US investment bank Morgan Stanley has upgraded its price targets and ratings for China's largest tech firms, including Chinese tech companies such as Baidu, Pinduoduo, Meituan Dianping, and Alibaba Group Holdings. The bank raised its ratings for the country's tech sector to "attractive," a clear go signal for investors to consider buying shares of Chinese tech firms.
In a research note published on Monday, Morgan Stanley stated that China's tech sector is expected to feature "accelerated diversification" in terms of their access to global consumers, businesses, and governments. The report further elaborates that the momentum of these companies is expected to carry into overseas markets and domestically into lower-tier Chinese cities.
The report also revealed that it expects China's e-commerce sector to grow dramatically in the coming years. Morgan Stanley expects the country's e-commerce sector to exceed 12.7 trillion yuan by 2020, an 18 percent jump from this year's figures.
The bank reasoned that it is seeing the lowered future risk of cuts in sales and earnings in China's tech sector given the recent slew of regulatory easing and continued government support.
Morgan Stanley revealed that the 26 companies under its sector coverage, which includes top players such as Alibaba and Tencent, are expected to have profit growth of more than 24 percent next year. The bank expects total profits of these companies to jump to more than 376 billion yuan over expected sales of more than 2.6 trillion yuan.
As for its upgraded price targets, Morgan Stanley raised its 12-month target for Alibaba from $215 to $245. The bank explained that its decision was based on the company's sustained strength in its e-commerce unit and the continued attractiveness of the stock. Alibaba is starting to penetrate further into lower-tiered cities, which the bank speculates could become its new growth driver.
Morgan Stanley upgraded its12-month price targets for China's largest search engine operator Baidu from $132 to $150. It also upgraded its price targets for Pinduoduo from $35 to $40. Meanwhile, the bank upgrades its price targets for Chinese food delivery startup Meituan Dianping from HK$105 to HK$120.
Despite upgrading the price targets of most of the Chinese tech companies under its sector coverage, not all 26 firms got the bank's vote of confidence. Morgan Stanley downgraded its price targets for Chinese smartphone maker Xiaomi Corp by around 5 percent, indicating its struggles in the growing 5G smartphone market. It also downgraded its price targets for key players in China's live-streaming sector, including Douyu and Huya.
