China's economy surged beyond projections at the start of 2024, with the Gross Domestic Product (GDP) escalating by 5.3% in the first quarter, an increase from the previous quarter's 5.2%, as the National Bureau of Statistics reported. The world's second-largest economy embraced a familiar strategy: significant investment in its manufacturing domain to invigorate growth.
This included a spree of new factories, propelling global sales of solar panels, electric vehicles, and various other products. Industrial production saw a 6.1% leap in the first quarter compared to the previous year, driven by robust expansion in high-tech manufacturing.
Notably, the production of 3D printing equipment, electric vehicle charging stations, and electronic components surged by approximately 40% year-on-year. Moreover, last month, the manufacturing purchasing managers' index (PMI) expanded for the first time in six months, while the Caixin/S&P PMI reached its highest level in over a year, buoyed by increased overseas demand.
That said, China has established an annual growth target of approximately 5% for 2024. Additionally, authorities have implemented interest rate cuts to stimulate bank lending and expedited central government spending to bolster infrastructure investment.
Given this backdrop, investors can leverage the economy's solid momentum by considering buying fundamentally robust Chinese stocks poised to deliver substantial returns.
PDD Holdings Inc. (PDD)
PDD Holdings Inc. (PDD), the e-commerce operator behind Pinduoduo and Temu, has rocked both the Chinese and U.S. e-commerce sectors with outstanding earnings and upbeat long-term prospects. The company primarily focuses on bringing businesses and people into the digital economy. Its market capitalization stands at $164.93 billion.
For the fourth quarter that ended December 31, 2023, PDD’s total revenues increased 123.2% year-over-year to $12.52 billion. Its non-GAAP operating profit rose 146% from the year-ago value to $3.46 billion. Its non-GAAP net income attributable to ordinary shareholders and non-GAAP earnings per ADS were $3.59 billion and $2.40, up 110.4% and 71.7% year-over-year, respectively.
Furthermore, cash inflows from operating activities for the quarter came in at $5.20 billion, an increase of 38.9% from the prior year’s quarter, primarily due to the surge in net income. Such financial prowess solidifies the company’s position in the market and sets a high bar for competitors.
Lei Chen, co-CEO of PDD, hailed 2023 as a “pivotal chapter,” attributing Pinduoduo's resilience in a sluggish Chinese economy and Temu’s burgeoning popularity in the U.S. to the company's strategic prowess. As Pinduoduo's affordable offerings resonate with value-conscious consumers amid economic uncertainties, the company's trajectory is becoming even more compelling.
Looking ahead, analysts expect PDD’s revenue to increase 97.8% year-over-year to $10.54 billion for the first quarter ended March 2024, and its EPS is expected to grow 47.8% year-over-year to $1.45. Moreover, the company has an impressive earnings surprise history as it surpassed consensus revenue and EPS estimates in all four trailing quarters.
Furthermore, for the fiscal year 2024, Street expects PDD’s revenue and EPS to increase 49.4% and 30.9% from the prior year to $51.37 billion and $8.45, respectively.
Baidu, Inc. (BIDU)
Baidu, Inc. (BIDU), a Chinese tech company specializing in Internet-related services, products, and artificial intelligence (AI), recently unveiled an array of cutting-edge AI models and toolkits. These advancements democratize AI development, empowering individuals of all skill levels to create transformative applications, a move poised to elevate BIDU's standing in the AI arena significantly.
One standout is ERNIE, BIDU's flagship AI model, renowned for its versatility across various applications. ERNIE Bot, a conversational AI bot built on this framework, has swiftly garnered 200 million users since its launch in March 2023, handling a staggering 200 million daily queries.
Baidu Comate, another innovation powered by ERNIE, has catalyzed innovation by contributing to 27% of new code within BIDU, serving over 10,000 companies, with an impressive 46% adoption rate. Additionally, Qianfan, BIDU AI Cloud's FM platform, has enabled over 85,000 enterprises to develop 190,000 AI applications, showcasing BIDU's wide-reaching impact in the industry.
BIDU's financial performance mirrors these technological triumphs. In the fourth quarter of fiscal 2023, the company’s revenue grew 5.7% year-over-year to $4.92 billion. Its non-GAAP operating income surged by 8.9% from the year-ago value to $996 million, and its non-GAAP net income experienced a 44.4% year-over-year growth, reaching $1.09 billion.
