Mass Consumption 14 – Take Your Meds

This will never work (Vol 1, No 28)

It’s been a while since we looked into the Mass Consumption theme. This time around, we’re looking at Healthcare.

Photo by Thought Catalog on Unsplash

According to the National Bureau of Statistics, although healthcare is only the sixth biggest per capita spending category, it is the fastest growing. It currently make up around 7.3% of per capita spending but grew at 15.8%.

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While’s China’s 7.3% per capita spending may appear low, it’s not. In the US, healthcare expenditure make up around 8% of annual household expenditure. The big difference is in the nominal amount of spending (US$4,612 per family Vs Rmb352 per capita).

Healthcare Index Representation – 13.9% Vs. 1.2%

Where there is a really big discrepancy between the US and China is index representation. In the US, the healthcare sector carries a 13.9% weighting but in Hong Kong, that’s only 1.2%.


Intuitively, the call should be straight forward, healthcare representation in the HSI should rise. But’s it’s not that easy. Remember my Investing Junkfood posts about trying to avoid investing on (i) 52 week highs and (ii) high valuation multiples?

+123% off the 52 week low and 49x PE

The three largest healthcare stocks in Hong Kong are CSPC Pharma (US$19b market cap), Sino Biopharmaceutical (US$14bn) and Sino Pharm Holdings (US$13bn). Compared to the US giants like JNJ (US$332bn), Pfizer (US$214bn) and Amgen (US$122bn), the China pharma stocks are minnows.


What gives me pause is the current valuation and recent performance. CSPC and Sino Biopharm are both trading at 49x PE (JNJ and Pfizer at 20-23x) and are up 193% and 123% off their 52 week lows.


By comparison, Sinopharm appears a bit more palatable. It’s only up 17% off its 52 week low and its US$15bn market cap only implies 15x earnings.

But hang on, it’s not that simple.

Distributor vs. Manufacturer

While they all have the word “Pharm” in their names, Sinopharm’s business is actually very different from CSPC and Sino Biopharm. It’s a drug distributor and not a drug manufacturer.

This difference becomes very stark when you look at their gross and operating margins. In 2017, CSPC and Sino Biopharm enjoyed gross margin of 60% and 80% and operating margins of 23% and 26%. As a distributor, Sinopharm only earned gross margin of 8.3% and operating margin of 4.4%.


China vs. US Pharma companies – Two key differences

When I was previously looking into some of the US biotech companies, I was struck by their low PEs and high dividend yields. For the likes of Gilead, Amgen and AbbVie, uncertainty about their drug pipeline had turned them into value plays.

Across the pond, with PEs near 50x, growth expectations are very high for CSPC and Sino Biopharm. But how are they similar and where are they different?

Comparable gross margins

Looking across Gilead, Amgen, Celgene and AbbVie, their gross margins range from 75% to 96%. The average gross margin of 84% is not dissimilar to Sino Biopharm’s 80%. For CSPC, given their generic and vitamins business, it has a lower gross margin at 60%.

Much lower R&D expenses in China

One key difference is in the research and development spending. For the four US companies, R&D expenses were around 23% of their revenues (range of 14.3% for Gilead to 43% for Celgene).


For Sino Biopharm, R&D was 10.8% and for CSPC R&D spending was only 5.3% of revenues.

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This difference becomes much bigger when you consider it in nominal terms. In 2017, Sino Biopharm spent US$249mn in research and development and  CSPC spent US$127mn. In the US, Celgene spent US$5.9bn, AbbVie US$5.3bn, Amgen US$3.6bn and Gilead US$3.7bn.

M&A has not been a big driver for the Chinese

Another key difference is M&A. For the more mature US companies, one source of innovative drugs is acquisitions.

Among the four US biopharm companies, goodwill and intangibles are often the biggest assets on their balance sheets. These range from around 30% for Gilead and Amgen to 61% for AbbVie.chart(g)

But for the Chinese pharma companies, perhaps due to the relative infancy, goodwill and intangibles were only 1-4% of their total assets.


Hepatitis Meds – One man’s poison is another man’s medicine

As a final point of contrast, take a look at their best sellers list.

In China, meds to treat hepatitis account for 44.2% of Sino Biopharm’s revenues. In 2017, this rose by 11% YoY.

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Sino Biopharm – Revenue by therapeutic categories

In the US, HCV anti-viral meds account for 36% of Gilead’s revenues. This fell 38% YoY in 2017.

