CMBI Research China & Hong Kong Stock Picks (December 2023)
Some quick observations about Chinese F&B products or brands who have ventured to SE Asia + Luxshare Precision Industry, Xiaomi Corp, J&T Global Express, Topsports, NIO Inc, Cafe De Coral, etc.
CMB International Capital Corporation is a wholly owned subsidiary of China Merchants Bank (SHA: 600036 / HKG: 3968 / OTCMKTS: CIHKY / OTCMKTS: CIHHF) - one of the largest banking groups and the largest privately-owned bank in China. They come out with (and post on their website) a steady stream of free research pieces - namely China and Hong Kong stock picks (see our front page for a full list of TAGS for our EM Stock Pick Tear Sheets)
Stocks covered during the month of December (not too many for the month) and in this post include:
Tongda Group Holdings Ltd, Luxshare Precision Industry, Xiaomi Corp, Xtep, J&T Global Express Ltd, Topsports, Shengyi Tech, BeiGene, Kingdee International Software Group, GigaCloud Technology, NIO Inc, WuXi Biologics, CSPC Pharmaceutical, Cafe De Coral & JOYY Inc
They also come out with (and post on their website) a monthly list of 20+ high conviction stock ideas - namely Chinese stock picks (see our May, June, July, August, September, October and November posts summarizing those) BUT these lists do not change too much from month to month. They did not do a list for December, but this post has updated charts and stats for their November list which were the following stocks:
Li Auto, Geely Automobile Holdings, Weichai Power, Zhejiang Dingli, CR Power, CR Gas, JNBY Design, JS Global Lifestyle, Vesync, Kweichow Moutai, Innovent Biologics, AIA Group, Tencent, Pinduoduo, Netflix, Kuaishou Technology, CR Land, BYD Electronic International Co Ltd, Zhongji Innolight Co Ltd & Kingdee International Software Group
With sluggish growth and growing demographic problems at home along with regulatory uncertainty, Chinese companies and brands would be wise to look abroad with SE Asia being a natural destination.
Last night while walking to the mamak place that I had not eaten at since going out of the country for the holidays, I noticed a KG’ Snacks (“I come from Shenzhen, China”) store had taken over a corner where a Middle East restaurant had recently closed (they relocated into the hotel across the street):
The store is full of snack products and drinks from China e.g. if you zoom in to the center of the picture, you will see the red labelled bottled water from Nongfu Spring (HKG: 9633 / OTCMKTS: NNFSF) that is ubiquitous in Chinese convenience stores and supermarkets.
The store is in an excellent location because the tour buses carrying tourists on package tours (from China and elsewhere in SE Asia) must turn the corner and park in the parking lot across the street so they can walk to Jalan Alor (a crowded outdoor eating street). This means there is no need to pay tour companies any kickbacks as the tourists on the buses (or those walking from a couple of hotels nearby where I have noticed tour groups often staying) can’t miss seeing (or walking by) the store. Plus rent is probably significantly cheaper than on Jalan Alor itself (where the last I heard, just a stand with no water hook-up costs Myr2,000 or $420 a month).
What intrigued me (aside from the assortment of interesting snacks and beverages from China who’s producers would be worth researching to see if they have stock listings) were the signs hanging from the ceiling claiming 400 stores nationwide. However, when I Googled and checked social media, nothing seems to come up (although I don’t know how to search for the store’s name in Chinese characters and it has not been added to Google Maps yet); but the store’s design clearly looks very corporate or like that of a big branded chain. KG also apparently is an abbreviation for Kangaroo - the mascot you see on some of the signage in the store.
So this may very well be a snack and convenience store chain from China that has 400 stores somewhere (maybe in China, but definitely not in Malaysia…) or it could be a business started by a local wholesaler importing Chinese products who wants to pretend to be from Shenzhen.
Malaysia also has another snack and convenience store chain called MiX selling snacks, food and beverages from around the region:
Below is the small MiX store close to the main intersection in the heart of Bukit Bintang that is usually thronged with both tourists and locals alike:
And here is a video of their bigger flagship store showing the variety of products:
I have seen some online claims that MiX is from Taiwan, but I have not seen any evidence of this or of their existence outside Malaysia. Its probably a retail chain started by a local wholesaler that certainly would not mind having customers think they are from Taiwan.
There is also a little flag printed on each shelf label so you know what country each product comes from - a nice touch. No country’s products seem to dominate the selection in the small Bukit Bintang outlet e.g. I’ve bought canned Papaya milk from Taiwan and a surprisingly good but reasonably priced yogurt muesli from China there in the past.
Finally, some of our Monday posts have noted Mixue’s plans to go public:
🇨🇳 China's largest bubble tea makers Mixue and Guming apply for Hong Kong IPO (Reuters)
Mixue, which has roughly 36,000 stores, is looking to raise $500 million to $1 billion in its Hong Kong IPO, while Guming, with 9,000, is aiming to raise $300 million to $500 million, according to a source with direct knowledge of the matter.
