China Tech Optimism Rekindled Amid Slowly Thawing China-US Ties
(Bloomberg) — Baidu Inc., Xiaomi Corp. and Kuaishou Technology report on the heels of talks between Chinese President Xi Jinping and US counterpart Joe Biden that will define how the countries make progress on sensitive issues such as artificial intelligence and technology.
Xi reiterated that China wants to cooperate with the US across various fields when the leaders met during the Asia-Pacific Economic Cooperation summit last week. They’ve agreed to open a dialogue on AI, with Washington highlighting the need for improved safeguards. The US has been concerned about China’s use of AI, especially for military purposes.
Stricter US curbs on advanced chips for China have impeded tech companies including Alibaba Group Holding Ltd., which called off a spinoff of its cloud business and stunned investors.
Peers like Baidu and Kuaishou Technology may continue to face domestic economic headwinds, while Xiaomi’s smartphone business has stabilized. Xiaomi also recently participated in funding for Baichuan, a Chinese AI startup that aims to capitalize on the interest in developing ChatGPT-like services.
China will probably still struggle with debt and deflation challenges next year, said Morgan Stanley strategists including Laura Wang. Macro pressure on earnings coupled with currency weakness may hold back a sustained equity market recovery in China, they added.
Highlights to look out for:
Monday: Xiaomi’s (1810 HK) sales should be little changed as inventory normalizes and it gains market share, BI said. Estimates show smartphone revenue fell 3.1% even as shipments stabilized, possibly due to lower average selling prices. That might be offset by growth in other segments, with its Internet of Things and lifestyle products segment growing 7.1%. Meanwhile, JPMorgan expects its core businesses to return to growth in 2024, coupled with a brighter outlook to its expansion into electric vehicles.
Tuesday: Baidu (BIDU US) will probably report a 5.1% increase in revenue, estimates show. Slowing growth in China’s broader economy is the biggest short-term risk to its business, affecting its advertising revenue, BI said. Its operating margin is set to shrink, and there are downside risks from rising promotional and investment costs in the AI sector.
- Kuaishou Technology (1024 HK) may report little-changed earnings sequentially as improvements in content algorithms and e-commerce sales were offset by weaker live-streaming revenue. The app’s active user base probably grew, with time spent on the app per user rising from algorithm improvements and better content during the summer vacation, according to Jefferies analysts Thomas Chong and Zoey Zong. While the Singles’ Day shopping festival likely boosted sales for the current quarter, uncertainty around the Chinese economy and consumer demand may cloud the outlook for the quarters ahead.
- Trip.com’s (TCOM US) quarterly sales doubled from a year earlier, estimates show, powered by robust summer leisure-travel demand in China despite lackluster outbound recovery. A strategy to offer tourist attractions or music festival tickets may help sales despite cautious consumer spending sentiment, according to BI.
Wednesday: Maybank (MAY MK) may face higher funding-cost pressure on growing competition for deposits, and as higher policy rates are partially passed on to savers, according to BI analyst Sarah Jane Mahmud. Maybank is expected to manage that pressure better than peers, given that it has the highest percentage of low-cost deposits domestically, she added.
Thursday: Chow Tai Fook (1929 HK) could see China wholesale revenue expand an average of 10% annually over fiscal 2023-2025, BI said. That’s thanks to sales growth at new stores — it aims to open 600 to 800 outlets in China in fiscal 2024. The jeweler may continue to expand its retail network through franchisees, fending off rivals such as LVMH-Tiffany and Pandora. It may also launch more offline exclusive products to support local same-store-sales gains for the rest of the fiscal year.
Friday: Cathay Pacific (293 HK) may provide update on earnings during third-quarter analyst briefing on Friday. The airline may see faster passenger volume recovery and higher ticket prices post-pandemic. Encouraged by improvements in the operating environment, the airline plans to hire about 5,000 people in 2024. That said, its growth in market share may be curbed as mainland peers increase Hong Kong capacity, BI analysts Tim Bacchus and Eric Zhu said.
–With assistance from Ryotaro Nakamaru and Shwetha Sunil.
(Previous version corrected to indicate Cathay to hold third-quarter analyst briefing)
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