This only goes to highlight that often times, one man’s poison is another man’s medicine.

So what would you go for, value or momentum?

Choose your poison carefully.

This will never work


London Calling? Summer Visits up 6%, Spending Up 4%

This past summer, we visited London. One of the impression that we shared from our trip was that it seemed like everyone was there. Our guess was that the cheaper currency was one key reason why London was 2017 hot travel destination.

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Were our impressions correct? Did everyone go to London for holidays this past summer? We’ve had to wait for a while but the statistics are finally in.

The answer is YES and NO.

Summer Visits Up 6% YoY, Spending up 4%

According to the latest monthly inbound tourism data from, there were 3.9mn visits to Britain in August 2017. Over the three summer months of June to August, there were 11.5mn tourist visits, up 6% YoY. Tourist spending reached £7.8bn between June and August 2017, up 4% YoY.

Looking at the trailing 12 months data ending August 2017, 39.65mn visited Britain and spent £24.01bn. Tourist visits and spending rose by 8% and 7% over the same period last year and are the highest that they have ever been.

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…but the growth rate is really slowing

While tourist arrivals and spending have continue to set new records, the bad news is that the growth rate is slowing rapidly. Compared to the first four months of 2017, when tourist arrivals had risen 11% YoY and spending had grown 14% YoY, the cumulative growth rate over 8M 2017 has now slowed to 8% and 10% respectively.

For the latest three months data, the rolling visit and spending growth was only 6% and 4%, lower than the Feb-April 2017 growth of 11% and 14% respectively. This suggest that as we come to the one year anniversary of the Brexit vote, the draw of the cheaper currency may be starting to fade.

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Source: Yahoo Finance

On the other hand, business is picking up

Although holiday visitors are still growing the fastest with 8M 2017 growth at 17%, the rate of increase has dropped off by 9pp since 4M 2017’s 26% YoY growth. Similarly, those visiting family and relatives as well as miscellaneous purposes have also slowed by 2pp and 10pp respectively. Notably, the only category that has improved since April are the business travellers. Compared to the -4% YoY decline noted in 4M 2017, the rate of decline has now slowed to -1%, suggesting that business visits are resuming despite the uncertainty with Brexit.chart (36)

…so are visits from North America and Other EU countries

In addition to business visits, the regional breakdown of visitors also show that arrivals from North America and Other EU countries have accelerated over the summer months. Compared to 4M 2017’s 16% YoY growth, North American visitors growth picked up another 2pp to 18% for 8M 2017. This was largely due to very strong visitor growth in May-July as August North American visitors actually dropped by 8% YoY. The biggest swing however was from Other EU countries which went from -5% in 4M 2017 to +7% in 8M 2017.

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Overall, still a good set of numbers just don’t project too far ahead

Overall, despite the slower rate of growth, the summer tourist figures are still very good. For the trailing 12 months ending August 2017, both total visitors (39.65mn) and visitor spending (£24.0bn) are all-time highs. And compared to 2014 and 2015, visitors/spending are up 15%/9% and 10%/9% respectively . That said, with growth rate slowing, just don’t project too far ahead.

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Anyone want to venture a guess what’s the next popular summer vacation spot? My bet is on the US.

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How instant noodles reflect where you’re from?

When I say “Instant Noodles”, what’s the first image that comes to your mind?

Do you think of the cake of instant noodles that you cook in boiling water and add the packet of MSG? Or do you think of something more along the lines of “Cup noodles?”

Your choice of instant noodle says a lot about you

Before we go into how the type of instant noodle reflect who you are, let’s start by firstly reviewing the instant noodle market in Hong Kong and China.

Instant Noodle Market Growth is Anaemic in both HK & China

According to an industry report from Frost & Sullivan, Hong Kong’s instant noodle market was worth around HK$1.8bn. Over the past four years, growth has been anaemic with sales value only rising 0.5% p.a. while sales volumes have actually contracted by 1.3% p.a.

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Although China’s instant noodle market is much bigger, it is also not growing much. The Rmb81bn of instant noodle sales in 2016 only represent a p.a. growth rate of 0.4% over the 2012-2016 period. Volume wise, the number of instant noodle serving has actually fallen by 3.9% p.a.

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Who eats more instant noodles?

