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Sadness in the Second Quarter: "Eagle's Cry" Resounds, Collective Crossing Difficult

Hello everyone, I am Dolphin Analyst.

The Q2 2022 earnings season basically came to a close last week. Reviewing this season, Dolphin Analyst covered a total of 61 companies, with the period from June 30 to September 13. Judging from the stock prices, it can be described as "real miserable", as only 14 of the 61 companies had increased, and 47 ultimately fell, with the decline of 6 companies even exceeding 30%. But compared with the benchmark index, it is still not bad: the Hang Seng Index fell more than 10% during the period, and the Shanghai and Shenzhen markets both fell, only the US stocks rose slightly.

What happened this quarter? Today, Dolphin Analyst will review it with everyone.

Before splitting the individual stocks, let's first review the more important events in Q2:

1. "Hawks" strike the sky, the US Federal Reserve aggressively raises interest rates. The US GDP continued to shrink, and the signal of economic recession became even stronger. Coupled with the high CPI, it strengthened the expectation that the US Federal Reserve will raise interest rates aggressively. In June and July, the Federal Reserve had raised interest rates by 75 basis points in a row, and the interest rate expectation for September even reached 100 basis points. In order to effectively curb inflation, the hawkish attitude of the Federal Reserve remains strong.

2. The chip bill has landed, pushing forward the wave of domestic substitution. Biden officially signed the "2022 Chip and Science Act" in August. After the bill was announced, it caused a huge impact on the chip industry. On the one hand, it will promote the construction of local wafer factories in the United States, and on the other hand, it is expected to accelerate the wave of domestic substitution in China. The performance of the semiconductor sector has gradually differentiated.

3. The audit work papers have not been settled for a long time, and the risk of delisting of Chinese concept stocks has intensified: Alibaba was listed by the United States at the end of July, and the topic of delisting of Chinese concept stocks was pushed to the forefront. It was recently rumored that Chinese concept internet giants would accept audit work papers inspections in batches, and the cooperation has not yet been settled, and market concerns still exist. Dolphin Analyst believes that under the extreme pessimistic sentiment created by the epidemic and the risk of US stock delisting, the stock prices of Chinese concept stocks have again fallen below their intrinsic value.

4. The prosperity of real estate has declined, and the real estate market has fallen again and again. Before, news came out that 8 real estate stocks were removed from the Hang Seng Index. After that, many city real estate projects were found to be unfinished, triggering a wave of "stop loans and suspending supplies" for homeowners. In addition, with the peak period of debt repayment, weakened sales in July, and pressure on the internal property, property and service management sectors. Taking Country Garden as an example, its stock price has been halved since the end of June. Many places have continued to promote policies to stimulate the real estate market, but the effectiveness of them is not yet clear.

5. The game version number is gradually being promoted. In July and August, 67 and 69 games were approved respectively, with the number increasing month by month and setting new highs. In September, NetEase and Tencent, two large companies, were approved (Tencent indirectly with wholly-owned subsidiaries obtaining the version numbers), which effectively countered the previous "suspension of large factory version numbers" statement. However, Dolphin Analyst still believes that the normalization of the domestic version number regulation is the trend, and the limited number of version numbers means that going abroad is still a path for major domestic game manufacturers to follow in the future. Looking back at the global financial market, 2022 was an extremely difficult year, especially as the Hong Kong stock market is experiencing its deepest and longest decline since 2008, with continuously low market sentiment and severe lack of market confidence. The Hang Seng Index has even hit a new low since 2015, and the PE ratio is at a historical low level.

Towards the end of the year: With sufficient liquidity and the possibility of currency conversion improving credit investment, as Dolphin Analyst mentioned in this week's strategy weekly report "Is there still hope for a market that has fallen into despair?", China's overall situation is starting to gradually recover. Despite not considering external factors causing a market crash, there are signs of marginal recovery in China based on data, and under the continuous pressure of decreasing valuations and performance overseas, domestic assets might finally have the hope of coming out of the rut.

(If you need to obtain the PDF collection, please find the article from September 30th on the "Dolphin Research" public account and check the method to obtain the collection.)

