Alibaba, JD.com, Baidu dip even as J.P. Morgan upgrades Chinese tech on easing 'significant uncertainties'
Alibaba (BABA), JD.com (NASDAQ:JD) and Baidu (NASDAQ:BIDU) fell on Monday even as investment firm J.P. Morgan upgraded Chinese tech stocks, citing an abatement to the "significant uncertainties facing the sector."
Analyst Alex Yao upped the ratings on the sector to overweight, impacting Tencent (OTCPK:TCEHY), Alibaba (BABA), Pinduoduo (PDD), JD.com (JD) and Baidu (BIDU). Other ratings that were raised include KE Holdings (BEKE), NetEase (NTES), Bilibili (BILI), IQIYI (IQ), Dada Nexus (DADA), Dingdong (Cayman) (DDL) and Baozun (BZUN).
Yao noted that "recent announcements" have moved the firm to "stage two" of the model, noting that the "significant uncertainties" should start to ease following recent regulatory announcements, but noted that we're in a very different stage of the pandemic.
"This analysis drives lower short-term earnings paired with Target multiples higher than the trough targets in our 14 March report, but lower than those used at [year-end 2021] due to Common Prosperity impacts," Yao wrote in a note to clients, adding that companies in digital entertainment, local service and e-commerce should start to outperform, though not in the near-term.
"COVID will impact earnings differently in 2022 relative to 2020 due to: logistic and supply chain networks; gaming supply; and consumers' willingness and ability to spend," Yao added, noting that on average, revenue and earnings were cut by 3% and 15%, across the space.
Alibaba (BABA), JD.com (JD) and Baidu (BIDU) fell roughly 0.5% in premarket trading on Monday, while others like Pinduoduo (PDD) and IQIYI (IQ) rose more than 2%.
Yao caveated the upgrades, pointing out that there is likely to be a "significant downside risk" to second-quarter consensus estimates for Meituan (OTCPK:MPNGF), Alibaba (BABA), Pinduoduo (PDD), Baozun (BZUN) and Baidu (BIDU).
Additionally, Alibaba (BABA), Pinduoduo (PDD), Kuaishou (OTCPK:KUASF) and Tencent (OTCPK:TCEHY) are likely to see full-year earnings impacted.
Earlier this month, investment firm Bernstein said that Alibaba's (NYSE:BABA) plan to fix itself and prop up its stock may be paid for by investors.