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China Consumer Pulse Check: Consumption remains strong in Nov despite high inflation
Nov trend generally steady vs Oct; income
growth still outpacing inflation
Our latest channel checks suggest consumption
trends have remained strong in Nov vs. Oct.
While rising inflation has again become the
focus of the market, we continue to see a strong
counterpoint in wage growth, with Oct income
tax receipts +22% vs. +15% in Sep. We believe
this offers strong evidence that real income
growth remains healthy, underpinning the
healthy consumption trends.
Consumption Drivers: Income tax resumes
up trend after Sep dip; inflation still a key
risk to disposable income
Key positives: (1) Income growth resumed strong
upward trend: Oct income tax receipts +22% vs.
+15% in Sept, similar to +22% seen in 1H10.
Key negatives: (1) Food CPI (+10.1%) and headline
CPI (+4.4%) climbed further in Oct. (2) Consumer
confidence declined to 104.4 in Sep from 107.3 in
Aug. However, the data suggests confidence is now
at the same level as mid-2003 (post SARS), raising
concerns about the accuracy of the reading.
Retail channel check: Consumption still
holding up after a strong October; HK
accelerating
After a strong October, most retailers saw similar
same-store sales in Nov. The notable exception is
Parkson, which saw SSS slow down by about 5ppt
from a strong Oct. This dragged down our GS
China Dept Store SSS Index to an initial reading of
16.2% in Nov vs. 18.2% in Oct.
Key outperformance: High end spending
remains strong. Jewelry sales +46% yoy in Oct.
Macau gaming revenue +50% in Oct vs +40% in
Aug/Sep.
Key underperformance: Beer production -1% yoy
in Oct. Sportswear 2Q11 orders lackluster.
Stock implications
2H10 earnings visibility remains good. Our top 3
picks in Retail are (all rated Buy): Belle (CL), Peak (CL)
and Maoye. In Staples we like (all rated Buy):
Hengan, Mengniu, Tingyi, Huabao and China Agri.
Key risks: rising CPI; sharper-than-expected
slowdown in real income growth.
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