Trip.com Q2 Earnings Review
Trip.com reported Q2 financial results after the US market close yesterday that beat analyst expectations on revenue, adjusted net income, and adjusted earnings per share (EPS). Analysts had expected adjusted net income and adjusted EPS to decline year-over-year (YoY), but they increased, propelling the company's Hong Kong listing to rise +7.71% overnight. The company announced a $5 billion stock buyback, which accounts for 12% of the market cap.
% Changes are YoY
- Revenue increased +16% to RMB 14.8B ($2.1 billion) from RMB 12.8 billion versus analyst expectations of RMB 14.7 billion
- Adjusted Net Income RMB 5 billion ($699 million) versus analyst expectations of RMB 4.35 billion
- Adjusted EPS RMB 7.2 ($1.0) from RMB 7.3 versus analyst expectations of RMB 6.2
Key News
Asian equities were mixed overnight despite the weakening US dollar. Mainland China outperformed, while Hong Kong, Taiwan, and the Philippines underperformed.
There were precisely zero headlines about the RMB appreciating to 7.13 per the US dollar. This is good for China stocks, including the US listings, as their underlying businesses are in China. Hence, the underlying companies are worth more due to the currency's appreciation.
Mainland China had a choppy session as it bounced around the room before ripping higher in afternoon trading. The 22 most heavily traded stocks by value ended with gains. Nine of them gained more than 10%. Five of China's seven most heavily-traded stocks gained more than 10%, led by Semiconductor Manufacturing (SMIC), which gained +17.45%, China Northern Rare Earth, which gained +5.01%, and Cambricon Technology, which gained +15.73%. China's government’s AI push, which was announced on Tuesday, has led to absolute rips in multiple semiconductor stocks, along with technology hardware and software. The semiconductor-heavy STAR Board, where Cambricon is listed and explains today’s headline based on the Coldplay song, ripped +7.23% overnight!
Meituan’s lousy results hit its Hong Kong listing hard today, as shares fell -12.55%, due to JD.com entering the restaurant delivery business and deciding to operate at a loss to gain customers. JD.com fell -5.03% overnight, while Alibaba fell -4.69%, ahead of tomorrow's post-Hong Kong close results, as its Ele.me restaurant delivery unit is ~10% of revenue.
The Hang Seng Index fell 202 index points due to Meituan’s decline, which contributed -127 index points, and Alibaba's downdraft, which contributed -94 index points. My point is to subtract out those three stocks, and Hong Kong would have been higher: Horizon Robotics (9660 HK) gained +14.74% post results, along with energy giant CNOOC, which gained +4.08%. Mainland China-based investors sold a healthy net $2.62 billion worth of Hong Kong-listed stocks overnight via Southbound Stock Connect.
The State Council and the Central Committee of the Communist Party of China announced support for urban development and “mega cities” by “creating a main engine for high-quality development” by supporting tech and scientific innovation. Issue #1 in China is real estate, though the anti-involution campaign should pivot to restaurant delivery IMO.
Our friend David of ACG Analytics, a DC-based political research firm we utilize, asked me about ETF flows. Despite the strong performance on an absolute and relative basis, US-listed China equity ETFs are seeing a net outflow year-to-date of $434 million. Knock on wood, we’ve bucked the trend. European-listed China equity ETFs have received $4.29 billion worth of net inflows.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.13 versus 7.16 yesterday
- CNY per EUR 8.31 versus 8.29 yesterday
- Yield on 10-Year Government Bond 1.85% versus 1.80% yesterday
- Yield on 10-Year China Development Bank Bond 1.89% versus 1.86% yesterday
- Copper Price -0.67%
- Steel Price +0.13%