In this articleWHDISFUNEXPEHTSLAIHG-GBHLTMARBKNGCQQQCMCSAGOOGL1698-HK9988-HK1179-HKBILI9626-HK700-HKThis report is from this week's CNBC's The China Connection newsletter, which brings you insights and analysis on what's driving the world's second-largest economy. You can subscribe here.The big storyThere's nothing quite like the holiday rush in China for the Lunar New Year. The Beijing city streets start emptying out several days in advance as the majority of residents return to their hometowns or travel e ...

Summary of Conference Call Notes Industry Overview - The report focuses on the Chinese IP retail and toy industry, specifically highlighting companies such as Pop Mart, Miniso, and Bloks, along with their recent performance and market strategies [1][6][7][8]. Key Points Pop Mart - **Sales Growth**: Pop Mart's online sales growth in China accelerated in January, attributed to increased supply on platforms like Tmall and Douyin. January recorded the highest sales volume over the past year [1][11]. - **Product Launches**: Successful new product launches, particularly the Twinkle Twinkle's Crush On You series and Skullpanda's My Little Pony series, positively impacted sales. The Crush On You series maintained a secondary price premium of approximately 40% [1][9]. - **Market Confidence**: The company's share buyback program helped restore market confidence [1]. - **Sales Data**: Combined sales on Tmall and Douyin flagship stores increased over 300% year-on-year in January, compared to a 53% increase in December [9]. Miniso - **Partnerships and Marketing**: Miniso partnered with the 2026 CCTV Spring Festival Gala, launching a co-branded IP "马优优". However, initial sales were muted, with less than 50 units sold by February 8 [1][50]. - **Sales Growth**: US credit card sales growth was approximately 65% in January, down from 75% in December [26][28]. - **IP Development**: The CEO highlighted plans to develop 100 proprietary IPs over the next decade and expand the Miniso Land format globally [50]. Bloks - **Product Launches**: Bloks experienced a slowdown in new product launches in January compared to December, consistent with seasonal trends [1][60]. - **Sales Performance**: Overall sales on Tmall and Douyin were down 10% year-on-year in January, attributed to timing distortions around the Chinese New Year shopping window [10]. Financial Forecasts and Valuations - **Earnings Forecasts**: The earnings forecasts for the three covered IP retailers were updated, with target prices lowered for all [2][55][56]. - **Pop Mart**: Expected low 30% year-on-year growth in topline and bottom line for 2026, with a new target price of HK$298 [57][59]. - **Miniso**: Adjusted target price lowered to US$25/HK$49 per ADR/H-share, with a focus on mid-high teens growth in net profit [56]. - **Bloks**: Target price revised down to HK$63, reflecting a slower growth outlook [60]. Market Sentiment and Consumer Confidence - **US Market**: Consumer confidence in the US declined sharply, while sentiment improved in the Euro Area, Malaysia, and Indonesia. The US credit card sales growth for Pop Mart and Miniso showed signs of deceleration [24][25][47]. - **Geopolitical Tensions**: Issues related to Pokemon and Detective Conan in China were noted amidst geopolitical tensions between China and Japan [49]. Additional Insights - **Secondary Market Trends**: Prices for Labubu's plush toys in the secondary market showed a downward trend, with discounts deepening from low single digits to 20% [9][32]. - **Online Sales Trends**: The online sales run-rate for plush toys in February remained broadly on track compared to January, indicating stable demand [1][9]. This summary encapsulates the key insights and data points from the conference call, providing a comprehensive overview of the current state and outlook of the Chinese IP retail and toy industry.

