Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Results Deteriorating As Distractions Mount: Tencent Holdings’ (700.HK) [Tencent] 2Q21 GAAP net income declined CNY 5.2 bn (10.8%) on a linked quarter basis – and were of poor quality. Results were challenged by the following: cost of revenue increase; operating expense increase; losses in associates; higher impairment charges; and weaker online games. Were it not for the artificially lower tax rate, results would have been even more challenged; and     *Elephants In The Room: Mainland China's crackdown on capital markets has rapidly expanded under the broad narrative of "financial stability". We have already witnessed fines at Tencent, new user WeChat suspensions,  and Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou. Further, there no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. Its pretty surprising that Tencent refuses to discuss these matters.

*Results Deteriorating As Distractions Mount: Tencent Holdings’ (700.HK) [Tencent] 2Q21 GAAP net income declined CNY 5.2 bn (10.8%) on a linked quarter basis – and were of poor quality. Results were challenged by the following: cost of revenue increase; operating expense increase; losses in associates; higher impairment charges; and weaker online games. Were it not for the artificially lower tax rate, results would have been even more challenged; and     *Elephants In The Room: Mainland China's crackdown on capital markets has rapidly expanded under the broad narrative of "financial stability". We have already witnessed fines at Tencent, new user WeChat suspensions,  and Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou. Further, there no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. Its pretty surprising that Tencent refuses to discuss these matters.   

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

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

In Q1 2021, <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> reported strong topline growth (+39% yoy) that exceeded consensus expectations mainly due to strong user growth (+29% yoy), with more than 500 million reported Annual Active Users (AAU).  Out of which, 80% new active users came from lower tier cities, which reflects JD's strategy shift to target the fast growing lower tier markets (下沉市场) through its newly formed Jingxi business group. 
As JD continues its transition from the largest retail company in China (by revenue) to a supply chain-based technology and service provider, we can likely expect a moderated revenue growth for its core JD Retail business and incremental investments in New Initiatives and its logistics and fulfillment capabilities, with a key focus on Jingxi.
In Q1 2021, JD announced that Jingxi related businesses, will be carved out from JD Retail and reported under the New Businesses segment.  Having grown to a certain size, the change in reporting segment is not a jingxi or surprise. Instead, JD has been telegraphing the growing role of Jingxi and, more broadly, the moderating pace of growth of its core businesses in mature markets during recent quarter-end earnings calls and in related disclosures.   
This article discusses how to analyse earnings calls and disclosures using a forensic approach, with a view to gain relevant insights on JD's future prospects.

In Q1 2021, JD.com Inc (ADR) (JD US) reported strong topline growth (+39% yoy) that exceeded consensus expectations mainly due to strong user growth (+29% yoy), with more than 500 million reported Annual Active Users (AAU).  Out of which, 80% new active users came from lower tier cities, which reflects JD's strategy shift to target the fast growing lower tier markets (下沉市场) through its newly formed Jingxi business group. 
As JD continues its transition from the largest retail company in China (by revenue) to a supply chain-based technology and service provider, we can likely expect a moderated revenue growth for its core JD Retail business and incremental investments in New Initiatives and its logistics and fulfillment capabilities, with a key focus on Jingxi.
In Q1 2021, JD announced that Jingxi related businesses, will be carved out from JD Retail and reported under the New Businesses segment.  Having grown to a certain size, the change in reporting segment is not a jingxi or surprise. Instead, JD has been telegraphing the growing role of Jingxi and, more broadly, the moderating pace of growth of its core businesses in mature markets during recent quarter-end earnings calls and in related disclosures.   
This article discusses how to analyse earnings calls and disclosures using a forensic approach, with a view to gain relevant insights on JD's future prospects. 

