“Zero-Covid policy” has been the poster child of China’s response to the global pandemic. Until early this month, under President Xi Jinping, the country maintained the world’s strictest Covid-testing regime for nearly three years, characterized by mass virus testing and strict lockdowns designed to hunt down and isolate outbreaks.
However, commerce took a toll on the world’s second-largest economy. Amid sustained threats to lives and livelihoods, resentment snowballed into widespread civil unrest. This compelled the country’s leadership to soften its stance on Covid restrictions.
Despite the current surge in infections, China’s plans to drop the “zero-covid” strategy have been underscored by its decision to scrap all quarantine measures for Covid-19, including requirements for inbound visitors, both foreigners and Chinese nationals, from January 8. This has left markets upbeat despite niggling concerns of inflation and seemingly unending interest-rate hikes by the Federal Reserve.
Sentiments have been further boosted by news of a rescue package for ailing Chinese developers to ease their liquidity strains and revive home purchases. China’s leaders will likely map out more stimulus steps as they meet behind closed doors at the annual Central Economic Work Conference.
In such a situation, it could be opportune to invest in shares of growing Chinese businesses Pinduoduo Inc. (PDD), Hello Group Inc. (MOMO), China Automotive Systems, Inc. (CAAS), and Tarena International, Inc. (TEDU) for a prosperous new year.
Pinduoduo Inc. (PDD)
PDD is headquartered in Shanghai in the People's Republic of China. It operates mobile e-commerce platforms Pinduoduo and Temu for Chinese and North American consumers, respectively.
Both platforms offer a range of products under various categories, such as apparel, shoes, bags, mother and childcare products, food and beverages, fresh produce, electronic appliances, household goods, personal care items, sports and fitness items, and auto accessories.
During the third quarter of the fiscal year 2022, ended September 30, PDD’s total revenues increased 65.1% year-over-year to ¥35.50 billion ($5.10 billion), while its non-GAAP operating profit increased 277.3% year-over-year to ¥12.30 billion ($1.77 billion). As a result, the company’s non-GAAP net income attributable to ordinary shareholders increased 295.1% and 295.4% year-over-year to ¥12.45 billion ($1.79 billion) and ¥8.62 per ADR, respectively.
Analysts expect PDD’s revenue and EPS for fiscal 2022 to increase 26.5% and 151.7% year-over-year to $18.70 billion and $3.79, respectively. Both metrics are expected to increase by a further 25% and 10.2% during the next fiscal to come in at $23.38 billion and $4.17, respectively. The company has further impressed by surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has gained 4.4% over the past month and 52.6% over the past year to close the last trading session at $82.41, above its 50-day and 200-day moving averages of $71.28 and $56.99, respectively.
PDD’s stellar prospects are reflected in its POWR Ratings. It has an A grade for Quality and a B for Growth and Sentiment. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
PDD is ranked #12 of 43 China stocks. Click here to see PDD’s POWR Ratings for Value, Stability, and Momentum.
Hello Group Inc. (MOMO)
MOMO, headquartered in Beijing, the People’s Republic of China, provides mobile-based online social and entertainment services. The company’s product portfolio includes two platforms: Momo and Tantan.
Momo is a mobile application that connects people and facilitates social interactions based on location, interests, and various online recreational activities. On the other hand, Tantan, added through an acquisition in May 2018, is designed to help its users find and establish romantic connections and meet interesting people.
Yan Tang, Chairman and CEO of MOMO highlighted that the product and operational enhancements, coupled with the efforts to improve cost efficiency, allowed the company to see meaningful bottom-line improvement on a sequential basis.
For the third quarter of fiscal 2022, ended September 30, MOMO’s total net revenues came in at ¥3.23 billion ($463.95 million). During the same period, the non-GAAP net income attributable to MOMO came in at ¥535.8 million ($76.89 million), or ¥2.60 ($0.37) per ADS.
Analysts expect MOMO’s revenue and EPS for fiscal 2023 to increase 1.6% and 3.8% year-over-year to $1.84 billion and $1.30, respectively. The company has also impressed by surpassing consensus EPS estimates in each of the trailing four quarters.
MOMO has gained 76.4% over the past month to close the last trading session at $9.10, above its 50-day and 200-day moving averages of $6.03 and $5.38, respectively.
MOMO has an overall rating of B, which equates to Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality.
