The mainland consumer sector is an area of keen interest among analysts. The sector has been a long-term beneficiary of economic growth, which has translated into rising disposable income for a generation of shoppers hungry for high-margin luxury items.
The story for the sector is inflation, inflation, inflation. Inflation can be good for consumer-goods makers when they can pass on costs to price-insensitive shoppers. This is the case for the much appreciated Yurun, which sells frozen meat. Inflation is tougher on the mainland's long-suffering instant-noodle makers, where authorities have recently warned firms away from raising their prices. The following is a roundup of analysts' buy and sell calls for the consumer sector.
Jacqueline Ko, Kim Eng
Buy: Mengniu Dairy (2319), Want Want (151) and Yurun (1068).
Sell: Huiyuan Juice (1886)
Ko likes Mengniu Dairy, a milk products maker, as she sees consolidation among mainland dairy firms favouring the big firms.
'Mengniu will take market share from smaller players,' says Ko.
Drinks maker Huiyuan came into focus when Coca-Cola tried to buy it in 2008. Ko thinks the firm is pricy, partly due to the attention it drew after it rejected the multibillion-dollar Coke bid. She also thinks Huiyuan has over-expanded.
Mariana Kou, CLSA
Buy: Wynn Macau (1128), SJM (880), Sands China (1928), Ports Design (589)
Sell: Esprit (330)
Kou likes Macau gaming because the sector has seen such huge growth. She picks Wynn, SJM and Sands because they are the main listed names serving that market.
'There is high demand and limited supply. The government has put a cap on the number of gaming tables,' says Kou.
The clothes maker and retailer Ports Design is a buy because the firm has vastly expanded its outlets on the mainland, and has positioned itself as a global luxury label.
'The average price of its garments is 2,300 yuan (HK$2,750). It has global price points and China manufacturing costs,' she says.
Kou is negative on the fashion stock, Esprit, which she feels has been eclipsed by the likes of H&M and Zara. 'They need to sharpen the brand,' says Kou of Esprit.
Emma Liu, Nomura
Buy: Yurun (1068), Uni-President (220).
Sell: Chaoda Modern Agriculture (682).
Liu likes Yurun because it has benefited from rising pork prices and inflation generally.
She likes Uni-President, a snacks maker, with the view that its loss-making instant-noodles operation should turn positive this year. Liu is negative on Chaoda for 'governance issues', citing a decision earlier this month to scrap a bond sale. 'It [Chaoda] promised no financing for three years, then announced a financing of about US$300 million, which it has since cancelled,' says Liu.
Renee Tai, Samsung Securities
Buy: Yurun (1068)
Sell: Tingyi (322), Uni-President (220)
Tai likes Yurun because it charges a margin over rising pork prices.
But the inflation theme makes her bearish towards the noodle makers Tingyi and Uni-President.
'Despite the fact that they are a dominant player in the food market in China, they have limited pricing power. The inflationary environment is negative to the company,' says Tai of Tingyi.
Tai says Beijing authorities wrote a letter to Tingyi and Uni-President asking them to halt price rises, despite facing higher costs for wheat, flour and plastic.
The views stated here belong to analysts, and are not stock calls by the South China Morning Post