JD - Analysing Earnings Calls and Disclosures Using a Forensic Approach

Kuaishou Technology / Forensic Accounting

<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> is a video creation and streaming mobile application that has a huge userbase in Mainland China.  For the 3 months ended 31 March 2021, its Monthly Active Users (MAU), Daily Active Users (DAU) and Average Daily Time Spent per User totalled 520 million, 295 million and 99.3 minutes respectively, mainly derived from Mainland China. 
While its valuation has retreated to more reasonable levels in recent months, there are still considerable uncertainties about its revenue and profitability prospects, particularly in the wake of tightening regulations in Mainland China and execution difficulties in overseas expansion.
Further, Kuaishou's catchup story to Bytedance is not playing out as expected due to user growth underperformance and average user time spent peaking in Q1 2021.  We discuss some of the underlying issues in the following sections and highlight key factors to watch in its upcoming Q2 2021 results release (expected on 23 August 2021).

Kuaishou Technology (1024 HK) is a video creation and streaming mobile application that has a huge userbase in Mainland China.  For the 3 months ended 31 March 2021, its Monthly Active Users (MAU), Daily Active Users (DAU) and Average Daily Time Spent per User totalled 520 million, 295 million and 99.3 minutes respectively, mainly derived from Mainland China. 
While its valuation has retreated to more reasonable levels in recent months, there are still considerable uncertainties about its revenue and profitability prospects, particularly in the wake of tightening regulations in Mainland China and execution difficulties in overseas expansion.
Further, Kuaishou's catchup story to Bytedance is not playing out as expected due to user growth underperformance and average user time spent peaking in Q1 2021.  We discuss some of the underlying issues in the following sections and highlight key factors to watch in its upcoming Q2 2021 results release (expected on 23 August 2021). 

Kuaishou - Q2 2021 Preview Through a Forensic Lens

In the wake of Alibaba’s below consensus earnings, PDD’s upcoming Q2 2021 results would be informative for investors to ascertain whether there is a sector wide slowdown or PDD benefits as Alibaba relinquishes market share in response to anti-monopoly pressures.
While PDD reported a respectable Q1 2021 performance, there are early signs of a financial and operational performance slowdown if we examine the sequential quarter on quarter financial and operating metrics and operating cashflows, and Q2 2021 results can confirm (or debunk) these preliminarily observed trends.  Further, Q2 2021 results will provide insight as to whether PDD’s asset-heavy strategy for Duo Duo Grocery (DDG) and logistics and fulfilment infrastructure yields any tangible results or instead, becomes a longer term drag on earnings.
We examine these issues and highlight key factors to watch in PDD's upcoming Q2 2021 results.

In the wake of Alibaba’s below consensus earnings, PDD’s upcoming Q2 2021 results would be informative for investors to ascertain whether there is a sector wide slowdown or PDD benefits as Alibaba relinquishes market share in response to anti-monopoly pressures.
While PDD reported a respectable Q1 2021 performance, there are early signs of a financial and operational performance slowdown if we examine the sequential quarter on quarter financial and operating metrics and operating cashflows, and Q2 2021 results can confirm (or debunk) these preliminarily observed trends.  Further, Q2 2021 results will provide insight as to whether PDD’s asset-heavy strategy for Duo Duo Grocery (DDG) and logistics and fulfilment infrastructure yields any tangible results or instead, becomes a longer term drag on earnings.
We examine these issues and highlight key factors to watch in PDD's upcoming Q2 2021 results.  

Pinduoduo - Q2 2021 Preview Through a Forensic Lens

China

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

PDD Holdings (PDD US)

Tencent Holdings – Pig Piling

TENCENT: Tencent's QOQ 2Q21 income declined 10.8% due to cost of revenue and opex increases; associate losses; higher impairments; and weak online...

Thomas J. Monaco

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

JD - Analysing Earnings Calls and Disclosures Using a Forensic Approach

JD has at times revised disclosures possibly to conceal growth or margin weakness. We discuss how to analyse earnings calls and disclosures using a...

Jason Yap, CFA

Kuaishou - Q2 2021 Preview Through a Forensic Lens

Kuaishou's revenue and profitability prospects remain uncertain, particularly in the wake of stricter regulations and overseas expansion hurdles....

Jason Yap, CFA

Pinduoduo - Q2 2021 Preview Through a Forensic Lens

PDD’s upcoming Q2 2021 results could help investors better understand e-commerce sector and company trends, such as GMV and revenue growth. We...

Jason Yap, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)