Last month has been quite volatile for Chinese stocks because the U.S. regulator decided to delist a few Chinese companies that failed to adhere to the Holding Foreign Companies Accountable Act. According to this act, the SEC could delist companies from U.S. exchanges if U.S. regulators cannot review their audited financials for three consecutive years.
However, U.S.-listed Chinese stocks surged Friday, following a report that Beijing is preparing to give U.S. regulators full access to audit reports for most of the 200-plus companies listed in the United States as soon as the middle of this year. With this news, the Hang Seng index also gained 2.1% to close at 22,502.31.
Therefore, we think it could be wise to bet on fundamentally sound Chinese stocks NetEase, Inc. (NTES) and FinVolution Group (FINV).
NetEase, Inc. (NTES)
Headquartered in Hangzhou, the People's Republic of China, NTES offers online services focusing on gaming, communication, and commerce internationally. The company has three operational segments: Online Games Services, Youdao, Innovative Businesses, and Others. It develops and operates PC and mobile games and offers games licensed by other game developers.
NTES’ net revenue increased 23.3% year-over-year to RMB 24.37 billion ($3.83 billion) for the fourth quarter ended Dec. 31, 2021. Its operating profit grew 53% from its year-ago value to RMB 4.61 billion ($723.91 million), while its net income increased 505.7% from the prior-year quarter to RMB 5.66 billion ($889.57 million). The company’s EPS rose 489.66% year-over-year to RMB 0.29.
Analysts expect NTES’ revenue to increase 14.7% year-over-year to $3.66 billion during the first quarter, ending March 31, 2022. The consensus EPS estimate during the second quarter ending June 2022 represents a 14% improvement year-over-year to $1.10. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 19.4% in price over the past six months.
NTES’ POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has a B grade for Value and Sentiment. It is ranked #2 of 50 stocks within the F-rated China industry.
To see additional POWR Ratings for Growth, Quality, Stability, and Momentum for NTES, click here.
FinVolution Group (FINV)
FINV is an investment holding company that operates an online consumer finance marketplace in the People's Republic of China. It operates a fintech platform that connects underserved individual borrowers with financial institutions.
In the fourth quarter, ended Dec. 31, 2021, FINV's net revenue increased 32.1% year-over-year to RMB2.45 billion ($384.56 million). Its non-GAAP operating income amounted to RMB560.43 million ($88.04 million), while its non-GAAP net profit increased 35.6% from its year-ago value to RMB 692.78 million ($108.83million) over the period. The non-GAAP EPS rose 34.3% from its prior-year quarter to RMB 0.47.
The company's EPS is expected to grow 4.2% year-over-year to $1.44 in its fiscal year 2022. Analysts expect its revenue to increase 2.3% year-over-year to $1.52 billion for its fiscal 2022. The stock has surged 23.5% in price over the past month.
FINV's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Value and a B for Sentiment and Quality. Within the China industry, it is ranked #1.
In total, we rate FINV on eight distinct levels. Beyond what we have stated above, we have also given FINV grades for Growth, Momentum, and Stability. Get all the FINV ratings here.
NTES shares were trading at $95.55 per share on Wednesday afternoon, down $0.61 (-0.63%). Year-to-date, NTES has declined -5.69%, versus a -5.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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