Hello everyone, I am the Dolphin Analyst.

As the Q3 financial report season officially came to a close last week, I reviewed the entire market, including the companies we cover. At the same time, I compiled a complete information package of all Q3 interpretations (including company briefings and meeting notes that have not been published on our official account) covering more than a dozen industries, over 50 companies, and nearly a hundred research reports. You only need to add our assistant WeChat account "dolphinR123" and join the Longbridge research and analysis group. We will release the package in the group on December 14th at 3:00 pm.

As we approach the end of 2022, looking back at this year's market performance, the Hong Kong, US, and Shanghai and Shenzhen markets have all seen varying degrees of sharp decline, with the Nasdaq index falling by nearly 30% year-to-date. However, the good news is that since the "darkest" period in October, with the news of the optimization of epidemic prevention and control policies in November, and the expected slowdown of the Fed's interest rate hike, market confidence has been boosted, and major global indices have shown varying degrees of recovery during this financial report season.

Reviewing the macro features of this Q3 financial report season, the Dolphin Analyst believes that the following few features are the main characteristics:

1. The Fed's interest rate hike has slowed down, and external market pressures have eased: Currently, the market is highly concerned about the Fed's policy inflection point issue. Previously, the aggressive monetary policy of the US, along with the persistent "hawkish" interest rate hikes, has scared the market. Starting in the fourth quarter, the Fed's policy has finally shown some convergence, and the capital market has also given positive feedback. However, the Dolphin Analyst believes that the trend of "high inflation, high interest rates, and low growth" in the US stock market will not change so quickly, and the short-term rapid rebound also seems to be entering the final stage.

2. Epidemic prevention and control policies are gradually being optimized, and consumption is showing a strong rebound: Faced with the repeated outbreaks of the COVID-19 pandemic, policies such as the "new ten measures" for epidemic prevention and control have been introduced one after another, and more and more regions are choosing to gradually relax restrictions. The lifting of epidemic prevention restrictions will drive the centralized release of consumer, especially offline consumer demand, which will boost market sentiment. The catering, tourism, and accommodation industries have all experienced varying degrees of recovery.

3. US tech giants fall collectively, and Chinese concept stocks rebound strongly: In the third quarter, US tech giants fell one after another, and companies such as Meta and Google were like a large-scale bombing scene, with frequent thunderstorms and a pessimistic outlook in the fourth quarter. Against the background of external interest rate hikes slowing down and internal epidemic prevention and control optimization, Chinese concept stocks have experienced a strong rebound, and the funds that previously fled have flowed back, coupled with the recovery of the renminbi, greatly increasing the return and attractiveness of Chinese assets.

4. The real estate industry has temporarily exerted its strength and led the sector to recover: Starting in November, favorable real estate policies have been introduced one after another, with a "three-pronged approach" being strongly supported. In addition, the China Securities Regulatory Commission recently announced five measures to resume the refinancing of listed real estate companies and companies with real estate-related listing. Market confidence is gradually recovering. In November, the real estate sector rebounded noticeably.

Dolphin Analyst believes that "looking from the outside, the slowing down of the Fed's rate hikes has helped to relieve the 'tight spell' on the valuations of the US stock, Hong Kong stock, and A-share markets to varying degrees this quarter. In addition, the optimization of epidemic prevention policies and the relief of economic pressure in the domestic policy environment of Hong Kong and A-share markets has led to a more significant rebound."

However, from the perspective of performance itself, most of the current performance has been mostly weak, except for the profits exceeding expectations brought about by the unified "cost reduction and efficiency increase" during the economic contraction period. Only one company has truly grown - Pinduoduo.

Although the performance of Chinese concept stocks has been poor, the dark horse road has basically come to an end. However, American giant stocks have fallen one after another, with companies such as Microsoft, Google, Amazon, and Meta all falling. The fourth quarter is filled with general pessimism in terms of US stock performance, and the US stock performance may just be beginning to face a historical disaster.

However, stock prices are not traded based on past performance, but on future expectations. When the macro environment dominates the market, the space for individual stocks to play is limited, and the macro turning point finally becomes the true redemption for the Hong Kong and A-share markets.

