JD Q2 Beats as Bottom Line Recovers
6 Min. Read Time
Key News
Asian equities were mixed on light summer volumes as Japan, Korea, and Taiwan rode the US-led AI rebound, while onshore China's Science and Technology (STAR) Board fell from an intra-day high of +2.64% to close lower by -1.11%.
China's AI supply chain's sudden decline is a head-scratcher, as mid-morning news of DeepSeek's launch of a new model, V4-Pro-0813, should have provided a further tailwind, especially given the strength seen in regional peers. Mainland China's weakness, on higher volume, was concentrated in three AI supply chain sub-sectors: semiconductors, semiconductor equipment, and electronic equipment, though communication equipment bucked the trend, as strong financial results from optical communications maker Lumentum lifted China-based peer Innolight.
Technology hardware was mixed, following outstanding results from the Hong Kong-listed Lenovo, which gained +20.18%.
Non-ferrous metals were smoked in both Hong Kong and Mainland China. Meanwhile, autos underperformed on light August sales. Electric vehicles and hybrids climbed to 61.6% of the 317,000 cars sold in the first week of August, which is -22% YoY.
Tencent fell -4.46% following yesterday's second quarter financial results, despite Mainland investors buying $715 million (HKD 5.62 billion) worth of its stock via Southbound Stock Connect. Tencent's volumes were very high in an otherwise very quiet volume day in Hong Kong. Z.ai gained +9.02% after MSCI announced it will be included in its MSCI China Index at the end of the month. Internet stocks were quiet and mixed in advance of earnings. Alibaba fell -0.57% on light volumes. Banks held up, which gave the day a value bias. It's a summer day, so I'll keep it brief and concise.
MSCI's pro forma index review for the month-end index rebalance was released last night. The US' weight in the All Country World Index will be 63.1%. Within EM, the weights remain about the same, with Taiwan 26.9%, China 21.5%, Korea 19.6%, and India 11.9%. I don't have the GDP-weighted Emerging Market Index's pro-forma yet, but, as of July 31st, China was 46%, India was 10%, Brazil was 5.7%, and South Korea was 4.58%. Hmmmm.
I was up early to take the first nibble out of the vacation weight gain. It was hard not to notice that the early morning financial TV network coverage didn't mention either Hong Kong or Mainland China as a "Major Asia Market" (Japan, Korea & Taiwan). Pretty good sentiment indicators, in my opinion.
JD.com Q2 Earnings Overview
JD.com (9618 HK, JD US) reported Q2 financial results after the Hong Kong close today. Yes, revenue declined year-over-year (YoY), which the company attributed to a high base effect, though subsidies were likely a factor as well. I believe investors' focus should be on the vastly improved bottom line. The company said the positive YoY gain in adjusted net income and adjusted EPS was "primarily driven by continued loss reduction at JD Food Delivery," i.e., the vicious restaurant delivery war that has wreaked havoc on the bottom lines of JD and Meituan. The company also bought back 2.5% of all stock outstanding. Thank you, management!
JD's US listing is off pre-market, though I suspect algorithms are focused on the top-line revenue decline instead of the bottom-line improvement. An improving EPS from Chinese consumer discretionary stocks would be a long-awaited improvement for investors.
% changes are year-over-year (YoY) unless otherwise indicated
- Revenue -2.9% YoY to RMB 346.4B (US $51.1B) from RMB 356.7B
- Adjusted Net Income +RMB 8.9B ($1.3B) from RMB 7.4B
- Non-GAAP Margin increased to 2.6% from 2.1%
- Adjusted EPS RMB 6.29 ($0.93)
- Q2 buyback was 69.9 million Class A ordinary shares (equivalent to 34.9 million ADSs) costing US $1.0 billion
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -0.2% |
| Hang Seng Tech | HSTECH Index | 0.3% |
| Hong Kong Turnover | HKTurn Index | 21.6% |
| Hong Kong Short Sale Turnover | HKSST Index | 14.5% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 0.2 |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 468.32 |
