Demand Heats Up In The Sizzling Hotpot Sector
Investors taking part in this little-known trend are making up to 43 times their money.
5 Reasons why this market could be the biggest mover of 2021-2023.
Most investors will go their whole lives without pocketing more than 1,000% in a single stock.
But that’s exactly what some savvy investors have averaged every year for four straight years, since the 2016 IPO of an unusual company in an improbable market segment that is becoming a global force.
Late last year, Bloomberg reported that this fast-growing “hot pot” market is “whetting the appetite of investors,” adding that it is creating “the world’s fastest-growing fortunes.” 1,2
Soon after, the LA Times wrote that the new “hot pot” consumer phenomenon that’s driving investor profits is “taking over the world.” 3
Not to be outdone, The New York Times advised that it is “conquering the world.” 4
Finally, on September 3 of 2020 the Washington Post asked “Who could possibly want ‘hot pot’ right now?” 5
Their answer: “Investors.”
The ‘hot pot’ stock mentioned above has soared a spectacular 4,337% since its 2016 debut, catching nearly everyone by surprise.
Analysts were shocked. Market watchers rushed to Google to look up this newcomer they’d never heard of.
In fact, most of them had probably never even heard of the market segment it was in!
The company didn’t operate in any of the usual top-performing sectors. It wasn’t information technology. Or biotech.
It wasn’t even cannabis. (Though you’d be forgiven for thinking it was!)
And it appeared to be the only publicly listed company of its kind in the world.
But it wouldn’t be the only one for long.
From the highest investor returns of the last few years…
Between 2016 and 2020, four more companies in the same improbable but now “hot pot” market segment launched their own IPOs.
- One company created so much investor excitement for its IPO that institutional buyers oversubscribed its $963 million offering by 20 times. Since its launch, the stock has powered ahead an average of 112% per year.
- A second company is up 106% since its January 2020 IPO.
- A third has rocketed 177% in two years.
- A fourth shot up 236% just since March 2020.
All of those companies rewarded their investors with some of the best profits in recent years.
…to the highest investor returns of next few years
There’s one company that is just launching into the exploding “hot pot” market.
It’s not a startup, though. It is a well-established, Nasdaq-listed manufacturer and distributor of the ingredients that are at the heart of the new “hot pot” trend.
And in case you’re thinking they’re late to the party, consider that the first movers who entered the market between 2016 and 2020 still control only a measly 7.2% of the primary target market.
In other words, the company you’re about to discover that’s just launching into that market is also a first market mover.
Every sign shows that this company could be as successful as the four that have already rocketed to multi-billion dollar valuations.
There are five strong reasons why this company could be one of the best-performing stocks of not just 2021, but through 2023 and even beyond as it continues to grow and reward its investors. Here’s why.
5 reasons why China Xiangtai Food Co. (Nasdaq: PLIN) could be your number one stock for 2021 - 2023
China Xiangtai Food Co. is riding not just one explosive market trend, but two: the market it already dominates, and the one it is just now launching into.
The company’s timing could not be more auspicious.
Top “Hot pot” Stock Reason #1
Top “Hot pot” Stock Reason #1
An Unstoppable Global Trend
If you haven’t heard of “hot pot,” you might not be among the under-40 Millennial or Gen Z generations that are igniting the global hot pot phenomenon.
Hot pot is a food dish.
But in China, hot pot is not just a food. It is a 1,000 year old cultural tradition. It’s about as close to the national food of China as you can get in a country of 1.4 billion people.
Now the unstoppable demographic trends of rising incomes and a preference for dining out are fueling the growth of hot pot restaurants throughout China.
But while China is ground zero, the popularity of hot pot is radiating around the world, from Boston to Bangkok, London to La Paz, Sydney to Sacramento.
In each of these places, it is common for diners to wait for two to three hours just to get a taste of hot pot.
The Economist calls the hot pot phenomenon a “new source of Chinese soft power.”
The frenzy among Millennials and Gen Z for hot pot is behind market growth so powerful that it is expected to soar from an estimated $153.6 billion in 2019 to $700 billion by 2023.12,13
Top “Hot Pot” Stock Reason #2
4 out of the 10 biggest restaurant operators in the world by market cap are hot pot chains
Hot pot is now so popular that in China that seven out of 13 of the country’s largest restaurant operators are hot pot chains.
Not only that, four of the seven are publicly listed, with market caps ranging from Zhou Hei Ya Holdings at $18 billion to a whopping $99.47 billion for Yihai International Holding.
To put that in perspective, McDonald’s, in business since 1955 and now the world’s largest restaurant operator, has a market cap of $157 billion.
Starbucks, the second largest, is valued at $101 billion, and has given founder Howard Schultz a net worth of $4.3 billion.
To compare, the net worth of Zhang Yong, founder of hot pot chain Haidilao International, is five times higher, at $21.6 billion.
Zhang, a high school dropout who never set foot in a restaurant until he was 19, became an instant billionaire at the launch of Haidialo’s 2018 IPO.