The arrival of the turning point in the outside world's rate hikes and the domestic epidemic prevention and control turning point have led to the stabilization and rebound of the A-share and Hong Kong stock markets. During the period of the HSI Tech Index's financial report season, the index increased by more than 26%, but one should still pay attention to the risks hidden behind the short-term strong rebound. Dolphin Analyst maintains the view expressed in "Is It That Easy to 'Eliminate' Service Inflation? Beware of the Market Overreacting" that for this week, unless the outcome of the economic work conference greatly exceeds expectations, it can only be considered as a positive realization; as for the end-game of Hong Kong stocks, if the global macro-economy still has the 2020 "global unprecedented monetary easing" prospects to follow, then further opportunistic moves may still be available.

Below is a detailed analysis

I. Macro Environment: The Outside World's "Squeeze" Relaxes and the Chinese Concept Stocks Stiffen Their Backbone

In terms of the macro environment, on the one hand, the US Federal Reserve's economic recession expectations have increased, making the possibility of the Fed slowing down rate hikes greater, thereby reducing the pressure on the outside markets; on the other hand, the proposal of domestic epidemic prevention policy optimization and other measures has strengthened the expectation of domestic economic recovery.

1. The "squeeze pressure" of the external market is not as heavy as before

Since the beginning of this year, the Fed has launched the most aggressive rate hike cycle in history, and the issue of policy turning points has become a heavy hammer hanging over everyone's heads. Since the beginning of the year, the Fed has gone through six rate hikes: the first two were 25 basis points and 50 basis points, and the last four were each 75 basis points, marking the most intense hike since 1981. The Fed's policy interest rate has accelerated from the zero interest rates (0-25 basis points) to 3.75%-4%. However, the decision statement announced after the last rate hike suggested a shift toward dovishness, coupled with the "friendly" rate hike statement made by the Fed Chairman a few weeks ago, and the global market responded accordingly with a rise. Good news is that with the intensive rate hikes this year, the market's expectation for future rate hikes are decreasing, which means the rate hike speed will continue to slow down, while the absolute value of interest rate may continue to rise within a certain period of time, the growth rate is likely to slow down. Powell also said that the Fed may "slow down the pace of interest rate hikes as early as December".

At the same time, we need to pay attention to the supply of labor in the market. In October, the net increase in job demand (including resignations) in the United States decreased by 70,000, while in November, 260,000 non-farm jobs were added. The Dolphin Analyst has made a detailed analysis of these data in the article "Hong Kong stocks finally have a "backbone"? Independent market still has room to grow". It is highly probable that the United States will be in a stagnation environment of high inflation, high interest rates, and low growth next year.

Second, the domestic epidemic prevention and control measures are becoming more flexible and efficient, which is promoting the steady recovery of the economy. With the optimization of the epidemic prevention policies, consumption has gradually become a bright spot in economic growth. During the epidemic prevention period, consumer traffic at supermarkets, restaurants, and entertainment venues declined, while food and beverage consumption was suppressed. On the other hand, production and work stoppages also affected residents' income. The shortage of consumption scenarios and the decline in consumption power became the most worrying issues in the market. However, in recent days, as more and more regions choose to gradually relax their restrictions, the lifting of epidemic prevention restrictions will drive the release of concentrated consumer demands, especially offline consumer demands, and the consumption end is expected to accelerate into the recovery cycle.

Against the background of the relaxation of peripheral markets and the strengthening of domestic economic recovery expectations, the offshore RMB exchange rate has been continuously repaired recently. On December 5, it achieved the first break of the "7" level since September. The exchange rate increase has driven the continuous repair of Hong Kong stock valuations and the continuous surge of Chinese assets.

Industry trend: eCommerce squeezes profits, while consumer and real estate "stand their ground"

Internet eCommerce: Competition still fierce, Pinduoduo stands out

Let's first review the social and retail (so-re) data monitored by the Dolphin every month. The so-re data for October has once again shown a significant weakening, combined with the previously announced October social financing data, which indicates that the pressure on domestic economic growth is indeed considerable.

