SINGAPORE/HONG KONG, May 19 (Reuters Breakingviews) – The instinct is to sell. Asia technology companies from Singapore to China are making the right noises about cost cutting and are mostly moving in the right direction, but can’t do enough to please investors. The high expectations of the market are a sticky problem for a sector in recovery.
“Stocks in this part of the world are falling on a miss and also falling on a beat,” Venugopal Garre, a senior analyst at Bernstein, wrote to clients after shares of Singapore’s Grab ( GRAB.O ) crashed 15% on Thursday despite the ride – hailing to supplies company raising its guidance.
Grab is at one pointy end of the skepticism. Investors in the $11 billion SoftBank-backed ( 9984.T ) company are focusing on its tepid 3% growth in its gross merchandise value in the first quarter and are overlooking its narrowing of losses for the fifth straight quarter. CEO Anthony Tan is more sanguine. The return of tourists to Southeast Asia, he says, bodes well for the group’s core mobility in the second half. Earlier in the week, shares of Compatriot Sea ( SE.N ) fell 18% after slightly disappointing earnings, which overshadowed the game-to-store company recording its second straight quarter of profit.
Others feel a similar warmth. Chinese video game and social media giant Tencent ( 0700.HK ) delivered a better-than-expected 11% year-on-year jump in quarterly revenue on Wednesday, thanks to double-digit percentage increases in its advertising, payments and cloud computing units. Despite returning to growth, its Hong Kong shares still fell the following day. Investors were also spooked when e-commerce group Alibaba (9988.HK), reported sales that missed analyst forecasts on Refinitiv by 1%, erasing $13 billion in market value overnight in New York. Even the company’s plan to return shares of its cloud computing division to shareholders — part of a radical split aimed at unlocking value — failed to enthuse the markets.
Some caution is warranted, but the $220 billion Alibaba, for example, trades at just 10 times its forecast for the next 12 months’ earnings, per Refinitiv, not that far from state-owned companies such as China Mobile ( 0941.HK ) and China Unicom ( 0762 ) .HK), which fetch about 9 times. At 2.5 times sales, Sea trades at almost half of Tencent’s multiple. Grab, meanwhile, is handicapped by the exorbitant valuation of $40 billion at which it went public through a merger with a blank-cheque firm in 2021. At 4 times sales, it still commands a multiple of twice Uber’s, suggesting investors are looking at it at least give some credit for their high potential businesses including in fintech. The next challenge is resetting investor expectations so beats can shine through.
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Grab on May 18 said revenue more than doubled to $525 million in the three months to March from the same period a year ago, above the average forecast expected by analysts polled by Refinitiv. Lower incentives helped it narrow its adjusted operating loss to $66 million from $287 million a year ago. It also narrowed its forecast for annual adjusted operating loss to $195 million-$235 million, from a previous forecast of $275 million-$325 million.
China’s Alibaba reported on May 18 revenue of 208 billion yuan ($30.1 billion) in the three months to the end of March, up 2% year-on-year. The company also announced that it plans to complete a “full spin-off” of its Cloud Intelligence Group unit through a stock dividend to shareholders in the next 12 months. Alibaba’s New York shares closed up 5.4% to $83.33 on May 18. Tencent on May 17 posted an 11% year-on-year increase in revenue to 149.9 billion yuan, compared with the 146 billion yuan expected by analysts polled by Refinitiv. Net profit rose 11% to 25.83 billion yuan.
Sea on May 16 reported a net profit of $87 million in the three months to March, below analyst expectations. It blamed the miss on a $118 million reduction in goodwill from a previous acquisition. Revenue from its gaming unit tumbled 52% while e-commerce grew by a similar amount.
Editing by Una Galani and Thomas Shum
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