The China Analyst: Wireless Sector Becoming Increasingly Positive; Time To Buy

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1 Safa Rashtchy, Senior Research Analyst , Aaron M. Kessler, Sr Research Analyst , Reason for Report: Industry Overview Related Companies: Share Price: HRAY 9.76 TOMO NTES SINA SOHU EBAY LTON 7.02 YHOO SNDA Technology The China Analyst: Wireless Sector Becoming Increasingly Positive; Time To Buy KEY POINTS: The Upshot: We believe the wireless sector is continuing to become more stable and we are hearing increasingly positive buzz about the sector. We also believe May 17, the national telecommunication day, may bring another catalyst for the sector with positive announcement by China Mobile. We would be buyers of TOMO, HRAY, and LTON, especially given the low valuations, which create highly favorable risk-reward profile. Index Last Week YTD LTM Piper Jaffray China Internet Index 4.7% -28.2% -16.2% NASDAQ 0.8% -9.8% -1.7% Summary of Internet Activity in China (MM) Jan-05 Jun-04 Jan-04 Y/Y % Total active users % Dial-up users % ISDN users % Broadband users % Industry Note Source: China Internet Network Information Center,Piper Jaffray China Research Summary of Telecom Activity in China (MM) Jan-05 Dec-04 Jan-04 M/M % Y/Y % Landline subscribers % 17% Penetration rate 24.9% 24.9% 21.2% - - Mobile users % 23% Penetration rate 25.9% 25.9% 20.9% - - Source: Ministry of Information Industry of China, Piper Jaffray China Research. Industry Commentary - Shanda's Evolution Underway. Company & Industry News - Sohu's Long-Term Strategy; Sohu Acquires Go2Map; Fantasy Westward Journey Continues User Growth; The9's WoW Set for April 29th Open Beta Launch. China Stocks This Week - Update on stock performances. Company Updates - Our latest thoughts on our Chinese coverage stocks The China Analyst is our weekly report on the Chinese Internet and technology market. Our commentaries are based on data we collect daily in China using our staff and consultants as well as industry contacts in Mainland China and Hong Kong. Our goal is not to summarize news but to analyze the most important developments in Internet, online games, wireless services, economy, technology, consumer behavior, corporate activities, and government regulations and to discuss how these trends impact both our existing coverage companies in China as well as the broader, long-term development of the Chinese Internet market Risks - Include the volatility of wireless revenues, investor sentiment toward a young and new sector, the potential of government intervention, and the potential of decline or volatility of economic growth. The unique corporate structure of the Chinese Internet companies also poses additional risk factors for investors. Page 1 of 7

