3 Top China Stocks to Watch in June
Although an intensifying clampdown by Chinese regulators make the prospects uncertain for many Chinese stocks, it is hard to argue against the optimis...
Although an intensifying clampdown by Chinese regulators make the prospects uncertain for many Chinese stocks, it is hard to argue against the optimism surrounding the growth prospects of some of these companies. With the global economy regaining traction quickly, we think stocks such as Baidu (BIDU), Yum China (YUMC), and Finvolution (FINV) are well positioned to generate substantial returns in the near term. So, let’s take a closer look.
Despite the fact that several Chinese stocks are falling prey to an increasing regulatory clampdown, there is little doubt that they hold an immense potential for big growth in the near term. That’s in-part because the world’s second-largest economy generated record annual growth in the first quarter of 2021. In fact, China’s output jumped 18.3% year-over-year in the first three months of the year, its fastest rate since records began in the early 1990s.
While several economies, including Europe's, are still hamstrung by the effects of the COVID-19 pandemic, China and the United States are returning to the pre-pandemic growth levels. Although China’s regulatory crackdown and weak international relations remain a concern regarding many Chinese companies, the solid growth prospects of some of these companies should help their stocks rally in the near term.
Given the speedy recovery of the Chinese economy, Baidu Inc. (BIDU), Yum China Holdings, Inc. (YUMC), and FinVolution Group (FINV) should witness solid earnings and revenue growth in the coming months. So, we think these stocks could be good additions to one’s watchlist.
Baidu Inc. (BIDU)
Headquartered in Beijing, China, BIDU is an internet search engine provider. The company provides a Chinese language search platform that allows users to locate information online, such as Web Pages, news, pictures, documents, and multimedia files, using links on the site. It operates primarily through its Baidu Core and iQIYI segments. Mobile Ecosystem, AI Cloud, and Intelligent Driving & Other Growth Initiatives are among the company's other product and service offerings.
This month, BIDU announced its goal of attaining carbon neutrality in its operations by 2030, utilizing modern technology and novel approaches to reduce its environmental impact. Data centers, office buildings, carbon offsets, intelligent mobility, AI cloud, and supply chains are among the six operational elements on which the company is focusing to meet its carbon neutral objectives. To achieve these aims, the company plans to use a scientific method based on existing green practices and the Greenhouse Gas Protocol's Scope I and II.
Also, this month, BIDU announced the launch of its Apollo Moon Robotaxi, which will be produced over the next three years in collaboration with BAIC Group's ARCFOX. This strategic partnership should help increase the commercialization of autonomous ride-hailing services in China and allow BIDU to stand out in the market.
During its fiscal first quarter, ended May 18, 2021, BIDU's total revenue increased 25% year-over-year to ¥28.13 billion ($4.29 billion). Its non-GAAP operating income rose 204% from its year-ago value to ¥4.36 billion ($666 million), while its adjusted EBITDA surged 107% year-over-year to ¥5.90 billion ($901 million). Its non-GAAP net income increased 39% year-over-year to ¥4.3 billion ($656 million), while its EPS grew 40% from the prior-year quarter to ¥12.38 ($1.89).
A $11.4 consensus EPS estimate for next year represents a 22.7% improvement year-over-year. Moreover, BIDU has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The $19.87 billion consensus revenue estimate for the current year represents a 20.8% increase from the same period last year. The stock has gained 53.4% over the past year and 53.9% over the past nine months.
BIDU's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. BIDU is also rated a B grade for Value. Within the China group, it is ranked #10 of 74 stocks.
To see additional POWR Ratings for Growth, Momentum, Sentiment, Quality, and Stability for BIDU, Click here.
Note that BIDU is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Yum China Holdings, Inc. (YUMC)
Incorporated in 2016, YUMC operates as a restaurant chain brand in China. KFC, Pizza Hut Casual Dining, East Dawning, Little Sheep, and Taco Bell are among the company’s famous brands. It also operates franchise restaurants under the Huang Ji Huang, Lavazza, and COFFii & JOY names.
In March, YUMC established its Southwest Supply Chain Support Center in Chongzhou district of Chengdu. Covering approximately 34,000 square meters, the center is expected to open in mid-2022. This should significantly enhance the company’s supply chain capabilities and support its development in Southwest China. .
During the first quarter, ended March 31, 2021, YUMC's revenue increased 46% year-over-year to $2.56 billion. Its non-GAAP operating profit rose 252.6% from its year-ago value to $342 million. The company’s non-GAAP net income increased 271% year-over-year to $230 million, while its EPS grew 231.3% from the prior-year quarter to $0.53.
YUMC is expected to generate 23.8% revenue growth in the current year and 9.7% next year. Its EPS is estimated to increase 32% from its year-ago value to $2.02 for the current year, and 16.3% year-over-year to $2.35 next year. Over the past year, YUMC's stock has gained 30.9%. Also, it has returned 16.5% so far this year.
YUMC's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Momentum and Quality. In the China group, it is ranked #3 of 74 stocks.
In total, we rate YUMC on eight different levels. Beyond what we've stated above, we have also given YUMC grades for Sentiment, Growth, Value, and Stability. Get all the YUMC ratings here.
FinVolution Group (FINV)
FINV is an investment holding company that offers an online consumer financing marketplace in China. It runs a fintech platform that links financial institutions with underprivileged individual borrowers. The company's platform offers traditional and non-traditional lending solutions.
In April, the company hosted its first Partner Conference in Shanghai that attracted several financial and academic institutions. Also, FINV recently created a wholly owned subsidiary in the Philippines, WeFund Lending Corp, which should help expand its technological finance solutions in the Southeast Asia region.
FINV's net revenue increased marginally year-over-year to ¥2.11 billion ($322.49 million) in the first quarter, ended March 31, 2021. Its operating profit surged 43.9% year-over-year to ¥655.72 million ($100.08 million). Its net income increased 40.8% from the year-ago value to ¥590.37 million ($90.11 million) over this period. FINV’s EPS has increased 48.2% year-over-year to ¥0.40 ($0.06).
The company's EPS is expected to grow 19.8% year-over-year to $1.22 in its fiscal period ending December 2021. Analysts expect FINV's revenue to increase 22.4% to $1.44 billion in the current year. FINV's stock has gained 465.1% over the past year. Also, the stock has surged 257.7% year-to-date.
It is no surprise that FINV has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A Grade for Quality, and a B for Value and Momentum. In the China group, it is ranked #5 of 74 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the FINV ratings for Growth, Sentiment, and Stability.
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BIDU shares were trading at $192.86 per share on Thursday morning, up $3.69 (+1.95%). Year-to-date, BIDU has declined -10.81%, versus a 14.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.3 Top China Stocks to Watch in June appeared first on StockNews.com