From its post-IPO value at $12 billion, the company has grown more than seven times over, to just short of $100 billion.
Zhang is just one example of the fortunes being made by this unlikely consumer phenomenon.
And the phenomenon is just beginning.
Top “Hot Pot” Stock Reason #3
“Hot pot” market set to grow 356% to
$700 billion in next two years
For all the wealth being created by hot pot, it’s safe to say that virtually no retail investor outside China has even heard of these companies.
All four are listed in Hong Kong, and it has been Asian investors that are getting rich as hot pot explodes across China and the world.
The only one to be listed on a major US exchange is China Xiangtai Food Co. (Nasdaq: PLIN).
Top “Hot Pot” Stock Reason #4
Now it’s easy for US investors to join the profit party
China Xiangtai debuted on the Nasdaq exchange in August 2019.
After benefiting from some initial investor excitement, the stock was hit hard by the coronavirus pandemic, just like nearly every other publicly traded company.
But then China Xiangtai issued a press release that made investors take another look.
On August 27, news broke that the company was launching its own chain of hot pot restaurants.
China Xiangtai Food Co’s (Nasdaq: PLIN) stock price started testing new highs.
Trading volume shot up, and now trading volume is averaging nearly 2.5 million shares a day.
US investors are starting to discover the hot pot phenomenon.
And now they can join in to that trend without having to invest in overseas exchanges.
It’s time for investors to learn more about China Xiangtai Food Co. (Nasdaq: PLIN).
The company is riding not just the hotpot global trend, but another surprising unstoppable trend too.
Top “Hot Pot” Stock Reason #5
The surprising trend that built China Xiangtai (Nasdaq: PLIN) into an industry powerhouse
It’s the most surprising bull market you’ve never heard of.
The average stock in China Xiangtai’s base industry has more than doubled in the past 12 months – despite the coronavirus pandemic.
At the depth of the coronavirus stock crash, with most companies losing a third or more of their value, the Nikkei Asian Review reported that:
“The coronavirus outbreak that has battered business has left one surprising winner standing.”
With markets around the world struggling to climb back from the coronavirus crash, there is still one bright spot, and it’s a welcome surprise for investors. Key companies in this little-known industry saw their revenue triple over the past three years, and their profits more than double.
Shares are trading at record low PE ratios. And stocks are soaring, with 18-month returns reaching as high as the mid-triple digits.
These aren’t the kind of small-cap companies in an up-and-coming industry that you’d expect to see with those kinds of numbers, either. The industry is well established, some of the companies turning in these numbers boast market caps of several hundred billion dollars. Analysts say the growth spurt isn’t over either, calling for bottom line revenue to increase by as much as 2.3 times this year.
Hengsheng Asset Management says stocks in the industry “are expected to continue their strong performance.”
TF Securities says “the industry could be generating strong profits for the next three years.”
It will no doubt surprise you that we’re talking about pork producers. Hormel Foods (HRL) has done well over the past two years, returning 59% to investors in the last 24 months. And JBS S.A. (JBSAY), the world’s largest meat producer, has shot up 89% in the same time.
But the real opportunity for investors is in China’s publicly traded mega-pork producers.
China produces and consumes fully half of the world’s pork. And nearly half of world’s 31 pork mega-producers are in China.
Companies like Muyuan Foods, with a market cap of $261 billion…New Hope Liuhe Co., with a market cap of $118 billion…and Jiangxi Zhengbang Technology Co., with a market cap of $44 billion are just a few of these behemoths.
Now a perfect storm of conditions has put China’s large publicly traded pork producers in a very sweet spot, causing these mega-companies to suddenly act like small growth stocks.
Fueled by the world’s largest middle class
China’s rising middle class is demanding pork. Always the country’s favorite meat, few could afford to eat it except on special occasions until the boom of economic growth over the past few decades.
Today pork accounts for nearly 70% of all meat consumed in China. It is a $128 billion a year industry and its stability is a key concern of the government, which knows that quality of life for the Chinese people equates in large part to low food prices.
An outbreak of African swine fever (ASF) has shaken that stability, plunging the country’s pork output to a 16-year low and forcing up prices. A combination of ASF and low prices of the last market cycle worked to drive small producers out of business, further constraining supply and pushing prices higher. At the same time, the U.S.-China trade war made U.S. imports prohibitively expensive, applying further pressure on supplies and prices.
The combined result is a greater than 40% decline in supplies in 2019 and pork prices that have shot up 140% in a little more than a year. Analysts expect supply to fall another 10% to 15% by year-end. Meanwhile, China’s pork producers are benefitting from skyrocketing prices, though consumers and the government are not.
While the largest, most well-known producers, most of which are listed on the Shenzhen Stock Exchange, have seen massive share price increases, there are a few less-known companies that stand to benefit most going forward.
One of them is the Nasdaq-listed company, China Xiangtai Food Co.
China Xiangtai Food Co. (Nasdaq: PLIN) is poised to grow
With a market cap of just $40.65 million, China Xiangtai is smaller by far than multi-billion dollar pork mega-producers like Muyuan Foods or New Hope Liuhe. But even with China Xiangtai’s Nasdaq listing, investors haven’t discovered the stock yet.
