January 10th, 2022 | 11:14 CET
Alibaba, Hong Lai Huat, Xiaomi - Asian stocks catching up?
Table of contents:
Alibaba - Are the investments paying off?
Alibaba shareholders have had to swallow a few toads in recent months. It started with the cancellation of Ant Financial's IPO because the Chinese government objected. On top of that, there was a USD 2.8 billion fine for antitrust violations. The government pressured State-owned Chinese companies to switch to state-owned cloud providers and some other regulatory actions. Despite all the opposition, the Company managed to bring the cloud division into profit for the first time in 2021. All other business units are also growing, albeit at a slower pace.
Even though the last quarterly figures disappointed investors, this was mainly due to the investments made in future topics. Financially, Alibaba is very well positioned and is debt-free if you look at its liabilities and cash on hand. According to experts, one weak point was the lack of social media networking. In response, they launched DingTalk and have already won over 500 million users. The Company also wants to leave its mark in the new hype of the Metaverse. To this end, around USD 1.6 million was invested in the Company Yuanjing Shengsheng.
We see the fear of a delisting as unfounded, as such a step would have a devastating consequence for the Chinese economy because then investments in China would be very risky. The government cannot want that. If you look at the analyst valuations, the average price target is USD 203. Also, Charlie Munger, through a company, almost doubled his shares again in the last quarter of 2021. When comparing the Company to its peers, Alibaba's price-to-earnings ratio is by far the best. The stock is trading at USD 129.81 and has recently formed a double bottom at around USD 110.
Hong Lai Huat - Mega project in Cambodia
Hong Lai Huat Group was founded in 1998 and is headquartered in Singapore. The Company is a real estate developer and builder and has expanded its businesses over the years. Agriculture and land development has been part of its portfolio since 2008. Since 2021, the Company has also been active in land development and the leasing of completed properties. The Group also has a diversified geographical footprint with Singapore and Cambodia.
In Singapore, eight notable residential, commercial and industrial buildings have been constructed and developed. Currently, the Company has three ongoing projects in Cambodia. First, the 100% company-owned D'Seaview project is already fully completed and consists of 737 residential and 67 commercial units. 85% of all units have already been sold at USD 1,300 per sqm. Secondly, there is a 50% stake in the Royal Platinum project, which is expected to be completed by year-end 2023. The development consists of 851 residential and 50 commercial units sold at USD 2,000 per sqm. To date, only 20% have been sold, largely due to Corona restrictions.
The Company landed the mammoth Agri Hub project on June 17, 2021, when Cambodian authorities gave the go-ahead to convert 100 million sqm or 100 sq km of agricultural land into mixed construction land. The area is 130m above sea level and a 60-minute drive from the capital Phnom Penh, making it safe from tsunamis. The development will include factories, logistics centers, renewable energy, plantations, livestock, water treatment, housing and more. The value of the current projects is currently likely to be three times the market capitalization at a current share price of EUR 0.068. Those who want to take a closer look can watch the company presentation on February 17 at the International Investment Forum.
Xiaomi - Looking to diversify
Xiaomi managed to displace Apple to third place in smartphone sales in 2021 and is now chasing industry leader Samsung. But if you think it has been a good year for investors in the Company, you are wrong. Due to the US and China trade war, the Company was blacklisted in America from January until the end of May 2021. Add to that the regulatory fury from Beijing and a weak Hong Kong market considered one of the Company's main markets.
What is next for 2022? The results for the first nine months of 2021 show a very positive trend across the board. Sales were 242 billion Chinese yuan (CNY), or the equivalent of around EUR 33.5 billion, up 38.4% YOY. Gross profit climbed 71.5% to CNY 43.6 billion. But margins in the smartphone industry are small, so the Company is trying to diversify further by entering other businesses such as electric vehicles (EV) and semiconductor chips. They also invested more money in the development of vacuum cleaners. The Company has long been a big player in the electric consumer goods sector.
There are rumors about acquiring the EV division of the struggling real estate developer Evergrande. But so far, there has been no confirmation on that. Morningstar analysts have recently raised the price target for the share to the equivalent of EUR 2.71 upwards. Currently, the share is trading at EUR 2.06 and is in a clear downward trend. A closing price above EUR 2.14 on a closing price basis would be the first bullish signal. To break the downward trend, prices above EUR 2.40 are necessary.
Many Asian stocks have fallen under the radar in the past year. Uncertainty is not something any investor likes, but the bad news should have been priced in by now. The discounts compared to the competition are enormous, so there is considerable catch-up potential in some cases. Alibaba, unlike many US tech companies, has already jumped this year and made gains. Hong Lai Huat landed a big deal that will keep the Company busy for a few years. Xiaomi is trying to position itself even more broadly to achieve a turnaround this year. The next figures will be exciting.
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