Addictive products make good investment theme

July 05, 2019 10:37
Companies selling addictive products enjoy recurrent and resilient demand, making them attractive to investors. Photo: Reuters

Companies involved in selling addictive products are often good investment targets given the recurrent and resilient demand.

The latest example is China Tobacco International (06055.HK). A unit of state-owned China National Tobacco, the company floated its shares on the Hong Kong bourse on June 12. Since then, share prices have quadrupled in less than a month.

With a market value exceeding HK$13 billion and a price to earnings ratio of 50 times, China Tobacco seems way overvalued.

The interesting point is market participants tend to believe the small unit, which currently runs the import and export business for the parent, could become much larger if the parent, which is hugely profitable, chooses to inject more businesses into the group’s only listed platform.

Meanwhile, Kweichow Moutai (600519.CN), China's iconic high-end spirit maker, recently saw its share price rise above 1,000 yuan (US$145.38), with the market cap hitting a record high of 1.25 trillion yuan.

The full article appeared in the Hong Kong Economic Journal on July 4

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist