中国互联网：融合——将美团评级下调至中性

China Internet: The convergence - downgrading Meituan toMarket-Perform The convergence of domestic competition.This note represents our latest quarterlylook back at China Internet reporting, competitive trends across the key verticals,and reassessing risk-reward across our stock coverage. Since the start of May, stockperformance in the sector has largely been gaming and media good, real economy bad. Robin Zhu+852 2123 2659robin.zhu@bernsteinsg.com Charles Gou+852 2123 2618charles.gou@bernsteinsg.com JD is moving to manage unit food delivery losses, as expected, but…BetweenMeituan declaring “whatever it takes”, provincial governments scaling back applianceincentives, and JD scaling back merchant incentives, the last few weeks have brought somerelief for Meituan’s shares. But Alibaba and JD using food delivery to drive traffic growthdrags Meituan into the 6-7 way scrap that is e-commerce. JD’s move into travel also feelssymptomatic of the convergence of platform competition, though the call option argumentfor its shares might apply again at some point… from bargain-basement valuations. Min-Joo Kang+852 2123 2644minjoo.kang@bernsteinsg.com Charlie Peng+81 3 6777 6993charlie.peng@bernsteinsg.com Downgrading Meituan to Market-Perform (PT HK$150).We expect Meituan’sleadership in food delivery to ultimately hold: it’s hard for us to see Alibaba or JD to matchMeituan’s depth in ground ops. But a three-player market dilutes network density, andbrings competitive instability. Plateauing penetration also argues for a lower food deliverymultiple. Our concerns about Meituan’s appetite for a multi-front war overseas coincideswith growing signs of convergent competition amongst the top global food deliveryplatforms. The UAE won’t be easy. Brazil could be another expensive case of jam tomorrow. Why is 14-15x 2026E PE the right multiple for one of the best AI plays globally? Tencent remains our top long-term pick in the China Internet sector. Investors remainfocused on the eventual gaming revenue slowdown, but Delta Force continues to prosper,and Valorant mobile should do well too. Video Accounts ad load growth and search gainsare driving 20% ads revenues growth, and have long runways to keep delivering. Longerterm, Tencent (via the Mini Program ecosystem) will probably be one of only a handful ofcompanies globally that can deliver cross-ecosystem agentic AI services. Buy NetEase when NetEase buys NetEase, but…NetEase’s rally post Q1 triggers ourmental heuristic around video gaming stocks… that the best times to buy is when sentimentis depressed, buybacks accelerate, and pipeline visibility improves. We have mixed feelingsabout NetEase’s pipeline before Ananta. That said, video gaming likely remains a safe havenfor investors amid uncertain macro and geopolitics. Between easier upcoming billingscomps, the potential for AI-related gains, and possible changes related to iOS platformfees, we remain (somewhat uncomfortably) Outperform on NetEase. Top-down takeaways from Q1 reporting.In contrast with 3.6% retail consumptiongrowth in China in Q1 2025, our bottom-up trackers pointed to c. 12% and c. 10% growthfor the domestic e-commerce and digital ads industries in Q1. Government applianceincentives continue to influence incremental GMV share in the former. In the latter, Tencenttalking up search ads growth has felt notable. Through May, the number of new gamesapproved by the NPPA grew 16% year on year, suggesting the top-down environmentremains benign. PC game growth has been a particular bright spot. For the exclusive use of JATIN CHAWLA at TVF CAPITAL ADVISORS PTE LTD on 16-Jun-2025 BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS Q1 reporting in the China Internet sector was split between gaming and media generally doing reasonably well… versus muchmore mixed outcomes on the real economy front. Tencent’s growth story combines video gaming strength with AI developmentdriving ads acceleration, as well as hopes for longer-term agentic AI upside. NetEase’s Q1 print surprised on billings andcosts. Bilibili showed growth while adding minimal operating expenses. On the flip side, the last few months have seen theconvergence of e-commerce and food delivery competition, in what we feel was a reflection of plateauing online penetrationand diminishing growth envelopes - amid a policy environment which has done little for consumer confidence. We respect theentrepreneurial desire to fight one’s corner, but the implications for investors aren’t likely to be amazing. With this note, we’ve downgraded Meituan to Market-Perform. During peak competition fear a few weeks ago, we argued thatthe high burn rate of JD’s food delivery efforts meant moderate was necessary sooner than the company guided to, and that thisought to bring some relief to Meituan’s shares. Changes on the ground like provincial governments pulling back from appliancesincentives and JD shifting more of the subsidy burden to merchants have allowed investors to look