In the past month, Chinese people have experienced two major events that brought totally different feels. The one is the arrival of the year of the rat, the bell of the new year opened another cycle of the Chinese zodiac. The other is the occurrence of the Novel Coronavirus (also called 2019-nCoV). The sudden outbreak of the virus has taken away many people's Spring Festival plans and affected almost everyone's life in China. In addition to being in the necessary posts or forced by life, everybody has been trying their best to reduce the contact with the outside world, which is not only for protecting themselves but also for slowing down the propagation and reducing the burden of the society so that the government can put all the resources into the epidemic control. This populated country has seen quiet streets abnormally even in large cities such as Beijing. And another crisis occurred to me during this time that my little boy had a high fever a week ago due to laryngitis. It was because I had to take him to the fever clinic at the risk of infection that I had a chance to see medical staff fighting in the first line wearing protective suit and mask, being conscientious and meticulous. As a mother and ordinary citizen, I hope my family and all the people can get through the crisis as soon as possible. And as an investor, I can't help but think about what the epidemic can bring us besides being isolated at home and tensions. Where there are conflicts and crises, there is opportunity. Yes, the investment opportunities are just hidden beneath the crises.
Ⅰ. Everyone is talking about medicine, but it's not necessarily a good place to invest.
The medical industry is the hope for the 2019-nCoV to be conquered at present, which is naturally be considered as a growing sector by many people. However, the situation of enterprises in this industry is quite different. If we go back to 2003, the situation was similar by then, the medical industry affected by SARS had not performed strongly. According to SWS index, from the end of 2002 to 2004, the medical industry underperformed the market even in April 2003 when SARS was breaking out.
Figure 1: Performance of Medical industry during SARS epidemic in 2003 (Source: SWS index)
The SARS epidemic has given investors a lot of imagination. The news that antivirals and immune enhancing drugs were out of stock made many people believe that relevant enterprises will benefit. While in fact, the decrease of medical consumption brought by SARS is more prominent. Hospitals are the main sales channels of pharmaceutical enterprises. Due to the number of patients in hospitals was reduced during SARS epidemic, the products of prescription enterprises were unsalable. The inventory of circulation enterprises increased and the turnover rate decreased. Only a few enterprises with unique products had reported earnings growth (such as HEC(SH:600637) and Baiyunshan(SH:600332) ). API and chemical companies actually benefited in that year owing to the shortage of vitamin C and the rising price.
In the current situation, due to the reduction of the number of patients in hospital, the drug companies for chronic diseases and circulation enterprises relying on hospital sales may be negatively affected. Since many residents may purchase common drugs in nearby pharmacies to reduce the population contact, and testing products, masks and other protective products would be in short supply for a period of time, pharmacies, testing enterprises and protective products companies may benefit.
Ⅱ. Online entertainment media industry is indispensable for many people.
This year's Spring Festival holiday is extended to 14 days in many places. Even after the start of the working day, most people's activities will not return to normal soon because of the impaction of the 2019-nCoV which might not be eliminated in a short period of time. The boring and isolated life makes people need family recreation more than ever, which brings benefits to related industries. One is all types of video websites will benefit. Because people are unlikely to watch movies outside during the epidemic and the release of new films were delated, the passenger flow of the theaters will turn to online which directly converted to traffic of video websites. The interaction demand of Spring Festival and fragment time make the traffic of short video websites increase significantly. The other is the game industry. Ordinary people are encouraged to have fewer gatherings during the epidemic, which makes games, especially mobile games, become important substitutes for offline entertainment. Here are some examples. The daily flow and the monthly flow of "Glory of the kings", which is the head social sports game, had reached a record high on Chinese New Year's Eve. The leading heavy game "Perfect world" had risen from 30-40 to the seventh on the top selling list of IOS games. The downloads of online chess and card games had increased dramatically, which were more than 200% compared with that before the epidemic fermentation. The peak of Wechat mini-program search on games was 133% higher than that before fermentation.
Figure 2: Net profit of typical companies (Source: Company report, Unit: Billion)
Ⅲ. Internet medical industry is promoted.
The 2019-nCoV is unwanted by all of us, but internet health care has valued more than ever because of the epidemic. On the one hand, Telemedicine web medicine play an indispensable role in the process of fighting against the epidemic because they get rid of the space limitation of medical resources. Ten Guangdong experts led by academician Zhong Nanshan discussed the treatment plan for five patients infected by 2019-nCoV who were in two separated hospitals on the afternoon of January 29, which was the first application of teleconsultation on severe cases infected by the 2019-nCoV in Guangdong Province. On the other hand, with the development of the epidemic, coupled with the winter flu and other pneumonia diseases, medical demand keeps increasing due to the risk of infection and the halted public transport. Therefore, two types of companies will benefit. One is the internet medical platforms, the other is the medical technology enterprises with offline medical information construction experience and cooperate relationship with healthcare giants.
Figure 3: EPS of typical companies (Source: Company report, Unit: yuan)
Ⅳ. No one goes out and spends? Strong distribution capacity provides the real power of enterprises.
Under the influence of the 2019-nCoV, not only consumers stay at home to prevent the spread of the epidemic, the offline business also put emphasis on stable supply and prices instead of traditional promotions. The impact on consumer goods companies is predictable since the traditional sales season has disappeared. While, consumers can also consume at home, and what they need is just deliver services. Actually, online consumption is growing rapidly since the epidemic, especially fresh food consumption.
Figure 4: Online fresh food consumption grows rapidly (Source: News.163.com, Beijing Daily, People.cn, New.qq.com, Time-Weekly.com, ThePaper.cn)
Strong distribution capacity help enterprises in two kind of industries to take their chance. One is the retail enterprises with strong distribution system, especially the leading supermarket, the other is the delivery platform.
Figure 5: EPS of typical companies (Source: Company report, Unit: yuan)
Ⅴ. Leisure food, food with long shelf life and condiments that are less affected by catering channels are preferred.
Affected by the epidemic, the gathering consumption and the gift consumption during festival, such as wine and high-end dairy products, will be frustrated to some extent. And it is undoubted that the catering enterprises will have a big loss due to the order cancellations of Chinese New Year's Eve dinner. Therefore, there will be a significant effect on condiment enterprises with catering enterprises as main customers are and pan-catering enterprises. However, enterprises of frozen food, leisure food and health care products will benefit from the residents' demand for hoarding, leisure and health care. According to consumption data of Spring Festival on JD.com, the turnover of milk, drinking water and nuts increased by 300%, 200% and 100% year-on-year respectively. The turnover of frozen food such as dumpling increased by more than seven times year-on-year.
Figure 6: EPS of typical companies (Source: Company report, Unit: yuan)
Ⅵ. Smart investors see the bottom in a crisis.
From Peter Lynch to Warren E. Buffett, countless investment masters have told us that smart investors should look for opportunities to buy in times of crisis. I want to say that we do should invest good enterprises decisively when there is a temporary crisis or the stock market falls, at the same time, we should keenly find the enterprises that seize the investment opportunities themselves in the crisis. The SARS in 2003 forced a young businessman named Liu Qiangdong to close all his stores in Beijing. Instead of beaten down, he devoted all his energy to the construction of sales platform on internet, and that platform is JD.com. At the same time, when the snack stores in Chenghuang Temple was gradually closed in Shanghai, a small company named Liyifen who set up 4 years ago had bought more than 40 stores at a low price. And that company became the first snack enterprise listed on the main board in China. I do believe that investors in the shadow of the Novel Coronavirus can find investment opportunities in the crisis, and more importantly, they can find the stars of tomorrow leading by entrepreneurs with investing insight.
