With the all uncertainty surrounding a China slowdown, I still look at China as a long-term play. In my opinion the best way to invest in China is with good quality companies paying dividends. It gives you an income and at the same time offers upside potential as China grows.
China's yuan recently saw the biggest weekly jump in six months, when its central bank signaled plans to widen a trading band that's been limiting appreciation since October. China's economy had slowed in the first three months of the year, but could rebound in 2Q and 3Q according to Zhu Baoliang, head of the State Information Center's economic forecast department.
PetroChina Co., Ltd (NYSE:PTR) - Dividend Yield: 3.50%
PetroChina is China's largest oil company and Asia's most profitable company. It is involved in exploration and production, refining and chemicals, marketing, natural gas and pipelines. The state-run China National Petroleum owns 87% of the shares in the company. PetroChina controls 458 million acres of oil and gas with proven reserves of over 11 billion barrels of crude oil and over 66 billion cubic feet of gas.
The company saw weakness through last year thanks to lower than expected results and weakness for refined products amid a high degree of price competition. However, the long-term upstream growth targets driven by overseas are a positive, according to S&P, as is its dominant position in China's natural gas supply. PetroChina is one of two Chinese integrated oil companies, while also expanding its resource base to Canada, and Australia of late.
PetroChina has a current market cap of over $225 billion. The stock trades at a forward P/E of 9.33 and has a PEG ratio of 1.04. Operating margins are 8% and the return on equity is 11.54%. On the balance sheet there's $7.38 billion in cash to $70.97 billion in debt. Book value per share is $92.70. The stock is down over 14% in the past year. The company pays an annual dividend of $4.29 per share for a yield of 3.50%. The dividend payout ratio is 44%.
Of the analysts that follow the stock, one has it rated as a Strong Buy and two a Hold. Price targets on the stock range from $141.83 to $174 with $146 being the median target.
Nam Tai Electronics, Inc. (NTE) - Dividend Yield: 5.10%
Nam Tai Electronics is a Chinese electronics manufacturer. Nam Tai has done well with liquid crystal display [LCD] modules for smartphones. Nam Tai is a key supplier for Apple and Apple products. Nam Tai has a current market cap of just over $540 million, meaning it's less covered than some of the other large-cap stocks listed, which isn't a bad thing considering many under covered stocks present misplaced opportunities. The stock trades at a forward P/E of 8.74 and a PEG ratio of 0.85. Its balance sheet is also impressive, with $207.66 million in cash to only $8.38 million in debt. Book value per share is $8.10.
Nam Tai hit a major milestone last year, achieving record sales of over $1 billion. One of the big tailwinds for Nam and other electronic manufacturers is the pent-up demand from supply constraints related to the earthquake in Japan and the Thailand flooding.
The stock is already up over 108% in the past year and pays an annual dividend of 60 cents per share for a dividend payout ratio of only 24%, which is impressive on a 5.1% dividend yield.
CNOOC Ltd. (NYSE:CEO) - Dividend Yield: 4.20%
CNOOC is also known as the China National Offshore Oil Company. It is the third-largest oil company in China. The primary focus for the company is the exploration and development of oil and natural gas off the China coast. In 2012 CNOOC agreed to purchase Nexen Inc. in Canada for $15.1 billion. CNOOC was the first company in China to open a LNG import facility.
In mid-2012 the company announced a deal to acquire Canadian exploration and production company Nexen for $15.1 billion, which is a big positive. The deal was recently completed and gives CNOOC access to greater technology and a boost to reserves and production. The pro forma on the Nexen deal shows production growth of at least 14% in 2013, which is an increase of the 1% to 3% growth the company managed in 2011 to 2012.
CNOOC has a current market cap of just over $85 billion. The stock trades at a forward P/E of 6.99. Operating margins are 34.65% and return on equity is 22.25%. On the balance sheet there's $21.32 billion in cash to only $9.23 billion in debt. Book value per share is $110.70, and the company pays an annual dividend of $7.42 per share for a yield of 4.20%. The dividend payout ratio is only 22%. Of the analysts that follow the stock, two have it rated as a Strong Buy and one a Buy. Price targets on the stock range from $228 to $279.
Hedge fund interest in Chinese companies is not always that robust, which also happens to be the case here, where there were only 10 hedge funds long the stock going into 2013. However, billionaire Ken Fisher's Fisher Asset Management had the largest position the company, worth close to $418.8 million, comprising 1.2% of its total 13F portfolio. Sitting in the second spot was Cliff Asness of AQR Capital and other hedge funds with similar optimism include Arrowstreet Capital and Gotham Asset Management.
China Petroleum & Chemical Corp. (NYSE:SNP) - Dividend Yield: 2.60%
China Petroleum & Chemical Corp. is better known as Sinopec. Sinopec's businesses in China include oil and gas exploration, refining, production of petrochemicals and other chemical products, and pipelines. Sinopec is the largest refiner in Asia. The company has been aggressively buying oil and gas properties in Africa.
Sinopec has a current market cap of just over $93 billion, trading at a mere 7.2 times forward earnings. The balance sheet, however, could use some work, with only $1.73 billion in cash and $44.35 billion in debt. Book value per share is $93.90. But the company's $2.80 per share dividend (2.6% dividend yield) is only a 37% payout of earnings. Of the three analysts that follow the stock, one has it as a Buy and two a Hold. Price targets on the stock range from $122 to $139.
China Petroleum has some of the lowest hedge fund interest of the major stocks, with only eight hedge funds long the stock at the end of 2012, but this does include a few top names, namely AQR Capital and billionaires Jim Simons and Ken Griffin.
China Mobile Limited (NYSE:CHL) - Dividend Yield: 3.90%
China Mobile is the world's largest mobile phone carrier with over 700 million subscribers. China Mobile dominants the Chinese market with a 70% share. China Mobile just reported earnings this week that were essentially flat from last year. China Mobile did, however, report that 1Q 3G wireless net adds doubled from Q4 to 26 million, but net profit was flat with the
China Mobile has a current market cap of just over $213 billion, and a relatively low P/E at 10.49. Operating margins are 27.36% and return on equity is 18.81%. On the balance sheet there's a whopping $64.26 billion in cash to only $4.58 billion in debt.
Over the past year the stock is down almost 3%. The company pays an annual dividend of $2.06 per share for a yield of 3.90%. The dividend payout ratio is 39%. Of the analysts that follow the stock, one has it rated as a Buy, two a Hold, and one an Underperform. Price targets range from a low of $47.74 to a high of $67.
China Mobile had some of the best hedge fund interest, with 14 hedge funds long the stock going into 2013. This company, again (like with CNOOC), has billionaire Ken Fisher as its top hedge fund owner, but also calls fellow billionaire Ken Griffin's Citadel Investment Group a shareholder.
I believe all five offer a great play on the China story. All five stocks pay healthy dividends and have strong balance sheets. These are five blue-chip Chinese stocks worth looking into.