After beating back the COVID-19 pandemic last year, the Chinese economy’s V-shaped recovery has been little short of spectacular. Thanks to the government’s efficiency in quickly restoring industrial production and business operations, the country is now on a strong footing regarding its economic growth prospects. A huge demand for China’s manufactured goods, buoyed in part by tailwinds from last year’s governmental stimulus efforts worldwide, should help the Chinese companies thrive this year and beyond.
Although many high-performing Chinese stocks may have retreated lately amid fears of regulatory scrutiny and the tensions between Washington and Beijing, we believe that now may be the right time to invest in these stocks because the bull run is far from over. Investors’ confidence in Chinese stocks is reflected in iShares MSCI China ETF’s (MCHI) 39.8% gains over the past year, as compared to the SPDR S&P 500 Trust ETF’s (SPY) 28.7% returns.
With its primary economic indicators looking good, China’s strong macro recovery should deepen this year in response to substantial increases in production and spending. This should benefit Chinese stocks NetEase, Inc. (NTES), Yum China Holdings, Inc. (YUMC), China Biologic Products Holdings, Inc. (CBPO), and 51job, Inc. (JOBS). These names have impressive business models and fundamental strength. Hence, we think buying them on the dip in their prices could be rewarding.
NetEase, Inc. (NTES)
Founded in 1997, NTES is a leading Chinese internet technology company that offers online services focusing on content, community, communication, and commerce. The company operates through three segments – online games services, Youdao, and innovative businesses & others. In addition, it provides a live streaming platform and a payment platform.
Last month, NTES the company invested in IMVU Inc. to relaunch a new parent company named Together Labs. Its goal with Together Labs is to establish it as a leader and innovator in technologies and become a dominant player in the online gaming and interactive entertainment sector.
In December, NTES announced that a concert by TFBOYS, one of China's most popular boy bands, held on its platform had broken the Guinness World Record for the most viewed paid concert. The achievement reflects the company’s ability to explore different ways to engage its users and to diversify its monetization channels in an increasingly digital age.
NTES’ net revenue has increased 25.6% year-over-year to RMB19.8 billion in the fourth quarter, ended December 31, 2020. Youdao net revenues increased 169.7% from its year-ago value to RMB1.1 billion. The company’s gross profit rose 20.9% year-over-year to RMB9.9 billion, and its gross profit margin for Youdao for the fourth quarter of 2020 was 47.5%, compared to 29.8% for the fourth quarter of 2019.
A consensus EPS estimate of $4.18 for 2021 represents a 23.3% improvement year-over-year. NTES has an impressive earnings surprise history, with the company beating consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $13.79 billion for the current year represents a 21.1% increase from the same period last year. The stock has gained 77.6% over the past year but has lost 10.7% over the past month.
NTES’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The POWR Ratings also assess stocks based on different categories. NTES is also rated a B in Growth, Value and Momentum. Within the China group, it is ranked #6 of 86 stocks.
To see additional POWR Ratings for Sentiment, Stability and Quality for NTES, Click here.
Yum China Holdings, Inc. (YUMC)
Headquartered in Shanghai, China, YUMC franchises restaurants and provides online food delivery services in the People’s Republic of China. The company operates franchise restaurants under the KFC, Pizza Hut, Taco Bell, East Dawning, Little Sheep, and COFFii & JOY brands. The company operated 10,506 restaurants in approximately 1,500 cities, as of December 31, 2020.
Last month, YUMC was named the Official Exclusive Supplier of Western Food Catering Services for the 19th Asian Games in Hangzhou in 2022. This designation will allow the company to actively promote its brand name and highlight its robust supply chain capabilities to serve its customers.
The company announced in December that the Suzhou and Wuxi branches of its Centralized Shared Service Center had become operational. The expansion should further support YUMC’s long-term growth and improve its operational efficiency.
YUMC’s total revenue increased 11% year-over-year to $2.26 billion in the fourth quarter, ended December 31, 2020. Its operating profit grew 90% from its year-ago value to $180 million, while its net income rose 68% year-over-year to $151 million over this period. The company’s EPS has increased 52% from the prior-year quarter to $0.35.
A consensus EPS estimate of $0.49 for the current quarter ending March 31, 2021 represents a 206.2% improvement year-over-year. YUMC has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $2.38 billion for the current quarter represents a 35.9% increase from the same period last year. The stock has gained 33.9% over the past year but has declined 1.2% over the past five days.
It is no surprise that YUMC has an overall rating of B, which equates to Buy in our POWR Ratings system. YUMC has an A grade for Growth, and B for both Quality and Stability. In the same group, it is ranked #4.
In total, we rate YUMC on eight different levels. Beyond what we’ve stated above, we have also given YUMC grades for Momentum, Value, and Sentiment. Get all the YUMC ratings here.
China Biologic Products Holdings, Inc. (CBPO)
Formerly known as China Biologic Products, Inc., CBPO is involved in the research, development, manufacture, and sale of human plasma-based biopharmaceutical products. The company offers human albumin for treating shock caused by blood loss trauma. It sells its products directly and through distributors.
On March 1, CBPO’s shareholders approved a plan to merge CBPO,, CBPO Holdings Limited and CBPO Group Limited.
CBPO’s total sales for biopharmaceutical products increased 1.9% year-over-year to $126.6 million in the third quarter, ended September 30, 2020, while revenue from human albumin increased by 3.8% year-over-year to $48.8 million. The company’s gross profit rose 4.4% from its year-ago value to $92.5 million, and its gross margin increased to 66.8% from 65.1% in the third quarter of 2019.
A consensus EPS estimate of $5.36 for 2021 represents an 11% improvement year-over-year. The consensus revenue estimate of $587.84 million for the current year represents a 9.1% increase from the same period last year. The stock has gained 1.7% over the past year but lost 0.2% year-to-date.
CBPO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. CBPO has a B grade for both Stability and Quality. Among the 86 stocks in the same group, it is ranked #10.
Click here to see the additional POWR Ratings for CBPO (Growth, Sentiment, Value and Momentum).
51job, Inc. (JOBS)
Founded in 1998, JOBS is an integrated human resource services provider in China. It delivers online recruitment services and other human resource related services through its websites—51job.com, yingjiesheng.com, 51jingying.com, lagou.com, and 51mdd.com. The company also offers campus recruitment services to corporations that seek to recruit college and university students and talent assessment services.
JOBS’ other human resource related revenue has grown 10.8% sequentially to RMB360.6 million in the third quarter, ended September 30, 2020 due mainly to a strong rebound in the company’s training business. Its investment income has risen 20.4% from the prior-year quarter to RMB58.28 million.
A consensus EPS estimate of $3.40 for 2021 represents a 16% improvement year-over-year. JOBS has an impressive earnings surprise history also; it beat the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $616.93 million for the current year represents a 10% improvement from the same period last year. The stock has declined 12.2% over the past year.
JOBS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. JOBS also has a B grade for Momentum, Quality and Stability. The stock is ranked #7 in the same industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the JOBS ratings for Value, Growth, and Sentiment.
The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
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NTES shares were trading at $106.14 per share on Thursday morning, down $1.09 (-1.02%). Year-to-date, NTES has gained 10.83%, versus a 1.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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