Moreover, BIDU’s adjusted EBITDA showed significant improvement, increasing by 10% year-over-year to $1.28 billion.
Analysts foresee a promising growth trajectory for BIDU. Wall Street expects the company’s revenue to increase 6.3% year-over-year to $19.87 billion for the fiscal year ending in December 2024, accompanied by an estimated EPS of $10.74. Furthermore, BIDU surpassed consensus EPS estimates in all four trailing quarters, which is remarkable.
For the fiscal year 2025, the company’s revenue and EPS are anticipated to grow 7.9% and 10% year-over-year to $21.43 billion and $11.82, respectively. These optimistic projections underscore BIDU's unwavering commitment to innovation and its potential for sustained success in the dynamic landscape of AI technology.
Baozun Inc. (BZUN)
Baozun Inc. (BZUN), a premier brand e-commerce solution provider and digital commerce enabler, has fortified omnichannel capabilities and expanded core product categories through high-level engagements. Collaborating with brand partners and key marketplaces, the company has crafted effective go-to-market strategies, acquiring over 50 new brands in 2023.
Implementing a new store concept transitioning from large-scale to boutique formats, BZUN enhances brand DNA and fosters immersive brand experiences beyond mere commercial transactions. In-store pop-ups and campaigns are further amplifying social engagement, enriching consumer experiences.
In addition, in January, the company authorized a new share repurchase program, allowing the repurchase of up to $20 million worth of outstanding American depositary shares (ADSs) and Class A ordinary shares over the ensuing 12 months, starting January 24, 2024.
During the fiscal 2023 fourth-quarter earnings call, BZUN unveiled the inauguration of 10 new stores, including a flagship in Guangzhou, alongside expansions in Shantou, Shenzhen, and Beijing. Notably, square meter efficiency surged 50% for newly opened stores, with existing ones witnessing a remarkable 19% spike in same-store sales.
For the fourth quarter that ended December 31, 2023, BZUN reported an 8.9% year-over-year surge in total net revenues to $391.61 million, marking a significant turnaround from the previous year's loss. The company posted an adjusted operating profit for E-Commerce of $16.60 million for the quarter.
Mr. Vincent Qiu, BZUN’s Chairman and CEO, said, “In 2023, we started our transformation journey, expanding into three business divisions. Throughout the year, we solidified our leadership in the digital commerce industry, and further enhanced operational efficiency. I am grateful for the resilience and adaptability demonstrated by the Baozun team amid the ever-changing market environment.”
“Looking ahead to 2024, despite macro uncertainties, we remain committed to sustainably executing our plans with diligence and patience. The improved health of our business fundamentals gives us confidence to enhance value proposition to our brand partners,” he added.
For the fiscal year ending December 2024, Street expects BZUN’s revenue to increase 3.2% year-over-year to $1.26 billion. Similarly, the company’s revenue for the fiscal year 2025 is estimated to grow 6.9% from the previous year to $1.35 billion.
Bottom Line
While U.S. stocks may offer stability in tumultuous times, diversifying into international stocks can yield significant benefits, especially in terms of portfolio risk management and solid returns. Financial advisors often advocate for familiarity with American companies, yet venturing into global markets, particularly China, can broaden investment horizons and unlock new opportunities.
This is because China is poised to reclaim its global significance, as per Bloomberg's analysis of IMF forecasts. Projections suggest China's economic resurgence will surpass the combined growth of the G-7 nations. China is anticipated to lead with an estimated 21% contribution to global economic growth from now through 2029.
In comparison, the G-7 nations are expected to contribute approximately 20%, while the U.S. falls short with 12%, nearly half of China's projected growth. Remarkably, 75% of global growth will originate from only 20 countries, with China, India, the U.S., and Indonesia accounting for over half of this expansion.
Investors can capitalize on this dynamic economic landscape by exploring fundamentally strong Chinese stocks poised for substantial returns. Among these, PDD, with its meteoric rise in e-commerce, BIDU, leveraging cutting-edge AI innovations, and BZUN, a leading brand e-commerce solution provider, stand out.
These stocks’ impressive financial performances, strategic initiatives, and optimistic growth projections make them compelling investment options for investors seeking exposure to the thriving Chinese economy.
