China Stock Roundup: JA Solar, Bitauto Beat, Xiaomi Invests $300M in Baidu Video Arm

Markets had a largely dismal week, rebounding only on Thursday. The benchmark index moved downward on Monday as the much-touted exchange link finally became operational. Shares moved downward again on Tuesday after the enthusiasm over the exchange link faded. This trend continued on Wednesday, negating gains made by small companies. Ultimately, markets rebounded today as brokerages gained following indications of IPO-related reforms.

JA Solar Holdings Co. Ltd. (JASO) posted strong third quarter 2014 results, reversing its year-ago loss as its shift to focus on solar modules instead of cells paid off. Bitauto Holdings Ltd. (BITA) posted earnings of 48 cents in third quarter 2014, beating the Zacks Consensus Estimate of 47 cents.

Last Week’s Developments

Last Friday, the Shanghai Composite Index declined 0.3%, following concerns that recent market gains were excessive. The last trading day before the beginning of the Hong Kong-Shanghai exchange trading link witnessed losses by industrial stocks. Material and energy shares also decline ahead of the release of money supply and new bank lending data.

The Hang Seng China Enterprises Index also moved lower, losing 0.4%. However, the Hang Seng gained 0.3% while the CSI 300 increased 0.1%. An official announcement after the market close helped dispel concerns about tax laws regarding the trading link. China’s ministry of finance said foreign investors purchasing mainland stocks will not have to pay capital gains tax.

The country’s widest gauge of new credit came in behind estimates for the month of October. This indicates that additional liquidity provided by the central bank may have failed to increase lending as the prospect of an economic slowdown looms.

Markets and the Economy This Week

The Shanghai Composite Index lost 0.2% on Monday as more stocks gained on the benchmark compared to their counterparts in Hong Kong. Foreign investors reached the permissible daily limit for purchasing mainland stocks as the exchange link started functioning. The Hang Seng China Enterprises Index experienced its largest decline in two months, sliding 1.9%.

Market watchers took the view that the link had begun on a positive note. They also opined that foreign investors were preferring stocks not listed in Hong Kong as well as those with substantial dividend yields. The Hang Seng China AH Premium Index gained 0.6% as mainland shares with dual listings increased their advantage over those listed in Hong Kong. The CSI 300 lost 0.5% while the Hang Seng declined 0.9%.

China shares moved downward again on Tuesday after the enthusiasm over the exchange link faded. Declining home prices also raised concerns that the economic slowdown will intensify. The Shanghai Composite Index declined 0.7% and the Hang Seng China Enterprises Index lost 1.2%. Analysts took the view that the exchange link had already been priced in by the markets. However, they believed losses would continue since prices remained high and the economic slowdown could continue.

The CSI 300 declined 1%. Sub-indexes of financial and energy stocks took maximum losses. Meanwhile, the Hang Seng lost 1.1%. According to official data, home prices moved lower in all but one of the 70 cities covered by the survey in October compared to September. A gauge of property stocks included in the benchmark index lost 1.6%.

The Shanghai Composite Index lost 0.2% on Wednesday as enthusiasm over the exchange link continued to fade, negating gains made by small-cap stocks. International investors’ purchase of mainland shares was well below the daily limit.

Additionally, Shanghai’s investors used up only 3% of their quota of permissible Hong Kong stock purchases. The Hang Seng China Enterprises Index declined 0.4%. The ChiNext index of small-cap stocks gained 1.6%, increasing for a third successive day. The CSI 300 declined 0.2% while the Hang Seng lost 0.7%.

The benchmark index rebounded today after gains from brokerage shares negated dismal manufacturing data. HSBC flash PMI declined to 50 for the month of November. This is its lowest reading its six months, well below its final October reading of 50.4. However, China’s largest listed brokerages increased at least 1.4%. These gains came on the back of comments from Premier Li Keqiang that the pace of reforms related to IPOs will be speeded up.

The Shanghai Composite Index gained 0.1% even though the number of stocks which gained were outnumbered by losers. Analysts took the view that investors were ignoring economic fundamentals. They believe IPO reforms helped the market clock up gains because new share sales would result in higher revenues for brokerages. The Hang Seng China Enterprises Index and the CSI 300 ended nearly flat.

Stocks in the News

JA Solar Holdings Co. Ltd. posted strong third quarter 2014 results, reversing its year-ago loss as its shift to focus on solar modules instead of cells paid off. The company recorded non-GAAP earnings of 21 cents per American Depositary Share (ADS) in the third quarter of 2014, beating the Zacks Consensus Estimate of 15 cents by 40% and increasing 50% sequentially. In the year-ago period, it had incurred a loss of 36 cents per ADS.