Summary of China/Hong Kong Consumer Strategy Conference Call Industry Overview - The consumer sector in China/Hong Kong entered 2026 with a mixed setup after three years of underperformance, with no immediate catalysts for a broad-based turnaround [1][3] - Headline consumption is expected to remain soft, necessitating flexible strategies across different sub-categories [1][3] Core Insights - **Macro Environment**: The macroeconomic backdrop has not turned decisively, with policy expected to be reactive rather than proactive regarding property and consumption. A property shock is anticipated to moderate but not end in 2026 [3][22] - **Consumer Dynamics**: Wage and employment levels remain subdued, contributing to ongoing household deleveraging and a drag on labor income dynamics. High precautionary savings and low spending confidence are prevalent [3][22] - **Consumption Growth**: Consumption in 2026 is likely to stabilize at a low growth rate rather than re-accelerate significantly. Focus is on selective segment pricing improvements and better supply discipline [3][23] Market Expectations - **Sales Growth**: Overall consumer sales growth is expected to be around 6% in 2026, with a mixed margin profile due to rising costs in certain areas like hard commodities [4][31] - **Valuation**: Consumer stocks' average P/E ratio is stabilizing around 16x, reflecting a cautious market outlook for 2026 [4][31] Investment Opportunities - Four key investment areas identified: 1. Recovery in offline services consumption (restaurants and beer in Q2-Q3 2026) 2. Supply recalibration in upstream dairy and likely liquor in H2 2026 3. Pricing recovery in restaurants, beer in H1 2026, and sports/cosmetics/liquor in H2 2026 4. Overseas growth in OEM and IP products in H1 2026 [5][21] Key Stock Picks - Recommended stocks include: - **YUMC**: Positive same-store sales growth and traffic - **Haidilao**: Recovery in dine-in demand - **CRB**: Expected growth driven by Heineken's market share gains - **Mengniu and Yili**: Anticipated margin improvements due to reduced raw milk supply [9][13] Macro Indicators - **CPI Trends**: Headline CPI is expected to show low inflation, with selective segments starting to see mild upward pricing revisions [24][27] - **Wealth Effect**: The wealth effect is differentiated across income cohorts, with higher-income groups showing improved spending intentions due to healthier balance sheets [27][31] Risks and Challenges - **Consumer Confidence**: The overall consumer sentiment remains fragile, with market sensitivity to marginal changes [20][22] - **Policy Limitations**: Current consumption-related policies are focused on protecting downside rather than stimulating growth, with limited fiscal support expected [22][27] Conclusion - The consumer sector is navigating a challenging macro environment with cautious optimism for selective recovery in certain segments. Investment strategies should focus on identifying pockets of resilience and potential growth areas while being mindful of the broader economic constraints.

Index Performance - The Hang Seng Index (HSI) closed at 27,266, up 0.3% for the day and 6.4% year-to-date (YTD) [2] - The Taiwan Stock Exchange (TWSE) showed a significant increase of 1.6% for the day and 16.0% YTD [2] - The Nikkei 225 rose by 2.3% for the day and 14.5% YTD, indicating strong performance in the Japanese market [2] Commodity Price Performance - Brent Crude oil prices increased by 1.3% to US$70 per barrel, with a YTD rise of 15.2% [3] - Gold prices rose by 1.2% to US$5,084 per ounce, reflecting a YTD increase of 17.7% [3] - Copper prices decreased by 0.5% to US$13,108 per ton, with a YTD increase of 5.5% [3] Fiscal Policy Insights - In 2025, China's broad fiscal deficit reached a record high of RMB 12.1 trillion, accounting for 8.6% of GDP, with a public budget deficit ratio of 4% [6] - Fiscal revenue fell by 2.2% in 2025, which was RMB 640 billion below the initial budget target [6] - Broad fiscal expenditure grew by 2.2% to RMB 40.3 trillion, a decrease in growth rate of 0.4 percentage points from 2024 [6] Economic Outlook - For 2026, broad fiscal expenditure growth is expected to accelerate to 3.3%, with a projected fiscal deficit ratio narrowing to 8.2% [7] - CPI in January showed a 0.2% YoY increase, while core CPI growth weakened to 0.8% [9] - PPI decline narrowed from -1.9% in December to -1.4% in January, indicating some recovery in industrial prices [11] Sector Performance - The Chinese pop toy sector is expected to gain traction globally in 2026, driven by increased consumer familiarity and diverse IP offerings [14] - Fertiglobe's core earnings surged 87% YoY to US$325 million in 2025, with a forecasted growth of 42% YoY in 2026 [18] - SMIC reported mixed results for 4Q25, with revenue exceeding expectations but margins under pressure due to increased costs [21]

