Top Chinese Stocks to Own for Next 10 Years
As you can see from the Hang Seng Index (HSI) Chart below, HSI has been facing continuous sell off since the start of Year 2021. Heavy weight tech stocks such as Alibaba, Tencent, Meituan, Ping An and etc are all on massive discounts from 50% to 60% from the early 2021 Peak due to the China Government’s regulatory crackdown. Recently, Didi has also announced that it will be working on delisting from the US Stock Market, moving to listing at the Hong Kong Stock Market. Coupled with the weak sentiment and earning misses, many investors are very worried about the China’s regulatory risk and delisting of the China Stocks in the US Stock Market.
Whether the risks are already factored in the current stock price, I will leave it to you as an investor to do the relevant research into the stocks. If you are a long term investor, I will be sharing a few Chinese Stocks that may interest you if you like their Potential Growth in the next 5 to 10 years. If you are interested in them, take some time to do some homework before you start investing in them.
Tencent
Highlights:
- International Games: Despite regulatory crackdown on the domestic market, we can see that the company is allocating more effort to grow its international gaming market. I am very satisfied with the 19.6% YoY growth on the IG revenue as it helps the company to be more diversified in the long term future and I believe that there is a larger total addressable market (TAM) for the International Games category. In the long run, I expect that higher growth momentum is able to help Tencent to grow its International Games revenue segment to a similar revenue size as the Social Networks or the Domestic Games revenue segment.
2. Fintech and Business Services: Very strong 30.3% YoY growth on this revenue segment. Fintech Services demonstrates increased Online & Offline commercial payment volume which is mainly contributed by increased commercial daily active users and per user transactions. Business Services which is the cloud solution (CRM SaaS solution and PaaS solution) is showing healthy growth due to the increased digitalisation of traditional industries and videolisation of Internet industry. For example, Tencent’s PaaS solution TDSQL database has been adopted by 3,000+ clients from finance, public services and telecom verticals, etc. In addition to that, Tencent Cloud is also one of the top 4 cloud solution provider in China.
Alibaba
Highlights:
- International Commerce (IC): As we are aware, the competition on the domestic China ecommerce segment is getting more intense with the entry of big players like JD and Pinduoduo. With a robust 34% YoY growth on the IC segment, this sounds like a good news as I believe the company is trying to allocate more resources to focus on the the IC segment and this segment is still relatively small when compared to the China Commerce segment. Nevertheless, there are also other competitors such as Amazon and Sea Limited when we are looking at the international space. In short, let’s wait for the next few quarters to see if BABA is able to execute well on this segment.
- Cloud Computing: It is always exciting to look at this segment as the China public cloud market is forecast to expand at a 33% average annual growth rate from 2020 to 2025, reaching 562 billion yuan ($87 billion) by 2025, according to IDC. This forecast is also in line with the 33% YoY growth for Alibaba’s Cloud Computing segment, and Alibaba Cloud is also capturing 38% of the China Cloud Market Share according to China Internet Watch. It is still relatively small revenue contribution but I look forward to the consistent growth on this segment as I believe it will be one of the bigger revenue generator for Alibaba in the near future.
XPeng
Highlights
- Car Deliveries: When we look at the Electric Vehicle industry, car delivery is definitely one of the most important metric to look into it. XPeng has been consistently delivering triple digits growth in total car deliveries from 8,578 car deliveries in Q3 2020 to 25,666 car deliveries in Q3 2021. By Q3 2021, XPeng has expanded its physical sales network to a total of 271 stores (covering 95 cities) and built 439 XPeng-branded super charging stations (covering 121 cities). In October 2021, total Smart EV deliveries of XPeng reached 10,138, representing a 233% increase YoY.
- Vehicle Margin: Another important metric is the vehicle margin, XPeng has improved its vehicle margin from 3.2% in Q3 2020 to 13.6% in Q3 2021, that’s a lot of improvement on a YoY basis. From economies of scale perspective, I believe the gross margin is able to slowly improve as the company is able to deliver more smart EVs in the future. XPeng’s average sales price per vehicle is still the lowest when compared to other peers such as Tesla, Nio and Li Auto, showing that there is still a lot more rooms to imagine for XPeng’s vehicle margin.
SMIC
Highlights
- Technology Breakthrough: The China government has set a target of becoming 70% self-sufficient in semiconductor production within a decade. Trade tensions and restrictions on access to key US technology during 2020 redoubled China’s desire to reduce its dependence on imported semiconductors. As SMIC is partly backed by China’s state-affiliated chip fund, the government has poured billions from the fund into helping SMIC to catch up with global rivals in the Japan, Korea and the United States. Although SMIC is still unable to catch up with TSMC (the market leader), we can see that SMIC slowly shifting its manufacturing towards the more advanced technology like FinFET/28nm in Q3 2021. If China wants to succeed in a category, it will just be a matter of time for SMIC to catch up in terms of technology with the huge talent population in China.
2. Strong and Consistent Growth: As we all know, demand is definitely more than supply for the entire chip industry and SMIC’s utilization rate has also reached maximum for the last few quarters as shown below. SMIC has also announced to invest $8.87 billion to build a chip plant in Shanghai to expand its capacity as the shortage rattled the automotive and electronics industries. In addition to that, we can see that the latest revenue has shown a 30.7% YoY growth as well as the Gross Margin has increased from 24.2% to 33.1% in Q3 2021. In short, SMIC definitely has a lot to catch up with TSMC but it also means that there is also a lot of room of improvement for SMIC to show when they are able to show breakthrough in terms of technology.
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