10 China Stocks With Upside: Analysts

NEW YORK (TheStreet) -- ChinaCast Education (CAST), Solarfun Power Holdings (SOLF), CNinsure Inc (CISG), Home Inns & Hotels Management (HMIN), JA Solar Holdings (JASO), Zhongpin (HOGS), Longtop (LFT), Trina Solar (TSL), Ctrip.com International (CTRP) LDK Solar (LDK) have upsides in the range of 20%-73%, based on analysts' consensus estimates of 12-month price targets.

Last week, for the third time in the last four months, the People's Bank of China raised key policy rates. It increased one-year deposit and lending rates by 25 basis points each, taking the rates to 3% and 6.06%, respectively. These are part of the central bank's efforts to combat spiraling inflation. Analysts believe that the present rate hike was not unexpected, and expect further rate hikes over the next six months.

Even though the present rate hike did not spook the market, it does not take away the fact that Chinese stocks underperformed its developed market peers. The Shanghai Stock Exchange lost 7% in the last one year, while Dow Jones Industrial Average and FTSE 100 surged 15-16% in the same period.

We have identified 10 Chinese stocks that investors can consider for long-term. The selected stocks have potential to deliver 20% to 73% returns over the next one year with an average analyst buy ratings of 69%.

10. LDK Solar ( LDK) is a leading manufacturer of multi-crystalline solar wafers and PV products.

Net revenue for 2010 third quarter was $676 million, compared to $282 million for the third quarter of fiscal 2009. Gross profit increased to $150 million, compared to $56.8 million for the third quarter of fiscal 2009.

Gross margin for the third quarter came in at 22.2%, compared to 18% in the previous quarter and 20.1% in fiscal 2009 third quarter. Operating margin stood at 17.7%, compared to 13.2% in the third quarter of fiscal 2009.

Net income for 2010 third quarter was reported at $93.4 million, compared to $29.4 million for the third quarter of fiscal 2009.

The company's CEO, Xiaofeng Peng said in a press statement, "We are benefiting from our diversification strategy as we see increasing contributions from our poly-silicon, module and cell businesses. As we gain further traction in these areas, we expect to experience enhanced top line and earnings growth."

9. Ctrip.com International ( CTRP) is China's leading travel service provider for hotel accommodation, airline tickets and tour manager.

Net revenue for 2010 third quarter grew 49% year-over-year, while net income rose 70% year-over-year, compared to the same period, last year.

Gross margin was up marginally to 78% for the third quarter, compared to 77% in the year-ago quarter. Operating margin stood at 38%, rising 1% from the earlier year period.

For 2010 fourth quarter, the company expects to continue net revenue growth of around 30%-35%. Among the 20 analysts covering Ctrip.com stock, 65% maintain a buy-rating. The stock increased 30% during the last one year and is likely to gain around 27% over the next one year, according to analysts polled by Bloomberg. Currently, the stock is trading at 27 times its estimated 2011 earnings.

8. Trina Solar ( TSL) is a China-based manufacturer of solar power products. The company has global distribution panning Europe, Asia and North America.

During 2010 third quarter, net revenue surged over 100% year-over-year to $510 million. Solar module shipments stood at 291MW for the quarter, surpassing the company's guidance of 250-260MW and jumping 130% year-on-year. Lower interest costs and foreign currency exchange losses boosted net income to more than double to $83 million during the September quarter, compared to the same period last year.

Following the cutback in silicon costs and non-silicon manufacturing expenses, gross margins expanded 300 basis points to 31.4%, compared to the same period last year.

Until August, the company's PV cell and module capacities stood at around 950MW. The company expects to touch a production target of 1.1GW by 2010 end. The stock is trading at 7.4 times its estimated 2011 earnings.

7. Longtop ( LFT) is a leading software development and solutions provider, targeting the rapidly growing financial services industry in China.

During the third quarter, total revenue increased 40% year-over-year to $77 million. Net income rose 40% in the third quarter. Besides, the company's performance during the nine months has been respectable. Weizhou Lian, CEO of Longtop, commented, "The momentum has accelerated during fiscal 2011 with our organic growth rate for software development revenue of approximately 40% in the first nine months significantly higher than the 30% guidance we gave at the outset of the year while maintaining a relatively stable organic operating margin." For the first nine months of 2010, cash flows from operations were up 50% year-over-year.

The stock gained 9% in the last one year, and is likely to advance 31% over the next one year, according to analysts surveyed by Bloomberg. The scrip is trading at 16.5 times its estimated 2011 earnings.

6. Zhongpin ( HOGS) is a China-based meat and food processing company.

During the September quarter, the company launched operations at a pre-cooling facility and expansion of its Anyang plant. The capacity addition has increased processed meat production by 35% to 85,000 metric tonnes (MT).

Net revenue rose 24% year-over-year during the September quarter to $240 million, while net income grew 11% to $14.7 million.

