This week, I'm highlighting five Asia stocks to watch in 2021 in each of my Real Money columns, Monday, Wednesday and Friday.
I'm grouping them by theme. So let's kick it off with the Asian economic recovery story, and five consumer-driven stocks set to gain as Asian economies recover.
The second-largest e-commerce site in China, JD.com (JD) gets far less attention than its big brother, Alibaba Group Holding (BABA) . But JD.com is posting faster growth, and weathered the coronavirus outbreak in China particularly well since it has its own distribution network, while other e-commerce companies suffered delivery chaos. That will have bolstered perception of its brand. It also increasingly provides logistics for third parties.
"Single's Day," as the November 11 shopping bonanza in China is known, has evolved into a multi-day event. JD.com reported sales of C¥271.5 billion (US$38.3 billion) for its 11-day sale from November 1-11. That growth, at 33%, was faster than Alibaba's 26% gain, although the BABA's total at C¥498.2 billion (US$70.2 billion) still leaves no doubt as to who is top dog. Amazon.com (AMZN) was happy sales for Black Friday weekend rose 60% to US$4.8 billion.
JD.com is experiencing fast growth in fast-moving consumer goods, and gaining market share in electronics. Beware the expensive valuation, at 29 times earnings, but those earnings are also rising fast; gross profit up 29.0% in the first nine months of 2020. The stock has risen 134% in 2020 so far, and has quadrupled since late 2018.
Pinduoduo (PDD) is an e-commerce platform that specializes in serving smaller Chinese cities, a market left underpenetrated by Alibaba and JD.com. The site offers "community group purchase" bonuses that encourage consumers to cluster purchases together and get better deals. That tactic proves popular with older buyers, with 70% of such purchases made by people over the age of 33.
The pandemic has caused a change in behavior in China, where folks of all ages and walks of life are now shopping online. For the first 10 months of the year, consumer-goods sales in general fell 5.9% year on year. Online consumer-goods sales rose 10.9%. Some shoppers are returning to traditional retail, but there are plenty of converts to e-commerce. The company has yet to turn a profit but getting close.
Pinduoduo is still experiencing strong growth in user numbers, as it penetrates the Chinese hinterland. Active buyers rose 36.4% year on year in the third quarter to 731.3 million people, while total revenue rose 89.1%.
Engagement in terms of time spent on the site has grown during the pandemic. Its Duo Duo Maicai service is a next-day pickup feature for groceries at cheaper prices, with online grocery expected to rise from 20% market share now to close to 50% by 2025.
The stock was added to the MSCI Asia ex-Japan index last year, giving it a beta-buying boost from index trackers. Shares are up 290.4% year to date.
Japanese cosmetics giant Shiseido (T:4911) (SSDOY) provides a value play on consumer-goods recovery, with a China growth kicker. Shiseido's many brands led by Shiseido itself are very popular with Chinese shoppers, and were some of the hottest sellers on Single's Day. Chinese cosmetic sales plunged in the first quarter in China, as the Covid-19 outbreak blossomed, but recovered starting in April, with double-digit growth in most months since.
The company has six stores for its brands (Shiseido, CPB, NARS, Elixir, Ipsa, Anessa) in Hainan Island, the "Hawaii of China," set to gain as Chinese travelers embark on domestic trips in face of travel restrictions. Hainan has positioned itself as a duty-free sales destination, with the annual tax-free limit per person raised from C¥30,000 to C¥100,000 as of July 1, and tax-free purchases now allowed on a special online platform once shoppers return home. Jefferies equities analyst Mitsuko Miyasako says in a report that "Shiseido's strength in the Chinese market shines through."
Nintendo (NTDOY) is a Japanese shinise, or "old shop," the name given to companies that are at least a century old. Although it's known for videogames and consoles, it started out in the Japanese cultural capital of Kyoto in 1889 making handmade hanafuda, flower-theme Japanese playing cards.
I'm biased on this one. I've spent far too many hours playing The Legend of Zelda: Breath of the Wild during lockdown. The game explores a gloriously expansive open world, with players allowed to pick their way through it, bashing monsters and building up sets of armor, embarking on quests, or not playing the main game at all and simply collecting recipes to do some cooking, or taming wild horses to ride around.
There's a sequel for Zelda expected next year. This should be a huge seller for Nintendo -- even though it was rolled out in 2017, Zelda still sold 21 million copies in the last two years. Mario Kart 8 Deluxe, with 36 million copies sold in the last two years, and Animal Crossing: New Horizons, with 34 million copies sold since introduction in March 2020, are its current best sellers.
There's plenty of speculation that Nintendo will also release a new version of its Switch console, variously described as the Switch Pro or Switch 2. The Switch is lower-powered than the newly introduced Sony (SNE) PlayStation 5 and Microsoft (MSFT) Xbox X. But it has the huge advantage of a portable screen, harking back to its earlier hardware such as the Game Boy. Sony shares (up 32.2% year to date) are equally attractive as Nintendo (up 41.5%), though Nintendo is a purer play on videogames.
Melco Resorts & Entertainment
A recovery in the take at the gambling tables in the world's largest casino center, Macau, would be the ultimate Covid recovery story. Arguably no business was harder hit by the coronavirus than Macau's casinos.
The casinos were totally shuttered for 15 days, but even after they reopened international visitors were barred from entering. Chinese citizens (71% of visitors to Macau) had to do two weeks of quarantine on return, putting paid to a short gambling spree, while visitors from Hong Kong (18.7%) were barred along with nationals of all other nations.
The city only has a population of 615,000, so there's essentially no domestic market. Around three-quarters of the workforce in Macau work in some connection with the city's 41 casinos. Companies such as Melco Resorts & Entertainment (MLCO) , Sands China (SCHYY), Wynn Macau (WYNMY), MGM China (MCHVY) and Galaxy Entertainment Group (GXYYY) reported basically no revenue for the second quiarer as a result.
Melco and Galaxy are the two Hong Kong-grown casino operators, likely to experience marginally less political pressure than their Las Vegas-linked counterparts. Melco in 2018 unveiled the fifth hotel tower, the Zaha Hadid Architects-designed Morpheus, at the enormous City of Dreams complex, which already contains the Grand Hyatt and Hard Rock Hotel, and also runs the Hollywood-themed Studio City resort. The company says it only needs to hit gross gaming revenue of mid-to-high 20% of its historical rate to get back to break even.
"Casino hopping" is down after the virus hit, with punters more likely to play where they stay. Melco is doing a good job targeting "premium mass" patrons and attracting visitors from inside China but beyond the borders of Guangdong Province, across the Macau border.