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JD.com Q1 Earnings Overview
JD.com reported Q1 2024 earnings after the Hong Kong close and before the US market open. JD.com's earnings results smashed analyst expectations as both adjusted net income and adjusted earnings per share (EPS) increased versus expectations of a decline. Management cut research and development expenses by -3.6% and general/administrative expenses by -21%, which led to the strong bottom line beat. Total expenses declined from RMB 1.474 billon in Q1 2023 to just RMB 759 million. Year-to-date, the company has spent $1.3 billion to repurchase 98.3 million Hong Kong shares, which is equivalent to 49.2 million US-listed shares, which is 3.1% of shares outstanding, and still has another $2.3 billion worth of stock to buy through 2027, under the current repurchase program.
Year-over-year (YoY) %
- Revenue increased +7% to RMB 260 billion, beating expectations of +6% and RMB 258B.
- Adjusted Net Income increased to RMB 8.9 billion from RMB 7.6 billion, beating expectations of a -3% decline in net income.
- Adjusted EPS increased +18.7% to RMB 5.65 from RMB 4.76, beating expectations of -2% and RMB 4.66.
Baidu Q1 Earnings Overview
Baidu reported Q1 2024 earnings after the Hong Kong close and before the US market open. The company’s core search business saw revenue increase +4% YoY to RMB 23.8 billion, as online marketing revenue increased +3% to RMB 17 billion. Meanwhile, total operating costs and expenses declined from RMB 26.16 billion to RMB 26.03 billion. Ultimately, the company performed well, and analysts were overly pessimistic. In Q1 2024, the company repurchased $229 million worth of shares.
Year-over-year (YoY) %
- Revenue increased +1% to RMB 31.51 billion from Q4 2023 RMB 31.14 billion, barely missing expectations of +1%.
- Adjusted Net Income increased +22% to RMB 7.01 billion from RMB 5.73 billion, beating expectations of -2%.
- Adjusted EPS increased +24% to RMB 19.91 from RMB 16.10, beating expectations of -3%.
Key News
Asian equities rallied following the US’ soft CPI print, reviving hopes for Fed cuts as the US dollar declined overnight.
Hong Kong had a strong rally overnight despite a challenging geopolitical backdrop, which lends credence to the idea that this rally was not a dead cat bounce. Tencent gained +3.98% on very high volume of 58 million shares traded today versus Tuesday’s 21 million shares and the 20-million-share daily average following outstanding Q1 financial results reported after Tuesday’s close and before Wednesday’s market holiday.
Alibaba fell -3.57% on high volume of 111 million shares traded versus 78 million on Tuesday and a 47-million-share daily average. Alibaba’s US listing was off -4.16% after falling -6.02% Tuesday and recovering +1.86% on Wednesday, as Hong Kong investors have been more optimistic than US investors. The addition of Alibaba's Hong Kong listing to Stock Connect this fall, which will occur once they convert their primary listing to Hong Kong, is a significant catalyst, in my opinion, as it will allow investors based in Mainland China to purchase the stock. Also, Alibaba’s bottom line miss appears to have been driven by the write-down of their investment.
Hong Kong’s most heavily traded stocks, after Tencent and Alibaba, were China Construction Bank, which gained +6.12%, Meituan, which gained +3.04%, and the Bank of China, which gained +4.8%, as high dividend plays were in focus due to the tax waiver for Mainland investors. Real estate was the top-performing sector in Hong Kong, where it gained +5.51%, and Mainland China, where it gained +3.17%, respectively, as Hangzhou’s government announced that it would buy apartment buildings in the Lin’an District that would be used for public rentals. This would be the first confirmation of the rumor that the government would buy unsold apartments. I still prefer real estate bonds over stocks as a comeback play.
Hong Kong-listed health care stocks gained +0.68%, a good sign for the embattled sector. WuXi Biologics gained +0.41% and WuXi AppTec fell -0.24%, as the House took the first step toward potentially passing the watered-down Biosecure Act. Western media’s lack of examination of this bill is shocking as Congress acts as the judge, jury, and executioner without providing evidence of the companies doing anything wrong. This is not surprising as Western financial media provides no coverage of either JD.com or Baidu’s outstanding financial results this morning. Similarly, there has been little to no coverage of hedge fund legend David Tepper’s Appaloosa LP buying three Chinese stocks and ETFs.
Vladimir Putin is in Beijing, and his border with China marks one of the few borders Xi doesn’t have to worry about. Optics are far from ideal, though, as China’s economy remains highly geared toward the West.
The Hang Seng and Hang Seng Tech indexes gained +1.59% and +0.76%, respectively, on volume that increased +43.2% from Tuesday, which is 205% of the 1-year average. 286 stocks advanced, while 195 stocks declined. Main Board short turnover increased by +54.5% from Tuesday, which is 170% of the 1-year average, as 15% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). All factors were positive, with the value factor and large caps outperforming the growth factor and small caps. The top-performing sectors were Real Estate, which gained +5.51%, Financials, which gained +5.12%, and Communication Services, which gained +3.12%. Meanwhile, Technology fell -0.24% and Consumer Discretionary fell -0.69%. The top-performing subsectors were banks, real estate, and insurance. Meanwhile, food & beverage, consumer durables, and healthcare equipment were among the worst-performing subsectors. Southbound Stock Connect volumes were very high as Mainland investors bought a net $508 million worth of Hong Kong-listed stocks and ETFs, including Bank of China, which was a very large net buy, Tencent, which was a large net buy, and China Construction Bank, which was a small net buy. Meanwhile, the Hong Kong Tracker ETF had a large net sell.
Shanghai, Shenzhen, and the STAR Board diverged to close +0.08%, +0.29%, and -0.40%, respectively, on volume that increased +11.58% from yesterday, which is 100% of the 1-year average. 3,024 stocks advanced, while 1,849 declined. The value factor and large caps outpaced the growth factor and small caps. The top-performing sectors were Real Estate, which gained +3.19%, Financials, which gained +1.39%, and Technology, which gained +0.71%. Meanwhile, Energy fell -1.08%, Utilities fell -0.86%, and Consumer Discretionary fell -0.46%. The top-performing subsectors were real estate services, forest industry, and insurance. Meanwhile marine industry, shipping, motorcycles, and airports were among the worst-performing subsectors. Northbound Stock Connect volumes were moderate, as Foxconn and Kweichow Moutai were moderate net buys. Meanwhile, Eoptolink, Nari-Tech, and Vanke were small net sells.
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Last Night's Performance
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Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.21 versus 7.22 yesterday
- CNY per EUR 7.84 versus 7.81 yesterday
- Yield on 10-Year Government Bond 2.31% versus 2.30% yesterday
- Yield on 10-Year China Development Bank Bond 2.42% versus 2.40% yesterday
- Copper Price +0.49%
- Steel Price +1.38%