Ignoring the fluctuation of a shares, it rose steadily for 8 years.
In recent days, the stock market has been turbulent. The gem index and Shenzhen composite index have hit new lows in the year, and the gem index has experienced seven days of continuous overcast. After the State Council financial conference maintained the tone of stability, the Federal Reserve also announced the expected interest rate increase of 25 basis points in the early morning, and the market finally ushered in a rebound, stabilizing market sentiment to a certain extent.
In 2021, blue chips in China’s A-share market were collectively silenced. The biggest pullback of Kweichow Moutai Co.Ltd(600519) ( Kweichow Moutai Co.Ltd(600519) . SH) was nearly 40%. The biggest pullback of Muyuan Foods Co.Ltd(002714) ( Muyuan Foods Co.Ltd(002714) . SZ) and S.F.Holding Co.Ltd(002352) ( S.F.Holding Co.Ltd(002352) . SZ) were also “tragic”, with the largest pullback of share prices exceeding 50%, almost halving; The former big white horse, A-share core assets, machinery Mao and crane leader Sany Heavy Industry Co.Ltd(600031) ( Sany Heavy Industry Co.Ltd(600031) . SH) are still experiencing endless correction. The share price has retreated more than 60% from the high point, and the market value has already fallen below 200 billion.
The largest pullback (%) of listed companies with a market value of more than 500 billion yuan (data source: choice)
Trend of Coca Cola in recent two years (data source: choice)
In contrast to the large cap value stocks of US stocks, take Coca Cola as an example. Although the black swan incident of covid-19 epidemic occurred at the beginning of 2020, and the share price fell like a cliff, it is obvious that with the gradual easing of panic, the share price gradually returned to the rising channel. According to statistics, the share price of Coca Cola company has increased by 114789% in recent 30 years, with an annualized yield of more than 26% and stable dividends every quarter, The most important thing is that during the global inflation and economic downturn in the past year, the maximum pullback of the company is only about 12%. In the long run, it can be used as the core target of asset allocation in the global consumer sector and proper value investment.
Under the economic downturn and the spread of short sentiment, does a share have core assetsP align = “center” 01 p align = “center” What are core assets
“Core assets” are enterprises with core competitiveness. These include high-quality blue chip leaders in traditional industries, such as Kweichow Moutai Co.Ltd(600519) , Muyuan Foods Co.Ltd(002714) , Petrochina Company Limited(601857) and others, as well as leaders of the best growth stocks in the field of scientific and technological innovation and industrial upgrading, such as Contemporary Amperex Technology Co.Limited(300750) , Byd Company Limited(002594) , etc.
It can even be said that Chinese enterprises whose business areas are all over the world and have certain competitive advantages compared with peers at the global level can also be recognized as China’s core assets.
The first is the advantage of endogenous growth momentum, that is, the companies with core competitiveness and moat that Buffett focuses on are not stocks that rely solely on drawing cakes and telling stories. The underlying logic here is that no matter how the medium and long-term economic cycle or short-term market hot spots and hot money flow, they will not affect the fundamental changes of the company.
Secondly, the bottom logic is that the fundamentals are reliable and stable, with good profitability as a guarantee.
In short, it is an asset target that can resist inflation and outperform economic growth in the economic upward cycle and resist risk and beating in the economic downward cycle.
Take Coca Cola as an example. Firstly, in terms of the company’s market share, Coca Cola leads the soft drink market with a global share of more than 15%. At the same time, the company’s business model is simple and its profit model is stable. The moat of the consumer industry is dominated by brand value, while the “Coca Cola” brand still ranks first in brand influence in 2020.
Secondly, in terms of fundamentals, according to the company’s annual report in 2021, the company’s annual revenue was 38.7 billion US dollars and net profit was 9.8 billion US dollars, with a year-on-year increase of 26.1% and 17.1% respectively. In recent five years, it has stabilized at about 40 billion revenue, but the net profit has increased year by year, reaching a five-year high in 2021; At the same time, Coca Cola’s gross profit margin has been stable at more than 60% throughout the year, the net profit margin can be stable at 24% – 25% from 2019, the return on net assets in recent three years is about 45%, and the dividend rate is about 2.8%p align=”center”>02
China Yangtze Power Co.Ltd(600900)
Of course, A-Shares still have high-quality core assets, even better than century old enterprises such as Coca Cola.
