2023_03_internet_report_eu

1 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu

Full Truck Alliance : A True China Innovation Story europe@kraneshares.com +1 (212) 933 0393 Spring 2023 China Internet Quarterly Earnings Report This is a marketing communication. Please refer to the prospectus of the UCITS , the KIID, and the PRIIPS before making any final investment decision.

2 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu 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 9-12 Theme Highlight: Full Truck Alliance: A True Innovation Story 13-24 Top 10 KWEB Holdings: Quarterly Earnings Update 25-40 Tencent 25-26 Alibaba 27-30 Meituan 30-31 JD.com 31-32 Pinduoduo 33 Kuaishou 34-35 Tencent Music 35-36 NetEase 36-37 Trip.com 37-38 Full Truck Alliance 39 Citations 40 Definitions 40-41 Disclosures 42-44

3 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu China Internet Recent Highlights • China’s retail sales increase of +10.6% year-over-year (YoY) in March1 indicates that consumer confidence is steadily increasing from 2022’s lows, benefitting China’s largest E-Commerce platforms, the transmission engines of the country’s consumer economy. • On March 28th, Alibaba announced that the internet conglomerate would become a holding company consisting of six, separate business units, each with the capability to fundraise and pursue their own public listings. The six units will represent cloud, domestic E-Commerce, local services, logistics, global E- Commerce, and media. The restructuring was viewed as overwhelmingly positive by investors. • Baidu followed the lead of OpenAI’s ChatGPT with the launch of their chat bot software called “ERNIE”. The release of the chat bot led to some exuberance from Baidu investors, but th e technology still has development ahead of it.

4 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu • Tencent, Alibaba, Meituan, and Kuaishou all beat analyst estimates in their fourth quarter results, demonstrating that China’s reopening is turning out to be more beneficial for these firms than analysts’ initially projected. Nonetheless, bottlenecks and consumer hesitancy also impacted these companies’ results. • Valuations in China’s internet sector are catching up to those in the US internet sector. This is due to both a run -up in China internet stocks and a technology selloff in the US, driven by rising US interest rates. • China’s real estate industry saw a reprieve as prices flatlined in January after 16 straight months of declines based on a survey of 30 cities. 2 Considering the relatively high level of household wealth that is held in real estate, a real estate recovery is important for consumer confidence. • Full Truck Alliance has grown to a massive scale after taking on the modernization of China’s truck routes. Learn more about this fascinating company in this edition’s theme highlight.

5 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu KraneShares CSI China Internet UCITS ETF (Ticker: KWEB) Performance Cumulative % Data as of: 31/ Mar/2023 Fund NAV Index 1 Month 6.86% 6.94% 3 Month 2.94% 2.74% 6 Month 26.98% 26.71% Since Inception -15.84 % -13.66 %

Avg Annualized % Data as of quarter end: 31/ Mar/2023 Fund NAV Index 1 Year 6.16% 6.36% 3 Year -9.09% -8.78% Since Inception -3.88% -3.31%

KWEB’s gross expense ratio is 0.75%. Inception Date: 20/Nov/2018. 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 or redeemed, may be worth more or less than their original cost, and current performance may be lower or higher than the performance quoted. 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.kraneshares.eu/kwebln.

6 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu KWEB Top 10 Holdings Financials Summary Percent changes are year -over-year unless otherwise indicated . Revenue figures are adjusted (non -GAAP). Holdings are subject to change. RMB Exchange Rate used is as of 31/Mar/ 2023. Top 10 KWEB Holdings KWEB Weight (%) Revenue ($ B) Net Income ($ B) Revenue Growth (%) Net Margin (%) Earnings per Share ($) TENCENT HOLDINGS LTD 11 20.8 4.3 0 21 3 ALIBABA GROUP HOLDINGS LTD 8 34.9 6.5 2 19 2.5 MEITUAN -CLASS B 8 8.5 -0.2 22 -2 0 JD.COM INC -CL A 6 41.6 0.8 7 2 0.5 PINDUODUO INC - ADR 6 5.6 1.4 46 25 0.2 TENCENT MUSI - ADR 5 1 0.2 -2 20 0.1 KUAISHOU TECHNOLOGY 4 4 -0.2 16 -5 0 TRIP.COM GROUP LTD 4 3 0 -4 0 0 NETEASE INC 4 14.3 2.9 6 20 4 FULL TRUCK A - ADR 4 0.3 0 35 11 0 Total Weighted Average 60 134.0 15.7 12% 13% 10.3 Data from KraneShares and Bloomberg as of 30/ Dec/ 2022. Please see the end of the report for KWEB top ten holdings as of the most recent quarter -end.

