China Investing By Sector

By pjain      Published July 12, 2021, 9:28 p.m. in blog Invest   

China Investing by Sector

Consumer, Food

Keys - Consumer Spending to rise

Staples

E-Commerce Sector

BZUN

  • Provides website-creation tools and other e-commerce services - Baozun is sometimes referred to as "the Shopify of China"
  • Unlike SHOP, its customers are MOSTLY large companies - RISK as provides services for Western brands aiming to expand their presence in China - on tradewar hurt?
  • Shares DOWN 48% from their lifetime high two years ago due to slowing growth and tensions between the U.S. and China.
  • Shares could get Delisted

VIPS

Vipshop

BABA pb @202

  • Q1'21 M$633b

  • one of 30 most favored by hedge funds

  • largest online retailer in China - base of more than 960 m - 3x US population
  • Expansion further to lower-tier cities could even expand its market share lead.
  • Provides B2B marketplace for China's factory floor to the world
  • As class act, beats local delivery services due to image for high-quality products and unmatched fulfillment infrastructure.
  • AI and aggressively investing in research and development

PDD

  • Pinduoduo M$164b
  • Leader in social commerce, group buys

JD x b20

  • GARP Amazon of China - less valued than
  • FY'21 Q1 M$121b

  • 2nd largest online retailer in China after Baba

  • JD to control its supply chain — no untrustworthy sellers here
  • Strong logistics coverage, brick-and-mortar retail partners and Jingxi app should help to expand its user base in lower-tier cities.
  • Innovative Company
  • Drones to remote rural auto landing
  • Scout-like local delivery

  • SEG: JD has a strong presence in supermarket categories and grocery!

  • SEG: 7Fresh is an upscale grocery store that opened its first location in Beijing in 2017. These large grocery stores (around 4,000 sqm) focus on fresh foods, including those that Chinese buyers consider rather exclusive, like Spanish Iberic ham, Japanese seafood, and French pastries. And chefs are on-hand to cook the food immediately if desired.

  • SEG: Apparel: JD's relatively low exposure is a positive, given lingering weakness in the category.

  • SEG: Auto retail stores low labor JD.com plans to open 1,000 7Fresh stores around China in the next 3-5 years and even more X-Supermarkets. X-Supermarkets are small convenience store-like shops (around 80 sqm) that offer around 500 products. Access is granted through facial recognition and payments are charged automatically to a credit card on file. The only job humans are responsible for in X-Supermarkets is keeping shelves stocked.

Walmart in China

  • Competition - Bad problems

    • Carrefour supermarkets - sold out its dark,narrow,not popular, others sold to Suning some to WMT
    • Darunfa Tesco, Auchan
    • Suburb Big box stores failed some (HD,etc) as DIY failed - Less popular as many don't have cars - want to shop locally
    • Lots of their stores in China are closed, and the rest are facing fierce competition from local supermarkets.
    • usually in the city centers, and so they are cramped and smaller
    • Precooked fresh food is cheap - why buy grocery at WMT?
  • What is working in Retail - ikea worked well - chique fashion!

    • No 1 in China supermarkets
    • BUT Amazon is now withdrawing from China
    • Key tenant in large malls occupying 2-3 floors there, often underground parking, next to office/residential towers - NOT standalone big box
    • WMT adapted HEAVILY Cheap goods - live fish by the hundreds even cheaper than wet markets
    • Walmart tends towards very cheap things with “reasonable” quality - but Chinese often
    • Bad reputation for low quality Cheap garments for every day use.
    • Cross border products from USA popular eg almonds and pistachios.
  • Backs up supply chain

    • 12% of all Chinese goods come thru Walmart - MOSTLY Cheap clothes/shoes, etc. Packaged goods
    • Over 50% of Walmart USA’s sales are in groceries, almost none of which come from China. Top item is bananas from CentralAm
    • bakery, meat, etc. iikely to be frozen chains
    • WMT sells a lot of sodas,paper towels, toothpaste, pills, etc., made in North America
    • Cheap plastics, toys, electronics items likely to be all from China - but huge markup - so revenue/profits lower in China supplier
    • IN PARTICULAR Most of the Walmart branded stuff to be made under contract from China.

