China’s three largest stocks are expected to trade below their value in July 2024

Against a backdrop of volatile global markets, China’s economy has proven resilient with strong export numbers in June 2024, suggesting potential underlying strength despite broader concerns about deflationary pressures. This context presents an interesting opportunity for investors to consider Chinese equities that may be trading below their intrinsic value. When assessing what makes a stock particularly attractive in the current environment, factors such as robust export performance and relative market undervaluation are paramount. These elements can present opportunities for sophisticated investors looking to capitalize on discrepancies between market price and underlying economic fundamentals.

The 10 most undervalued stocks in China based on cash flows

Click here to see the full list of 98 stocks from our Undervalued China Stocks Based on Cash Flow screener.

Here we highlight a subset of our favorite stocks from the screener.

Overview: Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd. is an electronic technology company with a market capitalization of approximately 8.27 billion Chinese yen.

Operations: The company’s revenue segments are not described in detail in the text provided.

Estimated discount to fair value: 37.7%

Beijing Yuanliu Hongyuan Electronic Technology trades at CN¥35.86, well below the estimated fair value of CN¥57.58, indicating a potential undervaluation based on discounted cash flows. Despite a recent decline in net income and earnings per share as reported in the first quarter 2024 results, the company’s revenue growth is expected to significantly outperform the Chinese market average at 21.8% annually. However, profit margins have declined year-on-year and the forecast return on equity in three years is relatively low at 10.9%.

Overview: Ganfeng Lithium Group Co., Ltd. is a global company based in mainland China that manufactures lithium products and sells them in Asia, the European Union, North America and other international markets. Its market capitalization is approximately 52.74 billion Chinese yen.

Operations: The company generates revenue from the manufacture and sale of lithium products in various regions, including mainland China, the rest of Asia, the European Union and North America.

Estimated discount to fair value: 41.7%

Ganfeng Lithium Group is trading at CNY28.8, well below its fair value of CNY49.42, suggesting significant undervaluation based on cash flows. Despite a difficult financial period with significant losses and dividend cuts, the company’s earnings are expected to grow 29.6% annually over the next three years, beating the Chinese market’s forecast of 22.1%. However, concerns remain due to recent executive resignations and unimpressive profit margins of 7.4% compared to 42.2% last year.

Overview: Shandong Sinocera Functional Material Co., Ltd. is a company engaged in the research, development, production and sales of functional ceramic materials with a market capitalization of approximately CNY 17.53 billion.

Operations: The company’s revenue segments are not described in detail in the text provided.

Estimated discount to fair value: 31.2%

Shandong Sinocera Functional Material trades at CN¥17.58, well below its calculated fair value of CN¥25.55, suggesting a potential undervaluation based on cash flows. The company’s earnings and revenue are expected to grow 25% and 17.7% per year, respectively, beating broader market expectations. However, return on equity is expected to be a modest 12.9%. Recent activity includes a share buyback worth CN¥10.45 million and consistent dividend payments, reflecting a stable financial strategy amid growth.

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This Simply Wall St article is of a general nature. We comment based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. They are not a recommendation to buy or sell stocks and do not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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