Investors can ill afford to ignore China’s consumer sector with its hundreds of millions of participants, especially since long-term government policies like urbanization are designed to increase their numbers and spending power. But it may seem that’s exactly what investors should do in the face of a year-and-a-half of slowing consumer spending growth and recent lackluster corporate results caused by shorter-term government measures to fight inflation. Analysts generally don’t expect an immediate turnaround for the sector as a whole. But they assert investors can find good value by being selective.
UOB Kay Hian Securities said in a recent research note, “…we think the recent pullback is a good time to seek out quality names at reasonable prices.” Finding good quality means looking for solid growth prospects, attractive valuations and fundamental drivers for longer-term growth, UOB said.
The two companies that came to the top of the brokerage’s search were automaker Geely (GELYY) and fashion retailer Giordano (GRDZF). UOB likes Geely’s successful product launches and market positioning. The company will also gain from rising demand for passenger vehicles. Giordano features good inventory management and ample cash flow that will continue to support decent dividend yields, UOB said.
Consumer Discretionary Stocks ‘Oversold’
CLSA noted in an analysis that most Chinese consumer stocks reported fiscal year 2012 results in-line with or lower than market expectations. “We believe that China consumer discretionary stocks were over-sold in the reporting season,” CLSA said.
The securities firm prefers footwear seller Belle (BELLY) and department store operator Golden Eagle (GDNEY), calling them “quality and sophisticated retailers.” The two big consumer plays “ plan to slow down store roll-out in 2013 to solidify margins and ramp up stores opened in the past 2 years,” according to CLSA.
Not all experts agree with the above picks, of course, but one company name that comes up frequently in recommendations is Want Want (WWNTY). CLSA praised the rice cake and snack food retailer for “significant gross margin expansion.” Want Want and Vinda (VDAHY), which makes paper towels and other paper consumables, are ClSA’s favorites among staples producers.
UOB placed Want Want among the top four consumer brands based on market positioning, industry competition, distribution capabilities and inventory management. Jackson Wong, vice president of sales at Tanrich Securities, said in an email to Equities that safety and operational issues are keys in the food and beverage secto, and Want Want is well-regarded in those areas. End