7 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu KWEB Key Metrics Data from FactSet as of 28/Mar/ 2023 Data from Bloomberg and KraneShares as of 28/ Mar/ 2023 020406080 31-OCT-2017 30-APR-2018 31-OCT-2018 30-APR-2019 31-OCT-2019 30-APR-2020 30-OCT-2020 30-APR-2021 29-OCT-2021 29-APR-2022 31-OCT-2022Price -to-Earnings (P/E)KWEB Valuation vs. US Internet US Internet KWEB E-Commerce 23% Entertainment 14% Social / Online ads 14%Healthcare 7%Travel 6%Search 6%Gaming 5%Real Estate 5%Cloud 4%Recruitment 4%Logistics 4%Fintech 4%Education 2% Transport 1% Live streaming 1%KWEB Breakdown by Subsector

8 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Data from Bloomberg as of 30/Dec/ 2022 Data from Bloomberg as of 29/Mar/ 2023 -30-20-1001020304050 LogisticsCloud HealthcareE-CommerceGaming EntertainmentRecruitmentFintech Search Social / Online adsEducation Autos & TransportationTravel Live streamingReal Estate%Subsector Average Revenue Growth (12 -Month) -40-20020406080100120 EducationReal EstateTravel EntertainmentHealthcareE-CommerceSearch Autos & TransportationCloud LogisticsGaming Social / Online adsFintech Live streamingRecruitment%Subsector Performance (12 -Month)

9 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Subsector Analysis (Q4 2022 & 2022 Annual Results) Logistics company Full Truck Alliance had a stellar year in 2022, increasing revenue by nearly +50% despite pandemic restrictions, a headwind for shipping traffic in China. Meanwhile, JD.com has filed for an initial public offering (IPO) of its logistics arm on the Hong Kong Stock Exchange (HKSE). Cloud companies saw strong revenue growth for the year too, though many have yet to achieve profitability on the long road to full cloud penetration. Healthcare was also a bright spot in the internet sector in 2022. JD Health released its results for the second half of the year, beating estimates on revenue that increased +54% year -over-year. The company benefitted from demand for COVID treatments and partnerships with global pharmaceutical companies to launch new drugs on its platform. E-Commerce had a decent year in 2022 considering the difficult macroeconomic environment. Alibaba’s investor -friendly restructuring is

10 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu also leading to positive sentiment around the E -Commerce space. Most E-Commerce companies beat estimates on revenue in Q4, incl uding JD.com and Alibaba. According to recently released statistics, E- Commerce accounted for 31% of retail purchases in China in 2022 compared to only 14% in the US.4 Gaming was near the middle of the pack in terms of revenue growth in 2022. NetEase is ramping up its game development pipeline as game approvals in China have resumed at normal capacity, which may lead to improved growth for the gaming industry in 2023. Entertainment was also in the middle in terms of revenue growth in 2022. The subsector is highly correlated to the consumer’s willingness to spend. Live streaming platform Joyy cited a complex macroeconomic environment not only in China, but also overseas, where the company is increasingly active, for the decline in its revenue and users in 202 2. Fortunately for both subsectors, we have seen a turnaround in consumer confidence in China in the first quarter of 2023.

11 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Recruitment platform Kanzhun noted a significant uptick in job seekers following the Lunar New Year holiday, though revenue was lowe r in 2022. Fintech companies saw flat revenue growth in 2022 due to a variety of factors including policies favoring state-owned banks and lower interest rates. Nonetheless, Alibaba’s restructuring may lead to a revival of Ant Groups IPO, which may reinvigorate the industry. Search engine Baidu also saw flat revenue growth, though the company’s release of an AI chat bot akin to OpenAI’s Chat GPT reinvigorated interest in the company and raised its stock price. Social media and online advertising struggled i n 2022 on low demand from advertisers stemming from China’s pandemic restrictions. As those restrictions have been lifted, we expect better results from firms reliant on advertising in coming quarters. Education companies saw their stock prices rebound fro m deep lows in 2021, though their revenues remain relatively flat for the year.

