KGI Asia Commentary

2024.04.23 09:47

Hang Seng Index rose 298 points on Monday

the Hang Seng Index expanded to 413 points, rising 287 points or 1.8% today to close at 16,511; the HSCEI rose 84 points or 1.5% to close at 5,831; the HSTECH rose 58 points. or 1.8%, closing at 3,336; the daily market turnover was HK$104.93bn. Chinese technology stocks generally rose today. Tencent (0700) rose 5.5%. Its "Dungeon & Fighter" mobile game will be launched on the 21st of Jun. Alibaba (9988) rose 2.6%. Li Auto (2015) followed Tesla (TSLA.US) in price cuts, and its stock price fell 8.3%.

The "Magnificent 7" is going to dominate the direction of the U.S. market

U.S. stock market has entered the 1Q24 earnings announcement period, and the market focused on the performance of U.S. companies this year amid high interest rates and rebounding energy prices. The "Magnificent 7" have pushed the valuation of U.S. stocks increase in the first quarter and they are expected to drive S&P 500 profits higher in 1Q24. The market expected that the earnings of five companies among the "Magnificent 7" will increase by 64%, including NVIDIA (NVDA.US), Amazon.com (AMZN.US), Meta Platform (META.US), Alphabet (GOOGL.US) and Microsoft (MSFT.US). Excluding them, the combined earnings of the remaining 495 companies in the S&P 500 would have declined 6.0% in the first quarter.

All three major U.S. stock indexes recorded gains. The Nasdaq composite rose 169 points, or 1.1%, to close at 15,451; the S&P 500 rose 43 points, or 0.9%, to close at 5,010; DJIA rose 253 points, or 0.7%, to close at 38,239.

China vehicle battery installation volume expected to remain sluggish

The CPCA expected that the battery installation in EV is still at a low level in this year. At present, the proportion of China's power battery production is constantly decreasing, from 76% at the peak in 2020 to 46% in the first quarter of this year. The main reason for the decline is the overproduction of batteries and the relative pressure on inventory level. In the past three years, the supply of lithium raw has increased significantly due to the increase in production capacity. In addition, Chinese electronics consumer goods Market demand is insufficient. Since February, the price of lithium carbonate has bottomed out but turned on a weak trend. Some upstream companies in the lithium-related industry chain might be under pressure in the future

Hong Kong Stock Connect had a net inflow of HK2.9bn on Monday, of which Tencent (0700) had the largest net inflow, reaching HK$5.9bn; followed by CNOOC (0883).

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Tencent
00700

Tencent will announce its first-quarter results in May. The market expects revenue growth to slow down, mainly dragged by the performance of mobile games. However, the market expects a slight improvement in the second quarter. Looking back at Tencent’s fourth quarter performance, its revenue amounted to RMB155.2bn, increased 7% yoy and 0.4% qoq, slightly missed market expectation. But net profit comes at RMB42.6bn, matched market expectation. In terms of segment business, the value-added service revenue was at RMB69.1bn, fell by 2% yoy. The international market games were higher than expected, while the local market games were lower than expected. The latter was mainly affected by the reduced contribution of "Honor of Kings" and " Peacekeeper Elite ". Meanwhile, the growth rates of the other two business segments were significantly better. Revenue from the online advertising business during the period increased by 21% yoy to RMB29.8bn, which was better than expected, propelled by advertising demand for Video Accounts, as well as the ongoing upgrade of its advertising platform. All categories except for automotive saw a year-on-year increase in advertising spending with the Tencent, with particularly notable growth in Internet services, healthcare and consumer goods categories. Revenue from FinTech and Business Services also increased by 15% to RMB 54.4bn, but was slightly lower than expected. During the period, gross profit margin increased by 7 percentage points year-on-year to 50%, thanks to the revenue structure tilting towards high-margin businesses and cost control. In the medium to long term, Tencent's moat remains, and its gross profit margin expansion is also a catalyst. Target price: $370; Stop- Loss price: $290.

Wen Kit Kenny is a SFC licensed person accredited to KGI Group to carry on regulated activities (for details, please refer to:https://apps.sfc.hk/publicregWeb/indi/AJF244/details). He and/or his associate do not have any financial interest in the recommended issuer or new listing applicant.

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