5 China Stocks to Watch

NEW YORK ( TheStreet) -- Emerging market stocks are expected to accumulate gains of almost 39% by the end of 2012, according to a Morgan Stanley report. Further, the speculation of China's easing inflation will loosen monetary policies and mitigate the negative impact of the European debt crisis on China stocks.

The report adds that China is favored among emerging markets in Asia with higher importance on its consumer companies. An emerging markets and Asia strategist with Morgan Stanley estimates a soft landing for China's economy with earnings growth supporting market sentiment. In a separate survey by Bank of America Merrill Lynch, almost 28% of the fund managers are overweight on emerging market equities. Moreover, the survey reveals that with an improving China growth outlook, exposure of Asia-Pacific investors to China's economy has been the highest in past four months.

Based on latest quarterly results and analysts' recommendations, these five China stocks are estimated to have upsides ranging from 10% to 52%. On average, 59% of analysts have buy recommendations on these stocks, according to a Bloomberg consensus.

The stocks are listed in ascending order of upside potential.

5. Huaneng Power International ( HNP) builds and operates large power plants in China. As of March 2011, the company's attributable and controllable installed capacity were respectively 50,935 megawatts and 54,402 megawatts, making it one of the largest listed power producers in China. The company owns power plants in 18 provinces in China and wholly owns an operating power company in Singapore.

Of the four analysts covering the stock, two recommend buying and two suggest a hold. The stock's average 12-month price target is $23.32, up 9.7% from the current price, as per a Bloomberg consensus.

For the first three quarters of 2011, HNP reported sales revenue of $15.7 billion, up 29.98% from the same period a year ago. For the period, net profit attributable to shareholders stood at $220 million. Net profit for the third quarter ended Sept. 30 was $36.5 million, according to Chinese accounting standards. Meanwhile, HNP's electricity output for the first nine months of 2011 increased 23.8% to 236.43 terawatt hours from the year-ago quarter, while power sales for the same period rose 24% to 227.08 terawatt hours.

Huaneng Power International announced that the National Development and Reform Commission recently approved the $800 million construction of two 600 MW domestic supercritical coal-fired air-cooling generation units of Shanxi Huaneng Zuoquan Power Plant, in which it holds 80% interest.

Huaneng Power International plans to inject $41.6 million into a coal gasification company engaged in power generation and heat supply. Recently, Fitch Ratings affirmed Huaneng Power International's long-term foreign and local currency issuer default ratings at 'BB+' with a stable outlook.

4. COONC ( CEO) is an independent oil and gas exploration and production company, with offshore operations. The company conducts its business through three business units: independent operations, production-sharing contracts or other joint arrangements and trading business.

Of the four analysts covering the stock, two recommend a buy and two suggest a hold. The stock's average 12-month price target is $221.93, which is 10.2% higher than the current price, as per a Bloomberg consensus.

For the third quarter of 2011, CEO reported sales revenue of $7.3 billion, up 23.7% from the year-ago quarter. For the quarter, the average realized oil price rose 50.3% year-over-year to $112.04 per barrel, while the average realized gas price increased 20.0% year-over-year to $5.18 per thousand cubic feet. Meanwhile, output recorded was 80.9 million boe for the quarter.

The Canadian government recently approved the acquisition of OPTI Canada by CNOOC for $2.1 billion, which marks a major shift in the approach of Chinese companies to invest in Canada's oil patch. OPTI's major asset is the 35% working interest in the Long Lake oil-sands project in Alberta, which is operated by Calgary-based Nexen. Additionally, CNOOC and PT Pertamina are seeking a probable purchase of Marathon Oil's stake in an Angola block, an attempt by the Asian giants to acquire African oil assets.

3. China Petroleum & Chemical (Sinopec) ( SNP) is a state-owned integrated energy and chemical company. Through its subsidiaries, the company operates in four business segments: exploration and production, refining, marketing and distribution and chemicals, and corporate and other.

All the four analysts covering the stock recommend a buy. The stock's average 12-month price target is $122.20, which is 15.1% higher than the current price, as per a Bloomberg consensus.

For the first three quarters of 2011, the company's turnover, operating revenue and income totaled $295.5 billion, increasing 31.3% from the same period in 2010, as per IFRS standards. Net profit attributable to the company increased 8.8% to $9.7 billion, or 11 cents per share, from the first three quarters of 2010. Meanwhile, oil and gas production increased 0.8% year-over-year to 303.27 million barrels of oil equivalent (boe). Natural gas production soared 22.1% to 382.25 billion cubic feet.

Recently, Sinopec announced it has reached an agreement with Portuguese oil group Galp Energia to acquire a 30% stake in its Brazilian subsidiary for a total investment of $5.2 billion. The agreement also includes a subscription for new shares and a shareholder loan. The acquisition further expands Sinopec's offshore oil fields in Brazil. With this deal, Sinopec's production will reach 21,300 boe/d in 2015 and hit 112,500 boe/d in 2024.

2. Renren ( RENN) is a social networking Internet platform in China generating revenue through advertising and value-added services. The company is also a developer and operator of Web-based games and offers them through game.renren.com. Renren.com is the company's primary social networking Web site in China.

Of the 13 analysts covering the stock, 23% rate a buy and 54% suggest hold. The stock's average 12-month price target is $6.47, which is 40.8% higher than the current price, as per a Bloomberg consensus.

For the third quarter, total revenue was $34.2 million, an increase of 57.1% from the corresponding period in 2010. Online advertisements raked in $19.6 million, up 91.8% from the prior year period, driven by a 37% year-over-year expansion in the company's user base to 137 million. Gross profit for the third quarter increased 55.8% to $27.5 million from the year-ago quarter. Adjusted net income for the period was $300,000.

The company's mobile penetration has recorded more than 35% of its unique monthly log-in users (up 58% year-over-year to 38 million) with almost half of their mobile users accessing the social networking Web site through smartphones. Recently, it was known that HTC has teamed up with Renren to launch a handset with software integrated with the social networking site.

Looking ahead to the fourth quarter, the company expects to generate revenue in the range of $31 million to $33 million, indicating 48% to 58% year-over-year growth.

1. VanceInfo Technologies ( VIT) is a China-based information technology solutions provider and a leading offshore software development company. The company operates in three business units: R&D Outsourcing Services, IT Services and other solutions and services, which include business process outsourcing service and other services.

Of the 15 analysts covering the stock, 73% recommended buying and the rest rate it a hold. There are no sell ratings on the stock. Its average 12-months price target is $15.79, which is 52.4% higher than the current market price, as per a Bloomberg consensus.

For the third quarter of 2011, VIT reported net revenue of $70.3 million, up 25.9% from $59.9 million in the same quarter prior year. Gross profit was up 18.2% to $24 million from $20.3 million in the year-ago period. For the quarter, net income stood at $3.2 million or 7 cents per share.

For the fourth quarter, the company projects net revenue of $84 million, up 41% from the year-earlier period, and diluted earnings per share between 19 and 21 cents. With customers like Tata Consultancy Services, Wipro, Infosys and HCL Technologies, VIT is trying to outdo Indian outsourcers with its expertise. The company has announced plans to set up its Australia-New Zealand headquarters in Melbourne, aiming at creating 100 new local jobs by the end of 2012.

>>To see these stocks in action, visit the 5 China Stocks to Watch portfolio on Stockpickr.

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