Alibaba Beats, Changyou Beats on Earnings

Markets experienced another volatile week, gaining and losing on alternate days ahead of the Lunar New Year holidays next week. The Shanghai Composite Index declined on Monday after the official purchasing managers index suffered its sixth consecutive monthly fall. The benchmark index increased on Tuesday, moving up 2.3% after the People’s Bank of China moved to raise liquidity in the financial system.

The Shanghai Composite Index moved lower on Wednesday as investors turned cautious and oil prices declined heavily. The benchmark index increased 1.5% on Thursday closing at its highest level since Jan 25.

Alibaba Group Holding Ltd. reported third-quarter fiscal 2016 (ended Dec 30, 2015) earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 70 cents. Changyou.com Ltd. reported adjusted fourth-quarter 2015 earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 54 cents.

Last Week’s Developments

Last Friday, the Shanghai Composite Index surged 3.1%, reducing its monthly loss to 23%. Despite the day’s gains, the decline for the month was the worst since Oct 2008. Stocks moved up for the first time in four days following speculation that the worst selloff in over a month was excessive in nature. Industrial and financial stocks led gains.

Additionally, China’s central bank announced it will undertake open market operations on every working day around the Lunar New Year holiday. The number of these operations will be increased from their normal biweekly pace to increase liquidity in the banking system ahead of the holiday. This statement also boosted stocks.

The CSI 300 added 3.2%. A gauge of brokerages and banks increased 3.2%. A measure of industrial shares increased 3.6%, the highest among the 10 industrial sectors. The Hang Seng increased for a third day, moving up 2.5%. The Hang Seng China Enterprises Index increased 2.7%. The H-share index increased after the Bank of Japan lowered interest rates into the negative zone in order to stimulate its flagging economy.

Markets and the Economy This Week

The Shanghai Composite Index declined 1.8% on Monday, increasing January’s selloff. The official purchasing managers index declined to 49.4, the sixth consecutive monthly fall. This is the lowest level experienced in three years. Additionally, the country’s most established companies issued warnings about a fall in earnings.

Among other economic reports, official non-manufacturing PMI fell from 54.4 in December to 53.5 in January. In contrast, Caixin China Manufacturing PMI increased from 48.2 to 48.4 in January.

The CSI 300 declined 1.5%. A sub index of energy stocks declined 2.8%, emerging as the largest decliner among the 10 industry groups. PetroChina Co. lktglost 2.8% after stating that falling crude and gas prices would hurt full year earnings.  The Hang Seng declined for the first time in four days, falling 0.5%. The Hang Seng China Enterprises Index moved down 1.2%.

The benchmark index increased on Tuesday, moving up 2.3% after the People’s Bank of China moved to raise liquidity in the financial system. The central bank injected 100 billion yuan ($15 billion) into the country’s banks via reverse repurchase agreements ahead of the new year holidays.

Tech and industrial stocks led gains. A measure of tech stocks rose to its highest level in seven days. The CSI 300 advanced 2.1%. All of its sub-indexes increased while measures of tech and industrial stocks increased by a minimum of 2.7%.  The Hang Seng declined 0.8% The Hang Seng China Enterprises Index moved down 1.1%.

The Shanghai Composite Index lost 0.4% on Wednesday as investors turned cautious and oil prices declined heavily. A measure of energy stocks declined 1.6% as oil prices moved to around $30 a barrel following the steepest two day decline in seven years. PetroChina declined by 1.4% in Shanghai and lost 4.2% in Hong Kong.

Positive economic data provided little comfort to investors. The Caixin China Services PMI increased to 52.4 in January from 50.2 in December. This was the highest level witnessed since July. A measure of energy stocks declined 1.6% due to the drop in oil prices.

A sub-index of property stocks increased 0.4% on the Shanghai exchange. This was primarily due to the central bank’s decision to reduce down payments on mortgages for first time home buyers. The CSI 300 declined 0.4%. The Hang Seng fell for a third successive day, declining 2.3%. The Hang Seng China Enterprises Index sank, losing 2.5 percent, to its lowest point in more than a year.

The benchmark index increased 1.5% on Thursday closing at its highest level since Jan 25. Commodity stocks surged and the People’s Bank of China intensified its efforts to reduce shortage of cash before markets close for the new year holidays. A gauge of energy stocks moved up from record low levels following the longest rally in crude futures in nearly two weeks.

