Chinese concept stocks face a big test in financial reports! Any surprises from Tencent and JD.com? Will Alibaba continue to lie low?

The new quarter financial report season is approaching, with Chinese concept stocks such as JD.com, Alibaba, Tencent, etc., set to disclose their third-quarter performance one after another, and major Wall Street banks have made predictions.

First, let's look at Tencent. Analysts generally expect the gaming business to continue to grow rapidly, achieving double-digit year-on-year growth, with advertising and financial technology businesses also expected to perform well. In terms of key financial indicators, Morgan Stanley expects gross profit to grow by 15% year-on-year, with gross margin increasing by 3.7 percentage points to 53.2%.

Next is Alibaba, with domestic GMV growing by 4% year-on-year in August, slowing down from 8% in July, and GMV in September expected to grow in the mid-single digits. However, Alibaba faces multiple positive factors in the coming quarters, including revenue growth from the incremental monetization policy launched in September, an increase in active shoppers after integrating WeChat Pay, and capital inflows from the inclusion in the Hong Kong Stock Connect.

As for JD.com, benefiting from the subsidies for trading in old for new, revenue in the electronics category is expected to grow by 3% year-on-year, with electronic product GMV expected 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, leading to an average downward revision of profit expectations by 2-3% for 2024-2026.

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

Analysts expect Tencent's performance in the third quarter to be robust, mainly driven by the gaming business, with optimistic prospects for advertising and financial technology businesses.

Morgan Stanley expects revenue and non-IFRS operating profit to grow by 7% and 16% year-on-year, respectively. 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 profit expected to grow by 25% year-on-year.

Regarding the gaming business, analysts expect Tencent's growth in the domestic and international gaming markets to accelerate, bringing double-digit year-on-year growth. "Dungeon & Fighter" maintains strong momentum, with total revenue expected to reach 9.5 billion RMB in the third quarter. Other games such as "Peacekeeper Elite" performed well in September, with gross revenue growing by 24% year-on-year, and "Wild Rift" seeing a 7-fold increase in gross revenue. Revenue from international markets grew by over 30% in the first quarter and continued this strong trend in the second quarter, with strong revenue growth in the first half of the year indicating that revenue growth in the second half and beyond will remain strong.

In terms of advertising, financial technology, and business services (FBS) businesses, advertising growth may slow down due to a high base, but is still expected to achieve double-digit growth. Tencent's yet-to-be fully monetized 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. For FBS, the integration of WeChat Pay with Taobao/Tmall will support this business, with FBS revenue expected to grow by 2.5% (consensus at 4%).

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

Alibaba: GMV expected to grow at a mid-single-digit rate, facing multiple positive factors in the coming quarters

Analysis predicts a slight decrease in Alibaba's profit in the third quarter, with GMV expected to grow at a mid-single-digit rate in September. However, the performance outlook faces multiple growth factors.

JP Morgan stated that specific data forecasts show that total revenue for the second quarter of the 2025 fiscal year is expected to grow by 6% year-on-year, slightly lower than market expectations. Non-GAAP earnings per share are expected to decline by 2% year-on-year, but higher than market expectations. Nevertheless, growth in the third quarter is expected to improve, with GMV and core customer management revenue expected to grow by 6% and 5% year-on-year, respectively.

Analysis points out that due to the impact of reduced consumer spending caused by the macro environment, Taotian Group's core revenue and profit will be affected. GMV grew by 4% year-on-year in August, slowing down from 8% in July, and the situation in September may not improve. It is expected to achieve mid-single-digit growth, while customer management revenue (CMR) is expected to achieve low single-digit growth year-on-year.

Nevertheless, the analysis indicates that Alibaba will face multiple positive factors in the coming quarters, which may drive future growth.

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

Revenue growth from the incremental monetization policy launched in September, Alibaba began implementing a 0.6% technology platform fee from September 1st and has gradually rolled out its new advertising platform to enhance monetization on its platform. Management previously commented that approximately 12 months later, its CMR growth should be roughly in line with its GMV growth.

Full access to WeChat Pay, Taobao announced full integration with WeChat Pay, expected to boost GMV and revenue. Access to WeChat Pay may bring an additional 20-30% user growth, with WeChat Pay having 1.05 billion monthly active users, while Taobao/Alipay has approximately 900 million users.

Inflow of funds after inclusion in the Hong Kong Stock Connect, Alibaba completed a dual primary listing in Hong Kong at the end of August, which is expected to increase mainland investors' demand for its stock.

Additionally, Citigroup reminds to pay attention to the upcoming "Double Eleven" shopping festival strategies and promotions, especially under the latest and upcoming macro policies, to see if consumers will increase spending during the "Double Eleven" period.

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

It is worth mentioning that Alibaba repurchased $4.1 billion worth of stocks in September, returning over $14.7 billion to shareholders through stock buybacks so far this year, and an additional $4 billion through dividends.

JD.com: Benefiting from trade-in subsidies, electronics category revenue expected to turn around

Analysis predicts that JD.com is a beneficiary of trade-in subsidies, and the recovery of electronic products will help drive performance growth.

HSBC expects third-quarter revenue to grow by 4.8% year-on-year, with JD.com's retail revenue increasing by 4.6%. Home appliances and consumer electronics are expected to rebound, with fast-moving consumer goods performing strongly, and 3P (third-party merchants) revenue accelerating to a 7.1% year-on-year growth. Non-IFRS net profit is expected to grow by 8.8% year-on-year, reaching 11.6 billion RMB, with a slight increase in non-IFRS net profit margin, up by 16 basis points to 4.5% year-on-year, benefiting from continued gross margin expansion and operational leverage improvementJD.com plans to increase investment in user acquisition, subsidies, and category promotion in the fourth quarter of 2024 to seize the opportunity of consumer sentiment recovery. However, the increased marketing expenses may have a certain impact on profit margins, with profit expectations for 2024-2026 being lowered by an average of 2-3%.

Specifically, the trade-in subsidy for electronic products is driving the recovery of the electronic product category, with revenue expected to grow 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. As one of the main sales channels for electronic products, JD.com benefits 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 exceed GMV growth, with quarterly active buyers maintaining a mid-single-digit growth in the short term, thanks to solid user engagement, but the average selling price (ASP) has decreased year-on-year.

Furthermore, JD Logistics' opening 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 weakened, 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 a 21% upside. They have also raised their forecast for non-GAAP net profit for the 2024 fiscal year, mainly due to increased revenue from JD Logistics. 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 operating profit margin potentially expanding by 10 basis points to 3.9%.

In terms of stock buybacks, JD.com repurchased $3.3 billion worth of shares in the first half of 2024 and plans to continue increasing dividend payments. With a P/E ratio of 11 times in 2025, the valuation still appears reasonable