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  • lion_guru_1 lion_guru_1 Apr 6, 2012 3:49 PM Flag

    Baby boom in China

    China Investors Rush Into Baby Care for Year of Dragon
    Posted on November 26, 2011 | Leave a comment

    Source: Bloomberg News By Vinicy Chan

    China’s emerging baby boom, driven by more-relaxed government policies and the year of the dragon, is fertile ground for both domestic and overseas companies.

    The world’s second-largest economy will experience a population boom from 2005 to 2020 and the country’s birth rate will peak in 2016, the National Bureau of Statistics predicts. The Chinese population is expected to reach 1.388 billion by 2020 from 1.334 billion in 2009, according to the United Nations.

    Many families are also likely to want their children born in 2012, the year of the dragon. Five percent more babies are born in a dragon year because the icon of China’s emperors symbolizes power and wealth, said Cheung Tak Hong, who runs the obstetrics and gynecology department at the Prince of Wales Hospital in Hong Kong.

    “The baby boom is a good investment idea in the near term,” said Jessie Guo, Jefferies Group Inc.’s Hong Kong-based head for consumer research in Asia. “The growth is likely to sustain for the next two to three years.”

    The boom is expected to increase sales of formula companies such as Inner Mongolia Yili Industrial (600887) Group Co., diaper maker Hengan International Group Co. and Prince Frog International Holdings Ltd., a maker of toiletries for children.

    Sure Thing

    Investors who sold Chinese dairy companies after tainted formula killed at least six infants three years ago are buying again.

    Yili dropped 67 percent in 2008 in Shanghai trading after it was identified among 22 companies that sold products containing melamine. The stock of China’s top publicly traded baby formula maker has jumped more than fivefold since then, and 21 out of 22 analysts tracked by Bloomberg who cover the stock predict it will continue to rise. The Shanghai Composite Index has gained 33 percent since the end of 2008.

    China Mengniu Dairy Co., the country’s biggest listed milk producer, lost 65 percent of its market value in 2008. Its stock has since more than doubled. Mengniu gained 1 percent to HK$26.35 in Hong Kong trading today, while the benchmark Hang Seng Index (HSI) slid 1.4 percent.

    “The dragon year baby boom is almost a sure thing, which will boost the demand for infant products such as baby formula, diapers and clothes,” said Michele Mak, a consumer-sector analyst at BNP Paribas.

    China introduced a one-child policy in 1979 to curb population growth and drive prosperity. Now, facing an aging labor force, the government has eased restrictions by allowing couples who are both only children to have two kids of their own. In addition, rural couples whose first child is a girl over four years old are allowed a second child.

    Disposable Income

    As incomes rise, Chinese parents have more money to spend on their children. Per-capita disposable income for households in towns and cities rose 8 percent to 19,109 yuan last year, almost doubling from 2005.

    China’s baby-food market will grow about 22 percent to more than 68 billion yuan ($11 billion) in 2011 and will almost double to 136 billion yuan by 2015, researcher Euromonitor International estimates. Baby food and pediatric supplement maker Biostime International Holdings Ltd. (1112) has gained 1.3% percent in Hong Kong trading this year.

    The baby boom is also likely to “provide a good boost in sales” for Prince Frog and for children’s clothing retailer Boshiwa International Holding Ltd. (1698), said Ray Sze, director at Tianda Securities. “The companies are cheap right now.” Prince Frog is trading at 8.2 times expected earnings and Boshiwa is at a multiple of 9.1 Hong Kong’s Hang Seng Index is at 10 times expected earnings.

    Boshiwa expects sales orders to rise 40 percent to 50 percent in 2012 on rising birth rates and a robust economy, it said last month.

 
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