With inflation moderately controlled, the European Central Bank (ECB) made the first rate cut in early June since it began raising them in July 2022. On the other side of the pond, the US Federal Reserve is still trying to further contain inflation. CPI before starting the first reductions, although the organization itself indicates that at least one will occur this year. The main world stock exchanges price this increasingly accommodative scenario with optimism. On Wall Street, the S&P 500 and the Nasdaq 100 continue to rise to their all-time highs. In the Old Continent, the main markets accumulate double-digit revaluations in the year. With this Western perspective, we must not, however, stop looking towards those contexts that may not be so comfortable but where there is a wealth of investment opportunities. With a somewhat bumpy recovery, which continues to give one of lime and another of sand, China offers those somewhat hidden stories but with strong growth prospects.
Thus, in this new review, Eco30 directs its gaze towards the narratives of the Asian continent and grants its trust to Pinduoduo (PDD) and BYD Electronics. These two Chinese companies occupy the places left Volkswagen and Nutrien with their outputs. The maturation of the stock market businesses of these last two companies has been the reason why it has been decided to dispense with them for this selection of 30 international securities that is reviewed semiannually. In their place and as a founding principle of Eco30, to replace them, growth stories purchased at attractive prices and with strong fundamentals have been sought. That is why the selective welcomes these two Chinese companies that reinforce the position of the orange index in electronic commerce and the development of electronic components, especially focused on the electric car.
Perhaps the name of Pinduoduo is somewhat more unknown to the reader, but its star business is more than famous. This company is owner of Temu, a platform that, although it arrived in Spain in 2023, has quickly gained popularity. The application works as an e-commerce website that acts as an intermediary between customers and online merchants and where you can find all types of products.
The biggest obstacle for this company is the giants it plays against. In Europe and the United States, Temu competes directly with titans such as Alibaba and Amazon. “PDD can try to accelerate user acquisition in Latin America, Asia and the Middle East (LAAM) to counteract competition from Alibaba and Amazon in the United States and Europe,” they explain from Bloomberg Intelligence. Also from Bloomberg Intelligence they add that “PDD’s revenue could increase more than 20% annually until 2027 if it continues to gain market share e-commerce through its Temu app outside of mainland China. “The company may also launch new services, such as innovative methods of distribution and sales of consumer goods, fresh produce, to drive spending by local users on its platform.”
Thanks to the growth of this application, the analyst consensus collected by FactSet expects that in this year alone, Its net profit grew by 91% compared to 2023 and, on this, it will triple until 2026. For this year’s profits, a PER (times that the profit is included in the share price) of 12.7 times is paid, which, based on current prices, drops from 10 times for 2025 and 2026. This year’s multiplier is already more attractive than the 40 times at which Amazon is listed and will be aligned in the coming years to the multiplier offered by Alibaba (8.9 times in 2024 and 8.2 times in 2025) . Additionally, the company owns a strong cash position that experts estimate will be close to €85 billion in 2026, which represents 45% of its market capitalization. “We have estimated that Temu could have already reached break-even in the first quarter, two years ahead of our forecast, driven above all by gross margins much higher than expected, the result of lower logistics costs,” explains Barclays.
But not only through profits, the story of Pinduoduo and Temu is a story of growth. At the stock market level, investment in this company also has good projections. Currently, PDD shares have fallen slightly in the year, but the analyst consensus gathered by FactSet sees them an upside potential of 41% for the next twelve months. All in all, Chinese stocks receive the fourth best buy recommendation of the entire Eco30.
Trust in BYD Electronics
This Chinese company is known for its parent company, BYD, the Asian giant’s main company in the production of electric cars that competes directly with Tesla worldwide. But this subsidiary is focused on development of electronic components which can range from the manufacture of mobile devices or computers to the manufacture of intelligent products and systems that the matrix integrates into its electric cars. “BYDE, founded in 2002, is one of the leading manufacturers of phone components and modules such as plastic cases, metal casings and keyboards. It also offers handset assembly services. Its parent company, BYD, retains some of its components and modules. terminals, such as LCD screens and camera modules. Customers include Samsung. [otro de los valores Eco30]Nokia, Huawei, BBK, OPPO, Toshiba, Asus, HTC and HP,” they explain from Cinda International.
At an operational level, the company is still in the process of recovering from the pandemic, although the truth is that experts predict that this year it will be able to reach, at the net profit level, close to the levels recorded in 2019 and will definitely surpass pre-Covid-crash profits next year when they expect their profits to be historic, above 800 million euros. From the profits recorded in 2023 alone, experts expect BYDE to be able to earn 92% more in 2026, approaching the psychological figure of 1 billion euros in net profit.
Huatai Financial Holding believes that “by 2024, we expect BYDE to maintain the pace of revenue growth recorded in 2023 and continue to improve its revenue mix.” They point out that this improvement will come from business that the company maintains with Manzana. The apple company has increased its share of BYDE products and, in addition, the Chinese company acquired Jabil at the end of 2023 (manufactures some of the Airpods components), which marks greater cooperation with Apple. They also point out the intelligent automotive systems segment as another of the divisions that will mark the growth of BYDE: “In view of the mass production of multiple automotive products in 2023 and the increasing application of its automotive products in BYD models, we estimate buoyant revenue growth (+40% year-on-year) for this segment in 2024” .
Based on current prices, 2024 earnings are purchased at a PER of 16 times, which drops to 10 times the estimated earnings for 2026. Although the company does not remunerate its shareholders in the form of a dividend, only through growth of the stock your investment also represents an attractive opportunity. The company also has a cash position, which will represent almost 11% of its capitalization in 2026. For all these reasons, BYD Electronics receives the third best buy recommendation from Eco30.
Eco30 says goodbye to Volkswagen and Nutrien
If there is a sector in which there has been a clear change of chips, it is in the automotive sector. The traditional fight between the United States and China also moves to this industry and this time it is to dominate the electric car market. In this regard, although Volkswagen has not been doing badly, the turn of the tables has caused it to be relegated. Now a de-westernization of the automotive sector is sought and that is why the gaze is directed towards the Asian continent. With its departure, it was also sought to reduce weight in the purest automotive sector. In their place, the positions of Forvia and Stellantis continue to be maintained and they are joined by BYD Electronics, although more for the automotive auxiliary part. For its part, Nutrien also abandons Eco30 with the aim of reduce weight in the agri-food sector (Darling Ingredients continued.) Both companies have been in the portfolio for almost five years. They entered Eco30 in 2019: Volkswagen in the December review and Nutrien in June.