The following is a detailed review:

Affected by policies, macro, and other factors, major indices in the Shanghai and Shenzhen, as well as Hong Kong markets, have all shown different levels of decline, while the US stock market rose and then fell.

Source: Longbridge App

For individual stocks, today we will cover 61 companies that are classified into four categories for review: "rising companies (with a growth rate of more than 20% within the cycle)", "companies with decent performance (with a positive growth rate within the cycle but not exceeding 20%)", "companies with average performance (with a decline within the cycle not exceeding 20%)", and "companies in deep correction (with a decline of more than 20% within the cycle)".

1. Rising companies: US stocks leading the way

There are only five "rising companies" this quarter, namely Airbnb, Tesla, Disney, Netflix, and Sungrow, among which four are US stocks, and none of the Hong Kong companies made the list.

// A detailed analysis can be found in the PDF collection.

Key observations on some of the core companies:

Airbnb: At the end of June, Airbnb was at a low point in terms of performance but saw a rebound following the improvement of the epidemic situation. From the perspective of stock price, it was the best-performing company among the Dolphin Analyst's covered enterprises in the Q3 report. From the financial statements, Airbnb's revenue and profit growth in this quarter are still maintaining strong momentum, which is basically in line with market expectations. From the trend of the company's business performance, it is maintaining high-speed growth on the revenue end, steadily increasing its realization rate, controlling expenses effectively, and achieving a significant increase in profit release under economies of scale. It can be said that the company's performance this quarter is excellent, and its revenue guidance for the third quarter also exceeded expectations. Tesla: Tesla's Q2 performance slightly exceeded expectations all around, but considering that Tesla has previously shown an ability to significantly beat expectations, this time it can only be said to be "okay". From an investment perspective, Tesla is still a good long-term investment to keep and follow. This type of company only presents slightly better value opportunities during dips, so Dolphin Analyst will focus on the new factory utilization rate and vehicle price trends in search of possible investment opportunities.

Sunshine Power: Even in the face of the pandemic's impact, the company's revenue growth (especially in the photovoltaic inverter and energy storage industries) was quite impressive, and the industry's demand is also quite strong, presenting promising prospects for future growth. However, in the short to medium term, the issue of rising raw material prices and intense competition has severely impacted the company's revenue growth without profit growth, increasing marketing expenses. If the problem of profit release cannot be fundamentally solved, Dolphin Analyst believes that how the company's profit of less than 1 billion in half a year could support a market capitalization of nearly 200 billion is a major issue.

Part 2: Companies With Decent Performance: Internet E-commerce Companies Lead the Way in Gains

In this quarter, nine companies had gains between 0-20%, maintaining positive growth in the context of a general downturn. Internet e-commerce companies led the way in gains, with Apple leading the tech stocks. Recently added to Dolphin's watch list, Block's performance was also quite impressive.

//For a detailed analysis, please obtain the PDF collection and refer to it.

Key Observations on Featured Companies:

Apple: Apple's Q3 results were basically in line with market expectations, mainly due to the iPhone showing better-than-expected performance in the slump, making up for weak performance in products like Mac and wearables. Dolphin Analyst believes that Apple's performance in the short term is still good. However, in the long run, Apple will need new products or innovations to drive continued growth, which is also a factor behind Apple's continued expansion and pursuit in emerging fields such as cars and virtual displays.

Pinduoduo: The Q2 performance of Pinduoduo can only be described as "explosive", with explosive revenue growth, a surge in gross profit margins from a steady 70% to 74.7%, and adjusted operating profits of over 10 billion, which is truly shocking. From the perspective of competitive landscape, major cold retail Internet companies have proactively contracted under the "cold snap", no longer relying on spending money for growth, instead focusing on core businesses. As the industry stops its inner turmoil, Pinduoduo's competition will also significantly ease, improving the competitive landscape.

