The woes of the Chinese stock market in recent years are well known. However, the Chinese government has taken several corrective measures to not only boost the economy but also stabilize the sluggish stock market.
Against this backdrop, investors may consider buying Chinese stocks, which are fundamentally strong.XNET), Youdao Co., Ltd. (dao), Chuniu Co., Ltd. (trip).
Before we dig deeper into the fundamentals of these Chinese stocks, let's discuss what's going on in the Chinese stock market and what factors are expected to shape its outlook.
The past few years have been difficult for the Chinese stock market, as Chinese and Hong Kong stocks have wiped out about $6 trillion in value. The Shanghai Composite Index has fallen 8% over the past year, and the Hang Seng Index has fallen 16.4% over the same period. MSCI Emerging Markets rose 10.3% last year. MSCI China Index falls 11%.
The decline in Chinese stocks over the past few years has been due to sluggish consumption, repeated lockdowns to prevent the spread of the new coronavirus, a real estate recession, deflation, and record youth unemployment rates. Declining birth ratepolicies that lead to a crackdown on private companies and Big Tech.
However, the Shanghai Composite Index has risen recently; 3,000 marks This is because investors have regained optimism following corrective measures taken by the government and relevant authorities to boost the economy and stock market.At a cabinet meeting led by Prime Minister Li Qiang, officials were asked to strengthen Injecting medium- and long-term funds into capital markets To increase market confidence.
In addition, China's securities regulators Curbing short selling The company limits net selling in the stock index futures market, and restricts net selling by investment trust managers in order to stabilize the stock market. This led to a significant reduction in the amount of shorted stocks, reaching an all-time low. 3 years.
Furthermore, Chinese policymakers 2 trillion yuan ($278.03 billion) Using offshore accounts of Chinese state-owned enterprises to stabilize the stock market.they also set aside 300 billion yen ($41.7 billion) The total amount of local funds used to invest in domestic stocks through state-owned financial companies China Securities Finance Corporation or Central Huijin Investment Co., Ltd.
The People's Bank of China (central bank) cut the reserve requirement ratio by 50 basis points on February 5, helping to support liquidity in the economy. The reduction provides: Long-term liquidity of 1 trillion yuan ($140.96 billion), promote economic growth. The People's Bank of China also announced a record cut in the key mortgage reference rate to support the struggling real estate sector.
The central bank sets the five-year loan prime rate (LPR) 4.2%～3.95%, boosting the country's economic activity. “Five-year LPR reduction will help,” Financial News said. stabilize confidencePromote investment and consumption and support the stable and healthy development of the real estate market. ”
Additionally, the People's Bank of China kept interest rates unchanged on 500 billion yen ($69.51 billion) worth of one-year medium-term lending facilities (MLF). 2.50%, consistent with economists' expectations. Investors were also delighted by the release of recent economic data showing more than 61 million rail trips took place during the week-long Lunar New Year holiday, an increase of 61% year-on-year. This is the highest number in the past five years.
Domestic tourism showed signs of solid recovery, with spending increasing 47.3% year-on-year. 632.7 billion yen ($87.96 billion). Also, nearly 474 million people took tourist trips during the Lunar New Year holiday, an increase of 34.3% from the previous year. Recently, China's securities regulators Ban on major institutional investors Prevents you from reducing your stock holdings at the beginning and end of the trading day.
With this favorable background in mind, let's evaluate the fundamentals of the best three. China Stock selection begins with the third option.
Stock #3: Xunlei Limited (XNET)
XNET is based in Shenzhen and operates an internet platform for digital media content in China. Its platform is based on cloud technology that allows users to access, store, manage and consume digital media content.
Looking at trailing 12-month GAAP P/E ratio, XNET's 8.01x is 72.6% lower than the industry average of 29.18x.0.25 times the trailing 12 months Price/sales price 91.3% lower than the industry average of 2.93x.
For the third quarter ended September 30, 2023, XNET's revenue, excluding rebates and discounts, was $84.24 million. Gross profit increased 6.6% year-on-year to $37.54 million. The company's non-GAAP net income was $5.47 million. Additionally, non-GAAP earnings per ADS was $0.0835.
