China Consumer_ Pulse check_ Weak 3Q24 results and await more policies to drive confidence_consumption recovery

Key Findings Industry Overview * The overall consumption sector in China continued to see weakness in 3Q24, with average yoy sales growth of 5% for Goldman Sachs' consumer coverage, compared to 5%/14% in 2Q/1Q24. * The softness was evident across various categories, including spirits, sportswear, catering, durables, jewelry, and prepared food. * Online sales outperformed offline, and overseas markets remained a bright spot for certain categories like home durables, apparel & footwear OEMs, pet food, and IP retailers. * Consumers remained value-focused, with deflation pressure persisting, particularly in sportswear and prepared food. Key Points * 3Q24 Results: The overall consumer sector saw a slowdown in growth, with average yoy sales growth of 5% for Goldman Sachs' consumer coverage. Categories like spirits, sportswear, catering, durables, jewelry, and prepared food experienced growth deterioration. However, categories with overseas support, such as home durables, apparel & footwear OEMs, pet food, and IP retailers, had more resilient performance. * Online vs. Offline: Online sales continued to outperform offline, with the online channel experiencing slight improvement in 3Q24. Offline channels faced challenges, particularly for companies with a higher offline skew, such as sportswear retailers and restaurants. * Overseas Markets: Overseas markets remained a bright spot for certain categories, with strong growth from companies like white goods companies, IP retailers, pet care companies, and OEMs. * Deflation Pressure: Consumers remained value-focused, with deflation pressure persisting, particularly in sportswear and prepared food. This led to more discounts and softer pricing trends in these categories. * Local Brands vs. MNCs: Local brands outperformed MNC brands across various categories, with leaders like Proya, Giant, and Shanghai Jahwa maintaining strong performance. * Policy Stimulus: The impact of policy stimulus on consumption remains key to watch. While some policies have been implemented, such as the home appliance trade-in program and consumption vouchers, more specific policies and execution are needed to drive confidence and consumption recovery. Sector/Stock Preferences * Preferred Sub-sectors: White goods, diversified retailers, super premium spirits, sports brands, and dairy. * Least Preferred Sectors: Sports retailers, furniture, projectors, restaurants, prepared food, discretionary small kitchen appliances, jewelry, and non super-premium spirits. * Stock Preferences: Anta (on CL), Midea, Hisense, Miniso, YUMC, Mengniu, Moutai, CRB, Giant Biogene, Laopu, Wuliangye, UPC, Robam, Yankershop Food. 4Q24 Outlook * Sequential growth improvement is expected in 4Q24, given the easier base, but a significant rebound is not anticipated yet due to remaining fluid consumption sentiment. * Policy stimulus could protect from further downside, but more specific policies and execution are needed. * Margin remains a potential bright spot, with companies' cost control efforts and favorable input costs providing support. * Shareholder return remains a support to share prices, but growth outlook is also an important factor to consider. Risks * Domestic Demand: Remaining fluid consumption sentiment and potential policy execution risks. * Pricing/Marketing: Demand/inventory/market share dynamics impacting pricing and marketing investment strategies. * Tariff Risk: Tariff-related risks for companies with high exposure to the US market. * Competition: Intensified competition in certain categories, such as snacks and prepared food. Conclusion The Chinese consumer sector faced challenges in 3Q24, with softness across various categories and channels. While online sales and overseas markets remained strong, deflation pressure and remaining fluid consumption sentiment pose risks. Policy stimulus and companies' cost control efforts are crucial for driving confidence and consumption recovery.