Which company had the worst financial report? Don't compare, there is not just one that is the worst, but rather, each one is even worse.

Hello everyone, I'm Dolphin Analyst!

The "inflation and rate hike" show has quieted down a bit, and last week officially entered the season of performance surprises. On one side are the Hong Kong stock market's expected performance surprises, and on the other side are the actual performance surprises of the US stock market. Here, the Dolphin Analyst will briefly explore the hidden meanings behind the rolling thunderstorms:

1. Domestic Market: Brutal destocking cycle

a. From Pinduoduo's and Feihema's performance warnings, and even Apple China's recent four-day (up to August 1) across-the-board price promotion, it can be seen that the competition is worsening, demand is weak, and costs are rising, all of which are likely to cause most domestic consumer companies to experience sluggish revenue and profits in the second quarter, with profits collapsing at a greater rate.

b. In the small-scale Q2 performance outlook communication of Kuaishou, it is expected that there will be a 10% increase in live broadcast, a high-single-digit increase in advertising, and a 900 billion yuan GMV target for e-commerce, showing that advertising and retail platforms that are focused on destocking are more performance-oriented.

c. Looking back at the Q1 earnings conference call of Focus Media: "Lift Media's share of brand advertising is increasing, and the current problem is that the total demand for advertising is shrinking. Under uncertainty, demand shifts directly to live broadcasting and other direct conversion. Although there is no profit, enterprises are willing to destock. Under the epidemic, Lift Media, splash screen, and content marketing have all been affected and belong to non-urgent demands. Brand advertising needs to have a better outlook before rebounding. Enterprises take a long-term view of brands and pursue short-term traffic. The current destocking of enterprises is a survival response and can be understood."

It can be seen from (a-c), whether from the brand's perspective or the advertising platform's perspective, that most companies are entering a destocking cycle after the epidemic.

The consistent problem for brands during the destocking cycle is "poor revenue growth, poor gross and net profit performance," with the worst performance in the high-margin profit matrix. Therefore, when entering the intensive first-half earnings season, funds should try to have foresight to "avoid lightning strikes."

From the brand's perspective, who clears inventory most fiercely in Q2 will have the worst performance. Looking out of the short-term outlook of Q2, whoever can quickly get out of the destocking cycle, get out of the pressure of inventory burden, and enter normal business operations will be able to recover their performance the fastest and be the first to recover.

From the platform perspective, the performance resilience of destocking platforms is relatively stronger, and future attention can be paid to Kuaishou, Pinduoduo, and Vipshop. However, although Vipshop has industry cycle advantages, the intensifying competition within the industry and the ability to restore profits are issues that should be paid special attention.

2. Overseas Market: "Naked Swimming" Players in Full View

Recently, three American stocks--Netflix, Snap, and Tesla--have released their financial results. Looking at their performance since the beginning of the year, Netflix and Snap are still down by 60-70%, while Tesla's decline has gone from nearly 60% to 20%+.

From the performance of these three companies, there is not one that stands out in terms of Q2 performance itself. It's just a matter of who did better than the others, but market reactions have been different. Based on this, when the market systematically kills valuations, the Dolphin Analyst divides the stock price decline into two categories: a. Tragedy of "Double Kill": The performance cannot be supported, and even the long-term logic has broken down. The current Snap is like Netflix in the second half of last year, emerging from the short-term performance collapse caused by the pandemic, deteriorating industry competition, and reduced corporate barriers.

When killing the valuation, if the performance cannot sustain, it is basically equal to completely re-evaluating the value. We must first calculate the safety margin. When the performance is finally determined, the price should be within the safety margin supported by cash reserves and operating cash flow. Only then can we have a chance of reversing the dilemma. Netflix is approaching, but it is difficult to say when Snap's performance will hit bottom.

b. Purely valuation-driven: Killing high cost-performance ratio assets is better. Tesla clearly has this feature. Under the premise of strong product power, vigorous demand means that as long as production capacity is restored, performance can be released as scheduled. This short-term performance trap caused by the pandemic is just a "fake fall."

Through continuous tracking every quarter, Dolphin Analyst hopes to help everyone avoid the tragedy of double-killing assets, find truly valuable assets whose performance can sustain or whose performance falsely collapses but long-term logic remains strong, and companies whose performance is more easily digestible after falling.

