Banking & Finance

Back to life

Stocks linked with Wuhan’s revival get a boost

Bestore-w

Stocking up: snack chain Bestore

Xiong Juan, a 39 year-old hairdresser in Wuhan, has never been busier. In the past three weeks she has been travelling around Hubei’s provincial capital cutting the hair of people who had been homebound for two months. On a good day she could earn Rmb2,100 ($296), serving 70 customers from 8am-6pm.

Other people in Wuhan – the ground zero of the coronavirus pandemic – have been returning to work as containment measures are eased. Dongfeng Motor, Huawei, Lenovo and Xiaomi have all reopened their research centres or production plants in the city. With public transport resuming, about 40% of roles at offices were resuming in the city of 11 million inhabitants as of March 31. And with no new local infections since March 25, the lockdown was lifted on Wednesday, meaning that people would be freer to leave or travel to the city.

In the run-up to the end of the lockdown, investors have been ploughing money into listed companies based in the metropolis on the assumption that they will benefit from a slew of stimulus and relief measures. On March 23 the city’s government launched 21 initiatives to reboot local businesses. Among them are deductions of up to Rmb14 billion of social security contribution and a year of interest-free loans collectively worth Rmb20 billion for small-and-medium sized companies.

Wuhan’s tech district Optics Valley is also offering credit lines totaling Rmb10 billion to 600 companies in the tech zone (see WiC482).

Wuhan’s underlying economic fundamentals look solid. Aside from being one of China’s most important transport hubs – due to its strategic location in the middle of the country – it is also a manufacturing centre for cars, semiconductors and optical communications equipment. Last year its gross domestic product (GDP) grew 7.8% on the year to Rmb1.7 trillion, topping Hangzhou and Tianjin as the seventh largest urban economy. Wuhan’s GDP per capita, at Rmb145,545, is nearly twice the level of the rest of Hubei province, and also comes in above rivals like Chongqing and Chengdu. Last year it was also home to China’s most vibrant housing market, recording the highest number of transactions and greatest floor area sold, according to China Index Academy.

So which stocks are seen as the best proxies for Wuhan’s revival from the pandemic?

Top of the list is Bestore. Deriving nearly half of its sales from Hubei province, the snack retailer has seen its shares more than triple since its debut on the Shanghai stock exchange in early March (see WiC485). Bestore stands out for its successful integration of online and bricks-and-mortar channels. The strategy meant that its business was not as badly affected by the lockdown as many other retailers, thanks to its online sales channels. Shopping at its high street outlets is also rebounding as people emerge from their apartments again.

Wuhan Fingu Electronic Technology, which produces radio-frequency systems, and which is a supplier of Huawei, is another company that has seen investor interest. Its Shenzhen-listed shares have surged 64% after becoming one of the earliest companies in Wuhan to get approval to resume work due to its role in the buildout of 5G infrastructure.

Shenzhen-listed Hubei TECH Semiconductors has enjoyed a rally of 74% since February too. Located in Xiangyang, a satellite city of Wuhan, it makes semiconductor devices using gallium nitride (GaN). The chemical has gained widespread attention following media reports that Apple, Samsung, Huawei, Xiaomi and Oppo are all planning to sell GaN chargers, which are more efficient and smaller.

Jointown Pharmaceutical, one of China’s largest drug distributors, has also seen its Shanghai-listed shares rise 26% since the beginning of the year. It became a local celebrity during the outbreak by helping Wuhan Red Cross to distribute donations of supplies to medical facilities. It was also received Rmb130 million from the Asian Development Bank to support continuous supply of essential medicines and personal protective equipment. Thanks to its distribution network and licences to sell specialty drugs, Jointown had already been logging double-digit growth (with the exception of 2018). For the first half of 2019 its net profit rose 39% to Rmb343 million.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.