The central bank pumped 80 billion yuan ($12 billion) into the monetary system utilizing reverse repurchase agreements lasting 14 days. This open market operation is part of the monetary authority’s efforts to control rising borrowing costs even as capital outflows and demand for funds rise.  Meanwhile the People’s Bank of China increased yuan fixing by the highest extent in two months.

The CSI 300 added 1.2%. A sub-index of material stocks within the CSI 300 gained 2.8%, the highest among its industry groups. PetroChina gained 0.6% during the session. The Hang Seng China Enterprises Index rebounded, moving up 1.5%.

Stocks in the News

Alibaba Group Holding Limited reported third-quarter fiscal 2016 (ended Dec 30, 2015) earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 70 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.

Alibaba reported revenues of RMB34.54 billion (US$5.3 billion), up 55.8% sequentially and 31.9% year over year, driven by strong mobile revenues. Also, revenues surpassed the Zacks Consensus Estimate of $5.08 billion.

Total China retail marketplaces GMV came in at RMB964.0 billion (US$149.0 billion), up 23% year over year. China retail marketplaces had 407 million annual active buyers in the 12-month period ended Dec 31, 2015, representing a 22% year-over-year growth.

Mobile GMV was RMB651.0 billion (US$101.0 billion), a 99% year-over-year surge. Mobile GMV accounted for 68% of total China retail marketplaces GMV as against 62% last quarter and 42% in the previous year. Mobile MAUs grew to 393 million, improving 48% year over year, driven by increased promotion of mobile apps.

Changyou.com Ltd. reported adjusted fourth-quarter 2015 earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 54 cents. This was also a significant improvement over earnings of 21 cents per share reported in the same period last year. However, this was lower than the adjusted earnings of $1.55 cents reported in the third quarter of 2015.

Changyou.com reported revenues of $162 million, down 14% from third quarter 2015. Additionally, revenues declined 25% compared to the same period last year. Revenues from online games came in at $127 million, falling 31% on a year-over-year basis.

For fiscal year 2015, Changyou.com reported revenues of $762 million, an improvement over 2014’s figure of $755 million. Revenues from online games came in at $637 million, declining from $652 million reported in 2014. .

TAL Education Group reported adjusted third-quarter 2015 earnings of 12 cents per share, in line with the Zacks Consensus Estimate. This is marginally lower than the 13 cents reported in the year-ago period. However, this is significantly lower than the adjusted earnings of 72 cents reported in the second quarter of 2015.

TAL Education Group reported revenues of $142.2 million, representing a 43.1% increase over the same period last year. However, revenues declined significantly from the $173 million reported in second quarter 2015.

For the nine months ended Nov 2015, TAL Education reported revenues of $ 444.9 million, which represents a 43.2% improvement on a yearly basis. During this period, total student enrollments increased by 53.4% on a yearly basis.

JD.com, Inc. has inked an agreement with DHL per which they will collaborate across a number of cross border supply chain activities. These initiatives will utilize each company’s unique capabilities, of ecommerce and logistics and widen their existing relationship.

Earlier, in July last year the two companies had revealed that DHL was becoming the preferred logistics service provider for delivery of certain orders made on the Chinese ecommerce giant’s U.S. Mall. The agreement related to deliveries would pertain to those products delivered to China as well as across that country.

DHL will be the preferred logistics provider for JD.com’s International Business Group per the terms of the new agreement. This unit concentrates on consumers placing orders from outside China. Further, JD.com will now be a strategic customer per the Fast Growing Enterprises initiative of DHL. This will provide the ecommerce company access to a number of logistics solutions from all of DHL’s business units.

CNOOC Ltd. said it has started production at two offshore projects. These are the Weizhou 12-2 oilfield joint development project and the Weizhou 11-4 North oilfield Phase II project. Both of these projects are located in South China Sea’s Beibu Gulf Basin.

With an average water depth of around 36 meters, the Weizhou 12-2 project has three oilfields. Production facilities include three wellhead platforms, including 18 wells on all of which production has started. Total production has touched a daily rate of 16,000 barrels, achieving the peak production of its overall developing plan.

The Weizhou 11-4 North Project’s average water depth is around 40 meters. It has two wellhead platforms and 15 producing wells. At present, one well is producing oil at a daily rate of 500 barrels and is projected to touch peak production of 8,000 bpd by end 2016.

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.