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TCOM, JD.com, and VIPS Q1 Results Deliver With a Caveat

Q1 Financial Results

E-Commerce behemoth JD.com (JD US and 9618 HK) reported Q1 financial results before the US open this morning. The company beat topline revenue growth and bottom-line net income though EBITDA came in a little light as the firm’s already low margins shrank a touch. JD released its first ESG report on April 19th showing awareness of the importance investors place on ESG metrics. The firm’s tripling of net income will catch investors’ attention due to the recent focus on quality over hyper-growth. JD is pushing into the luxury goods marketplace with a partnership with Louis Vuitton announced in April while Hermes’ luxury shoes brand John Lobb and Italian brand Marni launched stores on their platform. Management described the company as a snowball gaining size over time.

  • Revenue increased +39% to RMB 203.2B ($31B) versus Q1 2020’s RMB 146.205B analyst expectations of RMB 192B
  • Active users increased 29% driven by over 100mm new users (user data was not in the earnings release but mentioned in the management conference call)
  • Net income increased/tripled to RMB 3.642B ($555mm) from Q1 2020’s RMB 1.057B
  • Adjusted EBITDA increased to RMB 4.939B ($753mm) from Q1 2020’s RMB 4.514 and analyst expectations of RMB 5.37B
  • Adjusted net income increased to RMB 3.967B ($605mm) from Q1 2020’s RMB 2.972B and versus analyst expectations of RMB 3.725B
  • Adjusted EPS was RMB 2.47 ($0.38) versus Q1 2020’s RMB 1.98 and analyst expectations of RMB 2.29
  • The company has cash of RMB 63.47B ($9.687) on the books as free cash flow declined $1.487
  • The company has bought $0.8B/10.1mm ADRs YTD with another $1.2B earmarked for purchase 

Discount online E-Commerce company Vipshop (VIPS US) released Q1 2021 financial results before the US market open today. The results look great on an absolute and relative basis as they were up strongly year over year (YoY) while beating analyst expectations handily. The YoY beat was an easy one due to China’s quarantine occurring in Q1 last year but the numbers look good to me. VIPS was an Archegos stock that is down significantly following the unwinding of the hedge fund’s positions. Investors might not like the decline in revenue growth forecasted for Q2 though the company looks well-positioned for longer-term investors.

  • Revenue increased 51.1% to RMB 28.4B ($4.3B) versus Q1 2020’s RMB 18.8B and analyst expectations of RMB 28.398B
  • Gross merchandise value (value of goods sold) increased 59% to RMB 46.1mm from Q1 2020’s RMB 28.9
  • Active customers increased 54% to 45.8mm from Q1 2020’s 29.6mm
  • Adjusted net income increased 73.7% to RMB 1.7B ($261mm)
  • Adjusted EPS increased to RMB 2.41 ($0.37) versus Q1 2020’s RMB 1.44 and analyst expectations of RMB 2.29
  • Q2 Revenue forecast is between RMB 28.9B to RMB 30.1B which implies a YoY growth rate of 20% to 25%

Online travel company Trip.com (TCOM US and 9961 HK) reported Q1 financial results after the US close yesterday. Results YoY were awful as coronavirus flare-ups in Q1 curtailed domestic travel while international travel is non-existent. With that said they smashed analyst expectations as intra-provincial stays increased strongly. Similar to Baidu benefitting from the IPO of Kuaishou, the company had “interest other”, which is likely investments, increase enough to turn a profit. Also worth noting that companies like TCOM earn a real yield on their cash, which also helps. 

  • Revenue declined -13% YoY to RMB 4.1B ($628mm) versus analyst expectations of RMB 3.038B
  • Accommodation reservation revenue +37% to RMB1.6B ($241mm)
  • Transportation ticketing revenue declined -37% to RMB 1.5B ($230mm)
  • Packaged tour revenue declined -68% to RMB 169mm ($26mm)
  • Corporate travel increased 101% to RMB 252mm ($39mm)
  • Gross margin was 75%
  • Total operating expenses declined to a loss of RMB -3.861B ($589mm) from losses in Q4 2020’s RMB -4.070B and Q1 2020’s RMB -5.020B
  • Net income increased to RMB 1.765 ($271mm) from Q4 2020’s RMB 960mm and Q1 2020’s loss of RMB -5.353B
  • EPS RMB 2.88 ($0.44) versus analyst expected a loss of RMB -2.80
  • Adjusted EPS loss of RMB -0.34 (-$0.05) versus analysts expected a loss of RMB -2.09
  • Cash on the books is RMB 66.1B ($10.1B)

Key News

Asian equities were off overnight following US equities lower with Australia suffering a nearly -2% loss. Hong Kong and South Korea were off today. The Fed’s minutes will be released at 2 pm today, which likely gave investors pause on placing any big bets.

Several Chinese financial regulators jointly reiterated that financial firms can not process bitcoin transactions, sending virtual currency lower and related stocks. The notice stated: “cryptocurrencies are a specific type of virtual commodity that is not issued by a monetary authority, and do not possess the qualities of money…they are not real money, and should not be employed as money for circulation in the market.”

Mainland market shrugged off mixed US-China political rhetoric as the US Navy sent a ship through the Taiwan strait, Pelosi called for a diplomatic boycott of the Olympics, and the US Treasury pushed a ban on several Chinese companies as they try to get their arms around the previous administration’s Executive Order ban.

Mainland electric vehicle plays including lithium stocks had a strong day on President Biden’s US electric vehicle push while metals, mining, and energy were weaker.

Virtual reality equipment stocks had a strong day on increased demand, driven by video games moving away from TVs to headsets.

While Mainland real estate was hit today, the recent rebound has been driven by chatter Hong Kong-listed real estate stocks could be added to Southbound Connect.

Our upcoming mid-year conference will include Fawne Jiang of Benchmark. Fawne, who is exceedingly humble, is one of the most widely followed and influential China internet analysts. The event is worth joining just to hear Fawne’s views. In speaking with Fawne yesterday, she felt the market missed something very important about Baidu’s results. The company believes that non-advertising revenue will quadruple in the next three years to become the same size as advertising, which is driven by its core search business. Non-advertising revenue is being driven by the firm’s efforts in cloud, electric vehicles, and autonomous driving, smart devices, and mobile ecosystem efforts. Several other analysts that we follow and respect reiterated the importance of management’s announcement as well. Non-advertising was $646mm in Q1 2021 versus $2.48B in advertising revenue. 4X in three years is a big move!

H-Share Update

Hong Kong’s stock market was closed today.

A-Share Update

Shanghai, Shenzhen, and STAR Board diverged -0.51%, +0.14% and +0.34% as turnover increased +4.25% from yesterday though only 88% of the 1-year average. Breadth had 1,407 advancers and 2,458 decliners. The 517 mainland companies within the MSCI China All Shares were off -0.38% as discretionary +1.08%, tech +0.76%, and industrials +0.035 while energy -1.78%, real estate -1.38%, financials -1.26%, and communication -0.72%. Northbound Stock Connect was closed due to HK’s holiday. CNY was off a touch versus the US $, bonds rallied and copper was off.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.44 versus 6.43 yesterday
  • CNY/EUR 7.85 versus 7.84 yesterday
  • Yield on 1-Day Government Bond 1.60% versus 1.70% yesterday
  • Yield on 10-Year Government Bond 3.13% versus 3.15% yesterday
  • Yield on 10-Year China Development Bank Bond 3.54% versus 3.54% yesterday
  • Copper Price -0.79% overnight