According to a recently released World Bank report, China’s economy is expected to expand by 7.9% this year following 2% growth last year. The nation’s recovery from the COVID-19 pandemic has been faster for the world’s second-largest economy than other major economies.
In addition to containing the spread of the virus better than other countries, China has been able to improve production and spending amid the pandemic. As a result, most Chinese stocks performed quite well last year. And the country’s projected economic growth should help these stocks continue their upward momentum this year. Moreover, the NYSE’s decision not to delist Chinese companies adds to the favorable case for Chinese stocks.
Investors’ growing optimism in Chinese stocks is evident from the Invesco Golden Dragon China ETF’s (PGJ) 9.8% gain over the past month compared to SPDR S&P 500 ETF Trust’s (SPY) 1%.
Against this backdrop, it could be wise to bet on Chinese stocks such as JD.com, Inc. (JD), Baidu, Inc. (BIDU), Yum China Holdings, Inc. (YUMC), and Vipshop Holdings Ltd. (VIPS) that are well positioned to gain.
JD.com, Inc. (JD)
JD is a Chinese retail infrastructure and e-commerce service provider that operates in two segments – JD Retail and New Businesses. The company offers its products through its website jd.com and mobile apps, as well as directly to customers.
In December, JD announced that it has become China’s first virtual platform to accept the country’s digital yuan as payment for some products on its online mall. We believe this should help the company to serve its customers better and benefit its business.
Earlier last year, JD entered an agreement to acquire Kuayue Express for RMB3 billion. The acquisition should lead to an expansion of JD’s services to third-party merchants and, by doing so, increase its overall supply chain efficiency and generate greater revenue soon.
JD’s revenue has increased 29.2% year-over-year $25.70 billion for the third quarter ended September 30, 2020. The company’s revenue from the sale of general merchandise products has risen 34.8%, while its service revenue increased 42.7%. Non-GAAP net income grew 80.1% year-over-year to $0.80 billion, while its EPS grew 64.4% over this period.
The consensus EPS estimate of $0.52 for the next quarter ending March 31, 2021, indicates an 85.7% improvement from the year-ago value. Moreover, JD has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. A consensus revenue estimate of $29.05 billion for the next quarter represents 39% growth versus the same period last year. The stock has gained 151.4% over the past year.
How does JD stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
B for Overall POWR Rating.
The stock is ranked #2 of 119 stocks in the China industry.
Baidu, Inc. (BIDU)
BIDU is a global internet service provider, operating through two segments — Baidu Core and iQIYI. The Baidu Core segment includes the Baidu App, while the iQIYI segment provides an online entertainment service.
In December, during the second Apollo Ecosystem Conference, BIDU released new intelligent vehicle solutions for automakers and several other high-end intelligent driving products. The company also plans to expand Apollo Go to roughly 30 cities over the next three years. This should reinforce BIDU’s commitment to be a leader in industry development.
The company announced in November that it will acquire JOYY’s live streaming business in China. We think this transaction will allow BIDU to grow its user base and boost its business growth.
BIDU’s revenue increased 8% sequentially to $4.20 billion in the third quarter ended September 30, 2020. Its operating income grew 161% year-over-year to $907 million, while adjusted EBITDA rose 77% year-over-year to $1.34 billion over this period. The company’s iQIYI subscribers hit104.8 million in September 2020, and membership revenue was up 7% year-over-year.
A consensus EPS estimate of $1.86 for the next quarter, ending March 31, 2021, represents a 47.6% increase year-over-year. Moreover, BIDU beat the Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $4.04 billion for the next quarter represents a 25.2% increase versus the same period last year. The stock has gained 59.9% over the past year.
BIDU’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade and Industry Rank. It is ranked #3 of 119 stocks in the same industry.
Yum China Holdings, Inc. (YUMC)
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.
YUMC announced in December that the Suzhou and Wuxi branches of its Centralized Shared Service Center had officially become operational . This expansion should further support YUMC’s long-term growth and improve efficiency.
In November, the company signed a strategic cooperation agreement with the Hubei provincial government to promote the sustainable development of the local economy. In August, the company opened a new Taco Bell store in Beijing, its first store in the city.
YUMC’s revenue for the third quarter ended September 30, 2020, has increased 1% year-over-year to $2.35 billion. Operating profit rose 86% from the year-ago value to $556 million, while net income increased 96% year-over-year to $439 million. The company’s diluted EPS grew 90% from the prior-year quarter to $1.10.
The consensus EPS estimate of $0.52 for the next quarter, ending March 31, 2021, indicates a 225% improvement year-over-year. Moreover, YUMC beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $2.33 billion for the next quarter represents a 32.9% increase year-over-year. The stock has gained 20.2% over the past year.
It is no surprise that YUMC is rated “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. Among the 119 stocks in the same group, it is ranked #5.
Vipshop Holdings Ltd. (VIPS)
VIPS is a leading Chinese online discount retailer for a variety of brands. It operates through the four segments of Vip.com Shan Shan Outlets, Internet Finance, and Others. The company provides apparel, gears and accessories, furnishings and decor, toys and games, and home appliances through online platforms such as vip.com and vipshop.com. In addition, VIPS offers services in warehousing, logistics, research and development, technology development, and consulting.
VIPS’ revenue grew 18.2% year-over year to RMB23.2 billion in the third quarter ended September 30, 2020. Net income rose 42.1% from the prior-year quarter to RMB1.20 billion, while gross profit rose 15.3% from the year-ago value to RMB38.30 billion. The number of its active customers for the third quarter increased 36% year-over-year to 43.4 million.
A consensus EPS estimate of $0.34 for the next quarter, ending March 31, 2021, indicates a 61.9% improvement year-over-year. VIPS has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.96 billion for the next quarter represents a 47.6% improvement from the same period last year. The stock has gained 94.3% over the past year.
VIPS’s promising outlook is reflected in its POWR Ratings. It is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. It is ranked #6 out of 119 stocks in the same industry.
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JD shares were trading at $86.45 per share on Thursday morning, down $1.73 (-1.96%). Year-to-date, JD has declined -1.65%, 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. More…
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