China’s No. 3 Stock Happens to Be in Trump’s Cross-Hairs

(Bloomberg) -- One of China’s best-performing stocks so far in 2020 is a little-known server maker that last year abruptly joined the same U.S. blacklist that threatens Huawei Technologies Co.’s survival. Investors are betting that Beijing’s rapidly emerging plan to invest trillions in technology will outweigh the Trump administration’s curbs.

Dawning Information Industry Co. has soared 60% since the start of the year, making it the third-best performer year to date on the benchmark CSI 300 index of Shanghai and Shenzhen stocks. It’s now trading at about 56 times its projected 2020 earnings, above its average over the past three years -- yet some analysts think its uptrend is set to continue.

Dawning’s among the Chinese companies at the center of efforts by Washington to stall the rapid rise of China’s IT industry. The U.S. Commerce Department blacklisted the Beijing-based company a year ago, requiring its American suppliers to get a license from the U.S. government in order to sell their products. Also on the entity list was the company’s advanced computing processor subsidiary, which operates American chip giant Advanced Mirco Devices Inc.’s joint-venture in China.

“China and the U.S. are most likely heading toward greater friction in technology,” said Wang Chen, a Shanghai-based partner with XuFunds Investment Management Co. “Companies that possess core technologies and good business models will benefit.” Dawning’s tech strength was demonstrated by its recent China Telecom procurement deal win, he added.

Beijing’s plan to invest heavily in the country’s IT infrastructure to reboot its virus-stricken economy could propel Dawning’s business. The supercomputers, servers and storage equipment it makes are essential to China’s ambitious “new infrastructure” initiative that has technologies such as large-scale data centers and next-generation telecom networks at its heart.

“The business potential from the company’s partnership deals with Loongson and Cambricon is not fully realized,” Wang Jianhui, an analyst at Dongxing Securities said referring to two up-and-coming state-backed chip developers. “The stock price should have more room to grow.”

©2020 Bloomberg L.P.

With assistance from Bloomberg