CMBI Research China & Hong Kong Stock Picks (April 2024)
Guangzhou Automobile Group, Ping An, GoerTek, Great Wall Motor, New Oriental Education, Xiaomi Corp, Li Ning, Haidilao, China Life Insurance, Haier Smart Home, Jinxin Fertility Group, etc.
CMB International Capital Corporation is a wholly owned subsidiary of China Merchants Bank (SHA: 600036 / HKG: 3968 / OTCMKTS: CIHKY / OTCMKTS: CIHHF) - one of the largest banking groups and the largest privately-owned bank in China. They come out with (and post on their website) a steady stream of free research pieces - namely China and Hong Kong stock picks (see our front page for a full list of TAGS for our EM Stock Pick Tear Sheets).
Stocks covered during the month of April and in this post include:
Weichai Power, BYD Company, Guangzhou Automobile Group, Sany Heavy Equipment International Holdings, Hangzhou Tigermed Consulting, Yonyou Network Technology Co Ltd, GoerTek, Vesync, Luxshare Precision Industry, Ping An, Zhejiang Dingli Machinery, Great Wall Motor, New Oriental Education, Xiaomi Corp, Li Ning, Jiangsu Hengli Hydraulic, Zhongji Innolight Co Ltd, Bosideng International Holdings, Xtep, ANTA Sports Products, Tongda Group Holdings Ltd, Shenzhen Mindray Bio-Medical Electronics, Tencent, FIT Hon Teng, Q Technology (Group) Company, Alibaba, GigaCloud Technology, Baidu, NetEase, Tongcheng Travel Holdings, TK Group Holdings, Akeso, Yunkang Group, Haidilao International Holding, China Life Insurance, Haier Smart Home, Nayuki Holdings, Atour Lifestyle Holdings, RemeGen, PICC Property and Casualty Co Ltd, Joinn Laboratories China, Jinxin Fertility Group, CMGE Technology, Zoomlion Heavy Industry, Huitongda Network & China MeiDong Auto Holdings
They also come out with (and post on their website) a monthly list of 20+ high conviction stock ideas - namely Chinese stock picks (see our May, June, July, August, September, October, November, December, January-February & March posts summarizing those) BUT these lists do not change too much from month to month. Stocks covered by the CMBI April list (including Additions and Deletions) and included in this post with updated stats and charts include:
Li Auto, Geely Automobile Holdings, DPC Dash, JNBY Design, Weichai Power, Zhejiang Dingli Machinery, Bosideng International Holdings, Haier Smart Home, Vesync, Kweichow Moutai, BeiGene, PICC Property and Casualty Co Ltd, Tencent, Alibaba, Pinduoduo, Amazon, Netflix, Kuaishou, GigaCloud Technology, CR Land, FIT Hon Teng, Xiaomi Corp, BYD Electronic International Co Ltd, Zhongji Innolight Co Ltd & Kingdee International Software
A quick glance at Twitter earlier today reveals another PRC military exercise ongoing around Taiwan:
Again and as noted in an interview covered by our May 19th post, China imports more chips than oil and are as dependent on Taiwan as the USA. This can reduce the risk of conflict as Chinese consumers depend on smartphones with chips that are part of the Taiwan supply chain - meaning China is not going to want to disrupt this. Of course, some hotheads in the field on either side could do something to disrupt this - let’s hope that does not happen…
In addition, ZeroHedge recently had this gloomy piece about the state of the Chinese economy:
China Is Facing An Epic Deflationary Crash That It Can No Longer Hide (ZeroHedge) May 2024
The biggest story in China in the new millennia has been nation's debt explosion. China's debt-to-GDP ratio is currently estimated at nearly 300% (official numbers), with most of the liabilities accrued in the past 15 years. Chinese debt spending accelerated in part because of the global credit crash of 2008, but a lesser known factor is their entry into the IMF's Special Drawing Rights basket. The process started around 2011 and the IMF requires any prospective applicant to take on a wide array of debt instruments before they can be added to the global currency mechanism.
