Asia Consumer Sector
SECTOR REVIEW
Looking for shelter
■ With Wall Street’s problems having spread to Main Street and global
consumer confidence hurting from sobering macroeconomic
prospects and the sheer amount of day-to-day negative news flow, we
are now bracing for another three quarters of anaemic US consumption
(or worse, if the US goes into a Korea or Taiwan-style consumer credit
contraction like these markets did in 2002 and 2006). There will be
inevitable ramifications for the rest of the world.
■ Valuations are in panic mode, but there may be no near-term catalysts for
a wholesale sentiment change, beyond some sporadic bear market
technical rallies. The panic-stricken markets have halved valuations in our
sector from a year ago, but bottom-fishing appetite remains uncertain, as
the market digests the prospects of a global recession.
■ At least know where your nearest figurative “air-raid shelters” are. If the
market stays tumultuous for another three quarters, equity investors
would need some safe harbours to preserve their capital. We combed
200-plus stocks in our regional consumer universe for this purpose, and
came up with eight names that fit our criteria for safe-haven stocks.
■ We believe our eight names would serve the capital preservation
function at least, allowing investors the ammunition to pick up some
deeply oversold but more cyclical stocks at some later point to partake
in their upside when the bear market ends. We identified eight stocks
that we believe are relative safe havens amid the current tumultuous
equity markets: BAT Malaysia, Dairy Farm, Hengan, Hindustan Unilever,
ITC, KT&G, LG Household & Healthcare, and New Oriental Education.

Looking for shelter
Seeking cover
What a different world today, than even just six weeks ago. The panic stricken markets
have not even seemed to come to an end despite some unprecedented concerted actions
by the world’s major central banks. Risk appetite today is now firmly undershooting even
1998 or 2001 levels, and approximating the worst point in the past 10 years. Within our
regional consumer universe, many stocks suffered 60-70% share price contractions on a
one-year basis, against their growth multiples previously. As a whole, our universe P/E (on
2008 earnings, weighted by market cap) contracted from 29.9x a year ago to 14.7x now.
With what we believe is a looming (possibly even ugly) recession in US consumption in the
next 18-24 months – and the attendant ramifications on the rest of the world – we believe
one must accept the new reality that one should continue to think hard about capital
preservation in the next 12 months at least, and it would be all about survival of the fittest.
We combed through our monitored universe of 213 consumer stocks across non-Japan
Asia, and applied a 10-criteria screen to seek out companies with the ‘safest’ profile to
survive this downturn – it could be a function of their earnings being highly defensive, or
very nimble management to steer the company through this storm, or the sheer fact that
these companies are so cashed up and their cash flows so strong that they can withstand
a world crumbling around them. In other words, these could be the ‘last men standing’.
Our ranking methodology
Our screening exercise places particular emphasis on:
(1) Earnings resilience – potential earnings downside will remain the biggest risk factor
driving the share prices of our stocks in our view, and therefore out of a 100-point
score, we allow this criteria to take up the largest 30 points.
(2) We assign 10 points to management focus on its core operations, as seen in the
amount of excessive treasury activities undertaken.
(3) We assign another 10 points to balance sheet self-sufficiency, as measured by the
amount of net cash relative to capex requirements.
(4) We assign 20 points to the attractiveness of the operating free cash flow yield.
(5) The remaining six criteria each take up five points.
Details of our scorecard on each of the 213 consumer companies are in Appendix I.
Our findings
Because of (1) the preponderance of consumer discretionary companies in our universe,
(2) the lack of listed pure-play discounters and dollar stores as found in the western world,
and (3) only a small handful of companies, such as tobacco companies with highly sticky
customers, it should be little surprise that our universe is negatively biased when it comes
to revenue resilience – as consumption patterns are likely to switch towards frugality and
economising in the next 12 months. Nonetheless, we find 59% of our universe companies
actually look fairly resilient still, thanks to their mostly cashed-up balance sheets.
Taking all our factors into account, the following are eight stocks that we believe are
relative ‘safe havens’ amid the current tumultuous equity markets: BAT Malaysia
(BATO.KL, RM42, U, TP RM35.5), Dairy Farm (DAIR.SI, US$3.95, O, TP US$4.63),
Hengan (1044.HK, HK$20.80, O [V], TP HK$26.33), Hindustan Unilever (HLL.BO,
Rs206.80, O, TP Rs241.11), ITC (ITC.BO, Rs153.8, O, TP Rs212.99), KT&G (033780.KS,
W77,300, O, TP W97,000), LG Household & Healthcare (051900.KS, W173,500, N [V], TP
W200,000), and New Oriental Education (EDU.N, US$56.89, O [V], TP US$81.3).

Seeking cover
By allowing a major Wall Street name to file for bankruptcy on 14 September, the US Fed
– in hindsight – inadvertently set off a domino effect resulting in a ‘frozen’ banking system,
deep mistrust among counterparties, and which in turn led to a credit crunch on even
corporations outside of the financial industry with sound financial standing, and global
markets having fallen by some 20-30% in six weeks. Within just a matter of six weeks, the
world economy had firmly plunged into what certainly feels like an abyss.

thunderson  金币 +6  魅力 +8  经验 +8  感谢您对本版块的支持！您辛苦了，综合奖励 2009-1-3 19:55:15