China’s economy continues to struggle with several macro-economic events, and the impacts remain visible in the stock market performance. The country’s planning body found the 2nd batch of public investment projects, which includes flood control and disaster relief programmes, under bond issuance and investment plan which was announced in the month of October to support its economy. In its latest tranche, China has now kept aside over 800 billion yuan of the 1 trillion yuan ($140 billion) in terms of additional government bond issuance in 4Q, as China focuses on fiscal steps to support the deteriorating economy. Therefore, its very important to invest in some of the top Chinese companies with strong fundamentals only which can weather the impacts of slowdown.
National Development and Reform Commission (NDRC) mentioned that it identified ~more than 9,000 projects having planned investments of over ~560 billion yuan. Chinese economy, which has been categorised as world’s second largest, continues to struggle to regain footing after COVID-19 pandemic. This is because policymakers have been grappling with subdued demand from consumers, slowdown in exports, decline in foreign investment and deepening of real estate crisis. Around 1 trillion yuan through additional bond issuance should widen the country’s 2023 budget deficit ratio to ~3.8% from the current 3%. Amidst this chaos, there are some top Chinese companies with strong fundamentals which investors should buy for long-term growth.
When the country eased tough Covid-19 restrictions in the end of 2022, there was significant optimism regarding the revival of Chinese economy. However, the Chinese economy’s growth prospects have been worsening over past few months as long-ailing property sector has been faced with several headwinds.
With this in mind, let us now have a look at top Chinese companies with strong fundamentals to buy now.
1. Industrial and Commercial Bank of China Limited
It was established on 1st January 1984 and, on 28 October 2005, it was wholly restructured to the joint-stock limited company. Later on, it got successfully listed on both Shanghai Stock Exchange and The Stock Exchange of Hong Kong Limited.
For the first 9 months of 2023, its net profit came in at RMB269,929 million, which exhibits an increase of ~0.81% in comparison to same period of the previous year. Its annualised return on average total assets and annualised return on weighted average equity came in at 0.86% and 10.56%, exhibiting a fall of 0.10 and 0.76 percentage points, respectively.
Operating income of the bank came at RMB623,520 million, which represents a fall of 4.45% in comparison to same period of the previous year. NII came at RMB501,526 million, representing 4.72% decline.
Because of multiple reductions in LPR, a constant decline in loan yield, and higher average deposit interest rate as a result of increased proportion of time deposits, annualised net interest spread and NIM, in 1H23, were 1.52% and 1.72%, exhibiting a decline of ~33 basis points and ~31 basis points in comparison to 1H22.
In 1H23, its interest income on investment came in at RMB165,748 million, exhibiting a rise of RMB24,942 million or 17.7% against same period of previous year. This was mainly because of increase of 15.0% in average balance of investment.
The Bank significantly supported the implementation of national development strategies, increased its efforts in supporting real economy and gave solid financial support for local economic development and expansion of quality enterprises.
2. BYD Company Limited
It is the high-tech company devoted to the technological innovations. It has established more than ~30 industrial parks globally and it has played strong role in industries such as electronics, automobiles, new energy and rail transit.
In 3Q23, new energy vehicle industry saw strong growth momentum and its new energy vehicle sales volume touched record highs. Despite tough competition in automobile industry in 3Q, it’s profits were supported by leveraging on strong brand influence, expansion of scale advantage and solid industrial chain-wide cost control capability, exhibiting strong resilience.
In 1H23, the company’s revenue saw an increase of ~72.72% in comparison to 1H22, mainly because of rapid growth in new energy vehicle business. Profit attributable to owners went up by ~204.68% in comparison to similar period of past year, mainly because of increase in sales volume of new energy vehicles. Its gross profit for 1H23 saw an increase of ~134.36% to ~RMB47,673 million. Gross profit margin grew from ~13.51% for 1H22 to ~18.33% for the period. Higher gross profit margin was mainly because of increase in new energy vehicle business.
During 1H23, the company saw operating cash inflow of ~RMB81,971 million in comparison to operating cash inflow of ~RMB43,185 million in 1H of the previous year.
3. Agricultural Bank of China Limited
As the major integrated financial service providers in China, it is focused on building the multi-functional and integrated modern financial service group.
For 9 months ended 30th September 2023, it saw net profit of RMB207,789 million, exhibiting a rise of 5.22% in comparison to same period of prior year. Annualized return on average total assets came at 0.76%, representing a fall of 0.08% in comparison to same period of prior year. Annualized return on weighted average net assets came in at 11.39%, exhibiting a fall of 0.40% in comparison to same period of prior year.
For the 9M ended 30 September 2023, it saw operating income of RMB533,648 million, representing a fall of ~0.63% as compared to similar period of prior year. As at 30th September 2023, its total assets came RMB38,698,016 million, representing a rise of RMB4,772,528 million or 14.07% in comparison to end of prior year.
Conclusion
The CPI saw a fall of ~0.2% year-on-year in the month of October, as per the data from National Bureau of Statistics in comparison to 0.1% decline forecast by the analysts. The CPI remained unchanged in the month of September. China unveiled colossal ~$140 billion economic stimulus package, focused on rejuvenating some of the key sectors of overall Chinese economy.
Funds are anticipated to be allocated in infrastructure projects and help small and medium-sized enterprises (SMEs). Therefore, once the economy revives, above-listed top Chinese companies with strong fundamentals are expected to benefit the most.
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