Despite facing multiple challenges, China’s economy has displayed commendable resilience over recent years. Given the policy actions undertaken to stabilize the Chinese economy this 12 months, allow us to ascertain which China stocks amongst H World Group Limited (HTHT), Recent Oriental Education & Technology Group (EDU), and X Financial (XYF) are price buying, selling, or holding. Read on….
China’s proficient management of prior economic hurdles is a pillar of constancy in the global economy. The country’s third-quarter economic growth outstripped predictions, propelled by robust policy support, signifying Beijing’s preparedness to realize its roughly 5% growth goal for the 12 months.
Given this backdrop, I think Recent Oriental Education & Technology Group Inc. (EDU) and X Financial (XYF) are strong candidates to take a position in, given their robust growth and profitability. Conversely, waiting for a greater entry point in H World Group Limited (HTHT) may be prudent.
China, the world’s second-largest economy, exhibited resilience and rebounded soon after the stringent pandemic measures were relaxed in the first quarter of 2023. Yet, the eagerly awaited post-COVID resurgence had been subdued as the nation grappled with quite a few economic complications like a deflation, youth unemployment crisis, slumping trade, and an escalating property crisis. The debt mountain that has significantly heightened investors’ concerns is adding fuel to the fire.
Despite these conundrums, China’s economy surpassed estimates in the third quarter, with September recording unexpected upswings in consumer consumption and industrial activity. These indicators signal that recent policies have been productive in bolstering a recovery, suggesting a faster-than-projected growth path.
For the July-September quarter, China’s GDP grew by 4.9% 12 months-over-12 months, outpacing 4.4% growth predictions. The third-quarter GDP increased by 1.3% quarter-by-quarter, a big acceleration from the prior quarter and beyond the expected 1% expansion. Moreover, China’s industrial output and retail sales witnessed annual growth rates of 4.5% and 5.5% in September, surpassing analysts’ forecasts.
Furthermore, to invigorate the economy, (*3*)China authorized a 1 trillion yuan ($137 billion) sovereign bond issuance and allowed local governments to expedite part of their 2024 bond allotments.
China continues heading steadily toward the government’s 5% growth goal for 2023. Notably, the IMF has raised China’s economic growth forecast in 2023 to five.4%. Citigroup Inc. (C) anticipates a 5.3% GDP growth in 2023, while JP Morgan Chase & Co. (JPM) and Nomura Holdings, Inc (NMR) predict growth rates of 5.2% and 5.1%, respectively.
Considering these conducive trends, let’s take a take a look at the fundamentals of the three China stocks, starting with number 3.
Stock #3: H World Group Limited (HTHT)
Headquartered in Shanghai, the People’s Republic of China, HTHT develops leased and owned, manachised, and franchised hotels primarily in the People’s Republic of China.
In November, HTHT’s board of directors approved the declaration and payment of a dividend of $0.093 per odd share, or $0.93 per ADS. The dividend comprises an odd dividend of $0.062 per odd share, or $0.62 per ADS and a special dividend of $0.031 per odd share, or $0.31 per ADS. The corporate contemplates announcing an odd dividend annually as much as 45% of its net income.
HTHT’s trailing-12-month money from operations of $863.85 million is 261.1% higher than the industry average of $239.22 million. Its trailing-12-month levered FCF margin of 22.28% is 332.3% higher than the industry average of 5.15%.
Its revenue and EBITDA have grown at CAGRs of 25.9% and 106.4% over the past three years, respectively. Its total assets and levered FCF have improved at CAGRs of 21.1% and 35.2% over the past five years, respectively.
In the fiscal third quarter that ended September 30, 2023, HTHT’s total revenue increased 53.6% 12 months-over-12 months to $861 million, while its income from operations grew 281.8% from the 12 months-ago quarter value to $262 million.
Moreover, net income attributable to HTHT and earnings per ADS stood at $183 million and $0.56, respectively. As of September 30, 2023, its total current assets got here at $1.48 billion, in comparison with $1.35 billion as of September 30, 2022.
Street expects HTHT’s EPS in the fiscal 12 months ending December 2023 to be $1.93, while revenue is anticipated to extend 50.5% 12 months-over-12 months to $3.03 billion.
The stock has gained marginally intraday to shut the last trading session at $36.17.
HTHT’s POWR Rankings reflect its prospects. The POWR Rankings are calculated by considering 118 distinct aspects, with each factor weighted to an optimal degree.