That hasn’t stopped China Xiangtai from turning in some pretty impressive numbers.
While Jiangxi Zhengbang and New Hope Liuhe saw their revenue grow 17% and 13.44% respectively over the past three years, China Xiangtai tripled revenue, growing from $34.63 million to $102.55 million over the same period.
That puts China Xiangtai’s revenue growth closer to industry leader Muyuan Foods, which saw its revenue multiply by around three and a half times.
China Xiangtai is a vertically integrated company with operations across key sections of the industry value chain, including slaughtering, packing, distribution, and wholesale of a variety of fresh pork meat and parts.
The company is located in the megacity of Chongqing, a free trade zone established by the Chinese central government. Significantly, that designation grants companies streamlined regulation, investment liberalization, and beneficial tax incentives.
The city lies at the convergence of the Yangtze and Jialing rivers, and though it is 870 miles inland, its vast ports make it a busy center for direct foreign trade, making it easy for China Xiangtai’s pork and pork products to be sold and distributed as far away as Shenzhen, in China’s far southeastern Guangdong Province.
China offers pork producers financial incentives
On March 16, China announced a range of policy incentives to boost investment in the aftermath of the African swine fever. Ranging from subsidies for purchases of automatic feeding and waste treatment facilities, to easier access to land use to encourage expansion, the incentives are available to the country’s large pork producers. Bric Agriculture Group, a Beijing-based farm-consulting firm, estimates that the total investment will be more than $14.3 billion.
This could provide significant wind beneath China Xiangtai’s sails, increasing the company’s ability to expand into far-away markets.
Consequentially, in February 2020 China Xiangtai announced a collaborative agreement with Chongquing Good Helper Commerce Co., a financing company backed by the Chongquing provincial government. The deal calls for an infusion of up to $4.9 million for expansion of operations and diversification of distribution channels.
A month earlier, in February 2020, China Xiangtai entered into an agreement with Manhattan-based Dragon Gate Investment Partners. The investment firm focuses on globalizing companies in the U.S. and China.
Dragon Gate Managing Director Lijie Zhu said of the deal, “As a public company listed on NASDAQ, China Xiangtai can serve as a bridge to connect supply and demand in the food industry between US and China.”
China Xiangtai (Nasdaq: PLIN) expands holdings
Currently, around 70% of China Xiangtai’s sales are derived from the distribution of fresh pork. This is in keeping with China’s consumption patterns with its traditional emphasis on fresh meats.
However, with urbanization and growth of the middle class, frozen pork sales are expected to grow at about 12.4% annually. Consequently, China Xiangtai is focusing growth of its product lines to include processed meats including bacon and sausage, pickled and canned meat, shredded and packaged meats, and prepared meat products such as salty braised pork and stewed meats.
On March 26, the company announced its intent to acquire a 51% controlling interest in the Chongquing Ji Mao Cang Feed Company (JMC) in order to expand its market and accelerate growth. The purchase is in line with China Xiangtai’s strategy of expanding its product portfolio across the value chain.
Plenty of growth ahead and value-priced
Institutional investors and hedge funds like what they see when they compare China Xiangtai to its mega-producer peers. It’s clear that Muyuan, with a PE of 40.47, and Jiangxi Zhengbang, with a whopping 191 PE, have their future growth priced in. Conversely, with a PE of just 11.78, China Xiangtai (Nasdaq: PLIN) is still a bargain.
In Q4 2019 the $16 billion Squarepoint Capital investment fund increased its holdings by 232%, and now owns 48,000 shares. That same quarter, international trading firm Jane Street Capital bought 15,729 shares, offsetting shares sold by Citadel Advisors.
Perhaps the best measure of China Xiangtai’s potential growth, however, is the confidence of its executive team, as evidenced by the number of insider shares owned.
A February 2020 SEC filing shows that company executives and directors own 60% of the company. This is a firm sign that senior managers have a strong positive outlook for China Xiangtai’s growth prospects.
China Xiangtai Food Co. (Nasdaq: PLIN) began trading on the Nasdaq exchange on August 14, 2019 at $4.50. Since then, with little publicity or investor awareness, shares have slid as to low as $1.22. However, a recent rally has boosted the stock, which is up 39% from its previous low as of this writing.
Investors interested in emerging growth stocks in solidly growing industries might consider looking closely at China Xiangtai Food Co. (Nasdaq: PLIN). And as always, make sure to perform your own in-depth due diligence.
For more information, please visit China Xiangtai’s website.
7 Jiumaojiu International (9922.HK)
8 Zhou Hei Ya International Holdings (1458.HK)
9 Yihai International Holdings (1579.HK)
16 Muyuan Foods (002714.SZ) 9-16-18 through 3-8-20
17 Huatai Securities forecast of Wens Foods: https://asia.nikkei.com/Business/Food-Beverage/Chinese-pork-producers-on-a-tear-amid-coronavirus-outbreak2
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