- We prefer more resilient staples & semi-durables in the near-term, and the consumer discretionary plays on a 12-month investment horizon
- As costs could stay high this year, operators with strong pricing power and cashflows are favoured. We also like companies that benefit from (1) rising health awareness, (2) a low base for 2022, and (3) potential border reopening to unlock pent-up demand
- Top picks: Budweiser, Yili, Mengniu, UPC and Haier. On 12-month horizon, we like Galaxy, SJM, Sands China, Prada, Luk Fook, Sa Sa and YUM China
A broader view. In this report, we feature 33 stocks categorized across 8 consumer sub-segments: brewery, food & non-alcoholic beverage, food retail, home appliance, household & personal care, discretionary retail, Macau gaming and restaurants. We expect overall consumption to grow at a double-digit rate in Greater China during 2022-2023, while lingering COVID-19 impact and an inflationary environment supporting high raw material & packaging costs may create short-term volatility.
Key consumption trends. We continue to see accelerating demand for premiumisation, brand differentiation, product quality & innovation, as well as upgraded shopping experience across multi-sectors. On the back of COVID-19 resurgence, health awareness stands as a top priority, supporting good demand for nutritious products that can boost immunity, such as dairy products.
Our preferred picks. In view of lingering pandemic impact in the near-term, we opt for market leaders in the staples (Budweiser, Yili, Mengniu, UPC) and semi-durable (Haier) segments that possess strong branding, pricing power, cashflows, sourcing, distribution & cost management capabilities, as they should be best placed to navigate the macro challenges. Over a 12-month horizon, our base-case scenario anticipates China-HK-Macau border reopening around mid-2022, and we prefer discretionary plays that would best capture strong pent-up shopping and travel demand in the region to catch their potential re-rating. These would include Galaxy, SJM, Sands China, Prada, Luk Fook, Sa Sa and YUM China.