China has emerged as the tech hub for the global economy, given its industrial and IT prowess. It has been the lead contender rivaling the U.S. in the 5G race, making waves in  AI development and implementation. However, the Trump administration was a severe headwind for China’s technological growth, with the administration placing bans on the sale of U.S. technology to several Chinese conglomerates, including  Huwaeii.

However, the incoming Biden administration is expected to smooth ties with the largest economy in Asia and adopt a multilateral approach designed to benefit both countries. Also, China’s impressive recovery from the pandemic-induced slowdown has largely been fueled by the internal developments, such as increased production by its  tech-oriented industrial sector, giving it an edge over the rest of the world.

China has been taking steps to improve its tainted reputation in global markets by entering multiple strategic trade deals internationally. Earlier last year, China signed the Regional Comprehensive Economic Partnership (RCEP) trade bloc with 15 Asian countries, forming the world’s largest trade bloc. This partnership is expected to further fuel China’s fast growing tech space. The country is also in the middle of finalizing a trade deal with the European Union post Brexit.

Companies such as GDS Holdings Limited (GDS), Daqo New Energy Corp (DQ) and 21Vianet Group, Inc. (VNET) are budding tech companies based in China with a robust growth potential. With Chinese tech giants currently facing  strict regulatory supervision at home and in the U.S. , these companies are well-positioned to grab a bigger market  share and  multiply their revenues.

GDS Holdings Limited (GDS)

GDS operates cloud-neutral, high-performance data centers and telecommunications networks. Headquartered in China, the company offers its services to internet and telecom companies, the banking industry and  IT firms. It also acts as a service platform for managing hybrid cloud connectivity and provides direct private connections to public clouds. GDS has a standing long-term partnership with GIC Private Ltd to develop hyperscale built-to-suit data centers across China.

In September 2020, GDS acquired numerous data centers owned and operated by CITIC Private Equity Funds Management Co. Ltd. for approximately RMB3.80 billion. This acquisition has established GDS as a leading company in this segment across China and internationally.

In October , GDS announced a public offering of 160 million shares on the Hong Kong stock exchange, raising  proceeds of HK12.94 billion. These shares are identical to  its American depositary shares listed on NASDAQ. With its shares listed in three of the largest stock exchanges globally, GDS has solidified its position in the global cloud communications and data center industry.

GDS’ net revenues have increased 43% year-over-year to RMB1.52 billion in the third quarter ended September 30, 2020. This can be attributed to a 43.8% rise in services revenue. The company’s adjusted EBITDA has risen 48.3% from the same period last year to RMB717.10 million.

Analysts expect GDS’ EPS to rise 72.7% in the current quarter (ending March 31, 2021), and 60.8% in fiscal 2021. The consensus revenue estimate of $276.68 million for the current quarter represents a 56.1% rise year-over-year.

GDS has gained more than 140% since hitting its 52-week low of $43,27 in March last year, owing to the pandemic-driven market crash. The stock hit its 52-week high of $105.68 on January 12.

How does GDS stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating.

It is currently ranked #6 of 103 stocks in the China group.

Daqo New Energy Corp (DQ)

DQ manufactures and sells polysilicon for photovoltaic power plants and solar modules in two segments – Polysilicon and Wafer. It also operates as an original equipment manufacturer (OEM) for Wafers. The company signs tolling agreements with external customers for processing polysilicon to produce ingots and wafers. Headquartered in China, DQ has an annual production capacity of 12,150 metric tons of polysilicon and 90 million pieces of wafers. It is listed on Fortune China 500 and Global Top 500 New Energy Enterprises group.

On December 23, DQ signed two supply agreements with JA Solar and Trina Solar to provide high purity polysilicon. With the photovoltaic industry gaining traction each passing day, these supply agreements should assist DQ in increasing its overall market share and foothold globally.

DQ’s polysilicon production volume has increased slightly from the prior quarter to 18,406 MT in the third quarter ended September 30, 2020. Its net income has risen 766.7% sequentially to $20.80 million, while its EPS per ADS has grown 866.7% sequentially to $0.29.

The consensus EPS estimate of $1.11 for the fourth quarter ended December 31, 2020 indicates a 226.5% rise year-over-year. Moreover, DQ has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $226.82 million for the about-to-be reported quarter indicates a 90.7% rise from the same period last year.

DQ has gained more than 765% since hitting its 52-week low of $8.32 in March last year. The stock hit its 52-week high of $85.55 on January 12.

It is no surprise that DQ is rated “Buy” in our POWR Ratings system, with an “A” for Trade Grade and Industry Rank. In the 99-stock Semiconductor & Wireless Chip industry, DQ is currently ranked #72.

21Vianet Group, Inc. (VNET)

VNET is a cloud neutral carrier and internet data services provider operating in China. The company operates through two segments – Hosting and Related Services, and Managed network services. Its primary value-added services include content delivery network, virtual private network, and last mile wired broadband, hybrid cloud and container-based data center services.

In October , VNET undertook several leadership changes by appointing three CEOs to head various segments of the business. Given their industry knowledge and experience, this administrative change should help the company focus on its dual-core strategy of addressing both whole and IDC markets.

VNET’s revenues have increased 27% year-over-year to RMB1.25 billion in the third quarter ended September 30, 2020. Its non-GAAP adjusted cash gross profit has increased 32.6% from the same period last year to RMB526.20 million, while its adjusted EBITDA has risen 35.2% from the year-ago value to RMB368.50 million.

Analysts expect VNET’s EPS to rise 81.2% in the current quarter (ending March 31, 2021), and 91.3% in fiscal 2021. A consensus revenue estimate of $197.46 million for the about-to-be reported quarter ended December 31, 2020 indicates a 31.8% improvement year-over-year.

VNET has gained more than 330% since hitting its 52-week low of $9.12 in January 2020. The stock hit its 52-week high of $40.39 on Friday.

VNET’s POWR Ratings reflect this promising outlook. It is currently rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade. In the 81-stock Technology – Services industry, VNET is currently ranked #6.

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GDS shares were trading at $106.36 per share on Tuesday afternoon, up $1.32 (+1.26%). Year-to-date, GDS has gained 13.58%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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