NIO: Among Dolphin Analyst's research pool, both Xiaopeng and Li Auto's Q3 stock price performances were at the bottom, but NIO's performance was still okay. Looking back at Q3, although profits were lower than market expectations and revenue guidance was mediocre, it could be seen that NIO's auto sales have begun to shift out of a few quarters of decline and into a curve of "updates and upgrades." Additionally, the launch of the ET 5, which is unlikely to erode the existing vehicle user base, along with a better vehicle lineup and brand momentum compared to Li Auto and Xiaopeng, lends NIO a certain advantage.

III. Companies with Average Performance: Consumer Companies Perform Mediocre

This quarter, there were a total of 30 companies with a decline between 0-20%, which is the largest range and generally matches the overall growth of the index. Among the companies covered by Dolphin Analyst, the number of consumer stocks falling in this range was the highest, which is consistent with the trend of the broader market.

// For detailed analysis, please refer to the PDF collection

Key points of observation for some core companies:

Google: Google's Q2 earnings report and market reaction demonstrated the marvelous phenomenon that "mediocre" can be another form of "exceeding expectations" despite pessimistic forecasts. The main driver behind Google's stable performance was the post-pandemic logic of a service-oriented consumption recovery. The high demand for services such as tourism has pushed Google's search advertising to maintain growth resilience. In addition, new technologies and features in search advertising may have contributed to its success.

CATL: The 2022 first-half performance of CATL was both surprising and slightly regrettable: revenue was RMB 113 billion, a year-on-year increase of 156%, and net profit attributable to shareholders was RMB 8.2 billion, both significantly exceeding market expectations, with rapid marginal recovery in the second quarter being the main contributor to this exceedance. The strong income performance in Q2 reflects the momentum of expanding and strengthening the company in the domestic market and sweeping overseas markets, which will be a major focus going forward.

Nvidia: Nvidia's Q2 performance can be described as thunderous, with both revenue and gross margin falling significantly below market expectations and directly impacting its stock price. Dolphin believes that the sluggish electronic market combined with the continuously falling virtual currency prices has directly caused the "double kill" of Nvidia's revenue and gross margin due to the shrinking demand for graphics cards. In the short term, there is still a risk of performance decline, so Dolphin has removed Nvidia from the "low-end" Alpha Dolphin combination.

IV. Companies with Significant Pullback: New Energy Takes a Tumble

There were a total of 17 companies with a decline of over 20% within the quarter, commonly referred to as companies with significant pullback, all of which were Chinese concept stocks, indicating the difficulty for Chinese stocks to survive in Q2. New energy stocks such as Xiaopeng, Ideal, Envision and Longi have unfortunately made the list, and competition in the industry is becoming increasingly fierce.

// For detailed analysis, please refer to the PDF collection

Key points of observation for some core companies:

Alibaba: Although Alibaba's Q2 overall performance was impressive due to its significant profit margin exceeding market expectations, it was only because market expectations were too low. Important growth in GMV and customer management revenue were both within expectations and overall performance was not particularly outstanding. The turning point in the industry's competitive landscape has not yet arrived and the market response to such performance may have some positive responses, but it is unlikely to trigger a significant surge. Xiaomi: Although Xiaomi has basically "completed" the market expectations this quarter, the financial report reveals "disastrous" figures. Most of Xiaomi's major businesses have declined this quarter, and both IoT and Internet businesses have declined for the first time, with the smartphone business directly dropping nearly 30%. Due to the decline in all businesses and multiple risks, there is a risk of downward revision in Xiaomi's performance. Xiaomi is no longer a company that made 20 billion yuan in profits last year. This year's net profit after adjustment may be less than 10 billion yuan for the whole year, and its market value corresponds to a valuation of 25 times (which is close to that of Apple), and the actual valuation is not low.

Pinduoduo: Earlier, Pinduoduo's full-year performance in 2021 seemed good, but the market expectations had actually been raised. In addition to the overall sales pressure in the second quarter, Pinduoduo plummeted for seven consecutive months in July, completely giving back the rebound in July. The profit warning in the second quarter also lowered expectations again. When the stock price completes Pinduoduo's poorly-performing but still over-expectation show, the further recovery of the stock price still needs to answer the company's competitive barriers and future growth problems.

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