In absolute terms, China’s 37.2bn serving of instant noodles is 90x larger than Hong Kong’s 415mn servings. However, if you consider that China’s 1.3bn population is actually 186x larger than Hong Kong’s 7 mn population, the data actually shows that Hong Kong people actually eat more instant noodle than their mainland cousins.

HK 59.2 servings Vs. China 28.6 servings

In 2016, Hong Kong people ate 59.2 servings of instant noodles, almost twice as much as the average 28.6 servings consumed by those in China.

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What do you eat? Cups, Bowls or Bags

When we examine the data further, we see another interesting distinction between Hong Kong and China’s instant noodle connoisseurs. In Hong Kong, bag-type instant noodles make up nearly two-thirds of the overall sales volume. In China, the mix is almost 50/50 with bags taking up 53% of sales.

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In this respect, if you associate instant noodle with those that come in a little plastic bag that you cook yourself, then you’re most likely from Hong Kong. Conversely, if you think about pouring water into a little cup/bowl then you’re most likely from China.

What brand do you prefer? 出前一丁 or 康師傅

If you go to a Cha Chan Teng in Hong Kong and order instant noodle for breakfast, you are usually given a choice of upgrading to 丁麵 (Demae Iccho) for a few extra bucks. But what you may not realise is that in Hong Kong, 出前一丁, 公仔麵, 福麵 and Cup Noodles are all carried by Nissin Foods.

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The multiple brand strategy has helped Nissin Group become a clear leader in the Hong Kong market with a market share of 65.3%. Nong Shim (maker of Shim Ramyun) and Sau Tao, are a very distant second and third and only have a 5.5% and 5.4% market share respectively.

In China, the names are very different. Taiwanese noodle makers like Tingyi (康師傅) and Uni-President dominate the instant noodle market and hold market shares of 46.5% and 17.8% respectively. Nissin Foods is much smaller and only holds a market share of 2.8%.

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So if you associate instant noodle with Cup Noodle and 出前一丁, you’re most likely from Hong Kong. On the other hand, if you think of 康師傅 or 來一客, then you are most likely from China.

These two distinction is even more stark when you consider the revenue breakdown of Nissin Foods in the two areas. In Hong Kong, the revenue split between Bag type instant noodles, cup/bowl type and frozen foods are almost even at 39/28/33. Whereas, in China, the revenue split for Nissin Foods is 85/13/2 .

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The Premium-isation of Instant Noodles

In a way, China’s instant noodle market is very unique. Unlike the other industries that we have looked at in our Mass Consumption series (travel, beer, coffee and fried chicken, online games), the instant noodle market is NOT growing. In fact, Frost and Sullivan forecast that the number of instant noodle servings will decline from 2016’s 37.2bn to 34.5bn in 2021E.

With volume in decline, the only way to make more money is to try to raise ASP through the premium-isation of instant noodles.

As the bowls get bigger…

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…and fancier…


…so does the ASP. In China, over the past four years, the average selling price of instant noodles have risen by 4.4% p.a. since 2012 (faster than Hong Kong’s 1.75% ASP growth). chart (16)

However, with the “Big Cup” noodle now weighing in 80 grams, 450 calories and 1,600mg of sodium, I suspect this premium-isation trend could be hard to sustain. Furthermore, while the past few years’ increase in ASP appear to have helped with gross profit margins, the benefits do not appear to have flowed to the bottom line.

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I am Satay Flavour出前一丁

As for me, I’ve been told that I make the best instant noodles with the exact right balance of soup to noodle. If I had to choose one type of noodle to eat, it would be the satay flavour 出前一丁.

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Now what does that say about me?


P.S. In the first collage, there is one picture that does not belong, can you spot it.

How well do you know luxury goods? Hermes Edition

How well do you know your luxury goods? After looking at LVMH’s 3Q results, in part 2, we turn to the highly sought after Hermes. Do you know which region generates the most sales, which one is growing the fastest and what are the key similarities and differences between Hermes and LVMH? Find out.

LVMH is one of the largest luxury brands in the world with a market cap around €129bn but it is not the most sought after. I think the honour goes to Hermes (market cap €47bn).

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Its iconic Birkin and Kelly handbags are so sought after that strategy books have been written on how to obtain one. Similar to our earlier post “How well do you know luxury goods?”, today, we test your knowledge on “How well do you know Hermes?”

The answers are posted after the various photos. Don’t peak.

