Zhejiang Merchants Securities: The growth logic of Hong Kong stock internet under the wave of AI industry reshaping, focusing on large models and vertical clues

According to the Zheshang Securities research report, AI applications are leading the way in the Hong Kong stock market, with three resonating factors: the Federal Reserve's interest rate cuts, the potential bottoming out of traditional internet businesses in Hong Kong, and the rapid development of AI businesses. Additionally, the sector's valuation remains at historical lows. There are strategic allocation opportunities in Hong Kong's internet sector. The key point is to understand the valuation space of internet leaders with rapid AI advancements, which should be reshaped based on the growth logic of the AI investment era rather than a repair logic. It is recommended to focus on representative companies in large models and vertical applications.

Zheshang Securities' main viewpoints are as follows:

Driving Factor 1: Continuous Liquidity Benefits

Currently, considering the U.S. economic data, this round of Federal Reserve interest rate cuts is more akin to preventive cuts. Therefore, in terms of the impact of the Federal Reserve's interest rate cuts alone, it constitutes a marginal benefit for the Hang Seng Tech index.

At the same time, in terms of micro liquidity, since the second half of the year, the Hong Kong stock market, especially the Hang Seng Tech sector, has been continuously improving. On one hand, based on the number of shares held by international intermediaries, their holdings in Hang Seng Tech have rapidly increased since April; on the other hand, observing through the Stock Connect, the number of shares held in Hang Seng Tech has significantly rebounded since June.

Driving Factor 2: Traditional Businesses May Be Bottoming Out

For internet platform companies, there are signs of bottoming improvement in traditional businesses. On one hand, there have been signs of marginal easing in the recent food delivery wars; on the other hand, the sector has cyclical attributes, and the August PMI data shows signs of a bottom.

Driving Factor 3: AI Reshaping Growth Logic

From the perspective of AI advancements, Hong Kong internet companies can be divided into two categories: one focuses on general large models and cloud computing, with representative companies including Alibaba, Baidu, and Tencent; the other focuses on vertical applications, with representative companies including Meitu and Kuaishou. Both categories of companies are entering a rapid development phase for their AI businesses.

Since 2023, the global AI industry wave has arrived, and the stock market has entered the AI investment era. The rapid progress of AI will reshape the growth logic of these companies and open up growth space.

Investment Recommendations: Large Models and Vertical Applications

From a valuation perspective, as of September 16, the PE-TTM of Hang Seng Tech is approximately 23 times, which is at the 32nd percentile since July 2020. Zheshang Securities believes that the valuation space of internet leaders with rapid AI advancements is not simply a repair logic but a reshaping of growth logic under the AI industry wave.

Combining industry viewpoints, on one hand, focus on large model clues, with representative companies including Alibaba-W (09988), Baidu Group-SW (09888), and Tencent Holdings (00700); on the other hand, focus on vertical application clues, with representative companies including Kuaishou-W (01024), Meitu (01357), and Kingdee International (00268).

Risk Warning

The recovery of traditional businesses in Hang Seng Tech may not meet expectations, and the progress of the AI industry may fall short of expectations