Daily Brief China: Tencent, Alibaba Group Holding , Li Auto , Xinyi Solar Holdings, Cheerwin, Longfor Properties, China Tourism Group Duty Free and more

• Tencent is due to release Q1 FY24 results today. The earnings call is scheduled for 14:00 SAST
• In this note, we unpack what is priced and how Tencent has performed relative to constituents in the HSTECH index since our last update (29 April).
• We also provide an update on how the discounts of Naspers and Prosus have traded.

• Tencent reported a decent set of results for Q1 FY24. Revenue for the quarter was up 2.8% QoQ and 6.3% YoY, ahead of consensus estimates (2.3% & 5.9%).
• The gross margin came in at 53%, 3 percentage points ahead of consensus, and an increase of 7 percentage points on Q1 FY23.
• The gross margin for the Fintech and Business Services segment, which accounts for 33% of revenue, increased by 12 percentage points to 46% (consensus 42.6%).

• Customer management as the largest business began to increase compared to the past two stagnant quarters.
• We believe margin will continue to decline as the company turned its focus to growth.
• We conclude an upside of 41% for March 2025 based on peer companies’ P/S ratios.

• The operating margin in 1Q24 reached the highest since 2Q16, as the gross margins of all businesses improved.
• The growth rate of online advertising is high than our estimate, but the growth rate of FinTech is lower than our estimate.
• We believe there is still an upside of 9% and the price target will be HK$415 for the end of 2024.

• Tencent (700 HK) reported 1Q2024 results today. Both revenues and OP grew 6.3% and 30.0% YoY respectively and beat consensus estimates.
• Though domestic games revenues declined YoY, there were signs of recovery in Tencent’s gaming business. Online advertising saw strong growth despite 1Q being a seasonally weak quarter for Tencent.
• Tencent’s investments in high-margin products have helped boost the company’s margins across all business segments.

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• The final results for the June 2024 index rebal event will be confirmed after market close on Friday 17th May 2024.
• In this insight, we take a look at our latest flow expectations.

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
• The index changes and indicative weights for the June 2024 index rebal event will be announced after market close on Friday 17th May 2024.
• In this insight, we take a look at the potential index changes and our latest flow expectations.

• Cheerwin is a strong turnaround story with significant earnings growth in 2023 with solid dividend yield. It is the number one player in the inspect repellent sector in China. 
• Cheerwin’s current price is 79% lower than the IPO  price. However, Cheerwin’s shares are up 35% YTD, sharply outperforming Hang Seng index which is up 13.6% YTD.
• We found Cheerwin (6601 HK) using Smartkarma’s Smart Score Screener system. We used the following screening methodology: Market cap – More than $300 million Dividends = 5 only.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Lippo Karawaci
• Softbank Group

• While its share price has collapsed, China Tourism Group Duty Free (1880 HK) is still facing many challenges and uncertainties which render it unattractive at current level.
• Average duty free spending per customer in Hainan is 46% lower than the peak and 26% lower YoY in Mar 2024, and the downtrend looks to continue.
• The government’s efforts to strike down purchasing agents in Hainan duty free products and the island’s change to a duty-free zone are also negative developments.