With China dismantling its strict covid restrictions and the economy clocking its fastest pace of growth in over a year. However, Chinese stocks Air China Limited (AIRYY), The9 Limited (NCTY), and ZW Data Action Technologies Inc. (CNET) have underperformed the broader S&P 500’s 3.3% gain over the past month.
On April 18, according to the data released by China’s National Bureau of Statistics, the country’s GDP grew by 4.5% in the first quarter of the fiscal year. Aided by the dismantling of its long-embraced zero-covid policy and the strict accompanying restrictions, this marked the highest growth since the first quarter of last year.
However, Goldman Sachs’ chief China economist Hui Shan cautioned, “Uneven is the right word to describe the current state of the economy, and also, confidence level is not as strong as the macro data are suggesting.”
Moreover, although the Chinese economy has gathered momentum, there remain challenges to its outlook. For example, the country’s youth jobless rate is near a record high. Additionally, China’s government has set a modest growth target after missing its 2022 growth expectations.
In the above context, let us look closely at the featured stocks.
Air China Limited (AIRYY)
Based in Beijing, China, AIRYY provides air transportation services for passengers, freight, and post and associated maintenance services in Mainland China, Hong Kong, Macau, and foreign regions.
AIRYY’s revenue for the fiscal year that ended December 31, 2022, declined by 29% to RMB52.90 billion ($7.67 billion). During the same period, the carrier’s loss from operations widened by 110.2% year-over-year to RMB35.44 billion ($5.14 billion).
As a result, the net loss attributable to shareholders widened by 132.1% year-over-year to a record RMB38.62 billion ($5.60 billion), or RMB2.81 per share.
Although AIRYY’s performance is expected to improve due to the reopening of the Chinese economy, its revenue of $18.73 billion for the fiscal year 2023 is still expected to be 5.8% below the pre-pandemic high of $19.88 billion.
AIRYY’s stock has declined 5.4% over the past month to close the last trading session at $18.25. The stock’s forward EV/Sales and EV/EBITDA multiples of 2.84 and 11.15 are 77.7% and 5.6% higher than the respective industry averages of 1.60 and 10.56.
AIRYY’s POWR Ratings reflect its bleak prospects. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AIRYY has an F grade for Value and D for Momentum and Quality. It is ranked #39 of 46 in the China industry.
Click here for additional POWR Ratings of AIRYY’s Growth, Stability, and Sentiment.
The9 Limited (NCTY)
Headquartered in Shanghai, China, NCTY is a holding company that is involved in the development and operation of online games, including massively multiplayer online role-playing games (MMORPGs), massively multiplayer online first-person shooter games (MMOFPSs), Web games, social games, mobile games, and television games.
NCTY’s trailing-12-month Return on Common Equity (ROCE) of negative 145.33% stands out in stark contrast to the industry average of 2.94%. Similarly, its negative trailing-12-month Return on Total Capital (ROTC) and Return on Total Assets (ROTA) also compare unfavorably to the respective industry averages of 3.54% and 1.32%.
For the six months of the previous fiscal year that ended June 30, 2022, NCTY’s total net revenue decreased by 59.6% year-over-year to RMB50.75 million ($7.36 million). During the same period, the company reported a gross loss of RMB10.52 million ($1.53 million), compared to a gross profit of RMB56.61 million ($8.21 million) during the previous fiscal period.
As a result, NCTY’s loss from operations widened by 456.9% year-over-year to RMB523.36 million ($75.91 million), while the net loss attributable to holders of ordinary shares widened by 360.9% and 140.5% year-over-year to RMB579.67 million ($84.07 million) or RMB0.89 per share, respectively.
NCTY’s stock has gained just 0.1% over the past month to close the last trading session at $0.88. With a 24-month beta of 1.94, the stock has a relatively huge spread between its 52-week high and low prices of $2.74 and $0.45, respectively.
NCTY’s POWR Ratings indicate its poor prospects. The stock has an overall F rating, equating to Strong Sell in our proprietary rating system. It also has an F grade for Growth and Quality and a D for Stability.
NCTY is ranked last among 46 China stocks. Click here for additional POWR Ratings for NCTY’s Value, Sentiment, and Momentum.
ZW Data Action Technologies Inc. (CNET)
As a holding company, CNET provides a one-stop service for its clients on its omnichannel advertising, precision marketing, and data analysis management system. The company is headquartered in Beijing.
On January 17, CNET announced that its board of directors approved a reverse stock split of its common stock, par value $0.001 per share at a ratio of 1 for 5, w.e.f January 18. This was primarily effected so that the company could regain compliance with the $1.00 minimum bid price required for continued listing on Nasdaq.
For the fiscal year that ended December 31, 2022, CNET’s revenues decreased by 44.6% year-over-year to $26.24 million. This decline was attributable to a decrease in the company’s mainstream services revenues from its distribution of the right to use search engine marketing services business segment due to repeated regional COVID-19 rebound cases in many provinces in China.
During the same period, CNET’s gross loss came in at $0.19 million, compared to a gross profit of $0.10 million for the previous fiscal year. The net loss attributable to CNET widened by 256% and 226.2% year-over-year to $9.79 million or $1.37 per share, respectively.
CNET’s total assets stood at $19.66 million as of December 31, 2022, compared to $32.63 million as of December 31, 2021.
CNET’s revenues have declined at a 23.3% CAGR over the past three years. Its trailing-12-month gross profit and net income margins of negative 0.74% and negative 37.3% stand out in stark contrast to the respective industry averages of 50.22% and 3.38%.
Moreover, its negative trailing-12-month ROCE, ROTC, and ROTA compare unfavorably with the industry averages of 2.94%, 3.54%, and 1.32%.
CNET’s stock has plummeted 16% over the past month to close the last trading session at $1.58. With a 24-month beta of 1.38, the stock’s lack of price stability is indicated by the relatively wide spread between its 52-week high and low prices of $6.30 and $1.23, respectively.
It’s no surprise that CNET has an overall rating of D, which translates to Sell in our POWR Ratings system. It also has an F grade for Stability and D for Growth and Quality.
CNET is ranked #43 in the same industry. Click here to access additional ratings for CNETs Value, Sentiment, and Momentum.
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AIRYY shares were trading at $18.25 per share on Monday afternoon, down $0.02 (-0.11%). Year-to-date, AIRYY has declined -1.88%, versus a 8.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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