Mainland China Outperforms, Meituan Earnings Highlight Strong Growth Despite Lockdowns

Asian equities were mixed but mostly lower overnight though Mainland China was an outlier to the upside. Real estate and energy were bright spots in both Hong Kong and Mainland China on positive policy news and OPEC meetings today.

Meituan Q1 Earnings Overview

Meituan’s earnings slightly disappointed on the bottom line, but the top line continues to see healthy growth compared to its peers. The implementation of new pandemic rules for the company’s key business food delivery clearly impacted its bottom line. Nonetheless, the company registered significant growth in its food delivery, in-store, hotel, and travel segments. The fact that the travel segment saw growth in the quarter is somewhat shocking given the lockdowns in China. It is important to note that the company’s margins have improved from both the fourth quarter of 2021 and the first quarter of 2021, but it is still in growth mode.

• Revenue increased +25% year-over-year (YoY) to RMB 46.3 billion.
• Net Income was RMB -4.4 billion
• Net Income Margin was -9.5%
• Earnings per Share (EPS) was RMB -0.80 versus an estimated RMB -0.74

Key News

The Ministry of Industry and Information Technology (MIIT) yesterday officially kicked off rural auto subsidy promotions and the Ministry of Finance extended the purchase tax cut to most vehicles below the RMB 300,000 price point. Meanwhile, Tianjin city will grant an additional quota for 35,000 passenger car licenses this year, while Guangdong province will offer purchase subsidies of RMB 8,000 per vehicle for new energy vehicle (NEV) upgrade purchases until June 30.

We have witnessed a series of favorable policies for the property market since the April 29^th Politburo meeting. The People’s Bank of China (PBOC), China’s central bank, cut the mortgage rate lower limit for a first-time home buyer by 20 basis points (bps) on May 15^th. Meanwhile, more than 30 cities have published documents outlining policies to encourage home sales. Overnight, shares in developers Central China Real Estate and Jiayuan International Group Holdings rose 10%+ after announcing the sale of key assets. The former will sell itself to an entity controlled by Henan Province, according to reports.

Existing easing measures may support growth ahead of the 20th CPC National Congress. However, most analysts believe more policies will be needed to stabilize growth and fuel a stronger rebound, particularly demand-stimulating policies focused on real estate and internet platforms in addition to existing easing measures.

CICC expects offshore China equities to deliver ~3% earnings growth for full-year 2022, with a potential turnaround in the Consumer Services and Internet sectors.

The Hang Seng and Hang Seng Tech indexes closed -1.00% and -0.80%, respectively, on volume that decreased -18% from yesterday. Real estate was the best performing sector while consumer discretionary lagged.

Shanghai, Shenzhen, and the STAR Board closed +0.42%, +0.69%, and +4.68%, respectively, on volume that was only a touch higher than yesterday. Consumer Discretionary and Energy were the best performing sectors in Mainland China while Information Technology lagged.

Last Night’s Exchange Rate, Prices, & Yields

• CNY/USD 6.67 versus 6.69 yesterday
• CNY/EUR 7.14 versus 7.12 yesterday
• Yield on 1-Day Government Bond 1.21% versus 1.20% yesterday
• Yield on 10-Year Government Bond 2.76% versus 2.76% yesterday
• Yield on 10-Year China Development Bank Bond 2.99% versus 2.99% yesterday
• Copper Price +0.70% yesterday