Research Reports

We are positive on JD’s 2Q20 performance. China’s e-commerce in 2Q20 is an especially positive quarter as a result of: 1) Deep-discounts from merchants as well as subsidizations from e-commerce platforms was an outlet for consumers’ pent-up demands; 2) Live streaming increased the reach out rate and conversion rate. For live streaming, JD not only formed a partnership with Kwai (one of the two major short video platforms in China), but also set up its own live streaming function as well as teamed up with other platforms including TikTok, Huya (HUYA, $23.66, NR), and Douyu (DOYU, $12.98, NR) for “6.18 sales” live streaming. ……

We are positive on MOMO into 2Q20. MOMO’s business in 1Q20 and the first part of 2Q20 was negatively impacted by the physical distance caused by COVID-19. However, along with the resumption of business and life, MOMO and Tantan started to recover in terms of both users and monetization. To expand the user base and enrich social interactions, MOMO did several things, including: 1) released a MOMO Lite version to get users from lower tier cities;  2) released Hezi for voice dating APP (in late 2019); and 3) Tantan added new paying functions and features including flash chat and live broadcasting in its application to improve monetization and engagements. ……

MOMO will report 1Q20 results on May 28th before the markets open with an 8am EST conference call. Based on our data, total revenue in 1Q20 is likely to be slightly higher than consensus at RMB3,489M and toward the high end of its guidance range of RMB3,450M - RMB3,550M. The result of 1Q20 was impacted by two factors: 1) the COVID-19 outbreak led to social distancing, which impacts MOMO’s business of social networking; 2) also negatively impacted as the government prohibited the Lucky-draw function in live broadcastings since January 23, 2020. While 2Q20 has not fully recovered, the business activities were more positive than in 1Q20. The company’s market cap is about US$4B, but it has net cash at about $2B.……

PDD will report 1Q20 results on May 22nd before the markets open with a 7:30am EST conference call. Based on our data and model, PDD’s total revenue in 1Q20E is likely to be above consensus at RMB4,974M (9.4% Y/Y growth) with a take rate assumption of 2.80%, vs. 2.91% in 4Q19 and 3.01% in 3Q19. We estimate that sales and marketing expense may be in the range of RMB5.0B - RMB 5.2B, as branding and performance-based advertisement spending declined Q/Q but subsidizations are still at a high level.……

NTES will report 1Q20 results on May 19th after the markets close followed by a 10pm EST conference call. Based on our data and model, NTES’s 1Q20 revenue is likely to be higher than the Street at RMB15,592M. In recent months, NTES published several new hit games, including Xuanyuan Sword and Fantasy Westward Journey 3D, along with its flagship games, contributing to better topline growth. NTES’s games gained more popularity in 1Q20 because of the COVID-19 outbreak worldwide. ……

Huya will report 1Q20 results on May 20th after the markets close followed by an 8pm EST conference call. Based on our data and model, Huya’s revenue is likely to be higher than consensus at RMB2,382M. We believe COVID-19 may have less of an impact on live broadcasting platforms as the impact to game broadcasting and to entertainment broadcasting is different. Most game broadcastings are individuals who do not have studios and operation personnel, and can be conducted easily, vs. most other forms of entertainment that are sponsored by studios with supporting staff and is not easy to conduct. ……

BIDU will report 1Q20results on May 18th after the markets close followed by a 9:15pm EST conference call. Based on our data andcalculations, we believe BIDU’s 1Q20 net revenue is likely to be better thanconsensus at RMB 21.91B and within its guidance range of RMB 21.0B – RMB 22.9B.In 1Q20, mobile Baidu traffic jumped up as there were more inquiries forinformation related to COVID-19; however, it was hard to convert the trafficinto monetizable clicks. While the company continues to promote its BaiduMobile Search APP, Haokan and Quanmin (short video APP), it also has beenfocusing on cost and spending control since 2Q19. ……

We are positive into BZUN’s 1Q20 performance. As offline retail activities in China are at an all-time low, brands are increasing their online efforts. Merchants and brands are using all different types of ways to increase sales online, including traditional marketing as well as live broadcasting sales. In addition, China is likely the only promising market in the world to have meaningful sales given the global impact from the COVID-19 outbreak. As a result, BZUN is benefiting from such increasing urgency from offline to online and from other places in the world to China. ……

As we are entering into 2Q20, the business activities in China are recovering, and BABA is taking the lead. Our data showed that many verticals’ online sales gained strong Y/Y growth in April after weakness in February and March. Of the twelve level-one verticals, about ten achieved 50% Y/Y – 153% Y/Y growth in April; for example, computer GMV grew 57% Y/Y and liquor at 58% Y/Y (Figure 5). For FY4Q20, we expect mixed results for BABA due to the negative impact from COVID-19. ……

