2023_summer_internet_report_eu

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Summer 2023 China Internet Quarterly Earnings Report europe @kraneshares.com +1 (212) 933 0393 Alibaba’s R estructuring & How it Benefits Shareholders This is a marketing communication. Please refer to the prospectus of the UCITS, the KIID, and the PRIIPS before making any final investment decision. EDDIE WU JOSEPH TSAI DANIEL ZHANG

2 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Table of Contents China Internet Recent Highlight s 3-4 KWEB Performance 5 KWEB Top 10 Holdings Financials Summary 6 KWEB Key Metrics 7-8 Subsector Analysis 9-13 Theme Highlight: Alibaba’s R estructuring & How It Benefits Shareholders 14-26 Top 10 KWEB Holdings: Quarterly Earnings Update 26-39 Tencent 26-27 Alibaba 28-29 Meituan 29-30 Pinduoduo 30-31 Baidu 31-32 NetEase 32-33 JD.com 34-35 KE Holdings 35-36 Tencent Music 36-37 Trip.com 37-39 Citations 40 Definitions 40-42 Disclosures 43-45

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China Internet Recent Highlights • The internet sector continued to benefit from the asymmetric economic recovery underway in China, which is heavily skewed toward consumer spending growth, evidenced by year -over-year retail sales growth of 12.7% in May , though sales growth was curtailed by a higher base in June to only 3.1%.1 • Game approvals were on display again in the second quarter and June’s approvals bring the year -to-date total to 500 compared to only 466 for all of 2022. Both Tencent and NetEase have been included in several of this year’s approval rounds.2 • Fintech giant Ant Group has become a financial holding company and accepted a fine of nearly $1 billion for not having registered previously, which could pave the way for an initial public offering (IPO). • The total revenue gen erated by the top ten holdings in KWEB has risen from $71 billion at the end of 2019 to over $115 billion as of the latest quarterly earnings reports.3

4 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top • After briefly coming close to parity with the US internet sector at the end of 2022, China interne t equities are now trading at, on average, half of the price -to-earnings (P/E) multiple of their US counterparts.4 • The sum of the market capitalizations of KWEB’s holdings (31 companies) is now less than the market capitalizations of both Alphabet and Amaz on. For Alphabet’s market cap, you could purchase all the companies in KWEB and still have $400 billion left over.5 • In this edition’s theme highlight, we analyze Alibaba’s recent restructuring into six distinct businesses , leadership changes, and the 12 to 18 -month timeline for potential new IPOs .

5 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top KraneShares CSI China Internet UCITS ETF (Ticker: KWEB) Performance Cumulative % Data as of: 30/Jun/2023 Fund NAV Index 3 Month -14.12% -14.25% 6 Month -11.59% -11.90% Since Inception -27.72% -25.97%

Avg Annualized % Data as of quarter end : 30/Jun/2023 Fund NAV Index 1 Year -17.49% -17.60% 3 Year -22.30% -22.06% Since Inception -6.80% -6.31% KWEB’s gross expense ratio is 0. 75%. Inception Date: 20/Nov/201 8. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold o r redeemed, may be worth more or less than their original cost , and current performance may be lower or higher than the performance quoted. Index performance is for illustrative purposes only and does not represent actual Fund performance . Indexes are unmanaged and one cannot invest directly in an index. Index performance does not reflect fees or other costs associated with investing. For performance data current to the most recent month end, please call +(1) 855 8KRANE8 or visit our website at www.kraneshares.eu . For current KWEB standard performance, please visit www.kran eshares.eu/kwebln .

6 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top KWEB Top 10 Holdings Financials Summary Top 10 KWEB Holdings KWEB Weight (%) Revenue ($ B) Net Income ($ B) Revenue Growth (%) Net Margin (%) Earnings per Share ($) TENCENT HOLDINGS LTD 11.75 21.9 3.8 11 17 0.4 ALIBABA GROUP HOLDINGS LTD 9.27 30.4 2.8 2 9 1 MEITUAN -CLASS B 6.76 8.6 0.5 27 6 0.1 PDD HOLDINGS INC 5.11 5.5 1.3 58 24 0.2 BAIDU INC -CLASS A 4.83 4.5 0.7 10 16 2.1 JD.COM INC -CL A 4.76 35.5 0.7 1 2 0.5 NETEASE INC 4.73 3.7 0.9 6 24 11 KE HOLDINGS INC-ADR 4.51 3 0.4 62 13 0.3 TENCENT MUSI - ADR 4.39 1 0.2 5 20 0.1 TRIP.COM GROUP LTD 4.29 1.3 0.2 124 15 0.4 Total Weighted Average 60.40 115.4 11.5 26 14 1.4 Data from Bloomberg and KraneShares as of 3 1/Mar/2023. Please see the end of the report for definitions. Figures are adjusted (non -GAAP) and % changes are year -over- year. Holdings are subject to change. Please see the end of the report for KWEB's top 10 holdings as of the most recent quarter end.