MOMO is ranked #8 of 43 China stocks. Click here to access the additional ratings for MOMO’s Stability, Growth, Sentiment, and Momentum.
China Automotive Systems, Inc. (CAAS)
CAAS is a holding company headquartered in Jingzhou, the People’s Republic of China. The company manufactures automotive systems and components in China through its subsidiaries and sells its products to original equipment manufacturing customers (OEMs).
On December 12, CAAS announced that it had introduced a new series of Electric Power Steering ("EPS") systems for BYD Company Limited (BYDDF), China’s largest EV producer.
This follows CAAS’s November 29 announcement of an expansion of strategic partnership with BYDDF for future autonomous driving and looks promising for both companies.
For the third quarter of the fiscal, ended September 30, net sales of CAAS increased 26.8% year-over-year to $137.2 million. During the same period, the company’s gross profit increased 24.4% year-over-year to $20.9 million, while its income from operations increased 716.7% year-over-year to $4.9 million.
The quarterly net income attributable to CAAS’s common shareholders came in at $7.5 million or $0.24 per share, compared to a net loss of $0.3 million or $0.01 during the previous-year quarter.
CAAS’s revenue is expected to increase 8.3% year-over-year to $539.23 million, while its EPS is estimated to grow 72.2% year-over-year to $0.62 in the current fiscal year ending December 2022.
The stock has gained 111.7% over the past six months and 124% over the past year to close the last trading session at $5.78, above its 50-day and 200-day moving averages of $5.36 and $3.76, respectively.
The positive outlook of CAAS is reflected in its overall rating of A, which translates to a Strong Buy in our POWR Ratings system. The stock has an A grade for Value and a B for Growth and Sentiment. CAAS ranks #2 of 43 stocks in its category
Beyond what is stated above, we have also rated CAAS for Momentum, Quality, and Stability. Get all CAAS ratings here.
Tarena International, Inc. (TEDU)
Beijing-based TEDU provides professional education services through full-time and part-time classes under the Tarena brand in the People’s Republic of China. The company operates through two segments: Adult Professional Education and Childhood & Adolescent Quality Education Services.
On November 28, TEDU announced that its board of directors had authorized a new share repurchase program over the next twelve months. As per the program, the company is authorized to repurchase up to an aggregate value of US$3 million of its Class A ordinary shares (including in the form of ADS) during the 12 months beginning November 28, 2022.
Stakes would be repurchased through various legally permissible means, depending on the market conditions and in accordance with applicable rules and regulations. While increasing the intrinsic value of the holdings of existing shareholders, this program also underscores the management’s confidence in TEDU’s business prospects.
On November 15, TEDU announced that it had been selected for inclusion into the list of "Approved Education Providers" for "Promoting Employment of College Graduates through Connecting Talent Supply with Employers' Demand (Phase II) ("Connect Program"), recently published by the Department of College Students Affairs of the Ministry of Education (MoE).
As a result, TEDU stands to be benefited from the recognition and guidance of the Ministry of Education as it launches education and employment support programs that will help college students obtain the knowledge and skills demanded by employers.
For the third quarter of the fiscal year, ended September 30, TEDU’s net revenues increased 4.6% year-over-year to ¥643.3 million ($92.32 million), while its gross profit increased 13.1% year-over-year to ¥354.2 million ($50.83 million). The top-line growth was mainly driven by higher IT-focused supplementary STEAM education enrollment.
During the same period, the company’s non-GAAP operating income and net income came in at ¥30.2 million ($4.33 million) and ¥37.2 million ($5.34 million), respectively, compared to losses of ¥84.4 million ($12.11 million) and ¥90.5 million ($12.99 million) during the previous-year quarter. Consequently, the non-GAAP net income per ADS came in at ¥3.23, compared to a loss of ¥7.84 during the previous-year quarter.
The stock has gained 184% over the past year to close its last trading session at $4.60, comparable to its 50-day and 200-day moving averages of $4.91 and $4.61, respectively.
TEDU’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and a B for Value and Quality.
TEDU tops its category of 43 China stocks.
Click here to see additional POWR Ratings for Momentum, Sentiment, and Stability for TEDU.
PDD shares fell $3.11 (-3.77%) in premarket trading Friday. Year-to-date, PDD has gained 41.36%, versus a -17.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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