3 Sectors with the Biggest Fair Value Increases

Which sectors and stocks did our analysts feel were worth a 10% increase?

Kate Lin, CAIA 09 September, 2021 | 12:13
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At Morningstar, increases in fair value estimates for companies across Greater China were at a slower rate in the second-quarter earnings season compared to the previous quarter.

Some may think this is because of volatility and uncertainty around the Chinese regulatory landscape, but this is not the case. Morningstar equity analysts conduct fundamental analysis and create a financial model to determine a company's intrinsic value and a fair value for its stock. While our analysts stick to a long-term approach to investing, they monitor quarterly earnings results and other factors to update their assumptions and potentially their estimates.

Between June and August, only 18 names received a 10% increase, with one-third of them coming from tech hardware-related companies, followed by two from utilities and another two from consumer cyclical. From Feb to May, 38 companies receiving an upward adjustment of 10% in their fair value.

 

Leaders of the Pack

Tech leads the pack in terms of fair value increases. One-third of our technology coverage received an increase of more than 10%. Here’s the list:

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The demand for PCs is to last longer than expected in the post-pandemic environment, benefitting companies like Lenovo Group (00992), which has an ideal mix of computer products, from high-end gaming PCs to enterprise devices. Our analysts also highlight Taiwan-listed Yageo Corp’s (2327) participation in EV battery chemistry as it is known for supplying multilayer ceramic capacitors, a component that regulates any electronic devices’ current flow. Sunny Optical (02382) is positioned to capture benefits from both the anticipatory upgrade of smartphone cameras in 2022 and the lens installed for auto-pilot purposes.

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While the managers’ favorite, foundry TSMC (2330) is inching closer to its fair value, investors can eye chip designer MediaTek (2454) as a semiconductor play with deep value. Phelix Lee, Morningstar’s equity analyst, set its fair value at NT$ 1,730, following an upward adjustment of 90% and 12% respectively after the first- and the second-quarter earnings announcement.

 

Sportswear Demand Chain

Supplying for global apparel giants, and catering to Chinese nationals’ preference for homegrown consumer brands consumer sports apparel companies saw a boost.

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Inking order contract with global leading sportswear brands brings Shenzhou International (02313) into light. In addition to the existing production relationship with Nike, Adidas, Puma and Uniqlo, the refreshed fair value of HK$ 171 (+71% in three months) is to reflect the signing of Lululemon as client. ANTA Sports (02020) leads an entirely different path. The company uses acquisition strategy to maintain a diversified portfolio of premium sportswear and sports equipment brands. The rich brand portfolio earns the firm  a 57% boost to its fair value over the past three months.

 

More Gas

Unlike the increases in the tech and sportswear sectors, the fair value increases in utilities were more driven by Chinese government’s long-term vision to lift gas usage. 

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ENN Energy (02688) and China Resources Gas Group (01193) are among the beneficiaries to ride on China’s pledge to reduce pollution by increasing gas usage to 15% of the country’s energy sources by 2030, from below 10% currently. Chokwai Lee, senior equity analyst, says the policy will underpin the long-term demand growth for gas. “We expect to see strong recovery in natural gas sales given that negative impacts from COVID-19 have waned,” says Lee, adding that both companies posted a strong second-quarter earnings. As a result, shares in both companies received a raise of around 10%. 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
AAC Technologies Holdings Inc32.80 HKD1.71Rating
ANTA Sports Products Ltd125.70 HKD1.53Rating
ENN Energy Holdings Ltd135.30 HKD-1.60Rating
Lenovo Group Ltd8.44 HKD1.93Rating
MediaTek Inc1,065.00 TWD0.47Rating
Shenzhou International Group Holdings Ltd156.50 HKD3.44Rating
Sunny Optical Technology (Group) Co Ltd228.40 HKD-0.09Rating
Xiaomi Corp Class B19.24 HKD0.63Rating
Yageo Corp456.00 TWD-2.04Rating

About Author

Kate Lin, CAIA

Kate Lin, CAIA  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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