Despite the mixed fiscal second quarter’s GDP performance, China displayed a positive performance in the year's first half. Additionally, the nation is actively implementing various initiatives to fortify its economy.
Considering these factors, it could be wise to invest in fundamentally strong and high-value China stocks Ping An Insurance (Group) Company of China, Ltd. (PNGAY), NetEase, Inc. (NTES), and Vipshop Holdings Limited (VIPS) today. Let’s understand this in detail.
China's economy faced a sluggish pace in the second quarter as it grappled with weakened demand at home and abroad. The nation's Gross Domestic Product (GDP) recorded an increase of 0.8%, a figure that, while surpassing analysts' projections of a 0.5% growth, paled in comparison to the robust 2.2% surge witnessed in the first quarter.
On an annual basis, China's GDP exhibited a more positive trend, growing at 6.3% in the second quarter, a notable acceleration from the 4.5% recorded in the first three months of the year. Nevertheless, this growth rate fell short of the forecasted 7.3% growth.
However, data from the National Bureau of Statistics (NBS) reveals that the country's GDP experienced a 5.5% year-over-year growth in the first half of 2023. Notably, China's GDP reached an impressive 59.30 trillion yuan (approximately $8.30 trillion) during this period, as per the NBS data.
Fu Linghui, spokesperson for the National Bureau of Statistics, remarked, "Market demand gradually recovered, production and supply continued to increase, employment and prices were generally stable, residents' incomes grew steadily, and the overall economic operation rebounded and improved."
Moreover, China is further intensifying its efforts to bolster the economy. Recently, authorities unveiled a series of pledges directed towards specific sectors to instill confidence in private and foreign investors by creating a more conducive investment environment.
The National Development and Reform Commission (NDRC) has committed to revitalizing and augmenting consumption to fortify economic growth. This includes bolstering household income, creating a more conducive business environment for private enterprises, and ensuring stability in youth employment.
Experts concur that the Chinese economy demonstrates robust resilience, substantial potential, and ample vitality, instilling confidence in its prospects for the latter half of the year. That said, investors' appetite for China stocks is evident from the Invesco Golden Dragon China ETF’s (PGJ) 31% returns over the past nine months.
Against this backdrop, it could be wise to invest in strong China stocks PNGAY, NTES, and VIPS, which have the potential to generate solid returns.
Let’s now discuss in detail what could make these stocks worthwhile investments.
Ping An Insurance (Group) Company of China, Ltd. (PNGAY)
PNGAY, headquartered in Shenzhen, China, offers personal financial services such as insurance, banking, investments, and Internet finance. Additionally, the company provides factoring, equity investment, logistics, e-commerce, and credit information services.
On February 27, PNGAY's Hong Kong Branch obtained an insurance agency license from the Hong Kong Insurance Authority, enabling it to extend a broad range of high-quality insurance products to customers. The strategy strengthens the financial potential of PNGAY, catering to the wealth management needs of affluent clients.
In terms of forward EV/Sales, PNGAY is trading at 2.10x, 32.3% lower than the industry average of 3.09x.
For the first quarter that ended March 31, 2023, PNGAY’s total revenue increased 27.9% year-over-year to RMB 81.60 billion ($39.17 billion). Additionally, profit for the period attributable to owners of the parent rose 48.9% from the prior year’s period to RMB 38.35 billion ($5.33 billion).
Also, EPS attributable to ordinary equity holders of the parent came in at RMB 2.13, a 46.9% year-over-year improvement. As of March 31, 2023, the company’s total assets stood at RMB 11.29 trillion ($1.57 trillion), compared to RMB 11.01 trillion ($1.53 trillion) as of December 31, 2023.
The consensus revenue estimate of $110.21 billion for the fiscal year (ending December 2024) reflects a 2.5% year-over-year improvement. Likewise, the consensus revenue estimate of $116.95 for the next fiscal year (ending December 2024) indicates a 6.1% rise year-over-year. Moreover, the company surpassed the consensus revenue estimates in three of four trailing quarters.
Shares of PNGAY have gained 3.8% over the past year to close the last trading session at $12.70.
PNGAY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PNGAY has a B grade for Growth, Value, Momentum, Stability, and Sentiment. It has ranked #6 in the 45-stock B-rated China industry.
In addition to the POWR Ratings I’ve just highlighted, you can see PNGAY’s rating for Quality here.
