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Baidu, NetEase to Chart Path Ahead as China Tightens Grip on Tech Firms

Baidu, NetEase to Chart Path Ahead as China Tightens Grip on Tech Firms

(Bloomberg) -- Baidu Inc. and NetEase Inc. will report earnings just as China tightens its grip on technology companies, sparking concern there will be further restrictions on private enterprises.

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With Beijing facing pressure to restore confidence after a $7 trillion stock rout, its moves to steer the technology industry is a double-edged sword. While it may divert more resources to artificial intelligence and semiconductors, investors might be less enthused at a time when Chinese stocks are struggling to gain traction.

Baidu’s valuation is one of the lowest among its peers, so it will need to convince investors that AI developments can spur higher revenue. NetEase is expected to turn in a strong performance, though Bloomberg Intelligence expects sales growth to moderate in the next few years amid ongoing regulations in China’s video game industry.

Southeast Asian lenders Oversea-Chinese Banking Corp. and Malayan Banking Bhd. may post stronger net income, following in the footsteps of some Asean banks. Net income at DBS Group Holdings Ltd., Singapore’s biggest lender, reached a record in 2023 despite technical outages, while it rose 34% at Indonesian lender PT Bank Mandiri.

City Developments Ltd. earnings may be weighed down by possible asset impairments in the investment properties portfolio, but its underlying business in Singapore should offer support. Hong Kong developers Sun Hung Kai Properties Ltd. and New World Development Co. may need to cut slash prices further to sell their new housing projects, amid a gloomy outlook in the city’s property market.

Highlights to look out for:

Monday: Li Auto’s (LI US) quarterly operating profit will remain sequentially steady despite spending more on promotions to fend off rivals, BI said. Cheaper batteries and greater scale probably helped reduce production costs and protect margins. But the EV maker is vulnerable to increasing competition from Huawei’s Aito. The Chinese government is seeking to boost consumer product sales, a move that could boost the outlook for Chinese auto makers.

Tuesday: Full-year earnings at Woodside Energy (WDS AU), Australia’s largest natural gas producer, were hurt by impairments of $1.5 billion on oil and gas assets.

Wednesday: Baidu (BIDU US) may show strength in the core business and advertising revenue, boosting fourth-quarter profit. The search engine operator unveiled its ChatGPT-style Ernie Bot in 2023, which should also contribute to revenue growth, analysts said. The launch may dent Baidu’s operating margin sequentially as the venture remained unprofitable with promotional spending and investments outweighing revenue gains, BI analyst Robert Lea said.

  • OCBC (OCBC SP) probably increased its net income, similar to peers DBS and UOB, helped by elevated interest rates. Growth was driven by margin-led revenue gains, supporting a jump in net interest income, BI said. OCBC may follow DBS and raise its dividend.

  • Maybank (MAY MK) full-year earnings may have been supported by higher loan growth, as the Malaysian government’s new industrial and economic plan gains pace. Lower provisions and a lower tax liability probably also helped. The lender has the fastest-growing domestic consumer mortgage book among the local banks tracked by BI.

  • City Developments (CIT SP) said in December annual earnings would likely see a “substantial decrease” as the divestment gains recorded in 2022 weren’t repeated. Consensus puts the profit drop at 74%. Analysts at OCBC expect asset impairments in the investment properties portfolio, especially in the UK. The Singapore operations probably remained steady in the second half as new launches and rising home prices helped the property development business, while the hotel unit benefited from the post-Covid travel rebound.

  • Sun Hung Kai’s (16 HK) payout ratio may drop to 40-50% of its underlying earnings per share in fiscal 2023, BI said. Its book value per share may also slide due to lower fair value of investment properties. It will struggle to hit its annual contracted sales target of HK$33 billion in Hong Kong, as it sold less than a third that in the first half.

Thursday: HKEX (388 HK) estimates show fourth-quarter revenue and adjusted net income fell, while investment income may have been pressured by a decline in margin funds and potential Fed rate cuts ahead. It will be the final earnings announcement for Chief Executive Officer Nicolas Aguzin, who’s handing over the reins to Bonnie Chan.

  • NetEase (NTES US) will report solid fourth-quarter results, partly thanks to momentum from last year and new titles, according to BI. Weakening demand in the global video game console market might weigh on overseas sales for the firm and its rival Tencent this year. Gaming sales will see moderate growth of the mid-to-high single digits through 2024-2027 due to ongoing Chinese regulatory oversight.

(Updates with more details on NetEase, Hong Kong developers, and Li Auto starting in third paragraph.)

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