1. Which region contributes the most to Hermes revenues through the first nine months of 2017?

  • A) Asia,
  • B) Europe,
  • C) US,
  • D) Others

2. Which region had the strongest revenue growth rate in 3Q 2017?

  • A) Asia ex Japan,
  • B) Japan,
  • C) Europe,
  • D) US

3. Rank the revenue contribution by product segment from largest to smallest?

  • A) Leather goods,
  • B) Fashion and accessories,
  • C) Silk and textiles,
  • D) Other Hermes sector (i.e. Jewellery and home products)
  • E) Perfumes
  • F) Watches
  • G) Other products (i.e. production activities for non-group brands)

4. Among the various product segments, which one recorded the strongest revenue growth in 9M 2017?

  • A) Leather goods
  • B) Fashion and accessories,
  • C) Silk and textiles,
  • D) Jewellery and home products
  • E) Perfumes
  • F) Watches
  • G) Other products
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Which region contributes the most to Hermes revenues through the first nine months of 2017?

  • The answer is Asia. Combining Asia ex-Japan (36%) and Japan (13%), Asia contributed 49% to Hermes’ overall revenues in 9M 2017. (Recall that for LVMH, Asia was 36%). Europe was the second largest region with 32% of sales (LVMH was 27% exposed to Europe). the Americas was third at 17.5%

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Which region had the strongest revenue growth rate in 3Q 2017?

  • Not counting the “Others” region, the strongest growth came out of Europe ex-France which rose 14% YoY in 3Q 2017. Notably, while Japan showed very strong growth for LVMH in 3Q 2017, for Hermes, 3Q growth in Japan was only 7%. For the full 9M 2017, Asia Pacific was the fastest growing region with sales rising 14% YoY in local currency terms.

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Rank the revenue contribution by product segment from largest to smallest?

  • This was another obvious one. Leather goods was the clear leader and accounted for 50.8% of overall sales. Fashion and accessories contributed around 21.8% in 9M 2017. In the third to fifth place, the gap is quite small with Silk & Textiles at 8.9%, Jewellery and home at 6.3% and Perfumes at 5.4%.

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Among the various product segments, which one recorded the strongest revenue growth in 9M 2017?

This is another area where we saw some departure from LVMH’s results. For LVMH, its largest segment were also its fastest growing segment (Fashion and Leather Goods at 35.5% of sales and rising 14% YoY). But for Hermes, it was the smaller categories. Perfumes (5.4% of sales) grew the fastest at 13% YoY. This was then followed by steady growth of 11% across Leather goods, Fashion and accessories and jewellery and homes. Notably, for 3Q 2017, Silk and Textiles sales surged by 17% YoY.

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Key Takeaways – Very strong Asia performance, watch Japan in 4Q and affordable luxury

When we compare and contrast the 3Q results from LVMH and Hermes, there are two key takeaway messages.

1) The divergent performance between LVMH and Hermes out of Japan. In 3Q, Japan sales rose by 21% for LVMH and only up 7% for Hermes. In comparison, Asia Pacific ex Japan sales were strong for both LVMH and Hermes (up 21% and 14%). This would seem to validate that luxury consumption growth is more broad-based in Asia ex-Japan and points to a bullish story for China. For Japan, given the higher price points of its products, it would be interesting to see if the continued rally of the Nikkei will help Hermes sales growth to surge in 4Q 17.

2) On the other hand, a key similarity is the strong performance out of the smaller ticket item of perfume. For Hermes, Perfume and Silk and Textiles showed the strongest growth in 3Q (up by 23% and 17%). At LVMH, perfume and cosmetics was also the strongest growth category in 3Q, up 17%. This reinforces our belief that consumers love the luxury brands. In the case of Hermes, where supply cannot rise to meet demand, consumers will go after the affordable luxury items like perfumes, scarfs and pashmina.

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Mass Consumption Part 7: Who’s got game?

Computer games is big business. Gaming has been the key driver behind some of the best performing stocks like Tencent and Nvidia. As an entertainment industry, games is the third largest and brought in US$101.1bn. We take a snapshot to see (i) Who’s playing, (ii) What are they playing, and (iii) What are they spending money on?

Plants Vs. Zombies 2 – Screenshot from my phone

If you ask me what is my favourite computer game, I would probably say Plants Vs. Zombies or MarioKart 8. Although I’m not a serious gamer, gaming is big business.

