Jinwu Finance News| ICBC International stated that it had met with investors in Hong Kong, Singapore, and Malaysia in the past two weeks, and investors generally believe that: (1) Chinese consumers today prefer high-cost performance products, (2) The popularity of Chinese brands is on the rise, (3) Low-tier cities in China offer better growth potential, (4) The expansion of service consumption is leading to long-term growth opportunities, (5) Overseas expansion seems inevitable.
The bank said that due to overall market correction and slowing profit growth, the valuation of optional consumption and necessary consumption sectors has been lowered to 12.2 times and 14.6 times the expected price-earnings ratio (P/E) in 2024. At the current valuation, the bank tends to choose optional consumption rather than necessary consumption in the second half of 2024 because the bank expects that sportswear and home appliances will have better growth under the support of the Paris Olympics (held in July) and favorable policies of scrapping the old for the new. Faster revenue growth will also support the profit margin of 2H24F. In contrast, the bank expects that most necessary consumer goods companies will report weak performance in the first half of 2024, as retail demand is weak. Increased competition in the beer industry, slowed high-end process, and increased sales and marketing expenses will put pressure on profit margins. The bank expects that once the business visibility of 2H24F improves after the August 2024 first-half financial report season, investor confidence will rise.
The bank continued to point out that consumer downgrading is still an industry theme. In a weak macroeconomic environment, Chinese consumers are more cautious about consumption. Despite gradual improvements, consumer confidence is still low compared to pre-epidemic levels. People begin to tighten their belts and turn to unbranded or cheaper alternatives. The bank believes that the social trend of thrift will benefit companies such as Anta Sports (01368, unrated), 361 Degrees (01361, unrated), and Miniso (09896, unrated). This new consumer trend may trigger fierce competition and force companies to adopt new growth strategies. Anta Sports (2020HK, outperforming the market) has launched a "lightweight version" of its existing products for sale at lower average selling prices (ASP). At the same time, Li Ning (02331, neutral) is adjusting its brand upgrade and growth strategy. Restaurant companies such as Haidilao (06862, outperforming the market) and Yum China (09987, outperforming the market/YUMC US, outperforming the market) have added more low-cost dishes. These changes will take time to have an impact. Execution will be the main differentiating factor between companies competing for market share.