Why This Analyst Is Bullish On 2 China Tech Stocks: NIO And A Solar PV Industry Leader

Why This Analyst Is Bullish On 2 China Tech Stocks: NIO And A Solar PV Industry Leader

Gianni Di Poce is an analyst at The Mercator, a research company dedicated to the study of economic and financial market trends.

Poce also pens Benzinga Pro's exclusive weekly 'Insider Report' with technical analysis, trading ideas, and market commentary.

For the week beginning July 4, Poce focuses on the Chinese tech sector.

“This ties into the solar trade we’ve been highlighting in recent weeks. In short, Chinese tech stocks are still trading at discounted valuations despite recent strength in the Chinese stock market,” Poce writes. He calls China’s tech sector his main opportunity.

What Is Happening: Daqo New Energy Crop DQ
Daqo is a leading manufacturer of high-purity polysilicon for the global solar PV industry. Founded in 2008, the company is one of the world’s lowest-cost producers of high-purity polysilicon. Daqo’s highly efficient and technically advanced manufacturing facility in Xinjiang, China currently has a nameplate annual polysilicon production capacity of 70,000 metric tons.

The company grew revenue to $1.2 billion last quarter, with a net income of $535 million. “Great margins!” noted Poce. Daqo has a modest valuation, with a P/E ratio of 4.5 versus 16.0 for the S&P 500.

The business is coming off of a banner year: in 2021, annual revenue and earnings grew to $1.68 billion and $748.92 million, versus $675.6 million and $129.19 million in revenue and earnings just one year earlier.

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Why It’s Happening: Poce says the increase in sales, coupled with the modest valuation is the crux of his thesis, though he considers that all Chinese stocks are married to major risk, government intervention, and trade regulation.

He notes that Daqo fits into the solar trade theme, and the company will additionally benefit from President Joe Biden’s two-year tariff holiday on solar panel imports.

“I am bullish on DQ as long as the stock remains above $60.00-$61.00,” Poce notes, with an upside target of up to $112.00.

Price action: Daqo New Energy shares traded 4.12% lower on Friday to close at $73.83.

What is happening: Nio Inc - ADR NIO

NIO is a Chinese multinational automobile manufacturer headquartered in Shanghai, specializing in designing and developing electric vehicles. The company is known for its development of battery-swapping stations for its vehicles as an alternative to conventional charging stations.

Poce recalls that NIO was a very popular stock among retail investors in 2021, but three-quarters of flat revenue, coupled with a shift of interest drew the stock down more than 42% in the last nine months.

The company is still losing money on an annual basis, he notes — it lost more than $4 billion in 2021 — and shares are still trading at a valuation that isn’t relatively cheap.

Why it’s happening:

The crux of the NIO thesis, Poce says, is based on two factors:

Energy is moving back into Chinese equities after a significant wash-out

  1. A promising technical pattern — Rounding Bottom
  2. On July 1, NIO reported June deliveries were 60% higher year-over-year. The company also expects to begin deliveries of three new models, the ES6, ES7, and ES8.

“I am bullish on NIO so long as the stock remains above $19.00-$19.25,” Poce said with an upside target of up to $36.00

Price action: Nio shares gained 0.40% on Friday to close at $22.60.

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