Summary of Key Points from the Conference Call Industry Overview - The conference call focused on the **China Consumer sector**, with insights gathered from approximately 70 institutional investors in **Hong Kong** and **Singapore** during late January and early February 2026. Investors are currently underweight in this sector and are more interested in discussing the outlook for 2026 rather than past earnings or government policies [1][1]. Company-Specific Insights Laopu - Investor sentiment towards **Laopu** has improved due to strong year-to-date sales, alleviating previous concerns about growth sustainability. Key discussions include: - Sales and margin dynamics affected by rising gold prices, which lower earnings visibility. - Promotion-driven sales impacting profitability and brand perception. - High gold prices potentially eroding consumer purchasing power. - Laopu is viewed as a beneficiary of rising gold prices, with sales increases offsetting temporary gross profit margin pressure [2][2]. Pop Mart - Investor debates regarding **Pop Mart** focus on its growth sustainability, particularly in the US market. Positive sentiment in China is noted due to successful new releases and decent store traffic, despite ongoing concerns about the US market. Key points include: - Uncertain US demand may lead to margin pressure through operating deleverage. - Success in China may not be replicable in overseas markets. - There is a decrease in investor concern regarding secondary price declines, which may not fully reflect consumer demand [3][3]. Anta vs. Li Ning - **Anta**'s sentiment shifted positively following the announcement of its acquisition of **Puma**, which was smaller than expected. This change is attributed to: - A previously negative outlook from management that improved post-announcement. - A low probability of equity financing for Anta. - Anta's valuation discount of approximately 15% compared to **Li Ning** [3][3]. Haidilao - **Haidilao** has stabilized its table turnover since Q4 2025, with investors viewing **YUM China**'s recent results as a positive indicator for Haidilao's outlook for 2026. Despite unchanged guidance, investors are more inclined to view Haidilao as a proxy for the recovery of the restaurant industry in China. Expectations are high for the founder's return as CEO to revitalize growth through new business expansion and innovation [6][6]. Mengniu - Investors believe that **Mengniu**'s cyclical net profit recovery in 2026 will be more substantial than its peers. The market's low expectations mean that any positive news could lead to a significant re-rating of the stock. Investors appreciate Mengniu's conservative approach to operating expenses and non-cash impairment loss assessments for 2025 [7][7]. Additional Notable Mentions - The call highlighted several companies of interest, including **Mengniu**, **Haidilao**, **Anta**, **Li Ning**, **Pop Mart**, and **Laopu**, among others. Each company has unique challenges and opportunities that investors are closely monitoring [8][8]. Conclusion - The overall sentiment in the China consumer sector is cautiously optimistic, with investors looking for signs of growth and recovery in specific companies. The discussions reflect a shift in focus towards future potential rather than past performance, indicating a dynamic investment landscape in the region.

Investment Rating - Pop Mart is rated as a Top Buy in China's consumer sector, with a target price of HK$415.00, representing an expected return of 92.0% from the current price of HK$216.20 [8][10]. Core Insights - The report highlights that Pop Mart's user base is growing globally, with 76% of survey participants making their first purchase within one year, and 45% within three months [2][12]. - A significant 87% of respondents expressed a likelihood to purchase Pop Mart products in the next three months, driven by new product series, limited editions, and seasonal releases [3][30]. - Brand perception is strong, with 54% of respondents very satisfied and 39% somewhat satisfied, indicating a positive emotional connection with the brand [4][46]. Summary by Sections Consumer Behavior - 76% of respondents had their first Pop Mart purchase within one year, with 45% within three months [2][12]. - 34% shop for Pop Mart products every month, and 29% every three months, indicating high purchase frequency [12][14]. - 90% of respondents own at least two Pop Mart items, with the US having the highest per capita ownership [18][25]. Purchase Drivers - 87% of respondents are likely to buy Pop Mart products in the next three months, with new series and limited editions being key drivers [3][30]. - 93% plan to buy Pop Mart products in the future, with 48% maintaining current purchase frequency and 26% planning to buy more often [36][39]. - Wider product range, better quality, and lower prices are cited as factors that could increase purchase frequency [40]. Brand Perception - 54% of respondents are very satisfied with Pop Mart, with the highest satisfaction in the US at 70% [46][48]. - Gift-giving and collection/hobby are the top reasons for purchasing, with emotional satisfaction also playing a significant role [48][50]. - Character design, rarity/exclusivity, and emotional connection are highly valued attributes of Pop Mart products [51]. Financial Performance - The projected net profit for 2026 is Rmb 18,357 million, with a diluted EPS of Rmb 13.763, reflecting a growth of 35.5% [7][10]. - The company is expected to maintain a strong gross margin of around 72% in 2026 [10]. Market Dynamics - The survey indicates that Pop Mart's user base continues to grow despite concerns about secondary market prices, with only 9% of respondents purchasing from secondhand platforms [2][27]. - The brand's strong presence in physical stores, especially in China, contrasts with higher online purchase ratios in the US and UK [27][29].

