With China reopening, you could think of straightforward winners in the Tourism, entertainment, F&B, Casino, Public transport and consumer goods categories such as apparel, footwear, cosmetics. As part of the reopening, there’ll be increased movement and industries such as Public transport and fuel would also clearly benefit.
Here, we identify 5 other industries that are surprise winners of China’s COVID reopening policies. We also provide some examples of companies in these respective industries or sectors.
1. Funeral service providers – Fu Shou Yuan (HKG:1448)
We are starting off with a morbid and unfortunate example. Fu Shou Yuan is the largest death care service provider in China, albeit with a small market share in a fragmented market.
The Company operates through the three following business segments:
- The Burial Services segment is engaged in the sales of burial plots and provision of cemetery maintenance services.
- The Funeral Services segment is engaged in the arrangement and interment, the organization and hosting of funeral.
- The Auxiliary Services segment is engaged in the provision of landscape and garden design services, as well as the production, sales and maintenance of cremation machines.
Fu Shou Yuan’s services are viewed as premium and targeted towards the upper middle class and higher segments. During the covid lock down period, the company was affected as covid regulations in place required quicker burials which adhered to covid restrictions.
This meant Fu Shou Yuan was unable to provide its full suite of services to willing buyers who wanted to engage in slightly more elaborate farewell ceremonies. The subsequent regulatory crackdowns also led to such events being toned down.
The relaxation of the covid policies and also conclusion of the regulatory cracked down meant that the wealthy were now able to engage Fu Shou Yuan’s services to a larger extent. This led market expectations that Fu Shou Yuan will perform better than previous years and explains why it became a winner of China’s COVID reopening policies.
2. Online health management platforms – JD Health (HKG:6618)
JD Health (HKG:6618), Alibaba Health Information Technology Ltd (HKG:241) and Ping An Healthcare and Technology (HKG:1833) (formerly known as Ping An Good Doctor “PAGD”) are the three big players in the online health management platform industry.
JD Health is the largest online healthcare platform in China. The Company’s technology-driven platform is centered on the supply chain of pharmaceutical and healthcare products and strengthened by healthcare services, encompassing a user’s full life span for all healthcare needs. The retail pharmacy and the online healthcare services meet users’ needs across all aspects of the healthcare products and services sector and provide easily accessible, convenient, high-quality yet affordable healthcare products and services in China.
When the COVID policies were revised, there was an expectation that there would be higher incidences of mild COVID in the population and the patients would avoid physical medical visits as the hospitals and public clinics would be deemed unsafe or unsanitary. These patients would seek out telemedicine alternatives and also purchase off the shelf remedies. This means that companies would see increased volumes and also be able to increase its selling prices.
What is interesting to note here is that the online health management platform stocks initially outperformed and subsequently came down as policies changed from partial reopening to large scale reopening. This could be because investors think revenue opportunities for these platforms would decrease as a large scale reopening means a covid wave period that is shorter but also with a higher number of cases. Should the online health management platform run out of its inventory of medicine, they would not be able to restock fast enough to capture demand.
3. Transport infrastructure – Shenzhen Expressway (HKG:0548)
Shenzhen Expressway is primarily engaged in the investment, construction, operation and management of toll highways in Mainland China.
The company has ownership stakes in many major roads and derives the bulk of its revenue from toll road and other toll road-related businesses, and remaining revenue from property development projects.
During the pandemic, the company was affected not only from lower travel volumes but also lower price per vehicle as the Chinese government reduced or waived toll tariffs.
As part of the COVID reopening policies in 4Q22, the Chinese government said it will reduce truck toll tariffs by 10% across the country.
Lower toll rates could provide a boost to volumes, which have been slower to recover after wider and extended lockdowns in some cities in April to June. The rebound has been hampered by a resurgence of Covid-19 cases and continued containment measures to keep the virus at bay. Toll traffic dropped by up to 10% in the first eight months of 2022.
Hence a reopening would benefit Shenzhen Expressway not only from car vehicle volumes as the population travels more frequently for daily needs or even for holidays. In addition, a reopening would boost the economy which would boost freight volumes as well. Trucks makes up at least 30% of volume and commanding a higher toll rate than passenger vehicles.
4. Footwear- Xtep International (HKG:1368)
Xtep is a leading professional sports brand with an extensive distribution network of stores across China and overseas. In 2019, the company further diversified its brand portfolio which now includes four internationally acclaimed brands, namely K-Swiss, Palladium, Saucony and Merrell. It acquired the K-Swiss and Palladium in August 2019 and entered into a joint venture with Wolverine (NYSE:WWW) for the Saucony and Merrell Brands in China in March 2019.
Xtep’s brand of shoes are in the athletic category while K-Swiss and Saucony are casual footwear brands. The Palladium and Merrell brands are outdoor/hiking boots/shoes. These 3 categories of shoes are expected to see increase purchases as people spend more time outdoors.
5. Banks – Bank Of China (HKG:3988)
In case its not obvious to some, Bank of China (BOC) may come across as a surprise winner. Bank of China is one of China’s Big 4 State Owned Banks.
As China’s most globalized and integrated bank, Bank of China has a well-established global service network with institutions set up across the Chinese mainland as well as in around 60 countries and regions. It has established an integrated service platform based on the pillars of its corporate banking, personal banking, financial markets and other commercial banking business, which covers investment banking, direct investment, securities, insurance, funds, aircraft leasing and other areas, thus providing its customers with a comprehensive range of financial services.
The covid reopening policy benefits BOC as the economy is now expected to record higher growth rates. Higher economic growth rates means that there would be higher transactions and higher loan volume. The higher loan volume also comes with higher net interest margins. In addition, default rates and loan provisions would decline, which contributes to the overall increased profits for the bank.
Lastly, the amount of “National Service” required by the state owned banks would probably decrease when the economy is strong. When the economy is weak, the state owned banks receive frequent instructions from the government to contribute to boosting economic growth or “National Service” by various means such as the deferment of mortgage and reduction of interest rates.
What other industries can you think of?
These surprise winners have been fortunate to benefit from the policy change as they fulfil a certain need that has existed before the pandemic but was temporarily disrupted. Many of these surprise winners would also be beneficiaries of economic growth tailwinds. Are there any other industries that you can think of? Do let us know in the comments!
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