The Chinese equity markets have been under pressure of late, exacerbated by rising COVID-19 cases in the country. After Shanghai, Beijing's lockdown has sent fresh shockwaves worldwide and significantly dampened investor sentiment.
According to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, "There is concern that prolonged lockdowns will hit employment and lead to a sharp slowdown in growth, sparking fresh shipping logjams and supply chain issues."
However, we think the current market dip provides an excellent opportunity to buy fundamentally strong stocks FinVolution Group (FINV) and 360 DigiTech, Inc. (QFIN). Given their robust financials and strong cash flows, these companies are well-positioned to weather current market volatility. Conversely, overvalued Chinese stocks Bilibili Inc. (BILI) and Agora, Inc. (API) are best avoided now. Stocks to Buy:
FinVolution Group (FINV)
Headquartered in Shanghai, the People's Republic of China, FINV, an investment holding company, operates an online consumer finance marketplace. The company runs a fintech platform and provides standard and other loan products. Currently, it has approximately 140.3 million cumulative registered users.
On March 14, 2022, Feng Zhang, FINV's CEO, said, "Despite the resurgence of COVID-19 in Southeast Asia, we recorded RMB 3.7 billion of transaction volume in international markets in 2021, representing an increase of 270.0% year-over-year, and underscoring a remarkable achievement."
FINV's net revenue increased 32.1% year-over-year to $384.15 million for the fourth quarter, ended Dec. 31, 2021. Its non-GAAP net profit came in at $107.74 million, up 33.6% year-over-year. Also, its non-GAAP EPS was $0.07, up 34.3% year-over-year.
FINV's revenue is expected to increase 15% to $1.85 billion in 2023. Its EPS is expected to grow 11% to $1.51 in 2023. The stock closed yesterday's trading session at $3.68.
FINV's POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Value and a B grade for Quality. Within the China industry, it is ranked first of 46 stocks. Click here to see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for FINV.
360 DigiTech, Inc. (QFIN)
Headquartered in Shanghai, the People's Republic of China, QFIN and its subsidiaries operate a digital consumer finance platform under the 360 Jietiao brand. Its platform provides online consumer finance products to borrowers, funded by institutional funding partners.
On March 10, 2022, Mr. Alex Xu, Chief Financial Officer, said, "At the end of 2021, we held an ever strong financial position that not only enables us to support our long-term growth and withstand market volatilities, but also allows us to continue improving returns to our shareholders through a quarterly dividend policy."
QFIN's total net revenue increased 32.5% year-over-year to $693.92 million for the fourth quarter, ended Dec. 31, 2021. Its non-GAAP net income came in at $213.86 million, up 3.9% year-over-year, while its non-GAAP EPS came in at $1.35, up 2.1% year-over-year.
Analysts expect QFIN's revenue to increase 15.1% year-over-year to $3.06 billion in 2023. Its EPS is expected to grow 16.5% to $5.65 in 2023. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock closed yesterday's trading session at $13.17.
QFIN has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Value and a B grade for Sentiment and Quality.
QFIN is ranked #3 of 50 stocks in the Consumer Financial Services industry. Click here to see the additional POWR Ratings for QFIN (Growth, Momentum, and Stability).
Stocks to avoid:
Bilibili Inc. (BILI)
Headquartered in Shanghai, BILI provides online entertainment services for the young. Its platform offers a range of content, including video services, mobile games, value-added services, and ACG-related comic and audio content. On March 14, 2022, JP Morgan analysts downgraded BILI to 'Underweight.'
BILI's total net revenues for the fourth quarter (ended December 31, 2021) came in at RMB5.78 billion ($881.90 million), up 50.5% year-over-year. However, its net loss was RMB2.10 billion ($319.73 million), compared to a RMB843.71 million ($128.71 million) loss in the prior-year period. Furthermore, its net loss per share came in at RMB5.34, compared to a RMB2.34 loss per share in the previous period. Also, its loss from operations came in at RMB2 billion ($305.05 million), compared to a RMB903.36 million ($137.81 million) loss in the year-ago period.
In terms of forward P/S, BILI's 2.03x is 35.1% higher than the 1.51x industry average.
BILI's EPS is estimated to decrease 57.1% in the quarter ended June 30, 2022. Its EPS is expected to remain negative in 2022 and 2023. The stock has declined 55.7% in price year-to-date to close yesterday's session at $20.57.
BILI's POWR Ratings reflect its poor prospects. It has an overall D rating, which equates to Sell in our POWR Ratings system. It has an F grade for Stability and a D grade for Growth, Momentum, Sentiment, and Quality.
Click here to access the additional POWR Ratings for BILI (Value). BILI is ranked #43 of 46 stocks in the F-rated China industry.
Agora, Inc. (API)
Headquartered in Shanghai, API provides Real-Time Engagement Platform-as-a-Service (RTE-PaaS) in the People's Republic of China, the United States, and internationally. Its RTE-PaaS offers developers software tools to embed real-time video, voice, and messaging functionalities into applications.
API's total revenues came in at $40.39 million for the fourth quarter, ended Dec. 31, 2021, up 21.5% year-over-year. However, its net loss came in at $21.18 million, compared to a $6.18 million loss in the year-ago period. In addition, its loss per share came in at $0.19, compared to a loss per share of $0.06 in the year-ago period. The company's loss from operations came in at $24.76 million, compared to a $7.75 million loss in the prior-year period.
API's 4.53x forward P/S is 50.5% higher than the 3.01x industry average.
Analysts expect API's revenue to decrease 7.9% to $39 million for the quarter ended June 30, 2022. Its EPS is estimated to decrease 168.1% per annum over the next five years. Furthermore, its EPS is expected to remain negative in 2022 and 2023. The stock missed EPS estimates in each of the trailing four quarters. It has declined 58.6% in price year-to-date to close yesterday's session at $6.71.
API's POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. In addition, the stock has a D grade for Growth, Momentum, Sentiment, Stability, and Quality.
We have also graded API for Value. Click here to access all of API's ratings. API is ranked #131 of 157 stocks in the F-rated Software - Application industry.
Click here to check out our Software Industry Report for 2022
FINV shares were trading at $3.66 per share on Wednesday afternoon, down $0.02 (-0.54%). Year-to-date, FINV has declined -21.93%, versus a -11.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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