When you think of China, you tend to think that it’s the world’s second-largest economy. Second, the country has the biggest population in the world with 1.4 billion people.
Naturally, that translates into 1.4 billion potential consumers and it’s no surprise that in the Hong Kong stock market, Chinese consumer goods companies have been strong performers.
Although these companies tend to be home-grown brands, that doesn’t diminish from their success. Think of Chinese consumer brands such as HaiDiLao International Holding Ltd (SEHK: 6862), or tech specialist Xiaomi Corp (SEHK: 1810), and it’s easy to see why they’ve been successful.
There are a lot of other less well-known, but equally as successful names, in the local consumer goods market in China.
With that, here’s one consumer goods company from China, that’s listed in Hong Kong, which could be a great addition to any long-term investor’s portfolio.
Milking it for future growth
One of the biggest consumer-facing brands in China is milk and dairy goods producer China Mengniu Dairy (SEHK: 2319).
Having been one of the first Chinese brands to have listed in Hong Kong – all the way back in 2004 – the company has a solid track record as a listed company.
With the infamous melamine infant formula incident of 2008 in China, food safety precautions in the country (particularly in the infant formula arena) have been tightened considerably.
Mengniu has spent the past 13 years re-building its reputation and strengthening its supply chains to ensure more stringent oversight of food & safety protocols.
Creative product mix
Interestingly, Mengniu Dairy has been able to build out its own brand of infant milk formula as recent deals – including one to buy Australian infant milk producer Bellamy’s for up to US$1 billion – collapsed on the back of geopolitical tensions.
That hasn’t stopped Mengniu from creating its own hit products, though. In the mid-2010s, the company launched an extremely successful “room-temperature” yoghurt that was a hit with consumers in China.
With an extremely low dairy consumption per person (of 12.5kg in 2019), China’s dairy market has a huge runway for growth as consumers realise the health benefits of increased consumption.
Winning locally over the long term
Mengniu Dairy has been one of the mainstays in the dairy consumption sector in China, along with A-share-listed competitor Inner Mongolia Yili Group (SHA: 600887), but both have benefitted from the continued growth of the Chinese dairy market.
Furthermore, with tensions rising between China and other countries, a “nationalist” consumerism has also taken hold in the country.
Partly, it’s in support of local brands but also, Chinese brands have grown to become more premium and high quality over the past two decades.
A foreign brand in many sectors is no longer the “automatic” choice for a lot of Chinese consumers. As Mengniu continues to innovate and grow, investors can consider adding it to their portfolio for exposure to the fast-growing Chinese consumer market.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.