While the so-called “Zero-Covid policy” might have protected many lives from the direct impact of the global pandemic, it nevertheless put countless livelihoods at risk. Besides disrupting global supply chains, this self-imposed hibernation also resulted in the world’s second-largest economy seeing its second-slowest growth rate since 1976.

When resentment over draconian covid restrictions snowballed into widespread civil unrest, the country’s leadership was compelled to soften its stance. While this sudden relaxation of constraints was immediately accompanied by uncertainty and mass infections, the Chinese economy and society are returning to life.

According to S&P Global Market Intelligence’s senior economist Yating Xu, health concerns — such as elderly vaccination and availability of testing kits — “are no longer obstacles to the ongoing reopening as most regions reported to have passed the peak of infections and should have naturally immunized.”

As a result, quarterly and monthly economic data, including a rebound in retail sales and resilience in the labor market, have all exceeded expectations. This indicates that the economic recovery may happen sooner than expected. Sentiments have been further boosted by the People’s Bank of China hinting at relaxations for developers to ease their liquidity strains and revive home purchases.

With JPMorgan’s global market strategist Chaoping Zhu forecasting service sectors to be the early beneficiaries of the release of the pent-up demand, it could be opportune to invest in shares of growing Chinese businesses Hello Group Inc. (MOMO), Waterdrop Inc. (WDH), and Tarena International, Inc. (TEDU) for solid returns in the year ahead.

Hello Group Inc. (MOMO)

MOMO, headquartered in Beijing, the People’s Republic of China, provides mobile-based online social and entertainment services in the country. The company’s product portfolio includes two platforms: Momo and Tantan.

Momo is a mobile application that connects people and facilitates social interactions based on location, interests, and various online recreational activities. On the other hand, Tantan, added through an acquisition in May 2018, is designed to help its users find and establish romantic connections and meet interesting people.

Yan Tang, Chairman and CEO of MOMO, highlighted that the product and operational enhancements, coupled with the efforts to improve cost efficiency, allowed the company to see meaningful bottom-line improvement on a sequential basis.

For the third quarter of fiscal 2022, ended September 30, MOMO’s total net revenues came in at ¥3.23 billion ($475.62 million). During the same period, the Non-GAAP net income attributable to MOMO came in at ¥535.8 million ($78.90 million), or ¥2.60 ($0.38) per ADS.

Analysts expect MOMO’s revenue and EPS for fiscal 2023 to increase 1.5% and 4.3% year-over-year to $1.90 billion and $1.36, respectively. The company has also impressed by surpassing consensus EPS estimates in each of the trailing four quarters.

MOMO has gained 7.8% over the past month and 139% over the past six months to close the last trading session at $10.78, above its 50-day and 200-day moving averages of $8.72 and $5.91, respectively.

MOMO has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

MOMO has an A grade for Value and a B for Quality. It is ranked #13 of 48 China stocks. 

Click here to access the additional ratings for MOMO’s Stability, Growth, Sentiment, and Momentum.

Waterdrop Inc. (WDH)

WDH is an intermediary headquartered in Beijing that provides online insurance brokerage services to pair users with relevant insurance products underwritten by insurance companies in the People’s Republic of China. It also offers short-term and long-term health and life insurance products and services and operates a medical crowdfunding platform.

On January 4, WDH and Jemincare announced an agreement to jointly launch the “Digital Service Platform for CKD Patients” for a better experience in drug use, diagnosis, and treatment by offering services outside hospitals throughout the course of the disease. The bilateral cooperation is of positive significance in helping CKD patients solve associated problems during the long treatment cycle.

On November 18, 2022, Mr. Yao Hu, co-founder of WDH and General Manager of the Pharmaceutical Innovation Business Unit, provided an update on the progress of the company’s pharmaceutical innovation service. Currently, WDH’s pharmaceutical innovation service centers on three platforms: Waterdrop Patient Platform; Digital Marketing Platform; and E-find (E-find Recruitment and E-find CRO).

Mr. Hu further informed that E-find features a professional team, fast patient enrollment into clinical trial groups, a competitive platform, and digital operation. Relying on the strengths, E-find Patient Recruitment has grown into a leading third-party patient recruitment platform at home in just two years.

