China was the only major economy to report a GDP growth last year, at a time when most economies were grappling with the effects of the COVID-19 pandemic. China has maintained its growth trajectory this year, with record GDP growth of 18.3% in the first quarter versus the same period last year. In fact, China’s GDP growth in the last quarter has been its fastest since 1992.
China has been taking active steps to curb inflation in the country, which soared to multi-year highs in the last quarter. Its Central Bank Governor Yi Gang expects consumer prices to fall in the coming months because the country is taking steps to rein in commodity prices through targeted measures aimed at restricting “abnormal prices” and “malicious speculation,” as well as preventing hoarding and/or speculative trades in the industrial sector.
So, the Chinese economy is expected to generate sustainable growth in 2021. This should drive the performance of established companies JD.com, Inc. (JD), Tencent Music Entertainment Group (TME), and HUYA Inc. (HUYA). Wall Street analysts expect these stocks to rally more than 35% over the next 12 months.
JD.com, Inc. (JD)
JD is a Fortune Global 500 company that operates as an e-commerce company with technology driven retail infrastructure. It operates in two segments: JD retail and new businesses. The company offers a wide range of necessity and luxury items and has opened its technology and infrastructure to partners, brands and other sectors to promote productivity and innovation. The company reported 499.80 million active customer accounts as of March 31, 2021.
On May 28, JD subsidiary JD Logistics made its debut on the Hong Kong stock exchange. The company plans to use the proceeds from its IPO to upgrade and expand its logistics network and to develop advanced technologies to attract potential customers. These moves should help JD expand its market reach across China, thereby facilitating its growth.
On March 22, JD acquired a 51% equity stake in Dada Group (DADA) by investing $800 million to acquire the company’s recently issued shares which it has added to its existing holdings in DADA. The investment and omni-channel collaboration with DADA should promote JD’s product diversification and the expansion of its on-demand retail and delivery services.
JD’s net revenues for its fiscal first quarter, ending March 31 was RMB203.20 billion ($131 billion) representing a 39% increase from the same period last year. Its net income grew 227.3% from its year-ago value to RMB3.60 billion ($600 million). And its net income per ADS increased 212.5% year-over-year to RMB2.25 ($0.34).
The Street expects JD’s revenues to rise 28.6% year-over-year to $149.04 billion in the current year. A $1.69 consensus EPS estimate for the current year indicates a 3% improvement year-over-year. Also, JD surpassed the Street’s EPS estimates in each of the trailing four quarters.
Shares of JD have gained 18.4% over the past year, and marginally over the past month.
Of17 Wall Street analysts that rated JD, 15 rated it Buy while two rated it Hold. Its shares’ $102.24 median price target indicates a potential 42.3% upside from their last closing price of $71.85. The 12-month price targets range from a low of $80.00 to a high of $119.00.
Tencent Music Entertainment Group (TME)
TME is China’s leading online music entertainment platform, which offers apps such as QQ Music, Kugou Music, Kuwo Music and WeSing and provides its users personalized music experiences. Its entertainment platform provides online music and online karaoke and music-centric live streaming services. The company had 60.90 million online music paying users as of March 31.
On May 17, TME and Sony Music Entertainment (“SME”) announced a multi-year extension of their digital distribution agreement. TME expects to deepen its reach with its users by incorporating Sony’s leading music library to promote digital consumption of music in China, while further enhancing the company’s self-reinforcing ecosystem.
On March 28, TME authorized a $1 billion share repurchase program through open market operations over the next 12 months, ending March 2022. This program is an indication of the company’s strong position and growth outlook. Moreover, the initiative should increase its earnings per share for remaining shareholders.
On April 23, TME announced that it reached 100 million long-form audio users within one year, representing a 230% rise from the same period last year. This showcases the company’s rapid growth and popularity.
TME’s total revenues increased 24% year-over-year to RMB7.82 billion ($1.19 billion) in its fiscal first quarter, ended March 31. Its operating profit stood at RMB1.16 billion ($178 million), indicating an 11.2% increase year-over-year. Its net profit improved 4.4% year-over-year to RMB926 million ($141 million). The company’s earnings per ADS increased 1.89% year-over-year to RMB0.54 ($0.08).
A $1.28 billion consensus revenue estimate for its fiscal second quarter ending June 2021 indicates a 26.9% improvement from the same period last year. Analysts expect the company’s EPS to remain at $0.1 in the same quarter. TME has gained 23.8% over the past year, and 1.4% intraday.
Of 16 Wall Street analysts that rated TME, 11 rated it Buy while five rated it Hold. The stock’s $25.23 median price target represents a potential 59.25% upside from its last closing price of $15.78. The 12-month price targets range from a low of $16.60 to a high of $36.00.
HUYA Inc. (HUYA)
HUYA is a market leader in live game streaming platforms. The company had 5.90 million paying users of Huya live as of the first quarter of 2021. It has created an interactive and immersive community of game fanatics in China. HUYA’s platform also engages in live streaming of talent shows, anime, outdoor activities, live chats, online theater, and more.
HUYA’s net revenues increased 8% year-over-year to RMB2.60 billion ($397.6 million) in its fiscal first quarter of 2021, ending March 31. Its operating income grew by 21.6% from its year-ago value to RMB162.10 million ($24.70 million). Its net income stood at RMB185.50 million ($28.30 million), up 8.4% from the same period last year. The company’s net income per ADS increased 5.5% year-over-year to RMB0.77.
A $447.37 million consensus revenue estimate for its fiscal second quarter ending June 2021 indicates a 12.1% improvement from the same period last year. Analysts expect the company’s EPS to be at $0.14 in its fiscal second quarter and to increase by 90.2% year-over-year to $0.97 in the next year. Also, HUYA surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive. Shares of HUYA have gained 2.5% over the past year, and 7.7% over the past five days.
Of the eight Wall Street analysts that rated HUYA, four rated it Buy while three rated it Hold and one rated it Sell. Its $22.16 median price target indicates a potential 39.1% upside from its last closing price of $15.93. Its 12-month price targets range from a low of $16.10 to a high of $29.00.
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JD shares were trading at $71.29 per share on Friday afternoon, down $0.56 (-0.78%). Year-to-date, JD has declined -18.90%, versus a 13.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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