--- Logistics, delivery

ZTO

  • PARCEL Benefited from a strong e-commerce-driven consumption rebound subsequent to the COVID-19
  • 37% growth
  • JD,Baba have their own solutions - others need to use ZTO,etc.

  • HIGH GROWTH - Volume grew 48%

  • YTD up 28% - PROFIT TAKING RISK 52wk price $19.63 – $38.99

  • Q2'20 RMB 6.5b y+18%, NI 1.4b y+5.6%

  • About ZTO Express - logistics UPS/FDX of China

  • Controls 20% of express delivery - could reach 25% by 2022
  • Q2'20 parcel volume share 21.5% share rose y+1.6%

DADA

EC Local delivey Dada Nexus

Consumer Discretionary Goods Sector

Discr Clothing, Shoes

Fashion, Beauty

YSG

  • Beauty products maker Yatsen (YSG)

Media, BigTech, Gaming -------

Dueling internets seem to emerge

a. OPEN. Original was neutral internet connect everyone. Of course just because Anglos say net is open doesn't mean it is - it is open kimono to NSA/CIA/MI6 - all you can eat buffet for spying - just like the SWIFT system has now been sorely abused by US for its petty sanctions.

Reality is Facebook, Amazon, Google, YouTube, and all other internet application have been actively gathering all of this personal information, and selling it to unknown buyers not just advertisers. If we don't like a company's practice we should stop using their platform and handing them our data. There is no need to violate the core principles of freedom of speech and information.

b. NATIONALISM. Blocking and censorship of sites by nation-states and private balkanized firewalled - eg withn, Russia, Iran, etc. all managed by rulers

c. Aggressive security, hacking and invasion of outside internets, while controlling internal - China is most aggressive in this - get away with murder. This is backed up by its attempt to use its BRI into a 5G control of infrastructure.

  1. While criticized for targetting ban, Trump is doing nothing new. In China, the foreign equivalents of TikTok and WeChat — video and messaging apps such as YouTube and WhatsApp — have been banned for years.

Firewall of China - Reaction by India/USA

  1. China has a firewall with extensive blocking, censorship and surveillance that violate internet openness and decency. China keeps a closed and censorial internet economy at home while its products enjoy full access to open markets abroad. China, in furtherance of this vision, bans not only most foreign competitors to its tech businesses but also foreign sources of news, religious instruction and other information, while using the internet to promote state propaganda and engage in foreign electoral interference. Few foreign companies are allowed to reach Chinese citizens with ideas or services, but the world is fully open to China’s online companies. This asymmetry has been a bonanza that has served economic as well as political goals.

Cyber-security an International Phishing and Scam magnet

Multiple high-tech companies have lookes at Tik-Tok software and marvel at how deceptive and far-reaching it is written to gather info and then CONCEAL what it does with it. You have to figure the best software engineers in China worked on this magnet for personal information - literally everything on a person's phone and where it currently is. These include officers directly employed by the red army - PLA.

TCEHY Xx

  • competitiveLeader China msg,SN,Media,Gaming owns WeChat
  • M$777b growth remains high 37% yoy for 1 year

IQ

  • 1 ADR share of IQ Nasdaq is roughly equivalent to seven ordinary shares
  • About video-streaming company iQiyi

TME

  • Tencent Music Entertainment (TME)

YY

  • Joy

  • Bilibili (BILI) content - online entertainment platform targeting younger generations in China. In addition, the platform includes videos, live broadcasting, and mobile games. The company is not yet profitable, and is projected to keep losing money through at least 2022. But sales growth has accelerated for the last three quarters, with Q4 revenue up 104% to $588.4 million.

BIDU

  • Search engine leader of China - high ad revenue
  • Struggling with stagnating economy in China BIDU stock is off 32% year-to-date and 50% in the past 12 months, this isn’t the time to go bottom fishing. We still need signs that the Chinese consumer is back on track.

  • Q1'2020 Has lagged its U.S. mega-cap tech peers in recent years. Leung says Baidu has been building its mobile ecosystem, including growing its content creator base and integrating multiple distribution channels to optimize content consumption and engagement. After bottoming in late February, core advertising business has consistently improved each week, a trend Leung says he expects to continue in the second half of 2020. Baidu's streaming video platform, iQiyi, also creates long-term monetization opportunities.