7 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top KWEB Key M etrics Data from Bloomberg as of 20/Jun/2023 . Data from Bloomberg as of 3 1/Mar/2023 . Retrieved 30/Jun/2023 . Please see the end of the report for definitions. -40-30-20-10010203040Average 1 -Year % ChangeSubsector Performance -60-40-20020406080100Average Growth Year -over -Year Q1 '23Subsector Revenue Growth

8 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Data from KraneShares and Bloomberg as of 30/Jun/2023 Data from FactSet as of 11/Jul/2023 . Please see the end of the report for definitions. E-Commerce 31% Entertainment 13% Social / Online ads 13%Travel 6%Healthcare 6%Search 5%Gaming 5%Real Estate 4%Cloud 4%Logistics 3%Recruitment 3%Fintech 3%Education 2%Autos & Transportation 1% Live streaming 1%KWEB Breakdown by Subsector 15202530354045P/EPrice -to-Earnings Ratio (P/E) China Internet US Internet

9 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Subsector Analysis ( Q1 2023 ) Travel revenues surged (+88%) as China’s population continues to display a voracious appetite for domestic travel, making up for lost time under pandemic restrictions. Travel data was particularly strong for the Dragon Boat Festival holiday, which took place in June. According to National Bureau of Statistics reports, domestic bookings were up over +100% from 2019 levels, owing partly to current preferences for domestic over international travel. Real Estate revenues also increased (+62%) year-over-year in the first quarter. China’s au thorities have maintained a conservative stance towards real estate sector support, though they have rolled out temporary, stimulatory policies in certain regions, including lowering down payment requirements. More recently, the government rolled out 16 me asures to support the real estate industry, which included moving due dates for loan repayments from 2023 to 2024.

10 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Cloud revenues continued to rise in the first quarter (+31%), driven by more E -Commerce usage of cloud computing services. McKinsey expects C hina’s cloud sector will nearly triple in size by 2025 from 2021 levels.6 Meanwhile, as discussed in this edition’s theme highlight, Alibaba is strengthening its cloud focus . Logistics companies also saw their revenues increase (+28%) year-over- year in the first quarter. According to a report from commercial real estate group Coldwell Banker Richard Ellis (CBRE) , warehouse usage in China is expected to increase +30% year -over-year in 202 3.7 Healthcare companies are doing well supplying the increasing health demands from China’s rapidly aging population (+24% revenue growth ). JD Health saw a particularly strong rise in demand for health products, as opposed to the online consultations that the company has historically been focused on. Meanwhile, regulations for the industry are proving to be lighter than feared, though potential new rules and their implications remain a risk.

11 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top E-Commerce companies generally beat estimates i n their Q1 earnings, as China’s consumers ramp up spending (+16% revenue growth ). We believe this bodes well for the health of China’s consumer. Alibaba’s investor relations told us that , in addition to their revenue growth, the company saw diminished participation in the 618 Sales Festival . They explained that their merchants are generally focusing on stable, constant demand for products, rather than windfall sales during festivals, a marked change from before the pandemic. Recruitment compa nies also saw revenue growth year -over-year in the first quarter (+12%) . These platforms are becoming increasingly important as the government zeroes in on youth unemployment. This employment push also goes hand -in-hand with support for the “platform economy” overall, as Premier Li stated at a conference in July. Recruitment platform Kanzhun has been elevated to one of KWEB’s top ten holdings once again in recent months.

12 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Search, Gaming, Social, and Entertainment are creeping back to growth after a difficult period , as advertising has been the slowest segment to recover from th e pandemic . Most analysts expect their second half numbers to be an improvement over the first half of the year as the population becomes more willing to spend on big ticket items. Nonetheless, the media and advertising industries are expected to continue to benefit from the secular growth of China’s middle class. The entertainment industry specifically is estimated to see growth of 5% each year until 2026, according to estimates compiled by Statista. Online auto dealer Autohome has seen positive share pric e momentum since tax subsidies for electric vehicles were extended through 2027, an unexpected policy move that was announced in June. Fintech giant , Ant Group , has registered as a financial holding company and agreed to a $1 billion fine for not registering initially, raising hopes of a return of the company’s postponed IPO from 2020.

