3 Chinese Stocks Outperforming NIO in 2021

: TME | Tencent Music Entertainment Group ADR News, Ratings, and Charts

TME – Even though NIO (NIO) has delivered spectacular returns over the past year, Tencent (TME), Bilibili (BILI), and Zai Lab (ZLAB) have outperformed the stock so far this year. Based on growing market demand and impressive financials, we believe these Chinese stocks are poised to generate healthy ROI in the near- to mid-term. Let’s look closer at the three names.

The Chinese electric vehicle (EV) manufacturer NIO Inc. (NIO) has been on a rollicking rally, gaining 1193.3% over the past year. The stock hit its all-time high of $66.99 on January 11 on the news of the launch of its first sedan, model ET7. Although NIO is known for its success in the battery-as-a-service (Baas) model, it is facing stiff competition from industry leaders such as Tesla, Inc. (TSLA) and General Motors Company (GM). Moreover, with a trailing-12-month P/S of 36.55x versus the industry average of 1.36x, the stock is significantly overvalued.

But there are other Chinese stocks that have generated significant returns over the past year and beaten NIO’s 27.1% gains so far this year. And many of these stocks may run higher than NIO this year.

So far, China is only major economy to have managed a V-shaped recovery from the COVID-19 pandemic-led global recession. The nation actually generated GDP growth last year, based on its ability to contain the spread of the virus.

So, in order to capitalize on the economy’s continued expansion, we think it would be wise to bet on stocks like Tencent Music Entertainment Group (TME), Bilibili Inc. (BILI), and Zai Lab Limited (ZLAB). These stocks have not only returned more than NIO on a year-to-date basis, but also are strategically positioned to generate huge returns this year and beyond based on growing demand, and impressive financials.

Tencent Music Entertainment Group (TME)

As one of the leading online music entertainment platforms in China, TME’s offerings consist of online music, online karaoke and music-centric live streaming services. The company operates through four famous music mobile apps in China — QQ Music, Kugou Music, Kuwo Music, and WeSing. Besides music streaming, social interactions such as sharing, liking, commenting, following and virtual gifting, are also deeply integrated TME’s products.

The company’s revenue surged 16.4% year-over-year to $1.12 billion for the third quarter ended September 30, 2020. Its revenue from online music services, which accounted for 30.7% of its total revenue, increased 25.9% year-over-year to $342 million. This was due to  TME’s continued expansion of its  music library and diversification of content. Online music paying users increased by 46% year-over-year to 51.7 million. And profit for the period increased 10.9% year-over-year to $1.14 billion. Its  EPS of $0.12 surpassed the consensus estimate by 9.1%.

Analysts expect TME’s revenue to increase by 24.3% for the quarter ended December 31, 2020, 34.2% for the quarter ending March 31, 2021, and 22% in 2021. The company’s EPS is expected to grow 33.3% for the quarter ending March 31, 2021, 20% in 2021, and at a rate of 2.4% per annum over the next five years. Moreover, TME has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters.

On January 15, TME announced that it had entered into a definitive agreement to acquire Shenzhen Lanren Online Technology Co, Ltd, which is also known as Lazy Audio. This transaction, which is expected to close in the first half of 2021 subject to customary closing conditions, is expected to deepen TME’s presence in the fast growing long-form audio industry in China.

In December, the company  partnered with the Royal Norwegian Embassy in Beijing to launch a collaborative cross-border music album —Norwegian Special: Northern Lights. The stock has rallied 40.4% year-to-date to close Friday’s trading session at $27.02. It is currently trading 6.3% below its 52-week high of $28.84, which it hit on January 20.

How does TME 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

Bilibili Inc. (BILI)

An iconic online entertainment brand  with a mission to enrich the everyday lives of the younger generations in China, BILI had first launched its website in June 2009. The company has evolved from a content community inspired by anime, comics and games (ACG) into a full-spectrum online entertainment provider that  covers a wide array of genres and media formats. BILI operates its business primarily through four segments — mobile game service, advertising, live broadcasting, and value-added services (VAS), and other services.

For the third quarter ended September 30, 2020, BILI’s total revenue increased 73.5% year-over-year to $475.1 million. Its average monthly active users (MAUs) increased 54% year-over-year to 197.2 million, and its average monthly paying users (MPUs) increased 89% year-over-year to 15 million. Also, its gross profit increased 116.8% year-over-year.

Analysts expect BILI’s revenue to increase 90.6% for the quarter ended December 31, 2020, 62.2% for the quarter ending March 31, 2021, and 47.3% in 2021. The company’s EPS is expected to increase 37.8% in 2021. The stock has gained more than 56% so far this year to close Friday’s trading session at $133.75. Moreover, BILI has gained 493.7% over the past year.

BILI  is set to file for a secondary listing in Hong Kong, seeking to raise more than $2 billion, which is significantly higher than its previously anticipated $1.5 billion raising.. In August, last year, BILI announced that it had entered into a definitive subscription agreement with Huanxi Media Group Limited. And in August, it announced a three-year strategic partnership with riot games for the live broadcasting of the league of legend events in China, including the world-renowned League of Legend World Championship.

BILI’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. Among the 103 stocks in the China industry, it is ranked #6.

Zai Lab Limited (ZLAB)

Headquartered in Shanghai, China, ZLAB is a biopharmaceutical company engaged in the discovery or licensing, development, and commercialization of proprietary therapeutics for oncology, autoimmune and infectious disease therapies in China and around the world.

The company has a big  pipeline of proprietary drug candidates that range from discovery- stage to late-stage clinical programs, including Niraparib (ZL-2306), ZL-2103 and ZL-1101. ZLAB was successfully listed on the Nasdaq Stock Market in September 2017 and completed a secondary listing on Hong Kong Stock Exchange in September, last year.

ZLAB The company made several developments over the first half of 2020, including the two successful commercial launches in China, and two highly strategic collaboration deals, among others. On January 11, the company announced an expansion of its collaboration with Turning Point Therapeutics, Inc. (TPTX), under which ZLAB secured the exclusive rights to develop and commercialize TPX-0022, and TPTX’s MET, SRC and CSF1R inhibitor, in Greater China. ZLAB announced on January 6, an exclusive license agreement with argenx SE (ARGX) for the development and commercialization of efgartigimod in Greater China, including mainland China, Hong Kong, Taiwan and Macau.

ZLAB’s revenue increased 461.8% year-over-year to $19.21 million for the six months ended June 30, 2020. It was driven primarily  by $13.8 million in sales of ZEJULA. The company’s cash and cash equivalents, restricted cash and short-term investments totaled $464.1 million over the same period.

Analysts expect ZLAB’s revenue and EPS to increase 203.4%, and 12.1%, respectively, in 2021. Over the past year, the stock has rallied 274.9% to close Friday’s trading session at $181.76. ZLAB has gained 34.3% year-to-date.

It is no surprise that ZLAB is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and a “B” for Industry Rank. In the China industry, it is ranked #11.

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TME shares were trading at $27.17 per share on Monday afternoon, up $0.15 (+0.56%). Year-to-date, TME has gained 41.22%, versus a 2.57% rise in the benchmark S&P 500 index during the same period.


About the Author: Manisha Chatterjee


Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...


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