20211123-招银国际-China_Consumer_Staples_Marketing_feedback_–_inflation___price_hikes_were_key_words_that_appeared_in_every_meeting_4页_544kb

China Consumer Staples Summary

Core Content

This document provides an investment analysis of the China Consumer Staples sector, focusing on key companies and market dynamics. It highlights the cautious outlook of investors for 2022E due to factors like cost inflation, regulatory uncertainty, and potential impacts from a property market downturn. Despite these challenges, the report maintains a constructive view on the sector, emphasizing structural drivers such as habitual consumption patterns, premiumization, and effective cost pass-through mechanisms that help companies maintain stable margins.

Main Viewpoints

• Investor Sentiment: Investors are cautious about the 2022E outlook, citing persistent cost inflation, regulatory uncertainty, and concerns over the property market's impact on consumption.
• Premiumization and Cost Control: Companies with strong premiumization strategies and effective cost control are seen as more resilient to inflationary pressures.
• Price Hikes: Price increases have been a recurring theme in discussions. CR Beer and Mengniu are noted for their recent and potential future price hikes, which are expected to support margins.
• E-Vapor Sector: While regulatory scrutiny remains a concern, it also acts as a barrier to new entrants, potentially improving the competitive landscape for existing players like Smoore and RLX.
• Market Performance: The MSCI China Consumer Staples index is currently trading at 23.2x 2022E P/E, indicating a relatively attractive valuation compared to historical averages.
• Stock Picks: The report recommends buying CR Beer, Mengniu, Smoore, Yili Industrial, and Tsingtao, citing their strong fundamentals and growth potential.

Key Information

Investment Thesis

• CR Beer (291 HK): Expected to benefit from its premiumization strategy and cost control. Anticipated price hikes should help offset inflationary pressures. Target price HK$88.0 (+34.0% upside).
• Mengniu (2319 HK): Maintains strong EBIT margins due to effective cost control. Raw milk price hike is expected to peak in 1H21 and decline in 2H21, leading to stable gross margins. Target price HK$58.0 (+26.1% upside).
• Yili Industrial (600887 CH): 2H EBIT margins are expected to remain at 7.8%, similar to 2H19. Gross margin dilution from raw milk price hike is anticipated to decrease. Target price RMB50.0 (+24.4% upside).
• Smoore (6969 HK): Regulatory scrutiny is a known challenge, but it also strengthens the competitive landscape. Target price HK$51.4 (+25.7% upside).
• Tsingtao (168 HK): Maintains a strong market position with consistent performance. Target price HK$86.0, slightly below current market cap.

Valuation and Performance Metrics

Name	Ticker	Target Price (LC)	Current Price (LC)	Mkt Cap (LC mn)	P/E (2021E)	P/E (2022E)	P/B (2021E)	P/B (2022E)	ROE (2021E)	ROE (2022E)
CR Beer	291 HK	88.0	65.7	200,652	40.2	38.7	7.4	6.7	13.9	17.5
Mengniu	2319 HK	58.0	46.0	195,874	41.0	34.5	5.8	5.1	11.9	13.5
Smoore	6969 HK	51.4	40.9	224,165	38.5	27.1	13.5	10.4	41.7	45.8
Yili Ind.	600887 CH	50.0	40.2	261,534	27.1	23.4	7.5	6.7	27.7	30.5
Tsingtao	168 HK	86.0	66.0	16,312	27.2	22.5	3.3	3.0	12.2	13.6

Key Figures

• Figure 1: Shows China PPI and CPI inflation trends.
• Figure 2: Highlights the margin resilience of F&B companies.
• Figure 3: Demonstrates the relative resilience of food spending compared to other economic indicators.
• Figure 4: Reflects urban household income and expenditure trends.
• Figure 5: Indicates the relationship between household expenses and unemployment.
• Figure 6-9: Provide forward-looking valuation metrics for each stock.

Investment Recommendations

• CMBIS Ratings:
  • BUY: Stocks with potential return of over 15% over the next 12 months.
  • HOLD: Stocks with potential return of +15% to -10%.
  • SELL: Stocks with potential loss of over 10%.
  • NOT RATED: Stocks not rated by CMBIS.
  • OUTPERFORM: Industry expected to outperform the broad market.
  • MARKET-PERFORM: Industry expected to perform in-line with the broad market.
  • UNDERPERFORM: Industry expected to underperform the broad market.

Disclosures

• The report is prepared for informational purposes only and not for individual investment advice.
• CMBIS may have investment banking relationships with the companies mentioned.
• The report may contain conflicts of interest and is not guaranteed in accuracy or completeness.
• It is intended for specific investors and may not be distributed to others without consent.

Legal and Regulatory Notes

• United Kingdom: The report is only provided to certain categories of investors as defined by UK financial regulations.
• United States: The report is intended for major US institutional investors only and must be used through a registered broker-dealer.
• Singapore: The report is distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser, and is subject to Singaporean financial regulations.

This summary encapsulates the key insights, investment recommendations, and important disclosures from the document.