Bilibili Reports Q2, Officials Signal More Stimulus, Week In Review

Week in Review

• Asian equities were mostly lower for the week, following global equities south amid a broad selloff in risk assets following China’s softer-than-expected economic releases this week.
• Tencent and JD.com both reported their Q2 results, which were mixed but offered positive surprises in net profits.
• Chindata (CD), one of the largest operators of cloud data centers in China, announced reaching a go-private deal with Bain Capital Monday. CD and Bain had been in talks, but the final deal values the company at +8% more than originally offered.
• A surprise rate cut from the People’s Bank of China (PBOC) confirmed economic support measures are not all talk, but the market’s reaction indicates that investors still want more.

Bilibili Q2 Earnings Overview

Pre-profit short video, gaming, and streaming platform Bilibili released its Q2 results yesterday. While the company beat estimates on revenue, it guided lower on forward-year revenues due to some delays in new game releases and sluggish growth in new businesses. However, like Tencent, advertising came out on top with year-over-year (YoY) growth of +36%, above most estimates.

Non-GAAP (Adjusted)

• Revenue increased +8.1% YoY to RMB 5.3 billion versus an estimated RMB 5.2 billion
• Net Income RMB -1.3 billion
• Net Margin -24.7% versus -40.9% in Q2 2022
• Earnings per Share RMB -3.16

Key News

Asian equities were mostly lower overnight amid a global risk-off atmosphere.

Officials were active overnight in supporting China’s currency and the stock market. They encouraged STAR market-listed companies to buy back stock and mulled cutting stock transaction fees. We are anticipating another round of stimulus after the surprise rate cut this week, which should help shore up markets.

Evergrande Group filed for bankruptcy in New York to protect its US assets while restructuring proceedings are underway in China. The Wall Street Journal also reported on problems at trust company Zhongrong, which is having trouble making payments to customers due to its exposure to real estate developers. The lender may need a government backstop. It is hard to tell how policymakers will handle this, though, as they would like to see more people put money in the stock market, as opposed to trusts.

Yesterday, in the US markets, TCEHY, Tencent’s over-the-counter share class, was down despite Tencent (700 HK) being up in Hong Kong yesterday. Given the same information, US investors sold while Hong Kong investors bought. This highlights the disparity between US and global/Asian investors when it comes to China stocks, likely driven by the media here in the US.

The Hang Seng and Hang Seng Tech indexes both closed lower by -2.05% and -3.63%, respectively, overnight on volume that decreased -6% from yesterday. Short sale turnover decreased -14% from yesterday. Mainland investors sold a net -$533 million worth of Hong Kong stocks via Southbound Stock Connect. The top traded names were broadly lower though energy was flat.

Shanghai, Shenzhen, and the STAR Board all closed lower by -1.00%, -1.72%, and -0.67%, respectively, on volume that was flat from yesterday. Foreign investors sold a net $1.1 billion worth of Mainland stocks overnight via Northbound Stock Connect. Financials and energy dominated the top traded names with mixed performance.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.29 versus 7.29 yesterday
• CNY per EUR 2.92% versus 2.91% yesterday
• Yield on 1-Day Government Bond 1.37% versus 1.37% yesterday
• Yield on 10-Year Government Bond 2.56% versus 2.57% yesterday
• Yield on 10-Year China Development Bank Bond 2.67% versus 2.68% yesterday
• Copper Price +0.28% overnight
• Steel Price -0.11%