2010 Potential China Pe Investment Themes Updated Aug

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2010 Potential China Pe Investment Themes Updated Aug

  1. 1. China Consumer & Retail Private Equity - 2010 & Beyond Consumer-Driven Investment Themes Updated Aug 2010 Presented by K.C.Yoon GLOBAL CHINA CAPITAL
  2. 2. Presentation Background & Storyline China Weathers Crisis Well -Emerging with Stronger Economic Foundations ONE: Strength TWO: Broad- THREE: Govt FOUR: in Domestic based Drive for Focused on Competitive Consumption Domestic PE Fundamentals M arkets Foreign & Domestic Funds Flow into Consumer Consumption Sectors M aturing PE Government taking Active Role to M arket Promote Private Equity investments Domestic Trends Key Consumer Trends and Potential Global Trends Impacting Investment Themes ImpactingConsumption China ONE: TWO: THREE: Domestic Brands Going Internet – Changing the Changing Lifestyle of Nation-wide Traditional Business Middle-class ChinaVersion 3.0 by KC Yoon Jan 2010
  3. 3. Focus of Today’s Presentation China Weathers Crisis Well -Emerging with Stronger Economic Foundations ONE: Strength TWO: Broad- THREE: Govt FOUR: in Domestic based Drive for Focused on Competitive Consumption Domestic PE Fundamentals M arkets Foreign & Domestic Funds Flow into Consumer Consumption Sectors M aturing PE Government taking Active Role to M arket Promote Private Equity investments Domestic Trends Key Consumer Trends and Potential Global Trends Impacting Investment Themes ImpactingConsumption China ONE: TWO: THREE: Domestic Brands Going Internet – Changing the Changing Lifestyle of Nation-wide Traditional Business Middle-class ChinaVersion 3.0 by KC Yoon Jan 2010
  4. 4. In 2009: Macro-Factors Driving China’s Consumer Economy Over 110 high- consumer potential cities with 34% of 3 GDP IKEA continue to open 2 stores/yearBy2015, Demand for Home- Sunning plans 500sqm related products and stores in the rural areas>300M lower-middle class; Growth of Chinese services targetting for 3000100M luxury Middle-Class President 7-11 to open3-7consumers Demand for lifestyle & stores in Shanghai plans convenient services for 300 stores in 3yrs > 200 Cities China Chain Nepstar drugstar opem/acquire 700 with >1M Urbanization and Demand for better stores 2008, plans 3000 residents healthcare Growth of Cities Sunning plans a B2C site Growth of B2CNOW >300Musers;>RMB Korea SKTelecom to120B online Growth and Impact Most widespread invest RMB500M in qingxuan its B2C siteconsumer of the Internet media- access middle- Retailerssales class consumers continue to Letao to open largest expand online toy store in China network
  5. 5. In 2009: Key Consumer Trends with Investment Potential Criteria for Investment 3 + 1 Affordable Luxury for the Young Affluent Large Market Growth of Chinese “Mass Market” + Middle-Class “Good Enough” Products High Growth Urbanization and “City-Living” Consumer Services Growth of Cities Online Consumer Able to Brands Sustain Good Growth and Impact M argins of the Internet “Knowledge” Services Defensible Govt Stimulus “Health”+ “Well-being” Niche Services +“GREEN” - Increasingly important Global trend
  6. 6. 2010 & Beyond:Same Core Drivers but with New Focal Points 14.7 Beijing 26.8 Beijing and 17.1 Shanghai already 3 Shanghai 25.1 megacities in 2007 2007-2025 : 6 New Megacity 8.7 Population (millions) from Tianjin 12.6 8.3 Beijing Shenzhen Tianjin 12.4 ClustersGrowth of Chinese 8.6 Wuhan Shanghai Middle-Class 11.9 7.9 Chengdu Wuhan Broader Chongqing Chongqing 10.7 Consumer Base 6.4 Chengdu Shenzhen 10.3 8.2 Guangzhou Guangzhou 10.1Urbanization and Source: McKinsey Glob al Institute CAC model, McKinsey Glob al Institute analysisGrowth of Cities 2nd/3rd Tier Cities New Growth Online Shopping Growth 2007-2013 (RMB ‘00M) AreasGrowth and Impact of the Internet M obile & Ecommerce Create M arket Source: iResearch report 2009
