US-listed Chinese stocks give investors an ideal opportunity to benefit from high economic growth in China. From power to the education sector, below are our top picks of Chinese stocks for profits in 2013. Please use this as a starting point for your own due diligence.
Advanced Battery Technologies (ABAT.PK): After falling 89%, Advanced Battery stock is trading at a trailing price-to-earnings ratio of 0.81x. Advanced Battery is in the business of developing and manufacturing rechargeable polymer lithium-ion (PLI) battery cells, which are used mainly in electric vehicles and consumer electronics. With the high international prices of oil, demand for electric vehicles is expected to be on the uptrend for the next few years. The company has a strong balance sheet with cash of more than $74 million and a current ratio of 13.7x. This will allow it to pursue strategic expansions including the recently opened production facility in Dongguan City, China. This production facility will manufacture small capacity batteries used in electronics. With an over 20% return on equity over the past five years and a book value per share of $3.11, the company has shown an impressive performance and is currently priced quite cheap. Its competitor China Battery (CBAK), while larger in size, continues to make losses on the operating level compared with Advanced Battery’s operating margins of 37%.
A-Power Energy Generation Systems (APWR): Due to declining profitability, the stock price of A-Power saw a 95% decline in the last year, resulting in the stock currently trading at a trailing price-to-earnings ratio of just 0.8x. A-Power Energy distributes power generation systems to industrial companies mainly in the steel, chemicals, cement and food industries. The low stock price has also resulted in a negative enterprise value of the company, despite healthy cash balances. With a debt-to-equity ratio of less than 20%, the company is quite shielded from any negative events and is expected to see a turnaround in 2012. Similar companies like Pike Electric (PIKE) and TEC Technology (HGHN) continue to trade a high earnings multiples of 37x and 10x. With stable demand for its products, A-Power should see a significant increase in stock prices.
Baidu (BIDU): Baidu is the company operating the fast growing search engine, baidu.com. With the increasing number of internet users in China, and more companies shifting toward online advertising, Baidu is well positioned to benefit. The company is trading at a forward price-to-earnings ratio of 26x. The company’s performance has been surpassing expectations historically and earnings may be revised upward. Baidu has also introduced a mobile operating system and a browser, and success of both these products is further expected to drive Baidu’s performance next year. It is also expanding its operations into new markets like Japan. While companies like Sohu.com (SOHU) trade at lower multiples, Baidu’s popularity with internet users and its new product launches is expected to drive its service revenue and financial performance. The company remains a better bet than more speculative plays like Renren (RENN).
ChinaCast Education Corporation (CAST): After recovering from a low of $2.27 in October, ChinaCast’s stock price is now down only 20% this year. The company is trading at a forward price-to-earnings ratio of 8.5x. ChinaCast offers post-secondary education services in China along with e-learning. ChinaCast has one of the highest revenue-per-employee ratios and with operating margins of 30%, the company is one of the most cost-efficient companies in the sector. It is operating more competently than China Distance Education Holdings (DL) and ChinaEdu Corporation, which have operating margins that are 1.3% and 13% respectively. Revenues were up 31% quarter on quarter. In 2010, the company acquired Wintown Enterprises and has also set up a subsidiary ChinaCast Education Holdings.
China Battery (CBAK): China Battery produces lithium-based battery cells used in rechargeable batteries for cellphones, laptops, digital cameras, gaming devices and Bluetooth headsets, etc. With an increasing number of users, demand for rechargeable batteries is expected to increase in the coming years. The company reported a loss in 2011, for the year ended September 30, with profit margin of -11%. The company has high levels of debt, with a debt-to-equity ratio of 170%. Its competitor Ultralife Corp (ULBI) showed a huge decline of 30% in its quarterly revenue. With a positive enterprise value of $245 million and 11% growth in revenue quarter-on-quarter, financial performance for CBAK is expected to improve.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.