Bubble tea is one of the few bright spots on the consumer front in China, with low-price operators doing particularly well.
Shares in Hong Kong-listed Nayuki Holdings (HKG: 2150 / OTCMKTS: NYKHF), the country's only publicly traded bubble tea chain, have dropped roughly 80% since their debut in 2021, when consumer confidence was higher.
🇨🇳 MIXUE Group IPO: The Investment Case (Smartkarma) $
Mixue Group (MIX HK), a world-leading freshly made drinks company, filed for an HKEx IPO to raise US$0.5-1.0 billion.
Mixue is China’s largest and the world’s second-largest freshly made drinks company, in terms of both the number of stores and cups sold in 9M23, according to CIC.
The investment case rests on a strong brand, leading market share, high revenue growth, robust cost control, stable profitability and cash generation.
Although I have not bought anything from them yet, there are at least two Mixues that have recently opened a short walk from the main intersection in the heart of Bukit Bintang:
Mixue would face considerable competition in Malaysia (from street vendors, convenience stores, bubble or milk tea shops, mamak stands, etc); but SE Asia’s hot climate also means plenty of year round business for ice cream and cold drinks that are reasonably priced.
My point is that the Chinese food and beverage products in KG’ Snacks (“I come from Shenzhen, China”) and MiX along with Mixue do show that Chinese brands have come a long way and have the potential to succeed overseas - especially if they focus their attention on starting in SE Asia where there are large overseas Chinese communities along with tourists coming from China. And while there might be some anti-China sentiment in SE Asia, locals are still going to be open minded to trying reasonably priced food and beverage products that taste good…
Getting back to CMBI’s stock picks: Note that when I click on their website, I receive NO pop-up asking what sort of investor I am or my location; but there is this disclaimer at the end of each research report that readers need to be aware of:
This post will NOT be quoting directly from the research documents themselves (beyond giving the title to the linked research report - please keep the above disclosures in mind).
To make your life easier, this post includes:
A heading with the stock name.
A quick description of the stock pick with links to the IR page and stock quote(s) on Yahoo! Finance.
A link to any Wikipedia page (for what it might be worth…)
The title of the report linked to the file page on the CMBI website about the stock pick.
Forward or trailing P/E and dividend yields linked back to the Yahoo! Finance statistics page.
The latest long term technical chart linked back to Yahoo! Finance.
And as always, this post is provided for informational purposes only (and to make your life easier…). It does not constitute investment advice and/or a recommendation…
CMBI Research (December 2023)
Tongda Group Holdings Ltd
Tongda Group Holdings Ltd (HKG: 0698 / FRA: TJC) specialises in global smart mobile communications and consumer electronics products, covering handsets, smart home appliances, automotive, household and sports goods, network communications facilities and 5G related business.
Tongda (698 HK) – Positive on earnings recovery in FY24-25E after disposal of Apple business
Forward P/E: 3.73 / Forward Annual Dividend Yield: N/A (Yahoo! Finance)
Luxshare Precision Industry
Luxshare Precision Industry (SHE: 002475) is a global designer and manufacturer of cable assembly and connector system solutions for consumer, automotive, cloud, and enterprise applications. Dedicated to flexible design, agile manufacturing, and collaborative partnerships, they work with technology leaders to create innovative solutions that transform industries.
The product portfolio includes: cables, connectors, motors, wireless charges, FPCs, antennas, and acoustic and electronic modules. They provide one-stop solutions for a broad range of industries, including consumer electronics (computers, devices and peripherals), enterprise and cloud applications, automotive and medical.
Luxshare Precision Industry Co., Ltd was founded in 2004 and listed publicly on the SME board of the Shenzhen Stock Exchange in 2010.
Forward P/E: 14.31 / Forward Annual Dividend Yield: 0.45% (Yahoo! Finance)
Xiaomi Corp
Xiaomi (HKG: 1810 / FRA: 3CP / OTCMKTS: XIACF) is a consumer electronics and smart manufacturing company with smartphones and smart hardware connected by an IoT platform at its core.
As of the second quarter of 2023, Xiaomi ranked among the top 3 in the global smartphone market, in terms of smartphone shipments, according to Canalys. The company has also established the world’s leading consumer AIoT (AI+IoT) platform, with 606.0 million smart devices connected to its platform, excluding smartphones, tablets and laptops, as of June 30, 2023. Xiaomi products are present in more than 100 countries and regions around the world. In August 2023, the company listed as Fortune Global 500 for the 5th consecutive year.
Forward P/E: 18.08 / Forward Annual Dividend Yield: N/A (Yahoo! Finance)
