The Chinese economy began to recover after the easing of the stringent lockdowns. China’s Ministry of Finance is considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds for infrastructure spending in the second half of 2022.
The Chinese government aims to renew its economy by accelerating infrastructure investment and achieving a 5.5% GDP target. Furthermore, China seems to be easing its crackdown on the technology sector. These factors act as catalysts for Chinese stocks.
One of the leading online commerce companies, Alibaba Group Holding Limited (BABA), provides technology infrastructure and marketing reach to merchants, brands, retailers, and other businesses to engage with their customers internationally. With the easing of the tech crackdown, BABA recovered from its lows by gaining 17.3% over the past month.
However, it is expected to remain under pressure amid the bearish environment owing to high inflation and rapid interest rate hikes. The company reported disappointing latest quarterly results, with its adjusted EBITDA declining 21.8% year-over-year to $3.69 billion. Its non-GAAP net income and non-GAAP earnings per ADS came in at $3.12 billion and $1.25, down 24.5% and 23%, respectively, year-over-year.
So, we think fundamentally solid Chinese stocks NetEase, Inc. (NTES), FinVolution Group (FINV), Phoenix New Media Limited (FENG), and Viomi Technology Co., Ltd (VIOT) could be better investments than BABA.
NetEase, Inc. (NTES)
Headquartered in Hangzhou, NTES provides online services focusing on diverse content, community, communication, and commerce internationally. The company operates through three segments: Online Game Services; Youdao, Cloud Music, Innovative Business; and Others.
In June, NTES released NARAKA: BLADEPOINT, an up to 60-player PVP mythical action combat game, on Xbox Series X|S, Windows PC, and Game Pass. This marks a pivotal milestone for NTES as it builds its position in the global console market.
On May 5, NetEase Games, the online games division of NTES, launched its first U.S. studio, Jackalope Games, based in Austin, Texas. Jackalope Games will be creating new and exciting PC and console games. And it will operate independently and maintain creative autonomy in its game development and publishing. The new studio is expected to accelerate the company’s growth and profitability.
In the fiscal 2022 first quarter ended March 31, 2022, NTES' net revenues increased 14.8% year-over-year to $3.72 billion. Its gross profit grew 16.1% from the year-ago value to $2.02 billion. The company's operating profit amounted to $868.71 million, up 28.8% year-over-year. In addition, its net income per ADS rose 1.5% year-over-year to $1.05.
The $3.68 billion consensus revenue estimate for the fiscal 2022 third quarter, ending September 2022, represents a 6.1% improvement from the same period in 2021. Analysts expect NTES’ EPS for the same quarter to increase 22.6% year-over-year to $1.10. The company surpassed the EPS estimates in three of the trailing four quarters.
The stock has declined 4.7% over the past three months to close the last trading session at $88.60.
NTES' POWR Ratings reflect this promising outlook. It has an overall B grade, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NTES has a grade of A for Sentiment and B for Stability and Value. Within the China group, it is ranked #1 of 42 stocks. To see additional POWR Ratings (Growth, Momentum, and Quality) for NTES, click here.
FinVolution Group (FINV)
FINV operates a fintech platform that connects underserved individual borrowers with financial institutions in China. It is headquartered in Shanghai. The company’s platform, empowered by proprietary technologies, features an automated loan transaction process that enables a user experience. It has more than 145 million cumulative registered users.
On May 6, FINV paid a cash dividend of $0.205 per American Depositary Share. The dividend represents a payout ratio of approximately 15% of the company’s net income for fiscal 2021.
“Aligned with our commitment to returning value to our shareholders, we are delighted to distribute dividends for the fourth consecutive year. Our confidence in our core capabilities, operational momentum, and the strength of our business both in China and overseas underpins our conviction to deliver sustainable, high-quality growth while sharing the profits with our shareholders,” said Shaofeng Gu, FINV’s Chairman.
