Beijing’s policy of encouraging Chinese companies to go global is gathering momentum as the Middle Kingdom’s slowing economy prods many to seek out foreign markets in pursuit of growth.
ChemChina’s blockbuster $43 billion acquisition of Swiss agricultural chemicals giantSyngenta is the flag-bearer of the growing global ambitions of Chinese companies keen to expand their markets, acquire cutting edge technologies and burnish their bona fides as players on a global stage. Going global makes sense: China’s economy is expanding at half the pace it enjoyed during the halcyon days of double digit growth, the currency is weakening and the world’s most populous nation is getting older.
Investors should follow that cue and keep a close eye on those companies taking the bold leap beyond China’s shores to take on some of West’s biggest companies that have long dominated many industries. Alan Wang, investment director at Hong Kong-based fund manager Value Partners, is one stock picker watching those stocks looking globally for growth. “Investors are worried about China’s slowdown. If you buy a company with a pure China demand focus, they won’t do well if the Chinese economy continues to deteriorate.” Wang sees opportunities in sectors like high-end manufacturing, or Chinese firms that have big, “tier one” customers like Ford, Apple andNike.
Barron’s Asia has run the rule over Chinese companies eyeing fame and fortune away from their home turf. We’ve identified four stocks that look attractive based on earnings prospects, yield and valuations.
Auto-glass maker Fuyao Glass (3606.HK) has smashed at least one record this year. In October the Fuzhou-based company opened the world’s largest glass manufacturing in the U.S. state of Ohio. Founded 30 years ago, Fuyao is now the world’s second-biggest maker of glass for cars. About a third of its revenue comes from the U.S.
There’s plenty to like about the stock. Fuyao’s operations in the U.S. are expected to become profitable this year, while the business is also looking to get a foothold in emerging markets like Russia. Fuyao dominates the Chinese market with a market share of about 70%. Fuyao should also appeal to income hungry investors as it yields around 4%.
While Fuyao Glass’s prospects look solid, the stock’s 25% rally this year arguably means a lot of the good news is now priced in. At 15 times forward earnings it’s trading on the high side of its historical average. Still, any pull-back in the shares could be a good time to load up.
Advanced steering systems maker Nexteer Automotive (1316. HK) has a curious background. Founded as a unit of General Motors, the company was bought out by a Chinese state-owned enterprise in 2010 and listed on the Hong Kong stock exchange a couple of years later. Today it generates its revenue from across the U.S., China and Europe. Its major customers include Toyota, Ford and Chrysler.
The stock had been stuck in first gear for much of 2016, but better than expected earnings in August helped drive the stock roughly 30% higher in a single trading day. Despite the huge re-rating, Nexteer’s shares could accelerate further, with some brokers seeing around 25% upside in the stock. That’s partly down to the company’s huge order backlog of about $25 billion, which gives Nexteer great earnings visibility. The firm’s also increasingly shifting customers to newer electric steering products, which yield higher margins. Nexteer’s also hoping to break into emerging markets including India and Mexico.
Earnings per share for full-year 2016 should grow by almost 40% and by 15% the following year, according to broker estimates. At 11 times forward earnings Nexteer is cheaper than other automotive stocks, like Minth Group (425.HK), which trades at 14 times.
Investors in appliance-maker Haier Electronics (1169.HK) shares probably feel like they’ve been hung out to dry, with the stock down 20% in 2016. Parent companyQingdao Haier (600690.CN), listed in China’s onshore stock market, has fared a bit better, as the stock has climbed 2% this year.
Shares in both listings could rise at least 20% as the Qingdao-based white goods giant increasingly morphs into a global operation. Over the last few years revenues sourced from outside of China have more than doubled to account for over 20% of Haier’s total sales. The international effort is about to get a major push from the company’s recent acquisition of General Electric ’s appliances business, which also gives it a foothold in a new areas like kitchenware. In the month immediately after the GE business was consolidated into Haier, it contributed CNY3.5 billion to Haier’s top line. Analysts think the earnings per share should rise by about 17% in both financial year 2016 and 2017.
Qingdao Haier’s shares don’t look expensive based on recent valuation. The stock’s trading at a touch under 11 times next 12 months’ earnings, which is similar to international peers like Whirlpool and Electrolux.
Lingerie maker Regina Miracle (2199.HK) is trading near its lows for the year, but brokers think the stock could rebound by 50% or more. The Shenzhen-based firm makes underwear and apparel for big international brands like Victoria’s Secret and Under Armor, and recently signed on Nike.
The company differentiates itself from other apparel makers through its use of state-of-the-art technology in its factories. However, Regina Miracle faces earnings pressure at least in the short-term. The company’s stock is down 30% this year as the company struggled to win new orders from big clients like Victoria’s Secret and Under Armour. Analysts reckon the pain may only be temporary, though. Core Pacific Yamaichi thinks orders may pick up again in the second half of the firm’s financial year as inventory levels at lingerie and sportswear customers ease and these brands ramp up international expansion. Regina Miracle is also moving some production to Vietnam, where lower labor costs could boost margins and make the business more competitive against its rivals. At 17 times forward earnings the stock is significantly cheaper than its average valuation since its listing last year.