Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Rebecca Jiang. She is Manager of the JPMorgan China Growth & Income Trust. Hello.
Rebecca Jiang: Hi, good morning.
Black: So, you've got three stocks for us this morning, unsurprisingly, all with a China focus. Where would you like to start?
Jiang: I think I'll start with WuXi Biologics. This is an example of capable Chinese companies winning business globally. There is a saying in English that during a gold rush sell shovels and WuXi Biologics is exactly the one that are selling shovels to all the gold miners in the biologics space.
We know that there are a lot of innovations that are currently happening in biologics. New targets, new therapies are being discovered and developed. However, no innovation comes without any risks. And in that sense, we believe that WuXi Biologics actually provides a very unique opportunity to play the global biologics innovation. Basically, what this company does is a research outsourcing organization. What it does is that it helps the biologics companies to research and develop a drug candidate at a faster and cheaper pace.
Now, because of its technology leadership and cost advantage its market share over the last couple of years has rose really dramatically and we expect to be able to deliver earnings at 40% CAGR in the next five years.
Black: And I'm guessing this is the sort of company that has had a massive tailwind from the Covid-19 pandemic too.
Jiang: Yes, exactly. It has actually gotten a billion order book that's related to Covid vaccine and antibody development. That's almost the entire revenue that the company generated three years ago.
Black: Wow. Okay. What's stock number two?
Jiang: Stock number two is a company called Kingdee. So, basically, this is an example of domestic champions winning in a large domestic market. The company is the largest corporate ERP software provider in China. It is also the first mover in launching cloud-based ERP solutions. While the transition from on-premise software to cloud-based and subscription-based business model is almost always painful to short-term revenues, we willing to take a long-term view believe that it's actually great for the company's long-term profitability as well as sustainability of those earnings.
Now, last year, I think Covid has changed many aspects of our lives, including in the corporate world that a lot of activities are now much more digitalized and happening on the on the cloud. So, this has been a great opportunity for Kingdee to push its customers to migrate to its new cloud-based software offerings. Now, we clearly believe that the Chinese corporates are still in the very early stage of that migration and transition and Kingdee as the market leader really solidifies its leading position during a very challenging period like last year.
Black: Okay. And what is our final stock today?
Jiang: The final stock is company called Pinduoduo. This is an extremely young company with only five years of history. Yet it is already the second largest ecommerce platform operator in China with 700 million users and a 200 billion market cap. I think the key secret to its success is really entrepreneurship. The business was founded in a time when the Chinese online shopping space was already dominated one by one player, which is Alibaba. However, the company, by targeting a different group of customers which were previously underserved as well as differentiation in product offerings such as agricultural products, has built a royal group of core customers and have been leveraging on that to further expand its reaches. Now, we think the growth opportunities ahead of the companies are still abundant, particularly in areas like where online penetration is still low like fresh products and the management is very long-term focused and very forward-looking which is in line with our investment philosophy.
Black: Rebecca, thank you so much for your time. For Morningstar, I'm Holly Black.
