Chronicle Journal: Finance

4 Under-the-Radar Chinese Stocks with Major Potential: Pinduoduo, Bilibili, Trip.com, and Autohome

With its rapid recovery from the coronavirus pandemic, the Chinese economy became the only major economy to grow amid a global recession. While China boasts some well-known companies, such as Alibaba (BABA), and JD (JD), some smaller companies such as Pinduoduo (PDD), Bilibili (BILI), Trip (TCOM), and Autohome (ATHM), that are overlooked by many investors, are strategically positioned we believe to generate healthy returns going forward based on their revenue and earnings growth potential.

While most of the world’s major economies are struggling to stay afloat amid the pandemic, China became the only major economy to grow this year. Moreover, according to the latest Economic Outlook by the Organization for Economic Cooperation and Development (OECD), the world’s second-largest economy’s GDP is expected to grow 8% next year, while the United States’ economy is expected to grow 3.2% in 2021, assuming a fiscal stimulus is agreed upon.

China’s rapid economic rebound from the coronavirus pandemic was largely driven by a significant recovery in consumption. The e-commerce sales phenomenon really took off globally during the pandemic. From January to October, its national online retail sales increased 10.9% year-over-year to $1,385.7 billion. While China boasts some well-known companies like Alibaba Group Holding Ltd (BABA) that have attracted investor attention and gained significantly amid the pandemic, many of these companies are currently battling regulatory hurdles.

As a result, it is wise to bet on relatively lesser-known Chinese companies like Pinduoduo Inc. (PDD), Bilibili Inc. (BILI), Trip.com (TCOM), and Autohome Inc. (ATHM) that have the capacity to generate huge gains in the near term.

Pinduoduo Inc. (PDD)

Founded in 2015, PDD is an e-commerce platform operator. The company operates Pinduoduo, a mobile platform that offers a range of products, including apparel, shoes, food and beverage, electronic appliances, furniture, and household goods, to name a few. PDD pioneered and popularized a dynamic shopping experience through "Pin", a team purchase format that integrates social experiences with online shopping experiences.

The company’s total revenue has climbed more than 89% year-over-year to $2.1 billion for the third quarter ended September 30, 2020. Revenues from online marketing services and others increased 91.9% year-over-year to $1.9 billion. Average monthly active users increased 50% year-over-year to 643.4 million. And gross profit increased 92.8% year-over-year to $10.9 billion. EPS of $0.05 surpassed the consensus estimate by 129.4%.

Analysts expect PDD’s revenue to increase 86.3% for the current quarter ending December 31, 2020, 83.1% this year, and 55.3% next year. The company’s EPS is expected to increase 170% in the current quarter, 40.4% this year, and 277.4% next year. PDD’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.

On December 15, PDD was named a pioneer in digital agriculture at a major conference, with its “cloud agriculture” model recognized as one of the top 10 achievements in digital agriculture in the world. Earlier in December, the company announced that it will explore deploying to working farms smart agriculture solutions developed by the winners of a competition organized by the Food and Agriculture Organization (FAO). PDD’s stock has rallied 289.6% over the past year to close yesterday’s trading session at $142.03.

How does PDD stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

A for Peer Grade

B for Overall POWR Rating

The stock is also ranked #10 out of 115 stocks in the China industry.

Bilibili Inc. (BILI)

BILI provides online entertainment services mainly aimed at the young in China. The Company operates its business through four segments — mobile game service, advertising, live broadcasting, and value-added services (VAS), and other services. Having begun as a content community inspired by anime, comics, and games, the company has evolved into a full-spectrum online entertainment provider.

The company’s total revenues increased 73.5% year-over-year to $475.1 million for the third quarter ended September 30, 2020. Its mobile users increased 61% year-over-year to 183.5 million. And average monthly paying users increased 89% year-over-year to 15 million. Gross profit increased 116.8% year-over-year.

Analysts expect BILI’s revenue to increase 87.7% for the current quarter ending December 31, 2020, 86.1% this year, and 45.6% next year. The company’s EPS is expected to increase 37.4% next year. The stock has gained 328.3% over the past year. It is currently trading 6.5% below its 52-week high.