Gaming is big business

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According to the prospectus that I came across today, the global gaming industry brought in US$101.1bn of revenues in 2016, making it the third biggest segment of the global entertainment industry behind TV & Video (US$314.3bn) and, surprisingly, Publishing (US$329.3bn). Going forward, the Publishing industry is expected to contract by 0.5% p.a. between 2017-2021 but the Gaming industry is expected to grow 5.1% p.a.

Who’s playing?

Among the geographies, Asia Pacific (including China) is the biggest market, contributing 46.4% of the US$101.1bn of gaming revenue in 2016. The Americas and Europe contribute 29.6% and 20.9% respectively.

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While the Rest of the World only contribute 3.2% of games revenue, they make up 14.8% of active gamers in 2016. On a standalone country basis, China make up 25.4% of active gamers and 24.3% of games revenues.

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What are they playing?

As expected, mobile games are the most popular. In 2016, there were 1.973bn active mobile gamers, which is like 95% of all active gamers. PC gamers (1.162bn) make up 56% of all gamers while console gamers make up around 30%. Among the three categories, mobile games is expected to remain the fastest growing segment with a CAGR of 6.2% between 2017-2021, followed by PC games at 3.6% CAGR and console games at only 1.5%.

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Who’s watching?

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While the number of gamers is expected to grow 5.4% p.a., there is one aspect of gaming that is expected to grow at almost 3x the speed. The global eSports audience (those watching televised computer games) is expected to increase from 322.2mn in 2016 to 665.3mn in 2021, a CAGR of 14.6%. In 2016, China had the largest eSports audience at 106.2mn people and is expected to remain the leader with 217.6mn eSports audience in 2021.

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In terms of prize money, the richest tournament appears to be Dota 2 with a purse of  US$88.33mn, followed by League of Legends at US$36.61mn.

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Source: HKEJ

Serious machines for serious gamers

Just like how professional cyclist need serious bikes, serious gamers also need serious machines. In 2016, the global gaming systems market was worth US19.3bn with revenues evenly split between Asia, the Americas and Europe.

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In addition to getting machines with the fastest processors, the best graphics card and memory, peripherals are also an important component. If you’re trying to navigate through Doom, you need the best mouse and the best keyboards. But one thing that I did not appreciate was the importance of sound quality.

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Among the US$2.2bn gaming peripherals sales in 2016, headsets accounted for nearly half, more than the sales of  mice (US$526.8mn) and keyboards (US$458.6mn) combined. Look closely at the picture below, everyone has a headset on and if you’ve seen the prices of some of the latest Bose headsets, it is probably an ASP thing.

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China is very much mobile games driven

One thing that is interesting is that while China accounts for around 25% of active gamers and also 25% of global gaming revenues, their spending seems to be concentrated on the actual games. Among gaming peripheral sales, China only make up 14.3%. For Asia Pacific ex China, the stat is even lower. Asia Pacific ex China gaming peripherals sales is only 7.8% compared to its 22% market share in global gaming revenues.

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This suggest that gaming in China and Asia Pacific likely takes place on mobile devices rather than PC or consoles. I guess that’s why this company in question is now planning to launch its own mobile phone, adding it to its stable of mice, keyboard, headphones and laptop computers.

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Postcards from Xian

Greetings from Xian. The first time I visited this ancient city was 17 years ago. Coming back this second time, here’s what struck me from this trip (1) red bikes, yellow bikes, green bikes and bikes of all colours, (2) cleaner and more orderly and not just the toilets, (3) coffee vs. fried chicken – chalk up a win for Starbucks, (4) mobile technology is huge but there is a catch, (5) rise of the domestic brands – watch out Apple, (6) best and worst food experience of the trip.

Greetings from Xian, China.

Background on Xian, China

Xian is located in the Shaanxi Province in China. Geographically, it is almost right smack in the middle of China, located around the same latitude as Shanghai and almost directly above Chengdu.

Historically, Xian was the capital of China during many of the early dynasties like the Qin and the Tang Dynasty. Back in the day, it used to be known as Chang’An. Today, Xian has a population of 8.7 million and according to our driver, its key industries are (1) aerospace and defence, (2) higher education and (3) tourism.

To most people, when they think of Xian, they think of the Terracotta Warriors from the tomb of Qin Shi Huang, the first emperor of China and founder of the Qin Dynasty.

What’s changed from 17 years ago?