We are positive on Meituan’s 1Q20 performance, which is benefiting from higher online penetration for restaurants and grocery stores post the outbreak. Our data shows that more restaurants are adopting online delivery to accomplish recovery. In 1Q20, Meituan Dianping’s food delivery business is likely to be better than the Street expectation. Delivery GTV is likely to decline 4.3% Y/Y to RMB72.4 billion, but per order economics is likely to be better in 1Q20 compared with 4Q19 and 1Q19 due to much higher average order value and a relatively sufficient supply of delivery workforce, which means less subsidizations.  ……

JD will report 1Q20 results on May 15th before the markets open with a 7:30am EST call. We are positive on JD’s 1Q20 performance as well as its 2Q20 outlook. During the outbreak in 1Q20, JD was in high demand as evidenced by the hike of the company’s search queries (Figure 5). The high demands were caused by the outbreak, and JD was able to fill them due to its ability to supply and deliver products to consumers with its self-operated logistics and 1P e-commerce. In contrast to the Y/Y declines from other e-commerce vendors in China, JD experienced positive ……

TME will report 1Q20 results on May 11th after the close of the markets followed by an 8pm EST conference call. 1Q20 is a challenging time for most of the companies in China. For TME, the impact from the outbreak to its online music was limited, but the impact to social entertainment services was bigger. In addition, the government policy in January prohibiting lucky-draw functions in live broadcastings also pressured its social entertainment services. Putting all together, based on our data, we believe the company is likely to deliver inline results in 1Q20. ……

TAL will report FY4Q20 results on April 28th before the markets open with an 8am EST conference call. We are positive on TAL’s performance in FY4Q20. Based on our data and calculations, we believe that TAL’s revenue in FY4Q20E is likely to be higher than consensus at $860.8M (excluding Light Class). The revenue for Small Class/Peiyou is likely to grow 8.6% Y/Y, vs. 40.6% Y/Y in FY3Q20. The slower growth was because Peiyou offered a lot of lower price and promotional courses during the period of the COVID-19 outbreak. ……

We are cautious on SE’s e-commerce performance during the COVID-19 outbreak. The impact to e-commerce, particularly to cross boarder e-commerce, is significant. Most countries in Southeast Asia experienced lockdowns, which caused delays in logistics including merchant supplies and customer order deliveries. Many sellers on SE’s platform are from mainland China. Beside the supply side, the outbreak also caused changes in consumer shopping preferences from fashion & apparel and mobile gadgets to most necessities. ……

We are positive on YY in 1Q20 due to BIGO’s better performance and positive on 2Q20 driven by YY Live’s domestic performance. In 1Q20, BIGO overseas monetization was much better than that in 4Q19 and we expect such trend to continue in 2Q20. For 2Q20, YY Live is broadcasting a well-known IP called “爱豆周五见” in China from March 27th to the end of May, which is positive for its performance in 2Q20. Based on our data and model, we believe YY’s 1Q20 revenue is likely to be higher than the high end of the company’s guidance range of RMB6,750M – RMB6,850M and higher than consensus at RMB6,853M and our model. Starting in 2Q20, YY will not consolidate HUYA’s financials, as Tencent (700.HK, HK$400.60, Not Rated) now has 50.1% voting power in Huya (HUYA, $16.18, Not Rated) on a fully diluted basis. ……

EDU will report FY3Q20 results on April 21st before the markets open with an 8am EST conference call. We believe FY3Q20 is likely to be better than consensus and our model. But in 4Q20 and over the next several quarters, although we expect K-12 to continue to do well, EDU’s overseas testing preparation business is likely to be impacted by both domestic and international outbreaks as international travel is almost frozen. We believe such impacts have not been fully baked in yet and this part of revenue may decline Y/Y in FY4Q20. We have adjusted our estimates accordingly. While we are cautious on the short-term, we are positive in the long term. We maintain our Buy rating but lower our PT to $130.00. ……

We are positive into BILI’s 1Q20 performance as well as its upward trend into 2Q20. BILI benefitted from the nationwide lockdown due to the COVID-19 outbreak in China proven by the high growth of its UGC activities, and broadcasting hosts and audiences. The momentum has continued even after the removal of the lockdown. Based on our data and model, we believe BILI’s revenue in 1Q20 is likely to outperform consensus at RMB2,180M, higher than the high end of its guidance range of RMB2,150M – RMB2,200M. In addition, Sony (SNE, $64.44, Not Rated) recently invested in BILI and became a 4.98% equity holder after investments from Alibaba (BABA, $209.86, Buy) at 6.8% ownership and Tencent (700.HK, HK$408.60, Not Rated) at 12.5% ownership.……

The post Covid-19 recovery in China has been orderly and steady since February 18, 2020. Our data showed that about 70% of labor forces have returned to work and about 100% of business activities have resumed operations. Specifically, Eastern China including Shanghai, Zhejiang, Jiangsu, Anhui and Shandong led the recovery; these regions are where JOBS operates most of its business. Therefore, the company benefits from such relative rapid recovery. We are positive on JOBS’ performance in 1Q20. Based on our data and calculations, we believe 51Job’s revenue in 1Q20 is likely to be at the high end of its guidance at RMB725M - RMB775M. ……