| China (Shanghai) | SHCOMP Index | -0.5% |
| China (Shenzhen) | SZCOMP Index | -1% |
| China (STAR Board) | Star50 Index | -1.1% |
| Mainland Turnover | .chturn Index | 18.8% |
| Japan | NKY Index | 1.2% |
| India | SENSEX Index | 0.1% |
| Indonesia | JCI Index | -1.1% |
| Malaysia | FBMKLCI Index | -0.4% |
| Pakistan | KSE100 Index | -0.1% |
| Philippines | PCOMP Index | -1.2% |
| South Korea | KOSPI Index | 3.6% |
| Taiwan | TWSE Index | 1.1% |
| Thailand | SET Index | 0.1% |
| Singapore | STI Index | 0% |
| Australia | AS51 Index | -0.2% |
| Vietnam | VNINDEX Index | -0.0005 |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 144 | 101 |
| Advancing Stocks | 148 | 1610 |
| Declining Stocks | 371 | 3397 |
| Outperforming Factors | ESG Score | Multi-Factor |
| Underperforming Factors | Quality, Dividend Yield, Buyback | Momentum, Buyback, EPS Revision |
| Top Sectors | Tech, Healthcare, Financials | Utilities, Staples, Financials |
| Bottom Sectors | Materials, Communication, Real Estate | Materials, Communication, Real Estate |
| Top Subsectors | Consumer Durables/Apparel, Tech Hardware, Banks | Biotech, Computer Hardware, Liquor |
| Bottom Subsectors | Non Ferrous Metal, Steel, Software | Precious Metals, Fertilizer/Pesticide, Base Metals |
| Southbound Connect Buys | Tencent (Very Large), Hua Hong Semi, KB Laminates, SMIC (Moderate), Gigadevice, Minimax, YOFC (Small) | |
| Southbound Connect Sells | Z AI (Large), Lenovo (Moderate) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -0.96 |
| Communication Services | 11 | -3.59 |
| Consumer Discretionary | 28 | -0.63 |
| Consumer Staples | 13 | 0.11 |
| Energy | 6 | -1.01 |
| Financials | 25 | 0.72 |
| Health Care | 16 | 0.75 |
| Industrials | 22 | -1.22 |
| Information Technology | 12 | 2.78 |
| Materials | 14 | -5.05 |
| Real Estate | 7 | -2.48 |
| Utilities | 11 | -0.54 |
| Mainland China Listed | 386 | -0.71 |
| Communication Services | 8 | -1.95 |
| Consumer Discretionary | 26 | -0.96 |
| Consumer Staples | 19 | 0.62 |
| Energy | 12 | -0.42 |
| Financials | 64 | 0.46 |
| Health Care | 31 | 0.36 |
| Industrials | 58 | -0.65 |
| Information Technology | 95 | -0.96 |
| Materials | 52 | -3.26 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -4.5 |
| Alibaba HK | 9988 HK Equity | -0.6 |
| JD.com HK | 9618 HK Equity | 0 |
| NetEase HK | 9999 HK Equity | -0.4 |
| Yum China HK | 9987 HK Equity | 0.3 |
| Baozun HK | 9991 HK Equity | -2.6 |
| Baidu HK | 9888 HK Equity | 1 |
| Autohome HK | 2518 HK Equity | -0.1 |
| Bilibili HK | 9626 HK Equity | -2.7 |
| Trip.com HK | 9961 HK Equity | -1.7 |
| EDU HK | 9901 HK Equity | -2.6 |
| Xpeng HK | 9868 HK Equity | -0.8 |
| Weibo HK | 9898 HK Equity | -0.6 |
| Li Auto HK | 2015 HK Equity | -2.4 |
| Nio Auto HK | 9866 HK Equity | -1 |
| Zhihu HK | 2390 HK Equity | -1.7 |
| KE HK | 2423 HK Equity | -2 |
| Tencent Music Entertainment HK | 1698 HK Equity | -2.3 |
| Meituan HK | 3690 HK Equity | -0.4 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | -4.5 |
| LENOVO GROUP LTD | 20.2 |
| Z AI CO LTD | -4.8 |
| ALIBABA GROUP HOLDING LTD | -0.6 |
| MINIMAX GROUP INC | 1.7 |
| SEMICONDUCTOR MANUFACTURI-H | 3.2 |
| HUA HONG GRACE SEMICONDUCTOR | -3.1 |
| KINGBOARD LAMINATES HLDG LTD | -2.1 |
| YANGTZE OPTICAL FIBRE AND-H | 7.5 |
| XIAOMI CORP-CLASS B | -3.5 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 2.6 |
| CXMT CORP-A | -1.8 |
| GIGADEVICE SEMICONDUCTO-CL A | -0.2 |
| EOPTOLINK TECHNOLOGY INC L-A | 3.9 |
| SUZHOU DONGSHAN PRECISION-A | 4.3 |
| SUZHOU TFC OPTICAL COMMUNI-A | 7.9 |
| UNISPLENDOUR CORP LTD-A | 7 |
| CAMBRICON TECHNOLOGIES-A | -3 |
| VICTORY GIANT TECHNOLOGY -A | 1.8 |
| GUANGDONG FENGHUA ADVANCED-A | 6.7 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.74 versus 6.75 yesterday
- CNY per EUR 7.78 versus 7.77 yesterday
- Yield on 10-Year Government Bond 1.70% versus 1.71% yesterday
- Yield on 10-Year China Development Bank Bond 1.76% versus 1.76%
- Copper Price -0.32%
- Steel Price -0.27%
