Wall Street banks name their favorite Asia stocks — and Citi says one could have upside of 167%

Published Mon, Mar 21 20227:59 PM EDTUpdated Tue, Mar 22 20227:57 PM EDT

Analysts from Goldman Sachs and Citi have named their top stock picks for Asia-Pacific, as the region grapples with rising inflation and geopolitical risks from the Russia-Ukraine conflict. Goldman Sachs sees continued near-term volatility on the back of geopolitical risk from the Russia-Ukraine conflict — but sees potential for good returns on a longer-term view. The bank flagged higher energy prices as a drag on growth and inflation, forecasting lower GDP growth and higher inflation for the region. Against this backdrop, the bank said it continues to like stocks with high and stable margins and which have positive earnings revisions. Goldman said these stocks have outperformed those with volatile margins over the past two years, while the market has continued to reward companies with strong and positive earnings revisions. "We think companies with high and stable [earnings before interest and taxes] margins (which is indicative of their stronger pricing power) should perform better as they will likely be able to pass through costs to consumers and protect margins amid high input cost inflation," Goldman's analysts, led by Timothy Moe, said on March 14. The bank's top picks include Tencent , Anta Sports , Samsung Electronics , Taiwan Semiconductor Manufacturing Company , Tata Consultancy , Infosys , Telkom Indonesia and alcoholic beverage makers Kweichow Moutai and Wuliangye Yibin . Citi's picks Citi has published its list of "top differentiated calls" for Asia, including nine of the bank's "most differentiated, high conviction calls" it expects to beat consensus. Real estate fund manager Charter Hall makes the bank's list, given the sector's "positive" operational landscape, according to analyst Suraj Nebhani. He noted that property allocations for most institutional investors remain below target, which should benefit larger and established fund managers like Charter Hall that have a proven track record of outperforming benchmarks and peers. The bank has a price target of 24.5 Australian dollars ($18.10) on the stock — the highest price target on the Street and 16% above consensus. The stock closed at $16 Australian dollars on Friday, representing a potential upside of 53.1%. Citi also likes Chinese electrical machinery and equipment manufacturer XJ Electric . The bank expects the company to benefit from China's plan to build more ultra-high voltage transmission to facilitate electricity transmission from new wind and solar farms in remote areas. The bank has a price target of 30 Chinese yuan ($4.70) on the stock — the highest on the Street. The stock closed at around 18.6 Chinese yuan on Friday, implying a potential upside of 61.3%. Chinese industrial instruments manufacturer Shenzhen Topband is another of Citi's high conviction calls. The bank expects the company to post revenue growth of 30% this year despite a global macro slowdown. Citi has a price target of 29.4 Chinese yuan on the stock, which represents a 167.3% potential upside to the stock's closing price of around 11 Chinese yuan on March 18. Wharf Real Estate Investment also makes Citi's list. The company is the key border reopening trade stock in the Hong Kong property sector with the highest leverage to tourist spending, analyst Ken Yeung said. He sees "enhanced opportunities" to accumulate the stock on expectations of a border reopening in the second half of the year. The bank's price target of 48.3 Hong Kong dollars ($6.20) on the stock is 33% higher than consensus, according to Citi. It also represents a 23.8% potential upside to the stock's closing price of around HK$39 on March 18. "We believe most of the negative factors have been priced into the stock. We also believe major properties, including Harbour City and Times Square, should see immediate catch-up in turnover rent, as the base rent is already quite low, if HK-China borders reopen in 2H22," Yeung said. Citi also has the highest price target on the Street on Indonesian conglomerate Astra International . The bank expects the company to register "buoyant" earnings on the back of higher commodity prices. The company should post earnings per share growth of 16.3% for 2022, according to analyst Ferry Wong. The bank has a price target of 8,200 Indonesian rupiahs ($0.60) on the stock, which closed at 6,400 rupiahs on Friday, representing a potential upside of 28.1%. Citi also likes Japanese automaker Isuzu Motors for its profit growth prospects, improvement in operating margin and alliances with other automakers. The bank has a price target of 2,500 Japanese yen ($21) on the stock, which closed at 1,580 yen on March 18 — an implied upside of 58.2%. Japanese financial conglomerate SBI Holdings is also a Citi favorite. The bank described the company as one of the few growth stocks in the Japanese financial sector. Citi expects the company to see growth in online securities and fintech investments. It also views the company's consolidation of Shinsei Bank as a positive that has not been fully priced in by the market, according to analyst Koichi Niwa. The bank has a price target of 4,500 Japanese yen on the stock, which represents a 44.2% potential upside to the stock's closing price of around 3,120 yen on March 18. Citi also likes Japanese financial services giant SoftBank for its high free cash flow margin and return on invested capital — the latter a measure of how well a company is using its capital to generate profits. The bank also likes SoftBank's growth potential in the 5G, internet and mobile payment spaces. Citi has a price target of 2,700 Japanese yen on the stock, which closed at around 1,500 Japanese yen on Friday — an implied upside of 80%. Rounding off Citi's list is Takeda Pharmaceutical . The bank said it is "optimistic" that the company can deliver "stable growth" on the back of its global expansion and wide range of highly competitive products. The bank has a price target of 5,000 Japanese yen on the stock, which represents a potential upside of 39.3% to the stock's closing price of around 3,590 yen on March 18.

The New York Stock Exchange in lower Manhattan on Nov. 24, 2020 in New York City.

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Analysts from Goldman Sachs and Citi have named their top stock picks for Asia-Pacific, as the region grapples with rising inflation and geopolitical risks from the Russia-Ukraine conflict.