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We asked our writers to share their top China/Hong Kong stock picks for the month of November and here’s what they had to say:
Royston Yang: Shenzhou International
Shenzhou International Group Holdings Ltd (SEHK: 2313) is a vertically integrated Chinese clothing manufacturer. It is the largest vertically integrated knitwear manufacturer in China and counts multinational companies such as Uniqlo, Adidas, and Nike as its clients.
I’m bullish on Shenzhou’s prospects as it has clearly demonstrated that it has an edge over its competitors, with operating and net margins both higher than non-vertically integrated players. The group has demonstrated a strong growth trajectory, with revenue and net profit both rising for four consecutive years.
Free cash flow has almost tripled from RMB 873 million (US$124 million) in FY 2014 to RMB 2.4 billion in FY 2018, while the group has been raising dividends annually from HK$1 per share in FY 2014 to HK$1.75 per share in 2018, a 75% increase over four years. With a rising middle-income class in many countries and a shift towards healthier lifestyles, Shenzhou looks poised to enjoy many more years of steady growth.
Though the shares are not cheap at 32x earnings, I believe investors should pay up for quality as Shenzhou stands in a league of its own.
Royston Yang does not own shares in Shenzhou International.
Jay Yao: Alibaba
My pick for this month is Alibaba Group (NYSE: BABA). Alibaba trades at a forward price-to-earnings (PE)ratio of 20. Yet its second-quarter sales rose 40% year-on-year and diluted earnings per ADS rose 36% year-on-year. Although the company dominates e-commerce in China, the best part of Alibaba might be its overlooked cloud division, which hasn’t contributed anything to Alibaba’s profits in the past but should do in a big way in the future.
The company is both a value stock and a growth stock wrapped in one. Plus, there are a number of potentially positive events that could occur to in November. The large selling caused by Altaba (the Yahoo! spin-out created to hold its lucrative stake in Alibaba and Yahoo! Japan) is now a thing of the past.
According to Bloomberg, Alibaba is once again considering floating shares in Hong Kong in November. The potential beginning of the end of the China-US trade tensions could improve sentiment for all Chinese tech stocks with Alibaba set to be one of the biggest beneficiaries.
Jay Yao does not own shares in Alibaba.
Tim Phillips: Sands China
For me, November’s pick is a slightly unorthodox one; Macau gaming giant Sands China (SEHK: 1928). Even though third-quarter results for the integrated resorts (IR) operator saw net income flat year-on-year at US$454 million, I believe it’s got a great opportunity to continue cementing its stranglehold on the mass market segment in Macau.
The firm has been clear in its intention to target the mass segment and provide plentiful non-gaming offerings in the Chinese special administrative region (SAR).
It’s already known as a MICE (meetings, incentives, conferences, and exhibitions) specialist and, coincidentally, the firm’s desire to build out these non-gaming attractions fits in nicely with what the local government, and more importantly the Chinese government, want – which is sustainable growth in Macau.
Additional resort The Londoner, which will open in phases in 2020 and 2021, adds more rooms and a fresh new resort for Sands China. And with a 5% dividend yield and a solid footing in the Macau market, now could be a great time for investors to buy into this best-in-class gaming firm.
Tim Phillips does not own shares in Sands China.
Jeremy Chia: Tencent
Call me boring, but my top pick for November is also one of the most well-known stocks in the Hong Kong market; Tencent Holdings Ltd (SEHK: 700). The tech conglomerate’s stock has been on a rollercoaster ride since 2017. However, its long-term potential is certainly not in question.
Being the market leader in gaming, Tencent is set to ride on the curtails of the booming gaming industry, which is expected to increase by more than threefold by 2030. Gaming aside, Tencent also owns the mother of all super apps – WeChat. The social platform boasts one of the largest user bases among apps in the world and Tencent has just touched the tip of the iceberg in terms of unlocking the app’s massive revenue-generation potential.
Let’s not forget that Tencent is also chasing the highly lucrative cloud computing space and also has investments in numerous other companies, including moonshot bets such as quantum computing and facilitated healthcare. Tencent could reap massive returns if just one of these investments works out.
Jeremy Chia owns shares in Tencent.
Christopher Chu: Tingyi Holding
Tingyi (Cayman Islands) Holding (SEHK: 322), China’s largest instant noodle maker, reported a 3.7% sales increase in its instant noodle business during the first half of 2019 to RMB 11.5 billion and is my pick of the month for November. Accounting for 40% of group revenue, the instant noodle business has seen a recovery in demand as Tingyi now offers a wider product mix, including higher-priced premium noodles.
Tingyi is a structural beneficiary as Chinese consumers are demanding products that offer better value, convenience, and healthy options. As the disruption from delivery apps normalises, convenience of instant noodles is set to reemerge.
Tingyi is trading near the low end of its recent valuation history, suggesting that unless the noodle business materially disappoints, downside support exists for the share price. Year-to-date returns have been erased, providing investors the opportunity to build a medium-term position with a company offering a strong balance sheet.
Christopher Chu does not own shares in Tingyi Holding.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.