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Swarup Gupta

China Stock Roundup: JD.com Disappoints, JinkoSolar, Daqo New Energy Beat on Earnings

JD DQ SOL JKS

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Markets endured a turbulent week, marked by significant losses in commodities markets. The benchmark index increased on Monday following indications that China’s economy was stabilizing. The Shanghai Composite slipped on Tuesday, as profit taking on resource stocks ensued.

The benchmark index moved lower on Wednesday after resources stocks retreated once again. Stocks rebounded on Thursday after large infrastructure companies notched up gains.

JD.com (JD - Free Report) reported loss of 10 cents a share in the third quarter of 2016, compared to the Zacks Consensus Estimate of a loss of 6 cents per share. Daqo New Energy Corp. (DQ - Free Report) reported third-quarter 2016 adjusted earnings of $1.19 per share, which exceeded the Zacks Consensus Estimate of $1.18 per share.

Last Week’s Developments

Last Friday, the Shanghai Composite increased 0.8% after major gains for materials and infrastructure stocks lifted the broader market. Investors ignored the weak yuan to take stocks to their highest level in 10 months. The CSI 300 also gained 0.8%. The benchmark index gained 2.3% over last week while the CSI 300 advanced 1.9% over the same period. Both indexes moved higher for the fifth successive week on rising expectations that China’s economy was attaining stability.

Meanwhile, consumer and real estate stocks moved lower. The yuan declined for the second successive day as traders prepared for further depreciation. Stock in Hong Kong declined to their lowest level in three months as investors awaited growth data on the city, which was widely expected to be disappointing. The Hang Seng declined 1.4% while the Hang Seng China Enterprises Index moved 1.2% lower. 

Markets and the Economy This Week

The benchmark index increased 0.4% on Monday following indications that China’s economy was stabilizing. Stocks hit a fresh 10-month high despite signals that chances of gains in the future were uncertain. The CSI 300 also gained 0.4%. Industrial production increased by 6.1% on a yearly basis in October. Additionally, fixed asset investment rose 8.3% over the first ten months of 2016.

However, growth in retail sales declined to 10%. Additionally, concerns about trade ties with the U.S. further muddied the outlook for stocks. Meanwhile the yuan plunged to its lowest level in six and a half years. The decline came after China’s central bank set the currency’s midpoint at 6.8291 yuan per dollar. Industrials and infrastructure stocks continued to lead the gainers for the day. Brokerages, which will benefit from the upcoming Shenzhen-Hong Kong exchange link, also advanced.

The Shanghai Composite slipped on Tuesday, losing 0.1% as profit taking on resource stocks ensued. A slump in commodity futures also led to the benchmark index snapping its three-day run of gains. The CSI 300 ended the day nearly flat. Coke and coal futures nosedived. Ultimately, this phenomenon extended into the broader commodity market, leading to a slide in resource companies.

Meanwhile, the yuan continued to move lower. China’s currency slumped to an eight year low as the dollar strengthened. The greenback moved higher on expectations of a rate hike under a Trump presidency. Infrastructure and materials stocks suffered losses even as consumer and real estate companies racked up gains. Rising U.S. Treasury Yields pushed the Hang Seng 0.5% higher. The Hang Seng China Enterprises Index added 0.6%.

The benchmark index moved 0.1% lower on Wednesday after resources stocks retreated following concerns that losses in the commodity futures markets would spur regulators into enacting further trade restrictions in an attempt to curb volatility. The CSI 300 ended the day nearly flat. Futures of iron ores plunged 9%, suffering a grievous decline for the second successive day. Meanwhile, falling steel prices dampened investor enthusiasm further. Subsequently, the contagion spread to all other important commodities.

On Tuesday, Premier Li Keqiang had stated that China would achieve key development goals in 2016, in another sign that the economy was steadying. Growth stocks found favor with investors. The yuan weakened further even as transport stocks chalked up gains. Concerns about higher interest rates led the Hang Seng 0.2% lower while the Hang Seng China Enterprises Index declined 0.4%.

The Shanghai Composite added 0.1% higher, rebounding after two consecutive sessions of losses. Large infrastructure stocks notched up gains, negating losses incurred by an ailing resources sector. The CSI 300 advanced 0.2%. Market watchers opined that the weakness in resources stocks was likely a result of declining commodities markets. Stocks declined for most of the day before late gains from infrastructure stocks helped markets finish in the green. A strong U.S. dollar led to a 0.1% decline for the Hang Seng. The Hang Seng China Enterprises Index declined by 0.4%.