12 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Autos & Transportation marketplaces also saw relatively flat revenue in 2022, given the slump in consumer confidence in China. Fortunately, March deliveries of electric vehicles came in strong, as Chinese EV makers are beginning to outcompete their international counterparts. Travel booking platform Trip.com saw revenue decline in 2022, though the company’s outlook for 2023 is positive as travel picks up following sluggish rebound in travel in Q4. KE Holdings, the owner of online real estate platform “Beike” saw its revenue decline in 2022, corresponding with 16 consecutive months of price declines in China’s real estate market. 2 Fortunately, home prices stabilized in January and sales picked up, based on a survey of 30 cities compiled by Chinese financial data provider Wind. China’s government has delivered a significant support package to the industry, establishing a “floor” for real estate prices.

13 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Theme Highlight – Full Truck Alliance: A True China Innovation Story

Imagine the following chaotic scene at a warehouse on the outskirts of a major city: truck drivers travelling potentially hundreds of miles from their homes, paying parking and entry fees, spar ring with their peers for assignments that are frantically claimed nearly as fast as the middlemen can jot them down on giant chalkboards. For many years, this was the situation at hundreds of “logistics parks” across China. That is, until former Alibaba executive Peter Hui Zhang created a new, more efficient way to match truckers with shipping needs through a single application. This is the story of Full Truck Alliance.

14 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu A KWEB Fast Truck IPO Full Truck Alliance (FTA) has been a holding in KWEB for nearly two years, following the company’s initial public offering (IPO) on the New York Stock Exchange (NYSE) in June of 2021. The company has seen considerable growth since its IPO, increasing revenue by nearly 50% in 2022, and is currently one of KWEB’s top ten hold ings. We believe Full Truck Alliance is an excellent example of a China internet company with innovation at its core. Many KWEB companies provide similar services as companies in the US, but Full Truck is unparalleled by nearly any US or global company. We had the pleasure to sit down with Simon Cai, Chief Financial Officer (CFO) of Full Truck Alliance, to discuss his platform, how it got started, and where it is headed. Simon noted that the “Uber of trucking” moniker often assigned to the company is not entirely accurate as the platform

15 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu offers a wide range of services to truckers and shippers alike, including insurance, credit, and refueling. Full Truck’s History & Business Model Simon began by discussing the history of truck matching platforms in China, stating that there were over 100 such platforms as recently as 2016. He mentioned that Full Truck Alliance (FTA) is one of the first to use a mobile app to increase the efficiency of truck matching. However, Simon noted that the success of the company is not solely due to technology but can also be attributed to the operational excellence of their sales team in attracting, retaining, and motivating both truckers and shippers to use the platform. Most of Full Truck’s senior management team, like its founder, came from Alibaba’s business -to- business (B2B) sales team and are well versed in managing large -scale sales operations. Simon also attributed FTA’s success to the support of reputable investors who believe that their platform’s vision for transforming the long-haul transportation industry, making transactions

16 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu between shippers and truckers more efficient, all while reducing travel waste. FTA has put up some impressive numbers. In the fourth quarter of 2022, an average of approximately 1.88 million shippers posted shipping orders every month and those orders were fulfilled by 3.5 2 million truckers. FTA’s platform covers 70% of China’s registered truckers. Like many shared transportation platforms improving profit margins is a major focus. Simon attributed the overall growth in revenue to the platform’s strong network effect and ever-improving freight matching algorithms. FTA has steadily increased its margins and become pro fitable since its IPO in 2021. By contrast, Uber’s freight business in the US is not yet profitable. 3

17 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Data from Bloomberg as of 30/Dec/ 2022 FTA has three monetization models for their core freight matching services. The first model is a membership fee collected from shippers with different tiers based on the posting quota. The second model is a freight brokerage model where a value-added tax (VAT) invoice is issued to shippers, and the platform charges about 6% for additional coverage services. The third model charges a commission on the orders matched, which is about 1.2% of the total freight fee. The platform also offers value-added services such as lending, refueling, and insurance products, -100-50050 0100200300 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4 %Millions of USDFull Truck Alliance: Revenue & Net Margin Revenue Net Margin (Right Axis)

