It wasn’t too long ago when “China” was a buzzword for growth, growth, and more growth. Companies that mentioned “China” in their future growth plans would more likely than not be met with a warm reception from investors. A great example would be the boom in the number of initial public offerings for S-chips – Chinese companies listed in Singapore – in the mid-2000s. But the picture with the giant Asian nation is a lot less rosy today. Besides a crackdown in corruption, China also has to contend with an apparent real estate bubble, well-publicised environmental problems, and massive issues…
It wasn’t too long ago when “China” was a buzzword for growth, growth, and more growth.
Companies that mentioned “China” in their future growth plans would more likely than not be met with a warm reception from investors. A great example would be the boom in the number of initial public offerings for S-chips – Chinese companies listed in Singapore – in the mid-2000s.
But the picture with the giant Asian nation is a lot less rosy today. Besides a crackdown in corruption, China also has to contend with an apparent real estate bubble, well-publicised environmental problems, and massive issues of oversupply that hang over many of its commodity producers.
Then, there’s also a slowdown in growth to grapple with. China’s economy expanded at a rate of 7% in the first quarter according to its latest official figures. Mind you, that’s still a great showing by China (other developed nations can only dream of such figures), but that growth rate is the lowest it’s been since 2009.
With all these as a backdrop, what might the future hold for some of the largest companies in Singapore which do significant amount of business in China?
The cooking oil giant
Wilmar International Limited (SGX: F34) is one of the major cooking-oil suppliers to the Chinese population. China is also the company’s largest geographical market with a 45.5% share of total revenue in 2014.
The past five years haven’t been that easy-going for Wilmar with its net income having declined from US$1.88 billion in 2009 to US$1.16 billion in 2014. Over roughly the same period, the firm’s share price had also followed a similar trajectory – since peaking at a price of more than S$7.00 back in 2010, Wilmar’s shares are now over 50% lower at S$3.27 each.
With China’s slowdown in economic growth and an over-capacity in the oilseeds and grain industry in the country (Wilmar’s oilseeds and grains business is its second largest segment), Wilmar might require a really long ride back to the top.
The e-commerce enabler
Mention e-commerce and you might think of snazzy tech companies which are using the web to connect millions of buyers and sellers.
But, there are actually a lot of companies in more mundane-sounding businesses that are helping to provide the infrastructure needed to enable e-commerce to flourish. Logistics facilities provider Global Logistic Properties Ltd (SGX: MC0) is one such example.
The company has been investing heavily into the logistics space in China (as of 31 March 2014, two-thirds of Global Logistics Properties’ total assets of US$13.95 bllion come from China) and it is now the leading provider of modern logistics facilities in the country. Despite being a leader in its space, Global Logistic Properties is still spending big on capital expenditures year after year in order to boost its capacity.
Yet, early investors in the company have not had much to show for the company’s continued investments in its business – since its IPO in 2010, Global Logistic Properties’ shares have generated a return of around 28% with dividends reinvested. That works out to an annualised return of only 5.5%.
Could this be a case of the market’s expectations running ahead of the reality on the ground? With the economy in China chugging ahead at a lower gear now, it’s interesting to wonder what might happen with the market’s expectations on Global Logistic Properties going forward.
There’re lots to work on for China now. However, to be fair, every country is also facing their own unique set of challenges.
Russia has economic sanctions and the low price of oil to contend with. Europe has to fend off the spectre of deflation and economic recession – in the meantime, they’re busy embarking on their own version of quantitative easing. As for the US, its economy has so far been unable to reach a stage with stable growth just yet.
It’d be interesting to see how China – and all the different companies operating within – copes with its problems.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Wilmar International Ltd.