JA Solar jumped 8.9% on Tuesday, marking its biggest one-day gain since Jun 17. JA Solar’s revenues in the reported quarter were $492.2 million, comfortably beating the Zacks Consensus Estimate of $429 million by 14.7%. Revenues also increased 71.8% year over year and 24.7% sequentially. The company attributed the strong sales growth to the ongoing shift to module sales, along with penetration of its key geographies, China and Japan.

JA Solar expects to ship 850–900 MW of cells and modules in total for the fourth quarter. Full-year 2014 shipments are expected in the range of 3.1 GW to 3.2 GW. It had earlier expected full year cell and module shipment in the range of 2.9–3.9 GW. JA Solar expects to ship 160 MW of modules to its downstream projects, down from its previous guidance of 200 MW.

Bitauto Holdings posted earnings of 48 cents in third quarter 2014, beating the Zacks Consensus Estimate of 47 cents. Revenue increased 60.7% from the year ago period to $99 million. Advertising and subscription revenue came in at $87.6 million. Bitauto also reported $11.4 million of agent service revenue during the period.

Revenue increased due to growth in the advertising business of bitauto.com as well the EP platform business. Cost of revenue increased 23.8% from the year-ago period to $19.5 million. However, it decreased as a percentage of revenue, from 25.6% in the year-ago period to 19.7% in third quarter 2014. The rise in cost of revenue can be attributed due to two major factors. Firstly, direct cost services increased. Additionally, tax and related surcharges increased in keeping with revenue growth.

The company provided fourth quarter revenue guidance of $117.3- $120.6 million. This is a year-over-year increase of 48.9% to 53%. Projections for non-GAAP profit attributable to ordinary shareholders are expected to increase 52.9% to 62.6% on a year-over-year basis. This represents a range of $25.7- $27.4 million.

JD.com, Inc. (JD) reported earnings of 2 cents per ADS in third quarter 2014, contrary to the Zacks Consensus Estimate of a loss of 5 cents. Net revenue came in at $4.7 billion, jumping 61% from the year-ago period.

The company said the increase in revenue was primarily due to increase in customer accounts and orders. Active customer accounts rose by 109% to 46.1 million from 22.1 million in the year-ago period. Gross merchandise volume increased 111% to $11 billion. Fulfilled orders increased 119% to 81.5 million compared with the same period in 2013.

Net loss amounted to $26.8 million while net margin declined 0.6%. JD.com said the loss was chiefly due to amortization of intangible assets resulting from its strategic partnership with Tencent Holdings. However, the company’s guidance for fourth quarter revenue was in the range of $5.2 billion to $5.4 billion.

This is below most analyst expectations despite impressive sales on 11 Nov, which is celebrated as Singles' Day. JD.com had said that it had made “outstanding sales” on that day. The company had received 14 million orders on the day, an increase of more than 120% from year-ago numbers.

Baidu, Inc.’s (BIDU) independent online video portal subsidiary iQiyi.com will receive $300 million of investment from Xiaomi Inc. and a related fund. The fund, Shunwei Capital was created by Xiaomi Chairman and CEO Lei Jun. Financial details of the stakes have not been disclosed.

Following, the investment, Xiaomi will become the second largest shareholder of the video sharing platform. The majority shareholder of iQiyi.com is Baidu. The search engine giant had also raised its stake in iQiyi. However, the details of this increase have not been disclosed. The decision to increase its stake follows reports that the portal is purchasing distribution rights of at least 1,000 U.S. movies.

JinkoSolar Holding Co., Ltd. (JKS) announced the completion of a private equity investment, worth $225 million, for its downstream solar power project business. Initially announced on Jul 30, 2014, the transaction was executed through share purchase agreements.

JinkoSolar Holding’s subsidiary, JinkoSolar Power Engineering Group Ltd., has inked three separate definitive share purchase agreements with China Development Bank International; the Macquarie Greater China Infrastructure Fund, managed by Macquarie Infrastructure and Real Assets; and New Horizon Capital. Per the agreements, the firms have invested a total of $225 million in JinkoSolar Power and collectively hold an equity interest of around 45% in the company.

Performance of Most Actively Traded US-listed Chinese Stocks

The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.

Next Week’s Outlook:

Stocks have taken losses on every day of the week, but for Thursday. Enthusiasm over the exchange link has faded quickly, with the market pricing in gains ahead already pricing in this development. Small-cap shares have continued to trend higher, but these gains have not made an impact on broader markets.

Ultimately, brokerages posted gains following comments from Chinese Premier related to IPO reforms. Overall, economic data has been disappointing. HSBC Flash PMI numbers and home price data have indicated that the economic slowdown may intensify. Next week is devoid of any major economic reports. Indications of reforms have helped markets rebound today. Any further developments on this front could help markets move upward in the days ahead.

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