2 Industry Commentary We are continuing to hear positive buzz and reports on various aspect of the wireless sector in China. As we noted in our last China Analyst (April 8), the opening of prepaid subscribers to have access to 2.5 g services is underway (already done in Shanghai province) and may even be accelerated. May 17 th Potential Catalyst. We also believe that May 17 th, the national telecommunication day in China, may bring other significant and positive news announcements from China Mobile that could include the opening of the prepaid subscribers to 2.5g services in all provinces. The expectations of the announcement of 3G license is also building up in China and we believe will act as a positive catalyst for the sector. Expect Solid Quarter Results. We believe that despite the MMS mailbox issue, the wireless companies will all report a solid quarter, inline to above expectations, once again marketing growth in an environment that is characterized as very difficult and unpredictable. This market condition that has created so much volatility for the sector, we believe, is nearing an end and we are very likely to have much more stable environment in the second half of Combine this with the fact that the wireless companies are trading at very low multiples of 5x-7x next years' EBITDA, nearly half of the multiple for the whole sector. In short, we believe it is time to buy the wireless companies as the risk-reward profile now heavily favor upside in the stocks. We would be active buyers of HRAY, TOMO, and LTON as the key wireless players with significant or increasing presence in 2.5 g services. Company And Industry News Sohu Acquires Go2Map Inc. Go2Map, an online mapping service provider in China, was acquired by Sohu for $9.3 million, along with $2.5 million in potential additional pay if Go2Map reaches specific financial targets in the next two years. Sohu can combine its search and portal capabilities with Go2Map's detailed location-based information to create a viable online map service. We believe that Sohu will integrate Go2Map's functionality with Sogou, Sohu's flagship search engine. Go2Map currently covers 200 Chinese cities, and the acquisition fits well with Sohu's focus on expanding its content offerings. Open Beta for WoW Set to Launch April 29. The Chinese launch of open beta testing for World of Warcraft (WoW) has been slated for April 29. The9 held an announcement party in conjunction with the news, and a software pack for the game was made available to consumers for about $3.50, or 29 RMB on April 10. Up to this point, 3D MMORPG-style games have not fared well in the Chinese marketplace, but with the overwhelming response to WoW in other countries, The9 is hoping that such international success translates well in the Chinese market. Economic News China's FDI Increases By 9.5% in Q1. The Ministry of Commerce announced that overseas investment increased by 9.5% in 1Q05, accounting for approximately $13.4 billion. Foreign direct investment was led by companies such as Avon Products Inc. and Goodyear Tire & Rubber Co., both of which have expanded operations and investments in China recently. Considering the government's attempts to slow down investments and expansion of state-owned enterprises (SOEs), which might lead to an overall economic slowdown in consumption and job opportunities, FDI will help to counteract this trend (Shenzhen Daily). IMF Report Predicts Economic Slowdown. The International Monetary Fund released its most recent World Economic Outlook Report, which states that China's GDP growth rate will be 8.5% this year, lower than last year's rate. The IMF identifies the quality of investment as being a potential long-term problem for the Chinese economy (Xinhua). Other Notable Events In China Tensions Mount Between China and Japan. The past three weekends in China have been filled with angry and violent protests against Japan. Anti-Japanese demonstrations have sprung up in China over Japan's possible permanent seat on the United Nations Security Council, as well as Japanese textbooks that allegedly gloss over wartime atrocities committed against the Chinese people. While Chinese protesters demand an apology from the Japanese government over the World War II violations, the Japanese Prime Minister requested an apology from China for the protests. The Japanese Prime Minister, Junichiro Koizumi, formally apologized at an Page 2 of 7

3 Asia-Africa Conference today, expressing his deep remorse and apology for Japan's war crimes against other Asian nations (CNN News). China Stocks This Week In the past week, as of Thursday's market close, the Piper Jaffray China Internet Index was up by 4.7%, while the NASDAQ was slightly up by 0.8%. The strong week was fueled by solid earnings announcements by Internet companies in the past few days, as well as promising macroeconomic news. For the full year to date, the PJC China Internet Index has declined by 28.2%, while the NASDAQ is down by 9.8% for the full year thus far. Year-to-Date Daily Graph Of Piper Jaffray China Internet Index vs. NASDAQ Piper Jaffray China Internet Index NASDAQ /31/04 1/24/05 2/14/05 3/08/05 3/30/05 4/20/05 Source: FactSet Stock Performances Company Wk/Wk YTD Sina.com -0.6% -15% Sohu.com 3.8% -2% Netease 6.0% 0% Shanda Interactive 14.2% -21% Linktone 9.2% -16% Tom Online -5.2% -23% Hurray! 4.9% -5% Ctrip.com 0.8% -15% 51Job 4.8% -67% Page 3 of 7

