China is finally reopening its borders, bidding farewell to its strict COVID-zero policies.
The reopening of its borders and lifting of the remaining COVID measures marks a policy shift that will reduce the intensity and volume of future lockdowns.
China’s full reopening will underpin recovery for companies that rely on China’s reopening in the near future.
We identify three Hong kong stocks that you should look out for as they are poised to benefit from China’s reopening.
1. Haidilao International Holding Ltd (SEHK: 6862)
Haidilao International (HDL) is the global leading Chinese cuisine restaurant brand focusing on hot pot cuisine.
HDL is well known for its top notch service.
To enhance guest experience, HDL also provides free services such as manicures as well as theatrics when cooking noodles for customers.
As of 30 June 2022, HDL had 1,435 restaurants in China, Singapore, the US, South Korea, Japan, Canada, the United Kingdom, Malaysia, Vietnam, Indonesia and Australia.
HDL’s business was severely affected by COVID measures as people could not dine in.
HDL’s revenue declined 16.6% year on year from RMB 20.1 billion in fiscal 2022’s first half (1H2022) to RMB 16.8 billion in 1H2021.
HDL also recorded a net loss of RMB 266.3 million as opposed to a net profit of RMB 94 million in 1H2021.
In November 2021, it launched the “Woodpecker” plan to slow down its business expansion.
The plan involved shutting down or suspending the operation of about 300 Haidilao restaurants with low customer traffic and unsatisfying financial results.
In July 2022, to further raise funds as well as position its businesses for growth in its respective regions, HDL announced the spin-off of its overseas business, known as Super Hi International (SEHK: 9658).
Shares of Super Hi were distributed to all existing HDL shareholders by way of an in-specie distribution in December 2022.
Subsequent to the distribution, HDL no longer held a stake in their overseas business.
During tough times, HDL was forced to shut down and suspend operations to reduce costs.
It also spun off its overseas business which was believed to be undervalued by the market.
Now, the hot pot specialist is likely to see better days ahead as individuals can now have a hearty meal together.
2. Meituan (SEHK: 3690)
Meituan is one of the world’s largest online and on-demand delivery platforms.
It is also likely the largest food delivery platform in China.
The Meituan platform provides consumers with one-stop life services such as food and travel bookings.
Meituan was also a beneficiary of COVID lockdowns as people turned to food delivery services when dining in was restricted.
Although Meituan had to lower or waive fees for restaurants and merchants in COVID-affected regions in early 2022,
Meituan’s delivery services segment still recorded a 30.5% year on year growth in revenue to RMB 20.1 billion in revenue for the third quarter of 2022.
When China opened up, the country saw a sharp jump in COVID infections.
Meituan had to increase the subsidies and incentives paid to drivers as on-demand deliveries faced fulfilment difficulties amid a surge in take-out orders and a shortage of delivery riders.
With the reopening, Meituan will be able to operate in a much more stable environment and gradually reduce its subsidies and incentives as the demand surge wanes.
Meituan’s travel booking platform will also likely fare better this year.
It was reported that air tickets and hotel bookings during Chinese New Year exceeded 2019 levels with some scenic spots hitting peak capacity.
Bookings for domestic hotels and scenic spots also exceeded pre-epidemic levels, indicating a sharp rebound in consumption.
3. Sands China Ltd (SEHK: 1928)
Sands China Ltd is the leading owner and operator of multi-use integrated resorts and casinos in Macau.
It is widely accepted that gambling as a leisure activity is popular in Chinese culture.
Hence, it is no wonder that Macau is the largest gaming market in the world as measured by casino gaming revenue and is the only location in China offering legalised casino gaming.
Sands China owns five properties, its namesake Sands Macao, The Venetian Macao, The Plaza Macao, The Parisian Macao, and The Londoner Macao.
The properties combined boast around 12,400 hotel rooms and suites and approximately 150 different restaurants and food outlets.
Gaming revenues cratered in the past two years as Mainland Chinese could not visit Macau.
As a result, Sands China reported a 43.5% year on year decline in revenue to US$915 million in its 1H2022 results from US$1.62 billion in 1H2021 and doubled its losses to US$760 million.
At the same time, China also carried out reviews of existing gaming laws in a bid to tighten casino oversight on illegal activities and outflows.
The situation is looking much brighter now.
With Mainland Chinese gamblers returning to Macau, Las Vegas Sands (NYSE: LVS), the parent company of Sands China, mentioned on its earnings call earlier this month that management noted recoveries in visits and gaming volumes.
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Disclosure: Alex Yeo owns shares of Haidilao and Super Hi.