  7. 7. Global Trend (1)- Focus on Capturing “Expanding”Middle-class Consumers Shifting of Global Consumption to Markets Foreign Brands & Investors Creating the Largest Making Targeted Entries “Middle-class” Rapid Consumption Growth Acquisition of Strategic Stakes Significant Stake in Large Meat Fast growth Processor “Yurun” in meat by Goldman Sachs consumption Blackstone Invests in Agro-Wholesale Market & Logistic Exchange Domestic Brands are Gaining Recognition Aggressive & New Market Suit Brand “endorsed Global Apparel by Warren Groups GAP & Buffet” UNIQLO aggressive entry plans Page 7
  8. 8. Global Trend (2) – As well as Capturing “Emerging” Luxury Consumers Shifting of Growth to Increasing Trend of M&A of “Emerging” Markets i.e. Luxury Brands China Foreign Brand Expand/Acquire Cash-rich Chinese Companies Chinese operations Seeking Foreign Brands Acquisition of Fashion Brands “Volvo” by Burberry & Chinese Mango Expands automaker Aggressively Geely Interest in European Increased Market-entry by Foreign Fashion Brands High-end Consumer Brands by Chinese parties Proliferation of International Global Luxury Players seeking to Fashion & Acquire Domestic Brands/Retailer? Lifestyle Brands.. Page 8
  9. 9. Domestic Trend – Rapid Rise in “Luxury” Consumers Growth of Chinese Values Associated with “High Net Worth Individuals” Luxury Drives Consumption By 2009 China will have over 320,000 Chinese Luxury Needs Pervades HNWI with Total Assets of USD1 through their Lifestyle (F&B, Clothes, trillion; Across 1st to 3rd Tier Cities Personal care, Living..) Middle-class Chinese Consumers aspire towards similar value Source: China Merchant Bank & Bain Report 2009 “In 2008, Chinese Domestic Luxury Market was valued at USD8.6 billion” Bain “China to overtake Japan as the world’s 2nd largest luxury market by 2010” China Herald 2009 Page 9
  10. 10. China Consumer/Retail Investment Themes for 2010 & Beyond Domestic Consumer Brands & Retailers 1 Going Nation-wide/Capturing Market Share to be Market Leaders Products & Services Leveraging on 2 Mobile+Internet to Overcome Traditional Business Model for Rapid Growth New Needs Created by Changing Lifestyle of 3 Middle-class & Emerging Luxury Needs of Chinese Consumers
  11. 11. Investment Theme 1 Consolidation + M&A to Develop Domestic Market Leaders Factors Supporting & Driving Sectors Impacted M arket Activities Observed M&A + Consolidation Tsingtao acquisiition ofJi’an brewery to consolidate FOREIGN INTEREST IN DOMESTIC MARKETS: Shandong market Electronic Retail, Mobile Retail, Supermarket, Foreign MNCs seeking market-entry through Convenience Retail, F&B services, FMCG M&A or building strategic stake PE Investments into several Sportswear & apparel retail, EducationRight Chinese dairy companiesStrategy FRAGMENTED MARKET SEGMENTS: products, Food Processing, Segments like Food Processing, Supermarket= Retail, F&B where ,market is large butWinning fragmentedFund PE investment in mobile retailerFunTalk to VALUE CHAIN INTEGRATION: M&A of upstream/downstream players to acquire 6 regional distributors to become increase margins & competitiveness eg. Food No.1 distributor/retailer of Mobile phones in Processing China… EXPAND RETAIL REACH: Fashion brands, Electronic Good Retailer, Ctrip’s strategic 9.5% Beauty Services seeking Nationwide reach stake in Home Inns MULT I-BRAND/PRODUCT/SERVICE PORTFOLIO: Market Leaders building brand portfolio to drive new revenue growth Acquisition of 14% stake in Chinese shoe retailer to fund domestic expansion
