Forensic Analyst

Jason Yap, CFA

Forensic Accounting

JD reported revenue and earnings ahead of consensus expectations but which are a marked decline from the growth seen in Q2 2020 when JD benefitted (aided by its superior supply chain and logistics infrastructure) from an unprecedented e-commerce boom amid pandemic lockdowns. 
On the earnings call, JD's management sought to address regulatory concerns by highlighting its supply chain and logistics capabilities and customer service differentiation, focus on supporting the real economy, and compliance with labour laws, including social insurance contributions - throwing shade at <a href="https://pandaily.com/meituan-to-pay-social-security-for-food-delivery-riders-as-required-by-chinese-government-share-price-plummets/" target="_blank" rel="noopener">Meituan</a>'s recent troubles.
Further, JD highlighted that they have in fact benefitted from the anti-monopoly measures as they saw a return of merchants to JD e-commerce platform formerly bounded by 2 choose 1 policies at competing e-commerce platforms. 
Following the key issues discussed in the Q2 2021 preview (<a href="https://www.smartkarma.com/insights/jd-analysing-earnings-calls-and-disclosures-using-a-forensic-approach" target="_blank" data-smartkarma-citation="insights:55981" rel="noopener">JD - Analysing Earnings Calls and Disclosures Using a Forensic Approach</a>), we update the Q2 2021 financial and operating metrics and highlight relevant observations.

JD reported revenue and earnings ahead of consensus expectations but which are a marked decline from the growth seen in Q2 2020 when JD benefitted (aided by its superior supply chain and logistics infrastructure) from an unprecedented e-commerce boom amid pandemic lockdowns. 
On the earnings call, JD's management sought to address regulatory concerns by highlighting its supply chain and logistics capabilities and customer service differentiation, focus on supporting the real economy, and compliance with labour laws, including social insurance contributions - throwing shade at Meituan's recent troubles.
Further, JD highlighted that they have in fact benefitted from the anti-monopoly measures as they saw a return of merchants to JD e-commerce platform formerly bounded by 2 choose 1 policies at competing e-commerce platforms. 
Following the key issues discussed in the Q2 2021 preview (JD - Analysing Earnings Calls and Disclosures Using a Forensic Approach), we update the Q2 2021 financial and operating metrics and highlight relevant observations. 

JD - Q2 Results Beat Consensus but Lower than Prior Quarter Growth

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

In June, I turned more constructive on <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a> as a rare value play among the online shopping platforms after the stock price fell more than 50% from the peak in March.  Since then, the stock price fell another 26% as the Chinese tech selloff continued even though VIPS faces relatively lower regulatory risk. Considering the continued operational improvements (even though the profits missed consensus expectations, margins remained stable). I believe the stock offers an attractive risk-return proposition.   I find VIPS more attractive at this point because of the following three reasons:<ol>
<li>
Vipshop is subject to relatively lower regulatory risk.  VIPS was penalized just a small fine thus far. VIPS is relatively immune from the new Data Security Law (DSL) to be adopted on 1 September.    </li>
<li>
Vipshop is trading near historic low valuations. VIPS shares trade at 8.6x FY21 and 7.4x FY22 consensus earnings and at the historic low P/E band.  This level is similar to when the company recorded 9% revenue growth and a 3.5% operating margin.  This is a whole new company with substantially higher revenue and profit growth. </li>
<li>
Weak 2Q21 results provide a better entry point. VIPS' 2Q21 showed resilient top-line growth but margins took a hit, indicating the higher cost of acquisitions.  But VIPS is a different company than the weaker 2018-2019 self.      </li>
</ol>

In June, I turned more constructive on Vipshop Holdings (VIPS US) as a rare value play among the online shopping platforms after the stock price fell more than 50% from the peak in March.  Since then, the stock price fell another 26% as the Chinese tech selloff continued even though VIPS faces relatively lower regulatory risk. Considering the continued operational improvements (even though the profits missed consensus expectations, margins remained stable). I believe the stock offers an attractive risk-return proposition.   I find VIPS more attractive at this point because of the following three reasons:

Vipshop is subject to relatively lower regulatory risk.  VIPS was penalized just a small fine thus far. VIPS is relatively immune from the new Data Security Law (DSL) to be adopted on 1 September.    

