Meituan (3690 HK), China’s web based local shopping and delivery giant, reported Q2 financials after the Hong Kong close this morning. The results beat analyst expectations across the board . The results beat analyst expectations across the board. The company did however post a loss stating: “new initiatives and other segments widened as we continue to invest in areas that will bring long-term value to the Company”. We knew this was going to occur as the company indicated previously an investment in growing their grocery business and e-commerce business.

The Q&A was dominated by questions about regulations, which the company says they are addressing. Within the Q2 results was a statement which mentioned that the company is being investigated for anti-competitive practices and that the company “is not able to predict the status or the results of the investigation at this stage”. Similar to previous calls, management aligned itself with long term policies. Ultimately Meituan employees represent a large number of delivery workers who don’t have job prospects elsewhere. The user data shows how popular the company’s delivery service is.

• Revenues increased +77% to $6.763B/RMB 43.759
• Revenue breakdown: Food delivery increased +59% to RMB 23.125B, in-store/hotel/travel +89.3% to RMB 8.602B and New Initiatives +113.6% to RMB 12.031B
• Transacting Users increased +37.4% to 628.4mm over the last twelve months
• Average number of transactions per annual transacting user +27.8% to 32.8mm
• In Q2, Gross Transaction Volume of food delivery increased 59.5% to RMB 173.603B
• In Q2, Number of food delivery transactions increased +58.9% to 3.541B
• Cost of revenues increased to RMB 31.245B which led to Gross profit of RMB 12.513B up from Q2 2020’s RMB 8.574B
• Selling/marketing expenses more than doubled while other expenses generally rose leading to an operating loss
• Adjusted Net Income was a loss of RMB -2.217B versus analyst expectations of RMB -4.043B and Q2 2020’s gain of RMB 2.61B
• Adjusted EPS loss was RMB -0.37 versus analyst expectations of RMB -0.58 and Q2 2020’s RMB 0.37
• Cash/Cash equivalents flat at RMB 71.387B

Key News

Asian equities were largely higher post-Jackson Hole though it was a fairly quiet night. It was a busy day for China due to a large number of companies reporting earnings. EV maker Li Auto (LI US) reported Q2 this morning before the US market open, beating revenue and EPS expectations while doubling Q2 2021 auto deliveries versus Q2 2020.

Ganfeng Lithium (002460 CH) reported 1^st half revenues increased +70% year over year to RMB 4.03B while net income increased to RMB 1.42B from RMB 157mm. The clean technology sector had a strong day in both the Hong Kong and Mainland markets as wind, solar and the EV ecosystem outperformed though EV bus maker BYD was off a touch on financial results.

Chinese internet stocks had a strong day despite several negative headlines, which is a positive sign. Headlines are about rules limiting minors’ hours being curtailed but as Tencent highlighted this demographic makes up a tiny percentage of its online gaming revenue. Tencent was off a touch in Hong Kong and saw net selling from Mainland investors though the space was broadly higher. Again, the market overcame several bad headlines for the first time in a long time.

Energy stocks had a strong day as traders anticipate OPEC not raising output while financials were off, driven by brokers underperforming along with real estate. Foreign investors were net buyers of Mainland stocks (again) buying $291mm of Mainland stocks. Mainland bonds rallied along with copper and CNY versus the US $.

I’d also like to extend best wishes and thoughts for our friends in Louisiana, stay strong!

H-Shares Update

The Hang Seng opened lower but rallied to close +0.52% as volume increased +5.95% which is only 84% of the 1-year average. The 209 Chinese companies listed in Hong Kong within the MSCI China All Shares gained +0.95% led by energy +3.86%, utilities +3.65%, healthcare +3.06%, materials +2.79%, industrials +2.06%, tech +1.76% and discretionary +1.71% while financials -1.26%, real estate -0.79% and staples -0.06%. Hong Kong’s most heavily traded by value were Tencent -0.13%, Alibaba HK +1.48%, Meituan +1.51%, BYD -0.38%, Geely Auto +4.26%, Kuaishou Tech +8.89%, Xiaomi flat, Xinyi Solar +9.39%, China Merchants Bank -3.7% and Wuxi Biologics +3.28%. Southbound Stock volumes were moderate/light as Mainland investors sold $535mm of Hong Kong stocks as Southbound trading accounted for 13.7% of Hong Kong turnover.

A-Shares Update

Shanghai, Shenzhen and STAR Board bounced around the room closing +0.17%, +0.06% and –0.6% on volume +17.78% higher than Friday which is 170% of the 1-year average. The 522 Mainland stocks within the MSCI China All Shares +0.09% led by energy +3.51%, materials +2.23%, and industrials +0.93% while real estate -2.68%, financials -1.72%, communication -1.63% and discretionary -0.63%. The Mainland’s most heavily traded by value were Longi Green Energy +7.15%, Tianqi Lithium +2.66%, BYD -2.14%, Qinhai SaltLake -5.06%, China Northern Rare Earth +7.5%, Gangfeng Lithium +10%, GEM +2.84%, Sungrow Power +8.85%, GoerTek +3.93% and Tongwei +5.44%. Northbound Stock Connect volumes were moderate/elevated as foreign investors bought +$291mm of Mainland stocks. Bonds rallied today, copper rallied and CNY appreciated versus the US $.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.47 versus 6.48 yesterday
• CNY/EUR 7.63 versus 7.62 yesterday
• Yield on 10-Year Government Bond 2.85% versus 2.87% yesterday
• Yield on 10-Year China Development Bank Bond 3.19% versus 3.21% yesterday
• Copper Price +1.21% overnight