Zhongjin: Online platform valuation callback, sector attractiveness strengthened.

CICC released a research report, stating that recently, the overall market sentiment has turned lower, leading to a overall correction pattern in sectors. Currently, the online platform sector's overall valuation is between the mean and 25th percentile. From a fundamental perspective, the sector's overall performance is stable, with main tracks such as advertising and gaming still experiencing healthy growth. Key companies such as Tencent are still showing improved profitability and operational leverage. Additionally, the bank believes that AI is still in a rapid development stage, and compared to overseas tech giants' aggressive capital spending, domestic internet companies' investments are more practical and sustainable, making AI a significant incremental opportunity for some internet companies in the future. Overall, the fundamentals are stable, the potential of AI is still there, but valuations are decreasing, leading the bank to believe that the sector's attractiveness is increasing. In summary, the bank's core recommendation is Tencent (00700), with a suggestion to pay attention to KUAISHOU-W (01024), NTES-S (09999), NEWBORNTOWN (09911), BILIBILI-W (09626). CICC's main points are as follows: - The majority of companies are entering the "reasonable" range of 15-20x PE by 2026, meaning that if a company's performance exceeds expectations in the future, it could benefit from both performance and valuation increases. - In the past, Bilibili had long been at a highly overvalued level, while companies like BOSS Zhipin, Tencent Music, and Netease Music were at a moderately high valuation level. Looking ahead to the valuation levels in 2026, except for Bilibili (20-25x) and Kuaishou (10-15x), key companies like Tencent, Netease, BOSS Zhipin, Tencent Music, and Netease Music are already at the 15-20x level. The bank believes that for companies with a positive long-term logic and short-term performance exceeding expectations, a valuation of 20-25x is also reasonable. The current valuations of most companies in the sector have laid a good foundation for companies with future performance exceeding expectations. - Some companies have new and better long-term logic worth paying attention to. For example, Netease has found a new path with the high-quality single-player story + story-based social module payment model in "Yan Yun Sixteen Sounds" that is more widely accepted among mainstream overseas users; Bilibili has high barriers to entry in non-gaming businesses and stable operations, while focusing on high-quality games in the gaming business, which may bring elastic growth on the basis of stable performance; After controlling customer acquisition costs, Kuaishou has seen a significant improvement in marketing expenses, which has had a noticeable boost on adjusted operating profit margins. In addition, Tencent has maintained a highly stable and growing operational performance with a good base of growth in Red Core Society. Profit Forecast and Valuation Maintain profit forecasts, ratings, and target prices for relevant companies in the industry. Risks Macroeconomic recovery falls short of expectations; increased regulatory scrutiny in some tracks; changes in the external environment; AI layout falls short of expectations.