The new season of financial reports is coming, and Chinese concept stocks such as jd.com, alibaba, and Tencent will successively disclose their third-quarter performance, with major Wall Street banks making predictions.

Firstly looking at Tencent, analysts generally expect the gaming business to continue to grow rapidly, achieving double-digit year-on-year growth, with advertising and fintech businesses also expected to perform well. In terms of key financial indicators, Morgan Stanley predicts a 15% year-on-year growth in gross margin, with gross margin expected to increase by 3.7 percentage points to 53.2%.

Next is Alibaba, with a 4% year-on-year growth in domestic GMV in August, a slowdown from 8% in July, and an expected moderate single-digit growth in GMV in September. However, Alibaba faces multiple positive factors in the coming quarters, including revenue growth from the incremental monetization policy introduced in September, increased active shoppers after integrating WeChat Pay, and inflows of funds after inclusion in the Stock Connect program.

As for jd.com, benefiting from trade-in subsidies, revenue for the electronics category is expected to grow by 3% year-on-year, with electronic product GMV projected to grow by over 10% year-on-year in September. jd.com plans to increase user subsidies in the fourth quarter of 2024, which may have a certain impact on profit margins. Earnings expectations for 2024-2026 have been revised down by an average of 2-3%.

Tencent: Gaming business may accelerate growth, with gross margin expected to increase by 3.7 percentage points.

Analysts expect that Tencent's performance in the third quarter will be stable, mainly driven by the gaming business, with optimistic prospects for advertising and fintech businesses.

According to Morgan Stanley's estimates, revenue and non-IFRS operating profit are expected to grow by 7% and 16% year-on-year. Gross profit is expected to grow by 15% year-on-year, with gross margin increasing by 3.7 percentage points to 53.2%, and non-IFRS net income is expected to increase by 25% year-on-year.

In terms of gaming business, analysts predict that Tencent's growth in domestic and international gaming markets will accelerate, expected to bring double-digit year-on-year growth. Dungeon & Fighter maintains strong momentum, with total revenue expected to reach 9.5 billion yuan in the third quarter. Other games such as Peacekeeper Elite performed well in September, with a 24% year-on-year increase in gross revenue, while Wild Rift saw a sevenfold year-on-year increase in gross revenue. Revenue in the international market grew by over 30% in the first quarter, this strong trend continues in the second quarter, the strong revenue growth momentum in the first half of the year indicates that revenue growth in the second half of the year and beyond will remain strong.

In terms of advertising, financial technology, and business services (FBS) business, ad revenue growth may decelerate due to a high base, but is still expected to achieve double-digit growth. Tencent's unmonetized advertising inventory in areas such as video accounts and mini-programs, along with improved advertising platforms and high-value user groups (high-income consumers), will continue to support the performance of the advertising business. As for FBS, the integration of WeChat Pay with Taobao/Tmall will support this business, with FBS revenue expected to grow by 2.5% (consensus 4%).

Morgan Stanley has raised Tencent's target price to HKD 570, with a 19% upside potential from the current stock price. Profit forecasts for 2024-25 remain essentially unchanged, with a 2025 P/E valuation of 16 times. The total amount of share buybacks for the year has reached HKD 90 billion.

Alibaba: GMV is expected to grow in the mid-single digits, facing multiple positive factors over the next several quarters.

Analysts predict a slight decline in Alibaba's profit in the third quarter, with GMV in September expected to grow in the mid-single digits, but the performance outlook faces multiple growth factors.

JPMorgan indicates that specific data forecasts show total revenue is expected to increase by 6% year-on-year in the second quarter of the 2025 fiscal year, slightly below market consensus expectations. Non-GAAP EPS is expected to decline by 2% year-on-year but above market expectations. However, third-quarter growth is expected to improve, with GMV and core customer management revenue expected to grow by 6% and 5% year-on-year.

Analysis points out that due to the impact of reduced consumer spending caused by the macro environment, core revenue and profits of SoftBank Group may be affected. GMV grew by 4% year-on-year in August, slowing down from 8% in July, and the situation in September may not have improved, expected to achieve mid-single-digit growth, while Customer Management Revenue (CMR) is expected to achieve low single-digit growth year-on-year.

