Analysts at J.P. Morgan and Morgan Stanley are bullish on Chinese internet stocks, as the market anticipates earnings releases from Alibaba, Tencent and JD.com.
J.P. Morgan has raised the ratings and price targets for several China concept stocks including Baidu (BIDU:NASDAQ), Alibaba (BABA:NYSE), Tencent (0700:HK) and Meituan (3690:HK) today.
Earlier in March, the investment bank downgraded 28 stocks to neutral or underweight ratings, citing de-listing risks and uncertainty from possible regulatory crackdowns. The change triggered widespread panic in the market, causing the NASDAQ Golden Dragon China Index to fall by more than 10% for three consecutive trading days.
The judgement has been reversed and now J.P. Morgan expects sectors including digital entertainment, local services and e-commerce to be the first batch to outperform the market. Travel and advertising industries are expected to lag behind the sectors mentioned above by 1 to 2 quarters. The bank's preferred stock in the market is Meituan, followed by NetEase, Tencent and Kuaishou.
Leading Internet companies such as Alibaba, Tencent and JD.com will announce their 2022 Q1 earnings this week. In the turbulent first quarter, the Hang Seng Index (HSI) has experienced a high of 5870 points and reached a low of merely 3463 points. Given that these companies are a part of the index, the market is thus highly concerned about their performance in the quarter.
In Alibaba's case, the market is concerned about the gap between customer management revenue and total merchandise transaction growth in Alibaba's core business and whether the trend will narrow in the future.
Analysts at Morgan Stanley expect Alibaba's net profit attributable to shareholders for the year ending March to fall 46% year-on-year to CNY 81 billion (USD 11.98 billion). The number for the fourth quarter of 2022 is estimated to be CNY 10.9 billion, with the platform's gross transaction volume to be flat year-on-year in the fourth quarter.
Revenue growth from the cloud computing business will slow to 19% year-on-year due to weak demand from the Internet industry and delays in project revenue due to the COVID-19 pandemic and macroeconomic conditions.