It's the Mid-Autumn Festival. Much as Labor Day marks the end of summer, the festival marks the transition into autumn in China. It's also the harvest festival. This evening, Chinese people the world over will be gathering with their immediate family for dinner. Kids will take lanterns out to look at the full moon.
I celebrated with my in-laws this past Saturday, with poon choi. It's a dish that originated in Hong Kong's New Territories, and is a feast in a bowl. The top layer includes delicacies such as conpoy (dried scallop -- tasty but always gets stuck in my teeth!), oysters, squid, pork belly, fish balls, lotus root and goose feet. Below there are veggies that have soaked up all the juices as the delicacies cooked. Believe me, it's delicious.
China's markets are closed on Thursday for a long weekend, as are Taiwan and South Korea. Hong Kong was trading Thursday -- the Hang Seng closed up 0.6% -- but will take a break tomorrow.
Since it's the Mid-Autumn Festival, I thought I would take a look at some Chinese agricultural stocks that might make interesting investment plays. All of these companies produce their foodstuffs for the domestic market, so they're pure plays on Chinese consumption at a time China's middle class is coming into its own.
Shenzen stock exchange-listed Henan Shuanghui Investment & Development SZ:000895 is a company that runs slaughterhouses and meat-processing plants. With a market capitalization of $11.6 billion, it's the third-largest food processor in China.
Shuanghui is also one of the stocks that investment bank Nomura identified as a high-yielding, attractive play just after the Shenzhen-Hong Kong stock link was confirmed. The Japanese bank forecasts a yield of 4.5% for this year and 4.6% next. It is however relatively expensive, trading at 17.5x this year's anticipated earnings.
The stock looks toppy at 23.4 yuan ($3.51). It has shown huge volatility in recent years, and is up 46% in the last year. If anything, the chart shows it as a short.
Joyoung SZ:002242 is another Nomura pick. It produces and distributes soymilk makers and small kitchen appliances such as juicers and blenders. Many Chinese people are lactose-intolerant or simply don't like milk. In fact, some people say that Westerners smell of cheese! Its forecast 3.8% yield this year should rise to 4.4% next. It is even more expensive at 22.9x this year's earnings.
Joyoung, at 19.6 yuan, is trading around the middle of its one-year range. It turned south at the beginning of July but has had repeated bounces so it could be a great play for active traders. First-half profit was up 14%, it announced in mid-August.
The only two food production stocks bigger than Henan Shuanghui are Inner Mongolia Yili Industrial Group SH:600887, the industry giant with a market cap of $14.6 billion, and Foshan Haitian Flavouring and Food SH:603288.
Foshan Haitian has a particularly high profit margin of 22%, after tax, while Henan Shanghui, at 9.9%, and Yili, at 7.7%, are a lot less profitable pound for pound. Foshan Haitian makes soy sauce, oyster sauce, chicken flavoring and vinegar -- all essentials in Chinese cuisine. You'll see its products on Chinese shelves under the brand names Haitian and Yihu.
First-half profit was up 11.3%. It has been range trading since March but showed intense volatility last year, when Chinese markets in general were also all over the place.
Yili has a very attractive track record of growth in its share price, looking back to 2012, bar a spike and crash in the middle of last year. It is in a dip at the moment, down 13% in the last month. It produces milk, cheese, yoghurt and milk powder, massively popular with Chinese mothers when not tainted with plastic. (They come to Hong Kong to pick up the safe stuff.) Net profit was up 21% in the first half of the year so it seems to be on very solid ground.
All three are in a very good position in terms of debt. Foshan Haitian's debt-to-equity ratio is 0, according to Reuters data, and just 3.6% for Henan Shuanghui. Yili is a little higher at 33% but still nowhere near running into trouble if interest rates start to rise.
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (GXC) has nothing to do with agriculture specifically. But I took a look at it merely because of its Chinese sponsors name at the harvest festival. Tracking the broad China market, it has had a muted 2016 after losing 22% in the first two weeks of the year. It's down 0.3%, essentially flat, over the last 12 months.
