Tianfeng: Hong Kong stock market has been one of the best performers since the beginning of the year, and the valuation of Chinese internet companies still remains attractive.

Tianfeng released a research report stating the significant valuation advantage of the Hang Seng Index and the Hang Seng Tech Index. As of July 25, the Hang Seng Index's trailing twelve months (TTM) P/E ratio was 10.68, with a percentile rank of 63.98% over the past ten years, and a dividend yield of 3.93%. The Hang Seng Tech Index had a TTM P/E ratio of 20.10, with a historical percentile rank of 8.95%, indicating historically lower valuation levels. Compared to major global markets, the Hong Kong stock market has outperformed year-to-date, but in terms of valuation, the P/E ratios of the Hang Seng Index and the Hang Seng Tech Index are attractive compared to other major markets. Chinese AI is globally competitive, opening up mid-to-long-term valuation centers The current valuations of domestic internet companies have not fully reflected AI expectations. Leading domestic company NETDRAGON is expected to continue to narrow the gap with global leading companies in terms of AI technology capabilities. As AI enters the stage of application exploration, the technological accumulation and business practices of domestic internet companies are gradually deepening, potentially reducing the overall competitive gap with overseas peers and achieving differentiated breakthroughs in certain scenarios. Chinese AI models, such as DeepSeek and Question Thousand Times, are approaching the capabilities of top global models; domestic AI commercialization, represented by Kuaishou Kelinghua, is rapidly taking off, with an annualized revenue run rate (ARR) exceeding 100 million USD within 10 months. Tianfeng believes that with the rapid development of domestic internet AI technology, AI valuation is expected to be fully priced. Gaming Industry: Clear signals of policy support, focus on changes in product cycles The issuance of game approvals is expected to continue to grow in 2025. In the first quarter of 2025, the actual sales revenue of the Chinese gaming market was 85.704 billion RMB, a year-on-year increase of 17.99%. From a policy perspective, the normalization of game approvals has somewhat alleviated concerns in the market about the gaming industry. In the first quarter of 2025, a total of 362 domestic game approvals and 21 imported game approvals were issued. Considering the good supply foundation provided by the growth in the number of approvals in 2024, concerns about consumer spending from the demand side are expected to gradually improve. It is estimated that the total revenue of the Chinese gaming market (domestic + overseas) in 2025 is expected to maintain high single-digit growth. Advertising Industry: Macro-economic fluctuations have slightly slowed industry growth, but some companies still have incremental growth The high base of the previous period has led to a slight slowdown in the growth of the advertising industry, but some companies have exceeded the industry growth rate under the slow industry growth rate, mainly due to incremental growth in segmented industries and the improvement of their own advertising efficiency. AI is expected to bring new growth to the industry. Tianfeng believes that in the future, the domestic internet advertising industry is expected to follow the AI commercialization path of overseas tech giants, benefiting from AI in terms of both advertising volume and price: 1) Continued improvement of recommendation systems through AI to provide more accurate placements, thereby enhancing user experience and average usage time; 2) The introduction of AI advertising tools is expected to significantly optimize the creative process of advertisers, leading to a substantial increase in advertisers' ROAS (return on advertising spending), thereby increasing advertising spending. Local Life Industry: Flash purchase + going global opens up the second growth curve, unmanned delivery expected to bring billion-dollar cost savings The Saudi grocery delivery market is currently in a high-growth phase, with the market size expected to grow at a compound annual growth rate of 18.2% to 2.77 billion USD by 2028. Tianfeng believes: 1) The overall mobile internet penetration rate in the Middle East is relatively high, currently in a period of rapid development, with a high number of foreigners, creating a favorable environment for food delivery; 2)Players like Keeta are expected to further increase the penetration rate of food delivery; 3) The local take rate is high, with good merchant payment basis, further opening up payment space. On the other hand, unmanned delivery is expected to become a new trend, with long-term potential to drive significant cost savings. E-commerce Industry: Fierce competition but relatively rational, returning to advantageous fields Tianfeng believes that the overall growth rate of the e-commerce industry has slowed down, mainly due to consumers' relatively cautious spending under the influence of macroeconomic factors. On the other hand, the short-term impact of the US tariff policy on e-commerce exports, but in the long run, e-commerce going global can offset costs through partial price increases. After the implementation of the new tax rates, the order volume of fully hosted operations is expected to gradually recover, with limited overall impact. It is expected that as various platforms gradually return to their advantageous areas and platform promotions become more normalized, the online penetration rate is still expected to steadily increase year-on-year. Tianfeng believes that the e-commerce market will continue four trends: 1) Rational consumer spending, continuous demand for high-appeal products, and AOVs of each platform may decline; 2) Differences in GMV growth rates and monetization rates between different platforms may narrow; 3) While different e-commerce platforms guarantee the quality of user services, they will pay more attention to supporting high-quality supply-side/merchant side, focusing on the adaptability of their own strategies and platform resources; 4) The policy of old-for-new creates industry growth. Risk Warning: Downward macroeconomic trends; AI development falls short of expectations; geopolitical risks.