13 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Education services provider TAL Education saw revenues significantly decline year -over-year in the first quarter. C hina International Capital Corporation (CICC) analysts expect that this was due to the sluggish initial uptake of new businesses, which mostly involve serving the technological and content needs of schools rather than the old model of private tutoring. However, CICC analysts expect b etter results from these new businesses in the second quarter.

14 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Theme Highlight – Alibaba’s Re structuring & How It Benefits Shareholders

Alibaba has been in the news lately. First, in March of this year for its restructuring into a holding company consisting of six distinct businesses, five of which will have the ability to fundraise on their own and pursue their own public offerings. Then, in June, financial media was buzzing about the company’s appointment of a new chief executive officer ( CEO) and Chairman, among other leadership changes. We believe these major developments at one of China’s most storied internet company are beneficial to shareholders of the E -Commerce giant and represent a positive signal for China’s internet sector overall.

15 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top The restructuring itself offers the possibility of five or more new China internet listings, most likely spanning the United States, Hong Kong, and Mainland China, reinvigorating the company’s shareholder base and China internet capital markets across the glob e. Meanwhile, the elevation of Alibaba cofounder, Joe Tsai, to Executive Chairman from Vice Chairman is an indication that the company is renewing its entrepreneurial spirit after a challenging few years of internet regulation and US -China tensions. We bel ieve these developments could be pivotal for the group and the internet sector at large. Below, we share our insights on what the new Alibaba may look like, details on the potential new listings, and what we see as the implications of these changes for the internet sector more broadly.

16 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top E Pluribus Unum “Out of Many, One” Alibaba’s new structure will embody the classic phrase that is linked to the founding of another consortium of many: the United States of America. We believe that key to management’s decision to carry out the restructuring was the realization that the company’s various business lines may have increasingly variable investor bases, risks, and clients, though they can all benefit from the leadership of Alibaba’s forward - think ing founders. This is comparable to the 13 colonies , which realized that, upon independence, they would need to account for significant differences in economics, cultures, and geographies, as well as benefit from a unified front in international relations. Alibaba’s New Business Groups: • Cloud Intelligence Group – Current CEO Da niel Zhang will change roles to focus on and lead this division, highlighting the importance of cloud and artificial intelligence ( AI) to Alibaba’s growth model. Although China -based businesses make up the

17 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top bulk of the segment’s client base, Alibaba Cloud is one of the top providers of cloud services in Southeast Asia. Alibaba Cloud also provides back -end support for Salesforce users in C hina and has done so successfully for the past five years. • Taobao & Tmall Group (Core E -Commerce) – Taobao (Consumer to Consumer) and Tmall (Business to Consumer) are Alibaba’s two domestic China E -Commerce platforms serving retail and business clients. Th is subsidiary will be directly held and controlled by the holding company. • Local Services Group – Ele.me is Alibaba’s restaurant and grocery delivery service. • Cainiao Smart Logistics – Cainiao is Alibaba’s logistics unit, which had been kept separate due to the low margin nature of the business but was ultimately brought into the company. The arm serves customers globally. • Alibaba International Digital Commerce (AIDC) – E-commerce units outside of China including Southeast Asia focused Lazada, Turkey based Trendyol, and international -focused business -to- business (B2B) Alibaba.com and international consumer focused AliExpress.

18 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top • Digital Media and Entertainment Group – This primarily consists of video streaming service Youku, which was acquired in 2016. Movie s tudio Alibaba Pictures, which produced one of the Mission Impossible films, already has its own listing in Hong Kong. The unit has struggled to become profitable over the years and may benefit from a singular focus and fundraising independence. Financial t echnology unit Ant Group has been separate from Alibaba Group since 2014, and, as such, is not included among the six new units. However, Ant Group may also pursue an IPO relatively soon after having registered as a financial holding company, which regulat ors required for an IPO to proceed . China E -Commerce, which the company is famous for, still accounts for over two thirds of its total revenue. Cloud is now firmly in second place, followed by global E -Commerce , Cainiao, and local services.