After the third-quarter results, the management maintained its earlier guidance for 2010. Warren Wang, Zhongpin's CFO, said, "For 2010, we continue to believe that Zhongpin's sales revenue should be within a range of $900 million to $940 million, with gross profit within the range of $106 million to $115 million and net income within the range of $52 million to $57 million."

The company's Jilin Province facility with production capacity of 70,000 MT will receive $61 million in investment and completion is scheduled for end-2012.

The stock is trading at 9.3 times its estimated 2011 earnings.

5. JA Solar Holdings ( JASO) is one the largest manufacturers of solar cells and solar products in China. The company has a diversified global customer base with 53% customers being international.

JASO registered a fifth consecutive quarter of record shipments. During September, shipments were up 34% to 418MW, compared to an initial guidance of 375MW. Revenues were up 52% year-on-year to $541 million.

After the company achieved the 1 gigawatt (GW) shipment milestone, Dr. Peng Fang, the company's CEO said, "JA Solar has achieved the 1GW shipment milestone in the first three quarters of 2010 and will strive to meet the global demand for clean energy in the future." The company increased its annual cell manufacturing capacity to 1.8GW at the end of September and reached 1.9GW of solar cell capacity, ahead of its capacity expansion schedule.

Based on strong demand, the management expects shipments to surpass 1.45GW in 2011, pegging the December quarter shipments at 450MW. Analysts' estimates indicate a potential upside of 45% over the next one year.

4. Home Inns & Hotels Management ( HMIN) is a leading economy hotel chain in China.

Total revenue for 2010 third quarter rose 21% year-over-year to $131.5 million. The hotel chain opened 55 new hotels, including 15 new leased-and-operated hotels and 40 new franchised-and-managed hotels during the third quarter. Occupancy rate for the company's hotels was 96.7% during the third quarter, compared with 97% in the same period in 2009 and 96.4% in the previous quarter.

Further, David Sun, Home Inns' CEO, adds, "We are on track to open 65 to 70 leased-and-operated hotels and 130 to 135 franchise-and-managed hotels in 2010. Further, we are accelerating our development pace and targeting to open no less than 250 new hotels in 2011. While we open our 1,000th hotel in 2011, we will also add 3 to 4 midscale hotels under the "Yitel" brand, our newly launched midscale market product." The stock is currently trading at 23.3 times its estimated 2011 earnings and analysts expect 48% return in the next one year.

3. CNinsure Inc ( CISG) is China's leading independent insurance intermediary company.

For 2010 third quarter, net revenue increased 30% year-over-year, while net income increased 43% during the same period last year.

Commenting on the financial results, Yinan Hu, the company's chairman and CEO, stated, "Robust growth of our three existing business lines continued into the third quarter with the life insurance business and claims adjusting business growing 109.1% and 34.3% year-over-year, respectively. The overall commission rate from the property and casualty insurance business increased over the previous quarter, which led to a year-over-year growth of 6.7% in our property and casualty insurance business in the third quarter as compared to year-over-year decline of that in the second quarter. We believe there is still room for further improvement in our property and casualty insurance commission rate."

Analysts expect the stock to deliver 56% gains over the next one year.

2. Solarfun Power Holdings ( SOLF) is a vertically integrated manufacturer of silicon ingots, photovoltaic (PV) cells and PV modules in China. The company also provides PV cell processing and module processing services.

Total net revenue for the third quarter increased 120% year-over-year to $326.7 million, attributable to higher shipments and improved average selling price, reflecting strong market demand.

PV module shipments, including module processing services, reached 224MW from 103MW in the third quarter of 2009. While average selling prices, excluding module processing services, declined 15.5% compared to 2009 third quarter.

Gross margin expanded 200 basis points year-over-year to 22.7%. Operating margin improved 4.8% year-over-year to 17.9% in the third quarter. Net income increased 300% year-over-year during the third quarter. The stock delivered 17% gains in the last one year, and analysts foresee a further upside of 57% over the next one year.

1. ChinaCast Education ( CAST) is a China-based post-secondary and e-learning services provider.

ChinaCast observed robust student enrollments in the third quarter, Ron Chan, chairman and CEO said in a press statement, "During the third quarter we completed the purchase of Hubei Industrial University Business College, which expands our on-campus enrollments by approximately 10,000 students. We are now providing accredited degree programs to approximately 32,700 traditional university students and 143,000 e-learning students throughout China."

Net revenue for the three-month and nine-month period ended September 2010 amounted to $18.7 million and $51.4 million, increasing 52% and 47% over the corresponding periods in 2009, respectively. The increase is attributable to revenue consolidation following the acquisition of East Achieve and Wintown in 2010. Net income grew 59% during 2010 third quarter.

Gross profit margin stood at 49% and 52%, respectively for three months and nine months ended September 2010, respectively.

Analysts expect the stock to deliver 73% within a year. The stock is currently trading at 12 times its estimated 2011 earnings.

>To see these stocks in action, visit the 10 China Stocks With Upside portfolio on Stockpickr.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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