5 Chinese Stocks To Hold Even As Trade War Looms

Lim Si Jie

The first round of salvo is fired as the US officially kicked off the trade tariffs on some US$34 billion worth of Chinese goods. In response, China also retaliated with tariffs by the same magnitude, prompting President Trump to threaten to further impose tariffs on an additional US$200 billion worth of Chinese imports.

Despite the ongoing negative sentiments, UOBKH thinks that there are still ways to invest in the market without being overly concerned of a full-fledged trade war. Here are five Chinese stocks that UOBKH recommends to help investors generate alpha even as the trade war looms.

Investors Takeaway: 5 Chinese Stocks To Hold Even As Trade War Looms

  1. Alibaba Group Holdings

While growth slowed down over the past year, UOBKH notes that the Chinese e-commerce market growth remains strong relative to other segments. The slowdown in growth is largely due to the high base in service and virtual goods gross merchandise volume (GMV).

However, UOBKH remains positive on Alibaba’s core e-commerce revenue growth for FY19-22, attributing the revenue growth to its resilient e-commerce GMV growth and accelerated expansion of the new retailing segment. UOBKH is forecasting a revenue CAGR of 25 percent for Alibaba between FY19-22, underpinned by the core e-commerce (including new retailing) and cloud businesses’ outlook.

Alibaba has also launched projects and made efforts to enhance its logistics infrastructure to give customers a better user experience. The efforts include the ten percent share acquisition in one of the largest four Chinese logistics companies, ZTO Express; Construction of a Hong Kong logistics hub and; Cooperation with multiple provincial governments for building smart logistics networks.

BUY, TP US$230.00

  1. Anta Sports

The recent sell down on Anta Sports was driven by GMT Research’s short-seller report. However, UOBKH believes that GMT Research’s analysis does not accurately show any of Anta’s fundamental weaknesses.

Anta’s 1Q18 sales growth was strong with 20-25 percent year-on-year growth coming from the Anta brand. For non-Anta brands, the year-on-year growth was 80-85 percent. Moving forward, UOBKH expects the company’s 2Q performance to remain robust as management commented that its April figures remain “solid”. Inventory levels are also healthy and retail channel discounts have been flat.

BUY, TP HK$50.00

  1. Ctrip International

Ctrip has been facing some recent headwinds, which led to flattish 1Q18 air ticketing revenue on a year-on-year basis. However, UOBKH foresees the ticketing business to resume growth. Other businesses should also see continued acceleration in growth. Ctrip has also been expanding its hotel segment with new cooperation with renowned hotel chains, including AccorHotels and Hyatt.

UOBKH is forecasting a 19 percent year-on-year net revenue growth and 29 percent year-on-year net income growth for Ctrip in 2018. Right now, Ctrip is trading at 38 times forward-FY18 earnings, which is around 0.5 standard deviation lower than its 5-year average PE of 46 times. Moreover, further upside can be expected as Tongcheng-Elong (which Ctrip holds a 20 percent stake) has just filed for a Hong Kong IPO.

BUY, TP US$56.00

  1. Tian Lun Gas

Tian Lun Gas has recently disclosed details of its cooperation with the Henan government to convert 10 million township households from coal usage to gas usage in five years.

As the engineering, procurement, and construction (EPC) provider for the project, Tian Lun Gas will enjoy explosive growth in connection fees and hence earnings in the next five years. UOBKH notes that its current valuation is very attractive and has yet to reflect the growth potential.

BUY, TP HK$8.78

  1. HEC Pharma

HEC Pharma’s major growth driver, Kewei, should see double-digit growth in revenue growth for FY18 and FY19. Currently trading at 13.6 times forward-FY19 earnings or at 0.5 times price-to-earnings growth, UOBKH opines that the market is severely undervaluing HEC Pharma which is projected to grow at 25.8 percent compound annual growth rate from FY17 to FY20.

Interestingly, HEC Pharma’s current share price also implies that the market is assigning a “zero value” to the company’s solid research and development pipeline that includes multiple late-stage innovative drugs for HCV/HBV/Oncology, as well as 10-20 key generic products to be launched in 2018-2020.

BUY, TP HK$64.12

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