Shares have declined 1.3% over the past month, closing at $1.49.
XNET power rating reflects a solid outlook. The overall rating is B, which is equivalent to a “buy” according to our own rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to the best degree.
Ranked 15th out of 41 stocks. China industry. The value grade is A and the sentiment grade is B. click here Check out additional ratings for XNET for Growth, Momentum, Stability, and Quality.
Inventory #2: Youdao, Inc. (dao)
DAO is an Internet technology company headquartered in Hangzhou, China that provides online services in the areas of content, community, communication, and commerce in China. He operates through three segments: learning services, smart devices, and online marketing services. We provide online knowledge tools, learning services, STEAM courses, smart devices, education digitization, and online marketing services.
In terms of future EV/Sales, DAO's 0.90x is 27.7% lower than the industry average of 1.25x. Its forward price/sales ratio of 0.68x is 26.1% lower than the industry average of 0.91x.
DAO's total net revenue for the third quarter of the fiscal year ended September 30, 2023 was RMB1.54 billion ($214.08 million), an increase of 9.7% year-on-year. Gross profit increased by 13.1% year-on-year to RMB 859.64 million ($119.5 million). The company's total gross profit margin was 55.9%, compared to 54.2% in the same period last year.
Additionally, the company's non-GAAP net loss from continuing operations attributable to common shareholders narrowed by 59.1% year-on-year to RMB 67.25 million ($9.35 million). In addition, non-GAAP net loss from continuing operations per ADS decreased by 58.6% year-on-year to RMB0.55.
Analysts expect DAO's revenue for the quarter ending March 31, 2024 to be $185.81 million, up 13% year-over-year. Shares have increased 30.8% over the past month, closing at $4.08.
DAO's POWR Rating reflects this positive outlook. The overall rating is B, which is equivalent to a “buy” according to our own rating system.
It ranks 11th in the industry. Growth potential and value are rated B. To see additional ratings for DAO on Momentum, Stability, Sentiment, and Quality, visit click here.
Stock #1: Chuniu Co., Ltd. (trip)
TOUR is an online leisure travel company headquartered in Nanjing, People's Republic of China. Organized tours, various package tours including self-guided tours, travel-related services such as tickets for tourist attractions, visa application services, accommodation reservations, financial services, hotel reservation services, sales of airline, railway, and flight tickets, etc. We provide travel-related services. We also sell bus tickets for leisure travelers.
In terms of forward price per booking, TOUR's 0.53x is 79.5% lower than the industry average of 2.60x. The company's forward GAAP P/E ratio is 17.55x, which is 4.5% lower than the industry average of 16.80x.
TOUR's net revenue for the quarter ended September 30, 2023 was RMB 178.19 million ($24.77 million), an increase of 128.9% year-on-year. Gross profit increased by 154.9% year-on-year to RMB 114.77 million ($15.96 million).
The company's non-GAAP net income attributable to common shareholders was RMB45.79 million ($6.37 million), compared with RMB20.12 million ($2.8 million) in non-GAAP net loss attributable to common shareholders for the same period last year.
TOUR's EPS and revenue for fiscal 2025 are expected to be $0.08 and $84.97 million, up 92.9% and 40.3% year-over-year, respectively. Shares rose 9.3% over the past month, closing at $0.69.
TOUR's strong fundamentals are reflected in the POWR Rating. The overall rating is B, which is equivalent to a “buy” according to our own rating system.
Ranked 6th in the Chinese industry. It has an A grade for sentiment and a B grade for growth, value, and quality. click here Check out other reviews of TOUR regarding momentum and stability.
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DAO stock was unchanged in pre-market trading on Friday. Since the beginning of the year, DAO has gained 3.55%, while the benchmark S&P 500 index has gained 7.00% during the same period.
About the author: Dipanjan Vanture
Dipanjan has been interested in the stock market since his elementary school days. This earned him a master's degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a keen interest in reading and analyzing emerging trends in financial markets. more…
