Global research firm, Nielsen recently reported that China’s Consumer Confidence Index in 1Q17 reached levels last seen in 2015, while immediate spending intentions had reached their highest levels since 2014.
Singapore lists a dozen stocks with a market capitalisation above S$100 million that reported at least one-tenth of their revenue to China in the last financial year. The 12 stocks have averaged a 25% total return in 2017 YTD.
The three best performing stocks of the 12 in the 2017 YTD were Best World International (BWI), Shangri-La Asia and Hanwell Holdings. Last month BWI reported a 1QFY17 EPS of 3.53 cents, up 63% YOY.
Singapore’s Consumer Sectors are made up of 150 stocks that face local consumers, in addition to stocks that face consumers all across Asia. While half the revenue associated with the Sector is reported to Singapore, one third of the stocks report revenue to China, and one third report revenue to Indonesia, Thailand and Malaysia.
Last year, Consumer Staples stocks were Singapore’s best Sector performers, with Consumer Discretionary stocks the fourth best performers. As noted earlier in the week (click
here) both Staples and Discretionary stocks were not amongst the five best performing Sectors over the first five months of 2017.
However, when associating Sectors and geographical revenues, one segment that has performed relatively well in the 2017 year to date are the consumer plays with revenue streams in China. This has coincided with recent advances in China’s consumer confidence.
Consumer Spending & Income Growth
A year ago McKinsey reported that Chinese consumers remained upbeat – noting that consumer confidence had been surprisingly resilient over recent years as salaries had continued to rise and unemployment stayed low. World Bank records show that China’s National Income per capita has been experiencing annual increases, growing from US$940 in 2000 to US$7,900 in 2015.
More recently global research firm, Nielsen reported China’s Consumer Confidence Index (CCI) in 1Q17 had reached levels last seen in 2015, while immediate spending intentions had reached their highest levels since 2014. The report (click
here) noted that last quarter China’s CCI reached 110 points, 10 points into the optimism threshold.
Key observations in the China CCI report included:
- Nielsen Managing Director of Nielsen China, Vishal Bali, observing that the China population is increasingly confident about employment opportunities and personal financials, which has been translating into a demand for premium products and services. Mr Bali stated that ‘consumers are looking to make upgraded purchases, and brands should be looking to capitalise on this’;
- Driven by growth from both online and offline, overall fast-moving consumer goods (FMCG) industry growth reached a new high in 1Q17. Nielsen’s study found that the total online sales value of 34 FMCG categories increased from 28% in 4Q16 to 31% in 1Q17; and
- The study added that increasingly more and more people are choose to shop FMCG products online. Statistics show that 92% of the respondents say their online shopping frequency will increase or maintain, and 93% of consumers will increase or maintain the amount of money spent online.
Both in China and across the region, online shopping and e-commerce has been impacting traditional supply chains of consumer businesses with manufacturers able to directly engage retailers and distributors able to increase retail channels.
Singapore Consumer Plays with a China Focus
Among the 150 or so Consumer stocks listed in Singapore, there are 12 stocks that are actively traded with a market capitalisation of more than S$100 million, which reported at least one-tenth of their revenue to China in the last financial year. The 12 stocks on average reported 46% of their last FY revenue to China, ranging from 14.6% for Jumbo Group, to 100% for Zhongmin Baihui Retail Group.
The 12 stocks have averaged a 25% total return in 2017 YTD.
Source: Company Annual Reports, Bloomberg & SGX StockFacts (data as of 7 June 2017)
Note: Stocks tabled above have a market cap greater than S$100M and reported more than 10% of geographical revenue to China in their last FY. Table excludes Alibaba Pictures Group due to less trading activity.
The three best 2017 YTD performing stocks of the 12 stocks tabled above were Best World International (BWI), Shangri-La Asia and Hanwell Holdings.
Best World International
- BWI was founded in 1990 and specialises in the development, manufacture and distribution of premium skincare, personal care, nutritional and wellness products - to customers through its direct selling network in multiple markets.
- Last month BWI reported a 1QFY17 EPS of 3.53 cents, up 63% year-on-year (YOY). This followed on from FY16 EPS of 12.56 cents which was up from EPS of 3.67 cents in FY15. In 2016 the company reported 61% of its revenue is from Taiwan and 29% of its revenue to China – this breakdown can be found on page 86 of the FY2016 Annual Report found here.
- Asides from Singapore and China, BWI has subsidiaries in Thailand, Taiwan, Indonesia, Malaysia, Vietnam, Hong Kong, Korea, Philippines, Myanmar and the UAE. The Company also manufactures and distributes the Aurigen line of supplements in China through drugstores in all provinces of China. To read the kopi-C interview with BWI founders Dora Hoan and Doreen Tan, click here.
Shangri-La Asia
- Shangri-La Asia is a secondary listing with a market capitalisation of S$8.0 billion and reports its financials on a semi-annual basis. The company operates and owns hotels and associated properties, and provides hotel management and related services. The company was founded in 1971 and currently has businesses mainly in China, Hong Kong, Singapore, Philippines and Malaysia. Their operating segments are Hotel Operation, Property Rentals and Hotel Management & related activities.
- For FY16 the company reported EPS of 2.97 US cents, compared to EPS of 3.93 US cents in FY15. Consolidated profit attributable to equity holders of the company after accounting for non-operating items in FY16 was US$106.1 million compared to US$140.1 million in FY15
- In its recently published Annual Report, Shangri-La Asia noted that the competitive situation in several cities in Mainland China, where the Group has most of its hotels and investment properties, was gradually easing as supply was absorbed by demand. Management also noted that overall revenue improvement had been marginal due to devaluation of Renminbi and expected profit performance to continue to improve through 2017 if the demand continues and Renminbi stabilises. To read the most recent annual report, click here. In the 2017 YTD the MSCI China Real Estate Index generated almost double the returns of the MSCI China Index, while the one US Dollar now buys 6.77 Renminbi, compared to 6.95 Renminbi at the end of 2016.
Hanwell Holdings
- Hanwell Holdings is a manufacturer, distributor and marker of a variety of consumer products. The company was incorporated as Provisions Suppliers Corporation (PSC) in 1974 and recently rebranded itself to become Hanwell Holdings in 2012. The company primarily exports to China, which made up 48% of its revenue in 2016. Singapore makes up 37% of its revenue, with Malaysia taking up the remaining 15%. The business segments are Packaging, Consumer Business and Health Solutions.
- Last month Hanwell Holdings reported a 1QFY17 EPS of 0.15 cents, up 36% year-on-year (YOY). This followed on from FY16 diluted EPS of 1.85 cents which was up from diluted EPS of 1.03 cents in FY15.
- In the recent Annual Report, Executive Chairman Allan Yap noted to manage the trading environment challenges ahead the Group will develop new products to enhance the range of product offerings. Dr Yap also noted risks of foreign exchange volatility, while stating that the Group will continue to implement stringent cost control measures and enhance production efficiency through automation. To read the most recent annual report, click here.
Expansion of the Consumer Sectors
The expansion of Singapore’s Consumer Sectors, made up of Consumer Staples and Consumer Discretionary stocks, has outpaced that of Asia Pacific over the past 20 years. The sectors have a similar day-to-day impact on the Straits Times Index (STI) and the regional MSCI AC Asia Pacific Index, with respective sector weights of 17% and 19%.