However, the bright spot is the exceptional performance of online physical retail sales, with year-on-year growth rate increasing continuously for four consecutive months. The reason might not be worth being overly optimistic, as the core reason is because the payment and final payment time for this year's Alibaba Double Eleven event were moved up, releasing a large amount of transaction volume on the last night of October. Under the impact of macroeconomic factors, the competition in the e-commerce industry remains fierce. Taking Alibaba, JD.com, and Pinduoduo as examples, Dolphin Analyst summarized in "Reality Check on US Stock Market, How Long Could Emerging Markets Keep Bouncing? "that: "The e-commerce sector is collectively seeing a decline in competition, transitioning from the previous 'market share grab' to the stage of 'inferior revenue and soaring profit.' " While the burial of Double Eleven basically settled the matter, Alibaba and JD.com have given extremely pessimistic guidance for the fourth quarter. Although in the eyes of Dolphin Analyst, it is not difficult for e-commerce companies to release profits, the actual situation is that although profits are released after cost cutting, revenue has not been generated for most companies.

However, compared with Alibaba and JD.com, Pinduoduo's performance in Q3 was "exploding" and excellent, breaking historical profit records and increasing revenue at a faster pace than expected. Against the backdrop of the industry's general expectation for profits exceeding expectations, Pinduoduo's ability to exceed expectations in revenue growth is very rare and valuable, which once again validates the statement by Dolphin Analyst in the previous industry overview: Pinduoduo is currently the most beneficiary and best performing target in the e-commerce sector in this cycle and is officially crowned as the latest "faith stock" in the pan-retail sector.

Dolphin Analyst's Core Focus (part of the content):

** Will Pinduoduo's Performance Explode Again? 《

**** Can JD's Massive Profits Save It from Slowing Growth? 《

**** Alibaba: Huge Losses Are Just Paper Tigers, and "Competition Deadlock" is the Fatal Blow 》

2. New Energy Vehicles: Recovery After Downturn

Looking at the delivery data, the delivery volume of new energy vehicles in October saw a month-on-month decline. Traditional automakers such as GAC Group and Geely Automobile continued to exert efforts in the new energy field, with their momentum surpassing that of new forces in the field. In November, new forces in auto-making each showed impressive results: Ideal Automobile set a new monthly delivery record of 15,000 vehicles; followed closely by NIO, which delivered 14,200 automobiles in November, a 30.3% increase YoY. Xiaopeng Motors is gradually emerging from the low delivery period in the early stage. In November, its delivery volume increased compared to the previous month. Xiaopeng has become the new force that has fallen the most in model iteration.

From the perspective of production and sales, in the first three quarters, the production and sales of new energy vehicles of Xinyuan Automobile reached 4.717 million and 4.567 million respectively, with a year-on-year increase of 1.2 times and 1.1 times, and the market share reached 23.5%.

In addition, the topic of the expiration of the purchase tax on new energy vehicles has received a lot of attention. The new energy purchase subsidy policy in the Chinese new energy vehicle market will end on December 31. Although there were market rumors before that the new energy vehicle subsidy will continue in 2023, relevant policies have not yet been seen.

As the subsidy is about to expire, various manufacturers have increased their discounts to promote the early release of new energy passenger car purchase demand, while adopting different strategies to hedge losses. Tesla chooses an official discount and promotion, BYD chooses to raise prices, and Changan Shenlan and Xiaopeng Motors choose to maintain prices. As the industry enters a stable growth stage, the dependence of new energy vehicles on subsidies is gradually decreasing. Continuous technological innovation and safety upgrades bring product experience improvement and cost reduction, which are the main directions of the industry's future development.

Dolphin Analyst's Core Focus (Part of the Content):

"The performance was bad, but the stock price still rose? Xiaopeng still needs to "reshape its structure""

"NIO: When the pricing is pessimistic enough, how much impact can it have if the answer sheet collapses?"

"Abandoned by Buffett? BYD's domineering resignation"

3. Consumer Electronics: Q3 Season Weakness, Smart Phone Market Still Under Pressure

In Q3 2022, the global smart phone market still faced pressure due to uncertain macroeconomic conditions, consumer disposable income, epidemic prevention and control measures, and slowing down of mobile phone innovation upgrades, among other factors. According to the latest data from IDC, the global smart phone market still faces pressures, with a shipment volume of 302 million units in Q3 2022, a year-on-year decrease of 9.7%.

According to IDC's latest data, China's smart phone shipments in Q3 2022 were about 71.13 million units, a year-on-year decrease of 11.9%, which is greater than the global market decline. Due to factors such as domestic and foreign economic environment and epidemic prevention and control, the domestic smart phone market continued to show a sluggish performance in the first half of the year. Although the decline has narrowed, it still requires some time to recover.

