Emerging Market Stock Pick Tear Sheets (July 1-15, 2023)

Restaurant stock picks (China/Hong Kong, India, Mexico, South Africa & Taiwan), East & SE Asian stock picks from Morningstar HK & Singapore and South African stock picks from Business Day TV.

Jul 16, 2023

This post is a compilation of links and briefs for our short EM Stock Pick Tear Sheets (separate section) for the last two weeks with a focus on restaurant stock picks (based in China / Hong Kong, India, Mexico, South Africa, and Taiwan), various East and SE Asian stock picks from Morningstar HK & Singapore and South African stock picks from Business Day TV.

As discussed in out June 30th compilation post, creating your own restaurant brand or concept is not easy BUT then you have control over everything. You also don’t have to worry about loosing franchising or development rights should there be a falling out with the international franchiser or a change in business direction.

On the other hand and even if you aren’t a regular Pizza Hut, McDonald’s, Starbucks, etc, customer, you are probably familiar with their menu offerings as these are global brands. This makes the stocks franchising these concepts a bit more attractive for international investors who would otherwise be unfamiliar with local or regional concepts.

I have been told from a business standpoint, having two franchised concepts for every one in-house created one makes the most business sense. However, the stocks covered in this post and our June 30th compilation have, for better or for worst, all taken different approaches.

For example: Westlife Foodworld Ltd is entirely focused on McDonald’s India. This is potentially risky, but it also means no distractions for management as they are no doubt experts on everything McDonald’s.

Likewise, we often forget how McDonald’s is more than just Big Macs as they cover the full meal spectrum (breakfast, lunch, snacks/coffee, dinner, and desserts):

Mexico based Alsea has taken a different business approach with 16 concepts also covering all consumer segments and parts of the day:

Likewise, some restaurant concepts or easy to prepare meal bases have near universal appeal e.g. tea/coffee/bakery, pizza, chicken, noodle, and dumpling concepts come to mind.

On pre-COVID stopovers to Taiwan, I would have at least a few late afternoon stops at Bafang Yunji International’s outlets for curry or kimchi poststickers or dumplings and delicious corn soup (in winter time…):

They also do frozen (as in, their outlets sell frozen dumplings and potstickers that can be prepared at home).

Given the COVID lockdowns, Bafang is or has already closed operations in mainland China (plus they are upgrading existing Taiwan outlets). This is probably a smart move as the parent stock of Taiwan’s other major homegrown chain, Gourmet Master (bakery cafes under the 85°C name), derives most of its revenues from either China or the USA - putting them squarely in the middle of geopolitical crosshairs (plus they are a Cayman Islands company to avoid paying Taiwan taxes which probably does not go over well at home…).

Bafang is also expanding in California in communities where there are many Asians, but I wish someone would franchise the chain in SE Asia. Dumplings and potstickers are relatively east to prepare (albeit the non-frozen ones are made by hand at Bafang), are filling plus they have broad appeal and not just with Asians. For example: I once took pictures of the dumplings (served with butter) at a Russian restaurant in Pataya and my dad said they looked just like the dumplings his (Slovenian or Croatian) grandmother would make.

Noodles are another food concept that has broad appeal with Pho probably being the last noodle dish to make significant inroads internationally. Personally, I think some of the cold noodles (served in what was once Manchuria in Northeast China) and shan noodles (from the Shan state in Myanmar) having the potential of becoming the next Pho - with the right marketing and some financial backing.

Meanwhile and as an analyst pointed out in our Barbeque Nation post, the casual dining market market is much tougher to scale due to the high number of stock-keeping units (SKUs) required compared with quick-service restaurants (QSRs). This makes standardization difficult plus many dishes will need to be made to order (albeit the use of central kitchens for meat marinades, sauces, etc. does help and is widely used in places like Singapore and even Malaysia where labor has gotten expensive or hard to find).

South Africa’s Spur Corporation Ltd (Spur Steak Ranches: "The official restaurant of the South African family…"), India’s Barbeque Nation (all you can eat barbecued meats), China’s Haidilao and Super Hi International Holding (hotpot) all have their own strategies for overcoming such challenges to dramatically scale up their businesses to become local and increasingly international restaurant leaders.

