The recovery in the Hong Kong stock market has been meteoric, with some stocks doubling from their 52-week lows.
The recovery can be attributed to two reasons: China’s reopening and the easing of regulatory measures.
These moves bode well for China’s economy and provide confidence to investors.
We look at three stocks that have doubled from their recent lows and analyse whether they can continue to rise.
1. Tencent Holdings (SEHK: 700)
Tencent is currently the largest Chinese company by market capitalisation and is best known for its ubiquitous WeChat app.
The company also publishes some of the world’s most popular video games such as Honor of Kings and League of Legends.
Tencent’s share price plunged briefly below HK$200 in October 2022 and rebounded past HK$400 in January 2023.
In November 2022, Tencent was granted its first game licence in a year and a half and subsequently received another six game licences in December 2022.
In China, video games require approval from regulators before being released and the granting of game licences marked the easing of regulatory measures.
With new game licences, Tencent will be able to add to its pool of game offerings and increase its revenue not only from the sale of these games but also from in-game advertising.
WeChat is the most popular app in China and WeChat Pay is one of the most commonly-used payment methods after Alipay.
With the reopening, China’s consumption should gradually recover as individuals spend more and use WeChat Pay to make payments.
China is still in the early stages of reopening as it battles the pandemic.
However, expectations are for better days ahead as China’s economic activity gradually improves.
Tencent will be a big beneficiary of this recovery as consumer sentiment improves and spending increases.
2. Ping An Insurance (SEHK: 2318)
Ping An is China’s largest insurer. It is a conglomerate with banking, online wealth management, fintech and healthcare businesses.
Each business even has a listed entity, namely Ping An Bank (SHE: 000001), Lufax Holding (NYSE: LU), OneConnect Financial Technology (NYSE: OCFT) and Ping An Healthcare and Technology (SEHK: 1833).
Ping An’s share price recorded a 52-week low of HK$31.30 in October 2022 and rebounded past HK$64 in January 2023.
As an insurer, Ping An invests the premiums it receives so as to meet its future liabilities. One of the sectors that Ping An invests in is the Chinese property sector.
Ping An had to make large impairments to its investments in Chinese developers when the housing bubble burst.
Despite the weak consumer confidence in China in 2022, Ping An’s operating profit rose 3.8% year on year to RMB 123.3 billion, supported by its life and health insurance segment which saw operating profit increase 17.4% year on year.
Ping An Bank also contributed to Ping An’s higher operating profits as Ping An Bank’s net profits increased by 25.8% year on year while its non-performing loan ratio remained stable at 1.03%.
Ping An believes that China’s economic fundamentals will remain positive in the long run.
The insurer sees strong potential coupled with favourable conditions for the development of the country’s financial and insurance industries.
Ping An has positioned itself for the long run by recruiting additional qualified private wealth advisors as the number of wealth management customers under its care increased by 12.2% to 1.2 million customers from the end of 2021 to September 2022.
A typical insurer such as Ping An invests premiums received in both the equity and debt markets.
In tandem with China’s reopening, asset prices should stage a strong recovery, thereby benefitting Ping An’s business.
3. Bilibili Inc (SEHK: 9626)
Bilibili is an iconic brand and a leading video community for the young generation in China.
It provides full-spectrum video content and started off as a video platform focusing on anime, comics, and games.
Bilibili will be analogous to YouTube if you had to compare the Chinese app against one from the West.
Bilibili’s share price recorded a 52-week low of HK$66.10 in October 2022 and rebounded past the HK$210 mark in January 2023.
In just a span of three months, the video-streaming company’s share price had more than tripled!
Bilibili capitalised on its surging share price by selling US$409 million of new shares in January 2023 through a new American Deposit Share placement.
Bilibili plans to use part of the proceeds to repurchase convertible senior notes due in 2026, thus improving its debt profile .
Bilibili is not profitable, recording a net loss of RMB 1.7 billion in the third quarter of 2022 even as net revenues increased by 11% year on year to RMB 5.8 billion.
This share issuance will improve the company’s balance sheet and capital structure, allowing it to continue investing in its growth.
As of 30 June 2022, Bilibili had RMB 30.2 billion in cash and short term investments along with RMB 19.0 billion in total debt.
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Disclosure: Alex Yeo owns shares of Tencent and Ping An Insurance.
