China’s industrial profits surge 10.2% in first two months of 2024

The National Bureau of Statistics announced that from January to February, the total profits of industrial enterprises above the designated size reached RMB914 billion, up 10.2% YoY, the first positive growth since 2023. Benefiting from the improvement in both domestic and foreign demand and the CNY peak season, the profits of the consumption industry also achieved rapid growth. From January to February, profits from the consumer goods industry jumped 12.9% in the first two months of 2024, compared with a 1.1% decline for all of 2023. From January to February, the profits of the equipment industry increased by 28.9% YoY, making the largest contribution to total profits. From January to February, among industrial enterprises above the designated size, state-holding enterprises realized a total profit of RMB343 billion, a YoY increase of 0.5%; share based enterprises realized a total profit of RMB690 billion, up by 5.3%; enterprises funded by foreign investors and investors from Hong Kong, Macao and Taiwan realized a total profit of RMB217 billion, up by 31.2%; private enterprises realized a total profit of RMB247 billion, up by 12.7%.

From January to February, the mining industry realized a total profit of RMB188 billion, a YoY decrease of 21.1%. The manufacturing industry realized a total profit of RMB613 billion, up by 17.4%. The production and supply of electricity, thermal power, gas and water realized a total profit of RMB113 billion, up by 63.1%. In terms of the Hong Kong stock market, the Hang Seng Index fell into a correction this week. It is expected to lack upward momentum in the near term and to fluctuate between 16,000-17,000 points.

In terms of industry, benefiting from the low base in 2022, some consumption companies have released impressive results. Given the lack of investment themes, the retail sector is worth paying attention to in the short term.

POP MART (9992.HK)’s revenue in FY23 reached RMB 6.3 billion, a YoY increase of 36.5%. Gross profit increased from RMB2.65 billion in FY22 to RMB3.86 billion in FY23, a YoY increase of 45.6%, mainly due to fewer promotional activities and the increase in the proportion of overseas segment. Gross profit margin was 61.3%, a YoY increase of 3.8ppts from 57.5% in FY22. Net profit was RMB1.1 billion, a YoY increase of 1.3 times.

As of December 31, 2023, the number of stores totaled 363, with a net opening of 34 stores. The scale of user digitalization grew rapidly. As of 31 December 2023, the total number of registered members in Mainland China increased from 26.0 million in 2022 to 34.4 million, with 8.4 million new registered members. In 2023, the sales contributed by members represented 92.1% of the total, with repeat purchase rate of members of 50.0%. Through continuous expansion of the international market and in-depth promotion of localized operation, the business in Hong Kong, Macao, Taiwan and overseas maintained a rapid development, with the revenue reaching RMB1.1 billion, representing a YoY increase of 134.9% and accounting for 16.9% of total revenue. It is recommended to buy at HK$27.90, target at HK$32.50, and stop loss at HK$26.80.

Weilong Delicious (9985.HK) total revenue in FY23 amounted to RMB 4.87 billion, a YoY increase of 5.2%, primarily due to an increase in the sales from the emerging channels such as O2O, snack specialty retailers and content e-commerce platforms. Gross profit increased by 18.5% YoY to RMB 2.32 billion from RMB 1.96 billion in FY22, with gross profit margin up 5.4ppts YoY to 47.7%. Net profit reached RMB 880.4 million, a YoY increase of 481.9%.

In terms of business segments, revenue from the seasoned flour products business decreased by 6.2% YoY to RMB 2.55 billion, mainly due to the decline in the consumer flow of offline traditional channels. Vegetable products business revenue increased by 25.1% YoY to RMB 2.12 billion, accounting for 43.5% of total revenue, compared to 36.6% in FY22. Revenue from the bean-based and other products business decreased by 7.4% YoY to RMB 203.9 million. The company declared a final dividend and a special dividend, totaling 21 HK cents per share. Together with an interim dividend of 12 HK cents per share, the annual dividend payout rate reached 87%, compared with 60% in FY22. The dividend yield was 6%. It is recommended to buy at HK$5.40, target at HK$6.30, and stop loss at HK$5.20.