Barclays calls Alibaba “top pick” in new Chinese tech coverage realm

Barclays analyst Jiong Shao launched coverage of eight Chinese tech companies Wednesday with a range of ratings and an overall view that the sector is “too important to be ignored.”

Shao said that as Chinese Internet and tech companies have found their way into almost every part of China’s economy, “any investor keen to invest in China should not overlook this sector.”

Shao said his “top pick” is Chinese e-commerce giant Alibaba, and gave the company an overweight rating and stock price target of $275 a share. Shao said Alibaba’s sheer size makes it “one of the most compelling valuations” among not just Chinese companies, but within the larger tech landscape, as well.

“Despite some market share loss to competitors in recent years, Alibaba retains a dominant position in China’s e-commerce market, which still provides meaningful growth potential,” Shao said. Shao also noted that “the market appears to be giving almost no value to both its cloud business and to its stake in Ant [Group].”

Shao said Alibaba will take in $12 billion from its cloud business, making it the No. 1 cloud provider in China, and has a 33% stake in Ant, which runs Alipay, China’s largest digital payment platform.

Shao also set overweight ratings on the following:

• Tencent Holdings, with an $84-a-share price target. Shao called Tencent “the most influential internet company in China” and said it is “deeply intertwined with every single fiber of the nation’s digital fabric.
• Baidu, with a $243-a-share price target, saying it is “one of the most overlooked major Chinese Internet stocks.”
• JD.com. Shao set JD up with a $98-a-share price target, saying it has “built a dominant e-commerce franchise” with massive in-house logistics operations.”
• KE Holdings, to which Shao gave a $29-a-share price target and said it has “become an accurate and reliable source for real estate listings.”
• Sea Limited. Shao set Sea (SE) up with a stock price target of $427 a share and said it is “the dominant e-commerce marketplace and online game developer/publisher in Southeast Asia.”

Shao started his coverage of Pinduoduo with an equal-weight rating and $103-a-share price target. Shao said that with 850 million active users on its platform, Pinduoduo is “the most innovative Chinese e-commerce company in recent years.”

The only company that Shao rated as underweight in his new coverage was Meituan. Shao gave Meituan a $32-a-share price target, saying that the food-delivery company is planning to expand into services such as travel, bike sharing and groceries. However, Shao said the company’s main challenge is that “in most Chinese Internet sectors, unless the company is clearly a dominant market leader, is it difficult to survive, let alone succeed.”

On the whole, Shao said a recent selloff in Chinese tech and Internet companies “has driven their valuations to the most attractive levels in recent memory, which we believe offers a good entry point for patient investors.”

As trading progressed, Wednesday, Alibaba shares edged up 1.1%, Tencent was up by almost 3%, Baidu rose 1.4%, JD.com shares slipped almost 2%, KE Holdings edged up by almost 1%, Sea Limited was off by 1.6% and PinDuoDuo slipped 0.4%.

Shao’s views of the Chinese tech sector came on the heels of Citi Chief Executive Jane Fraser saying last week that investors should view the Chinese economy with a bit of “caution” for the time being.

Author: Rex Crum, Seeking Alpha