Asian Event-Driven Weekly: Pay Attention To Premiumization Trends

Summary

• Budweiser APAC's premiumization strategy delivers results, with higher growth rates for its premium and super-premium brands.
• The recently-announced increased stamp duty for Hong Kong-listed stocks has drawn attention to both the Hong Kong stock market and the stock market operator, Hong Kong Exchanges and Clearing.
• Singapore-headquartered property company City Developments Limited recognized a significant impairment on its investment in a Chinese property developer in 4Q 2020.
• Looking for more investing ideas like this one? Get them exclusively at Asia Value & Moat Stocks. Get started today »

Introduction

The eight edition of the Asian Event-Driven Weekly looks at premiumization trends in the Asian alcoholic beverages market, an increase in stamp duty for Hong Kong-listed stocks, and a Singapore-headquartered property company's views on cooling measures in China's property market.

Premiumization Trends In Asia

In the fourth edition of the Asian Event-Driven Weekly published earlier on February 4, 2021, I had noted that Chinese luxury mall operator Hang Lung Properties Limited's (OTCPK:HLPPY) (OTCPK:HLPPF) [101:HK] had highlighted in the company's FY 2020 earnings call in late-January 2021 that its "five-star" retail malls have out-performed its "four-star" retail malls by a wide margin in 2020.

It's interesting that consumers, especially in Asia, are almost always willingly to pay a little more to have better experiences and superior products or services. For example, Hong Kong-listed beer company Budweiser Brewing Company APAC Limited (OTCPK:BDWBF) (OTCPK:BDWBY) [1876:HK], or Budweiser APAC, continues to see its focus on premiumization pay off in the form of stronger sales for its premium and super-premium brands.

Separately, the recently-announced increased stamp duty for Hong Kong-listed stocks has drawn attention to both the Hong Kong stock market and the stock market operator, Hong Kong Exchanges and Clearing Limited (OTCPK:HKXCY) (OTCPK:HKXCF) [388:HK], or HKEX. Also, Singapore-headquartered property company City Developments Limited (OTCPK:CDEVY) (OTCPK:CDEVF) recognized a significant impairment on its investment in a Chinese property developer in 4Q 2020, and the company shares insights on China's property market in its recent results briefing.

All the companies highlighted in this article have decent trading liquidity and their respective market capitalizations are at least $200 million, and investors interested in investing in Hong Kong- and Singapore-listed stocks directly can do so using US brokerages with foreign markets access like Fidelity and Interactive Brokers.

Asia's Largest Beer Company Continues To Bet On The Premium Segment

Budweiser APAC, Asia's largest beer company, announced the company's 4Q 2020 and full-year FY 2020 results on Feb. 25, 2021. The company shared on its earnings call on the same day that its "premium and super Premium portfolio grew by mid-single digits" in 4Q 2020 in China. Budweiser APAC also revealed that the company "already leads the premium segment" and "continues to grow market share in the last few years" in South Korea, where premium and super premium products only account for about a quarter of the country's beer market sales volume. In India, the company's premium Budweiser brand now contributes the largest proportion of sales in this market.

Moving forward, Budweiser APAC continues to bet heavily on premiumization. In China, the company noted at its recent results briefing that "we are piloting various innovations, such as Mike's Hard Lemonade, to set a stage for further premiumization." A May 2017 Forbes article referred to Mike's Hard Lemonade as "a malt beverage like beer" that's "leveraging the name of their hard-liquor parents to cover up the fact that they're only 5% alcohol" which was "America's fastest-growing beer brand." In South Korea and India, Budweiser APAC is focusing its attention on premium non-alcoholic beverage products such as Budweiser 0.0 and Hoegaarden 0.0. The company stressed at its 4Q 2020 earnings call that "we have quite a good technology to make sure a 0.0 product really tastes like a full beer."

It's worthwhile for investors to examine Asian consumer companies' premiumization efforts and strategies when evaluating them as potential investment candidates.

Stamp Duty Hike In Hong Kong Reveals Interesting Insights About The Market

On February 24, 2021, Bloomberg reported that "Hong Kong's levy on buying and selling shares will increase to 0.13% from 0.10%" in a few months' time, which "sent shares of the city's exchange operator down (-8.8%) the most in five years" on the day itself. HKEX revealed some very interesting insights about the Hong Kong stock market, when answering questions about the stamp duty hike at its FY 2020 results briefing.

Firstly, quantitative traders are estimated to account for approximately 10% of average daily trading volume of the Hong Kong cash equities market. Also, high-frequency traders were never significant players in the Hong Kong equity market, and one possible reason is that even the existing 0.10% stamp duty was perceived to be expensive. Secondly, following the stamp duty hike, stamp duty will account for roughly 30% of total transaction costs relating to Hong Kong equities, and it will be challenging for HKEX to reduce the other transaction costs to mitigate the impact of the increase in stamp duty. Last but not least, HKEX had no say in the stamp duty hike and was not even consulted by the Hong Kong government prior to the official announcement.

As long-term investors, I don't consider transaction costs to be the most important factor in determining where I invest. But it's still interesting to see if the stamp duty hike will have a negative impact on trading volume in the Hong Kong stock market when it is implemented eventually.

Singapore Property Company Shares Thoughts On Cooling Measures In China Property Market

In the company's FY 2020 earnings press release issued on February 26, 2021, City Developments highlighted that it "effectively impaired 93% of its total investment in Sincere Property (Chinese property developer), amounting to S$1.78 billion" after "taking into consideration Sincere Property's debts in the next 12 months and China's 'three red lines' policy to cap borrowings for real estate developers."

In the company's FY 2020 results briefing on February 26, 2021, City Developments noted that in China "home prices literally is said to be increasing about 6% to 8%" annually for the past few years which was what promoted the property cooling measures in China, and "the PRC government is strongly driving this rental sector growth because they want more people to focus on renting rather than buying to avoid a real estate bubble." But City Developments noted at the same time that "we are scaling back some of our investments in the China just until we see how things pan out with Sincere." The company also quoted a Bloomberg article (which I couldn't find online) that suggested that 81% of "the China real estate market are all facing pressure on their liquidity and advances."

Previously, I had mentioned in the third edition of the Asian Event-Driven Weekly published on January 28, 2021, that Chinese property company China Jinmao Holdings Group Ltd. (OTCPK:FRSHY) [817:HK] announced a profit warning for FY 2020 results, which is attributable to impairment on its properties. Most of the Hong Kong-listed Chinese property developers will be reporting their full-year results this month, and we will likely have a clearer picture of the real impact of the cooling measures.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.