三、New week: Big players' offensive vs interest rate meeting

At present, whether it is A-shares speculation on post-epidemic recovery, or US stocks speculation on inflation and recession, the most important thing at this node is the expectation for the second half of the year.

This week, the backbone of the US stock market, the five giants Google, Microsoft, Meta, Apple, and Amazon, will all have their say. Among them, Amazon, Meta, and Microsoft will give very clear guidance and outlooks, and their "performance eyes" can be used to look at the possible situation of the US stock market in the third quarter.

From the perspective of performance risk, Dolphin Analyst believes that Meta and Amazon have been killed for several quarters, so their risks are relatively smaller. Microsoft is relatively firm. After the valuation is killed, the opportunity may come closer.

The biggest controversy this quarter is Google: grassroots research points to an uncertain economic period, advertising budgets are shifting to advertising platforms that pursue extreme effects, but from the perspective of industry competition, the competitive pressure from TikTok is increasing, which is a clear negative for performance. However, Dolphin Analyst believes that with the deterioration of the competition pattern, the risk will come sooner or later in the future. Therefore, Google has been transferred out of the Alpha Dolphin portfolio.

Dolphin Analyst summarises the key points of interest rate meeting of the five major giants:

四、Interest rate expectations cool down, global markets rebound

Last week, the expectation of interest rate hikes did not rise again due to the surge in inflation, and remained at the previously expected 75 basis points. With the cooling of interest rate expectations, except for A-shares continuing to fall due to the epidemic's counterattack, global markets are all in the process of recovery.

In terms of capital flows in A shares and Hong Kong stocks, as the expectation of a rate hike stabilizes, the outflow of northbound funds has slowed significantly, while southbound funds continue to slowly flow in. However, due to the arrival of the earnings season, the overall trading volume has shrunk a lot.

V. Alpha Dolphin Portfolio Returns:

As Chinese assets experienced a relatively large pullback, the Alpha Dolphin Research & Investment's portfolio return increased by 1.9% last week after a sharp drop from the week before. Although it still slightly underperformed the S&P 500 Index (which rose by 2.5%), it clearly outperformed the Shanghai and Shenzhen 300 Index (-0.2%).

Since the start of the testing of the portfolio until the end of last week, the absolute return of the portfolio was 17%, and its relative return compared to the S&P 500 was 26.3%.

New Energy sharply pulls back, US stocks and Chinese concept stocks recover

Last week, the Alpha Dolphin portfolio outperformed the Shanghai and Shenzhen 300 Index benchmark in the broad China core assets that it tracks mainly because of the recovery of US stocks and Chinese concept growth stocks. The portfolio's heavy investment in new energy stocks, especially the largest single-weighting stock Yangguang Power, experienced a significant pullback last week after two consecutive weeks of skyrocketing.

The following is an analysis by the Dolphin Analyst of the reasons for the sharp rise and fall of the key stocks that the Alpha Dolphin portfolio tracked:

In terms of the capital flows of the stocks that the Dolphin Analyst is following: Northbound funds have been buying shares of iQiyi for several consecutive weeks, even though the stock price turned down last week due to the impact of the pandemic. Currently, the percentage of northbound funds holding iQiyi's shares has reached a historical high of nearly 22%. In addition, Geely has also been a continuous buying target for northbound funds in recent weeks.

Meanwhile, southbound funds continued to sell Semiconductor Manufacturing International Corp. (SMIC) last week, while Flyco and Pop Mart, whose earnings were poor, were also on the selling list. Minhua and Meituan, which have been continuous selling targets recently, were still being sold last week. After the rise in stocks of Yangguang Power, northbound funds also net sold it.

Three, Composition of Asset Distribution

As of the internal testing launch on March 1st, the overall return of the Dolphin Alpha Portfolio as of last Friday was 19% (including dividend income), and the return per individual stock was 22%.

Last week, the Dolphin Analyst made no adjustments to the portfolio, and a total of 33 stocks were allocated, with 10 being standard and 23 being low-end.

As of last weekend, the allocation and equity asset holdings of the Alpha Dolphin portfolio are as follows: