Consumer-related stocks have been a mixed bag at best for investors in China so far this year amid a decline in economic growth and tight monetary policy in the country. Yet for investors with a long-term point of view, the prospects for good returns among the group still good and recent declines may mark a good time to buy.
So says Gabriel Li, who the holder of degrees from Stanford, MIT and the University of California-Berkeley, who has picked a good share of winners in China over the years. When he was working for Carlyle years ago, he led the U.S. company’s investment in online travel company Ctrip, where he is still a vice chairman. Today, he is a managing director at Hong Kong-based Orchid Asia, which manages about $ 2 billion.
Among the shares that he owns and thinks will perform well over the long haul are China Outfitters, a retail fashion chain that is the licensee for Jeep in China; Tang Palace, a Chinese restaurant chain; Natural Beauty, a women’s beauty chain; Lifetech Scientific, a Chinese maker of small medical devices, and Basic Home, a Korea-listed home accessories store active in China. Li is also a long-term holder of U.S.-listed online education company, China Distance Learning.
China’s tight monetary policy has sent China shares and real estate prices broadly lower in the past year, but Li for one isn’t worried. Tighter credit is “healthy” because an annual increase of more than 5% last year had started to lead to speculation or “phantom demand” that was distorting the underlying economy and leading to excess supplies. “It is a good thing that things are slowing down,” he believes. “There has a misallocation of resources at the societal level.”
The fuel for much of the money that found its way into real estate speculation is gradually diminishing, too: big trade surpluses. “Having too much of a trade surplus is no good” for China’s economy, Li believes.
Consumer spending, which grew at a double-digit pace in China last year are likely to remain healthy against a backdrop of continued economic growth and wage increases, Li believes. To that end, Li is investing in shares that he expects will benefit from that spending flow.
One, Tang Palace, is little changed since listing on the Hong Kong Stock Exchange last year in April 2011 when it listed at HK$1.65 just ahead of a big global grow scare last autumn. It has rebound by two-thirds for its October 2011 low, and was trading at HK$1.67 yesterday, or a less-than-steep seven times expected 2012 earnings per share. The company’s menu is more upmarket than Country Style Cooking, a Chinese restaurant chain may be better known to international investors owing to its Nasdaq listing. Tang Palace said this month it would partner with “PappaRich” of Malaysia to open restaurants in Hong Kong, China and Macau, adding a cuisine that differs from its core offering.
In the apparel retail industry, Li owns a stake in China Outfitters, a company that had done well targeting men’s fashion and found success building up “Jeep” as a fashion brand in the company. Sales last year rose by more than a third to $198 million; net profit increased by more than half to $65 million. The stock is trading at a projected seven times 2012 earnings, according to Bloomberg figures. China Outfitter executive Zhang Yongli was a member of a list of 25 Influential Chinese in Global Fashion published last year by Forbes China, the licensed Chinese-language edition of Forbes.
Natural Beauty, whose shares also trade in Hong Kong, was a pioneer in the beauty salons and products years ago, but Li believes Orchid obtained its stock at a good entry point October during a market drop; it holds a 6% stake. Bloomberg projects its 2012 price-earnings ratio to be about 15. Also in the retail industry, Orchid owns shares in South Korean-listed Basic Home, whose home accessories chain has found success in China. Its shares have recently been trading at fairly steep 90 times projected 2012 earnings.
Li has had success with investments in healthcare-related industries in the past. In 2010, AGA Medical, a company Orchid backed, was acquired by St. Jude Medical for $1.3 billion. Today, Orchid and Li’s family trust have a combined 20% stake in Lifetech, a maker of catheters, plugs and other medical devices tied to heart disorders that went public last year in Hong Kong and whose shares have as much as doubled since. Sales last year increased by more than a third to 140 million yuan, or $22 million; the stock is currently trading at a 2012 PE ratio of more than 30 times, Bloomberg says.
Click here for another recent “Money and Investing in China” profile.
Similar news:
Prev
RSS
Facebook
Google+
Twitter
