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Riding the Wave of China's Economic Growth: 3 Stock to Buy

With robust GDP figures and impressive achievements in various sectors, China's economic landscape is primed for investment opportunities. Hence, it might be wise to buy fundamentally strong China stocks (TCOM), Vipshop (VIPS), and FinVolution (FINV). Continue reading...

The world's second-largest economy outperformed expectations in the third quarter, with solid growth in both consumption and industrial activity, indicating that recent policy measures bolstered the recovery. Also, the government's efforts to support the economy are gaining traction.

So, I present robust China stocks Group Limited (TCOM), Vipshop Holdings Limited (VIPS), and FinVolution Group (FINV) that are well poised to soar. These stocks also boast robust profit margins.

China's GDP grew by 4.9% year-on-year in the third quarter, surpassing analyst expectations of 4.4%. On a quarter-to-quarter basis, GDP expanded by 1.3% in the third quarter, accelerating from the second quarter's 0.5% and higher than the expected 1% growth.

Moreover, China's achievements are impressive as it has built enough solar panel factories to meet the world's needs, established sufficient auto factories to serve China, Europe, and the United States, and plans to construct as many petrochemical factories as all those currently operating in Europe, Japan, and South Korea by the end of 2024. These developments underscore China's commitment to bolstering its industrial and manufacturing sectors, promising a brighter economic future.

In addition, in a recent conference, China's top leader, Xi Jinping, and government officials discussed finance policy. The outcome is positive, with a focus on channeling more financial resources to advanced manufacturing and assisting local governments. Despite challenges in the housing market, government-backed financing is boosting strong factory construction.

Besides, the latest China Economic Update from the World Bank projects positive prospects. China's GDP is expected to rise to 5.6% in 2023, driven by a resurgence in consumer demand and the resilience of capital spending in infrastructure and manufacturing.

In light of these encouraging trends, let's look at the fundamentals of the three best China stocks, beginning with number 3.

Stock #3: Group Limited (TCOM)

TCOM, based in Shanghai, operates as a one-stop travel platform that integrates a comprehensive suite of travel products and services and differentiated travel content.

TCOM’s trailing-12-month gross profit and net income margins of 81.11% and 19.56% are 127.5% and 362.2% higher than the industry averages of 35.65% and 4.23%.

The company's business is recovering strongly due to robust pent-up travel demand, resulting in a surge in travel bookings.

TCOM’s net revenue for the fiscal second quarter that ended June 30, 2023, increased by 180.4% year-over-year to $1.54 billion. The company reported an income from operations of RMB2.98 billion ($408.10 million), compared to a loss of RMB167 million ($22.87 million) during the previous-year quarter.

TCOM’s non-GAAP net income for the quarter came in at RMB3.43 billion ($469.73 million), or RMB5,11 per ADS, compared to a non-GAAP net loss of RMB203 million ($27.80 million), RMB 0.31 per ADS, during the previous-year quarter.

Street expects TCOM’s revenue and EPS for the fiscal third quarter ended September 2023 to increase 87.9% and 196.2% year-over-year to $1.86 billion and $0.87, respectively. TCOM has outperformed consensus revenue estimates in each of the trailing four quarters, which is terrific.

TCOM’s shares have gained 21.1% over the past year to close the last trading session at $33.58.

TCOM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

It has an A grade for Growth and Sentiment and a B for Quality. TCOM is ranked #15 among 40 stocks within the B-rated China industry.

In addition to the POWR Ratings above, one can access TCOM’s additional Value. Momentum, and Stability ratings here.

Stock #2: Vipshop Holdings Limited (VIPS)

Headquartered in Guangzhou, China, VIPS operates online platforms, including and Shan Shan Outlets. It deals with lifestyle and supermarket products and also offers internet finance services. Additionally, the company engages in warehousing, retail, product procurement, software development, and IT support activities.

VIPS’ trailing-12-month net income and levered FCF margins of 7.24% and 6.44% are 71.1% and 20.5% higher than the industry averages of 4.23% and 5.34%.

