Generation Z in China
Investors gambled on a new generation of spenders throughout China – over 250 million individuals known as Generation Z, nearly 75% of the U.S. population.
Bilibili, a U.S. and Hong Kong-listed gaming and animation video platform, is one of the first companies analysts mention when discussing Chinese young people’s interests.
According to Morgan Stanley analysts in a May 26 note, Bilibili will launch a dating-themed reality show aimed at Gen Z viewers in July.
“We see earnings upside as (Bilibili) diversifies its revenue streams away from games and toward advertising and live broadcasting revenue,” the analysts wrote. They pointed out that more than 60% of registered users from more than a decade ago are still active this year.
Analysts believe Bilibili’s ability to profit from its users is still limited in comparison to its competitors, but they are optimistic about the company’s ability to increase monetization. According to the report, Bilibili could more than double its game revenue in the next three to five years with self-developed games, from about 6 billion yuan (about $936.8 million) this year.
Morgan Stanley analysts have set a price target of $155 on the Nasdaq-listed stock, up 34% from Monday’s close of $115.45.
Pop Mart is a store that sells a Pop Mart is best known for selling “blind boxes,” which contain various collectible figurines whose models the buyer will not know until after purchasing a box. According to Eikon, the company went public in Hong Kong late last year to much fanfare and now has a market valuation of about $12.17 billion.
The stock is still up more than 65 percent since its IPO, but it is down about 20 percent this year.
According to China Renaissance, among Gen Z’s five most expensive hobbies, pop toys are probably the least known to other generations and saw the greatest increase in total spending. Sneakers, e-sports, photography, and cosplay were the other categories.
However, in a note this week, CLSA’s Terrance Liu stated that Pop Mart has come under fire in recent weeks for reports that some employees asked female job applicants about their plans to have children. On June 4, the company issued an apology.
According to Liu, approximately 75% of Pop Mart’s customers and 69 percent of its employees are women, and the company “may face some challenges in corporate governance and management due to rapid expansion and increase in the number of employees.”
CLSA maintains a buy rating on the stock and has set a price target of 71 Hong Kong dollars, a 5.4 percent increase from Friday’s close of 67.35 Hong Kong dollars per share. Monday was a holiday, so markets were closed.
According to CLSA analysts in a consumer trends report last month, Luzhou Laojiao is a liquor brand that has attracted many young consumers, making it a standout against an industry that many fear will die out with its older client base.
Laojiao, according to the investment bank, has opened several pop-up stores in various Chinese cities since August, as well as collaborations with ice cream and perfume brands. CLSA stated that Laojiao has the capacity to meet demand and can target the fragmented mid- to high-end “baijiu” segment. Baijiu is a highly alcoholic liquor that is commonly served at business and government dinners in China.
Analysts have a price target of 283 yuan as of June 8, up about 9.5 percent from Friday’s close of 258.25 yuan.
These stocks could benefit from the chip shortage
Swiss investment bank UBS has picked seven stocks of semiconductors that would gain from the current worldwide scarcity of chips.
In a heat map created by the bank’s analysts, Dutch firm NXP Semiconductors, German firm Infineon, and US firms Texas Instruments and ON Semiconductor were all identified as favorable stocks.
“Based on our analysis, we believe the companies most likely to benefit from the current shortage are those with: 1) less exposure to foundries with spare internal capacity and 2) more exposure to distributors who will benefit from rising prices,” the analysts wrote.
However, chip stocks are expensive in comparison to other sectors, and investors should be cautious about where they put their money, according to the analysts led by Francois-Xavier Bouvignies.
“Clearly, the sector is not cheap,” they wrote, “but we expect earnings momentum to continue through 2021.”
UBS expects the chip shortage to affect the automotive industry into 2022 but it said there will be “some easing” from the second half of 2021, echoing Goldman Sachs’ predictions.
This is supported by evidence from company comments, as well as “significant investment” in semiconductor manufacturing equipment (up more than 50% since January), and increased capacity allocation to autos in the second half of 2021, according to UBS analysts.
“Despite some structural issues that have arisen,” they wrote, “we estimate supply to catch up with demand somewhat.” “Finally, company commentary indicates that industrial demand is robust and channel inventories remain low, leaving us optimistic about the industrial cycle.”
However, they also noted that the chip foundries have a “limited appetite” to invest in the ageing chips that cars use, compared to the “bleeding edge” chips that are used to power new computers and games consoles.
Bain & Co said in a report this month that the chip shortage is “large and growing,” and that it will last “longer than we hope.”
“The issue is systemic; individual players and the industry as a whole must define holistic chip strategies that make them more resilient to external shocks; governments must also play a role,” wrote the consultancy firm.