JD.com & Tencent Beat On EPS

JD.com Q2 Earnings Overview

Although JD.com did not achieve double-digit revenue growth like its peer Alibaba, the results were fairly strong. CEO Sandy Xu said that the company continues to take advantage of its superior supply chain and infrastructure while noting that the number of merchants on the platform reached a new record in the second quarter. JD.com’s margins tend to be lower as the company is more oriented towards appliances and other big-ticket items, as well as providing logistics services to merchants.

Non-GAAP (Adjusted)

• Revenue increased +7.6% YoY to RMB 288 billion
• Net Income RMB 7 billion
• Net Margin 2.3% versus 2.6% in Q2 2022
• Earnings per Share RMB 5.39 versus an estimated RMB 4.90

Tencent Q2 Earnings Overview

Tencent’s positive results were driven by a rebound in advertising, gaming, and fintech revenue. The overall revenue miss comes from high expectations amid a softer-than-expected consumer rebound so far this year. Advertising revenue jumped significantly, though, due to a low base effect and a change in algorithms. CEO Ma Huateng attributed the better-than-expected earnings per share to rapid advertising growth, cost discipline, and better video monetization. As in Alibaba’s earnings call, cloud and AI were big topics of discussion.

Non-GAAP (Adjusted)

• Revenue increased +11.3% YoY to RMB 149 billion
• Net Income RMB 26 billion
• Net Margin 17.5% versus 12.3% in Q2 2022
• Earnings per Share RMB 3.96 versus an estimated RMB 3.71

Key News

Asian equities were mixed but mostly lower overnight.

Tencent reported after the close in Hong Kong. As such, the internet company’s positive release was unable to lift internet stocks or the Hong Kong market overall, which were both down.

The real estate sector saw some relief overnight. We had news overnight that 20 cities will allow home buyers to refinance. However, new home prices fell -0.23% in July, according to official data, and secondary home prices fell -0.47%, accelerating declines. Yesterday’s interest rate cut will lead to higher home prices if it translates into a cut to the loan prime rate, which has not happened yet.

Mainland investors were net sellers of Hong Kong stocks overnight via Southbound Stock Connect, the first time in over a week that this has been a net sell. They have mostly been buying on weakness. Meanwhile, Northbound saw the 8^th consecutive day of net outflows.

There was more official signaling around the economy yesterday and overnight. State media re-published an optimistic speech made by Xi Jinping in February. The speech was re-published around the same time as the economic data released yesterday. Meanwhile, authorities reportedly advised investment firms to remain invested in the stock market.

The Hang Seng and Hang Seng Tech indexes closed lower by -1.36% and -1.27%, respectively, on volume that increased by +20% from yesterday. Short sale turnover decreased by -6% from yesterday. Mainland investors sold a net $388 million worth of Hong Kong stocks. Consumer discretionary and financials were the worst-performing sectors overnight, while real estate names saw a slight bounce.

Shanghai, Shenzhen, and the STAR Board closed lower by -0.82%, -0.95%, and -1.71%, respectively, overnight on volume that decreased -0.57% from yesterday. Foreign investors sold a net $592 million worth of Mainland stocks overnight. Among the top traded names, financials were mixed while logistics gained.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.30 versus 7.29 yesterday
• CNY per EUR 7.96 versus 7.95 yesterday
• Yield on 1-Day Government Bond 1.35% versus 1.35% yesterday
• Yield on 10-Year Government Bond 2.56% versus 2.58% yesterday
• Yield on 10-Year China Development Bank Bond 2.68% versus 2.68% yesterday
• Copper Price -1.05% overnight
• Steel Price +1.31% overnight