According to China International Capital Corporation (CICC), a large state owned investment firm, they have identified 9 HK listed shares who are potentially over corrected.
These stocks mainly fall under a few sectors such as finance and real estate which have seen huge volatility as well as consumer discretionary and tech which are impacted by the weak broader economy.
Here we analyze them and consider if they are worth looking at.
| Name | Ticker (HK) | YTD share price performance | Sector |
| Huatai Securities | 6886 | 15.0% | Finance |
| HKEX | 0388 | -14.7% | Finance |
| China Res Land | 1109 | -14.8% | Real Estate |
| Longfor Group | 0960 | -41.7% | Real Estate |
| Onewo Inc | 2602 | -55% | Real Estate |
| Chow Tai Fook | 1929 | -28.3% | Consumer Discretionary |
| Pop Mart | 9992 | 6.9% | Consumer Discretionary |
| Jiumaojiu | 9922 | -49.8% | Consumer Discretionary |
| Alibaba | 9988 | -5.7% | Technology |
Sector: Finance
Both companies in this sector depend on stock market trading volume as well as new IPO and bond listings.
The Chinese and Hong Kong stock markets have gone through severe volatility with trading volumes plunging and new listings decreasing. FY22 revenues and net profits have all declined from FY21 levels.
1) Huatai Securities (6886: HK)
Huatai’s share price is up YTD, but it is still off its YTD high.
This is because Huatai saw its 1H23 revenue and profits recover by more than 10% YoY.
Its institutional services, investment management and international management businesses all saw recoveries of more than 40% while its core wealth management business saw 13% decline in revenue.
2) HKEX (0388: HK)
Similarly, HKEX also saw recovery in 1H23 off a low base in FY22. Revenue for 1H23 increased by 18% and net profit increased by 31%. Excluding investment income of its corporate funds, revenue increased by 5%.
This was mainly due to an increase in volume of the northbound and southbound trading for both stocks and bonds which offset the weaker volume of equity products traded.
With government policies being put in place to drive volume and support the stock market, both stocks are probably worth looking at.
Sector: Real Estate
China’s real estate market has been in a severe downturn which is why all three companies are down substantially. While they may be over-corrected from a technical perspective, there are also no signs yet of a turnaround. Government policies have been supportive but measured and come across and seemingly inadequate due to their pace.
3) China Res Land (1109: HK)
Of the 3 companies in the Real Estate sector, China Res Land is probably the strongest as it is down only 3% on a 12M basis and is even up on a 5 year basis.
1H23 revenue was flat from 1H22 which was also flat from 2021, attesting to the strong consistent performance of the business.
The company also has an extremely strong balance sheet with a debt/equity ratio of just over 0.8 times and mostly non current borrowings.
4) Longfor Group (0960: HK)
Longfor is a large property conglomerate which has property development, investment, management as well as peripherals such as intelligent living solutions.
Longfor reported a slightly higher 1H23 as earnings were boosted by strong property management and services income.
The company said it will not rely only on debt-driven business expansion but instead strive for generating positive operating cash flow from its multiple business.
5) Onewo Inc (2602: HK)
Onewo, which is a subsidiary of Vanke, provides property management services in China. It operates through three segments: Community Space Living Consumption Services; Commercial and Urban Space Integrated Services; and AIoT and BPaaS Solution Services.
Despite its weak share price performance, the financial performance is on an upward trend with strong revenue growth in FY22 and 1H23. Profits also remained stable.
The main reason why share price have fallen so much is because of the concern of the future pipeline of new projects for property management as well as worries about its parent company.
As there is no clear sign that the bottom is in yet, Investors who are looking to pick the bottom would find it best to go for China Res Land, the strongest player of the lot.
Sector: Consumer discretionary
A blanket statement can be made that Consumer discretionary stocks across all industries as a whole have not been doing well. Those that are still doing well in these times clearly have a stronger brand as compared to its competitors.
6) Chow Tai Fook (1929: HK)
Chow Tai Fook saw FY23 revenues decline by 4% and profits by 20% as demand for luxury goods shrank.
To reward its shareholders, it provided for a special dividend for the first time since FY19 that was 40% higher than its ordinary dividend.
The company is hopeful for a rebound in sales with resumption of travel and pent up consumption.
7) Pop Mart (9992: HK)
Pop Mart clearly has a strong brand as 1H23 revenues increased 19% while profits increased 43% as many of its existing product tie ups continue to perform well. Each of its new launches has also done well.
To capture on its popularity, the company is expanding offline into countries such as France and Malaysia and is also aggressively utilizing online sales channels and have seen revenue on Douyin increase by nearly six-folds, albeit from a low base.
8) Jiumaojiu (9922: HK)
Jiumaojiu saw 1H23 revenues increase by 52% and profits nearly quadrupling YoY as dining in house returned. Table turnover also improved across its key three brands, namely Tai Er, Song Hot Pot and its namesake Jiu Mao Jiu.
Consequently, same store sales also improved for all three brands. Unfortunately, average spending per customer declined slightly for Taier and Song Hot pot while Jiu Mao Jiu recorded an insignificant increase. This is attributable to the broader situation of the current consumer mindset.
Jiumaojiu now has 621 restaurants across its brands after taking the opportunity to open 67 new restaurants in 1H23 after opening 79 in 2H22. With this, now it has to continue delivering profits in its new restaurants to sustain its growth.
Sector: Technology
9) Alibaba (9988: HK)
Alibaba is the barometer of the health of the Chinese tech industry. The company has recently restructured its business into 6 segments with the view of spinning them off individually. Cainiao, its logistics division will be the first up for IPO. Upon completion of the spinoff, Alibaba will continue to hold more than 50% of the shares of Cainiao.
The approval of an Alibaba’s unit for an IPO serves as a very strong indicator to the market that the regulatory worries are long over. But the worry ahead is the economy and its effect on consumer spending.
Alibaba has been bouncing when it hits overcorrected territory, but it has not been able to return to its old highs, nevertheless this is a stock worth looking at for its current price.
Closing statements
Clearly these 9 stocks have seen share prices decline substantially, but price alone is not a reason to buy.
We’ve discussed that some of these stocks may be a buy as there might be a catalyst for a turnaround while others could continue falling further in a lackluster business and trading environment.
Some of these stocks are actually up YTD or for the year which means that the perception of overcorrection are from a shorter term perspective. Looking at a longer timeframe all the stocks that made this list are down significantly and require stronger catalysts to return to the good old days.