18 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu on which it charges commissions based on transaction volume, service fees, and interest on loans to users. Going forward, Simon said that FTA will focus on user growth and increasing its take rate, the average percentage of each transaction the company is able to book as revenue. FTA’s current take rate is about 1.1-1.2%, which Simon noted is low compared to passenger ride hailing, which tends to charge around 20-30%. FTA is less focused on gross transaction volume (GTV) than orders filled because GTV in FTA’s industry can be highly variable due to external factor s such as fuel costs. Simon forecasted an 18 to 20% increase in order volume this year. Another aspect of FTA is the positive impact its innovation in trucking has had on the environment. According to Simon, this is a key focus for the company and is a significant factor that sets them apart.

19 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu “Every empty truck on the road wastes fuel, and the FTA platform contributes to a cleaner environment by reducing such wasteful situations.” -Full Truck ESG Report According to a 2021 report by the Transport Planning a nd Research Institute of the Ministry of Transport of China, FTA’s platform reduces carbon emissions in the trucking industry by 14.2 million metric tons annually. How It Works FTA offers a two-step mobile application with one interface for shippers and another for truckers. Shippers can enter information on their needs such as origin, destination, type of goods, and weight or quantity. On the other end, truckers can use the app to search for orders from shippers or they can be fed the most relevant orders based on their location, schedule, and capacity, saving them time.

20 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Full Truck’s App for Shippers:

21 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Market Size & Opportunity In the US, large nationwide carriers such as FedEx and UPS dominate the truck freight market. China’s truck freight market has historically been different in that shippers tend to rely on a far more fragmented ecosystem and must contract with truckers individually. However, that has been changing in recent years. The rise of E - Commerce has created increased demand for road-based logistics. Both JD.com and Alibaba have created their own logistics services that are now larger networks, approaching the size of nationwide carriers in the US. But, their parcel services are limited in scope to final consumer goods purchased online. FTA fills in the gaps in the nationwide, large -network shipping industry. Simon told us that most of the shippers that use FTA’s plat form are small and medium-sized enterprises (SMEs). The goods being shipped are generally commodities, consumable goods, machinery, construction

22 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu materials and agricultural products. As a result, FTA has a relatively low exposure to E-Commerce, which is already well-covered by proprietary logistics networks. According to Simon, this means FTA’s total addressable market is the “full truckload” segment of China’s road logistics market, which is worth nearly RMB 3.8 trillion ($600 billion). Data from Full Truck Alliance. Full Truckload (FTA's Addressable Market) 61%Less -than- Truckload 25%Express 14%China's Logistics Market

23 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Simon Cai, Full Truck Alliance, CFO Simon Chong Cai has served as the Chief Financial Officer for Full Truck Alliance since 2020. Previously, he was the Chief Financial Officer of Yunmanman from 2017 to 2020. Prior to joining Full Truck Alliance, Simon spent over 12 years in investment banking roles. He served as Executive Director at Nomura International (Hong Kong) Limited from 201 4 to 2017 and Vice President at Lazard from 2013 to 2014. Prior to Lazard, Simon worked at Citigroup Global Markets from 2007 to 2013 with his last role as Vice President of the Investment Banking division. Earlier, he worked at Morgan Stanley and HSBC’s investment banking division from 2004 to 2007. Simon received his bachelor’s degree in mechanical engineering from Tsinghua University.

24 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Conclusion China’s economic boom and the construction of its comprehensive, state-of-the-art highway system made its trucking industry ripe for disruption. Full Truck Alliance’s team, led by ex -Alibaba executives, saw this opportunity, and built a company focused on making the trucking industry more efficient and less taxing on the environment. Since its IPO, FTA has steadily increased its market share, improved profit margins, and grown its users and order volume. FTA is a true China innovation story that we believe is well-positioned for long-term growth and success.

