CICC International: Chinese Science and Technology Internet stocks should adopt a relatively defensive allocation strategy, preferred TENCENT (00700).

China International Bank released a research report stating that artificial intelligence, macro environment, competitive landscape, regulatory policies, shareholder return execution, and China-US relations will be the six key factors affecting the financial performance and valuation of Chinese internet listed companies in the next 6 to 12 months. In the current turbulent and volatile market environment, considering the third-quarter performance preview for this year, countercyclical core capabilities, financial visibility (especially short-term profitability and shareholder return execution), the bank recommends adopting a relatively defensive asset allocation strategy. The bank's short-term priority rankings are: TENCENT (00700) > NTES-S (09999) > JOYY, Inc. Sponsored ADR Class A (JOYY.US) > TME-SW (01698). In addition, the bank also recommends BILIBILI-W (09626) as it is expected to see significant revenue and earnings growth potential in 2026 due to "Three Kingdoms: Ncard." The bank expects "Three Kingdoms: Ncard" to start its first paid test on October 23, 2025, and be officially launched during the Chinese New Year in 2026, potentially bringing significant revenue and profit contributions to the company in 2026. China International Bank predicts that Tencent's third-quarter performance in 2021 will surpass expectations and is the best asset for sustainable long-term growth. The bank expects the company to surpass expectations again in the third quarter, with total revenue growing by 14% year-on-year, mainly driven by strong gaming and online advertising businesses, with adjusted operating profit reaching 73 billion yuan, a 20% increase year-on-year. The bank believes that the company, with its focused, continuous, and efficient operational execution, and the continuous investment in artificial intelligence and integration into its WeChat ecosystem with data, user behavior, and technological advantages, is strengthening its core capabilities to effectively address macro and systematic headwinds. It maintains a "buy" rating and raises the target price to 710 Hong Kong dollars. The bank also stated that Alibaba Group Holding Limited Sponsored ADR (BABA.US) has a strong AI strategy and is focusing on the dynamic changes in the fast business and core e-commerce businesses during the Double Eleven period. The bank expects that due to steady industry demand and expanding technological advantages, the cloud business will achieve accelerated growth in the quarter ending in September of this year and maintain strong growth momentum in the coming quarters. The bank believes that Alibaba's recent stock price trend will heavily depend on the company's performance and changes in the dynamics of instant retail and core e-commerce sectors during the Double Eleven promotional period. It maintains a "buy" rating and a target price of $170 for Alibaba Group Holding Limited Sponsored ADR (BABA.US).