Vipshop is trading near historic low valuations. VIPS shares trade at 8.6x FY21 and 7.4x FY22 consensus earnings and at the historic low P/E band.  This level is similar to when the company recorded 9% revenue growth and a 3.5% operating margin.  This is a whole new company with substantially higher revenue and profit growth. 

Weak 2Q21 results provide a better entry point. VIPS' 2Q21 showed resilient top-line growth but margins took a hit, indicating the higher cost of acquisitions.  But VIPS is a different company than the weaker 2018-2019 self.      


Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

Most Chinese companies will announce their half yearly results in the next couple of weeks. Some will announce their interim dividends as well.With most of the dividends for 2021 having already gone ex, we see little upside/downside in the HSCEI 2021 dividend futures contract.The HSCEI 2022 dividend futures are another story though. There are a lot of potential events that could change the fair value of the futures. Taking into account all the changes expected to take place by the December rebalance, we see the current dividend futures market trading around 6 index points higher than our fair value. In terms of future events, we find a lot more potential negative catalysts as compared to positive catalysts.We recommend selling the HSCEI 2022 dividend futures at 245 or higher (equivalent to around -25 on the HSCEI 2021/22 dividend steepener) and buying the dividend futures at 230 or lower. These estimates will change as the CNYHKD fx rates move around and some of the catalysts come to pass.

Most Chinese companies will announce their half yearly results in the next couple of weeks. Some will announce their interim dividends as well.With most of the dividends for 2021 having already gone ex, we see little upside/downside in the HSCEI 2021 dividend futures contract.The HSCEI 2022 dividend futures are another story though. There are a lot of potential events that could change the fair value of the futures. Taking into account all the changes expected to take place by the December rebalance, we see the current dividend futures market trading around 6 index points higher than our fair value. In terms of future events, we find a lot more potential negative catalysts as compared to positive catalysts.We recommend selling the HSCEI 2022 dividend futures at 245 or higher (equivalent to around -25 on the HSCEI 2021/22 dividend steepener) and buying the dividend futures at 230 or lower. These estimates will change as the CNYHKD fx rates move around and some of the catalysts come to pass.

