EqualOcean Sector Quarterly Report - Consumption Sectors

Intro

Recovering from the sporadic outbreaks of COVID-19 since 2020, China displayed surging retail sales of consumer goods, reaching CNY 7,442.6 billion and up by 6.7% year on year in the first two months of 2022, according to the National Bureau of Statistics of China. In 2022, China's consumer sector has continued to boom with various categories of consumption, including retail sales, catering, upgraded consumer goods, daily necessities, food and beverage, and fashion products. With a noticeable trend of shifting to an e-commerce economy, China's online retail sales jumped to over CNY 1966 billion with a 10.2% increase year on year. 

Related to the consumer price (CPI), in the first two months of 2022, the index grew by 0.9% year on year while the transport and communication sectors increased the most by 5.4%. In the food and energy consumer sectors, the core CPI went up by 1.2% year on year. Overall, China's consumer sectors have undergone an optimistic recovery process with prospects to extend following the plenary sessions of the 19th CPC Central Committee and guidelines of the Central Economic Work Conference in the remaining year. 

In the first section, we listed 13 leading players in China's consumer sectors and their current business updates in Q1 2022; in the second section, we gathered the investment and financing events in China's consumer sectors that happened in the past three months; in the third and the last section, we demonstrated other relevant events in these sectors that drawing people's attention, some of them may more focus on the state policy in consumption.

 Main Players Updates

Kweichow Moutai  (600519: SH)

Kweichow Moutai launches its online sales platform - iMoutai app to boost profit margins.  China's most valuable liquor stock, Kweichow Moutai has announced to launch of its online sales platform called iMoutai to distribute four liquor categories. This e-commerce platform aims to boost the company's profit margins different from wholesale and retail prices. Since the launch of the trial run, consumers can download the iMoutai app while this platform integrates with 12 third-party e-commerce services. Besides regular purchases, this platform provides detailed information about the brewing process and brand culture online when consumers can access a series of digital solutions. As estimated, the company's net income for 2022 Q1 will increase 19% over the previous year and achieve revenue of about CNY 33.1 billion.

Yili Group (600887: SH)

Yili Group completes the acquisition of Aoyou and controlled over 950 million shares. On March 3, 2022, Yili Group announced the deadline of its acquisition of Aoyou and the company holds about 57.7% of the total issued shares of Aoyou diary. Yili Group completes the acquisition and is locked in the position of being the leader of China's milk powder industry. This success of the comprehensive composition will bring a jump in Yili's performance as the total scale of Yili and Aoyou was in total nearly CNY 120 billion in 2021. Yili Group is taking the formula milk powder into China's market at a rapid speed. With the benefits of this acquisition, the company will leverage Aoyou's leading position in sheep milk powder to further strengthen its advantage and extend its rapid growth. This acquisition also aligns with the company's ambitions of ranking in the top 3 in the global dairy market by 2050.

Alibaba (NYSE: BABA)

Alibaba upsizes its share buyback program to USD 25 billion as the largest repurchase plan by the e-commerce giant. On March 22, 2022, Alibaba Group Holding Ltd raised its share buyback and record to USD 25 billion to fight off regulatory scrutiny and concerns about slowing growth. For the second time that the e-commerce giant expanded its buyback program in a year, Alibaba's buyback decision is a taken measure of overcoming Beijing’s regulatory practices against monopolistic behaviors.  The current buyout of the USD 25 billion programs will be effective for a two-year period through March 2024. 

  JD.com (NASDAQ: JD)

JD.com announces a progress update on investment in Dada, a leading platform for local on-demand retail and delivery in China. On February 25, 2022, JD.com has received the ordinary shares of Dada in consideration for USD 545 million and other strategic resources from JD.com. The company will hold the existing shareholding of around 52% of Dada's issued and outstanding shares.  This investment reflects the goals of JD.com of leveraging Dada's intra-city delivery services to enable an improved delivery experience for participants on the JDDJ platform through its readily accessible fulfillment solutions and strong on-demand delivery infrastructure. With mutual benefits, this investment will also increase order volume and density for the Dada Now platform.