This was my second time visiting Xian. The first time was about 17 years ago. I remember visiting the Terracotta Warriors but other than that the only other memory was the proliferation of internet cafes in the city centre.

Fast forwarding 17 years to 2017, here’s what struck me from this time around.

Red bikes, yellow bikes, green bikes and bikes of all colours

We previously wrote about China’s sharing economy. While we did not see any umbrella sharing schemes in Xian, we did see a ton of shared bicycles. There were green bikes, yellow bikes, orange bikes and silver and red bikes. On the positive side, the bikes were being used. People were scanning the QR code, unlocking bikes, riding them and then leaving them behind once they reached their destination. On the negative side, there is a lot of excess capacity. Competition is very intense and until one or two of these operators out-spend and out-live the others, I struggle to see how they would recoup their capital.

Cleaner and more orderly and not just the toilets

My second key impression was how much cleaner and more orderly Xian has become. In the past, when I visited some of China’s tier 2 cities, the two things that I dread the most were (i) visiting the smelly toilets and (ii) crossing the street. In many emerging markets, although there may be traffic lights, crossing the street is always an adventure. Drivers  never give way to pedestrians. This time, to my surprise, half of the cars actually slowed down when we crossed at the cross walk.

Secondly, the streets were a lot cleaner than I remember. There were many trash and recycle bins around town and they were being used for the most part. That said, there are some major hygiene issues (I’ve saved this for the ending) but China and Xian has come a long way.

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Guess where this was taken

Coffee Vs. Fried Chicken – Chalk up a win for Starbucks

Given our previous post on the fast food industry, we wanted to see how Starbucks and KFC were doing. By our rough count, Starbucks seems outnumbered KFC by a ratio of 5-to-3 in Xian. In total, I think we saw nine or 10 Starbucks and like six KFCs.

Starbucks in Xian

As a coffee lover, my first thought is that Starbucks is still very under-penetrated. Granted, Xian is not going to be like a typical US city where there are Starbucks around every corner but for a city of 8.7 million to only have a handful of stores clearly shows that there is scope for a higher concentration.

This impression was corroborated by what I saw when I visited the local Starbucks one day around 5pm. The first thing I noticed was that every single table was full. Secondly, the price point for a Grande Black Coffee in Xian (Rmb 22) is only 10% lower than that of Hong Kong (HK$29). Given the difference in overall cost of living, this gap is remarkably small. Overall, I came away feeling more optimistic that China will be the future growth engine of Starbucks.

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Dicos – Local competitor to KFC

Mobile technology is huge in China but there is a catch

Ahead of this trip, we’ve heard and read about how China is evolving into a cashless society where everything can be paid for using your mobile phone. Unlike the West where credit cards dominate, in China, it is all about AliPay and WeChat Pay. We were eager to try this out but there’s a catch. You need to have a local bank account.

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As Hong Kong residents, it is possible to set up an account with AliPay HK or WeChat Pay but that account would only allow us to transact in Hong Kong dollars. Since we could not top up our account in Rmb, we were stuck paying for most things using good old fashion cash. Although this is a problem for foreigners, with 1.3bn consumers, the domestic opportunity is arguably already big enough.

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Delivering one of the many online shopping parcels

Rise of the domestic brands – Watch out Apple

There’s good news and bad news for Apple from our trip. The good news is that despite the early knocks against the iPhone 8, the phone is actually pretty good. Despite only having one lens, the camera was a marked improvement over the dual camera of the iPhone 7-Plus.

The bad news is that China’s domestic consumers don’t seem to care about Apple much. When we asked our guide about the upcoming launch of the iPhone X, his response was  “I’m more looking forward to the Huawei Mate 10”. Around town, we also noted many more ads and store fronts featuring Vivo and Oppo mobile phones.

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Hua Shan – Taken with iPhone 8

Best and worst food experience of the trip

To finish off this post, we share our best and worst food experience from Xian.

One of the best foods that we tried was the Rou Jiaomo (肉夾饃). This is kind of like a Chinese hamburger. It can be filled with either beef, lamb or pork. It was delicious and only costs about Rmb 8. Definitely worth trying.

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Rou Jiamo – Chinese Burger

I’m a big fan of lamb and also a big fan of barbecue. So when you put them together in the form of roast lamb skewers, this combination is hard to beat. It was delicious, juicy and fragrant. It was really enjoyable until….(HEALTH WARNING: You might not want to read on if you have a weak stomach).

