China Stimulus Stocks Worth Watching After Softer Inflation Data

China’s latest inflation data, with CPI easing to 0.5% year on year in July and producer prices still under pressure, has pushed stimulus hopes back into focus. That mix of weaker demand and possible policy support is where opportunities often start to form. This article looks at three large Chinese consumer and infrastructure stocks that are closely tied to that story, and explains how the current backdrop could matter for your portfolio.

The three stocks highlighted next are just a sample, and the full screen surfaced 21 more large Chinese consumer and infrastructure companies with similarly detailed narratives that are not covered here. If you want to identify and analyze potential China stimulus beneficiaries in one place, head straight to the China Stimulus Beneficiaries – Consumer and Infrastructure Sectors screener.

Acter Technology Integration Group (SHSE:603163)

Acter Technology Integration Group provides clean room design, construction and maintenance, along with broader mechanical, electrical and plumbing services, for advanced manufacturing, pharmaceutical and semiconductor facilities in China and overseas. It also handles turnkey engineering system integration, waste and exhaust projects and commercial building work, making it a full-service contractor for highly controlled environments. The company is valued at about CN¥8.26b.

Acter Technology Integration Group sits at the intersection of high specification manufacturing build outs and potential policy support, which is why investors watching China’s stimulus story may want it on the radar. Forecast earnings and revenue growth, along with high quality earnings and a share price that sits below one DCF estimate of future cash flows, point to an interesting set up if spending on complex facilities gains traction. The flip side is a high P/E, volatile share price and a balance sheet that relies entirely on higher risk external borrowing, all under a relatively fresh board. For investors who can tolerate swings in sentiment, that mix of growth potential and funding risk makes this a stock that may merit a closer look.

Acter Technology Integration Group appears to be a growth story that the high P/E and funding mix do not fully explain. Get the full picture with the 3 key rewards and 1 important major warning sign

Build your own China stimulus shortlist

Acter Technology Integration Group and the two other stocks highlighted here all came from a single Simply Wall St screen, but the real value for your portfolio comes from shaping your own filters. Use our flexible Screener to combine valuation, growth, balance sheet and risk checks in one place, or start with any of our curated Investing Ideas for ready made shortlists built around specific themes.

Hangzhou Zhongheng Electric (SZSE:002364)

Hangzhou Zhongheng Electric provides power electronics solutions for data centers, charging and battery swapping, communications networks and wider power systems, along with energy storage, microgrid and power operation services across China and overseas. The company was founded in 1996 and is headquartered in Hangzhou, and it currently carries a market value of about CN¥22.5b.

Hangzhou Zhongheng Electric is positioned in areas that may be influenced by infrastructure and power investment, which is why softer inflation data and renewed stimulus talk could matter for this stock. Forecast revenue growth of around 33.5% a year and earnings growth above 40% are paired with high quality earnings, experienced management and strong board independence, plus a recently affirmed dividend and a planned CN¥4.10b capital raise that includes CATL as a key investor. The trade off is a volatile share price, a P/S multiple well above peers and a balance sheet that depends entirely on higher risk external borrowing, which means sentiment can turn quickly if growth or funding conditions change.

Hangzhou Zhongheng Electric sits at the crossroads of fast growth forecasts and a volatile, fully debt funded balance sheet. For more details, see the 2 key rewards and 1 important warning sign

Ningbo Deye Technology Group (SHSE:605117)

Ningbo Deye Technology Group is a CN¥108b manufacturer of solar inverters, energy storage systems, dehumidifiers and air treatment equipment, as well as heat exchangers and solar powered air conditioners that are sold in China and exported to markets including Germany, India, South Africa, Ukraine and the United Arab Emirates. Its portfolio spans residential and industrial solutions, from grid tied micro inverters to customized air handling units, giving the company exposure to both clean energy and environmental control demand.

Ningbo Deye Technology Group operates at the point where stimulus focused infrastructure and clean energy projects intersect with rising demand for reliable power and climate control. Analysts currently forecast earnings and revenue growth supported by high profit margins and a projected ROE above 40%, and the stock is reported to be trading below one DCF estimate of fair value. At the same time, investors need to weigh funding risk from heavy use of external borrowing and an inconsistent dividend record against the appeal of experienced management and a refreshed board that is still bedding in. For anyone monitoring how weaker inflation could influence targeted support for energy and construction related spending, this is a story worth understanding in more detail.

High projected margins and ROE above 40% suggest Ningbo Deye Technology Group’s growth story might be stronger than it looks at first glance. See how that squares with funding risks in the analyst forecasts for Ningbo Deye Technology Group

Seeking Alternatives Before Others Catch On

Fresh ideas often move first. By the time momentum is obvious, the best entry points may be gone. Review these curated shortlists while they are still relatively under the radar and consider them before they become widely noticed.

• Identify companies with strong cash generation and solid balance sheets before they gain broad attention by reviewing the 263 high quality undervalued stocks.
• Follow the power grid build out and monitor potential suppliers that may be positioned to benefit by using the curated 37 power grid technology and infrastructure stocks.
• Explore the expanding field of automation and look for potential early momentum with a focused review of the 37 robotics and automation stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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