Despite the lackluster post-COVID recovery in China that raised concerns about the sustainability of its remarkable growth over the decades, there is an expectation that China managed to achieve a growth rate of approximately 5% for 2023, outperforming the global economy.
Given the resilient nature of the Chinese economy, investors could consider monitoring the shares of three sound Chinese companies, Weibo Corporation (WB), Leju Holdings Limited (LEJU), and Xunlei Limited (XNET). But before we dig deeper into the fundamentals of these stocks, let’s briefly examine China's prevailing economic scenario.
As per the National Bureau of Statistics, China experienced a 4.9% expansion in the third quarter of 2023 (ended September) compared to the same period in 2022, exceeding economists' projections of a 4.6% GDP growth. Additionally, there was a positive development in the unemployment rate, decreasing from 5.2% in the previous month to 5% in September 2023.
Furthermore, despite navigating a more complex external landscape and facing growing uncertainties, the world’s second-largest economy was anticipated to gain momentum in the fourth quarter of 2023, building on the faster-than-expected expansion witnessed in the third quarter.
On top of it, the Economist Intelligence Unit projects that the foundational aspects of China's economy will experience further strengthening this year. Institutions like the U.S. Center for Strategic and International Studies affirm that China maintains strong exports in areas such as electric vehicle batteries, electronic products, and minerals, with several Chinese industries achieving global competitiveness.
Additionally, the International Monetary Fund (IMF) adjusted its 2024 GDP growth projection for China to 4.6%, up from the earlier estimate of 4.2%. This upward revision came after China's approval of a CN¥1 trillion ($137 billion) sovereign bond issue and the decision to permit local governments to frontload a portion of their 2024 bond quotas aimed at providing economic support.
Overall, China's economic prospects for the current year continue to exhibit strength, supported by its competitive industries and the proactive measures implemented by the Chinese government to fortify and stimulate the economy.
That said, let’s now dive deeper into the fundamentals of the featured China stocks in detail, starting with the third choice:
Stock #3: Weibo Corporation (WB)
Headquartered in Beijing, WB operates as a social media platform for people to create, distribute, and discover content. It operates in two segments: Advertising and Marketing Services; and Value-Added Services.
The stock’s trailing-12-month net income margin of 23.01% is 592.4% higher than the 3.32% industry average. Its trailing-12-month levered FCF margin of 26.79% is 250.1% higher than the industry average of 7.65%. Furthermore, WB’s trailing-12-month EBIT margin of 29.49% is 265.1% higher than the 8.08% industry average.
In terms of the forward EV/Sales ratio, WB’s 1.22x is 33% lower than the industry average of 1.82x. Likewise, its forward EV/EBIT ratio of 4.59x is 70.4% lower than the 15.50x industry average. In addition, the stock’s forward non-GAAP P/E ratio of 4.76x is 69.9% lower than the 15.82x industry average.
For the fiscal third quarter, which ended on September 30, 2023, WB’s net revenues amounted to $440.24 million, while its income from operations rose 8.7% from the year-ago value to $133.99 million. Furthermore, the company’s net income amounted to $84.17 million and $0.34 per share compared to a net loss of $16.91 million and $0.07 per share in the same period last year.
Analysts predict WB’s revenue for the fourth quarter (ended December 2023) to increase 1.9% year-over-year to $456.49 million, while its EPS for the same period is expected to be $0.53. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
The stock has gained 3.8% over the past month to close the last trading session at $9.93.
WB’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B grade for Quality. In the A-rated China industry, it is ranked #23. Click here to see WB’s ratings for Growth, Momentum, Stability, and Sentiment.
Stock #2: Leju Holdings Limited (LEJU)
LEJU, headquartered in Beijing, provides online to offline (O2O) real estate services in China. It offers real estate e-commerce, online advertising, and online listing services through its online platform and various mobile applications.
On November 14, 2023, LEJU disclosed that its board of directors had sanctioned a share repurchase initiative. In accordance with this program, the Company is empowered to repurchase up to $2 million of its shares until November 13, 2024. The funds for the repurchase are expected to be derived from the company's existing cash balance.
LEJU’s trailing-12-month gross profit margin of 91.86% is 38.3% higher than the 66.44% industry average. Its trailing-12-month cash per share of $7.30 is 967.3% higher than the industry average of $0.68. Furthermore, the stock’s trailing-12-month asset turnover ratio of 1.36x is 954.3% higher than the 0.13x industry average.
In terms of the trailing-12-month Price/Sales ratio, LEJU’s 0.07x is 98.6% lower than the industry average of 4.78x. Likewise, its trailing-12-month Price/Book multiple of 0.70 is 53.5% lower than the 1.50x industry average.
In the six-month period, which ended on June 30, 2023, LEJU’s total net revenues amounted to $158.53 million. During the same period, the company’s revenue from e-commerce and online advertising stood at $131.26 million and $27.27 million, respectively. Additionally, its total current liabilities came in at $133.66 million, declining 7.3% compared to $144.19 million as of December 31, 2022.
Furthermore, the company’s EPS is anticipated to improve by 57.4% annually over the next five years.
LEJU’s shares have soared 26.3% over the past three months and 5.1% over the past month to close the last trading session at $1.68.
It’s no surprise that LEJU has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Value, and Quality. In the same industry, it is ranked #22.
In addition to the POWR Ratings we’ve stated above, we also have LEJU’s ratings for Momentum, Stability, and Sentiment. Get all LEJU ratings here.
Stock #1: Xunlei Limited (XNET)
Based in Shenzhen, XNET operates an Internet platform for digital media content in China. Its platform is based on cloud technology that enables users to access, store, manage, and consume digital media content.
The stock’s trailing-12-month net income margin of 3.17% is 34.3% higher than the 2.36% industry average. Its trailing-12-month CAPEX/Sales of 3.90% is 65% higher than the industry average of 2.37%. Furthermore, XNET’s trailing-12-month asset turnover ratio of 0.85x is 36.8% higher than the 0.62x industry average.
In terms of the trailing-12-month Price/Sales ratio, XNET’s 0.27x is 90.9% lower than the industry average of 2.91x. Likewise, its trailing-12-month Price/Cash Flow multiple of 1.99 is 90.3% lower than the 20.56x industry average. Furthermore, the stock’s trailing-12-month P/E ratio of 8.41x is 69.6% lower than the 27.66x industry average.
For the fiscal third quarter, which ended on September 30, 2023, XNET’s net revenues amounted to $84.24 million, while its gross profit rose 6.6% from the year-ago value to $37.54 million.
During the same quarter, the company’s non-GAAP net income and non-GAAP earnings per ADS came in at $5.47 million and $0.07, respectively. Also, its total assets stood at $465.71 million, increasing marginally compared to $463.32 million as of December 31, 2022.
Moreover, XNET’s EPS is projected to improve by 19% per annum over the next five years.
Over the past month, XNET’s shares have surged 3.3% to close the last trading session at $1.56.
XNET’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Sentiment. Within the same A-rated industry, it is ranked #20. Click here to see the other ratings of XNET for Growth, Momentum, Stability, and Quality.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
WB shares were trading at $9.58 per share on Tuesday afternoon, down $0.35 (-3.52%). Year-to-date, WB has declined -12.51%, versus a -0.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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