The People’s Bank of China (PBOC) has reduced its one-year loan prime rate (LPR) to 3.7% from 3.8%amid concerns of an economic downturn. In December, PBOC reduced the one-year loan prime rate for the first time since April 2020. China’s five-year LPR was also lowered by five basis points.
The rate cuts, which are aimed at reducing borrowing costs, caused Hong Kong’s Hang Seng index stocks to jump 3.42% to close at 24,952.35.
Investment bank Morgan Stanley (MS) predicts China’s GDP growth will be 5.5% in 2022 on the back of easing monetary policy. Therefore, we think fundamentally sound Chinese stocks NetEase, Inc. (NTES), Weibo Corporation (WB), and FinVolution Group (FINV) could be solid bets now.
NetEase, Inc. (NTES)
Headquartered in Hangzhou, China, NTES is an online services provider that is focused on gaming, communications, and commerce. The company operates through Online Games Services; Youdao; and Innovative Businesses and Other segments. It develops PC and mobile games and offers licensed games from other developers.
On November 22, NTES subsidiary Cloud Village Inc., a music streaming services provider, launched its Hong Kong public offering as part of its global offering of ordinary shares, and its ordinary shares listing on the Main Board of The Stock Exchange of Hong Kong. The net proceeds from the offering are expected to be used to bolster technological capabilities, mergers, acquisitions, and strategic investments.
For its fiscal third quarter, ended September 30, NTES’ net revenues increased 18.9% year-over-year to $3.44 billion. Its non-GAAP net income, attributable to the company’s shareholders and non-GAAP net income per ADS, came in at $598.72 million and $0.89, respectively, up 5.1% and 7.3% from the prior-year quarter.
The $1.08 consensus EPS estimate for its fourth fiscal quarter (ended December 2021) indicates a 197% year-over-year increase. The $3.81 billion consensus revenue estimate for the same quarter reflects a 24.5% improvement from the prior-year period.
The stock has gained 0.8% in price over the past month to close yesterday’s trading session at $98.70.
NTES’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
NTES has a Growth and Value grade of B. In the 47-stock China industry, it is ranked #1. Click here to see the additional POWR Ratings for NTES (Momentum, Stability, Sentiment, and Quality).
Weibo Corporation (WB)
WB is a social media platform used by people to create, distribute, and discover content. The company operates through the two broad segments of Advertising and Marketing Services; and Value-Added Services. It is headquartered in Beijing, China, and is a subsidiary of Sina Corporation (SINA).
On December 2, WB priced 11 million Class A ordinary shares of the company at HKD272.80 per share, which translates to $35.04 per ADS. The company intends to use the net proceeds to continue the growth of its user base and user engagement and enhance its content.
WB’s net revenues increased 30.4% year-over-year to $607.43 million in its fiscal third quarter, ended September 30. Its non-GAAP net income attributable to Weibo’s shareholders rose 37.1% from the prior-year quarter to $209.55 million, while its non-GAAP net income per share, attributable to WB’s shareholders, improved 36.4% year-over-year to $0.90.
The Street’s $3.08 EPS estimate for WB’s fiscal year 2021 reflects a 29.4% improvement year-over-year. And the Street’s $2.25 billion revenue estimate for the same period indicates a 32.2% increase from the prior year. Furthermore, WB has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 12.7% in price to close yesterday’s trading session at $33.59.
It is no surprise that WB has an overall B rating, which translates to Buy in our POWR Ratings system. WB has a B grade for Growth, Value, and Quality. It is ranked #4 in the China industry. To see the additional POWR Ratings for Momentum, Stability, and Sentiment, click here.
FinVolution Group (FINV)
FINV operates as an investment holding company that provides an online consumer finance marketplace in China. The company, which is headquartered in Shanghai, China, operates as a fintech platform that connects underserved individual borrowers with financial institutions.
On October 11, FINV announced that its Indonesian financial subsidiary AdaKami signed a strategic agreement with PT Bank Jago, a tech-based bank. The collaboration is expected to enhance AdaKami’s presence across Indonesian market segments, including retail and mass markets.
In September, FINV completed an issue of RMB 200 million ($31.57 million) of asset-backed securities (ABS), which were expected to start trading on the Shenzhen Stock Exchange. The issue should serve as a channel for better-quality funding for FINV in the future.
For its fiscal third quarter, ended September 30, FINV’s net revenue increased 40.8% year-over-year to $391.89 million. Non-GAAP net profit attributable to FINV rose 7.4% from the prior-year quarter, while its non-GAAP net profit per share, attributable to FINV’s ordinary shareholders, improved 4.8% year-over-year to $101.65 million and $0.07, respectively.
Analysts expect FINV’s EPS to increase 30.2% year-over-year to $1.33 for its fiscal year 2021. And the Street expects FINV’s revenue to be $1.41 billion for the same year, indicating a 21.4% increase from the prior year.
FINV’s shares have gained 17.1% in price over the past year to close yesterday’s trading session at $4.16.
FINV’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. FINV has a Value grade of A and a Quality grade of B. It is ranked #2 in the China industry.
In addition to the POWR Rating grades we have stated above, one can see FINV ratings for Growth, Momentum, Stability, and Sentiment here.
NTES shares were trading at $97.73 per share on Wednesday morning, down $0.89 (-0.90%). Year-to-date, NTES has declined -3.98%, versus a -7.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Chinese Stocks to Consider After China Cuts Rates: NetEase, FinVolution, and Weibo StockNews.com
