OREANDA-NEWS. Fitch Ratings says in a report released today that the three Chinese internet majors - Alibaba Group Holding Limited (A+/Stable), Tencent Holdings Limited (A+/Stable) and Baidu, Inc. (A/Stable) - should maintain strong and stable credit profiles in 2016. This is despite a changing margin profile, significant M&A and share repurchases. Strong market positions in their respective market segments and high cash generation from core businesses should underpin their credit profile.

Fitch expects these firms to maintain their strong market leadership in their respective segments; i.e. online shopping for Alibaba, social and entertainment for Tencent, and search engines for Baidu. They have achieved strong operating scale and technology leadership, and have also been able to extend their market leadership to mobile platforms and increase their mobile monetisation rates during 2015. They should remain the prime beneficiaries of the robust Chinese internet industry growth.

Fitch expects higher spending on new services and acquisition of new entities will dilute margins for Alibaba and Baidu, though like-for-like profitability of their core businesses should remain robust. The privatisation of video service Youku Tudou Inc. and higher spending on new businesses may cut Alibaba's operating margin slightly. However, Baidu will face greater margin pressure due to continued higher marketing spending to promote transaction-based businesses plus continued high video content costs in 2016.

M&A will remain a main feature of China's internet industry in 2016. Fitch expects Alibaba's and Tencent's M&A spending to remain high, as they will continue to expand and enhance their existing businesses and further invest in ecosystems. However, their strong cash generation and large net cash positions should be able to fund their M&A ambitions.