ADD, TP HK$134.0, HK$91.0 close
We reiterate our Add rating, as we see longterm positive growth potential to improve store efficiency and margins. A positive catalyst would be better retail sales growth in 4Q23F. Key risks are: 1) weak macro, which would impact sportswear demand, 2) intense competition, and 3) higher A&P spending.
ADD, TP Rmb2,266, Rmb1,726 close
Kweichow Moutai is our top pick in the baijiu sector, given its strong brand name and market position, which we believe will make it more resilient amid economic cycles. A key potential catalyst is stronger-than-expected sales growth in 2H23F. Key downside risks are: 1) a weaker economy, which would
impact premium baijiu demand, and 2) intensifying competition, which would impact its Series product sales.
ADD, TP HK$435.0, HK$258.8 close
We reiterate our Add rating as we believe Trip.com has ample room to grow its top line and margins, driven by stronger travel demand and improved efficiency (recently launched AI tools). A key positive catalyst would be a better outbound travel recovery. Key risks: 1) less consumption trade, impacting travel demand; 2) higher S&D expenses; and 3) more intense competition.
Better consumption recovery in Sep
- Sep 23 social retail sales rose 5.5% yoy (Aug 23: +4.6% yoy) to Rmb4.0bn, beating Wind consensus of 4.9% yoy, indicating a better consumption recovery.
- Catering services continued to lead overall consumption at 13.8% yoy in Sep 23 vs. product sales growth of 4.6% yoy, up 1.4% pts and 0.9% pt mom, respectively.
- Reiterate Add for China’s consumer sector. Our top picks are Moutai, Trip.com, Anta and Haidilao.
Better consumption recovery in Sep, beating Wind expectations
On 18 Oct, China’s National Bureau of Statistics (NBS) released the nation’s retail sales
statistics for Sep 23. Social retail sales were up 5.5% yoy in Sep (vs. +4.6% yoy in Aug),
beating Wind consensus expectations of 4.9% yoy. Catering services continued to lead
the overall consumption recovery, growing 13.8% yoy in Sep (vs. 12.4% yoy in Aug),
driven by the Mid-Autumn Festival holiday and part of the National Day holiday (Sep 29–
Oct 6). Retail sales of physical goods rose 4.6% yoy (vs. 3.7% yoy in Aug), up 0.9% pts
mom. By category, the leading retail sales performers in Sep yoy were tobacco & alcohol
(+23.1%), driven by gatherings (family, weddings, etc.) during the long holiday in late
Sep, followed by sports equipment (+10.7%), clothes & textiles (+9.9%), oil & gas
(+8.9%), food (+8.3%), beverages (+8.0%), gold & jewelry (+7.7%), autos (+2.8%) and
cosmetics (+1.6%). Categories continuing to lag behind were home appliances (-2.3%),
construction materials (-8.2%) and office stationary (-13.6%), due mainly to the weak
Services expected to lead the overall consumption recovery in 4Q23F
Catering services continued to lead the overall consumption recovery at 13.8% yoy
growth in Sep vs. 4.6% yoy growth for product sales. We expect the catering segment to
continue to deliver solid sales growth in 4Q23F, driven by strong pent-up demand for
travel during the Mid-Autumn Festival and National Day holidays (double holiday) in Sep–
Oct. Haidilao said in the meeting that its table-turnover rate improved to over 5x yoy
during the double holiday, recovering to 90% of the same period in 2019, up 25% yoy.
Although the table turn over reduced by 10% in Sep vs Jul/Aug, due to the seasonal
impact, the Sep table turnover rate still grew by 25% yoy for Haidilao. Jiumaojiu said in
the meeting that the Tai Er brand double-holiday table-turnover rate improved to 5.1x,
and that same store sales were up 3% yoy, recovering to 82% of that in the same period
in 2019. While for Sep, Tai Er’s same store sales grew by 4% yoy, back to 75% of the
Stable online consumption in Sep driven by ‘everyday low prices’
China’s online sales of goods grew 6.6% yoy in Sep 23 (vs. 7.6% yoy in Jul), accounting
for 30% of total retail sales in Sep 23 (Aug 23: 30%), indicating stable online
consumption, driven by everyday low price offerings. We believe China’s online
consumption in Oct–Nov will be robust, driven by the upcoming Double 11 online festival,
from 20 Oct to 11 Nov. Most online platforms aim to offer the lowest price offerings and
subsidy programmes to generate more user traffic. In 9M23, online sales of food, clothing
and household products rose 10.4%, 9.6% and 8.5% yoy.
Reiterate Overweight for China’s consumer sector
We reiterate our Overweight rating for China’s consumer sector due to the low base in
2022, the normalisation of offline traffic, and strong pent-up travel demand. We believe
that services will continue to lead overall consumption growth and that product sales will
catch up in 4Q23F, due largely to the low base effect. We believe the overall valuation for
China’s consumer sector is still attractive. The MSCI China Consumer Staples Index 12M
forward P/E is 18.6x, below its average P/E of 22.2x since 2015. A key potential catalyst
is better-than-expected travel and consumption data in 4Q23F. Downside risks include: 1)
weak macro, leading to weak consumption sentiment, 2) fluctuating raw material prices,
which could lead to GPM pressure, and 3) intense competition, which would dilute