Baidu Busts A Move With Strong Q4 Results And A Buyback, Peace Proposal Coming?

Key News

Asian equity markets were ALL down after US equity markets fell and Treasury yields rose yesterday as risk markets are taking the Fed tightening seriously.

The Asia dollar index fell -0.09% and China’s renminbi CNY fell -0.23% versus the US dollar overnight. Remarkably, China and Hong Kong “outperformed” because they didn’t fall more than 1% like most Asian equity indices. Yesterday, US China ADRs fell significantly on news reports that JD.com will launch a RMB 10 billion subsidy/discount program to attract buyers away from its competitor Pinduoduo, sending the space lower on fears of pyrrhic price war. The company hasn’t confirmed nor denied the story due to its pre-financial result quiet period. The reaction seems exaggerated by the risk off/US equity sell off and continued political rhetoric as potential buyers stood on the sidelines. Clearly investors are giving the plan a thumbs down, though we know the founder/CEO Richard Li has spoken to the company falling behind its rivals.

Too bad the buyers didn’t step in as Baidu’s strong financial results are lifting the internet space this morning as Hong Kong internet stocks fell overnight though not nearly as much as US China ADRs. Hong Kong’s most heavily traded, with yesterday’s US ADR move in parenthesis, were Tencent -1.6% (-3.39%), Alibaba HK -2.36% (-4.91%), HSBC +5.3%, Meituan +0.14%, and JD.com HK -3% (-11.03%). US ADR investors were far more negative than their Asian equivalents which isn’t surprising considering the constant negative media related to China. Mainland investors were less concerned about the US equity drop with stocks off slightly. After providing yesterday’s chart of Northbound Stock Connect, foreign investors sold -$686 million of Mainland stocks today on a light news day. Remember Alibaba, NetEase, and Vipshop report tomorrow.

Baidu (BIDU US, 9888 HK) released Q4 financial results this morning. The company did a great job keeping costs down in a challenging quarter as total costs/expenses declined to RMB 28.484 billion versus RMB 31.13 billion in Q4 2021. Baidu’s core search business is dependent on advertisers who have been very conservative due to zero COVID the last two years and then COVID’s Q4 spread across China. Founder/CEO Robin Li ran the call speaking to the potential of ERNIER Bot’s first mover advantage and opportunity to assist its search business. Baidu has done well with its focus on the Apollo autonomous driving system and rollout of robo-taxis. Free cash flow remains strong RMB 17.884 billion ($2.593 billion) allowing the company to expand its buyback program by US $5 billion through 2025. The Hong Kong Stock Exchange’s rules doesn’t allow companies to give explicit guidance though the company was positive on their outlook.

Revenue was off very slightly YoY at RMB 33.077 billion ($4.796 billion) versus analyst expectations of RMB 32.06 billion and Q4 2021’s RMB 33.088 billion.

Adjusted Net Income increased to RMB 5.371B (US $779 million) versus analyst expectations of RMB 4.737 billion and Q4 2021’s RMB 4.625 billion.

Adjusted EPS increased to RMB 15.25 (US $2.21) versus analyst expectations of RMB 13.88 and Q4 2021’s RMB 11.60.

Not garnering any attention in Western media (at least not that I’ve seen), China’s Foreign Minister Qin Gang unveiled the “Global Security Initiative Concept Paper” followed by comments that “China will release a position document on seeking political settlement of the Ukraine crisis.” China’s top diplomat Wang Yi is visiting Russia following the Munich Security Conference. Maybe he is there to broker a peace deal? President Xi is expected to give a speech Friday that was hinted at a peace proposal. So much negativity, black swans, and left tails. What if we get a right tail? Who is prepared for that?

The Hang Seng and Hang Seng Tech fell -0.51% and -1.38% respectively on volume +3.08% from yesterday which is 91% of the 1-year average. 117 stocks advanced while 372 stocks declined. Main Board short turnover increased +20.37% from yesterday which is 86% of the 1-year average as 16% of turnover was short turnover. Value factors outperformed growth factors while large caps edged out small caps. All sectors were negative as utilities fell -1.75%, discretionary closed lower -1.6%, and financials were down -1.41%. Top sub-sectors were food/beverages/tobacco and banks while food, retailing and media were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $93 million of Hong Kong stocks with Kuaishou a small net buy, Tencent, and Meituan were a small net sell.

Shanghai, Shenzhen, and STAR Board fell -0.47%, -0.27%, and -0.61% respectively on volume -15.08% from yesterday which is 86% of the 1-year average. 2,117 stocks advanced while 2,459 stocks declined. Value and growth factors were mixed as small caps “outperformed” large caps. All sectors were down with communication down -2.14%, materials down -1.33%, and real estate down -1.25%. Top sub-sectors were motorcycles, household products, and paper industry while telecom, insurance, and restaurants were the worst. Northbound Stock Connect volumes were moderate/light as foreign investors sold -$685 million of Mainland stocks. CNY fell -0.23% to 6.89, Treasury bonds were flat while copper and steel rallied.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.89 versus 6.87 yesterday
• CNY per EUR 7.33 versus 7.32 yesterday
• Yield on 10-Year Government Bond 2.91% versus 2.91% yesterday
• Yield on 10-Year China Development Bank Bond 3.09% versus 3.09% yesterday
• Copper Price +0.74% overnight
• Steel Price +0.31% overnight