  12. 12. 1 Potential Investment Targets Leading Niche Domestic Regional Retailers/ Strong Brands with Brands with Strengths in Services with Strong Nationwide Potential Growing 2 /3rd Tier Distribution nd currently limited by 2 nd /3 rd Tier Markets Network distribution reach Leading regional brands in Supermarkets in inner cities, Larger well-established brands or cosmetics, personal care, Food & restaurant & food service chains, global brands that has potential to drinks, fashion wear, etc etc be national market leader • Dabao domestic personal care •Fujian-based supermarket retail • Burberry – franchised operations in brand acquired by P&G for chain dominates 2nd/3rd tier cities and China acquired by parent brand USD300M operates at higher-then industry recognizing strong market potential margins • “Yurun” processed ham • Ladies shoe brand retailer with generating strong sales • KungFu Catering invested by strong product but growth cpr to leading VCs industry peers limited by lack of expansion funds
  13. 13. Investment Theme 2 : 2 Technology Led Growth of New Business Niches Factors Supporting & Driving Growth Sectors Impacted M arket Activities Observed CREATE NEW CONSUMER RETAIL CHANNEL : Fashion Retail Online experiencing rapid growth & TV shoppingRight Electronic Retail, Mobile, fashion (especially clothing) retail, travelStrategy IMPROVING TRANSACTION INFRASTRUCTURE: internet B2C/;C2C services Good Customer online experience due to= efficient payment & low cost door-to-doorWinning delivery systemFund Explosive growth seen in online retail (eg.clothing in2009 valued at RMB2.4 billion or 9.7% of total SHIFT IN VALUE PROPOSITION : clothing retail) VANCL founded in 2007 & invested Online travel has captured major & significant by VCs SAIF, IDG is leader with 24% market share market share EXPANDING BRAND REACH TO 2nd & 3rd TIER CITIES: Global luxury brands have successfully created awareness online IMPACT OF SOCIAL INTERNET : Peer Interaction & social networks have been used to build brand and product knowldge Lancome pioneered online beauty community “Lancome Beauty Rose” capturing 4M subscribers
  14. 14. 2 Potential Investment Targets Innovative Retail ers Leveraging New New Business Models Resulting Media (internet/mobile/digital TV) – Pure Technology & Change in Value Proposition online or “offline”+ “online” + Create New Market Niche • Mobile content download retail service as a result of growth of mobile users and obstacle to access content • Propriety Customer Mobile Mobile Content Interface + Attractive Sales of China’s TV Shopping Providers Retail Kiosks + Operators/ Innovative Business Models in Mobile Retailers will reach RMB 20billion in 2008 Professional Service Mobile + Internet Space New Retail Channels with Nationwide Reach + Ability to Rapidly Build Brand at Low Cost • Hunan TV & Taobao launching TV Home shopping channel to target lucrative & growing market • Innovative “group buying” sites driving • Online Jewellery Retailer with offline retail consumers to bulk POS for customer service buy for high discounts
  15. 15. Investment Theme 3 : 3 Changing “Middle-Class” & “Luxury” Consumer Lifestyle Factors Supporting & Driving Growth Sectors Impacted M arket Activities Observed Entertainment, Travel Services, Luxury Hotesl & FOCUS ON HEALTHY LIFESTYLE: Healthcare Devices + Services,”Health” Food, Pharma Retail,Education Services, Media & Demand for healthcare products/services, Sports Services, Health FoodRight Pearson acquisition of China’s WSI-Strategy ON SELF-IMPROVEMENT & PERSONAL FOCUS leading English learning school IMAGE:= Consumer-focused services from beauty-care,Winning education, Sports Coaching, etc AdultFund Resorts DEMAND FOR STATUS : Membership Exclusive