China Market Update: PDD’s Q1 Is Must See TV

PDD Earnings Overview

E-commerce company PDD Holdings
PDD
(PDD US), which owns shopping apps Pinduoduo and Temu, Q1 2024 financial results absolutely destroyed analyst expectations. I can’t recall EVER seeing a company’s results 2X analyst expectations, which PDD’s adjusted net income and adjusted EPS accomplished. The company isn’t overly verbose, as management is solely focused on the company’s daily operations. The lack of communication with analysts and shareholders likely contributed to the huge disparity between analyst models and the results. It also leads to articles like the Financial Times’ March 5th article that basically accused the company of being a fraud. However, since the article and through yesterday, PDD’s shares are up by +19.88% versus the S&P 500’s gain of only +5.10% and the Nasdaq 100’s gain of +4.73%. Failing to break out Temu’s results makes modeling very difficult. Big picture, management’s business focus allowed them to create Temu, which is focused on overseas users and has become a big driver of its success.

• Revenue increased by +131% to RMB 86.81B ($12.023B) from Q1 2023’s RMB 37.64B and beat analyst expectations of RMB 76.86B.
• Adjusted Net Income increased by +202% to RMB 30.60 ($4.238B) from Q1 2023’s RMB 10.13B and beat analyst expectations of RMB 15.54B.
• Adjusted EPS increased to RMB 20.72 ($2.83) from RMB 6.92 and beat analyst expectations of RMB 10.53

Kuaishou Earnings Overview

Online short video and social platform Kuaishou Technology (1024 HK) announced Q1 financial results following the Hong Kong close that beat analyst expectations. Daily and average users increased year over year, while cross-selling via e-commerce was a noted success. The company spent HKD 1.63B buying back 35mm shares in Q1 2024.

• Revenue increased by +16.6% to RMB 29.41B from RMB 25.22B and beat analyst expectations of RMB 29.04B
• Adjusted Net Income increased by +10,347% to RMB 4.39B from RMB 42mm and beat analyst expectations of RMB 3.20B.
• Adjusted EPS increased to RMB 0.95 from a loss of RMB -0.20 and beat analyst expectations of RMB 0.70.

Key News

Asian equities were mixed overnight in anticipation of Nvidia’s financial results tonight, as Taiwan outperformed and Japan underperformed. Malaysia, Singapore, and Thailand were closed for Vesak Day, which, according to Microsoft’s
MSFT
Copilot, is the most important Buddhist festival.

Hong Kong-listed stocks bounced around the room, though Hang Seng Tech Index managed a small gain after yesterday’s bout of profit-taking. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +0.21%, Alibaba, which fell -1.66%, Meituan, which fell -0.66%, JD.com, which fell -2.27%, energy giant CNOOC, which fell -0.94%. After the close, the strong results from PDD, Kuaishou, and, to a lesser extent, e-commerce player Vipshop (VIPS US) are lifting some US-listed China stocks.

Xpeng gained +12.18%, which lifted EV stocks, including Li Auto, which gained +1.92% despite missing Q1 expectations. Mainland China managed small gains on light news, with solar names higher on new industry guidelines from the China Photovoltaic Industry Association, encouraging M&A and addressing overcapacity and prices below cost.

Real estate was a top-performer in both Mainland China, where it gained +0.65% and Hong Kong, where it gained +0.51%, as Wuhan became the first city to cut the down payment ratio to 15% with a mortgage interest rate of 3.35% according to Mainland media news. Hefei City also announced the same cuts.

Similar headlines should be coming following the PBOC’s new policy support last Friday. If I stood on the corner giving away shares of real estate developers’ bonds, no one would take them here in NYC. There was literally no interest from investors, though I added to my position Monday. The National Bureau of Statistics reported April unemployment data for 16 to 24-year-olds, excluding high school/college students, was 14.7%. The reappearance of China’s unemployment data is not newsworthy as the National Bureau of Statistics (NBS) felt including students as “unemployed” was providing inaccurate data. China’s tit-for-tat tariffs on US and EU auto imports are a non-event for the former as GM and Tesla
TSLA
build their China cars in China. I suspect similar for German autos, though I need to dive in further.

The Hang Seng and Hang Seng Tech indexes diverged to close -0.13% and +0.30%, respectively, on volume that fell -15.89% from yesterday, which is 125% of the 1-year average. 284 stocks advanced, while 193 declined. Main Board short turnover declined -27.87% from yesterday, which is 87% of the 1-year average, as 12% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Value and small caps outperformed growth and large caps. The top-performing sectors were Technology, which gained +3.39%, Utilities, which gained +0.52%, and Real Estate, which gained +0.52%. Meanwhile, the top-performing sectors were Materials, which fell -1.57%, Consumer Discretionary, which fell -1.01%, and Energy, which fell -0.72%. The top-performing subsectors were semiconductors, technical hardware, and transportation. Meanwhile, retail, materials, and energy providers were among the worst-performing. Southbound Stock Connect volumes were high as Mainland investors bought $311 million worth of Hong Kong-listed stocks and ETFs, including China Construction Bank, which was a large net buy, and Tencent, which was a moderate net buy, and Xpeng, which was a large net buy. Meanwhile, Meituan and Xiaomi were moderate net sales.

Shanghai, Shenzhen, and the STAR Board gained +0.02%, +0.24%, and +0.90%, respectively, on volume that increased +3.95% from yesterday, which is 98% of the 1-year average. 2,930 stocks advanced, while 1,925 declined. Value and small caps outperformed growth and large caps. The top-performing sectors were Technology, which gained +1.29%, Real Estate, which gained +0.61%, and Industrials, which gained +0.45%. Meanwhile, the worst-performing sectors were Consumer Staples, which fell -0.77%, Consumer Discretionary, which fell -0.74%, and Health Care, which fell -0.61%. The top-performing subsectors were power generation equipment, education, and business services. Meanwhile, motorcycles, marine industry, shipping, and energy equipment were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors bought a net $662 million worth of Mainland stocks, including CATL and Zijin Mining, which were large net buys. Meanwhile, BYD was a small net sell. CNY and the Asia Dollar Index were off small versus the US dollar. Treasury bonds rallied. Copper fell while steel gained.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.23 yesterday
• CNY per EUR 7.85 versus 7.86 yesterday
• Yield on 10-Year Government Bond 2.31% versus 2.31% yesterday
• Yield on 10-Year China Development Bank Bond 2.41% versus 2.41% yesterday
• Copper Price -0.54%
• Steel Price +1.34%