In 2024, Beijing aims to bolster confidence and dispel international doubts regarding China’s economic prospects by setting a growth target of 5%. However, achieving this target poses considerable hurdles without pent-up demand and from traditional industries skeptical of transitioning toward a more advanced economy.
Given this backdrop, investing in the shares of three fundamentally sound Chinese stocks, Ping An Insurance (Group) Company of China, Ltd. (PNGAY), Youdao, Inc. (DAO), and Autohome Inc. (ATHM) could help weather the market uncertainties.
During the recent Labor Day holiday, China experienced a surge in tourism, with 295 million trips made within the mainland, marking a 28% increase compared to 2019. However, despite the rise in travel, there was a noticeable decline in spending, indicating sluggish consumption in the Chinese economy.
The tourism revenue for this year’s Labor Day reached 166.89 billion yuan ($23.06 billion), only 13.5% higher than the 2019 level. Notably, tourists spent less money per trip than five years ago, dropping average spending by 6% to ¥565.73 ($78.18).
Further, analysts believe the country must roll out proactive fiscal policies and a ‘flexible and appropriate’ monetary policy while also fixing the ailing property market to support the growth momentum. Despite these obstacles, some international organizations and investment banks have raised their economic growth forecasts, indicating cautious optimism.
In April, China saw consumer prices rise for the third consecutive month, indicating an uptick in domestic demand. The Consumer Price Index (CPI) increased by 0.1% compared to the previous month, surpassing expectations of a 0.1% decline and reversing the 1% drop observed in March.
Conversely, producer prices continued to decline, with the producer price index dropping by 2.5% year-on-year in April, although this decline eased from the previous month’s 2.8% slide. This prolonged stretch of declines highlights ongoing challenges in certain sectors of the economy.
In response, China’s central bank announced plans to adopt flexible, precise, and effective monetary policies to support a moderate recovery in consumer prices and consolidate economic growth.
That said, let us now dig deeper into the fundamentals of the featured China stocks, beginning with number three:
Stock #3: Ping An Insurance (Group) Company of China, Ltd. (PNGAY)
Based in Shenzhen, PNGAY provides financial products and services for insurance, banking, asset management, and technology businesses in China. It operates in Life and Health Insurance; property and Casualty Insurance; Banking; Trust; Other Asset Management; and Technology segments.
Earlier this year, PNGAY was recognized by the leading brand valuation consultancy Brand Finance as China’s Most Valuable Insurance Brand, marking its eighth consecutive year holding this prestigious title.
According to Brand Finance’s Global 500 Report for 2024, PNGAY boasts a brand value of $44.36 billion, securing the 31st position among the world’s most valuable brands. Additionally, it ranked second among insurance brands and sixth among global financial enterprises.
In terms of forward EV/Sales, PNGAY is trading at 2.81x, 9.1% lower than the industry average of 3.09x. Also, the stock’s forward Price/Sales multiple of 0.79 is 69.4% lower than the industry average of 2.59.
For the three-month period, which ended on March 31, 2024, PNGAY’s total revenue amounted to RMB275.89 billion ($38.13 billion), while its insurance revenue grew 2.8% from the prior-year period to RMB136.85 billion ($18.91 billion). The company’s profit for the period amounted to RMB45.05 billion ($6.23 billion). In addition, its attributable EPS came in at RMB2.03.
PNGAY’s cash and cash equivalents at the end of the period stood at RMB544.10 billion ($75.19 billion), up 3.3% year-over-year.
Street expects PNGAY’s revenue for the third quarter (ending September 2024) to grow 8.7% year-over-year to $25.54 billion. Also, for the fiscal year 2025, the company’s revenue is expected to increase marginally year-over-year to reach $136.54 billion. Also, the company topped the revenue estimates in three of the trailing four quarters.
Shares of PNGAY have surged 37.2% over the past month and 17.4% year-to-date to close the last trading session at $10.59.
PNGAY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PNGAY has a B grade for Value, Momentum, and Sentiment. Among 39 stocks in the China industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have PNGAY ratings for Growth, Stability, and Quality. Get all PNGAY ratings here.