 Pinduoduo (NASDAQ: PDD)

Pinduoduo announces it will deepen its agricultural digital inclusion efforts to spread the digital economy. On March 21, 2022,  China's largest agricultural e-commerce platform Pinduoduo announces its plan to modernize the agricultural sector by helping farmers expand market access through the use of digital technology. This plan aims to help farmers to broaden their sales channels to a bigger pool of buyers and gain higher earnings. The company also organizes an annual Smart Agriculture Competition to encourage young agricultural researchers to develop cost-effective technology suitable for smallholder farmers. On March 1, 2022, the company and the Food and Agriculture Organization (FAO) of the United Nations Representation in China jointly held a webinar on how smart agriculture can bolster food production and scrutiny

Wuliangye Yibin (000858: SH)

Wuliangye Yibin cellar site is included in the list of cultural relics protection units as the only liquor company among 31 approved projects. On February 25, 2022, China's National Cultural Heritage Administration officially announces that the Wuliangye cellar site is included as one of the key cultural relics sites under state protection. As a Chinese alcoholic beverage company, Wuliangye Yibin specializes in manufacturing baijiu and symbolizes the cultural heritage. It is the only liquor company that has been approved for national special cultural preservation funding support in recent years among others and has more than 32,000 old cellars with continuous fermentation and uninterrupted use.

Midea (000333: SH)

Midea Group fully acquires the German manufacturer of industrial robots systems for factory automation,  KUKA Aktiengesellschaft.  The biggest Chinese electrical appliance manufacturer Midea Group unveiled its take-private plan to fully acquire Kuka Aktiengesellschaft through a wholly-owned subsidiary in November 2021. On March 25, 2022, Midea Group announces the acquisition price was evaluated as CNY 565.44 per share and the total acquisition price was CNY 1.054 billion. KUKA will become a wholly-owned and foreign subsidiary of Midea group and be delisted from the Frankfurt Stock Exchange. The company disclosures that the acquisition will help KUKA focus its business operations and enhance internal resource synergy while sharing its robotics and automation-related businesses. The two companies have been working to localize KUKA's operations in China and set up their business in the country. 

Haier (600690: SH)

Haier releases its revolutionary 2022 line-up of Elegante Cool air conditioners. As the global leader in home appliances and consumer electronics, Haier has been ranked as the world's No.1  brand in major appliances for 13 consecutive years. On March 30, 2022, the company unveils its new air conditioners that offer an ISEER of 5.40 and come equipped with Triple Inverter Plus technology to save more energy for the consumers. This new model is powered by Haier's revolutionary Frost Self Clean technology and gives a complete indoor wet wash with the remote control. It has a 5400-watt cooling capacity that efficiently removes air pollutants and gives sterilization up to 99.9%. Haier is launching 10 new models in its Elegante Coll air conditioners line-up. 

 Helens International (9869: HK)

Helens International Holdings Co Ltd opens over 70 new locations in Q1 2022. On March 28, 2022, the China-based investment holding company mainly engaged in bar operation and franchise business, Helens International, releases its first annual report. In September 2021, Helens International was successfully listed on the Main Board of the Stock Exchange of Hong Kong, raising approximately USD 342 million from a global offering. It is China's well-known bar brand and the largest bar chain network that covers more than 20 provinces and 100 cities.  In the first quarter of 2022, the company has opened over 70 new bars, with a total of 845 locations in China. The company discloses its plan to continue expanding in the future. As the company labels itself as an offline social platform for young people, the company operates bars with beverage sales from branded beverages, including Helen's root beer, craft beer, and others. By also utilizing online platforms, such as TikTok, in China, the firm aims at the youth market. 

Suning.com (002024: SH)

Suning.com announces its goal to open 22 stores worth up to CNY 100 million. On March 10, 2022,  China's retail giant Suning.com hosted the spring industrial conference to disclose its strategic plan for this upcoming year. At the conference, Suning.com announces its strategic partnership with online information and design platform Kujiale to launch a 3D home design sample. The company reveals the focus will be shown in the supply chain, operation, and service sectors and plan to open 12 billion-sized stores and 22 million-sized brand stores in 2022.   

