, which
produces WACC of 7.5%. Our DCF valuation derives a target price of RMB573.16.
Risks: 1) policy uncertainty; 2) FX risk; 3) slower-than-expected R&D progress; 4) fierce market competition; 5) talent retention.
Valuation and Risks - Pinduoduo Inc. (PDD US)
Valuation: Our target price of US$157.00 with an SOTP-based valution on 11.6x blended 2021E P/S.
Risks: 1) failure to acquire new brands/users, which could undermine PDD's competitiveness and impact its revenue; 2) intensifying
competition from ecommerce companies and traditional retailers; 3) counterfeit products damaging PDD's reputation; 4) reliance on
social media platforms as access points for traffic, and to attract and retain buyers; 5) Prolonged COVID-19 outbreak; and 6) higher-
than-expected user acquisition costs of Duoduo Maicai.
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September 9, 2021
Strategy Focus
Valuation and Risks - SMIC-A (688981 CH)
Valuation: Our target price of RMB83.00 for SMIC-A is based on 19x 2021E P/S.
Risks: Downside risks: 1) Increased Sino-US political tension; 2) slower-than-expected yield improvement; and 3) worse-than-
expected order progress.
Valuation and Risks - SMIC-H (981 HK)
Valuation: Our target price of HK$42.00 for SMIC-H is based on 2.5x 2021-22E P/BV.
Risks: Downside risks: 1) Increased Sino-US political tension; 2) slower-than-expected yield improvement; and 3) worse-than-
expected order progress.
Valuation and Risks - Silergy Corp. (6415 TT)
Valuation: Our target price of TWD4,750.00 is based on 1-year discount to 65x 2022E P/E.
Risks: Downside risks include: 1) Worse-than-expected demand in end-market applications; 2) slower pace of market penetration; 3)
faster-than-expected foundry price hike; and 4) FX (TWD/US$) fluctuation.
Valuation and Risks - TSMC (2330 TT)
Valuation: Our target price of TWD875.00 for TSMC is based on 1-year discounted 40x 2022E P/E.
Risks: 1) Weakness in the overall smartphone end-market demand could impact short-term profitability; 2) intense industry rivalry
from US-China trade war; 3) slower-than-expected technology ramp-up could result in market share loss for TSMC; 4) slower-than-
expected 5G/HPC ramp-up; 5) more severe COVID-19 outbreak.
Valuation and Risks - Tencent Holdings (700 HK)
Valuation: Our SOTP-based TP is HK$725.00, based on 24x/24x/30x 2022E P/E for online games, VAS and ads, respectively, and
5x P/S for fintech and 8x P/S for cloud and other businesses. We also account for HK$186bn worth of content ecosystem (including
video, reading and others), HK$1,446bn for long-term investments (at either market value or valuation implied in the last round of
financing), and HK$-25bn of net cash. We apply a 10% holding discount.
Risks: 1) A broadening by the US of its restrictions on Tencent-related businesses or transactions; 2) missed opportunities/slowness
in monetizing highly valued assets such as WeChat and WeChat Payment; 3) further regulatory restrictions on gaming could hurt
blended revenue growth; 4) rising costs for Tencent Video and other digital media businesses amid strong video competition and
relatively slower monetization on other premium content platforms could affect blended margin; 5) competition from emerging social
networks and foreign players, if they are allowed to operate in China, could impact ad segment revenue growth; 6) volatility in margin
performance may cause uncertainty in EPS; and 7) low-return investments affecting operating margin.
Valuation and Risks - UP Fintech Holding Ltd (TIGR US)
Valuation: Our target price of US$38.50 is derived from a target P/E of 60x based on average adjusted net profit in 2021E and 2022E.
Risks: Key risks: 1) market downturn and reduced participation of retail investors; 2) intensifying competition; 3) tightening capital
control in mainland China; 4) slower-than-expected overseas expansion; 5) capital raising.
Valuation and Risks - Vipshop Holdings (VIPS US)
Valuation: Our target price of US$35.70 is based on a 25x 2021E P/E multiple.
Risks: 1) Lower-than-expected user growth on weaker customer retention; 2) slower-than-expected execution on Tencent/JD
cooperation, which could impede user growth; 3) failure to add new brands; 4) intensified competition from both ecommerce and
traditional retailers; and 5) a longer-than-expected impact from COVID-19.
Valuation and Risks - Weimob Inc. (2013 HK)
Valuation: We use a P/GP multiple to derive our target price for Weimob. Our target multiple of 18.9x FY22E gross profit leads to a
target price of HK$20.31.
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September 9, 2021
Strategy Focus
Risks: 1) Increase in customer conversion costs; 2) possible deterioration of Tencent ecosystem; 3) lower-than-expected adoption
from new clients; 4) difficulty in business integration with Heading; and 5) lower-than-expected return from new hiring.
Valuation and Risks - Yeahka Ltd (9923 HK)
Valuation: We apply a target 2022E EV/EBITDA multiple of 26x to derive our HK$53.00 target price for Yeahka.
Risks: Upside risks: 1) Faster-than-expected payment volume growth; 2) Better-than-expected payment fee rate; 3) Successful
launch of new SaaS products; 4) More synergies generated with CXZ. Downside risks: 1) Increasing competition on ISO/ISV resources
among merchant acquirers may increase sales commissions and reduce Yeahka’s net take rate; 2) Slower-than-expected growth in
VAS revenue; 3) Tighter-than-expected regulations on 3P payments and the fintech industry in general may affect the company’s
payment business model, payment license renewal as well as fintech license acquisition (i.e. lending license); 4) Intensifying
competition from Internet giants with stronger ecosystems and larger user bases may pose downside risk while those with strong
offline presence may also be potential strong players in the offline acquiring market; and 5) Prolonged impact from COVID-19.
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September 9, 2021
Strategy Focus
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September 9, 2021