Stock #2: Youdao, Inc. (DAO)
Based in Hangzhou, DAO is an internet technology company offering online services in the fields of content, community, communication, and commerce in China. The company operates through three segments: Learning Services; Smart Devices; and Online Marketing Services. It provides online knowledge tools, learning services, STEAM courses, and smart devices.
DAO’s trailing-12-month gross profit margin of 51.35% is 39.8% higher than the industry average of 36.73%. Further, the stock’s trailing-12-month asset turnover ratio of 2.73x is considerably higher than the industry average of 0.99x.
In terms of forward Price/Sales, DAO is trading at 0.54x, 38.8% lower than the industry average of 0.88x. Also, the stock’s forward EV/Sales multiple of 0.73 is 40.4% lower than the industry average of 1.22.
During the fourth quarter that ended December 31, 2023, DAO’s total net revenues increased marginally year-over-year to $208.53 million, of which its online marketing services revenue grew 96.9% year-over-year to $66.78 million. Its gross profit for the quarter came in at $104.06 million.
Additionally, non-GAAP net income from continuing operations attributable to ordinary shareholders of the company increased 122.6% from the prior year’s quarter to $9.76 million.
Street expects DAO’s revenue for the first quarter (ended March 31, 2024) to grow 11.3% year-over-year to $182.92 million. Also, for the fiscal year 2024, the company’s revenue is expected to increase 13.4% year-over-year to $850.09 million. Also, the company topped the revenue estimates in three of the trailing four quarters.
Over the past five days, DAO’s stock has gained 6.6% to close the last trading session at $3.86.
DAO’s POWR Ratings reflect its bright prospects. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth and Value. DAO is ranked #6 among 39 stocks within the same industry. To check other ratings of DAO for Momentum, Stability, and Quality, click here.
Stock #1: Autohome Inc. (ATHM)
Headquartered in Beijing, ATHM offers an online destination for automobile consumers in the People’s Republic of China. It delivers interactive content and tools to automobile consumers through its websites, autohome.com.cn, che168.com, and ttpai.cn on PCs, mobile devices, mobile applications, and mini apps.
ATHM’s trailing-12-month gross profit margin of 82.40% is 66.8% higher than the industry average of 49.39%. Its 15.85% trailing-12-month EBIT margin is higher than the 8.37% industry average by 89.3%. Further, the stock’s trailing-12-month net income margin of 26.48% is considerably higher than the industry average of 2.51%.
In terms of forward EV/Sales, ATHM is trading at 0.42x, 77.2% lower than the industry average of 1.83x. Furthermore, the stock’s forward EV/EBITDA and EV/EBIT multiples of 2.35 and 2.55 are 69.2% and 83% lower than the 7.62 and 15.01 industry averages, respectively.
During the first quarter that ended March 31, 2024, ATHM’s total net revenues increased 4.9% year-over-year to RMB 1.61 billion ($222.50 million), of which its online marketplace and others revenue rose 12.9% year-over-year to RMB 555.21 million ($76.73 million). Its gross profit grew 9.6% from the year-ago value to RMB 1.31 billion ($181.04 million)
Furthermore, adjusted net income attributable to Autohome and non-GAAP EPS came in at RMB 493.93 million ($68.26 million) and RMB 1.02 for the quarter, representing an increase of 2.2% and 4.1% year-over-year, respectively.
Analysts expect ATHM’s revenue and EPS for the fiscal year (ending December 2025) to increase 4.1% and 3.6% year-over-year to $1.08 billion and $2.42, respectively. Furthermore, the company has surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.
ATHM’s stock has gained 15.9% over the past three months to close the last trading session at $29.94.
ATHM’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Value, Sentiment, and Quality. Within the same industry, it is ranked #5. To see the other ratings of ATHM for Growth, Momentum, and Stability, click here.
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:
PNGAY shares . Year-to-date, PNGAY has gained 17.41%, versus a 9.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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