Since entering the rising channel in April 2014, the share price of China Yangtze Power Co.Ltd(600900) has maintained the state of “Flying Southeast” for eight years, and the share price has increased five times so far. Is it a core asset?
First, let’s look at China Yangtze Power Co.Ltd(600900) ‘s core competitiveness and moat. It is the largest listed hydropower company in the world. By the end of 2020, it has all the power generation assets of the Three Gorges, Gezhouba, Xiluodu and Xiangjiaba power stations in the main stream of the Yangtze River. By the end of 2020, it has a total installed capacity of 45.495 million KW, accounting for 12.77% of the national hydropower installed capacity, ranking first in the global hydropower industry.
In 2021, the two hydropower stations in Wudongde and Baihetan were merged by means of asset injection and upgraded to “joint commissioning of six reservoirs”. After the completion of the transaction, China Yangtze Power Co.Ltd(600900) of China’s hydropower installed capacity increased by 57.6% from 45.5 million kW to 71.7 million KW, and the average annual power generation is expected to increase from about 200 billion kwh to more than 300 billion kwh.
The profit model of hydropower station has simple logic. It uses the water level drop to cooperate with the hydro generator to generate power, transmit the power to the substation and uniformly connect to the grid for power supply.
But simplicity does not mean easy imitation. The first advantage of this business model lies in its uniqueness and scarcity. The geographical advantage of the Yangtze River Basin is the natural moat; Secondly, cost advantage. According to the calculation, the cost per kilowatt hour of electricity is 0.1-0.2 yuan / kWh for hydropower, 0.3-0.4 yuan / kWh for thermal power, 0.3-0.4 yuan / kWh for nuclear power, and more than 0.6 yuan / kWh for wind power and photovoltaic; Then there is the advantage of raw materials, with extremely low raw material cost and no supply restriction, which is only affected by the water inflow from the upstream.
More importantly, the theme of the company is strong, which is in line with the policy orientation and market trend. Under the background of “double carbon”, hydropower is a relatively mature green energy at present, and the coexistence of wind, light and hydropower will be the trend of green power in the future. However, according to statistics, in 2021, wind power and photovoltaic power generation accounted for about 10% of the total power generation in China, while hydropower power generation exceeded 16%; Although the growth of hydropower generation is poor, it focuses on stability and low cost. With the rise of electricity price, the cost advantage of hydropower will be more obvious.
Looking at the fundamentals of the company, the profitability of the company is stable, the gross profit margin is maintained at more than 60%, the net profit margin is more than 40%, and the roe is maintained at about 15% throughout the year.
China Yangtze Power Co.Ltd(600900) profitability (data source: Annual Report)
In terms of performance, the company achieved a total operating revenue of 55.69 billion yuan in 2021, a year-on-year decrease of 3.62%; The net profit attributable to the shareholders of the parent company was 26.447 billion yuan, a year-on-year increase of 0.57%; It can be seen that the hydropower sector is currently entering the stock space, and there must be some resistance to performance growth, but the highlight of the company is the stable high dividend rate under the condition of stable performance China Yangtze Power Co.Ltd(600900) in recent three years, the dividend yield has been stable at more than 3.5%, and the defense attribute of class bonds is very obvious, with the dividend proportion of more than 50% over the years.
China Yangtze Power Co.Ltd(600900) dividend yield (data source: Annual Report)
In terms of cash flow, the company’s net cash flow from operating activities remained above 35 billion all year round after 2016, exceeding the net profit, and exceeded 40 billion in 2020. It can be seen that the cash flow of the company is stable, and with the growth of profitability, the cash flow increases year by year.
China Yangtze Power Co.Ltd(600900) operating cash flow (data source: Annual Report)
In addition to the hydropower sector, China Yangtze Power Co.Ltd(600900) backed by the Three Gorges group and relying on the channels of hydropower accumulation, is also gradually expanding the fields of wind power and energy storage. With the development of “double carbon”, it can enjoy the dividends of the new energy integrated comprehensive development platform, and wind power may become a new business growth point of the company in the future.
The current China Yangtze Power Co.Ltd(600900) from the perspective of market performance and fundamentals, it should be regarded as an excellent core asset target in a shares. At present, it has a market value of more than 500 billion, has a platform of green power and new energy, and belongs to a large-scale blue chip with steady growth of bond like type. It does not need large-scale expenditure to maintain performance growth. What is important is that the profits received are also returned to the operating cash flow, The profit growth rate can basically resist inflation and is the subject of stable defensive assets.
