China's proactive economic reforms, buoyed by strong export performance in the prior month, optimistic projections for the year and a focus on stabilizing market conditions, underpin a favorable outlook for sustained growth in 2024.
Considering the positive economic indicators, it seems prudent to explore potential gains by investing in robust Chinese stocks Tuniu Corporation (TOUR), China Automotive Systems, Inc. (CAAS), and NetEase, Inc. (NTES) this week. Before delving into the fundamentals of the stocks, let’s look into the prospects of China’s economy.
The world’s second-largest nation is navigating challenges with cautious optimism, strategically shifting gears. Despite obstacles, China is actively propelling significant economic reforms, fortifying its trajectory and surmounting prevailing difficulties, marking a determined stride toward progress in the current year.
Customs data revealed a 2.3% year-over-year growth in exports for December, surpassing November's 0.5% increase and exceeding the anticipated 1.7% boost from a Reuters poll. Imports saw a 0.2% year-on-year increase, slightly below the expected 0.3% rise but still a reversal from the 0.6% drop the previous month.
Xu Tianchen, senior economist at the Economist Intelligence Unit, said, "The better export data is first and foremost driven by semiconductors and electronics, and the recovery on that side comes from a cyclical rebound in consumer demand overseas."
That said, the Chinese Academy of Sciences (CAS), a leading government think tank, envisions a potential 5.3% growth for China's economy this year, surpassing the World Bank's steadfast 4.5% projection in its latest report. CAS anticipates the stabilization of the world's second-largest economy during the same period.
Director of the CAS Centre for Forecasting Science, Hong Yongmiao, asserts that stabilizing market expectations could propel China to achieve a higher growth rate. CAS envisions a gradual start with a 5% growth rate in the first quarter, anticipating an accelerated pace for the Chinese economy later in the year.
Considering this encouraging outlook, let’s look at the fundamentals of the three China stocks, starting with number 3.
Stock #3: Tuniu Corporation (TOUR)
Based in Nanjing, China, TOUR is an online leisure travel company. It offers diverse packaged tours, such as organized and self-guided options. Beyond this, it extends comprehensive travel services such as car rentals and insurance, coupled with delivering targeted advertising solutions to tourism boards and bureaus.
TOUR’s trailing-12-month gross profit margin of 62.73% is 77.3% higher than the industry average of 35.38%. Additionally, its trailing-12-month EBIT margin and net income margin of 8.39% and 7.77% are 10.4% and 70.4% higher than the industry averages of 7.60% and 4.56%, respectively.
For the fiscal 2023 third quarter that ended September 30, 2023, TOUR’s net revenues rose 128.9% year-over-year to RMB 178.19 million ($25 million). Its gross profit improved 154.9% from the prior-year quarter to RMB 114.77 million ($16.10 million).
In addition, non-GAAP income from operations came in at RMB 38.09 million ($5.34 million), compared to a loss of RMB 12.33 million ($1.73 million) in the prior year’s period. Moreover, non-GAAP net income stood at RMB 45.46 million ($6.38 million), compared to a loss of RMB 21.57 million ($3.03 million) in the previous year’s quarter.
Analysts expect TOUR’s revenue to increase 40.3% year-over-year to $84.97 million for the fiscal year ending December 2024. Likewise, the company’s EPS for the current year is estimated to rise 92.9% from the prior year to $0.08. Shares of TOUR have gained 1.9% over the past five days, closing the last trading session at $0.66.
TOUR’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
TOUR has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #6 out of 39 stocks within the A-rated China industry.
In addition to the POWR Ratings I’ve highlighted, you can see TOUR’s Stability and Momentum ratings here.
Stock #2: China Automotive Systems, Inc. (CAAS)
Based in Jingzhou, China, CAAS manufactures and sells automotive systems and components. Its product range includes rack and pinion power steering gears for cars and light-duty vehicles, integral power steering gears for heavy-duty vehicles, automobile steering systems, and electronic and hydraulic power steering systems and parts.
CAAS’ trailing-12-month net income margin of 5.70% is 24.9% higher than the industry average of 4.56%. Also, the stock’s trailing-12-month ROTA of 4.39% compares to the 4.00% industry average. Moreover, its trailing-12-month cash per share of $3.59 is 54.6% higher than the industry average of $2.32.
For the fiscal 2023 third quarter that ended September 2023, CAAS’ gross profit grew 18.4% year-over-year to $24.76 million. Its income from operations rose 107.8% from the year-ago value to $10.15 million.
Additionally, net income and net income attributable to the parent company’s common shareholders per share increased 40.4% and 29.2% from the prior year’s period to $11.24 million and $0.31, respectively.
Analysts expect CAAS’ revenue to increase 4.7% year-over-year to $593.11 million for the fiscal year ending December 2024. Moreover, the company’s EPS is expected to grow 10% annually over the next five years. The stock marginally plunged intraday to close the last trading session at $3.15.
CAAS’ robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
CAAS has an A grade for Value and a B for Growth, Stability, and Sentiment. It is ranked #4 out of 39 stocks within the China industry.
Click here to access additional CAAS ratings for Momentum and Quality.
Stock #1: NetEase, Inc. (NTES)
Headquartered in Hangzhou, China, NTES is a dynamic player in online games, music streaming, intelligent online learning services, and internet content. Its operations span across distinct segments: Games and Related Value-Added Services; Youdao; Cloud Music; and Innovative Businesses and Others.
NTES’ trailing-12-month gross profit margin of 58.50% is 19.1% higher than the industry average of 49.13%. Also, the stock’s trailing-12-month EBITDA margin and net income margin of 27.97% and 26.34% are 43.7% and 692.8% higher than the industry averages of 19.46% and 3.32%, respectively.
For the fiscal 2023 third quarter that ended on September 30, 2023, NTES’ net revenues increased 11.6% year-over-year to $3.74 billion. Its gross profit grew 23.4% from the year-ago value to $2.33 billion.
In addition, non-GAAP net income from continuing operations attributable to the company’s shareholders grew 15.9% from the prior year’s period to $1.18 billion, while non-GAAP net income from continuing operations per share increased 17.2% year-over-year to $0.36.
The consensus revenue estimate of $14.68 billion for the fiscal year that ended December 2023 reflects a growth of 5% year-over-year. Likewise, the consensus EPS estimate of $7.06 for the same period exhibits a 40.8% rise from the prior year. Moreover, the company topped the consensus EPS estimates in all four trailing quarters.
The stock has gained 6.8% over the past year, closing the last trading session at $91.06.
NTES’ strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
NTES has an A grade for Sentiment and a B for Growth, Value, Stability, and Quality. It has topped the 39-stock China industry.
Click here to access the additional NTES ratings (Momentum).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CAAS shares were trading at $3.15 per share on Tuesday afternoon, down $0.00 (0.00%). Year-to-date, CAAS has declined -2.48%, versus a -0.13% 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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