Four Global Companies Benefiting from China
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
China will remain one of the main drivers of economic growth on a global scale for years to come, and opportunities will be plenty. Unfortunately, investing in Chinese companies can be quite complicated due to the lack of transparent information, and the many accounting scandals in Chinese stocks have not helped at all with the trust issue.
On the other hand, many global companies offer an attractive exposure to Chinese growth, and the added benefit of higher stability and diversification. These may not be pure China plays, but they are worth a look from those investors who would like to have some exposure to growth opportunities in China while at the same time control for risks by sticking to more familiar names.
Apple (NASDAQ: AAPL) generated nearly 20% of its revenue from China in the last quarter, and sales were growing by 300% in the last quarter compared to the previous year. The company´s CEO Tim Cook said during the last earnings conference that the company expects to keep generating outstanding growth rates from China for a long time. If there is one lesson investors should learn from Apple in the last quarter it´s that China is becoming an increasingly important factor for the company.
No big surprises for Yum! Brands' (NYSE: YUM) investors regarding China in the last quarter. The quick service restaurant has been expanding rapidly in that country for many years. Operating profits in China increased by a 19% during the last quarter, and comparable sales grew by a remarkable 14% versus the previous year. Yum opened 168 new restaurants in China during the last quarter.
Not only high end electronics and fast food are demanded in China, luxury accessories can be quite the hot items in that country too, and Coach (NYSE: COH) is making some nice profits from that demand. From the company´s latest earnings release:
As we've discussed many times outside of North America, China is our largest geographic opportunity given the size of the market and the rate of growth. During the quarter, our sales again rose sharply, up nearly 60% from prior year, fueled by distribution and double-digit same-store sales growth. Clearly, the Chinese consumer has embraced Coach as evidenced by the extremely high repurchase intent of over 90% among existing customers.
Starbucks (NASDAQ: SBUX) has seen strong growth in the China-Asia-Pacific (“CAP”) Region as well. Its net revenue there jumped 32% to $174.6 million in the quarter driven by double-digit growth in China, an 18% in increase in same-store sales and new store openings. From Howard Shultz during the last press conference:
You almost have to see the customer engagement for yourself to fully appreciate the transformation. In the past, our typical core customer in China was an expat or tourist visiting a store in Shanghai or Beijing. Today, without question, we have made the significant transition to serving local Chinese customers who enjoy a wide variety of locally relevant products and a welcoming third place environment.
We are well on our way to achieving our plan of having 1,500 stores in Mainland China by 2015. In fact, we are so encouraged by the customer adoption we are experiencing and the momentum that has been growing that we announced today that we are increasing our China/Asia Pacific store opening targets for the fiscal year to 400 from 300, with China stores representing half of that growth.
Many analysts have questioned Starbucks prospects in China because the Chinese don´t have a strong coffee drinking tradition, and prices at Starbucks can seem too elevated in comparison to most Chinese salaries. Judging by the numbers Starbucks is reporting, however, there seems to be no reason to disbelieve in the China story for Starbucks.
Investing to benefit from the growing demand in China during the following years seems like a powerful idea. These global consumer companies with a strong focus in China can be a convenient way to profit from china via more familiar and well-known companies.
acardenal owns shares of Apple. The Motley Fool owns shares of Apple and Starbucks. Motley Fool newsletter services recommend Apple, Coach, Starbucks, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