19 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Data from Alibaba for the 12 months ended 3/31/2023. Although investors are eager to participate in the potential new listings to come from this restructuring, the company is moving with great care and consideration in packaging the financial offerings for these promising business lines. We believe Cainiao Logistics may pursue an IPO in the next 12 to 18 months. The other units may also proceed with individual listings on a similar timeline, though some may take longer. While it remains uncertain where each of these listings would occur, we believe they will likely be spread across the four main listing exchanges for Chinese companies: Shenzhen, Shanghai, Hong Kong, and New York. China E - Commerce 67%Cloud 9%Global E - Commerce 8%Local Services 6%Logistics 6%Media 4%Alibaba Revenue Breakdown By Segment

20 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Given concerns around data privacy and new regulations in China, we believe the cloud int elligence unit’s IPO is more likely to be in Hong Kong or Mainland China, rather than in the United States. Meanwhile, less sensitive, and more globally oriented businesses are more likely to list in the United States, including Cainiao Logistics and inter national E - Commerce. We believe the restructuring will benefit shareholders in a myriad of ways. In addition to the potential new listings, the move will require analysts and investors to evaluate the company using a sum of the parts (SOTP) approach, compe lling a closer look at the fundamentals and growth prospects of each segment individually. Moreover, investors can now pick and choose how they are exposed to Alibaba. Cloud intelligence, a newly profitable business, has a vastly different set of risks and opportunities compared to core E -Commerce, which is firmly profitable , but may experience slower growth going forward.

21 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top China E -Commerce remains the group’s profit driver. Meanwhile, cloud and logistics are hovering at breakeven but experiencing rapid earn ings growth. Global E -Commerce is catching up with cloud, while media and local services are lagging and could benefit from additional fundraising and talent acquisition.

Data from Alibaba for the quarter ended 3/31/2023. Please see the end of the report for definitions. -40-20020406080 China E- CommerceCloud Logistics Global E- CommerceMedia Local Services%Adjusted EBITDA Margin & Growth Margin Growth YoY

22 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Follow the Leader We also believe the restructuring is a positive signal for China’s internet sector overall. Other internet conglomerates may follow Alibaba’s lead, which could lead to a surge in new offerings within China’s internet sector. JD has already filed for a proposed spinoff of its real estate business to be listed on the Hong Kong Stock Exchange. Moreover, we believe the restructuring is further evidence that regulators now have a more favorable stance toward China’s internet industry. Although there has been speculation that officials compelled Alibaba to separate its business units, we do not believe that pressure from regulators drove the restructuring. On the contrary, China’s market overseers may still con sider Alibaba a singular entity for the purposes of antitrust enforcement. However, the change may present compliance advantages insofar as it eliminates certain potential conflicts of interests between the divisions.

23 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Don’t Bury the Lead(ership) Having the right leaders is crucial for any organization, especially for a global E -Commerce giant such as Alibaba. We believe recent leadership changes demonstrate the company’s commitment to cloud computing as a driver of future growth and that its initi al entrepreneurial spirit lives on. We were assured that CEO Daniel Zhang performed well in his current role. His transition is far from a demotion. Rather, Alibaba’s board believes that his expertise and experience will greatly benefit the cloud intellige nce segment, which the board sees as a crucial growth driver in the future. Eddie Wu will be installed as the group’s new CEO in September. He was pivotal in building the mobile user interface for Taobao and management believes he may be able to vastly imp rove the user experience on all the group’s apps, helping it compete with Douyin, China’s TikTok. Meanwhile, his specific experience in the company’s core

24 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top E-Commerce business segment will be valuable in his role as CEO. After all, core China E -Commerce wil l be directly controlled by the holding company’s management team. Finally, we believe the elevation of cofounder Joe Tsai to Executive Chairman from Vice Chairman of the board demonstrates to the market that Alibaba’s entrepreneurial spirit is alive and w ell. Joe Tsai also has deep ties to the United States as owner of the Brooklyn Nets.

From left to right: Incoming Group CEO, Eddie Wu, Cloud Intelligence Group CEO & Chairman, Daniel Zhang, and Executive Chairman, Joseph Tsai What about Jack? According to the company’s annual report, Jack Ma has continued to serve on the Partnership Committee, which is a small group of long -time executives that oversees the election of partners, despite his absence

25 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top from day -to-day operations. This is in stark c ontrast with US media articles implying that he no longer had any influence on the group.

