20220218-招银国际-China_Consumer_Staples_Expert_call_takeaways_and_CNY_wrap-up-baijiu,_beer_and_dairy_sales_stood_out_15页_1mb

China Consumer Staples Summary

Core Content

The summary focuses on the performance of China's consumer staples sector during the 2022 Chinese New Year (CNY) period, highlighting key trends and investment opportunities. The expert call analysis and data from various sources indicate that while overall consumption sentiment remains weak, specific categories such as baijiu, beer, and dairy have shown robust performance.

Main Points

• Overall Consumption Sentiment: Remains weak, with foot traffic to offline stores in Beijing recovering sharply to +10% YoY but still 10-20% below 2019 levels.
• Selective Beverages Outperform: Baijiu, beer, and dairy sales were notable, with baijiu showing positive growth across most categories, beer experiencing strong sales due to price hikes and early CNY, and dairy maintaining strong demand due to premiumization and health consciousness.
• Pandemic Control: The situation was well managed during the CNY period, with limited domestic cases and a relatively stable vaccination rate.
• E-cigars: Sales momentum stabilized, attributed to competition rather than regulatory factors.
• Regional Recovery Disparities: T1/2 cities recovered slower than T3/4 cities due to stricter pandemic controls.
• Consumption Policies: Current measures have had limited effect, suggesting the need for more direct and powerful supportive policies in 2022.

Key Information

• Baijiu: Premium sales remained steady, while subpremium sales showed divergence. Moutai faced inventory shortages, and Luzhou Laojiao's non-core regions underperformed.
• Dairy: Yili and Mengniu saw robust sales growth, with premium products outperforming. Both companies are expected to enhance their cheese business.
• Beer: CR Beer was the top performer, with strong sales driven by early CNY and price hikes. On-trade sales recovered due to relaxed policies.
• Condiments: Sales were weaker than expected due to slow restaurant recovery and heavy discounts.
• Investment Picks: CR Beer, Mengniu, and Feihe are recommended as top picks, with others including Nongfu and Budweiser. These stocks are expected to perform well due to less exposure to weak consumption and better responsiveness to price increases.

Sector Top Picks

Key Takeaways

• Consumer Sentiment: Weakening since 2Q21 due to income slowdown and traffic restrictions. CNY and post-CNY consumption is still below 2019 levels.
• Baijiu: Premium sales were steady, while subpremium brands showed varied performance. Regional brands outperformed national ones.
• Dairy: Premium products led the growth, with Yili and Mengniu showing strong sales. Health consciousness is a key driver.
• Beer: Strong sales due to price hikes and early CNY. CR Beer was the top performer.
• E-cigars: Sales momentum stabilized after a weak 2H21, driven by competition.
• Policy Outlook: Supportive policies are expected later this year to stimulate birth rate and consumer spending.

Market Performance

• Passenger Flow: Increased 43% YoY during CNY, but only 34% of 2019 levels.
• Consumption Data by Province:
  • Beijing: Sales value of 5.2bn HK$, stable.
  • Shanghai: 37.1bn HK$, 28.6% YoY growth.
  • Jiangsu: 13.8bn HK$, 8.5% YoY growth.
  • Sichuan: 2.5bn HK$, 7.3% YoY growth.
  • Henan: 2.3bn HK$, 6.5% YoY growth.
  • Hebei: 1.75bn HK$, 7.2% YoY growth.
  • Shaanxi: 1.43bn HK$, flat.
  • Shandong: 8.84bn HK$, 1.8% YoY growth.
  • Hunan: 1.9bn HK$, 12.4% YoY growth.
  • Chongqing: 30bn HK$, 9.3% YoY growth.

Policy and Investment Outlook

• Consumption Policies: Limited impact so far, with more direct measures needed.
• Price Hikes: Expected to positively impact short-term stock returns, particularly for breweries and dairies.
• Historical Data: Price hikes have historically driven stock returns, with a 72.5% chance of positive returns within 60 days of the price increase.

Conclusion

The China consumer staples sector, particularly in the F&B segment, is showing signs of recovery, with selective categories outperforming. Despite lingering challenges from property deleveraging and zero-COVID policies, the outlook is positive, with expectations of supportive policies and price hikes driving short-term gains.