Business conditions improve with fastest output growth in nearly two years

In May, the Caixin China General Manufacturing PMI rose 0.3 points from the previous month to 51.7, a record high since June 2022 and in the expansion range for four consecutive months. This trend was not consistent with the manufacturing PMI released by the National Bureau of Statistics. The manufacturing PMI released by the National Bureau of Statistics was recorded at 49.5 in May, which was 0.9 point lower than April’s level, still in contraction. Both supply and demand expanded amid the upturn. Growth in manufacturers’ output reached a 23-month high in May, with particularly strong increases in consumption goods production. Total new orders registered the 10th straight month of growth, although demand for intermediate goods was relatively weak. New export orders grew for the fifth consecutive month, albeit at a slower pace.

The sector’s labor market remained in contraction for the ninth straight month. The corresponding gauge has only managed to reach expansionary territory twice since March 2022 — in February and August 2023. Price levels remained low. Input costs rose at the fastest pace in seven months. Some surveyed companies attributed higher input costs to the rising prices of industrial metals, plastics and crude oil. Sales prices continued to decline amid intense market competition. However, factory gate prices for intermediate goods ticked up. Supplier logistics continued to improve, with overall delivery times holding more or less steady compared with the levels seen in the previous two months. In terms of the Hong Kong stock market, the Hang Seng Index may lack upward momentum in the near term. It is expected to fluctuate between 17,800-18,900 points.

In terms of industry, consumption is recovering steadily, and investors can pay attention to stocks with good performance.

Miniso(9896.HK)’s revenue in 1Q24 amounted to RMB3.72bn, up 26.0% YoY, primarily driven by a 19.3% increase in the store number and an around 9% same store sales growth. Gross profit reached RMB1.62bn, up 39.1% YoY. GPM was 43.4% in 1Q24, compared to 39.3% in 1Q23, mainly benefiting from higher gross margin of TOP TOY due to a shift in product mix towards more profitable products. Net profit was up 24.4% YoY to RMB586 million. Looking forward, Miniso is confident to increase gross margin steadily by leveraging the core capabilities in IP product development, supply chain integration and globalization.

As of March 31, 2024, MINISO has a total of 6,630 stores, with a net increase of 217 stores in Q1. Among them, the number of MINISO brand stores in mainland China surpassed the 4,000 mark, with a net increase of 108 stores in Q1. Looking forward to 2Q24, the Mgt expects the sales to continue to grow healthily on a YoY basis, driven by better store-level performance and store network expansion. It is recommended to buy at HK$41.50, target at HK$47.00, and stop loss at HK$38.50.

Pop Mart(9992.HK) recorded decent growth across channels and markets. Pop Mart reported 40-45% YoY revenue growth in 1Q24, sustaining its momentum in 2H23 (+54% YoY), largely driven by expeditious development of overseas segment (+245-250% YoY). In Mainland China, revenue generated from retail stores and roboshops grew by 20-25% and 15-20% YoY respectively, indicating that the new product collections, such as Skullpanda: image of reality and Dimoo: animal kingdom, were well received by customers. Sales on e-commerce platforms also maintained steady growth of 20-25% YoY in 1Q24, with Douyin continuing to outperform the others. Furthermore, wholesales and other channels climbed 50-55% YoY in 1Q24 revenue.

Overseas expansion progressed smoothly. On 9 Feb, Pop Mart unveiled its third retail store in Bangkok, Thailand and witnessed retail sales value of RMB5m on the opening day, setting a new record among all Pop Mart’s retail stores globally. The company further expanded its footprint in Southeast Asia with the launch of two retail stores in Vietnam in March. It is recommended to buy at HK$37.00, target at HK$42.00, and stop loss at HK$34.50.