4 Company Updates Shanda (SNDA, Outperform). We believe Shanda has a very strong position in the online games market and is well positioned to expand beyond this, with its potential acquisition strategy, as well as development of new areas. We anticipate a strong quarter with solid upside. NetEase (NTES, Outperform). We would be active buyers of NetEase at current levels, as we believe NTES provides one of the best valuation and secular growth opportunities. The company's current games are doing very well and NetEase has a solid portfolio of new games for 2005 and beyond. We expect strong earnings, driven by Fantasy and other games. SINA (SINA, Market Perform). We believe Sina's biggest asset, its brand and reach within China, will continue to command a high premium to the market. As such, the company is likely to continue to be the an attractive potential acquisition candidate. We expect an in line quarter. Sohu.com (SOHU, Market Perform). We anticipate in line to possibly some upside for earnings, with the potential upside coming from advertising revenues. New initiatives might be the key to reignite interest in the stock. Ctrip (CTRP, Outperform). Once again, we would expect another solid earnings performance for Ctrip, as it maintains its market share lead in the Chinese online travel market. Tom Online (TOMO, Outperform). We believe that Tom Online will report earnings in line, with the possibility of some upside. Since the wireless sector is in the early stages of recovery, we would expect Tom to have strong guidance. 51Job (JOBS, Outperform). The Q4 miss, a big surprise, is not necessarily indicative of structural issues for JOBS or the job market in China; nonetheless, the stock's high valuation makes it still vulnerable to further decline. We anticipate an in line quarter, with a better performance, some potential for upside, as well as stronger Q2 guidance. Hurray! (HRAY, Outperform). We would expect a solid quarter with strong guidance. It is one of the best pure-play WAP providers. Linktone (LTON, Outperform). We expect Linktone to report earnings in line to possibly some upside. Guidance should be strong as the wireless sector is picking up. Page 4 of 7

5 Important Research Disclosures Industry Note Distribution of Ratings/IB Services Piper Jaffray IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [OP] HOLD [MP] SELL [UP] Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Note written during the past three years. Distribution of Ratings/IB Services Firmwide shows the number of companies in each rating category from which Piper Jaffray received compensation for investment banking services within the past 12 months. Legend: I: Initiating Coverage D: Discontinuing Coverage S: Suspending Coverage R: Resuming Coverage T: Transferring Coverage SB: Strong Buy (effective 01/12/04, Equity Research eliminated the SB rating) OP: Outperform (prior to 12/12/01, OP stocks were rated "Buy") MP: Market Perform (prior to 12/12/01, MP stocks were rated "Neutral") UP: Underperform (prior to 12/12/01, UP stocks were rated "Sell") NA: Not Available UR: Under Review GP On: Listed on one of the Guided Portfolios maintained by Piper Jaffray GP Off: Removed from the Guided Portfolios maintained by Piper Jaffray Page 5 of 7