HSCEI Dividend Futures: Fair Value & Catalysts Point to Downside for 2022

Quantitative Analysis

<div>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</div><div>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>, <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" data-smartkarma-citation="entities:127:1" rel="noopener">Geely Auto (175 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhou-intl-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10415:1" rel="noopener">Shenzhou Intl Group Holdings (2313 HK)</a>, <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a> and <a href="https://www.smartkarma.com/entities/topsports-international" target="_blank" data-smartkarma-citation="entities:28153:1" rel="noopener">Topsports International (6110 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a>, <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>. Shorts decreased in the Communication Services, Information Technology, Real Estate, Consumer Discretionary and Financials sectors.</div><div>In Japan, stocks increased on <a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP)</a>, <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a>, <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a>, <a href="https://www.smartkarma.com/entities/nagoya-railroad-co-ltd" target="_blank" data-smartkarma-citation="entities:8652:1" rel="noopener">Nagoya Railroad (9048 JP)</a> and <a href="https://www.smartkarma.com/entities/shionogi-co-ltd" target="_blank" data-smartkarma-citation="entities:19535:1" rel="noopener">Shionogi &amp; Co (4507 JP)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/sanken-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:6073:1" rel="noopener">Sanken Electric (6707 JP)</a>, <a href="https://www.smartkarma.com/entities/anritsu-corp" target="_blank" data-smartkarma-citation="entities:3700:1" rel="noopener">Anritsu Corp (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a>, <a href="https://www.smartkarma.com/entities/thk-co-ltd" target="_blank" data-smartkarma-citation="entities:19572:1" rel="noopener">Thk Co Ltd (6481 JP)</a> and <a href="https://www.smartkarma.com/entities/nippon-yusen-kk" target="_blank" data-smartkarma-citation="entities:12285:1" rel="noopener">Nippon Yusen Kk (9101 JP)</a>. Shorts increased in the Real Estate, Industrials, Energy and Consumer Discretionary sectors, and decreased in the Financials sector.</div><div>In Korea, shorts increased on <a href="https://www.smartkarma.com/entities/kumho-petro-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2014:1" rel="noopener">Kumho Petro Chemical (011780 KS)</a>, <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a>, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/ncsoft-corp" target="_blank" data-smartkarma-citation="entities:5169:1" rel="noopener">NCSOFT Corp (036570 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-biologics-co-ltd" target="_blank" data-smartkarma-citation="entities:22932:1" rel="noopener">Samsung Biologics Co., (207940 KS)</a>, <a href="https://www.smartkarma.com/entities/hyundai-rotem-company" target="_blank" data-smartkarma-citation="entities:1554:1" rel="noopener">Hyundai Rotem Company (064350 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a> and <a href="https://www.smartkarma.com/entities/amorepacific-corp" target="_blank" data-smartkarma-citation="entities:20854:1" rel="noopener">Amorepacific Corp (090430 KS)</a>.</div><div>In Taiwan, shorts increased on <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/winbond-electronics-corp" target="_blank" data-smartkarma-citation="entities:9177:1" rel="noopener">Winbond Electronics (2344 TT)</a>, <a href="https://www.smartkarma.com/entities/yang-ming-marine-transport" target="_blank" data-smartkarma-citation="entities:8502:1" rel="noopener">Yang Ming Marine Transport (2609 TT)</a>, <a href="https://www.smartkarma.com/entities/elite-semiconductor-memory-technology" target="_blank" data-smartkarma-citation="entities:9373:1" rel="noopener">Elite Semiconductor Memory Technology (3006 TT)</a> and <a href="https://www.smartkarma.com/entities/taiwan-cement" target="_blank" data-smartkarma-citation="entities:19736:1" rel="noopener">Taiwan Cement (1101 TT)</a> while shorts covered on <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a>, <a href="https://www.smartkarma.com/entities/united-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:6450:1" rel="noopener">United Microelectronics Corp (2303 TT)</a>, <a href="https://www.smartkarma.com/entities/asia-cement-corp" target="_blank" data-smartkarma-citation="entities:15350:1" rel="noopener">Asia Cement (1102 TT)</a> and <a href="https://www.smartkarma.com/entities/fubon-financial-holding-co" target="_blank" data-smartkarma-citation="entities:11869:1" rel="noopener">Fubon Financial Holding Co (2881 TT)</a>.     </div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on HKEX (388 HK), Geely Auto (175 HK), Shenzhou Intl Group Holdings (2313 HK), China Mengniu Dairy Co (2319 HK) and Topsports International (6110 HK) while there was short covering on Kuaishou Technology (1024 HK), Xinyi Solar Holdings (968 HK), AIA Group Ltd (1299 HK), JD.com Inc. (9618 HK) and Alibaba Group (9988 HK). Shorts decreased in the Communication Services, Information Technology, Real Estate, Consumer Discretionary and Financials sectors.In Japan, stocks increased on Yaskawa Electric (6506 JP), ENEOS Holdings (5020 JP), Sharp Corp (6753 JP), Nagoya Railroad (9048 JP) and Shionogi &amp; Co (4507 JP) while there was short covering on Sanken Electric (6707 JP), Anritsu Corp (6754 JP), SBI Holdings (8473 JP), Thk Co Ltd (6481 JP) and Nippon Yusen Kk (9101 JP). Shorts increased in the Real Estate, Industrials, Energy and Consumer Discretionary sectors, and decreased in the Financials sector.In Korea, shorts increased on Kumho Petro Chemical (011780 KS), Hyundai Motor Co (005380 KS), Kakao Corp (035720 KS), NCSOFT Corp (036570 KS) and LG Display (034220 KS) while shorts were covered on Celltrion Inc (068270 KS), Samsung Biologics Co., (207940 KS), Hyundai Rotem Company (064350 KS), LG Household &amp; Health Care (051900 KS) and Amorepacific Corp (090430 KS).In Taiwan, shorts increased on TSMC (2330 TT), Winbond Electronics (2344 TT), Yang Ming Marine Transport (2609 TT), Elite Semiconductor Memory Technology (3006 TT) and Taiwan Cement (1101 TT) while shorts covered on Evergreen Marine Corp (2603 TT), Mediatek Inc (2454 TT), United Microelectronics Corp (2303 TT), Asia Cement (1102 TT) and Fubon Financial Holding Co (2881 TT).     