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Lamb skewers

I finished it and after walking down a couple of streets, I saw a lady rummaging through the trash and recovering the used sticks.

Source: Piccsy

Aaargghhh....I guess the cleanliness and orderly part has not reached everyone yet.







How well do you know luxury goods?

LVMH is one of the biggest luxury brand in the world. Under its stable, you’ll find the likes of Louis Vuitton, Rimowa, Loro Piana, DFS and Sephora. In 2016, it had annual sales of €37.6bn and as I write this its market cap stood at €122bn.

Today, I came across its 3Q results and it was interesting.

To see if you know luxury as well as you thought, take the following quiz. The answers are posted after the various photos. Don’t peak.

1. Which region contributes the most to LVMH’s revenues through the first nine months of 2017?

  • A) Asia,
  • B) Europe,
  • C) US,
  • D) Others

2. Which region had the strongest revenue growth rate in 3Q 2017?

  • A) Asia ex Japan,
  • B) Japan,
  • C) Europe and
  • D) US

3. Rank the revenue contribution by product segment from largest to smallest?

  • A) Wine and Spirits,
  • B) Fashion and Leather Goods,
  • C) Perfume and Cosmetics,
  • D) Watches and Jewellery and
  • E) Selective Retailing (i.e. DFS and Sephora)

4. Among the various product segments, which one recorded the strongest revenue growth in 9M 2017?

  • A) Wine and Spirits,
  • B) Fashion and Leather Goods,
  • C) Perfume and Cosmetics,
  • D) Watches and Jewellery and
  • E) Selective Retailing (i.e. DFS and Sephora)
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Which region contributes the most to LVMH’s revenues through the first nine months of 2017?

  • The answer is Asia. Combining Asia ex-Japan (29%) and Japan (7%), Asia contributed 36% to LVMH’s overall revenues in 9M 2017. Europe was the second largest region with 27% of sales (9% France and 18% Europe ex-France). The US was the third largest region at 25%.

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Which region had the strongest revenue growth rate in 3Q 2017?

  • The surprising answer was Japan and Asia ex-Japan. Both regions saw top line sales growth of 21% in 3Q 2017. For the year-to-date, Asia ex-Japan was still stronger at 19% while Japan is only at 11%. However, given all the talk about Japan still struggling with its lost decades, a 21% YoY growth was most unexpected.

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Rank the revenue contribution by product segment from largest to smallest?

  • This question should be the easiest one. I’m pretty sure that 90% of you knew that Fashion and Leather Goods would be the biggest category (at 35.5%) but how many knew that Selective Retailing (i.e. DFS and Sephora, etc) would be the second largest category at 30.6%. Perfume and Cosmetics was third at 13.3% while the Moet-Hennessy part of LVMH was only fourth largest at 11.5% of revenues. Watches and Jewellery was the smallest segment at 9.1%.

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Among the various product segments, which one recorded the strongest revenue growth in 9M 2017?

For the first nine months of 2017, LVMH’s largest segment was also its fastest growing. The Fashion and Leather Goods segment (35.5% of sales) grew 14% YoY in 9M 2017. AS Perfume and Cosmetics also grew 14% (with 17% YoY growth in 3Q 2017), this suggest that luxury branding is very strong. On the flip side, although wine and spirits grew 8% YoY, 3Q growth of 4% YoY made it the slowest growing segment in the group.

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Key Takeaways – Japan and Asia might be getting its Mojo back

As a generalist data point gatherer, the most interesting takeaways were:

1) The very strong performance out of Japan and Asia ex-Japan. Japan was supposed to be struggling to show inflation while Asia was supposed to be still dealing with the anti-corruption curbs. For both regions to show 21% YoY growth in 3Q and 11% and 19% YoY growth in 9M 2017 suggest that Asian consumers seems to have found their mojo and are back to their happy spending ways.

2) Branding remains effective. Usually with the law of the large numbers, as sales reach a certain critical mass, growth would inevitably slow. However, in the case of LVMH, although Fashion and Leather Goods is its largest segment at 35.5%, it growth has remained the strongest among the categories. Further, as many perfumes and cosmetics are branded along the same lines, the strong growth in those two categories suggest that consumers still love the luxury brands.

On point 1), if Japanese and Asian consumers have indeed gotten their mojo back, then the recent catch up of Japanese equities might have more room to go.

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Source: Yahoo Finance