On August 31, the company announced that it has entered into a definitive subscription agreement with Huanxi Media Group Limited. The companies to pursue collaborative opportunities in online entertainment, including films and TV drama series. BILI announced a three-year strategic partnership with Riot Games in August. BILI has gained the exclusive license to live broadcast the League of Legend Esports global events, including the world-renowned League of Legend World Championship, Mid-Season Invitational, and All-Star Event in China beginning in 2020 and running through the 2023 Mid-Season Invitational.

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. Among the China industry, it’s ranked #2.

Trip.com Group Limited (TCOM)

Founded in 1999, TCOM has become one of the largest travel companies in the world in terms of gross merchandise value (GMV). The company provides accommodation booking, transportation ticketing, package tours and corporate travel management. TCOM provides travel services through Ctrip and Qunar to customers in China, and through Trip.com, and Skyscanner brands to non-Chinese customers.

TCOM’s top line has increased 72.8% sequentially to $805 million for the third quarter ended September 30, 2020. This can be attributed to the fact that most of the company’s major business segments have returned to pre-COVID level of activities in recent months. Accommodation reservation revenue, which accounted for more than 45% of the company’s total revenue, increased 97.7% sequentially to $365 million. Gross profit increased 93.8% sequentially to $$653 million. And EPS of $0.35 surpassed the consensus estimate by 105.9%.

Analysts expect TCOM’s revenue to increase 33.6% for the quarter ending March 31, 2021, and 48.3% next year. The company’s EPS is expected to increase more than 115% for the quarter ending March 2021, and 282.2% next year. TCOM’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.

TCOM extended its charter flight service business in Macau on October 29. The company announced a partnership with Bangkok Airways’ frequent flyer program, FlyerBonus, in October. It will maximize rewards for its members when making hotel reservations on Trip.com. In October, the company also entered a partnership with Etihad Airways’ frequent flyer program, Etihad Guest. The stock has gained 27.3% in the past six months and is currently trading 12.3% below its 52-week high of $38.95.

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

Autohome Inc. (ATHM)

As the leading online destination for automobile consumers in China, ATHM aims to become the dominant player in China’s online automotive advertising market. The company, through its websites, autohome.com.cn, and che168.com, and mobile applications, delivers content to automobile buyers and owners. It provides professionally produced and user-generated content, a comprehensive automobile library, and extensive automobile listing information.

For the third quarter ended September 2020, ATHM’s revenue climbed 6.7% year-over-year to $341 million. The company’s data product’s in the online marketplace and other businesses achieved revenue growth of roughly 51% year-over-year, driven by revenues from both OEMs and dealers. Gross profit increased 7.4% year-over-year to $304.2 million. And its non-GAAP net income increased 28.4% year-over-year to $132.8 million.

Analysts expect ATHM’s revenue to increase 13.8% for the current quarter ending December 31, 2020, 9.7% this year, and 11.7% next year. The company’s EPS is expected to increase 8.8% in the current quarter, 12.4% this year, and 12.3% next year. ATHM has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters.

On December 9, ATHM announced that it has received three awards at the 10th Asian Excellence Award 2020 organized by the CorporateGovernanceAsia magazine. CEO Lu Min was named Asia’s best CEO, Zou Jun was honored with the title of Asia's Best CFO, and ATHM received an award as the best investor relations company. ATHM announced on October 27 that it has entered into a definitive agreement with TTP Car Inc., a leading auction platform for used cars in China. Over the past year, the stock has rallied more than 32% to close yesterday’s trading session at $98.44.

ATHM’s strong fundamentals are reflected in its POWR Ratings, it has a “Buy” rating with an “A” in Trade Grade, and Peer Grade, and a “B” for Buy & Hold Grade. Within the China industry, its stock is ranked #14.

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PDD shares were trading at $144.86 per share on Wednesday afternoon, up $2.83 (+1.99%). Year-to-date, PDD has gained 283.02%, versus a 16.57% 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.

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