Following UOBKH’s market outlook on China, we highlight nine Chinese stocks that UOBKH recommends owning in 2018.
1. Alibaba – Overweight E-Commerce
Alibaba is China’s largest e-commerce company in terms of gross merchandise volume (GMV). Alibaba has built a sophisticated ecosystem with milestones made via Mobile Taobao, Ant Financial, AliCloud as well as other new and entertainment-related initiatives. This helps Alibaba differentiate itself from other e-commerce companies like JD.com.
Head Above The Rest In B2C Market
Thanks to the Uni-Marketing solution as well as continuous investments, Alibaba has been gaining market share in the B2C market. Tmall has recorded robust Gross Merchandise Value and revenue growth since 1Q18. Moving forward, UOBKH expects monetisation rate for its e-commerce to be the core driver of revenue growth.
Blue Ocean Strategy: New Retailing
Alibaba has been building up its new retailing model of “O2O New retail strategy” with the integration of grocery stores, food services and restaurants with new technologies and e-commerce. Its new retail initiative Hema (similar to AmazonGo) achieved quarterly revenue of Rmb1 billion in 2Q18, with only 10 stores. With the expansion of Hema, Alibaba will experience exponential growth in its new retail strategy, according to UOBKH’s forecast.
Emerging Drivers Of Revenue: International Commerce And AliCloud
International commerce and AliCloud are two emerging drivers with expected triple-digit revenue growth and heavy investments in 2018.
As AliExpress grows into the most popular e-commerce website in Russia, UOBKH foresees broader geography expansion for AliExpress in 2018. Moreover, with Lazada on board with Alibaba, Lazada’s leading market share in Southeast Asia will drive rapid revenue growth for Alibaba’s international commerce segment.
AliCloud has proven that its strong AI technology and precise algorithm has the potential to increase customisation and monetisation. Alibaba is looking to build its customer base to over 10 million enterprises in the future, which is a tenfold increase of its current user base of 1 million.
2. Anta Sports – Overweight Sports Wear Sector
Anta Sports (Anta) is the largest domestic sportswear company in China. As a pioneer in implementing the new strategy of “single-focus, multi-brand, and omni-channel”, it has been gaining market share in the sportswear market.
Rapid Store Expansion And Store Efficiency Improvement
In the past few years, Anta has been increasing its sales in a sustainable manner with rapid store expansion of non-Anta brands as well as improvement in store efficiency. Anta’s management has guided that sales in non-core brands like FILA and Descente will grow by at least 30 percent in 2018. In terms of its core Anta running shoes, UOBKH foresees new functional products to be developed from Anta’s US R&D centre. This will drive both sales and margin drivers of Anta’s sportswear segment.
Executing Its Multi-Brand Expansion Strategy
As of 1H17, Anta is pretty cash-rich, holding a net cash position of Rmb10 billion, hinting that Anta is actively looking for M&A targets to bring another competitive international sportswear name into its brand portfolio. Anta’s target would ideally be international brands focusing on professional running, training or outdoor segments. If Anta manages to execute its multi-brand expansion strategy, it will help Anta to achieve its long-term target of Rmb100 billion for revenue.
3. Baoshan Iron & Steel – Overweight Steel Sector
Baoshan Iron & Steel (Baoshan) manufactures high-end flat steel products that are used extensively in the automobile industry. It manufactures over 50 percent of China’s auto sheets market. According to UOBKH’s analysis, Baoshan’s products have better average selling price (ASP) than its competitors. It also targets the high-end auto and home appliance end-users segment, which are less price sensitive. Baoshan is currently enjoying the highest margin in China for years. UOBKH forecasts Baoshan’s margin expansion to continue in the long run.
Stay tune for Part 2 and Part 3!