The slide in China’s tech sector might be finally ending as investors focus on valuations rather than on regulations. The sector’s earnings estimates have been revised up 12% from a September bottom, and analyst price targets reflect solid returns. Furthermore, the Hang Sang Tech Index is outperforming its offshore peers.
Hong Kong shares rose on Wednesday as fears of a Russian invasion of Ukraine subsided and slowing of inflation raised hopes of policy easing. The sub-index of the Hang Seng that tracks the tech sector rose 2.3%. In addition, Chinese tech giants are beginning to invest in the metaverse, which has gained much buzz lately. Morgan Stanley (MS) forecasts that the Chinese addressable metaverse market could be around $8 trillion.
Therefore, we think the fundamentally strong Chinese tech stocks NetEase, Inc. (NTES) and Weibo Corporation (WB) might be solid additions to one’s investment portfolio.
NetEase, Inc. (NTES)
Headquartered in Hangzhou, China, NTES operates as an online services provider focused on gaming, communications, and commerce. The company, operating through the Online Games Services; Youdao; and Innovative Businesses and Other segments, develops PC and mobile games and offers licensed games from other developers.
On February 10, Warner Bros. Games and NTES announced the online launch of Harry Potter: Magic Awakened, a free-to-play immersive collectible card (CCG) and massively multiplayer (MMO) wizarding dueling game featuring a blend of strategy roleplay (RPG). With pre-registrations open, the game might add to the company’s revenue stream.
On November 22, NTES subsidiary Cloud Village Inc., a music streaming services provider, launched Hong Kong public stock offering, which is part of its global offering of ordinary shares, and its ordinary shares listing on the Main Board of The Stock Exchange of Hong Kong Limited. The net proceeds from the offering are expected to enhance technological capabilities, mergers, acquisitions, and strategic investments.
For its fiscal third quarter, ended September 30, NTES’ net revenues increased 18.9% year-over-year to $3.44 billion. Its non-GAAP net income, attributable to the company’s shareholders and non-GAAP net income per ADS, came in at $598.72 million and $0.89, respectively, up 5.1% and 7.3% from the prior-year quarter.
The $1.06 consensus EPS estimate for its fourth fiscal quarter (ended December 2021) indicates a 193.6% year-over-year increase. And the $3.82 billion consensus revenue estimate for the same quarter reflects a 24.7% improvement from the prior-year period.
The stock has gained 17.4% in price over the past six months and 0.3% intraday to close yesterday’s trading session at $100.21.
NTES’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
NTES has a Growth, Value, and Quality grade of B. In the 50-stock China industry, it is ranked #1. Click here to see the additional POWR Ratings for NTES (Momentum, Stability, and Sentiment).
Weibo Corporation (WB)
WB is a social media platform used by people to create, distribute, and discover content. The company operates through the two broad segments of Advertising and Marketing Services; and Value-Added Services. It is headquartered in Beijing, China, and is a subsidiary of Sina Corporation (SINA).
On December 2, WB priced 11 million Class A ordinary shares at HKD272.80 per offer share, which translates to $35.01 per ADS. The company intends to use the net proceeds to continue the growth of its user base and user engagement and to enhance its content.
WB’s net revenues increased 30.4% year-over-year to $607.43 million in its fiscal third quarter, ended September 30. Its non-GAAP net income attributable to Weibo’s shareholders rose 37.1% from the prior-year quarter to $209.55 million, while its non-GAAP net income per share, attributable to WB’s shareholders, improved 36.4% year-over-year to $0.90.
The Street’s $3.07 EPS estimate for its fiscal year 2021 reflects a 29% improvement year-over-year. And the Street’s $2.25 billion revenue estimate for the same year indicates a 32.9% increase from the prior year. Also, WB has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
Over the past five days, the stock has gained 2.5% in price to close yesterday’s trading session at $32.36. It has gained 4.5% year-to-date.
It is no surprise that WB has an overall B rating, which translates to Buy in our POWR Rating system.
WB has a B grade for Growth, Value, and Quality. It is ranked #4 in the China industry. To see the additional POWR Ratings for Momentum, Stability, and Sentiment, click here.
Want More Great Investing Ideas?
NTES shares were trading at $100.11 per share on Thursday afternoon, down $0.10 (-0.10%). Year-to-date, NTES has declined -1.64%, versus a -7.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
More Resources for the Stocks in this Article
| Ticker | POWR Rating | Industry Rank | Rank in Industry |
| NTES | Get Rating | Get Rating | Get Rating |
| WB | Get Rating | Get Rating | Get Rating |