On November 4, WDH launched insurance against breast cancer recurrence for people aged between 18 and 65. The offering features a low threshold, flexible, insured amount, wide coverage, and no deductible for Anti-Cancer Drugs. With increasing recurrence rates, this insurance will serve as a firewall for the insured, relieving their financial pressure when the disease recurs.

During the third quarter of the fiscal year 2022, which ended September 30, 2022, WDH’s operating revenue increased 10.1% sequentially to ¥772.2 million ($113.71 million), reflecting the company’s progress on reforming its business strategy.

During the same period, the company’s operating profit came in at ¥132.56 million ($19.52 billion) compared to an operating loss of ¥512.99 million ($75.54 billion). Similarly, the adjusted net profit attributable to WDH amounted to ¥215.73 million ($31.77 billion), compared to a net loss of ¥453.64 million ($66.80 billion).

As a result, WDH’s net profit attributable to ordinary shareholders came in at ¥0.04 per share, compared to a loss of ¥0.12 for the previous-year quarter.

Analysts expect WDH’s revenue and EPS for the fiscal year ending December 31, 2023, to increase 9.4% and 5.2% year-over-year to $458.33 million and $0.16, respectively. Both metrics are expected to increase by a further 11.1% and 47.7% during the next fiscal to $509.07 million and $0.24, respectively.

WDH’s stock has gained 146% over the past six months to close the last trading session at $3.05, above its 50-day and 200-day moving averages of $2.66 and $1.62, respectively.

WDH’s overall rating of B translates to a Buy in our POWR Ratings system. It also has a B grade for Growth, Momentum, Sentiment, and Quality.

WDH is ranked #6 of 48 China stocks. Click here for additional ratings on WDH’s Value and Stability.

Tarena International, Inc. (TEDU)

Beijing-based TEDU provides professional education services through full-time and part-time classes under the Tarena brand in the People’s Republic of China. The company operates through two segments: Adult Professional Education and Childhood & Adolescent Quality Education Services.

On November 28, TEDU announced that its board of directors had authorized a new share repurchase program over the next twelve months. As per the program, the company is authorized to repurchase up to an aggregate value of US$3 million of its Class A ordinary shares (including in the form of ADS) during the 12 months beginning November 28, 2022.

Stakes would be repurchased through various legally permissible means, depending on the market conditions and in accordance with applicable rules and regulations. While increasing the intrinsic value of the holdings of existing shareholders, this program also underscores the management’s confidence in TEDU’s business prospects.

On November 15, TEDU announced that it had been selected for inclusion into the list of “Approved Education Providers” for “Promoting Employment of College Graduates through Connecting Talent Supply with Employers’ Demand (Phase II) (“Connect Program”), recently published by the Department of College Students Affairs of the Ministry of Education (MoE).

As a result, TEDU stands to be benefited from the recognition and guidance of the Ministry of Education as it launches education and employment support programs that will help college students obtain the knowledge and skills demanded by employers.

For the third quarter of the fiscal, which ended September 30, TEDU’s net revenues increased 4.6% year-over-year to ¥643.3 million ($94.73 million), while its gross profit increased 13.1% year-over-year to ¥354.2 million ($52.16 million). The top-line growth was mainly driven by higher IT-focused supplementary STEAM education enrollment.

During the same period, the company’s non-GAAP operating income and net income came in at ¥30.2 million ($4.45 million) and ¥37.2 million ($5.48 million), respectively, compared to losses of ¥84.4 million ($12.43 million) and ¥90.5 million ($13.33 million) during the previous-year quarter. Consequently, the non-GAAP net income per ADS came in at ¥3.23, compared to a loss of ¥7.84 during the previous-year quarter.

The stock has gained 8.3% over the past month and 126.8% over the past year to close its last trading session at $5.74, above its 50-day and 200-day moving averages of $5.28 and $5.00, respectively.

TEDU’s 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. It also has an A grade for Growth and a B for Value and Quality.

Unsurprisingly, TEDU tops its category of 42 Chinese stocks. Click here to see additional POWR Ratings for Momentum, Sentiment, and Stability for TEDU.

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MOMO shares were trading at $10.53 per share on Wednesday morning, down $0.25 (-2.32%). Year-to-date, MOMO has gained 17.26%, versus a 8.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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