October 18, 2010 (Chinavestor) I had a chance to sit down with Ms. Julie Chen, Managing Director and Senior Research Analyst of Hudson Securities, on October 13 and talk about three hot Chinese sectors: consumer retail, industrial and health care. The first article is going to talk about the consumer retail sector with two stocks in focus: China Marine Food Group Ltd (AMEX:CMFO) and China Education Alliance, Inc. (NYSE:CEU). Ms. Chen has a BUY rating with a target price of $10.00 for China Marine Food Group Ltd (AMEX:CMFO) and has a BUY rating with a price target of $8.00 for China Education Alliance Inc. (NYSE:CEU).
Ms. Chen explained her approach finding the best deals in China. First, investors have to understand priorities set forth by the Chinese Government in the five year plans. Second, investors looking for growth will have to look beyond first- or second-tier cities and find untapped potential. Should investors master in these areas, chances are high that rewards will follow.
As far as the five year plans are concerned, the current plan will expire this year and the Politburo has just assembled to discuss the next plan, covering the 2011-2015 period. The new plan will be published early 2011. The central government picked five key priorities in the current plan: agriculture (projects for new countryside); alternative energy and reduction of excess industrial capacity (revitalizing China’s equipment manufacturing industry); healthcare (major high-tech projects); infrastructure (Ley transport infrastructure projects); and education (raise education expenditures to 4% of GDP).
The consumer retail sector, where Ms. Chen covers two stocks including China Marine Food Group Ltd, (AMEX:CMFO), is a clear beneficiary of the five year plan thanks to its focus on food and related industries. The sector has been benefiting from steady increase of disposable income, giving quality companies a chance to shine. While the landscape is fast changing, analysts with sufficient insight may be able to find the right target companies with the best medium- to long-term growth potential.
One of the companies Ms. Chen recommended is China Marine Food Group Ltd, (AMEX:CMFO). The company is primarily engaged in the seafood snack and marine catch businesses besides a high power beverage business it recently added to its portfolio. One of key drivers for the company is the affordability of its products. Its high quality seafood snack is relatively low priced and is affordable for second and third tier city dwellers. Competitive pricing gives China Marine Food Group Ltd, (AMEX:CMFO) a huge upside potential should its products gain nation wide traction. The 'seafood snack' and 'high power beverage' product portfolio carries relatively high margin while its marine catch business is more cyclical depending on the catch. The effect of the cyclical catch business has increased volatility for the stock but with prudent timing, China Marine Food Group Ltd, (AMEX:CMFO) is a good buy, according to Ms. Julie Chen.
Another stock from the extended consumer retail sector Ms. Chen recommends is China Education Alliance, Inc. (NYSE:CEU). China stock investors have to realize that education awareness has been on the rise thanks to the increase of disposable income and China’s one child policy. This gives the education sector an edge where companies with price advantage look to have long term growth potential. One of the gems Ms. Chen is betting on, is China Education Alliance, Inc. (NYSE:CEU).This is a relatively under covered story for a company that has successfully penetrating into second tier cities with its programs. The company rang the opening bell on the NYSE on August 26, 2010 where I had a chance to conduct an interview with its CEO., Mr. Xiqun Yu. This article gives insights into latest trends and outlook for the company. Interview: CEU Ringing the NYSE Opening Bell.
1. The research analyst or a member of his/her household does not own equity securities of CMFO and CEU.
2. The research analyst or a member of his/her household is not an officer, director or board member of CMFO and CEU.
3. The research analyst or a member of his/her household did not receive compensation from CMFO and CEU in the past 12 months.
4. Hudson Securities officers do not serve as officers, directors or board members of CMFO and CEU.
5. Hudson Securities has not managed or co-managed a public offering of securities for CMFO and CEU in the past 12 months.
6. Hudson Securities has not received compensation for investment banking services from CMFO and CEU in the past 12 months.
7. Hudson Securities has not received compensation for products or services other than investment banking services from CMFO and CEU in the past 12 months.
8. Hudson Security does not beneficially own 1% or more of equity securities of CMFO and CEU.
9. CMFO and CEU are not, or during the past 12 months prior to this research distribution was not, a client of Hudson Securities.