Wumart (1237168: HK)

Wumart hosts an event through the integration of offline and online sales and live streams on an integrated retail cloud Dmall. On April 1, 2022, one of China's earliest and biggest retailers Wumart Group hosted a sales event on the integrated retail cloud platform Dmall. This event symbolizes the shift from offline businesses to e-commerce while promoting the digital economy. Wumart has been dedicated to transforming China's retail industry and is equipped with B2B business modes in food delivery, online shopping, and other digitalized operations.  As China's traditional retail and supermarket chain, Wumart Group commits to evolving online shopping as a new growth engine in the consumers sector.

Luzhou Laojiao (000568: SH）

Luzhou Laojiao commits to fortifying intellectual property and boosting low-carbon and green development in Chinese Baijiu production areas. On March 9, 2022, one of China's Baijiu representatives Luzhou Laojiao has announced its commitment to protecting intellectual property in the Baijiu sector and promoting low-carbon development during the production process. The inheritor of Luzhou Laojiao's brewing technique Zeng Na suggested that the company should explore a new mode of reducing pollutant emissions and form a green circular economy in the liquor industry.  Also, the firm has been working on protecting intellectual property by promoting the registration and liquor certification trademarks in the Baijiu sector. 

 Yum China (NYSE: YUMC)

Yum China was awarded Gold Class 2022 in S&P global sustainability yearbook. On February 16, 2022, a Chinese Fortune 500 fast-food restaurant company Yum China announces it has received a Gold Class Award in the Sustainability Yearbook 2022 by S&P Global, as the only company from mainland China. Yum China's sustainability achievements have been recognized by leading sustainability indices and ratings. In 2021, Yum China was selected as a member of both Dow Jones Sustainability Indices (DJSI): World Index (DJSI World) and Emerging Market Index (DJSI Emerging Markets) for the second consecutive year. Yum China also received an 'A' rating in the MSCI Environmental, Social and Governance (ESG) Ratings for 2021.

 Capital Market Calendar

Key Events

• China plans to stimulate consumption sentiments in suburban and rural regions with digital technology.

China's central government outlines the 2022 economic incentive guideline to promote consumption in rural and suburban areas on January 14, 2022. The document underscores the national incentive to promote intelligent home appliances to the countryside through corporate concession. The primary measure will include encouraging manufacturers to develop consumer goods for the rural market, including large home appliances,  construction materials, furniture, and vehicles. At the same time, China aims to promote the acceleration of digital technology and e-commerce system in the rural regions while encompassing with express logistics distribution system to support large trade circulation. This plan will expand the coverage of rural e-commerce and enrich the commercial outlets for express delivery boosting the level of convenience for consumers.  Meanwhile, this guideline also lists alternative solutions for encouraging rural consumption in areas of tourism, agriculture, and other hospitality industries. 

• China's State Council issues a 14th Five-Year Plan for modernizing market regulation and encouraging technological innovation.

On January 27, 2022, China's State Council issued a plan that includes major goals to optimize the business environment, regulate market operations, guarantee consumer security, enhance produce and service quality, and comprehensively improve market management efficiency. By 2025, the country is expected to reduce the average time of opening a business to about two working days.  This plan also outlines China's commitment to building a market environment of eliminating monopolistic and unfair competition in markets while requiring enterprises to enhance their overall product and service quality.

On February 8, 2022, the State Council also announced that 27 cities in China have been approved to set up cross-border e-commerce pilot zones, including Erdos, Yangzhou, Zhejiang, Taizhou, and more. This plan upholds the new development of cross-border B2B business to encourage enterprises to explore and innovate technical standards. The government will also exempt value-added and consumption taxes for cross-border e-commerce retail exports in the pilot zones and support enterprises to set up and share overseas warehouses.

• 2022 National Consumption Promotion Work Teleconference Held

On February 28, 2022, a teleconference on the national consumption promotion work was held in Beijing. This meeting highlights a requirement that the national business system should adhere to the principle of stability and introduce pragmatic consumption promotion policies on the basis of pandemic prevention and control. Measure, including consumption upgrade platforms, accelerating the development of new consumption, and promoting the continuous recovery and upgrading of consumption, have been underlined. While the relevant departments clarify the overall arrangement of promoting consumption in 2022, the key areas of promoting consumption are gradually clear. Among them, consolidating and expanding basic consumption, upgrading consumption, accelerating the development of new consumption, encouraging green and intelligent consumption, etc., become important directions to better activate the consumer market.