China's A-share market history of the lowest share price is which

This year's A-share market specializes in all sorts of things.

From the 1,200 yuan Guizhou Maotai, to 99 times the price-earnings ratio of Hengrui medicine, to 300 billion market capitalization of soy sauce stocks.

What kind of white horse stocks may fail you, only the core assets of the consumer sector is a stable happiness.

But from the traditional sense of the valuation situation, the big consumer sector, whether price-earnings ratio (PE) or price-to-book ratio (PB), have not been cheap:

① Food and beverage industry PE of 32.17 times, to 68% of the historical percentile, PB of 6.5 times, to 81% of the historical percentile;

② Subdivision of the white wine plate P/E ratio is more as high as 32.17 times, much higher than the historical average level.

Consumer stocks valuation, too high?

Guotai Junan retail team's latest release "stick to consumer leaders, share China's growth", analyzing in detail the shift in the logic of consumer stock valuation is occurring.

This article ***2303 words, estimated reading time of 10 minutes, pull to the bottom of this article can read the core views of this article.

Remember the US "Pretty 50"?

Before exploring the question of whether the valuation of consumer white horse stocks is too high, we may wish to recall the United States in the early 1970s "beautiful 50" market.

The so-called "Pretty 50" refers to 50 large-cap stocks that were highly sought after on the New York Stock Exchange from the late 1960s to the early 1970s in the United States, and many of them are still familiar consumer brands, such as McDonald's and Coca-Cola.

One of the main characteristics of the "Pretty 50" is that they are both highly profitable and have a high PE, which translates to "good, expensive stocks.

Since 1971, "beautiful 50" stock prices and valuation levels rose rapidly, the end of 1972, the median valuation of more than 40 times, the highest Polaroid valuation of even more than 90 times, while the same period of the S&P 500 valuation of the median of only 12 times.

But on the other hand, the return on investment of the "Pretty 50" is also very impressive. from June 1970 to the end of 1972, the "Pretty 50" index rose 89%, compared to the S&P 500 to obtain 35% excess return.

In China, the biggest point of contention in the consumer sector is undoubtedly whether valuations are too high.

We believe that when the consumer sector reaches a certain stage of development, its leaders should not be judged simply by the price-to-earnings (PE) ratio.

02 Consumer stock valuation model is changing

From a technical point of view, we believe that the valuation system of the consumer industry is changing from PE model to DDM model. And behind this is the evolution of the capital market's understanding of the consumer sector.

We take the familiar Nestle as an example to analyze the switch in valuation models during its development cycle.

As a globalized food giant, Nestle was in a period of rapid development from 1989-2000, and PE valuation increased steadily during this period;

From 2000-2008, PE valuation fluctuated in tandem with the growth rate of revenue;

From 2009 to the present, Nestle has achieved a high degree of growth through M&A and integration, with its business segments and product brands constantly growing and improving. steady endogenous growth, the valuation premium is becoming more and more obvious.

In 2017, Nestle's PE reached an all-time high of 35x, delivering strong returns to investors.

From this case we can see that once a consumer goods company establishes a solid competitive advantage and sustained profitability, the valuation will not fall, but will reach record highs.

Throughout the entire overseas market, after the consumer leader enters the maturity period, the revenue and net profit growth rate may slow down, but the valuation level will not fall.

Once a consumer leader establishes a deep enough "moat", solid growth, market share increase, profit improvement, and sustained dividends will be enough to support its valuation level.

03 Institutions embracing consumer leaders reached a historic high

In the current Chinese secondary market, although the valuation of the consumer industry has not been cheap, but many institutional funds still maintain a high level of enthusiasm for the configuration.

From the point of view of domestic capital allocation, the allocation of consumer white horse enthusiasm has reached an unprecedented level.

From the point of view of overseas capital allocation, MSCI for the third time to enhance the proportion of A shares included in the north of the accelerated inflow of funds, the large consumer industry occupies the top of the configuration list.

Looking at the market, it is not difficult to find that consumer stocks are particularly favored by the focus of large funds. Analyze the reasons behind it, we think there are two points:

1, the business model is clear, the financial content is simple 2, the economic downturn is more risk aversion attributes

Consumer stocks holding the market when it will end?

Still take the United States "beautiful 50" as an example, "beautiful 50" market towards the end of the main three reasons:

1) the United States large fiscal deficit and credit expansion accumulation of high inflation bubble, food crisis triggered CPI upward, the Federal Reserve had to accelerate the tightening of monetary policy;

2) the 1973 oil crisis broke out, leading to further deterioration of inflation, rising raw material costs erode corporate earnings, corporate gross margins and earnings growth rate both downward, the stock market from a bull to a bear;

3) since 1973, the "beautiful 50 " earnings growth and ROE began to fall, earnings stability by the market question.

We believe that the phenomenon of A-share institutions "clinging to warmth" may only be broken in two cases:

1) the performance of consumer leaders continues to be lower than expected, but for the time being, Guizhou Maotai, Wuliangye, Gree Electric Appliances, Midea Group, and other white horse stocks to maintain stable growth in revenue and net profit;

2) like the U.S. "Pretty 50", "Pretty 50" has started to decline in earnings growth and ROE, which has been questioned by the market. p>2) like the U.S. "beautiful 50", A shares suffered major external changes, such as the full escalation of friction between the United States and China or the global economy off a cliff recession, but the probability of the current view is very small.

Both scenarios are highly unlikely at this point.

How to allocate for follow-on?

Follow-up configuration, we recommend from two main lines of main line mining investment opportunities.

1) supply to see the efficiency: high operating efficiency, solid performance growth, competitive advantage of the leading companies, will continue to squeeze the market share of small and medium-sized enterprises to obtain growth, worth focusing on.

2) demand to see the dividend: three and four tier market there is still a huge consumer demand dividend, optimistic about the track in the strong growth, industry logic and revenue side are supported by the enterprise, especially the strategic focus to the expansion of the market in the lower tier, can through their own management and cost advantages to enhance market share of the leading companies.

This article summarizes the views:

1 In the traditional sense, the consumer sector is now not cheap.

2 But the development of the consumer industry to a certain stage, its leading stocks should not be simply according to the price-earnings ratio (PE) to determine the valuation level high and low.

3 The valuation system of the consumer sector is shifting from the PE model to the DDM model. Once the consumer leaders have established a deep enough "moat", solid growth, market share increase, profit improvement, sustained dividends, etc. will be sufficient to support its valuation level.

4 Domestic and overseas funds in the consumer industry to maintain a high degree of enthusiasm for the allocation. Consumer stocks are favored by large funds because of their clear business model, simple financial content, and more risk aversion properties in the economic downturn.

5 Consumer stocks holding market in the short term is not easy to be broken. Subsequent configuration, from the supply point of view, focus on leading enterprises; from the demand point of view, focus on strong growth, industry logic and income side are supported enterprises.