Rally Takes A Breather While Trip.com Takes Flight

Trip.com Earning's Review

Trip.com (TCOM US, 9961 HK) beat expectations on the big three: revenue, net income, and earnings per share (EPS). According to Executive Chairman James Liang, “The year 2024 has begun with a significant increase in both domestic and outbound travel demand in China…”.  On the company's earnings call, Liang noted that inbound tourist travel increased 400% year-over-year (YoY), driven by China waiving visas for visitors from 15 European and Asian countries. CEO Jane Sun noted that “Our domestic hotel and air ticket booking increased by 20% and 30% year-over-year….”.  Outbound tourism is expected to reach 80% of 2019 levels, though the company plans to attract more users from broader Asia, which is 1.5X larger than China.

% changes are year-over-year (YoY)

• Revenue increased by +29% to RMB 11.90B ($1.6B) from Q1 2023’s RMB 9.20B and versus expectations of RMB 11.62B.
• Adjusted Net Income increased by +96% to RMB 4.10B ($561mm) from RMB 2.07B versus expectations of RMB 2.79B.
• Adjusted EPS increased by +95% to RMB 6.0 ($0.83) from RMB 3.07 versus expectations of RMB 4.07.

Key News

Asian markets were a sea of red as Palo Alto Network’s post-close miss raised concerns heading into Nvidia’s results tomorrow. Hong Kong underperformed as the rally took a breather, and profit-taking ruled the day, with only 49 advancing stocks and 444 decliners in Hong Kong. Even after today's pullback, the Hang Seng and Hang Seng Tech indexes have outperformed the S&P 500, Nasdaq 100, MSCI Japan, and India by between 20% and 30% year-to-date. Outperforming growth stocks were clipped, while Li Auto’s Q1 miss and weak guidance led to a broad sell-off in electric vehicle (EV) stocks. However, before the US market opened this morning, Xpeng beat analyst expectations on the big three, while curtailing its net income loss.

Hong Kong’s most heavily traded stocks by value were Tencent, which fell -2.89%, as a new game was pulled only an hour after launch for unknown reasons (too much demand? Malfunction?), Li Auto, which fell -19.27%, Meituan, which fell -2.1%, Alibaba, which fell -1.11%, on AI price cuts, and the Bank of China, which gained +1.02%. JD.com was down -3.51%, though, after the market closed, it announced a $1.5 billion convertible sale to fund further stock buybacks. Southbound Stock Connect was a net buy of +$60 million, though the Hong Kong Tracker ETF saw a big outflow. Mainland China was off small versus Hong Kong, which is dominated by foreign investors. Mainland financial media is still very much focused on the recent PBOC real estate policy support, speculating that new apartment sales will lead to more home appliance sales. Fairly quiet otherwise.

The Hang Seng and Hang Seng Tech indexes fell -2.12% and -3.74%, respectively, on volume that decreased -3.77% from yesterday, which is 149% of the 1-year average. 49 stocks advanced, while 444 declined. Main Board short turnover declined -6.23% from yesterday, which is 121% of the 1-year average, as 14% 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 negative, including value and large caps, though they fell less than growth and small caps. All sectors were negative. The worst-performing sectors were Health Care, which fell -4.25%, Materials, which fell -4.09%, and Communication Services, which fell -3.2%. Household products made up the only positive subsector, while autos, pharmaceuticals, and materials were among the worst-performing. Southbound Stock Connect volumes were high, at 1.5X the average as Mainland investors bought a net $60 million worth of Hong Kong-listed stocks and ETFs, as China Mobile and China Construction Bank were small net buys, and the Hong Kong Tracker ETF and Meituan were large net sells.

Shanghai, Shenzhen, and the STAR Board fell -0.42%, -0.75%, and -0.70%, respectively, on volume that decreased -19.74% from yesterday, which is 94% of the 1-year average. 987 stocks advanced, while 3,981 declined. Low volatility and dividends were among the few positive factors, while value and large caps fell less than growth and small caps. The top-performing sectors were Energy, which gained +0.51%, Financials, which gained +0.16%, and Utilities, which gained +0.03%. Meanwhile, the worst-performing sectors were Materials, which fell -2.11%, Health Care, which fell -0.86%, and Consumer Discretionary, which fell -0.58%. The top-performing subsectors were coal, banking, and aviation. Meanwhile, precious metals, energy equipment, and base metals were among the worst-performing sectors. Northbound Stock Connect volumes were light as foreign investors sold a net $277 million worth of Mainland stocks, including CATL, which was a moderate net buy, CMOC, and CITS. Meanwhile, Foxconn, COSCO Shipping, and Weichai Power were small net sells. CNY and the Asia Dollar Index were off small versus the US dollar. Treasury bond prices fell. Copper and steel were up.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.23 yesterday
• CNY per EUR 7.86 versus 7.86 yesterday
• Yield on 10-Year Government Bond 2.31% versus 2.32% yesterday
• Yield on 10-Year China Development Bank Bond 2.41% versus 2.41% yesterday
• Copper Price +0.47%
• Steel Price +0.16%