With the government in China imposing more rules and regulations on the country’s companies, Chinese tech stocks have had a difficult summer. As investing in Chinese tech stocks is still seen as…
risky, many investors prefer to look towards other emerging markets. However, some investors view this as an opportunity. Cathie Wood, the founder of Ark Invest and one of the world’s most popular investment managers, is slowly adding to her positions in a few Chinese tech stocks.
JD.com Inc is a holding company that engages in e-commerce business. Its operations consist of online retail, marketplace, and marketing services in China. JD also offers electronics products, home appliances, and other general merchandise. The company has its own online platform, on which third-party merchants offer products and provides marketing and display advertising services to these merchants, suppliers, and other business partners on its website channels.
Since the beginning of the year, JD shares declined 8.69%, underperforming ProShares Online Retail ETF (ONLN) that decreased only 4.15% year-to-date.
Over the past years, JD has posted rapid growth. This e-commerce company grew its net sales by more than 20% in the last 3 years and is expected to reach a peak in 2021, up 29.3% year-on-year to 957.5b CNY. On the other side, JD’s bottom-line growth is expected to post a huge decline of 84.5% year-on-year to 7.64b CNY in 2021 but should lift more than two times in 2022 to 14.8b CNY, representing a net margin of only 1.27%.
However, the e-commerce giant has a comfortable balance sheet, with an expected cash balance of 129.8b CNY in 2021, which should lift 15.4% in 2022 to 149.8b CNY. More importantly, the company is aggressively investing to fuel its growth. JD has risen year-on-year CAPEX over the years and yearly CAPEX growth is expected to stabilize around 20% in 2022, reaching a total value of 18.04b CNY.
In spite of China’s crackdown that has reduced the valuation of tech companies, the valuation metrics of JD are still stretched, evolving at a 2022e EV/EBITDA of 24.7x and a 2022e P/E of 54.5x.
Tencent Holdings Limited (TCEHY)
TCEHY is an investment holding company, providing value-added services (VAS) and online advertising services in Mainland China and internationally. Ranging from online gaming, social networking, fintech and cloud solutions, the company provides a wide variety of services. In addition to these services, TCEHY is also involved in the production, investment and distribution of feature films and television programs. Copyright, licensing and merchandise sales are also among activities TCEHY engages in.
TCEHY stock dipped 14.89% year-to-date, underperforming both…
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