Social Clubs & Services, Fashion Apparel & Accessories, Premium Food Sequoia’s investment into China’s leading animation company as demand for cartoon/animation content grows ENJOY GREATER LEISURE & ENTERTAINMENT : Luxury Travel Services, Niche Luxury Hotels & Holiday Resorts Swiss Luxury Travel Group acquisition SPENDING ON CHILDREN NEEDS: of strategic 10% stake in Chinese travel Affordability to spend on “single” child esp service company ET-China Intl. educationi.e. Special K1-12 Schools, Learning Products & Services Legend Capital investment into hair accessory retail with unique service model
  16. 16. 3 Potential Investment Targets Niche- Luxury Lifestyle & Domestic Branded Entertainment Sports, Health & M edical Related Products Products & Services Services & Retail & Services + Retail Service Chains for Status Chains Domestic Fashion Designer Family Resorts & Parks; Sports & Spa Services; Health Food Supplements Brands & Beauty Care Themed F&B Chains & Health Products; Medical Services; services Beauty care & Spa Chains • Home-grown fashion design • Family-focused Chinese • Family-use home healthcare check-up devices houses history-based themed retail/entertainment venues; • Health Supplements • Exclusive Members Social Club • Regional cuisine themed Food • Massage & Fitness Products service • Fitness, Yoga & Sports Coaching Services • Specialist Medical Services, Hospitals, etc
  17. 17. Spotlight on Emerging Agro-Food Sub-Sectors (1) WHY? Chinese Agro-industry the Next Biggest Concern of the Govt (1)Raise rural income(2) Drives overall consumption Expenditure on Food still accounts >25% of Huge M arket with Favorable Consumer Spend even in High Income Households Behavior Changes A.T. Kearney (2007) estimates that the growing middle class spends an increasing amount on food, with annual sales of branded food products expected to grow from US $150 billion to US $650 billion by 2017. Chinese Consumers Willingness for New Taste: DataMonitor’s Survey shows 44% vs 30% for Global Consumers Higher Income Consumers Pay for Premium Food: DataMonitor’s Survey shows 67% of surveyed had purchased Premium Food in last 6 months Data from DataMonitor’s survey in July 2009
  18. 18. Spotlight on Emerging Agro-Food Sub-Sectors (2) Life Cycle of Food & Beverage Products in China DBS Vick ers Report 2010 Sun-Rise Fast- Growth Decelerating Matured Beer Instant Noodles Bottled Water Juice Processed Meat Milk Wine Icecream Bakery Chocolate Per CapitaConsumption 15X 17X 5X 4X 8X 5X 3X 2X 1X 1X JPN/CHN MultiplePenetration in 20% 20% 25% 30% 30% 25% 35% 40% 75% 80% China
  19. 19. Spotlight on Emerging Agro-Food Sub-Sectors (3) Branded Premium TCM-related Agro-Food Industry- Food (Organic, Safe, Health/Nutraceutical Focused Support GREEN) Products Services China produces 80% of the World’s Ginseng and Dominates most other k ey TCM herbs USD9BN NUTRACEUTICAL MARKET OPPORTUNITY Premium Food Products • China largest worldwide producer of nutraceutical ingredients; and expected to Key Services surpass the US as largest consumer by• Fresh fruits like strawberry, 2013 • National Cold Chain Logisticsblackberry and their by-products • Over 3,000 manufacturers of nutraceutical Servicei.e. juices products in China, with an annual • Food Distribution Services with• Baked food & snacks production value of over $6.3 billion nationwide reach• Premium Beef • Sales in China are expected US$8.8 billion • Wholesale & Market Making in 2009, with CAGR of 15.2% Services
  20. 20. Contact : K.C Yoon Mobile: +86 18675573803 Email : kcyoon.glg@gmail.com Skype: kcyoon07 Linkedin: http://cn.linkedin.com/in/kcyoon Page 20
  21. 21. THE END Thank you

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