Investing in companies part of an emerging economy can allow you to derive outsized gains over time as a developing economy generally has higher growth rates compared to their developed peers.
An increase in the purchasing power of consumers is the key driver of long-term economic growth. This in turn will boost consumer spending driving top-line of companies, allowing the latter to also benefit from economies of scale.
Here, we look at four Asian stocks that are flying under the radar, but can be top bets for 2022 and beyond.
BeiGene (HKG: 6160)
A company that discovers, develops, manufactures and commercializes medicines for cancer therapeutics in the U.S. and China, BeiGene is valued at a market cap of $33.45 billion. While Chinese stocks have underperformed their counterparts year to date, shares of BieGene have gained close to 40% in 2021. It has been a massive wealth creator for investors in the last five years as BieGene has returned a staggering 1,004% since October 2016.
The pharmaceutical industry is heavily regulated and drug prices are controlled by the Chinese government, capping profit margins of these companies. Despite restrictions, BieGene sales more than doubled to $244.7 million in the first six months of 2021, compared to $117.6 million in the year-ago period. While it continues to lose money, BieGene’s losses narrowed to $413.8 million from $701.3 million in the last two quarters.
Investors remain bullish on the stock as the U.S. Food and Drug Administration or FDA accepted BieGene’s BLA (biologics license application) for the treatment of esophageal squamous cell carcinoma. The drug is expected to get approval in the first half of 2022 and the BLA was filed in partnership with pharma giant Novartis.
Last month, BeiGene received its second FDA approval for Brukinsa, a drug that was initially approved to treat mantel cell lymphoma and the approval is now extended to treat Waldenstrom’s macroglobulinemia.
International companies such as Amgen and Novartis have partnered with BieGene to sell their products in China. In the first quarter of 2021, BeiGene generated close to $500 million in partnership revenue.
Wall Street expects company sales to rise by 300% year over year to $1.24 billion in 2021 and by 12.7% to $1.4 billion in 2022. Comparatively, its adjusted losses are forecast to narrow from $19.13 per share in 2020 to $13.23 per share in 2022.
BYD Company (SHE: 002594)
One of the largest electric vehicle players in the world, BYD Company is also part of Warren Buffett’s portfolio. Berkshire Hathaway purchased 225 million shares of BYD Company back in 2008 and the stock has returned close to 3,000% in the last 13 years.
Valued at a market cap of $100 billion, BYD Company is engaged in the research, development, manufacturing, and sale of automobiles and related products all around the world. It has three primary business segments that include Rechargeable Battery & Photovoltaic Products, Mobile Handset Components & Assembly Service and Automobile & Related Products.
The company’s portfolio of electric vehicles have improved significantly due to European design input. It sold 61,401 e-vehicles in August and 71,099 units last month. Further, its electric car shipments are forecast to touch 600,000 this year and 1.5 million in 2022.
In the last three years, Byd’s sales have risen at an annual rate of 14% to touch $24 billion in 2020. In the second quarter of 2021, Byd Company sales growth accelerated and revenue was 54% year over year.
BYD Company is optimistic about the shift towards electric vehicles that continues to gain pace at the global level. China is at the forefront of this change and is also the largest domestic EV market in the world. As a leader in the EV space, BYD’s market share in the EV space rose to 16%, up from 11% at the start of 2021.
Dilip Buildcon (NSE: DBL)
One of India’s fastest growing engineering, procurement and construction or EPC companies, Dilip Buildcon has construction capabilities in roads and special bridges as well as mining, irrigation, tunnels, airports and metros in 19 states and one union territory.
The stock went public in 2016 and its IPO was oversubscribed 22 times, indicating investors were confident about its long-term prospects from the very beginning.
In 2017, it sold a portfolio of 24 road assets with an economic value of Rs. 1,05,000 million to an investor making it India’s largest road buyout transaction till date. It also won a contract for India’s second-largest cable bridge expanding into the specialized bridges vertical.