SINA - owns Weibo WB

  • Struggling with stagnating economy in China The stock is off 16% year-to-date and 30% in the past year. It may experience a bump with the trade deal, but turning the Chinese economy around will be a different deal entirely. It also owns a number of other complementary sites that drive traffic in and between each other.

WB - china's twitter

NTES

gaming NetEase is a Chinese gaming and online services company. Leung says NetEase has a strong pipeline of upcoming game releases, including Sky in the third quarter. NetEase is also investing in differentiated content for NetEase Cloud Music by targeting independent musicians and testing electronic music live sessions, singing apps and other potential growth sources. Leung says NetEase's June secondary listing in Hong Kong only generated about 5% dilution for shareholders. He says the company has a pristine balance sheet and a strong portfolio of high-margin, self-developed games.

GIG Internet Services

DIDI

EduV

EDU Xx

  • New Oriental Education (EDU)

TAL Xx

  • Tal Education (TAL)

YQ

  • 17 Education & Technology Group (YQ)

GSX

  • Techedu (GSX).

HRV

Durables, Furnishings

Autos Sector, EVs

EVs

Nio (NIO)

Xpeng Motors (XPEV)

Li Auto (LI)

BYD Co. (BYDDF)

Housing, Real Estate

KE Holdings (BEKE)

  • integrated online and offline platform for housing transactions and services in the People's ...

Health Sector

Energy, Environmental, Materials

Materials, Precious Metals

Chemicals

Oil, Energy, Environment

CEO - partner XOM on Guyana?

CNOOC is a Chinese oil exploration and production company that has exclusive rights to negotiate offshore production sharing contracts with international oil companies in China. Analyst Matty Zhao says CNOOC management seems confident that it can grow output, despite a lower-priced oil environment. Zhao says CNOOC's Bohai Bay and eastern South China Sea production has a break-even cost of $25 per barrel, an extremely competitive rate in the international market. CNOOC also holds a 25% interest in the Guyana field, which began production in late 2019.

Energy - Alt

Solar Energy

Daqo New Energy (DQ)

JinkoSolar (JKS)

Environment, Pollution, Water

Services

Transports, Airlines

--- Travel

Trip.com (TCOM)

Finance Sector

Major Banks - not investible as State Owned, massive NPAs

Fintech Startups

FUTU

  • Chinese online brokerage and wealth management firm
  • EPS Huge jumps 300%+/q2q for 5 qtrs

TIGR Up Fintech

QFIN 360 Digitech

--- Insurance doing Great Premium Growth on Affluence

In 2019, the premium income of China’s insurance companies amounted to around 4.3 trillion yuan, nearly three times as much as seven years ago.

LFC - life ins ($8.3 - $14.7)

  • Profits down -34% q1'2020
  • $ Premium growth 13% more than finance peers
  • y 4%

  • Valuation attractive? Year-to-date (YTD), LFC stock is down about 17%. As a result of the decline, its forward P/E and P/S ratios stand at 8.25 and 0.56. Investors may consider buying the dips.

  • H1'2020 $504 RMB y+13%

  • About LFC

  • 170,000 employees
  • Has a controlling stake in China Life Asset Management Co. Ltd.

Semiconductors, Electronics, Assembly

Technology, IT, Software

Telecom and Networking

CHL Xx

  • High Div y6.3%
  • fPE=8.3 Stock low for year in FXI -22% YTD
  • Little revenue growth +0.1%, Earnings declined -0.5%
  • State controlled - 80% owned by China (seen PLA connection) - prevents expansion in rest of world
  • 944m subs end'19 - world's largest mobile operator - 4G 750m, 5G 70m
  • 5G a growth - Would need to provide tons of Capex to state favorite Huawei - even if not profitable to do so.

    • added 44m 5G customers in Q1'2020
    • plans to add 250k 5G base stations by end 2020
  • H1'2020 390b RMB revenue y+0.1%, NI 56b y-0.5%

  • About CHL

  • 60% market share in China
  • Employees 500k+

CHA Xx

CHU Xx

SaaS,Cloud

GDS

  • Data-center operator GDS Holdings (GDS).

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