US firms lead in China

05 April 2012

BEIJING: Yum Brands and Mead Johnson are among the companies best placed to make progress in China, according to analysis by Bloomberg.

Bloomberg, the business news service, assessed 113 firms based in China or drawing at least 25% of revenues from the country. It divided overall stock returns by daily variations in their share prices to determine the "income per unit of risk" for investors.

Yum Brands, the fast-food specialist, took the top spot for the last year, gaining 1.63%, ahead of Mead Johnson, the infant formula manufacturer, on 1.58%. These organisations are seen as having several advantages.

"They have a very strong foreign brand and at the same time they don't get 100% of their revenue from China, just the growth part of it," Jeff Papp, senior analyst at Oberweis Asset Management, said. "They're able to tap into China as an additional source of growth at the minimum risk."

Yum Brands entered China some 25 years ago, and now runs approximately 4,500 branches of KFC and Pizza Hut locally, with plans to open 600 more in 2012.

Increasing affluence, urbanisation and changing dining habits are all benefitting the company, with Chinese organic sales improving by 19% in 2011, when US figures fell by 1%.

"We have a long runway for growth in China and other emerging markets," Steve Schmitt, Yum's director of investor relations, said. "With more than half of our operating profit coming from China and 72 other emerging countries, Yum! Brands' growth story is about China and a whole lot more."

Mead Johnson, which makes infant formula, was present in 241 Chinese cities in 2011, and will add another 50 during 2012. It achieved 40% growth last year, partly as shoppers switched to brands like Enfamil as safety scandals hit indigenous rivals.

Euromonitor, the research group, has estimated that the value of China's babyfood sector will rise from $9.8bn in 2011 to $20bn by 2015. Mead Johnson made $1.1bn in the Asian nation last year, and it could become the firm's biggest market in 2012.

"Strong brand equity is very important in China because of the product safety issues," Ildiko Szalai, a Euromonitor analyst said, reflecting the fact that 75% of Mead Johnson's growth in China last year was due to market share gains.

Among the Chinese companies assessed, China Mobile, the telecoms giant, and Melco Crown Entertainment, the casino group, led the pack with both posting risk-adjusted returns of 1.1%.

Data sourced from Bloomberg; additional content by Warc staff