Tuesday, March 14, 2006

The Chinese Willy Wonka

Anyone keen on having exposure to Chinese consumers who enjoy marshmallows, candy and jelly desserts? If you do, look no further than China Lifestyle. It is listed recently on the Singapore Exchange and it closed at S$0.235 today.

The company is based in Tianjin and Fujian where it manufactures products under its propriety brands "Labixiaoxin" and Sunshine City. It is noteworthy that China Lifestyle has been awarded the China Top Brand Certificate in 2005 in recognition for being the preferred choice amongst the discerning Chinese taste buds. In this connection, "Labixiaoxin" has the second largest market share in the Chinese jelly market.

Industry trends

Industry sources indicate that jelly desserts which China Lifestyle produce are one of the top three sweets in China, alongside more traditional chocolates and candies. The annual growth rate for jelly desserts is estimated to be 15-20%, far outstripping that for sweets which is expected to grow at 8%. In terms of world consumption of jelly, China ranks second.

The value proposition

China Lifestyle hopes to ride on the rising disposable income of the Chinese and their indulgence in sweet desserts. We understand that overseas demand for the company's products is rising from a small base of 4% of group sales, as can be seen by the growth in the number of foreign customers seeking OEM arrangements. Under existing arrangements, China Lifestyle already has exports to South East Asia, North America, Australia and Europe. Its OEM arrangements with Walmart and Tesco are also a step in right direction for more future collaborations.

In terms of distribution reach, China Lifestyle has sales network of over 300 distributors supplying its 1000 varieties of jelly products, 100 varieties of marshmallows and 100 varieties of candy products to over 13000 retail outlets. These outlets are in 30 provinces and cities throughout China and their products may be seen in supermarket chains such as Carrefour.

Investors concerned with the agency issue should be heartened that there is alignment of interest between management and investors. Alliance Holdings, controlled by the founding family still owns a large majority of China Lifestyle (72.4%). It is founded and continue to be run by three brothers (CEO Zheng Yu Long).

In sum, at the current price, China Lifestyle provides a cheap play for investors seeking long term exposure to the Chinese market. Its business model is scalable and the products scores well with Chinese consumers.

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2 Comments:

Anonymous Zack said...

Do you have any insight to the management's integrity? That would be my biggest concern considering that only 25% of the company is truly publicly traded.

10:25 PM  
Blogger Mr Market said...

Unfortunately not! I have not met the management team before. This is an idea based on quantitative factors and industry/market potential.

2:53 PM  

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