Apple is the only smartphone manufacturer with positive growth in Q3, performing better than Android phones. The global smartphone market is expected to experience a moderate rebound in 2023, with emerging markets becoming the main driving force for growth. New product categories such as headphones, watches, AR/VR still have great potential.

Dolphin Analyst has recently been closely monitoring Xiaomi and believes it is expected to turn around in 2023, as mentioned in "Xiaomi: Three Arrows to Reverse the Situation": "At the current price of around HKD 10, the market has already anticipated the 'three challenges' faced by Xiaomi. Since this is the most pessimistic and difficult time, it is necessary to leave enough safety cushion for yourself. The next step may be the landing of 'one arrow' after another, welcoming a marginal improvement step by step."

Dolphin Analyst's key focus (partially):

"Xiaomi has been down for too long, and it's finally about to see the light"

" Even when performance is good, does that mean Apple is really sweet?"

4. Entertainment: Falling into dust, only rebound?

Among the companies Dolphin Analyst is currently focusing on, the entertainment sector is performing relatively well and is gradually recovering after its fall.

In the core gaming sector, with the resumption of the issuance of gaming licenses, the industry is expected to recover in the long run. In November, Tencent and NetEase, dragon heads of the gaming industry, have both obtained the license for their self-developed games ("Metal Slug Awakening" by Tencent and "Return of the Condor Heroes" by NetEase). Since the resumption of gaming licenses in April, a total of 6 batches of licenses have been issued until November, increasing in number gradually. In addition, in mid-November, the People's Daily published a comment article stating that the game industry is inseparable from cutting-edge technology, and the gaming industry has also helped release new momentum for various industries in the digital economy, overall boosting market confidence.

Furthermore, with the further control of the epidemic, domestic film scheduling is gradually opening up in the fourth quarter. The release date of "Avatar: The Way of Water," announced at the end of November, stimulated a wave of sectoral recovery. Import films such as "Detective Conan: The Bride of Halloween," "One Piece: Red-haired Songstress," "Black Adam," etc. are also being considered for import, and potential opportunities brought about by the emotional recovery of the film industry must be continued to be monitored.

Dolphin Analyst's key focus (partially):

"Is BiliBili approaching a turning point in its operations? Still need to take 'drastic measures' to dispel doubts" 《NetEase: What gave Blizzard the confidence to split?》

5. Consumer Industry: Market Confidence Boosted by Optimized Epidemic Prevention Policy

In October, the growth rate of social retail sales slowed down continuously, and the rise of food CPI also fell back: YoY +7.0% in October and +0.1% MoM, mainly due to: 1) a large number of fruits, vegetables, and aquatic products coming on the market after the holiday season and a decrease in demand for consumer goods after the holiday season leading to a drop in prices of fruits, vegetables, and aquatic products, and 2) high base effects during the same period.

Catering stocks are favored in the capital market. Recently, the release of policies such as the Twenty Measures for Epidemic Prevention and Optimization has greatly boosted the confidence of related industries such as tourism, catering, and aviation, while the promotion of consumption vouchers by the Hong Kong government is expected to restore the confidence of citizens and stimulate the local economy and catering industry towards recovery.

The beer sector has always been one of the key sectors covered by Dolphin Analyst. Recently, due to the rebound in consumption, the winning rate of beer relative to other sectors is still relatively good. In our previous summary of the beer industry in the article "Qingdao Beer, Chongqing Beer: Beer “Old Gun” Becomes Consumer “Mainstream”", we gave a summary: in the already stock-heavy beer industry, the leading companies have gone through the ups and downs of price wars and M&A integration periods. In terms of the dimension of quantity, either in terms of the total quantity or grabbing market share, the space has already been compressed to a state that cannot be felt. At present, the only real "final battle of the high-end" is taking place. Although the high-end competition started in 2018, if we view Budweiser as a benchmark case after its completion, the dividend of the increase in the proportion of structured high-end products for domestic brands will take at least three to five years.

