China has been an up-and-coming superpower in the last decade.
The country has modernised rapidly since the 1990s when it was known as a developing nation.
The Middle Kingdom is also paving the way for cutting-edge technologies in biotechnology and pharmaceuticals.
For investors, the best way to participate in this growth is to invest in Hong-Kong listed Chinese companies (known as “H-shares”).
China has imposed restrictions on companies listed on the Shanghai and Shenzhen stock exchange (known as “A-shares”, with only local Chinese allowed to trade in the shares of these companies.
H-shares are open to local and international investors who want to enjoy a slice of China’s rapid growth.
China has also done well with regards to the COVID-19 pandemic, being one of the first countries to resume normalcy even while adopting heightened monitoring measures for imported cases.
Here are three Hong Kong stocks that you can consider for your watchlist.
Techtronic Industries (SEHK: 0669)
Techtronic Industries is a company that designs and manufactures power tools, outdoor equipment and floor care products.
The business is split into two major segments — power equipment, and floor care and appliances.
Power equipment is by far the more dominant segment, taking up 89% of the company’s revenue and almost all of its segment profit for the half-year ended 30 June 2020.
The division carries popular brands such as Milwaukee, Ryobi and Empire, and sells its products to the US and across the world.
Despite the crisis, Techtronic has continued to post impressive growth.
For the half-year, revenue rose 12.8% year on year to US$4.2 billion.
Operating profit increased by 15.6% year on year while net profit jumped 16.3% year on year to US$332 million.
Given the strong results, management has upped the company’s interim dividend by almost 18% year on year to US$0.0682 from US$0.0579 a year ago.
Gross margin has continued its upward climb to 38% for the period, clocking its 12th consecutive half-year increase, and is a testament to the brand’s pricing power.
Techtronic is known for its cutting-edge technology and continually introduces exciting new products that keep customers coming back.
It recently launched its MX FUEL Equipment system, ushering in a new series of cordless products and allowing the company to tap on the multi-billion dollar light equipment segment.
Tencent Holdings (SEHK: 0700)
Tencent is a technology company that offers a broad range of services such as communication and social platforms (under Weixin and QQ), financial technology B2B services, online games and cloud services.
The company has grown by leaps and bounds and is now one of China’s largest internet companies.
Its share price has risen more than five-fold in the last five years, ending at HK$741 recently, close to an all-time high.
For its third-quarter earnings ended 30 September 2020, revenue rose 29% year on year to RMB 125.4 billion.
Operating profit soared by 70% year on year to RMB 44 billion, while profit attributable to shareholders increased by 89% year on year to RMB 38.5 billion.
Online games revenue grew by an impressive 45% year on year due to growth in the company’s smartphone games such as Honour of Kings.
The monthly average users on Weixin and Wechat inched up 5.4% year on year to 1.2 billion users.
Tencent’s market leadership should see it continue to capture the lion’s share of users in China and its growth looks set to continue.
Shenzhou International (SEHK: 2313)
Shenzhou is the largest vertically-integrated knitwear manufacturer in China.
The group is also the largest exporter of apparel and is the original equipment manufacturer (OEM) for renowned sportswear companies such as Nike (NYSE: NKE) and Adidas (ETR: ADS).
For the half-year ended 30 June 2020, Shenzhou reported flat revenue of RMB 10.2 billion.
Net profit attributable to shareholders inched up 4% year on year to RMB 2.5 billion.
Management declared an interim dividend of HK$0.90 per share, no change from the interim dividend declared the year before.
Investors should note that the company’s result was impacted by store closures of its customers due to the pandemic.
Supply chains were also disrupted due to lockdowns during the first-half of 2020.
With the situation improving for the second half of 2020, Shenzhou should report a better set of earnings.
Its customers such as Nike have also reported a rebound in sales and net profit, signalling that the OEM apparel manufacturer could see better days ahead.
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Disclaimer: Royston Yang owns shares in Nike.
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