Asia Shorts: HKEX, Mengniu, Kuaishou, AIA, Sharp, Yaskawa, Kumho, HMC, Celltrion, TSMC, Yang Ming

Coupang's share price fell 8% in the first-day trading session after the company's 2Q21 results were announced.  Does this present an entry opportunity?  No, I believe there is still a downside to Coupang's story. I believe the results validated my concerns highlighted in my previous two reports ( <a href="https://www.smartkarma.com/insights/coupang-cpng-us-crack-in-the-armor" target="_blank" data-smartkarma-citation="insights:51455" rel="noopener">Coupang (CPNG US): Crack in the Armor</a> and <a href="https://www.smartkarma.com/insights/coupang-cpng-us-going-mano-e-mano-with-jd-com" target="_blank" data-smartkarma-citation="insights:49065" rel="noopener">Coupang (CPNG US): Going Mano E Mano with JD.com</a>): <ol>
<li>
Coupang's revenue growth is sharply decelerating towards 60% in 2H21.  In my "Mano e Mano" report, I highlight what happened to high-growth stocks when their growth slowed to 50% - 60% (e.g.,<a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>, <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a>).</li>
<li>
Operating leverage has not been reached yet. In fact, operating losses still doubled even after excluding costs associated with the FC Fire as losses from Eats and Rocket Fresh grocery delivery continues.  </li>
<li>
 Adding new customers is key as revenue per customer growth continues to decelerate. </li>
</ol>Valuations remain uncompelling. Coupang trades at a significant premium to JD.com on EV/revenue and EV/Gross Profit even after considering the difference in growth. The key upside risk is if investors rotate from Chinese platforms to Coupang to mitigate Chinese regulatory risk.  I would note though that Coupang also faces regulatory risk and poor public perception as highlighted in my previous report, <a href="https://www.smartkarma.com/insights/coupang-cpng-us-under-the-regulator-s-microscope" target="_blank" data-smartkarma-citation="insights:54103" rel="noopener">Coupang (CPNG US): Under the Regulator's Microscope.</a>

Coupang's share price fell 8% in the first-day trading session after the company's 2Q21 results were announced.  Does this present an entry opportunity?  No, I believe there is still a downside to Coupang's story. I believe the results validated my concerns highlighted in my previous two reports ( Coupang (CPNG US): Crack in the Armor and Coupang (CPNG US): Going Mano E Mano with JD.com): 

Coupang's revenue growth is sharply decelerating towards 60% in 2H21.  In my "Mano e Mano" report, I highlight what happened to high-growth stocks when their growth slowed to 50% - 60% (e.g.,JD.com Inc (ADR) (JD US), Vipshop Holdings (VIPS US)).

Operating leverage has not been reached yet. In fact, operating losses still doubled even after excluding costs associated with the FC Fire as losses from Eats and Rocket Fresh grocery delivery continues.  

 Adding new customers is key as revenue per customer growth continues to decelerate. 
Valuations remain uncompelling. Coupang trades at a significant premium to JD.com on EV/revenue and EV/Gross Profit even after considering the difference in growth. The key upside risk is if investors rotate from Chinese platforms to Coupang to mitigate Chinese regulatory risk.  I would note though that Coupang also faces regulatory risk and poor public perception as highlighted in my previous report, Coupang (CPNG US): Under the Regulator's Microscope.

Coupang (CPNG US): Heavier Bleeding Takes the Wind Out of Coupang's Sails

China

JD.com, Inc. is an online direct sales company in China. The Company offers a wide selection of products through its website and mobile applications. JD.com sells appliances, computers, digital products, communication products, garments, books, and household items to consumers and vendors.

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JD.com (9618 HK)

JD - Q2 Results Beat Consensus but Lower than Prior Quarter Growth

JD's Q2 21 results beat consensus but lower than prior quarter's growth. Following the previous Q2 Forensic Review, we update latest financial and...

Jason Yap, CFA

Vipshop (VIPS US): Too Cheap to Ignore

Rejuvenated growth slowed in 2Q21, but I offer three reasons why investors should use the recent pullback as an opportunity.

Mitchell Kim

HSCEI Dividend Futures: Fair Value & Catalysts Point to Downside for 2022

We see around 6 points of downside on the HSCEI 2022 dividend futures from the last traded price. There are more negative catalysts for the 2022...

Brian Freitas

Asia Shorts: HKEX, Mengniu, Kuaishou, AIA, Sharp, Yaskawa, Kumho, HMC, Celltrion, TSMC, Yang Ming

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas

Coupang (CPNG US): Heavier Bleeding Takes the Wind Out of Coupang's Sails

Coupang's share price fell 8% after the company's 2Q21 results were announced. Does this present an entry opportunity? I believe there is still a...

Mitchell Kim

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