Easing of China’s 1-child policy spurs infant market explosion
Taiwan News, Staff Writer
2014-04-22 06:15 PM
The gradual easing of China’s “one-child” policy is expected to have a continuing positive effect on Chinese infant market focused companies Tung Ling Industrial Co., Ltd. (2924) and Topbi International Holdings Limited (2929). Tung Ling will continue expanding its e-commerce platform and Topbi will continue expanding its sales locations to increase market share. Both companies will also aggressively invest in product design, research, and development to increase average unit price of products and overall gross profit margin.

With the easing of China’s “one-child” policy, Chinese infant market focused companies Tung Ling and Topbi both reported robust revenue results for March. Topbi posted March revenue of NT$436 million, for a monthly growth rate of 253% and annual growth of 15%, and a cumulative Q1 revenue of NT$872 million for an annual growth of 29%. Tung Ling posted March revenue of NT$128 million, for a monthly growth rate of 36.84% and an annual decline of 11.38%, and a cumulative Q1 revenue of NT$352 million for an annual decline of 7.4%.

Currently nine provinces in China including Zhejiang, Jiangxi, Anhui, Tianjin, Beijing, Shanghai, Guangxi, Shaanxi, and Sichuan have officially launched the “selective two-child” policy. Excluding the autonomous regions of Tibet and Xinjiang, among provinces that have not launched the “selective two-child” policy, 20 provinces have disclosed new policy implementation timetables. It is estimated that 7.5 million new infants will be born in five years under the liberalization of the “selective two-child” policy. These new infants will spur market consumption worth trillions of RMB between 2015 and 2019.

Tung Ling states that benefits from China’s implementation of the selective two-child policy will be realized in Q3 of this year. Coupled with Tung Ling’s aggressive penetration of China’s e-commerce market, overall operations look promising for 2014.

Institutional investors estimate that Tung Ling’s concentration on e-commerce this year will result in even more powerful internet sales with the addition of secondary brand “Kaeru” to the product sales of proprietary brand “Piyo Piyo” in tier 1 and tier 2 mainland cities. At the same time, the company is targeting the mobile phone platforms of WeChat and Taobao. This year its e-commerce sales will grow exponentially with an annual revenue growth of 20% and an EPS forecast at NT$5.

Tung Ling posted net income of NT$132 million last year with 5% profit growth, basic EPS of NT$4.16, and plans to issue a cash dividend of NT$3.2 per share.

Topbi indicates that March’s revenue growth benefited primarily from the tradition of the March to May period being the busy season in the first half of the year for the traditional children’s apparel industry. Children apparel product shipments for the summer season performed robustly. In addition, China’s domestic consumer market continues to grow which leads to downstream distribution channel optimism towards the future sales performance of Topbi children’s apparel products. The continuing increase in sales locations will be a major factor in driving continued sales growth.

Topbi’s proprietary brand is one of China’s top ten children’s apparel brands. Currently, the company’s overall distribution channels have increased from 1,074 sales locations in September 2013 to 1,191 in March 2014. These locations will facilitate the growth of future sales.

Looking to Q2, Topbi states that, since China is currently promoting new urbanization and the selective two-child policy which is an important policy direction of the central government, the trend of rising national income and increased births will facilitate the long-term performance of China’s overall children’s apparel market and provide an advantageous operational environment.

Topbi posted consolidated 2013 revenue of NT$3.79 billion, net income of NT$574 million and EPS of NT$12.72 which equates to 36%, 55%, and 55% growth, respectively, compared to 2012 and all set new historic records.

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