The stock has an A grade for Growth and a B for Sentiment. Inside the B-rated China industry, it’s ranked #24 out of 41 stocks.
To see additional POWR Rankings for Value, Momentum, Stability, and Quality for HTHT, click here.
Stock #2: Recent Oriental Education & Technology Group Inc. (EDU)
Headquartered in Beijing, the People’s Republic of China, EDU provides private educational services under the Recent Oriental brand in the People’s Republic of China. The corporate operates through 4 segments: Educational Services and Test Preparation Courses; Online Education and Other Services; Overseas Study Consulting Services; and Educational Materials and Distribution.
EDU’s trailing-12-month money from operations of $1.12 billion is 368.8% higher than the industry average of $239.22 million. Its trailing-12-month CAPEX/Sales of 8.22% is 162.7% higher than the industry average of 3.13%.
Its revenue and EBITDA have grown at CAGRs of 4.9% and 4% over the past five years, respectively. Its levered FCF has improved at CAGRs of 16.1% and 1.6% over the past three and five years, respectively.
As of October 24, 2023, the company repurchased an aggregate of roughly 6 million ADSs for roughly $193.3 million from the open market under the share repurchase program.
In the fiscal first quarter that ended on August 31, 2023, EDU’s net revenues increased 47.7% 12 months-over-12 months to $1.10 billion, while its non-GAAP operating income grew 152.2% from the 12 months-ago quarter value to $244.76 million.
Moreover, non-GAAP net income attributable to EDU and non-GAAP net income per ADS rose 126.2% and 135.4% from the prior-12 months quarter to $189.32 million and $1.13, respectively.
EDU expects total net revenues in the second quarter of the fiscal 12 months 2024 (ending November 30, 2023) to be between $785 million and $804.2 million, representing a 12 months-over-12 months increase between 23% and 26%.
For the fiscal second quarter ending November 2023, analysts expect EDU’s revenue and EPS to extend 27.1% and 170.4% 12 months-over-12 months to $810.89 million and $0.27, respectively. It surpassed the consensus EPS estimates in three of the trailing 4 quarters and revenue estimates in all the trailing 4 quarters, which is impressive.
The stock has surged 169.9% over the past 12 months to shut the last trading session at $81.31. Over the past nine months, it gained 79.5%.
EDU’s POWR Rankings reflect its robust prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, and Quality. Inside the same industry, it’s ranked #19.
Click here for the additional POWR Rankings for EDU (Value, Momentum, and Stability).
Stock #1: X Financial (XYF)
XYF provides personal finance services in China. The corporate offers services as a web based marketplace connecting borrowers and investors. Its loan products include Xiaoying credit loan, which consists of Xiaoying card loan; Xiaoying preferred loan to small business owners, and Xiaoying revolving loan.
XYF’s trailing-12-month ROCE, ROTC, and ROTA of 24.83%, 17.03%, and 11.40% are 114.2%, 166.7%, and 890.2% higher than the industry averages of 11.59%, 6.39%, and 1.15%, respectively. Its trailing-12-month asset turnover ratio of 0.46x is 118.8% higher than the industry average of 0.21x.
Its revenue has grown at CAGRs of 28.8% and 6.1% over the past three and five years, respectively. Its total assets have improved at CAGRs of 11.1% and 21.6% over the same periods.
In the third quarter of 2023, the company repurchased 395,962 ADSs for $1.73 million and an aggregate of 801,807 ADS 12 months-to-date for $3.31 million. XYF has roughly $5.6 million remaining for potential repurchases under its current plan.
For the fiscal third quarter that ended on September 30, 2023, XYF’s total net revenue increased 56.1% 12 months-over-12 months to $191.46 million, while its income from operations grew 44.7% from the 12 months-ago value to $59.59 million.
Moreover, the company’s non-GAAP adjusted net income and non-GAAP adjusted net income per share rose 62% and 80% from the prior-12 months quarter to $51.33 million and $0.17, respectively.
The stock has surged 80.9% over the past 12 months and 33.7% over the past nine months to shut the last trading session at $3.96.
It’s no surprise that XYF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Stability, and Sentiment. In the same industry, it’s ranked first.
Along with the POWR Rankings we’ve stated above, we even have XYF’s rankings for Momentum and Quality. Get all XYF rankings here.
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HTHT shares were unchanged in premarket trading Tuesday. 12 months-to-date, HTHT has declined -14.73%, versus a 20.74% rise in the benchmark S&P 500 index during the same period.
About the Creator: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to develop into a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.
Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and higher guide investors.
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