China/Hong Kong Consumer Sector Sees Strong Rebound Amid Policy Support
UOB Kay Hian
09 October 2024
The consumer sector in China and Hong Kong is experiencing a robust recovery, buoyed by government policies and a resurgence in consumer confidence. Following a challenging period, companies in this sector are now seeing improved earnings visibility, driving a renewed focus on the China consumer theme. With valuations still considered undemanding, the outlook for further re-rating looks promising.
Policy Support and Wealth Effect Drive Consumer Confidence
China consumer stocks under coverage have rebounded by 33% on average since the end of September 2024. Despite this, current valuations remain attractive, offering ample room for growth. The government’s direct policy support, combined with a potential wealth effect, is restoring consumer confidence, helping China’s consumption-led recovery to take hold.
The catering, tourism, and home appliances sectors have been key beneficiaries, with positive signals of increasing consumer spending and demand. Investors are being urged to refocus on China’s consumer market, which offers better earnings visibility for 2024.
Catering: Steady Growth in Dining Consumption
Dining consumption saw a steady growth trajectory during Golden Week. Data from The State Administration of Taxation showed an increase in snack and fast-food sales of 8.1% and 9.0% year-on-year, respectively. Meituan reported a 33.4% year-on-year increase in daily average restaurant dining consumption during the first five days of Golden Week, with night-time dining growing by an impressive 44.8%.
Among leading restaurant chains, Jiumaojiu and Haidilao performed particularly well. Jiumaojiu’s Tai Er brand welcomed over 1.27 million customers, while Song Hotpot saw more than 230,000 visitors during the holiday period. Haidilao, a popular hotpot chain, served over 10 million customers during the first six days of Golden Week, with delivery orders surging by more than 60%.
Home Appliances: Demand Soars with Promotions
Promotions boosted consumer demand for home appliances during Golden Week, with sales of home appliances and audio-visual equipment growing by 149.1% year-on-year. According to Suning, a major electronics retailer, foot traffic across its stores increased by more than 200%, and trade-in orders grew by 132% compared to the previous year.
Suning also reported strong consumer demand for high-end appliances, with sales of floor-standing air conditioners, ultra-thin range hoods, and built-in refrigerators increasing by 85%, 113%, and 271%, respectively.
Macau Tourism: Visitor Numbers Surpass Pre-Pandemic Levels
Macau’s tourism industry made a strong recovery during Golden Week, with visitor numbers surpassing pre-pandemic levels. According to the Macao Government Tourism Office, Macau welcomed 993,117 visitors during the holiday period, 83% of whom were from mainland China. On average, the region recorded 141,874 visitors per day, representing a 22.9% year-on-year increase and a 1.9% rise compared to 2019. These figures also exceeded the government’s forecasts by 9.1%, reaffirming Macau’s status as a key destination for Chinese tourists.
Listed Companies Analysis
Anta Sports (2020 HK/BUY/HK$132.30)
Anta Sports, one of China’s leading sportswear brands, is expected to benefit from the resurgence in consumer confidence and increased spending on apparel. The company’s performance during Golden Week suggests a promising outlook for the rest of the year. UOB Kay Hian maintains a BUY rating with a target price of HK$132.30, which implies a 37% upside. Anta trades at 20.0x 2024F PE and 16.6x 2025F PE, reflecting its strong growth prospects in the domestic market.
Galaxy Entertainment (27 HK/BUY/HK$48.00)
Galaxy Entertainment, a major player in Macau’s tourism and gaming sectors, stands to gain from the surge in visitor numbers. With visitation exceeding pre-pandemic levels and strong demand from mainland Chinese tourists, Galaxy is well-positioned to benefit from the continued recovery in Macau’s gaming industry. UOB Kay Hian maintains a BUY rating with a target price of HK$48.00, implying a 26.3% upside.
Haidilao (6862 HK/BUY/HK$21.80)
Haidilao continues to lead in the catering sector, driven by its strong brand presence and operational efficiency. The company served over 10 million customers during Golden Week, reflecting its dominance in the hotpot market. Haidilao is currently trading at 12.3x 2024F PE, with UOB Kay Hian maintaining a BUY rating and a target price of HK$21.80, which represents a 32.9% upside.
Haier Smart Home (6690 HK/BUY/HK$43.10)
Haier Smart Home, a major player in the home appliances sector, saw significant growth in demand for its premium products during Golden Week. The company’s innovative range of high-end appliances continues to attract strong consumer interest. Haier is currently trading at 13.8x 2024F PE, with UOB Kay Hian maintaining a BUY rating and a target price of HK$43.10, implying a 33.2% upside.
Mengniu Dairy (2319 HK/BUY/HK$23.20)
Mengniu Dairy has benefited from the rise in consumer spending on food and beverages during the holiday season. With improving channel inventories and a positive earnings outlook, Mengniu is positioned for further growth in 2024. The company is trading at 15.0x 2024F PE, and UOB Kay Hian maintains a BUY rating with a target price of HK$23.20, implying a 29.9% upside.
Midea (000333 CH/BUY/RMB106.50)
Midea, a leader in home appliances, saw a 38% surge in sales during Golden Week, driven by strong demand for premium products. The company is well-positioned to capitalize on the growing consumer preference for high-end appliances. Midea is currently trading at 15.0x 2024F PE, with UOB Kay Hian maintaining a BUY rating and a target price of RMB 106.50, implying a 32.8% upside.
Conclusion
The consumer sector in China and Hong Kong is well on its way to recovery, with strong government support and a rebound in consumer confidence. Sectors such as catering, tourism, and home appliances are experiencing significant growth, offering attractive investment opportunities. As valuations remain undemanding, companies like Anta Sports, Galaxy Entertainment, Haidilao, and Haier Smart Home stand to benefit from this upward trend, making the sector a focal point for investors seeking growth in the coming quarters.