During the quarter ended June 30, 2023, VIPS repurchased $348.50 million of its ADSs under its current $1 billion share repurchase program, which is effective through March 2025. As of June 30, 2023, VIPS had an unutilized amount of $564.9 million under this program. This initiative could bolster VIPS’ shareholder value and demonstrate confidence in the company’s financial outlook.

During the fiscal second quarter (ended June 30, 2023), VIPS’ total net revenues increased 13.6% year-over-year to $3.84 billion. Its non-GAAP income from operations rose 48.2% year-over-year to $316.90 million.

Additionally, non-GAAP net income attributable to VIPS’ shareholders and non-GAAP net income per ADS grew 50.8% and 75.2% year-over-year to $331.16 million and $2.96, respectively.

In the third quarter of 2023, the company expects its total net revenues to be between RMB21.60 billion ($2.96 billion) and RMB22.70 billion ($3.10 billion), representing a year-over-year increase of approximately 0% to 5%.

VIPS’ revenue is expected to increase 1.7% year-over-year to $3.08 billion for the fiscal third quarter ended September 2023. The company’s EPS for the to-be-announced quarter is expected to grow 9.6% from the prior-year quarter to $0.39. Also, the company surpassed the consensus EPS estimates in all four trailing quarters.

Shares of VIPS have gained 105% over the past year to close the last trading session at $15.52.

VIPS’ robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

VIPS has a B grade for Value, Momentum, Sentiment, and Quality. It is ranked #6 within the same industry.

To access additional VIPS ratings for Stability and Growth, click here.

Stock #1: FinVolution Group (FINV)

Headquartered in Shanghai, China, FINV operates a fintech platform, connecting underserved individual borrowers with financial institutions in China and internationally. It is engaged in operating an online consumer finance platform. FINV’s products and services include loan services and investment services.

FINV’s trailing-12-month gross profit and levered FCF margins of 78.86% and 48.73% are 31.1% and 217.6% higher than the industry averages of 60.16% and 15.34%.

On August 29, FINV announced a new share repurchase program allowing the company to buy back its own Class A ordinary shares in ADS worth up to $150 million. This decision is driven by the company's commitment to enhancing shareholder value and confidence in its business operations and outlook.

The company pays an annual dividend of $0.22, which translates to a yield of 4.43% on the current market price, compared to a four-year average dividend of 4.84%.

For the fiscal second quarter that ended June 30, 2023, FINV’s net operating revenue increased 15.4% year-over-year to $424.16 million. Its non-GAAP adjusted operating income stood at $83.70 million, up 12.3% from the prior-year quarter. Its non-GAAP net profit rose 1.9% year-over-year to $85.72 million.

Also, its non-GAAP net profit per ADS attributable to FINV ordinary shareholders stood at $0.28.

The company expects its China Mainland transaction volume for the third quarter to be around RMB49 billion ($6.71 billion), representing year-over-year growth of approximately 10.4%. The company also expects its international markets transaction to be around RMB1.9 billion ($260.20 million), representing year-over-year growth of approximately 72.7%.

Furthermore, the company reiterates that it raised its international transaction volume guidance for the full year 2023 to RMB7.7 billion ($1.05 billion), representing year-over-year growth of approximately 80.0%, while maintaining its China Mainland transaction volume guidance of RMB189 billion ($25.88 billion) to RMB205 billion (28.07 billion), representing year-over-year growth of approximately 10.0% to 20.0%.

Analysts expect FINV’s revenue and EPS for the fiscal year ending December 2023 to increase 8.6% and 2% year-over-year to $1.76 billion and $1.20, respectively.

Over the past six months, the stock has gained 25% to close the last trading session at $4.85. The stock has soared 9.2% over the past year.

It’s no surprise that FINV has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Sentiment, and Quality. It is ranked #2 in the same industry.

Click here to see the ratings of FINV for Growth, Stability, and Momentum.

What To Do Next?

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3 Stocks to DOUBLE This Year >

TCOM shares were trading at $34.12 per share on Monday morning, up $0.54 (+1.61%). Year-to-date, TCOM has declined -0.81%, versus a 15.08% 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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