Summary:

<p>Our recent visit to China confirmed our thesis that while macro conditions

remain challenging, the slowdown in China appeared to have bottomed in 3Q12,

and both economic growth and sentiment in China are gradually improving. While

the current economic recovery was initially spurred by state-sponsored

investment, it appears to be spreading into the private sector. Despite

moderating revenue growth and margin compression caused by a confluence of

macroeconomic and industry factors, the long-term fundamentals and valuation

of the Chinese TMT sector are attractive, in our view. The high-beta nature of

the Chinese TMT stocks should allow the sector to recover faster than the

overall market as the Chinese economy improves and investors' risk

appetite returns to emerging market equities. We see significant upside

potential with SINA and AMAP in the mobile Internet transition.</

><strong>Macroeconomic conditions appear to be improving</strong>: As

expected, China's GDP growth decelerated further to 7.4% Y/Y in 3Q.

However, a slew of recently announced economic data paints a rosier picture of

China's economy. Despite still facing a challenging export environment,

manufacturing PMI moved back into expansionary territory in November as both

fixed asset investments and retail sales growth remained resilient and re-

accelerated in recent months.

Investment Thesis

Price Target Calculation

AMAP: Our price target of $22 is based on ~20x our 2013E pro forma earnings

per ADS of $0.90 plus ~$4 in net cash (and ~14x 2013E EV/EBITDA), in line with

AMAP's US peers but at a significant discount to its peers in China. We

believe the target multiple is well deserved given the company's strong growth

prospects.

SINA: Our 12- to 18-month price target of $70 is based on a base-case scenario

of our sum-of-the-parts analysis of SINA, assuming a 15x 2012E EV/EBITDA

multiple for SINA's portal (relative to a historical range of 10-40x) and a

valuation of $1B for its Weibo (or $25/UV, relative to $27 for RENN).

RENN: Our price target of $8 is based on a valuation multiple of ~$20 per

registered user, reasonable, in our view, as it is well within the range of

various Web 2.0 companies that are traded in the public and private markets,

reflecting RENN's growth prospects, size, maturity and levels of monetization.

NTES: Our price target of $65 is based on ~10x our 2013 non-GAAP estimate of

$4.90 plus ~$17/share net cash. Our target P/E multiple is comparable to the

average multiple of Internet portal and online gaming sectors. NTES's games

continue to grow in popularity while other business initiatives such as MVAS,

mini-blog, advertising, and synergies with its strong traffic/user base are

poised for upside, in our view.

BITA: Our $9 price target is based on a ~9.5x 2013E EV/EBITDA multiple, a

comparable trading multiple relative to its Chinese Internet/portal peers. Our

valuation represents BITA's potential growth within both automobile and media/

Internet ad-spend sectors. Note our estimates reflect taoche.com incurring

losses through 2012. Any changes could provide upside to our estimates.

DANG: Our 12- to 18-month price target of $9.50/ADS is based on ~0.2x 2013E

EV/sales, still a significant discount to its e-commerce peers (~2.1x EV/sales

in China and ~1.1x in the US). We believe this adequately reflects risks

associated with DANG's size and the lack of earnings visibility in a fast-

growing but rapidly changing industry.

CTRP: Our price target of $25 implies a P/E multiple of 25x our 2013E non-GAAP

EPADS estimate of $1.01 (or ~20x net of cash). Our estimates reflect

fundamental growth while factoring in the potential impact of heightened

competition on margins. While the sector trades at an average of around a 20x

next-12-month P/E multiple, we believe CTRP deserves to trade at a premium to

its peers given its dominant market position and its track record of above-

industry growth. The average NTM P/E multiple for CTRP has ranged from 15x to

60x in the past five years with an average around 32x.

NQ: Our 12- to 18-month price target of $16.00 is based on ~17x 2013E P/E,

relative to the average for its global security software peers (~13x) and its

SaaS peers (~55x), a valuation that we believe reflects NQ's strong growth

prospects and potential operating leverage of its mobile SaaS model while

factoring potential risks associated with its current size and the changing

competitive landscape in the smartphone software/app market.

(12-22-2012, 07:33 AM)tradestar2012 Wrote: Gator, was there any clarity on the comps they used for the global security software peers and SaaS peers? I'm trying to get a feel for why research has triangulated around 17-20x forward EPS. Its a pretty big discount to the SaaS peers and its not clear if the multiple premium against the global security peers is due to faster growth at NQ or geographic differences or some other reason.

I had posted a PDF of the whole Oppy report on NQ.  I will attache it and the PJ report (both from mid Nov.)