Stocks in the News

JD.com reported loss of 10 cents a share in the third quarter of 2016, compared to the Zacks Consensus Estimate of a loss of 6 cents per share. However, revenues of $9,106 million exceeded the Zacks Consensus Estimate of $9,020 million. Additionally, revenues were 38% higher than the figure posted in the year-ago period. JD.com has a Zacks Rank #3 (Hold).

Revenues from services and others, registered a 60% year-over-year increase. Gross merchandise value (GMV) rose 43% to $23.8 billion from core GMV registered in the same period last year. Annual active customer accounts increased to 198.7 million for the 12 months ended on September 30, 2016, 57% higher than the year ago figure.

Daqo New Energy Corp. reported third-quarter 2016 adjusted earnings of $1.19 per share, which exceeded the Zacks Consensus Estimate of $1.18 per share. However, net revenues of $54 million came in below the consensus mark of $59 million despite growing 14.9% year over year. This was also lower than second quarter 2016 revenue of $71 million. Daqo New Energy has a Zacks Rank #3.

Production volume of polysilicon came in at 3,636 MT, increasing from the 3,570 MT produced in the last quarter. External sales volume of polysilicon came in at 2,838 MT, declining from the 2,931 MT reported in the first quarter. Average total production cost of polysilicon was $8.66 /kg for the quarter, falling from the $9.43/kg during the second quarter of 2016.

JinkoSolar Holding Co., Ltd. (JKS - Free Report) reported third-quarter 2016 non-GAAP earnings per American Depositary Share (ADS) of $1.12, well ahead of the Zacks Consensus Estimate of 84 cents by 33.3%. In the year-ago quarter, the company reported earnings of $1.04 per share.

In the quarter under review, JinkoSolar’s total revenues of $855 million surpassed the Zacks Consensus Estimate of $722 million by 18.4%. On a year-over-year basis, the top line increased 39% primarily on the back of higher revenues from electricity generation and the pace of growth in solar module shipments exceeding the decline in average selling prices.

In the third quarter of 2016, total solar product shipments were 1,606 megawatts (MW), up 41.6% year over year but declined 6.4% from the previous quarter. Out of total shipments, 50 MW were used in its downstream projects.

JinkoSolar expects fourth-quarter 2016 total solar module shipment in the range of 1.7–1.8 Gigawatts (GW). For 2016, the company expects total solar module shipments in the band of 6.6–6.7 GW. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ReneSola Limited (SOL - Free Report) has entered into an agreement to sell six utility-scale projects in the UK with an aggregate capacity of 26 megawatts (“MW”) to a European investor.

The projects utilize Zacks Rank #3 rated ReneSola's Virtus II modules and are located in Carlam Hill Farm, North Wales and Monmouthshire. These projects are pre-accredited with a tariff rate of 6.16p per kilowatt-hour (“kWh”) and eligible for a guaranteed export tariff of approximately 4.91p per kWh.

According to ReneSola's Chief Executive Officer (CEO), Xianshou Li, despite the political uncertainty in the UK arising from the Brexit vote, demand for productive solar power assets continues to be strong. He added that the company plans to grow its project development business extensively to tap in on the bountiful opportunities and boost returns on investment. (Read: ReneSola (SOL - Free Report) to Sell 6 Utility-Scale Projects of 26MW in UK)

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.

Ticker

Last 5 Day’s Performance

6-Month Performance

BABA

-4.7%

+17%

BIDU

-1.1%

-2.5%

BITA

-10%

-15.7%

CTRP

-0.8%

-4.8%

EDU

-5.4%

+22.8%

JD

+4.8%

+13.4%

JKS

+1.8%

-29.5%

MOMO

-9.1%

+67.2%

SFUN

-11%

-48.2%

TSL

+2.3%

+30.4%

Next Week’s Outlook:

Signs that China’s economy is stabilizing are slowly beginning to emerge. Despite a disappointing report on retail sales, other economic indicators are on the upswing. Premier Li Keqiang has also stated that the country will fulfill its developmental goals this year.

However, gains emanating from such sentiments have been disrupted by two factors. First, the yuan has moved lower following fears over economic relations with the U.S. following the election of Donald Trump as President. Additionally, commodity markets have weakened leading to losses for resources stocks. Despite signs of a firmer economy, these factors will possibly continue to determine market direction in  the days ahead.

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