The Chinese economy had one of its worst performances in decades last year as harsh Covid-19 control measures hammered households and businesses. A prolonged lockdown has primarily disrupted the supply chain, adversely affected international businesses, and hurt trade and investment flow between China and other countries.
According to the National Bureau of Statistics, China’s gross domestic product (GDP) grew 3% in 2022, the second-slowest growth rate since 1976, and missed the government’s target of 5.5%.
Despite the country facing an unprecedented Covid wave, the central government recently turned its focus to boosting growth and dropped its strict “zero-Covid” policy, which had taken a heavy toll on the economy. JPMorgan’s global market strategist Chaoping Zhu stated, “We expect to see a sustained economic recovery in 2023 as a result of reopening and policy stimulus.”
A group of government economists and analysts expect Beijing to set a growth target above 5% in 2023. The signs of a significant rebound in the economy have boosted investor sentiment.
Therefore, it could be wise to add fundamentally sound Chinese stocks Hello Group Inc. (MOMO), China Automotive Systems, Inc. (CAAS), and Tarena International, Inc. (TEDU) to your watchlist this year.
Hello Group Inc. (MOMO)
Headquartered in Beijing, the People’s Republic of China, MOMO provides mobile-based online social and entertainment services. The company operates two platforms: Momo, a social search and instant messaging mobile application, and Tantan, a social and dating application.
For the fiscal 2022 third quarter ended September 30, MOMO’s revenue from live video service grew 30.7% year-over-year to $233.01 million. Its income from operations was $73.10 million, up 12.9% year-over-year. The company’s net income increased 13.6% from the year-ago value to $63.20 million. In addition, its net income per ADS was $0.31, an increase of 14% year-over-year.
In terms of forward non-GAAP P/E, MOMO is trading at 7.87x, which is 52.9% lower than the industry average of 16.70x. Likewise, its forward EV/Sales multiple of 0.55 is 71.5% lower than the industry average of 1.93. Also, the stock’s forward Price/Sales of 1.05x is 19.3% lower than the 1.30x industry average.
Analysts expect MOMO’s revenue and EPS for the current fiscal year (ending December 2023) to come in at $1.84 billion and $1.30, indicating increases of 1.6% and 3.8% year-over-year, respectively. Moreover, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
MOMO has gained 26.7% over the past month and 22.9% over the past year to close the last trading session at $10.03.
MOMO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a grade A for Value and a B for Quality. It 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 it had introduced a new series of Electric Power Steering systems for China’s largest EV producer, BYD Company Limited (BYDDF).
Qizhou Wu, CAAS’ CEO, said, “Working with BYD brings out the best of CAAS as our engineering team embraces every opportunity to set new records and raise the bar in new product designs. Now the baton has been passed to our best-in-class production team to meet the high expectations of our customer and deliver the high-quality products to the end market.”
For the third quarter of fiscal 2022 ended September 30, CAAS’ net sales increased 26.8% year-over-year to $137.2 million, while electric power steering product sales grew 52.4% from the year-ago value to $44.80 million. The company’s gross profit increased 24.4% year-over-year to $20.90 million, and its income from operations grew 716.7% year-over-year to $4.90 million.
Furthermore, net income attributable to CAAS’ common shareholders came in at $7.5 million and $0.24 per share, compared to a net loss of $0.3 million and $0.01 per share for the previous-year quarter.
In terms of forward non-GAAP P/E, CAAS is trading at 10.45x, which is 26.6% lower than the industry average of 14.23x. Its forward EV/EBITDA multiple of 4.24 is 56.5% lower than the industry average of 9.79.
Analysts expect CAAS’ fiscal year (ended December 2022) revenue to increase 8.3% year-over-year to $539.23 million. The company’s EPS for the same year is estimated to grow 72.2% year-over-year to $0.62. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 132.6% over the past six months and 146.8% over the past year to close the last trading session at $6.49.
CAAS’s strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating translates to a Strong Buy in our POWR Ratings system.
CAAS has an A grade for Value and Sentiment. It has a B grade for Growth. It is ranked first among 43 stocks in the same industry.
Beyond what is stated above, we have also rated CAAS for Momentum, Quality, and Stability. Get all CAAS ratings here.
Tarena International, Inc. (TEDU)
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. TEDU is headquartered in Beijing, the People’s Republic of China.
On November 28, 2022, TEDU’s board of directors 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 $3 million of its Class A ordinary shares (including in the form of ADS) during the 12 months beginning November 28, 2022.
While increasing the intrinsic value of the holdings of existing shareholders, the new share repurchase 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).
Under the guidance of MoE, TEDU will launch education and employment support programs to help college students obtain the knowledge and skills demanded by employers. The company is expected to benefit from the recognition and guidance of the MoE significantly.
For the fiscal 2022 third quarter ended September 30, TEDU’s net revenues increased 4.6% year-over-year to $90.40 million, while its gross profit rose 13.1% year-over-year to $49.80 million. The company’s non-GAAP operating income, which excluded share-based compensation expenses, was $4.20 million, up 135.8% year-over-year.
The company’s non-GAAP net income per ADS came in at $0.36, an increase of 104.4% from the previous-year quarter.
In terms of trailing-12-month EV/EBITDA, TEDU is trading at 4.04x, which is 58.6% lower than the industry average of 9.76x. Also, the stock’s trailing-12-month Price/Sales of 0.17x is 81.4% lower than the 0.91x industry average.
Shares of TEDU have gained 164% over the past year to close its last trading session at $5.36.
TEDU’s POWR Ratings reflect its financial strength and strong growth outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value and Quality. TEDU tops its category of 43 China stocks.
Click here to access additional POWR Ratings for Momentum, Sentiment, and Stability for TEDU.
MOMO shares rose $0.04 (+0.40%) in premarket trading Friday. Year-to-date, MOMO has gained 11.69%, versus a 1.62% 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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