25 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Top 10 KWEB Holdings: Quarterly Earnings Update Data as of 30/Dec/ 2022. Top 10 Holdings as of 30/ Dec/ 2022. 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 29/Mar/ 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 mont hly active users (MAUs). Tencent By The Numbers (Q4 2022) • Revenue 0% to RMB 143.3B ($20.8B) • Net Margin 21% • Net income RMB 29.6B ($4.3B) • Earnings per Share RMB 20.7 ($3) Tencent saw a significant margin improvement since last quarter, though revenue was flat year-over-year. However, advertising revenue increased +15% in Q4, which is a marked improvement compared to the

26 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu -7% decrease in 2022 overall compared to 2021. We knew that Q4 was going to be challenging anyway as COVID spread across China. Markets are forward-looking, so the pickup in Q4 could lead to a faster pickup in later quarters. During the conference call, the company said that January and February were showing “positive signs” of a sustained recovery. Tencent’s main performance drivers are video games and its WeChat social media platform, which is up to 1.3 billion users globally. While international games saw gains, domestic gaming growth was sluggish. Management slashed sales and marketing expenses by -47%, from RMB 11.6 billion ($1.7 billion) to RMB 6.1 billion ($890 million), which led to the margin improvement, compared to a -28% decrease in 2022 versus 2021. However, research and development and general/administrative expenses did increase in both Q4 and 2022.

27 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu 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 exp anded beyond E- Commerce and is now a consortium of six businesses covering cloud, domestic E-Commerce, global E-Commerce, media, logistics, and local services. Alibaba By The Numbers (Q4 2022) • Revenue +2% to RMB 240.4B ($34.9B) • Net Margin 19% • Net income RMB 44.8B ($6.5B) • Earnings per Share RMB 17.2 ($2.5) Alibaba beat analyst expectations in its financial results, despite challenges from reopening and consumer hesitancy. As COVID swept across China, it led to severe disruptions in delivery as c ouriers called in sick, for instance. Nonetheless, CEO Daniel Zhang stated that consumer and business confidence is rising.

28 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu Zhang said that he will begin to take a more active role in Alibaba’s cloud computing unit, which had moderate growth in 2022, thoug h it was highlighted as a growth driver for the company. It is important for the company that China’s consumers are coming back online, as management stated that they expect continued consumer sentiment and economic activity to recover. Net cash increased +9%, while free cash flow increased by +15% year-over-year. On March 28, 2023, Alibaba Group announced that it will become a holding company comprised of the below six business groups to “unlock shareholder value and foster market competitiveness” and “cap ture market opportunities and stimulate growth”. The separate entities will be able to fundraise and go public as they see fit. Management is providing a key catalyst for investors to own shares. Ultimately, Alibaba is telling investors that they haven’t p roperly valued the company, which is driven by the geopolitical overhang, rather than

29 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu the fundaments. The shareholder-friendly move can be contrasted with competitors, who appear to be focused on cutting prices. Alibaba’s New Business Groups: • Cloud Intelligence Group – Chairman and CEO Daniel Zhang will lead, highlighting the importance of cloud and AI. • Taobao/Tmall Commerce Group – Taobao (Consumer to Consumer) and Tmall (Business to Consumer) are Alibaba’s two domestic China e-commerce platforms serving retail and business clients. • Local Services Group – Ele.me is Alibaba’s restaurant/food delivery service. • Cainiao Smart Logistics – Cainiao is Alibaba’s delivery unit, which had been kept separate due to the low margin nature of the business, but was ultimately brought into the company. • Global Digital Commerce Group – E-commerce units outside of China including Southeast Asia focused Lazada, Turkey based Trendyol, and international-focused B2B Alibaba.com and international consumer focused AliExpress.

30 europe @kraneshares.com +1 (212) 933 0393 kraneshares. eu • Digital Media and Entertainment Group – Alibaba’s efforts to garner more eyeballs to its platform led to efforts such as online video company Youku, which they bought back in 2016, and movie studio Alibaba Pictures, which produced one of the Mission Impos sible films. The unit has struggled to become profitable over the years. 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 many business lines including general retail and domestic travel booking services, serving over 600 million registered users. Meituan By The Numbers (Q4 2022) • Revenue +22% to RMB 58.4B ($8.5B) • Net Margin -2% • Net income RMB -1.4B (-$0.2B) • Earnings per Share RMB 0 ($0)