Reuters recently reported that UBS (NYSE:UBS) intends to resume share repurchases in 2024, doing as much as $1 billion in buybacks over the next year.
The move is part of the reallocation of cost savings it intends to find from the purchase of Credit Suisse. The integration plan for Credit Suisse includes finding up to $13 billion in cost savings by the end of 2026.
The share repurchases will likely accelerate should its cost savings goals be met over the next three years. This possibility has got me thinking about Chinese stocks and share repurchases. Chinese stocks have been hit more than most in the past year.
One of the best ways to buy China Class A shares is through the iShares MSCI China A ETF (BATS:CNYA). It tracks the performance of domestic Chinese equities listed on the Shanghai or Shenzhen Stock Exchanges. The ETF currently has 564 holdings.
Many of its holdings have the cash flow necessary to do buybacks. Here are three that should be stepping up their share repurchases in 2024.
China Merchants Bank (CIHKY)
China Merchants Bank (OTCMKTS:CIHKY) is the third-largest holding in CNYA with a 1.78% weighting. Its shares are down nearly 36% over the past year.
The Chinese bank was founded in 1987. It was the first bank to undertake business outside of the government. Today, it has 143 branches, and 1,443 sub-branches, all located in 130 mainland China cities. According to the UK trade publication TheBanker.com, it is 11th on its most recent list of the Top 1000 World Banks.
The bank made the news recently in a bad way. The Chinese government gave Tian Huiyu, its former president, a suspended death sentence over bribes and insider trading. The official verdict gave the executive a two-year suspension (converted to imprisonment if he’s not found guilty of more crimes in that time). He was arrested in Oct. 2022. As part of his arrest, he was kicked out of the Communist Party.
Despite the negative commentary from Goldman Sachs regarding Merchants Bank’s exposure to local government financing vehicles (LGFVs), the bank says that it only had $18.3 billion in loans to LGFVs at the end of 2022, about 13% of Goldman Sachs’ estimate.
In the nine months ended Sept. 30, 2023, Merchants Bank had 260.2 billion Chinese yuan ($36.2 billion) in operating profits. While 1.74% lower than the same period a year earlier, it has plenty to buy back its shares.
In January, buybacks of China A shares ($2.5 billion) by Chinese companies were the highest monthly amount in the past three years.
BYD (BYDDF)
BYD (OTCMKTS:BYDDF) is the 10th-largest holding in CNYA with a 0.91% weighting. Its shares are down over 22% in the past year.
BYD became famous because Warren Buffett and Charlie Munger invested $230 million in the Chinese automaker in 2008 when electric vehicles weren’t even on the radar. It was Munger who pushed for Berkshire Hathaway (NYSE:BRK.B), calling its founder, Wang Chuanfu, a cross between “Thomas Edison and Jack Welch,” Fortune reported.
Although Berkshire began selling down its stake in 2022, it still owns 87.6 million (8% 0f BYD) of the original 225 million shares. The holding company has long since got its initial investment back.
In January, BYD overtook Tesla (NASDAQ:TSLA) to become the world’s largest seller of fully electric vehicles. Although the company doesn’t sell any of its passenger vehicles in the U.S. yet, it does sell its electric buses, which are made in California.
Its vertically integrated EV business makes its own lithium iron phosphate batteries for its needs and sells the rest to other car manufacturers.
At the end of January, BYD reported a preliminary 2023 net income of between 29 billion Chinese yuan ($4.03 billion) and 31 billion ($4.31 billion). The result was just shy of the top end of its analyst estimate for the year of 31.5 billion ($4.38 billion).
That’s still an impressive profit. As a result of the company’s significant profit for the year, BYD announced a share buyback of 200 million Chinese yuan ($27.9 million) in December.
It could easily afford to do 20x the announced amount without losing sleep. I’m sure Buffett hopes it does.
Haier Smart Home (HSHCY)
Haier Smart Home (OTCMKTS:HSHCY) is the 38th-largest holding in CNYA with a 0.43% weighting. Its shares are down more than 19% in the past year.
Haier is the largest manufacturer of household appliances in the world. It uses smart technology to improve the consumer’s home experience. Its brands include Haier, Casarte, Leader and GE Appliances.
In December, the company announced acquiring Carrier Global’s (NYSE:CARR) commercial refrigeration business for $640 million. It paid approximately 11x the business’s 2022 earnings.
Carrier’s commercial refrigeration business has over 2,000 service technicians operating in 10 countries, including the U.S. The transaction is expected to close in the second half of 2024.
Up until the announcement of this acquisition, Haier didn’t have a commercial segment of its business. It does now, which enables it to grow its presence in food retail refrigeration and cold storage.
In the first nine months ended Sept. 30, Haier had an operating cash flow of 13.2 billion Chinese yuan ($1.83 billion), up from 11.3 billion ($1.57 billion) in the same period in 2022. Its free cash flow in the first three quarters was 7.13 billion Chinese yuan ($990 million).
In April 2023, its board approved a share repurchase program of 3.0 billion Chinese yuan ($420 million) over the next 12 months. With an annualized free cash flow of $1.32 billion, it has plenty to make the buys. However, the program put a ceiling of 32 Chinese yuan ($4.45) a share on the buyback.
As of Sept. 30, 2023, it repurchased 40.41 million A shares for 921.83 million Chinese yuan ($128.1 million), or 22.81 Chinese yuan ($3.17) per share.
It’s likely to complete the minimum buyback required by the authorization of 1.5 billion Chinese yuan ($210 million) before the April 2024 deadline.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
