04. August 2021 | 13:12 CET
Alibaba, Memiontec, Tencent - China, the upcoming super economic power
China defied the pandemic in 2020. In contrast to all other industrialized nations, some of whose economies suffered considerable losses, China's economic growth increased. By 2028 at the latest, China will be the world's largest economy. Today, the country is already the leading trading partner for many countries, such as Germany, Japan and Australia. China used to copy Western products, but today it is on par technologically, both in terms of artificial intelligence and 5G. The Asian continent has other up-and-coming countries, such as Singapore. We should not forget Japan in particular, which is the third-largest economy. So we will take a look at three companies from the Asian region.
time to read:
ISIN: ALIBABA GR.HLDG SP.ADR 8 | US01609W1027 , Memiontec Holdings Limited | SGXE56008290 , TENCENT HLDGS HD-_00002 | KYG875721634
Alibaba - Increases share buyback program
On July 23, Alibaba shareholders were shocked again. China's government unceremoniously banned profits from e-learning. This business area is hardly pronounced at Alibaba, and yet the stock was dragged down with it. Only the food delivery services will yield less profit, as drivers will receive insurance and higher wages in the future. The share price fell as low as USD 180. This event shows how quickly a well-run company can be stripped of its business foundation. Chinese e-learning stocks fell rapidly by 80%.
Alibaba is a tech giant, but with the uncertainty spread by the Chinese government, many investors will reconsider an investment. The Chinese Company was already valued much cheaper than its Western rival Amazon before July 23. That is due to the uncertainties. In November 2020, Ant Group's IPO had to be canceled, and then there were monopoly investigations in December 2020, which ultimately led to the record fine to the equivalent of EUR 2.3 billion in April 2021.
On August 3, the Company announced its second-quarter results. Expectations for revenue growth and active users were missed, whereas profit was higher than expected. In addition, the share buyback program was increased to USD 15 billion. That shows that management believes that the shares are currently too cheap. The stock is currently clearly in a downtrend, and the July 23 panic lasted until July 27. Since then, the stock has gained more than 10%. Alibaba remains the top stock when it comes to Chinese companies.
Memiontec - Water is becoming increasingly important
Memiontec is a Singapore-based company specializing in wastewater and water management solutions and has been active in the market for 28 years. Among the clientele are various industrial enterprises and municipalities, with whom partial contracts with a running time of up to 25 years validity are present. These investments are the so-called BOOT and TOOT projects. They guarantee recurring revenues over the next decades.
The Company is mainly active in Singapore, Indonesia and China. The business model is based on four pillars. The first is the construction of water treatment plants, such as wastewater treatment plants, water recycling plants or seawater treatment plants. The second branch provides services for the maintenance of the built plants. In addition, there is trade in modular water systems, chemicals and equipment for water treatment. Last but not least, water is sold. These four areas offer some synergies.
The order backlog, which was over 90 million Singapore dollars (SGD) at the end of April, was only increased by SGD 5.5 million on July 27. Three orders were won from the industrial and municipal sectors. The Company currently distributes 25% of its profits as dividends to shareholders. Management intends to increase this further if possible. The chances are good because about 50% of the inhabitants have no access to drinking water so far in Indonesia.
Tencent - On the decline
Tencent is another heavyweight from China that has suffered from the recent restrictions imposed by the Chinese government. This stock was punished much more than Alibaba, as its subsidiary Tencent Music was forced to cancel all exclusive contracts with international labels. The next impact came on August 3, when the government called computer games "spiritual opium." Investors fear that this sector could be caught in the government's crosshairs.
For one of the world's largest game providers, that would be devastating. The Chinese government thinks that games take away young users' time to learn, "destroying" a generation of youth. It will now be up to the corporation to limit game time and thus reduce the potential for addiction. After the fine for Tencent Music for alleged unfair practices, the Company will have to act quickly.
The stock is currently in free fall. After the report on online games, there was another gap down in the share price. At the time of writing, the share price stands at EUR 48.50 after being almost EUR 4 higher the previous day. In the current market environment, one should be cautious with this stock and the news circulating. Courageous investors can buy now where it burns.
China will soon have the strongest economy globally, but the government keeps slowing down tech companies. Alibaba currently does not seem to be under as much fire as Tencent and is the better choice. Memiontec has the advantage of operating out of liberal Singapore and has several long-term water supply contracts that will fund the Company's continued expansion. Water is becoming increasingly important and is certainly the safer investment at the moment.