Finally, and on a different note: Even this recent Moody’s podcast acknowledged the “loadshedding” (blackout) situation in South Africa has improved a bit (e.g. the current winter is milder, coal plants have outperformed, etc.), but there are still challenges ahead:

Moody’s analysts discuss the credit effects of South Africa’s energy crisis, including macro and social implications, as well as the government’s plans to address the crisis.
Speakers: Aurelien Mali, Vice President – Senior Credit Officer, Moody’s Investors Service; Neil Griffiths-Lambeth, Associate Managing Director, Moody’s Investors Service

Our Business Day TV Daily Stock Picks (June 2023) post covers a number of interesting South African stocks. This includes some South African stocks in the consumer or retail sectors that focus on lower income market segments. Again, many South African stocks have expanded their operations to other African countries and even further afield.

However, I was exchanging messages with a fund manager in the USA who told me he has had trouble with South Africa because he needs to find another broker to invest there and the “currency is weird.” He also feels there are few cheap stocks there even right now even with the sentiment not being good.

As with India, South Africa does have a large local institutional and retail investor base that might ensure good local stocks aren’t ever going to be “cheap” - even when international sentiment is down.

Likewise, I was once on a bus in Perth Australia (where there are many South Africans and “Rhodesians”) and overheard some South Africans from Durban chatting. I know downtown Durban and the public beach area has a pretty bad reputation for violent crime (“I wouldn’t go there packing heat” as one former Durbanite once told me). However, one of these South Africans commented about Durban to the effect that “it always looks worst from the outside looking in…”

In other words, don’t write South Africa and South African stocks completely off as things often look worst to outsiders (and outside investors) than to locals (and local investors).

EM Stock Pick Tear Sheets Region/Country TAGS

Stock Pick Compilation Posts, Africa, Argentina, Chile, China, Colombia, Eastern Europe, Guyana, Hong Kong, India, Indonesia, Japan, Latin America, Macau, Malaysia, Mexico, Middle East, Nigeria, Poland, Singapore, South Africa, Southeast Asia, South Korea, Taiwan, Turkey & United Arab Emirates (UAE)

EM Stock Pick Tear Sheets Sector TAGS

Stock Pick Compilation Posts, Alcohol Stocks, AI Stocks, Auto Stocks, Bank Stocks, Battery Stocks, Biotech Stocks, Casino Stocks, Consumer Stocks, Financial Services Stocks, Fintech Stocks, Food & Beverage Stocks, Gaming Stocks, Health Care Stocks, Hospitality Stocks, Industrial Stocks, Insurance Stocks, Internet Stocks, Investment Holding Company Stocks, IT Services Stocks, Meme Stocks, Oil Stocks, Property Developer Stocks, Real Estate Stocks, REITs, Restaurant Stocks, Retail Stocks, Semiconductor Stocks, Tech Stocks & Telco Stocks

PAYWALLED

Bafang Yunji International (TPE: 2753): Turning Things Around and Expanding in HK Plus the USA $
Gourmet Master (TPE: 2723): Taiwan's Rapidly Expanding Version of Starbucks $
Business Day TV Daily Stock Picks (June 2023) Partially $
- Includes: Antofagasta, Impala Platinum Holdings, Anglo American Platinum, Afrimat, Naspers, Standard Bank, Nedbank, Firstrand, Redefine Property, Omnia, Northam Platinum, Stadio Holdings, Merafe Resources, AVI, Libstar, RCL, ABSA, CRESUD, Sanlam, KAP, Bidvest, Zeda, Telkom, Sea Limited, Ping AN, City Lodge, Astral Foods, Capitec, SA GOVT Bonds, Premier Group, Metrofile, CA Sales, Renergen, Pepkor, Anglo American, Pick N Pay & Mr Price
Morningstar Hong Kong & Singapore Stock of the Week (Q1 2023) Partially $
- Includes: I-Mab Biopharma, Kuaishou, PDD vs. JD.com, Link REIT, Shenzhou International, Japan Post Bank, Sumitomo Mitsui Financial Group, Sumitomo Mitsui Trust Holdings, Mitsubishi UFJ Financial Group, Grab vs. SEA, Sands China, Tencent, Country Garden Services, Singapore Airlines, Yum China, China Merchants Bank & China Mobile
Haidilao (HKG: 6862 / FRA: 8HI / OTCMKTS: HDALF): Cooking Up a Turnaround? $
Super Hi International Holding (HKG: 9658 / OTCMKTS: SPHIF): The Largest International Chinese Restaurant Brand Actually from China $

