(Bloomberg) -- Kuaishou Technology, ByteDance’s rival in China, may have been overlooked for Hang Seng Index inclusion last Friday but it still has plenty of chance as there are a number of places up for grabs before the benchmark membership expand to 80 as targeted.
This week, the livestreaming firm, along with several of China’s biggest technology firms including Meituan and Xiaomi, will need to show how resilient it is in the face of uncertain economic outlook amid the country’s strict Covid policy when it announces quarterly results.
It hasn’t been a great earnings season for Chinese companies overall. Of the more than 500 MSCI China Index companies that have reported quarterly results so far, nearly two-thirds of them missed estimates, according to Bloomberg Intelligence analysts Sufianti and Kumar Gautam. Indian companies fared slightly better, with 53.6% of companies on MSCI’s India gauge missing estimates.
Yet earnings in the two biggest emerging markets may improve next year, with analyst consensus predicting firms in both countries to post double-digit EPS growth, BI equity strategist Marvin Chen said in a note. “A key difference is that India’s growth appears structural, with 2023’s earnings building upon this year,” Chen said. “China is largely in a rebound after earnings contracted this year due to lockdowns related to China’s Covid Zero policy.”
Still, it remains unclear at what pace China might ease its virus restrictions, and investors will be eagerly awaiting any signs of relaxation that could drive earnings recovery.
- With the region’s earnings season winding down, this will be our last Asia Earnings Week Ahead this year. We’ll resume when reports ramp up again in January.
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- For more on what’s going on in other regions, see the US Earnings Week Ahead or the EMEA Earnings Week Ahead, and see the ESG Stock Watch for a selection of the environmental, social and governance themes that may come up on earnings calls.
Highlights to look for this week:
Tuesday: Baidu (BIDU US) will report after the market close in Hong Kong. Its third-quarter revenue will remain flattish but may see year-on-year expansion in the fourth quarter, according to Bloomberg consensus estimates. Baidu enjoyed a sustained recovery in its core advertisement business during summer but it began to stall as Covid cases soared with Chinese authorities imposing restrictions, according to CCB International. With China announcing a significant calibration of the Covid Zero policy, investors are assessing the implication on advertising sentiment and cloud project delivery by the company. US audit officials completed the first round of on-site inspections ahead of schedule this month and any development in the investigation may affect US-listed Chinese companies including Baidu.
- Uncertain outlook: Kuaishou (1024 HK) is set to unveil third-quarter results after market close. Bloomberg consensus estimates show a 10% increase in its third-quarter revenue from a year earlier, with income from live streaming and online marketing services rising. Operating loss is also expected to narrow by nearly 55% year-on-year. Yet, Kuaishou’s exposure to advertising could be a risk given the slow recovery in the overall advertising market, analysts at Morgan Stanley and CICC wrote. Growth is predicted to decelerate in 2023, with Morgan Stanley slashing its price target to HK$60, citing China’s gradual reopening process. Shares of Kuaishou dropped to a historic low at the end of October.
Wednesday: Xiaomi (1810 HK) plans to report results after market close. Third-quarter revenue is expected to drop 10% from a year earlier after a 20% decline last quarter, according to Bloomberg Consensus estimates. Xiaomi, which was once China’s largest smartphone brand, has been hit hard by worldwide headwinds like rising interest rates and inflation. The global smartphone market had its worst third quarter since 2014 and the downtrend in demand may continue for a further nine months, research firm Canalys said. The market may have to further revise down 2023 forecasts with escalating recession concerns, which could be near-term pressure for Xiaomi, according to Citigroup. The company also faces fierce domestic competition and disputes in the high-growth Indian market. Any updates on its electric vehicles business will also be in focus.
Thursday: Chow Tai Fook (1929 HK), one of the world’s largest jewelers by market value, will announce first-half earnings after market close. Results are expected to have taken a hit amid Covid outbreaks in Greater China. Jewelry-buying trips to Hong Kong might lose their allure as its items have become more broadly available on mainland China. The firm could use earnings in Hong Kong and Macau to expand its mainland business this fiscal year through March, Bloomberg Intelligence said in a note in September. Any mentions of its rental expenses and store footprint would be worth noting as the city’s property downturn has dragged on.
Friday: Meituan (3690 HK) is due to report earnings after market close. It is one of the few Chinese Internet companies that managed to expand at a double-digit pace despite macroeconomic headwinds. Consensus estimate shows 22% sequential growth in third-quarter revenue despite recent surge in Covid infections across the country. The market is watching for comments after China’s top leaders reinforced the need to stick with the Covid Zero policy with more targeted restrictions. Quarterly losses may narrow gradually because of new initiatives and cash flow may improve due to a pickup in transactions for its core food-delivery service with a lean cost model, according to Bloomberg Intelligence. The Chinese food delivery titan combined its food delivery, hotels and other commerce businesses into a new division it dubbed “core local commerce” last quarter, which is expected to grow 26% sequentially in the coming earnings. The firm is also mulling an expansion into Hong Kong and international markets, according to people familiar with the matter.
(Updates top graphs with Kuaishou.)
©2022 Bloomberg L.P.
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