From the heaviest snow storm in half a century to, now, the worst in 100 years. While there are signs pointing to the fact that the darkest days may be over, it will take a while for China to fully recover. Public transportation is slowly rumbling to life, trucks stranded on roads are moving again, and people are rushing en masse to go home for the Chinese New Year celebrations. It is estimated that the storm has so far caused $7.5 billion worth of damages, affecting approx. 150 million people, or just under 10% of the Chinese population.
But some people are benefiting from this. Small proprietorships in southern China are hiring stranded workers who have given up hopes of traveling home, paying them a low wage to help with the ramp-up in business leading up to the Spring Festival. Enterprising food vendors are selling hot cakes (literally) to people who have waited hours, even days, at railway stations and bus depots.
Some businesses will benefit too. I think the following C.O.P. companies will, on balance, emerge as winners from this unusual winter season:
1) Sino Gas (SGAS.OB) should see a healthy uptick in the consumption of natural gas for heating, cooking and other power usage. The weather will not affect the transportation of SGAS' gas as the company controls and operates its own distribution system in which the gas is piped into residences and factories. The company currently serves approx. 70,000 customers with over 700 miles of pipelines.
2) China Solar (CSOL.OB) sells and installs hot water heaters and space heating devices and I can't see why this company wouldn't benefit from the current storm. What is to be noted is that CSOL recently acquired a company (Shenzhen PengSangPu) in southern China, where the effects of the snow are the greatest. PengSangPu should see a brisk sale in heating products.
3) China Pharma (CPHI.OB) has a popular influenza drug in PuSenOK, which was launched in 2005 and has a market position similar to Aleve in the U.S. According to the company, PuSenOk was the first locally produced OTC flu drug to be marketed with a branding strategy and the results have been very encouraging. The drug enjoyed triple digit growth in 2007 and this should continue into 2008.
Still, whatever silver lining there may be to this situation, I do wish that this bad weather would go away as soon as possible. Given that the country is about to shut down for the Chinese New Year holidays, overall Q1 growth is expected to be very slow indeed.
My Position: Long CPHI.OB.