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‘Chinese Stocks Are Primed for a Multi-Quarter Recovery’: Morgan Stanley Suggests 2 Names to Buy


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Is China’s zero-Covid strategy finally over? While most Western nations have prioritized a return to normal and an end to COVID pandemic restrictions, China was the standout for maintaining its strongly restrictive lockdown policies. But there is mounting evidence that Beijing is looking for a way to back off from the lockdowns – and Chinese policymakers appear to be edging toward reopening their economy.

That’s good news for investors, as a pullback from the zero-COVID controls in such major cities as Shanghai and Shenzhen, is likely to provide strong support for Chinese stock markets – and for Chinese companies traded abroad.

In a note from banking giant Morgan Stanley, chief China equity strategist Laura Wang wrote, “Multiple positive developments alongside a clear path set toward reopening warrant an upgrade and index target increases for China… Our base case is that we are at the beginning of a multi-quarter recovery in earnings revisions and valuations with decent ROE improvement.”

Against this backdrop, the stock analysts at Morgan Stanley have picked out two Chinese stocks as likely gainers in the year ahead. According to the firm’s analysts, these are Buy-rated equities that offer investors double-digit upside potential. We ran the two through TipRanks’ database to see what other Wall Street’s analysts have to say about them.

Kanzhun, Ltd. (BZ)

One change that the digital world has brought was the migration of the job hunt online. Kanzhun is a Chinese company providing, through its subsidiaries, online recruitment services – a manpower company, serving the labor needs of China’s business sector. The company connects job seekers and enterprise clients to the benefit of both, and strives for a seamlessly efficient service profile. The connections are made mainly through Kanzhun’s interactive mobile app, and links job seekers to white collar, blue collar, and student-level work, in a wide range of industries.

The COVID lockdowns in China have put pressure on the economy generally, and Kanzhun’s Q3 results, which showed a 2.7% year-over-year revenue drop, reflected that. The top line came in at $165.7 million US currency. Earnings were also down, with the adjusted net income falling by 2.2% to US$52.9 million.

While the top and bottom lines were down, the company saw a small gain in cash billings, which rose 1.4% to US$174.1 million. Even better, from an investor’s perspective, Kanzhun reported a strong gain in average monthly active users. This key metric grew more than 12% y/y, to hit 32.4 million, and bodes well for the Chinese labor market going forward. The gain in average MAU more than offset the 7.5% drop in total paid enterprise customers.

Among the bulls Morgan Stanley analyst Eddy Wang who believes that Kanzhun could “generate the strongest revenue and earnings growth in China’s Internet industry in 2022-25e.”

“We believe BZ could achieve resilient revenue growth in the next few years, supported by increasing enterprise user penetration and improving paying ratio, leveraging strong network effect,” Wang went on to say. “With an asset-light business model, its margins should improve with monetization. Thus, we believe it could also generate strong non-GAAP net profit growth.”

These comments back up Wang’s Overweight (i.e. Buy) rating on the shares, and his price target, set at $27, indicates his belief in a 43% upside potential for the stock heading into next year. (To watch Wang’s track record, click here)

Overall, Kanzhun has picked up 4 recent analyst reviews from the Street as of late, and these include 3 to Buy against just 1 to Hold – for a Strong Buy consensus rating. (See Kanzhun stock forecast on TipRanks)

ZTO Express (ZTO)

The next Morgan Stanley-backed Chinese name we’ll look at is ZTO Express, one of the country’s leading express delivery companies. ZTO has made a name for itself as the express delivery partner for millions of online merchants and consumers selling and buying products on Chinese leading e-commerce sites, such as Alibaba, PDD, and The company touts its highly scalable network partner system as one that allows it to swiftly grow its national network while also offering e-commerce merchants better and more affordable geographic reach.

Despite worries about slower industry volume growth, the company delivered a strong Q3 report. Revenue increased by 21% year-over-year to $1.26 billion. At the same time, sales increased at a greater pace than operating costs – which climbed by just 11.6% – enabling the company to deliver 65% profit growth in the quarter – making it China’s most profitable parcel delivery company in Q3 – no mean feat in an industry considered extremely competitive. On the bottom-line, ZTO generated adj. EPS of $0.33, while the Street was calling for $0.27.

Covering the stock for Morgan Stanley, analyst Qianlei Fan writes that he remains bullish on ZTO, including among his reasons: “(1) We still think ZTO’s established advantages in unit profit, scale, and service quality will bring ongoing capability to invest in capacity, to gain incremental volume in the market. (2) We think ZTO’s focus on network stability and profitability is likely to lead to higher earnings predictability and better service quality.”

These reasons underpin Fan’s Overweight (i.e. Buy) rating while her $30.50 average target is set to generate returns of 18% in the year ahead. (To watch Fan’s track record, click here)

Two other analysts have been tracking ZTO’s recent progress and like Morgan Stanley, they like what they see, providing this name with a Strong Buy consensus rating. (See ZTO Express stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.


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