NON-PAYWALLED

(NOTE: Forward P/Es, dividend yields, and charts are from June 14th):

Spur Corporation Ltd (JSE: SUR): Owns South Africa's "Official Restaurant" and Has Produced Sizzling Results

Spur Corporation Ltd (JSE: SUR) is one of South Africa’s leading franchise business and the owner of homegrown Spur Steak Ranches - a themed family favorite fondly known as "the official restaurant of the South African family." Earlier in the year, the Company produced sizzling interim results, gave a bountiful dividend to shareholders, and as it said it was “cautiously optimistic about trading for the remainder of the financial year.”

P/E (Google Finance): 11.21 / Trailing P/E (Yahoo! Finance): 10.06 (no forward P/E)
Dividend Yield (Google Finance): 6.78% / Forward Dividend & Yield (Yahoo! Finance): 6.95%

Westlife Foodworld Ltd (NSE: WESTLIFE / BOM: 505533): India's McDonald's Master Franchisee is Hitting New Highs

India’s McDonald's master franchisee Westlife Foodworld Ltd (NSE: WESTLIFE / BOM: 505533) has recently reported record FY 2023 results and has given a strong business outlook. Shares have also been hitting all time highs.

(Note: Depending on your location, you may need VPN to access their website)

P/E (Google Finance): 123.24 / Trailing P/E (Yahoo! Finance): 123.41 (no forward P/E)
Dividend Yield (Google Finance): N/A / Forward Dividend & Yield (Yahoo! Finance): N/A

Restaurant Brands Asia Ltd (NSE: RBA / BOM: 543248): Inflation Pains as Expansion Continues in India and Indonesia

Restaurant Brands Asia Ltd (NSE: RBA / BOM: 543248) is the master franchisee of Burger King in India and Indonesia where it also operates POPEYES. The Company’s is still trying to recover from COVID as it continues to expand while restaurants and consumers in India have been feeling pain from rising costs of essentials. However, shares have recently soared on talk that a key shareholder is looking to sell it’s stake.

P/E (Google Finance): N/A / Forward P/E (Yahoo! Finance): 2.50k
Dividend Yield (Google Finance): N/A / Forward Dividend & Yield (Yahoo! Finance): N/A

Alsea (BMV: ALSEA / FRA: 4FU / OTCMKTS: ALSSF): Seeing Robust Starbucks and QSR Growth

Mexico based Alsea SAB de CV (BMV: ALSEA / FRA: 4FU / OTCMKTS: ALSSF) is the leading restaurant operator in Latin America and Spain of global brands in the quick service, coffee shop (Starbucks), casual and family dining segments. The Company’s Starbucks outlets reported a significant 36% growth in same-store sales for Q1 2023 while the Quick Service Restaurant (QSR) segment experienced a robust 19% growth.

The stock is also a holding of The Mexico Fund, Inc (NYSE: MXF).

P/E (Google Finance): 29.17 / Forward P/E (Yahoo! Finance): 19.65
Dividend Yield (Google Finance): N/A / Forward Dividend & Yield (Yahoo! Finance): N/A

Barbeque Nation (NSE: BARBEQUE / BOM: 543283): India’s Successful Homegrown Casual-Dining-Restaurant

Barbeque-Nation Hospitality (NSE: BARBEQUE / BOM: 543283) is one of India’s leading casual dining chains having pioneered the concept of “over the table barbeque” live grills embedded in dining tables. This allows guests to grill their own barbecue’s right at their tables with the concept of 'all you can eat.' In addition, the Company has stakes in or has started other food concepts.

However, shares are now trading at 1/3rd of the value of their all time highs in late 2021.

P/E (Google Finance): 157.07 / Trailing P/E (Yahoo! Finance): 155.52 (no forward P/E)
Dividend Yield (Google Finance): n/a / Forward Dividend & Yield (Yahoo! Finance): N/A

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