NetEase, Inc. (NTES)
Based in Hangzhou, China, NTES engages in online games, music streaming, and intelligent learning services. The company develops its PC and mobile games and licenses games from other developers. Its segments include Games and Related Value-Added Services; Youdao; Cloud Music; Innovative Businesses; and Other.
On July 14, NTES and Cloud Music Inc., a renowned online music platform with a vibrant content community, announced a strategic partnership with RYCE Entertainment, a major music and entertainment company in China. The collaboration aims to expand the company's music content library.
Under this agreement, NTES Cloud Music gained access to an expanding portfolio of RYCE Entertainment's music catalog in China. Additionally, it secures 30-day initial launch rights to distribute new additions to the catalog, strengthening its position as a pioneering player in China's online music industry.
Also, on May 28, NTES Games announced PinCool, Inc., a new Tokyo-based game studio within NetEase Games. Comprising industry experts in interactive entertainment, it would enhance NTES's portfolio and global reach, producing high-quality games for consoles and exploring diverse entertainment forms, boosting revenue potential.
In terms of forward non-GAAP PEG, NTES is trading at 1.42x, 6.4% lower than the industry average of 1.52x. Moreover, the stock’s forward EV/EBIT multiple of 14.82 is 6% lower than the industry average of 15.77.
During the first quarter that ended March 31, 2023, NTES’ net revenues increased 6.3% year-over-year to $3.65 billion. Its gross profit grew 16% from the year-ago value to $2.17 billion.
Moreover, non-GAAP net income attributable to the company’s shareholders rose 47.8% from the prior year’s period to $1.10 billion, while its non-GAAP net income per share came in at $0.34, up 50.6% year-over-year.
NTES’ revenue is expected to grow 5.2% year-over-year to $14.71 billion for the fiscal year ending December 2023. Likewise, the consensus revenue EPS of $5.44 for the same period reflects an 8.6% rise year-over-year. Furthermore, the company topped the consensus EPS estimates in all of the trailing four quarters, which is impressive.
Year-to-date, the stock has gained 33.7% to close the last trading session at $102.21.
NTES’ positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
NTES has an A grade for Sentiment and a B for Value and Stability. It is ranked #5 out of 45 stocks within the China industry.
Click here to access additional NTES ratings (Quality, Momentum, and Growth).
Vipshop Holdings Limited (VIPS)
VIPS, headquartered in Guangzhou, China, operates online platforms, including Vip.com and Shan Shan Outlets. It deals with lifestyle and supermarket products and also offers internet finance services. Additionally, the company engages in warehousing, retail, product procurement, software development, and IT support activities.
On March 31, VIPS' board authorized a share repurchase program of up to $500 million, spanning American depositary shares or Class A ordinary shares until March 31, 2025. This initiative could bolster VIPS’ shareholder value and demonstrate confidence in the company's financial outlook.
In terms of forward non-GAAP P/E, VIPS is trading at 8.91x, 41.8% lower than the industry average of 15.30x. Also, its forward EV/Sales multiple of 0.45 is 62.2% lower than the industry average of 1.18. Moreover, the stock’s forward EV/EBITDA of 5.49 compares to the industry average of 9.80x.
During the fiscal first quarter (ended March 31, 2023), VIPS’ total net revenues increased 9.1% year-over-year to $4.01 billion. Its non-GAAP income from operations rose 50.6% year-over-year to $333.43 million.
Additionally, non-GAAP net income attributable to VIPS’ shareholders and non-GAAP net income per ADS grew 45.8% and 68.4% year-over-year to $301.30 million and $0.51, respectively.
Analysts expect VIPS’ revenue to increase 5.6% year-over-year to $15.77 billion for the fiscal year ending December 2023. Similarly, the company’s EPS for the ongoing year is expected to grow 21.5% from the prior year to $1.88. Also, the company surpassed the consensus revenue estimates in all four trailing quarters.
Shares of VIPS have gained 70.5% over the past year to close the last trading session at $16.73.
VIPS’ robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
VIPS has an A grade for Sentiment and a B for Growth, Value, and Quality. It is ranked #7 out of 45 stocks within the same industry.
Click here to access additional VIPS ratings for Stability and Momentum.
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PNGAY shares were trading at $12.87 per share on Monday afternoon, up $0.17 (+1.34%). Year-to-date, PNGAY has gained 0.59%, versus a 19.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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