In 2020, it completed 14 projects worth Rs 1,05,445 million which was a company record in a single year. A year prior to the pandemic, Dilip Buildcon also entered into tunnels and metro segments, allowing it to more than double sales. In 2021, it has the largest orderbook at Rs. 2,74,114 million.
Road construction accounted for the majority of Dilip Buildcon’s construction portfolio and contributed to 59% of revenue in fiscal 2021. This was followed by irrigation, tunnels, mining and suspension bridges at 19%, 9%, 7% and 6% respectively.
The EPC sector witnessed a significant impact amid the pandemic due to canceled construction projects, delayed responses to request for proposals, and supply chain issues that weighed on the company’s ability to procure assets and complete projects on time.
However, the long-term prospects remain healthy for Dilip Buildcon given that India’s government continues to invest heavily in infrastructure projects. The National Highway Authority of India awarded 141 projects worth around $23 billion in fiscal 2021. In fact, as part of India’s National Infrastructure Pipeline the roads sector has been allotted around $250 billion until 2025.
Further, micro-irrigation is also gaining prominence as the use of these technologies is expected to cover another 10 million hectares of land by 2025.
Despite a tough 2024, Dilip Buildcon managed to increase sales by 2.5% to Rs. 92,380 million in fiscal 2021. However, its order book grew by a healthy 43.65% to Rs. 2,74,114 million by the end of fiscal 2021. It reported a profit of Rs. 3,249 million compared to Rs. 4,267 million in fiscal 2020 while maintaining the same levels of debt.
Niu Technologies (NASDAQ: NIU)
The final stock on my list is another China-based electric vehicle manufacturer in Niu Technologies. This company designs, manufactures, and sells smart electric scooters in China. It offers NQi, MQi, UQi, and Gova series e-scooters. Its urban commuter electric motorcycles include the RQi and TQi brands. The company also manufactures professional mountain and road bicycles and other micro-mobility solutions under the NIU brand.
In the second quarter of 2021, Niu Technologies reported revenue of $146 million which was a year-over-year rise of 46.5%. Its robust sales volume offset a 7% decrease in Niu’s revenue per e-scooter in Q2. In the June quarter, Niu sold 252,088 e-scooters which was 58% higher than the year-ago period driven by strong in China as well as other international markets.
Stellar top-line growth allowed Niu to report a net income of 91.8 million renminbi which was a 62% increase year over year. It suggests Niu’s net income margin rose from 8.8% in Q2 of 2020 to 9.7% in Q2 of 2021.
In the third quarter of 2021, Niu forecasts to increase sales between 40% and 62% year over year. Comparatively, Wall Street expects sales to rise by 59.5% to $606 million in 2021 and by 47% to $891.5 million in 2022. Niu is also expected to increase its earnings per share from $0.41 in 2020 to $1.04 in 2022.
Niu is well poised to benefit from the transition towards electric mobility solutions and the company is reporting strong demand from China and multiple international markets. It has already begun pre-sales of its KQi3 line of e-scooters in the U.S. and Europe with deliveries about to begin in Q4 of 2021.
In the last five years, Niu sales have risen at an annual rate of 55% and this trend is likely to continue in the future as well. In the second quarter of 2021, Niu increased its presence by opening 450 stores in China bringing the total number of outlets to 2,366 in the country. The company added 40 other distributors in Q2 to expand internationally and now has a presence in 48 countries.
Niu stock is down 13.5% year to date and is trading 51% below its record high on the NYSE, making it extremely attractive to contrarian and growth investors. Its valued at a market cap of $1.85 billion which is extremely reasonable if we consider its trading at less than 30 times operating cash flows and a price to sales multiple of 2.5x. In 2020, its cash flow multiple was significantly higher at 80x. The stock is also trading at a forward price to earnings multiple of 37x making it one of the cheapest stocks in the EV space today.