YY(YY.OQ)：TRUE PLATFORM PLAY ON EMERGING 'FANS ECONOMY'; UPGRADING TO BUY

Deutsche Bank Markets Research Rating Buy Asia China Technology Software & Services Company YY Date 8 February 2014 Recommendation Change True platform play on emerging 'fans economy'; upgrading to Buy Reuters Bloomberg Exchange Ticker YY.OQ YY US NMS YY Forecasts And Ratios Year End Dec 31 2011A 2012A2013E2014E2015ESales (CNYm) 319.7 820.01,771.73,160.34,617.9Reported NPAT (CNYm) -83.2 95.2440.5701.91,087.9Reported EPS FD(CNY) -3.42 2.457.4711.6617.72DB EPS FD(CNY) 2.13 5.039.7015.3722.71OLD DB EPS FD(CNY) 2.13 5.038.5312.4417.19% Change 0.0% 0.0%13.7%23.5%32.1%DB EPS growth (%) – 135.792.858.547.8PER (x) – 16.837.423.616.0Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Underestimated master of online live broadcasting; upgrading to Buy ________________________________________________________________________________________________________________Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013. Price at 6 Feb 2014 (USD) 59.87Price target - 12mth (USD) 81.0052-week range (USD) 71.45 - 13.92HANG SENG INDEX 21,423 Vivian Hao Research Analyst (+852) 2203 6241 vivian.hao@db.com Alan Hellawell III Research Analyst (+852) 2203 6240 alan.hellawell@db.com Key changes Rating Hold to Buy↑Price target 55.00 to 81.00↑47.3%Sales (FYE) 1,744 to 1,772↑1.6%Op prof margin (FYE) 21.6 to 25.6↑18.4%Net profit (FYE) 373.5 to 440.5↑17.9%Source: Deutsche Bank Price/price relative 0153045607511/125/1311/13YYHANG SENG INDEX (Rebased) Performance (%) 1m3m12mAbsolute 4.424.7 342.8HANG SENG INDEX -5.6-7.0-7.9Source: Deutsche Bank With its leading proprietary, real-time, mass online communication technology platform, we believe YY's potential as a true platform play to capture China's “Average Joe” audience has been significantly underestimated. Based on an in-depth analysis of the behavioral traits and consumption patterns of YY's target customers and company strategy, we believe YY is steadily gaining market share and improving penetration in online live broadcasting market segments such as entertainment and education. This note marks the transfer of coverage from Alan Hellawell to Vivian Hao. China's “Average Joe” – powerful patrons of online/mobile entertainment We regard the vast demographic of China's less wealthy and successful male population to be an emerging and vital force within China online/mobile entertainment consumption. YY Client, the popular real-time communication tool widely embraced by Chinese online gamers and now the broader aforementioned demographic, has built a sticky user base for YY to monetize through its broad range of live broadcasting products. YY online education: an outlier with option value We believe education programs targeting adults and standardized curricula are more susceptible to online cannibalization, while K-12 and below segments are relatively resistant. We think internet platform players such as YY that enable interactive real-time teaching online, could be disruptive to certain incumbent segments. The need to offer more favorable financial terms to teachers, however, will likely limit any material contribution to YY in the near term. Raising target price to US$81; upgrading from Hold to Buy Based on a reassessment of YY’s growth outlook in its core music and gaming segments, we raise our FY13/14/15E revenue by 2%/9%/17% and non-GAAP EPS by 14%/24%/32%. As a result, on a 0.8x PEG and FY14-16E CAGR of 40% (vs. prior 34%, +18% impact on target price), we derive a new target price of US$81(+47%). Our target price implies a 32x target FY14E PE, while the stock is trading at 24x. Risks: growing competition, user growth slowdown. 8 February 2014 Software & Services YY Page 2 Deutsche Bank AG/Hong Kong Model updated:07 February 2014 Running the numbers Asia China Software & Services YY Reuters: YY.OQ Bloomberg: YY US Buy Price (6 Feb 14) USD 59.87Target Price USD 81.0052 Week range USD 13.92 - 71.45Market Cap (m) EURm 2,544