Daily Posts

Dual Sessions Highlights/Caixin PMIs, SINA/WB/CTRP/HUYA/YY Report, Google JD.com Partner (could Tencent be next?), Alibaba & Office Depot Partner

Hope all is well!

Highlights from yesterday’s Dual Sessions:

  • 2019 GDP target between 6% to 6.5%
  • Fiscal deficit target of 2.8%
  • Taxes and corporate pension payments will be cut by nearly 2 trillion
  • The manufacturing sector will have the VAT cut to 13% from 16%
  • A new was proposed that would treat foreign entities to the same rights as domestic entities when doing business in China

 


Caixin China PMI Composite        50.7 versus Jan’s 50.9
Caixin China PMI Services             51.1 versus estimate 53.5 and Jan’s 53.6

Takeaway: Due to Chinese New Year’s we really can’t read too much the February economic releases. Many economists will average January and February to account for the seasonal adjustment caused by Chinese New Year’s. It is important to remember China is pushing on the stimulus pedal. We shouldn’t place too much emphasis on backward looking economic releases as stimulus is only just beginning to trickle through the economy.

The Hang Seng opened lower -0.47%/2 index points but grinded higher to end +0.01% on volumes -20% day over day but still higher than the 1 year average on poor breadth of 17 advancers and 32 decliners. Tencent helped pull the index up with its gain +4.21%/126 index points on reports its Arena of Valor game is doing well while Nomura’s analyst had a positive report on the company’s flagship game Honour of Kings. AIA  slumped on profit taking -1.27%/-36 index points followed by Ping An’s -1.29%/-18 index points. Within the MSCI China All Shares’ HK stocks, Tencent pulled the communications sector to a 2.9% gain while tech gained 1.15%. Materials and energy were off -0.88% and -0.68%. Discretionary names were led higher by auto on reports that mainland policies will support the industry. Southbound Connect volumes were elevated as buyers outpaced sellers with the top volume leaders seeing outsized gains.

Shanghai & Shenzhen gained +0.58% and +0.88% on volumes off -14% day over day but still 2X the 1 year average on very strong breadth. Mainland investors cheered the positive news and policy support coming from the Dual Sessions. Within the MSCI China All Shares’ mainland stocks, trade sensitive sectors gained communications and tech were higher 3.21% and 2.88% while financials lagged -0.45%. Real estate also had a strong day gaining 2.25% on strong property reports. Northbound Connect volumes were very strong again as foreigners were net buyers.

Online portal Sina reported Q4 earnings this morning prior to the NY open. Sina spun off Weibo a few years back and largely trades based no Weibo’s results.

  • Revenue +14% $573mm versus estimate $569mm
  • ADJ EPS $0.80 versus $0.74

 


Social media company Weibo reported Q4 earnings this morning prior to the NY open.

  • Revenue +28% $481mm versus estimate $481mm
  • Monthly users increase 462mm
  • EPS $0.80 versus estimate $0.75

 


Online travel firm Ctrip reported Q4 earnings after the NY close. Stock is trading up pre-market.

  • Revenues increased 22% YoY to $1.1B versus estimate of $1.07B
  • Adj EPS $0.13 versus estimate -$0.02
  • Ctrip book UK based Skyscanner which grew 200% YoY in Q4
  • Margins decreased slightly to a mere 80% versus 2017’s 80%

 


Live streamer YY reported Q4 earnings after the NY close.

  • Net revenues increased 28% to $675 million year over year
  • Active monthly users increased 18% to 90mm monthly users
  • Gross profit increased by 13.8% to $236mm
  • Gross margin declined to 35.1% from 39.4% YoY
  • Net income and EPS declined year over year slightly
  • The company bought Singapore streaming company Bigo. To fund the acquisition will require issuing shares. YY’s CEO appears to have a personal interest in Bigo.

 


Online gaming streamer HUYA reported Q4 earnings after the close. Stock is trading up pre-market.

  • Revenues increased 103% to $218mm YoY
  • Average monthly users increased 34% to 116 million
  • Gross profit increased 120% to $34m
  • Gross margins increased to 15.9% from 14.6% YoY

 


Last June Google invested $550 million e-commerce giant JD.com to expand beyond China. It took a year but JD.com will sell 500 products on Google’s e-commerce platform providing access into both Europe and the US. JD.com has made some interesting moves having partnered with three of the most impressive companies on the planet: Google, Walmart and Tencent. Amazon is an equally impressive firm though those four companies may be able to give them a run for their money. While highly improbable it isn’t hard to see how the four can collaborate with one another (Tencent Search powered by Google, online to offline as one buys on JD/Google and pick up at Walmart, etc). While I’ve not used Google Shopping I might have to give it a try!

Alibaba and Office Depot announced a partnership to sell goods from Alibaba’s 15,000 suppliers through Office Depot’s 1,350 OD and OfficeMax locations. The deal doesn’t quite have the sizzle of the above though Alibaba’s cloud computing business as Office Depot has transformed itself into a IT and business service prover.

One broker noted the strong performance of several micro cap Chinese stocks yesterday. I believe the Shanghai’s new tech board could lead to small micro cap companies taking themselves private in order to relist on the Shanghai tech board. This is speculation on my part and wouldn’t advise owning these names.

The Federal Reserve Bank of San Francisco has found that US trade war tariffs have increased 0.1% for consumers and 0.3% for business investment goods. If raised from 10% to 25% these rates would increase further 0.3% and 1%. The Labor Department has reported that consumer goods has risen 2.7% after falling 6% for the ten years ended 2018. It’s a shame that it took an actual trade war for some to learn Economics 101.

CNY 6.70

  • Yield on 1 Day Chinese Gov’t Bond 1.64%
  • Yield on 10 Year Chinese Gov’t Bond 3.25%
  • Yield on 10 Year China Development Bank Bond 3.69%

 


Commodities were lower on both the Shanghai & Dalian Exchanges