Cathay Pacific Junan: Consumer performance resumes under US economic stimulus policies

The Zhitong Finance App learned that Guotai Junan released a research report saying that if spending power improves as scheduled, it is recommended to focus on the performance flexibility of relevant brands and manufacturing leaders. Although the forms of consumer stimulus policies in the US and China are different, the logic of end consumer behavior is similar, and the US situation may have reference significance. As trade-in subsidies and related policies advance, if domestic consumer consumption improves as scheduled, it is recommended to pay attention to the performance and valuation flexibility of brands and leading manufacturing companies in the relevant sector.

Guotai Junan's main views are as follows:

Policy Overview: The consumer stimulus model is cheque issuance, totaling three rounds of US$867 billion, or about 4% of the US GDP.

Beginning with the outbreak of the epidemic in 2020, the US implemented fiscal stimulus in March, all of which included direct cash transfers to residents. The total amount was US$867 billion, or about 4% of the US GDP. The first round was $1,200 per adult and $500 for children in the first round from March to April 2020; the second round increased the allowance of $600 per adult and child in December 2020; and the third round was $1,400 per adult child in March 2021.

From the perspective of consumer spending, durable goods > non-durable goods > services, the peak of growth occurred in the third round of cash subsidies. Although the first round of cash subsidies was distributed from March 4, 2020, personal consumption expenditure declined to a certain extent due to consumption scenarios and future expectations. With the distribution of cash subsidies in the second and third rounds and the clarification of epidemic prevention routes, spending power began to show. Consumption of durable goods increased 20% year-on-year during the second round and 80% year-on-year increase in the third round. Due to limited scenarios during the pandemic, durable goods performed significantly better than non-durable goods and services.

Textiles and clothing: Affected by the shift in demand, the consumption stimulus was mainly reflected in the third round.

Due to weak demand for clothing for working from home in 2020, the sales growth rate from April to December 2020 was still negative after the first round of subsidies, but there was a significant improvement over the previous month; in 2021, demand for apparel increased as offline resumed, and clothing sales improved dramatically after the third round of subsidies, achieving the first positive growth rate after the pandemic in March 2021.

Referring to Adidas's performance and valuation, benefiting from the implementation of economic stimulus and a new round of cash subsidy expectations, the 20Q3 turned a loss into a profit. Combined with the catalytic effects of economic stimulus policies, the company's valuation reached a phased high in 2020Q4, benefiting from the concentrated release of spending power. The performance reached a high point, but the valuation began to decline.

Light industry manufacturing: Midstream manufacturing benefits from early inventory replenishment & global supply chain layout, high performance flexibility & fast transmission pace.

Elasticity: Midstream manufacturing > downstream channels > terminal sales. Midstream manufacturing benefits from the advantages of the global supply chain, increasing the share of the manufacturing side, and superimposing downstream inventory channels. The flexibility on the performance side is greater than that of downstream channels and terminal sales.

Pace: Midstream manufacturing = downstream channels > terminal sales. As a result of the epidemic, the terminal sales scenario was damaged first. As a result, the terminal sales growth rate was under pressure in 2020Q2, and then gradually increased with the release of consumption capacity; leading channel operations were more steady, so 2020Q2 benefited from consumption incentives, and the performance was steady thereafter. Midstream manufacturing benefited from downstream inventory replenishment ahead of schedule, and the global supply chain led to an increase in share, so the performance growth rate increased from 2020Q2.

Risk warning: Prices of raw materials continue to rise, overseas inflation exceeds expectations, etc.