(Maybe China should have stayed away from the IMF…)
This equally dour video from Falun Gong-affiliated China Observer was also included in the post:
93% of Stores Closed? China’s Economy Is Finished! Top Districts in Beijing, Shanghai Deserted (China Observer) 15:48 Minutes (May 2024)
Data from Redmeal shows that as of May 10, 2023, there were about 201,570 catering establishments in operation in Shanghai, with high-end restaurants with an average spending of 500 yuan or more accounting for 1.35%, and those with an average spending of over 1,000 yuan accounting for 0.31%. At that time, there were more than 2,700 high-end restaurants with an average spending of 500 yuan or more in Shanghai. Insiders in the industry revealed that the existing physical stores are still closing down in large numbers. One set of statistics shows that the closure rate of physical stores in China is as high as 93%.
As in the West, the ridiculous COVID lockdowns are partly to blame for physical store closes, but the video only slightly touches on the impact of eCommerce. China has far more densely populated cities with medium and high rise apartments compared to the urban sprawl of the USA and other countries - making eCommerce deliveries much easier and faster.
Therefore, it natural to assume the destruction of smaller physical retail businesses due to eCommerce is more advanced in China than in Western countries and the US (where big box suburban stores started killing many small businesses and downtowns some decades ago…). What happens to all these small entrepreneurs (as online competition is also cutthroat) and their workers (become delivery riders?) will be another headache for Xi to deal with just as exports slow and something investors will need to consider when making investments in China…
Getting back to CMBI Research, note that when I click on CMBI’s website, I receive NO pop-up asking what sort of investor I am or my location; but there is this disclaimer at the end of each research report that readers need to be aware of:
This post will NOT be quoting directly from the research documents themselves (beyond giving the title to the linked research report - please keep the above disclosures in mind).
To make your life easier, this post includes:
A heading with the stock name.
A quick description of the stock pick with links to the IR page and stock quote(s) on Yahoo! Finance.
A link to any Wikipedia page (for what it might be worth…)
The title of the report linked to the file page on the CMBI website about the stock pick.
A price/book (most recent quarter) ratio plus forward or trailing P/E and dividend yields linked back to the Yahoo! Finance statistics page.
The latest long term technical chart linked back to Yahoo! Finance.
And as always, this post is provided for informational purposes only (and to make your life easier…). It does not constitute investment advice and/or a recommendation…
CMBI Research (April 2024)
Weichai Power
Weichai Power (SHE: 000338 / HKG: 2338 / FRA: WI4 / OTCMKTS: WEICF) was founded in 2002 by the main sponsor, Weichai Holding Group Co., Ltd. and qualified domestic and foreign investors. It is a Chinese developer and manufacturer of diesel engines with headquarters in Weifang, Shandong in the People's Republic of China. It also manufactures forklifts and non-diesel engine automotive parts.
Weichai Power (000338 CH) - 1Q24 net profit +40% YoY in line; solid growth outlook
Weichai Power (2338 HK) - 1Q24 net profit +40% YoY in line; solid growth outlook
Price/Book (Most Recent Quarter): 1.74
Forward P/E: 11.90 / Forward Annual Dividend Yield: 2.73% (Yahoo! Finance)
BYD Company
BYD Company (HKG: 1211 / SHE: 002594 / OTCMKTS: BYDDY / BYDDF) is a high-tech company devoted to technological innovations for a better life. BYD was founded in February 1995, and after more than 20 years of fast growth, the company has established over 30 industrial parks worldwide and has played a significant role in industries related to electronics, automobiles, new energy and rail transit.
Price/Book (Most Recent Quarter): 4.04
Forward P/E: 18.62 / Forward Annual Dividend Yield: 1.57% (Yahoo! Finance)
Guangzhou Automobile Group
Guangzhou Automobile Group (HKG: 2238 / SHA: 601238 / FRA: 02G / OTCMKTS: GNZUF / GNZUY) is a large joint-stock automobile enterprise listed in both Hongkong and Shanghai Stock exchanges. The main business covers seven major sectors: research and development, vehicle, parts, energy and ecology, internationalization, commerce and transportation, investment and finance. GAC group is now transforming itself with all its strength to a technology-based enterprise.
Price/Book (Most Recent Quarter): 0.29
Forward P/E: 6.39 / Forward Annual Dividend Yield: 4.67% (Yahoo! Finance)
