China's economic horizon is poised for substantial growth, propelled by robust GDP expansion and strategic government interventions supporting recovery. Against this backdrop, it seems wise to invest in New Oriental Education & Technology Group Inc. (EDU), JD.com, Inc. (JD) and FinVolution Group (FINV) for potential returns.
Let us understand this in detail.
China's economy exceeded expectations, experiencing rapid growth in the fiscal third quarter. September witnessed surprising upturns in consumption and industrial activity, indicating that recent policy interventions effectively support a nascent recovery, affirming the efficacy of implemented measures.
In the July-September period, GDP exhibited a 4.9% year-on-year growth, surpassing the anticipated 4.4% expansion. Third-quarter GDP surged to 1.3% on a quarterly basis, marking an acceleration from the revised 0.5% in the second quarter and surpassing the expected 1.0% growth.
The rosier-than-expected data has prompted global banks to increase their 2023 growth projections. Nomura Holdings, Inc. (NMR) has elevated its forecast from 4.8% to 5.1%, while JPMorgan Chase & Co. (JPM) has increased its estimate from 5% to 5.2%.
Moody's Analytics has similarly adjusted its 2023 growth projection, raising it to 5% from the earlier forecast of 4.9%. The International Monetary Fund (IMF) has also upgraded its 2023 GDP growth forecast for China to 5.4%, up from the previous estimate of 5%.
Moreover, in a recent move to stimulate the nation's economic recovery, China has greenlit an additional issuance of 1 trillion yuan ($139.3 billion) in government bonds for the fourth quarter. This initiative aims to bolster effective demand, setting a positive trajectory for economic growth in the initial stages of 2024.
"Next year is likely to be an important adjustment year for China's economy. It is expected that great efforts will be made to stabilize and maintain growth, as well as to remove risks. Therefore, economic growth will see stronger momentum," said Li Daokui, director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University.
Li contends that although the IMF forecasts China's GDP to grow 5.3% in 2023 and around 5% in 2024, he anticipates a more robust economic momentum in the upcoming year. He attributes the 2023 figure as a rebound from a low base, and the roughly 5% rate in 2024, while statistically slower, suggests increased vitality.
In light of these encouraging trends, let's look at the fundamentals of the three best China stocks, beginning with number 3.
Stock #3: New Oriental Education & Technology Group Inc. (EDU)
Based in Beijing, China, EDU delivers private educational services. The company's operations comprise four segments: Educational Services and Test Preparation Courses; Online Education and Other Services; Overseas Study Consulting Services; and Educational Materials and Distribution.
EDU's trailing-12-month gross profit margin of 54.11% is 51.8% higher than the 35.7% industry average. Its trailing-12-month EBITDA margin of 12.58% is 14% higher than the 11.04% industry average. Moreover, the stock's trailing-12-month net income margin of 8.25% is 86% higher than the industry average of 4.44%.
For the fiscal 2024 first quarter that ended August 31, 2023, EDU's net revenues increased 47.7% year-over-year to $1.10 billion. Its non-GAAP operating income rose 152.2% from the year-ago value to $244.76 million.
In addition, non-GAAP net income and non-GAAP net income per ADS attributable to EDU grew 126.2% and 132.9% from the prior year's period to $189.32 million and $1.13, respectively.
The consensus revenue estimate of $810.89 million for the fiscal 2024 second quarter ending November 2023 reflects a 27.1% year-over-year improvement. Likewise, the consensus EPS estimate of $0.27 for the current quarter indicates a 170.4% rise from the prior year’s period. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters.
EDU has gained 19.8% over the past month and 175.5% over the past year, closing the last trading session at $71.85.
EDU's positive fundamentals are evident in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EDU has a B grade for Growth, Sentiment and Quality. It has ranked #15 out of 41 stocks within the B-rated China industry.
In addition to the POWR Ratings I've just highlighted, you can see EDU ratings for Stability, Momentum, and Value here.
Stock #2: JD.com, Inc. (JD)
Headquartered in Beijing, China, JD offers supply chain technologies and services. Beyond this, it furnishes online marketplace services for third-party merchants, marketing solutions, and omnichannel support for customers and offline retailers. Additionally, JD provides online healthcare services and integrated industry solutions.
The stock's trailing-12-month asset turnover ratio of 1.79x is 80.2% higher than the 1.00x industry average. In addition, its trailing-12-month cash from operations of $8 billion compares to the $238.90 million industry average.
For the fiscal third quarter that ended September 30, 2023, JD's net revenues increased 1.7% year-over-year to $33.95 billion. Its non-GAAP income from operations rose 11.8% from the year-ago value to $1.52 billion. Also, the company's non-GAAP EBITDA grew 12.4% from the prior year's period to $1.77 billion.
Furthermore, non-GAAP net income attributable to the company's ordinary shareholders increased 5.9% from the prior year's quarter to $1.46 billion, while non-GAAP net income per share came in at $0.46, up 6.7% year-over-year.
Wall Street expects JD's revenue to marginally increase year-over-year to $150.51 billion for the fiscal year ending December 2023. Likewise, the company's EPS for the ongoing year is expected to grow 17.5% from the previous year to $2.99. Also, the company topped the consensus EPS estimates in all four trailing quarters.
Over the past month, the stock has gained 16.6% to close the last trading session at $28.31.
JD's solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
JD has a B grade for Growth, Value, and Sentiment. It has ranked #10 out of 41 stocks within the China industry.
Click here to access additional JD ratings for Stability, Quality, and Momentum.
Stock #1: FinVolution Group (FINV)
FINV, headquartered in Shanghai, China, operates within the online consumer finance industry. Empowered by proprietary technologies, the company runs a fintech platform connecting underserved borrowers with financial institutions, facilitating access to crucial financial services.
FINV's trailing-12-month gross profit margin of 78.86% is 30.6% higher than the 60.37% industry average. The stock's trailing-12-month EBITDA margin of 53.37% is 152.8% higher than the 21.11% industry average. Furthermore, its trailing-12-month levered FCF margin of 48.73% is 182.9% higher than the industry average of 17.23%.
FINV's net revenue increased 7.6% year-over-year to $438.26 million during the fiscal third quarter that ended September 30, 2023. Also, non-GAAP net profit per ADS attributable to FINV's ordinary shareholders grew 1.4% from the year-ago value to $0.30.
As of September 2023, the company's cash and cash equivalents amounted to $781.35 million, while total assets came in at $3.05 billion.
The consensus revenue estimate of $1.79 billion for the fiscal year ending December 2023 indicates a 10.1% year-over-year improvement. Similarly, the consensus EPS estimate of $1.24 for the ongoing year reflects a 5.3% rise from the previous year.
Shares of FINV have gained 14.4% over the past six months to close its last trading session at $4.54.
FINV's strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
FINV has a B grade for Value, Momentum, Quality, Sentiment, and Stability. It is ranked #2 in the 41-stock China industry.
Click here to access the additional FINV rating (Growth).
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.
JD shares were trading at $28.31 per share on Thursday morning, up $0.23 (+0.82%). Year-to-date, JD has declined -48.83%, versus a 20.30% 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.
Are These 3 China Stocks Buying Opportunity? StockNews.com