FINV's net revenue increased 15.8% year-over-year to $157.96 million in the fiscal 2022 first quarter ended March 31, 2022. Net cash provided by financing activities amounted to $63.29 million. Also, the company’s cash and cash equivalents came in at $571.20 million as of March 31, 2022.
The consensus revenue estimate of $1.71 billion for the fiscal year 2023 (ending December 2023) represents an increase of 18.3% from the previous year. The $1.36 consensus EPS estimate for the next year indicates a 13.6% year-over-year rise.
The stock has gained 13.2% over the past month and 23.9% over the past three months to close the last trading session at $4.82.
FINV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, equating to a Buy in our proprietary rating system.
FINV has a grade of B for Sentiment, Value, and Quality. Within the China group, it is ranked #2 of 42 stocks. To see additional POWR Ratings (Stability, Growth, and Momentum) for FINV, click here.
Phoenix New Media Limited (FENG)
Headquartered in Beijing, FENG provides content on an integrated internet platform. The company operates through two segments: Net Advertising Services; and Paid Services. The company offers content and services through PC channels, mobile channels, and telecom operators. It provides various interest-based content verticals through its website, ifeng.com.
As of March 31, 2022, FENG’s cash and cash equivalents came in at $14.32 million, and its current assets stood at $302.90 million. FENG’s shares have gained 26.4% over the past month and 43.5% over the past three months to close the last trading session at $5.08.
FENG's POWR Ratings reflect a strong outlook. The stock has an overall rating of B, which translates to Buy in our POWR Ratings system.
FENG has a grade of A for Value and B for Sentiment. It is ranked #9 of 68 stocks in the same industry. Click here to see FENG's POWR Ratings for Growth, Stability, Quality, and Momentum.
Viomi Technology Co., Ltd (VIOT)
Headquartered in Guangzhou, VIOT develops and sells Internet-of-things-enabled (IoT-enabled) smart home products in the People’s Republic of China. The company provides IoT-enabled smart home products, including smart water purification systems, smart kitchen products, smart air conditioning systems, washing machines, smart TV, and other smart devices.
In addition, it offers a suite of complementary consumable products and small appliances. The company sells its products directly to consumers through its online platform, Viomi mobile app, and e-commerce channels, as well as offline experience stores.
On December 21, 2021, VIOT unveiled its 2022 strategic new product launch plan for the overseas market, reinforcing its mission to create next-level one-stop IoT home solutions. The new and exciting smart appliances include Alpha 2 Pro, a robot vacuum, Master 2 Pro, an ultra-thin (470mm) washer-dryer, Blues Pro, a 1200G high-volume smart water purifier, and 21Face, VIOT’s flagship large-screen refrigerator.
In addition, VIOT added a series of next-generation AI-enabled smart kitchen appliances to its overseas lineup. The new product launch is expected to boost the company’s revenue streams and solidify its growing overseas footprint.
VIOT's net other income increased 33.1% year-over-year to RMB2.52 million ($77,540) in the fiscal 2022 first quarter ended March 31, 2022. As of March 31, 2022, the company’s cash and cash equivalents came in at RMB868.42 million ($129.50 million), compared to RMB586.96 million ($87.53 million), as of December 31, 2021.
Analysts expect VIOT's revenue for its fiscal year 2022 (ending December 2022) to come in at $907.54 million, representing a 9% rise from the last year. Also, street expects the company's EPS for the current year to come in at $0.49, representing a growth of 68.9% year-over-year. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained marginally over the past month and closed the last trading session at $1.65.
VIOT's POWR Ratings reflect a promising outlook. The stock has an overall grade of B, which equates to a Buy in our proprietary rating system.
VIOT has a grade of A for Value and Sentiment. Within the same group, it is ranked #4 of 46 stocks. To see additional POWR Ratings (Momentum, Stability, Quality, and Growth) for VIOT, click here.
NTES shares were unchanged in premarket trading Friday. Year-to-date, NTES has declined -12.28%, versus a -17.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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