Amidst a backdrop of recent economic resilience and promising indicators, China's stock market is witnessing a notable resurgence. Against this backdrop, investors could consider top Chinese stocks Vipshop Holdings Limited (VIPS), China Automotive Systems, Inc. (CAAS), and Sunlands Technology Group (STG), which are poised to unleash substantial gains this month.
While the Chinese economy has been grappling with multiple challenges, including a property downturn and sluggish demand since last year, things are looking brighter now. China's GDP in 2023 surpassed targets, growing by 5.2% year-on-year to RMB 126.06 trillion ($17.52 trillion), according to estimates from the National Bureau of Statistics (NBS).
Economic indicators released by the NBS indicate strong growth across core segments, such as industry, manufacturing, services, and consumption, following the lifting of COVID-19 restrictions.
Further, China reported record-high domestic travel and spending during the recent Lunar New Year holidays, surpassing pre-pandemic levels and indicating a robust consumption recovery. Tourism revenues in China during the Lunar New Year holidays surged by 47.3% year-on-year, thanks to a domestic travel boom amid a longer-than-usual break, official data showed on Sunday.
The surge in tourism and spending reflects increased consumer confidence and highlights the resilience of China's economy. As a result, Chinese stock markets surged on Monday.
Additionally, looking ahead, the IMF expects China’s GDP to grow 4.6% this year.
With these conducive trends in mind, let's take a look at the fundamentals of the three best China stocks, starting with number 3.
Stock #3: Vipshop Holdings Limited (VIPS)
Headquartered in Guangzhou, VIPS operates online platforms in China. It operates in Vip.com; Shan Shan Outlets; and others segments. The company offers womenswear, menswear, sportswear, shoes and bags, accessories, skincare and cosmetics, and supermarket products.
VIPS’ trailing-12-month ROTC and ROTA of 14.10% and 11.89% are 132.4% and 186.8% higher than the industry averages of 6.07% and 4.15%, respectively.
During the fiscal third quarter, which ended on September 30, 2023, VIPS’ net revenues increased 5.3% year-over-year to $3.12 billion, while its non-GAAP income from operations rose 33% from the year-ago value to $284.16 million.
Moreover, the company’s attributable non-GAAP net income and attributable non-GAAP net income per share improved by 15.5% and 30.4% from the prior-year quarter to $252.34 million and $2.28, respectively.
Analysts expect VIPS’ EPS and revenue to rise 34.3% and 1.2% year-over-year to $0.71 and $4.66 billion, respectively, in the fiscal fourth quarter that ended December 2023. Additionally, the company surpassed its EPS estimates in each of the trailing four quarters, which is impressive.
VIPS’ shares soared 20.4% over the past year to close the last trading session at $16.57.
VIPS’ POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, Momentum, Sentiment, and Quality. Within the B-rated 41-stock China industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, one can access VIPS’ rating for Stability here.
Stock #2: China Automotive Systems, Inc. (CAAS)
Headquartered in Jingzhou, the People’s Republic of China, CAAS manufactures and sells automotive systems and components in the People’s Republic of China and internationally.
CAAS’ trailing-12-month net income margin of 5.70% is 19.7% higher than the industry average of 4.76%. Its trailing-12-month CAPEX/Sales of 3.78% is 25.5% higher than the industry average of 3.01%.
During the fiscal third quarter that ended September 30, 2023, CAAS’ net product sales increased marginally year-over-year to $137.54 million, while gross profit stood at $24.76 million, up 18.4% from the year-ago quarter. Moreover, its income from operations increased 107.8% from the prior-year quarter to $10.15 million.
For the same quarter, net income attributable to the parent company’s common shareholders and net income attributable to the parent company’s common shareholders per share stood at $9.49 million and $0.31, up 27% and 29.2% from the year-ago quarter, respectively.
The stock has gained 3% over the past month to close the last trading session at $3.44.
CAAS’ robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Growth, Stability, and Sentiment. It is ranked #4 in the same industry.
Click here to access CAAS’ additional POWR Ratings for Momentum and Quality.
Stock #1: Sunlands Technology Group (STG)
Headquartered in Beijing, China, STG offers online education services through online and mobile platforms. It provides several degree- and diploma-oriented post-secondary courses.
STG’s trailing-12-month gross profit margin and EBIT margin of 87.84% and 28.37% are 147.1% and 278.6% higher than the respective industry averages of 35.55% and 7.49%.
During the third quarter that ended on September 30, 2023, STG reported net revenues of $71.91 million. Its non-GAAP gross billings rose 6.7% year-over-year to $53.40 million. The company’s net income came in at $18.04 million, or $2.62 per share, respectively.
STG’s stock has gained 73.6% over the past nine months to close the last trading session at $8.28.
STG’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and Quality and a B for Sentiment. Within the same industry, STG is ranked #3.
To see the additional ratings of STG for Growth, Momentum, and Stability, click here.
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VIPS shares were trading at $16.48 per share on Wednesday morning, down $0.09 (-0.54%). Year-to-date, VIPS has declined -7.21%, versus a 4.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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