Disclaimer: This is not investment or financial advice. I take no responsibility for anyone’s decision.
It seems like some optimism is back in the Chinese stock markets. Seeking Alpha has written about the top 4 Chinese stocks to buy here. I am highlighting them here so that you can have a view and decide whether they have sound investment thesis.
#1: Trip.com
Business: Provides tourism-related services for people to plan their holidays.
Investment Thesis: Domestic hotel and air reservations are up by 60% and 50% in 4Q 2023, surpassing pre-pandemic levels. Earnings have beaten expectations 7 times in the last 8 quarters.
Analyst Target Price: US$55.31 (+23.9%), STRONG BUY
Objective Analysis: A sharp rebound in revenue of 111.1% to US$6.3 billion in 2023 as the reopening of China’s economy spurred pent-up demand for domestic and international tourism. Profits have also grown by 7 times to US$1.4 billion making this one of its most profitable years.
#2: Vipshop Holdings
Business: Online retail platform offering clothes, cosmetics, sportswear, shoes, and supermarket products.
Investment Thesis: Cheap to buy with a price-to-earnings ratio trading at a 56% discount to the sector. It has beaten expectations in the last 11 of the 12 quarters.
Analyst Target Price: US$22.90 (+42.2%), BUY
Objective Analysis: Its current PE ratio of 8.1 times is trading lower than the historical average of 13 times, giving it about 60% potential upside if it trades up to its average. Meanwhile, its profit margin of 8.5% is the highest it has been in 5 years, indicating an improvement in its operations.
#3: PDD Holdings
Business: E-commerce platform (Pinduoduo)
Investment Thesis: Strong operating profit margin of 22%, which is 200% higher than the sector’s median. Utilize capital very effectively and deliver high value to investors. Earnings are projected to grow by 30% in 2024, and revenue by 40%.
Analyst Target Price: US$181.89 (+51.5%), STRONG BUY
Objective Analysis: Return on assets of 20.5% is much higher when compared to the sector’s average of 2.4%. Return on equity (which measures how much value to investors) is also much higher at 39.4% compared to the sector’s average of 5.4%. Overall, its operations are very robust.
#4: Li Auto
Business: Produces and sells electric vehicles.
Investment Thesis: Strong track record in growth with sales being up by 173%. Sales are projected to grow to US$40 billion in the full year 2025. High return on equity of 22%, above the sector’s average.
Analyst Target Price: US$52.19 (+70.3%), STRONG BUY
Objective Analysis: Revenue tripled in 2023 to US$17.5 billion, driven by increased demand in electric vehicles. Meanwhile, Li Auto finally turned a profit of US$1.7 billion in 2023 compared to a loss of US$300 million in 2022. This marks the start of profitability for Li Auto.