Summary of Key Points from the Conference Call Industry Overview - **China Equity Strategy**: The 2026 JPM China Opportunity Forum highlighted a constructive outlook on China equities, emphasizing thematic trades such as leading exporters, beneficiaries of AI infrastructure capital expenditure, anti-involution strategies, K-shaped consumption recovery, and property market upside optionality [2][7]. Core Insights - **AI Ecosystem**: The memory and ESS (Energy Storage Systems) sectors are benefiting from global AI capital expenditure demand. Notable trends include a memory up-cycle and rising localization. However, consumer electronics and automotive sectors are facing component cost increases and lower trade-in subsidies year-on-year [6][14]. - **Anti-involution Strategies**: Companies like H World and Atour are shifting to rational pricing strategies to enhance market share. Home appliance brands are focusing on innovation rather than price cuts. The solar industry is also expected to see continued anti-involution efforts [6][31]. - **Consumption Trends**: Leading brands are innovating and optimizing to counteract soft domestic demand, with a focus on overseas growth. The "Liberation Day" in April 2025 is noted as a potential trigger for a future recovery in consumer confidence [6][29]. - **Healthcare Sector**: Drug innovation is a key growth driver for pharmaceutical companies, with a focus on launching new drugs and expanding into overseas markets. Healthcare service providers are gradually recovering, aided by technology upgrades [35][38]. - **Humanoid Robots**: China leads in global humanoid robot shipments, driven by government orders. The sector faces challenges in commercialization and scalability, but industrial applications are expected to show strong potential [40][41]. Important Data Points - **Smartphone Market**: Global smartphone shipments are expected to decline by 0.9% in 2026, with iPhones projected to outperform Android devices. JPM forecasts iPhone EMS builds at 251 million units for 2025, a 6% year-on-year increase [14][15]. - **Automotive Sales**: A slow start for passenger vehicle sales in 2026 is anticipated, with a forecasted decline of 24-29% quarter-on-quarter in Q1 2026 [15]. - **Energy Storage Systems**: Global ESS battery shipments are projected to grow over 40% to approximately 900 GWh in 2026, driven by policy momentum in China and strong orders from Europe [19]. - **Semiconductor Market**: The semiconductor industry is expected to see divergent dynamics, with consumer electronics facing softness while memory and foundry segments show strength. Average DRAM pricing is forecasted to increase by approximately 60% year-on-year in 2026 [20][21]. Company-Specific Insights - **Top Picks**: J.P. Morgan's preferred companies include Zhongji Innolight, NAURA, and CATL, among others, with various ratings and market caps provided [8][10][11][13]. - **Healthcare Innovations**: Companies like Hansoh are targeting over 80% of revenue from innovative medicines by FY25, with a robust pipeline in oncology and diabetes [35][37]. Additional Considerations - **Cost Management**: Companies are overcoming upward cost pressures through process optimization and effective cost pass-through strategies in export markets [34]. - **Global Expansion**: Chinese brands are increasingly building capacity and expanding distribution in emerging markets, with notable investments in ASEAN production bases [33]. This summary encapsulates the key insights and data points from the conference call, providing a comprehensive overview of the current landscape and future outlook for various sectors within the Chinese market.

The only analyst with a sell-equivalent rating on Pop Mart has lowered her price target, defying a rally in the stock as a tug-of-war between bulls and bears on the hotly debated Chinese toymaker intensifies https://t.co/gDu2gnO1LN ...