Looking ahead to 22Q4, although the income end of the beer sector may perform flat during the off-season, the profit end will continue to show relatively high elasticity, mainly benefiting from: 1) the short-term impact of the epidemic on the industry does not change the long-term trend of high-end development; 2) 22Q4 World Cup is expected to stimulate terminal sales to a certain extent; 3) packaging material prices have fallen from a high level, promoting marginal improvement in profitability.

Core Focus of Dolphin Analyst (partial content):

《Moutai Performance is Fine, Market Sentiment is the Key》

《Qingdao Beer “Depending on the Sky” to ignite? Even without the sky in Q4, it may not necessarily be cold.》

6. Real Estate: "Three Arrows" Strongly Support, Relief Efforts Continuously Strengthened

The real estate industry is the largest single industry in China's economy, and its ups and downs usually have a significant impact on the overall GDP. However, since the third quarter of 2021, China's property market transaction volume has declined, and real estate companies' sales receipts have worsened, plus the deleveraging policy which has led to sudden increase in cash flow pressure on real estate companies, the sluggishness of the real estate industry has become a major drag on the economy.

Starting in November, real estate policies have been easing, with strong support from all fronts: "The first arrow" is to provide trillions of yuan in credit lines to high-quality real estate companies to implement the "16 Articles"; "The second arrow" is to support private enterprises including real estate companies to issue debt financing, with a quota of 250 billion yuan; The third arrow is to restart equity financing of real estate companies. The "three arrows" of policy were launched in just 20 days, with strong signal significance.

In addition, with the recent announcement by the Securities and Exchange Commission to restore five measures for refinancing of listed real estate companies and companies involved in real estate, it can be seen that the regulatory authorities are continuously increasing their efforts to ease the supply side of real estate, further solidifying the policy bottom. although the effects of industry decline and recurring epidemics remain, the gradual injection of policy stimulants has gradually boosted market confidence. The rebound of the real estate sector in November is particularly evident.

Furthermore, with the support of real estate policies, it is expected that the trend of improving completion will continue, which will also boost demand for post-cycle product categories such as kitchen and electric appliances.

3. Summary of individual stocks: U.S. giants collectively fall, and Chinese concept stocks experience violent rebound

Looking at individual stocks, Dolphin Analyst covered a total of 51 companies in Q3, of which 31 companies rose during the financial reporting period from October 1, 2022 to December 9, 2022, while 19 companies fell during the quarter.

1. U.S. giants have collectively fallen, and the outlook for the fourth quarter is generally pessimistic

The third quarter was not a good time for U.S. giants, especially Meta and Google, which were advertising leaders that resembled a large-scale bombing site with a dense sound of thunder. As Dolphin Analyst mentioned in "Amazon, Google, Microsoft, and the rest of the stars have fallen? The meteor shower in the U.S. stock market must continue.," if one word is used to summarize the third quarter financial reporting season in the U.S. stock market, " giant falling" is probably the most apt description. Among the giants covered by Dolphin Analyst, Apple is the only one that still stands relatively strong, while Microsoft, Google, Amazon and Meta have all fallen.

Looking at the business itself, the performance of each giant can barely support them, but most of the problems lie in the guidance for the next quarter, and the "fall" of U.S. giants companies is more of an expected "fall", with a general outlook of pessimism for the fourth quarter.

2. "Internal happiness" + "external relaxation", Chinese concept stocks enjoy a strong rebound

Although the U.S. stock market is in a pitiful state, Chinese asset assets have experienced a violent rebound after months of continued decline. The funds that fled in the first week of November have returned, and since the end of October, southbound funds have accelerated their buying of Hong Kong stocks. In addition, the Chinese yuan has stopped falling and rebounded, enhancing the returns and attractiveness of Chinese assets. Dolphin Analyst has been closely following the performance of Bilibili, which has risen more than 120% since November, Tencent Music, which has risen more than 100%, Dingdong Maicai, which has risen more than 90%, Boss Zhipin, Xiaopeng Motors, which have risen more than 70%, Pinduoduo, JD, and others, which have risen more than 50%, and Baidu and Alibaba, which have risen more than 40%. As a unique star in the Chinese concept stock market, it is the result of multiple factors, including the expected improvement of global financial environment, the increasing risk of economic recession in the United States, the continuous optimization of domestic epidemic prevention and control measures, and the appearance of a turning point in industry audits.

Risk disclosure and statement of this article: Dolphin Disclaimer and General Disclosure