Elinor Leung, Head of Asia Telecom & Internet Research at CITIC CLSA, said that China's technology sector performed well in 1H24, with interim profits lifting 37% YoY and many companies' 2Q24 results exceeding the market's expectations. However, the average valuation of the technology sector as of the end of August stood at a record low of only 10.6x.

She expected China's technology companies to continue to deliver solid results, and at the current low valuations, they are the first choice for value investment. Overseas institutional investors have previously reduced their holdings, mainly due to their bearish outlook on China's macro-economy and consumer market. It is believed that with continued support from the authorities, capital will flow back into the technology sector when the economy rebounds and consumption picks up.

Related NewsM Stanley Reiterates Equalweight Rating on Asia-Pacific IT Sector, Urges 'Overweight' on Consumer Staples
Considering that China's weak macro outlook remained the main potential negative factor, CLSA is more bullish on defensive areas in the technology sector that will benefit from domestic demand growth, including gaming, travel and low-cost e-commerce. Top picks include TENCENT (00700.HK)  -0.200 (-0.051%)    Short selling $908.19M; Ratio 8.228%   , TRIP.COM-S (09961.HK)  +7.600 (+2.032%)    Short selling $686.61M; Ratio 40.705%   , XIAOMI-W (01810.HK)  +0.080 (+0.404%)    Short selling $362.41M; Ratio 13.554%   , PDD (PDD.US)      , MEITUAN-W (03690.HK)  +2.100 (+1.570%)    Short selling $1.24B; Ratio 15.198%   and BABA-W (09988.HK)  +1.500 (+1.750%)    Short selling $1.74B; Ratio 16.207%   .

In the gaming industry, the broker preferred TENCENT to NTES-S (09999.HK)  +1.600 (+1.306%)    Short selling $111.02M; Ratio 14.385%   . Leung predicted that TENCENT's online game business could post double-digit revenue growth in 2H24, driven by focus games such as Dungeon & Fighter, with international game business growing even faster. As for low-cost e-commerce players, she noted that PDD and BABA have been outperforming JD-SW (09618.HK)  +0.800 (+0.716%)    Short selling $498.74M; Ratio 25.696%   and KUAISHOU-W (01024.HK)  -0.650 (-1.544%)    Short selling $243.18M; Ratio 3.731%   .

Looking ahead, Leung believed domestic demand and overseas travellers visiting China would continue to support growth at online travel agencies (OTAs). In addition, given the size of the China market, she predicted Xiaomi Automobile's sales could hike to 1 million cars in 5 years at the earliest, which is faster than Tesla's 6 years to boost sales from 100,000 to 1 million units. She also pointed out that XIAOMI already has a sales network in many countries and regions around the world, which she believed could help it develop overseas car sales in the future, with Xiaomi Automobile estimated to turn around from loss to profit by 2027.

Related NewsBofAS Maintains Buy Rating on HKEX; IPOs and BABA-W Added to Southbound Trading Slightly Positive for Turnover
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-09-20 16:25.) (Real-time Streaming US Stocks Quote; Except All OTC quotes are at least 15 minutes delayed.)