Daily Posts

Alibaba Year Revenue +41% YoY, LMVH China Take, Tencent Game Approval, DC Trade Talks

Apologies for no China Overnight yesterday as my flight to Chicago Monday night was delayed 6 hours. Yesterday was cold but nothing to extreme though today it is -18 and -47 with the wind chill. In a strange way I am curious to experience it though I am sure I will regret that statement quickly!

Alibaba released earnings this morning pre-market that were in-line with analyst expectations. I believe the numbers beat market sentiment which has weighed on the stock as it is used as a proxy for US China trade war. CEO Joe Tsai started the conference refuting this. Below are specific points he made.

  • Alibaba’s China Economy is driven by 300mm urban middle class who driving consumption. By 2030 that urban middle will grow to 850mm.
  • Credit Access will drive future consumption.
  • Retail Sector Being Digitalized
  • “Obsessing on rate of growth” is wrong as China’s percentage growth has slowed but the size of the GDP has never been larger. More importantly e-commerce grew between 20-30% last year.
  • Trade War – Affects Sentiment but Alibaba has little economic exposure. Not exports but domestic consumption.
  • China Internet Regulation – Regulators are evolving just as the market is evolving. Provided assurances that government is pro-business such as lowering the VAT (tax), cut business social security contributions for business, increased small business support. Government wants to “ignite” business spending.

 

  • Q3 Revenue increased 41% year over year to RMB 117B ($17.057B) versus estimate 119.4B
  • Q3 EPS Adjusted RMB 12.9 versus estimate 11.21
  • Core E-Commerce Business grew 40% to $14.858B
  • Annual Active Consumers 636mm +35% year over year
  • Mobile MAUs reached 699mm +33mm from Sept 2019
  • Singles Day +$30.8B of goods sold


The stock has traded up to $162 from yesterday’s close of $156.88. I’ve not heard the forward looking estimate as of yet on the conference call.

Hong Kong overcame an early drop to gain +0.4% on moderate volume that almost exceed the 1 year daily average. Breadth was positive with 26 gainers and 19 decliners. It is interesting to see HK have a strong day as it is emerging market investors’ definition of China. Tencent gained +0.53%/15 index points after the company had Romantic Rose Garden approved as the company’s  fifth game approved as investors are anticipating a coming approval of Fortnite and PUBG. HSBC had a good day +0.53%/~14 index points followed by China Petroleum +2.49%/12 index points. Within the MSCI China All Shares’ HK stocks, real estate had a strong day +3.54% ahead of earnings while energy +1.09%. Utilities were off -1.49% while it is worth noting Apple suppliers AAC and Sunny Optical were off -2.03% and -1.56% which dragged tech -0.56%. Southbound Connect volumes were elevated with sellers outpacing buyers.

Shanghai & Shenzhen eased into the close to end -0.72% and -1.28% on anemic volumes and poor breadth. Several Chinext, China’s small cap board on the Shenzhen Stock Exchange, pre-announced disappointing earnings which weighed on sentiment. Investors in China are likely preparing for their New Year’s vacations as well. Within the MSCI China All Shares’ mainland stocks, real estate was the only positive sector +1.03% while communications and tech were off -1.31% and -1.22% on continued Huawei charges here in the US. Staples was led lower by -1.16% led by liquor name profit taking. Foreign investors were positive as Northbound Connect volumes were strong with buyers outpacing sellers by a small margin. Remember MSCI’s consultation ends February 15th which will lead to an announcement between the 15th and 28th on the 2019 inclusion factor.

I read LMVH quarterly earnings report last night. Like Alibaba, LMVH reported strong China earnings which is contrary to the media narrative. Below are my takeaways

  • “Continued strong momentum in China”
  • Revenue by geography: Asia ex Japan 29%, US 24%, Europe ex France 19%
  • Asia Ex Japan Revenue grew 15% in Q4 and 15% for 2018 (ie no slowdown)


I did read Nvidia’s pre-announcement on lower earnings which was very light on details other than China sales were lower. I searched Bitcoin on Nvidia’s website. Interesting there were no results I believe that bitcoin mining rolling over is likely a big factor for the company. Just an assumption on my part. I did not have an opportunity to read CAT’s earnings report but I will.

CNY 6.71!!!!!!

Big drop in the front of the curve.

  • Yield on 1 Day Chinese Gov’t Bond 1.56%
  • Yield on 10 Year Chinese Gov’t Bond 3.15%
  • Yield on 10 Year China Development Bank Bond 3.75%

 


Commodities were mixed on both the Dalian and Shanghai.