Despite this, analysis indicates that Alibaba will face multiple positive factors in the next few quarters, which may drive future growth.

Government support for private enterprises may benefit companies like Alibaba, as this policy helps the company unlock its potential value.

The revenue growth brought by the incremental cashing-out policy launched in September has led Alibaba to implement a 0.6% technology platform fee starting from September 1st. The company has gradually introduced its new advertising platform to enhance its monetization level on the platform. Management previously commented that about 12 months later, its CMR growth should be in line with its GMV growth.

Fully integrating WeChat Pay, Taobao announced full integration with WeChat Pay, expecting to boost GMV and revenue. Integrating WeChat Pay may bring an additional user growth of 20-30%, with WeChat Pay having 1.05 billion monthly active users, while Taobao/Alipay users are about 0.9 billion.

With the inflow of funds after inclusion in the Stock Connect, Alibaba completed its dual primary listings in Hong Kong at the end of August, which is expected to increase demand for its stocks from Mainland investors.

In addition, Citigroup pointed out to pay attention to the upcoming sales strategy and promotional activities for the "Singles' Day" shopping festival, especially under the latest and forthcoming macro policies, whether consumers will increase spending during the "Singles' Day" period.

Barclays raised the target price for Alibaba to $137, expecting an annual compounded revenue growth rate of 7.0% and a net income compounded growth rate of 9.3% from 2024 to 2027.

It is worth mentioning that Alibaba repurchased $4.1 billion worth of shares in September. So far this year, it has returned over $14.7 billion to shareholders through share buybacks and an additional $4 billion through dividends.

JD.com: Benefiting from the trade-in subsidies, it is expected that the revenue of electronic categories will turn around from decline to growth.

Analysts predict that jd.com is a beneficiary of the trade-in subsidy for old products, and the recovery of consumer electronics will help drive performance growth.

HSBC expects a 4.8% year-on-year increase in third-quarter revenue, with jd.com's retail revenue up 4.6%. Home appliances and consumer electronics are expected to recover, with strong performance in fast-moving consumer goods (FMCG), and 3P (third-party merchant) revenues accelerating to a 7.1% year-on-year increase. Non-IFRS net profit is expected to increase by 8.8% year-on-year, reaching 11.6 billion yuan, with non-IFRS net profit margin slightly increasing by 16 basis points to 4.5% year-on-year, benefiting from sustained gross margin expansion and improved operational leverage.

jd.com plans to increase investment in user acquisition, subsidies, and category promotion in the fourth quarter of 2024 to seize the opportunity of rising consumer sentiment. However, the increased marketing expenses may have a certain impact on profit margins, leading to an average downward revision of profit expectations by 2-3% from 2024 to 2026.

Specifically, the trade-in subsidies for old products are driving the recovery of the consumer electronics category, with revenue in the electronics category expected to increase by 3% year-on-year compared to a 5% decline in the second quarter. Several provinces have implemented trade-in subsidies for electronic products, with a focus on the home appliance category. jd.com, as one of the main sales channels for electronic products, will benefit from this, with GMV of electronic products expected to grow by over 10% year-on-year in September.

HSBC analysis points out that user growth continues to outperform GMV growth, with quarterly active buyers maintaining a mid-single-digit growth in the short term, thanks to strong user engagement, but the average selling price (ASP) has decreased year-on-year.

In addition, the opening of jd.com's logistics to Taobao is expected to bring long-term incremental revenue to its logistics business, but the impact may take at least 1-2 quarters to show. Investors need not worry about jd.com's logistics advantage being diminished, as its supply chain capabilities are difficult to replicate.

Nomura maintains a "buy" rating on jd.com and raises the target price from $38 to $53, implying about 21% upside. They have also raised the forecast for non-GAAP net profit for the 2024 fiscal year, mainly due to increased revenue from jd.com's logistics division. Revenue for jd.com is expected to grow by 4.7% in the 2024 fiscal year, with operating profit possibly increasing by 7% year-on-year, and the operating profit margin potentially expanding by 10 basis points to 3.9%.

Regarding share buybacks, jd.com repurchased $3.3 billion worth of stocks in the first half of 2024 and plans to increase dividend payments. The price-earnings ratio for 2025 is 11 times, suggesting a reasonable valuation.

Editor/Lambor