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2 Chinese Stocks Rated Strong Buy: EHang and Daqo

China’s fast recovery from the pandemic has given it an edge over the rest of the world. A strong recovery in China’s household spending is driving its growth. And because the country is now engaged in various diplomatic moves and trade deals to boost its economic growth, we believe stocks like Daqo New Energy (DQ) and EHang (EH) have enormous growth potential. Here are some details.

While the major economies around the globe are still battling the COVID-19 pandemic, China is witnessing a strong recovery in household spending owing to its resumption of industrial operations and improving consumer sentiment.

The world’s second largest economy has been registering growth since the second quarter of 2020, at a time when major countries were in recession. China is expected to be the only country to report positive GDP growth for 2020. This momentum should continue well into this year. Nomura and China International Capital Corporation expect the country’s GDP to grow 9% in 2021.

China has also signed the world’s largest trade deal, the Regional Comprehensive Economic Partnership (RCEP) agreement, along with 15 countries. The country is also in the process of signing a trade deal with the European Union post Brexit.

Amid these developments, we think Chinese companies like Daqo New Energy Corp. (DQ) and EHang Holdings Limited (EH), which operate in the semiconductor and air industry, should be a good addition to your portfolio.

Daqo New Energy Corp. (DQ)

DQ is a leading manufacturer of high-purity polysilicon for the global solar photovoltaic (PV) industry. It operates through two segments — Polysilicon and Wafer. The company offers ready-to-use polysilicon, and packaged to meet crucible stacking, pulling, and solidification products. It also provides wafer original equipment manufacturer (OEM) service to external customers.

On November 30, DQ signed a supply agreement with Trina Solar to provide high purity polysilicon. In December, it  announced that its subsidiary Xinjiang Daqo New Energy had signed long-term high-purity polysilicon supply agreements with a subsidiary of JA Solar and with another leading solar company. With the photovoltaic industry gaining traction steadily, these supply agreements should assist DQ in increasing its overall market share and foothold globally.

DQ’s revenue has increased 49.6% year-over-year to $125.50 million in the third quarter ended September 30, 2020. Its polysilicon production volume has increased slightly from the prior quarter to 18,406 MT over the same period. Its Net income has increased 316.6% year-over-year to $20.80 million.

Analysts expect DQ’s revenue to increase 90.7% year-over-year to 226.82 million for the about-to-be-reported quarter ended December 31, 2020. A consensus EPS estimate of $1.11 for the fourth quarter represents  a 226.5% rise year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 811.4% over the past year.

How does DQ stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Industry Ranks

A for Overall POWR Rating

The stock is also ranked #32 of 99 stocks in the Semiconductor & Wireless Chip Industry.

EHang Holdings Limited (EH)

EH is an autonomous aerial vehicle technology platform company. The Company provides customers in various industries with AAV products and commercial solutions including air mobility, smart city management, and aerial media solutions.

On December 10, EH had launched its aerial media solutions and services in the European market under the brand “DRONEPIXEL by EHang”. EH will offer  digital fireworks using drone technologies to expand rapidly in the European markets.

Also in December,  EH announced the launch of its own autonomous urban air mobility services with its strategic partner Greenland Hong Kong Holdings Limited. The collaboration intends to offer an aerial sightseeing program and aerial media shows to passengers across Forest Lake. With this unique concept, EH is expected to witness strong tourists’ demand.

EH’s total revenue has increased 49.6% year-over-year to $10.45 million in the third quarter ended September 30, 2020. Its non-GAAP operating profit has increased 160.8% from the same period last year to $0.70 million, while its net income has increased 175.7% to $0.8 million over the same period.

Analysts expect EH’s revenue to increase 86.8% year-over-year to $32.69 million for the fiscal 2020 ended December 31. The consensus EPS estimate for the fiscal 2020 represents a 95.7% improvement. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 489.3% over the past year.

EH’s POWR Ratings reflect this promising outlook. It is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. In 71 stocks of the Air/Defense Services industry, it is ranked #10.

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DQ shares were unchanged in after-hours trading Monday. Year-to-date, DQ has gained 67.61%, versus a 2.81% rise in the benchmark S&P 500 index during the same period.



About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.

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