The New Normal: How to live with disruption?

 …reset investment themes to focus on quality growth stocks with advanced

PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING IN APPENDIX A

Reset: investment themes – focus on quality growth stocks

Reschedule: A prolonged battle with the COVID-19 virus

Resurgence of COVID-19 cases…

Source: IHS, Strategy Analytics

Restructure: Identifying longer-term mega-trends

The strong could continue to get stronger

Thanks to the work-from-home (WFH) dynamic and the digital/connectivity-driven enablement of

Consumer behavior and consumption patterns: large shifts

Indonesia 75.8 Share of global B2C and C2C

% YoY E-commerce % YoY Retail sales

2020 2021E 2022E 2023E 2020 2021E 2022E 2023E

Note: Interact Analysis forecasts Source: Interact Analysis forecasts

China: A laggard with the catch-up effect in play

300 45% 1500 1311 1287 150

China climbing the tech ladder

Japan Germany US China India

Regulation: An ongoing push

Rationale: The common prosperity campaign…

…with better governance and more balance in the economy

 “Actively promote legislation” in areas such as national security, technological innovation,

 Promote openness in government affairs: “Adhere to openness as the normal, non-openness

…with commitment to healthy and long-term economic growth

Exhibit 21: China – major regulatory updates in August 2021

NEV and autonomous driving are key drivers of the post-

 Top sector pick: CATL (BUY).

Post-pandemic challenges: The new coronavirus variant continues to weigh on

PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING IN APPENDIX A

Exhibit 22: Stock ideas

Company name Ticker Rating Target price Rationale

Source: CRSHK estimates

Accelerating NEV growth over the next five years

 Globally, environmental policies related to carbon emissions are becoming increasingly

Source: Autohome, CR Securities compiled Source: Marklines, CR Securities compiled

6.0 100% 300 100%

Exhibit 27: China ADAS market size, by sales (RMBbn)

ADAS system (RMB Bn)-LHS YoY-RHS

Source: CAAM, CR Securities estimates

Source: CAAM, CR Securities estimates

Exhibit 29: Autonomous driving: The blue ocean in the AI era

Source: McKinsey, CR securities

Exhibit 30: Significant cost advantages of Robo Taxis

Source: CITIC, Didi forecasts

Exhibit 31: Size of ride-hailing services (2024E)

Source: NIO Capital, Roland Berger, Jingwei HiRain Technologies forecasts

Exhibit 32: Functional Upgrade of Autonomous Driving

Source: YOLE, Aptiv, Veoneer

Exhibit 33: Autonomous Driving Supply Chain

PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING IN APPENDIX A

Exhibit 34: Stock ideas – Semiconductors

Source: SEMI, ACMR prospectus, China Renaissance compiled

Source: SEMI, CRSHK

Exhibit 37: Impact of 5G on China’s economy

Source: CAICT estimates, CRSHK

Source: Grand View Research forecasts, CRSHK

Source: Gartner estimates, CRSHK

Source: Gartner forecasts Source: CCID Consulting forecasts

Exhibit 42: Major AI chip suppliers

Major chip type Major global suppliers Major China suppliers

Image recognition and video