After Baozun’s Q1 earnings report and Luckin’s recent indiscretions, we look at 3 top Chinese investments.
Luckin Coffee (NASDAQ: LK) has seen its stock price drop 96% from this year’s high to $2.02, as of May 21 due to crafty accounting practices that falsified transactions to the tune of $310 million. And it wasn’t alone; soon to follow were accusations against TAL Education Group (NYSE: TAL) and Baidu-owned (NASDAQ: BIDU) iQiyi for inflating revenues. This sort of behavior makes it seem like Chinese stocks are extremely toxic and for good reason: How can you invest in a company that lies about its financials? However, we feel that these three stocks are safe, solid investments.
China’s biggest travel agency is Trip.com (NASDAQ: TCOM) and it has seen revenue growth exceeding 1,000% since 2010, reaching $5.12 billion in 2019. With China’s tourism expected to fall 21% in 2020, the company has announced that its first-quarter revenue could drop by as much as 50% due to the pandemic and as a result, CEO Jane Sun and chairman James Liang have waived their salaries. According to Sun, Trip.com is expected to resume normal activity by the summer, at least domestically, as other countries still have restrictions.
In March, the company launched it’s ‘COVID-19 International Traveler’s Guide’ to provide real-time information on said restrictions. Trip.com held a survey in which 61% of Chinese travelers said they’d be ready to travel by August, with 77% of those saying they would only travel domestically. Signs are all pointing in that direction as last month, during a three-day holiday weekend, bookings were up 50% and hotel reservations increased 60%; additionally, its April tour-bookings were three times that of March.
2. China Eastern Airlines
China Eastern Airlines (NYSE: CEA) is the second-largest airline in China and has had a 70% growth in revenue since 2010, hitting $18.5 billion in 2019. As a company in the travel sector, it has obviously been hit hard by the pandemic as the industry reported a loss of $2.95 billion and a decrease of 85% in passengers in February. This caused China Eastern to post a net loss of $798 million for the quarter ended in March compared with a $393 million net profit in the same period a year prior.
The company predicts a resumption in 80% of flights by the end of June, with further increases through August. It’s well on its way as the domestic market is seeing a 50% recovery in the country, with over 6,000 daily flights from all airlines as of the beginning of this month. With most vessels grounded world-wide, jet fuel prices have dropped from $428 to $237 per ton and China Eastern can use this to its advantage by lowering ticket prices to boost sales.
Alibaba (NYSE: BABA) is the world’s largest e-commerce company by gross merchandise value (total value of all products sold) and has had spectacular growth in the last decade as demonstrated by its 5,642% increase in revenue since 2010, reaching $56 billion in 2019. The company, dubbed the ‘Amazon (NASDAQ: AMZN) of the East’, commands 55% of China’s e-commerce market share and 47% of its Infrastructure-as-a-Service cloud market, and as such, was not expected to be negatively impacted by the pandemic. However, although it did suffer slowdowns from the manufacturing and delivery of goods, its April growth numbers were back to pre-pandemic levels.
With brick-and-mortars shuttered and people being forced to stay at home for work and education, Alibaba made a considerable profit with $16.14 billion in revenue for the quarter ended March 31, 2020, a 22% year-over-year increase. In the same quarter, cloud computing grew 58% year-over-year, prompting the company to invest $28 billion in cloud infrastructure over the next three years. Additionally, with new users adopting their e-commerce, grocery, and video-conferencing platforms during the pandemic, the company is exposed to additional clientele after things settle down.
The travel companies have demonstrated steady recovery numbers and are solid long-term investments. Alibaba, like Amazon, was not only virtually unaffected by the pandemic, it actually profited. This company is a no brainer as e-commerce is still a huge growth industry and it operates in the largest e-commerce market in the world.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above Read our full disclosure policy here.