6 Important Research Disclosures Industry Note Analyst Certification Safa Rashtchy, Senior Research Analyst Analyst Certification Aaron M. Kessler, Sr Research Analyst The views expressed in this report, including the Key Points and Risk sections in particular, accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Research Disclosures Piper Jaffray was making a market in the securities of Hurray! Holding Co., Ltd. at the time this research report was published. Piper Jaffray will buy and sell Hurray! Holding Co., Ltd. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from Hurray! Holding Co., Ltd. within the past 12 months. Within the past 12 months, Piper Jaffray was a managing underwriter of an offering of, or dealer manager of a tender offer for, the securities of Hurray! Holding Co., Ltd. or the securities of an affiliate. Piper Jaffray was making a market in the securities of TOM Online Inc. at the time this research report was published. Piper Jaffray will buy and sell TOM Online Inc. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from TOM Online Inc. within the past 12 months. Piper Jaffray was making a market in the securities of NetEase.com, Inc. at the time this research report was published. Piper Jaffray will buy and sell NetEase.com, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of SINA Corporation at the time this research report was published. Piper Jaffray will buy and sell SINA Corporation securities on a principal basis. Piper Jaffray was making a market in the securities of Sohu.com Inc. at the time this research report was published. Piper Jaffray will buy and sell Sohu.com Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of Ctrip.com International, Ltd. at the time this research report was published. Piper Jaffray will buy and sell Ctrip.com International, Ltd. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from Ctrip.com International, Ltd. within the past 12 months. Within the past 12 months, Piper Jaffray was a managing underwriter of an offering of, or dealer manager of a tender offer for, the securities of Ctrip.com International, Ltd. or the securities of an affiliate. Piper Jaffray was making a market in the securities of Linktone Ltd. at the time this research report was published. Piper Jaffray will buy and sell Linktone Ltd. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from Linktone Ltd. within the past 12 months. Piper Jaffray was making a market in the securities of 51job, Inc. at the time this research report was published. Piper Jaffray will buy and sell 51job, Inc. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from 51job, Inc. within the past 12 months. Within the past 12 months, Piper Jaffray was a managing underwriter of an offering of, or dealer manager of a tender offer for, the securities of 51job, Inc. or the securities of an affiliate. Piper Jaffray was making a market in the securities of Shanda Interactive Entertainment Limited at the time this research report was published. Piper Jaffray will buy and sell Shanda Interactive Entertainment Limited securities on a principal basis. Piper Jaffray has received compensation for investment banking services from Shanda Interactive Entertainment Limited within the past 12 months. Within the past 12 months, Piper Jaffray was a managing underwriter of an offering of, or dealer manager of a tender offer for, the securities of Shanda Interactive Entertainment Limited or the securities of an affiliate. Piper Jaffray has received compensation for non-investment banking securities-related services from Shanda Interactive Entertainment Limited within the past 12 months. Piper Jaffray was making a market in the securities of Goodyear Tire & Rubber Company (The) at the time this research report was published. Piper Jaffray will buy and sell Goodyear Tire & Rubber Company (The) securities on a principal basis. Piper Jaffray research analysts receive compensation that is based, in part, on the firm's overall revenues, which include investment banking revenues. Rating Definitions Investment Opinion: Investment opinions are based on each stock's return potential relative to broader market indices*, not on an absolute return. Outperform (OP): Expected to outperform the relevant broader market index over the next 12 months. Market Perform (MP): Expected to perform in line with the relevant broader market index over the next 12 months. Underperform (UP): Expected to underperform the relevant broader market index over the next 12 months. Suspended (SUS): No active analyst coverage, however coverage expected to resume. * Russell 2000 and S&P 500 Volatility Rating: Our focus on growth companies implies that the stocks we recommend are typically more volatile than the overall stock market. We are not recommending the "suitability" of a particular stock for an individual investor. Rather, it identifies the volatility of a particular stock. Low: The stock price has moved up or down by more than 10% in a month in fewer than 8 of the past 24 months. Medium: The stock price has moved up or down by more than 20% in a month in fewer than 8 of the past 24 months. High: The stock price has moved up or down by more than 20% in a month in at least 8 of the past 24 months. All IPO stocks automatically get this volatility rating for the first 12 months of trading. Page 6 of 7

7 Disclaimers This material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This information is not intended to be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. It is not a representation by us or an offer or the solicitation of an offer to sell or buy any security. Further, a security described in this release may not be eligible for solicitation in the states in which the client resides. Notice to customers in the United Kingdom: Circulation of this report in the United Kingdom is restricted to investment professionals and high net worth individuals falling within Articles 19 and 49 of the Financial Services and Markets Act (Financial Promotion) Order 2001 as amended. No one else in the United Kingdom should read, rely on or act upon the information in the report. The investments and services to which the report relates will not be made available to others in the United Kingdom. Securities products and services offered through Piper Jaffray & Co., member SIPC and NYSE, Inc., a subsidiary of Piper Jaffray Companies. Additional information is available upon request. No part of this report may be reproduced, copied, redistributed or posted without the prior consent of Piper Jaffray & Co. Copyright 2005 Piper Jaffray & Co., 800 Nicollet Mall, Suite 800, Minneapolis, Minnesota Page 7 of 7