Summary of the Conference Call Industry Overview - **Sector**: China Consumer Sector - **Key Themes for 2026**: 1. **Lukewarm Demand**: Overall retail sales growth slowed to 1.3% YoY in November 2025, down from 2.9% in October 2025, with forecasts of 2.6% growth in 2026 and 2.5% in 2027, reflecting a deceleration in GDP growth to 4.5% in 2026 and 4.1% in 2027 [10][10] 2. **Price Deflation**: Persistent price deflation in consumer products, with significant price drops in categories like apparel and catering, impacting overall industry profitability [10][10] 3. **Consumer Preferences**: Young adults are prioritizing differentiated design, experience, and social value in their purchases [2][2] 4. **Overseas Expansion**: Companies are expected to expand internationally to counteract slow domestic growth, facing operational risks such as tariffs and supply chain management [10][10] 5. **Aging Demographics**: Challenges and opportunities arise from an aging population, with a decline in birth rates and a growing proportion of individuals over 65 years old [10][10] Financial Projections - **Earnings Growth**: Sector sales and earnings are projected to grow by 7.1% and 12.2% YoY in 2026, respectively, with a projected earnings CAGR of 10.3% from 2025 to 2027 [6][6] - **Valuation**: China consumer stocks are trading at 17x 2026E P/E, compared to ASEAN's 19x, Japan's 28x, and India's 54x, with a dividend yield of 4.2% [6][6] Investment Recommendations - **Top Picks**: - **Laopu**: Expected to benefit from experience-led growth with a disciplined store count and strong earnings growth of 40% in 2026 [20][20] - **Luckin**: Forecasted to achieve a 28% increase in net profit, driven by a consumer-centered vision and strong digitalization [20][20] - **Guming**: Anticipated to net add 3.3k stores in 2026, with a 20% YoY increase in core net profit [20][20] - **Mao Ge Ping (MGP)**: Positioned to benefit from experience-driven consumption trends, expecting 30% earnings growth in 2026 [20][20] - **YUMC**: Strong growth expected from KFC and a turnaround for Pizza Hut, with a target of 30K stores by 2030 [20][20] - **Pop Mart**: Despite recent stock price declines, expected to maintain strong earnings with a focus on new product launches [20][20] - **Top Avoids**: - **Bud APAC**: Concerns over weak consumption sentiment and high-end market exposure, with forecasts of declining sales and EBITDA [27][27] - **Yanghe**: Risks associated with channel inventory build-up and rising competition [27][27] Additional Insights - **Consumer Behavior**: Consumers are expected to continue spending on affordable treats and differentiated products, with a focus on experiences rather than price [10][10] - **Market Dynamics**: Increased competition is leading to accelerated consolidation within the industry, with leaders expected to gain market share through cost-saving initiatives and digital technologies [10][10] - **Demographic Trends**: Marriage registrations dropped significantly, indicating a shrinking young population and potential further declines in birth rates [12][12] This summary encapsulates the key points from the conference call, highlighting the current state and future outlook of the China consumer sector, along with specific investment recommendations and potential risks.

Market Overview - Wall Street's major equity averages closed slightly lower, with power suppliers like Talen Energy (TLN) and Constellation Energy (CEG) leading the declines, dropping over -11% and -9% respectively [1] - Mosaic (MOS) fell over -4% after weak preliminary Q4 results, while J.B. Hunt Transport Services (JBHT) reported weaker-than-expected Q4 revenue, leading to a decline of more than -1% [1] - On a positive note, Micron Technology (MU) rose over +7% after a director purchased approximately $7.8 million worth of shares [1] Economic Data - U.S. industrial production rose +0.4% month-over-month in December, exceeding expectations of +0.1%, while manufacturing production unexpectedly increased by +0.2% against an expected decline of -0.2% [6] - The upcoming U.S. core personal consumption expenditures (PCE) price index, a key inflation gauge, is highly anticipated, especially since it was delayed due to a government shutdown [9] Corporate Earnings - The fourth-quarter corporate earnings season is heating up, with major companies like Netflix (NFLX), Intel (INTC), and Johnson & Johnson (JNJ) expected to report. S&P 500 companies are projected to see an average earnings increase of +8.4% for Q4 compared to the previous year [11] International Developments - European equities faced downgrades to Neutral by Citi strategists due to renewed transatlantic tensions, particularly related to President Trump's tariff threats against European nations opposing his Greenland acquisition bid [14] - In Japan, concerns over public finances are affecting market sentiment, with long-term government bond yields reaching record highs amid speculation about potential consumption tax cuts [19]