Jack Ma, Alibaba Group co -founder. Source: World Economic Forum Conclusion We believe Alibaba’s recent restructuring may benefit shareholders by encouraging a closer look at the fundamentals of each business individually, prompting new stock offerings through spinoff IPOs in various markets, and enabling the group to be nimbler a s a whole. The restructuring may also benefit China’s internet industry more broadly by encouraging other conglomerates to pursue spinoffs as well and

26 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top indicating to the market a softer touch from China’s market regulators. Finally, recent leadership change s emphasize the company’s focus on cloud services as a driver of growth and the survival of its entrepreneurial spirit through massive growth and equally massive challenges in recent years. Top 10 KWEB Holdings: Quarterly Earnings Update Data as of 3 1/Mar/2023, which is the latest quarterly earnings release date. Top 10 Holdings as of 31/Mar/202 3. Sources: CICC Research, The Benchmark Company, Bloomberg, Company Releases & Filings. % changes are year -over-year unless otherwise indicated. Revenue figures are adjusted (non -GAAP). RMB to USD Exchange Rate used is as of 12/Jul/2023. Tencent Tencent is a diversified consumer technology company with businesses in social media, cloud services, payments, and online advertising. Tencent’s most well -known product is WeChat, which is one of China’s premier social media platforms with over one billion monthly active users (MAUs).

27 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Tencent By The Numbers (Q 1 2023) • Revenue +11% to RMB 157.7B ($21.9B ) • Net Margin 17% • Net income RMB 27.4B ($3.8B) • Earnings per Share RMB 2.9 ($0.4) Tencent’s Q1 revenue beat analyst expectations though adjusted net income and adjusted EPS missed. There were plenty of positives in Q1, including revenue, net income, and EPS , which all saw strong year-over- year gains . International (i.e. non -China) game revenue shined, to gain +25% to RMB 13.2 billion, advertising revenue improved, and margins and cash flows were strong. Chairman and CEO Ma Huateng noted a “domestic consumption recovery,” which dro ve the pickup in advertising and mobile payments. Quarterly revenue was the highest for the company ever. In the management call, Tencent noted President Xi’s April meeting and speech supportive of Chinese internet companies, as evidenced by Tencent’s regu lar game approvals.

28 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Alibaba Alibaba is a conglomerate primarily engaged in the E -Commerce industry. The company operates in an online marketplace offering a wide variety of consumer goods. The company has expanded beyond E - Commerce and is now a consortiu m of six businesses covering cloud, domestic E -Commerce, global E -Commerce, media, logistics, and local services. Alibaba By The Numbers (Q 1 2023) • Revenue +2% to RMB 218.9B ($30.4B) • Net Margin 9% • Net income RMB 20.2B ($2.8B) • Earnings per Share RMB 7.2 ($1) Alibaba’s Q1 results beat analyst expectations. Although they missed revenue slightly in CNY, they beat in US dollar terms. The company’s revenues reached the highest -ever level, if you exclude Q4, which is always inflated d ue to the Singles Day sales event in November.

29 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top Fiscal year revenue also reached a new record, and was up +2% year - over-year (YoY). The core China E -Commerce business had a small negative -3% YoY revenue growth, though management’s focus on cost reduction l ed to a strong uptick in the bottom line. Cloud revenue was also weak, while logistics arm Cainiao posted strong revenue growth of +18% and international E -Commerce posted revenue growth of +29%. Meituan Meituan is an E -Commerce company that specializes in food delivery. Meituan is the final product of the 2015 merger between Meituan, which was known as the “Groupon of China,” and Dianping, which was known as the “Yelp of China.” The company now operates m any business lines including general retail and domestic travel booking services, serving over 600 million registered users. Meituan By The Numbers (Q 1 2023) • Revenue + 27% to RMB 61.9B ($8.6B) • Net Margin 6%

30 +1 (212) 933 0393 kraneshares. eu europe @kraneshares.com ↑ Back to Top • Net income RMB 3.6B ($0.5B) • Earnings per Share RMB 0.7 ($0.1) Meituan’s results beat estimates broadly in Q1. However, the company’s impressive revenue growth and steadfastly strong bottom line have been overshadowed lately by Tencent’s recent sales of its Meituan shares, which have weighed on the stock price. Nonetheless, Me ituan has emerged from regulatory changes in its delivery driver compensation structure stronger than ever. Furthermore, most analysts agree that the company is well equipped to win out against formidable competitor Douyin, China’s TikTok, in the local ser vices (food delivery) arena. Pinduoduo Pinduoduo’s platform is a hybrid of E -Commerce and social media. The company allows users to share deals with one another and then form “shopping teams” to drive down the prices they pay for goods.