Against the backdrop of Sino-US trade war, developing Chinese domestic demand is a feasible strategy to balance China’s economic development. Among the consumer stocks, Hengan International (1044.HK), Shenzhou International (2313.HK) Mengniu Diary (2319.HK) are 3 strong domestic brands, which are favoured by many investors.

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#1 Hengan International Group Company Limited (1044.HK)

Hengan is a leading manufacturer of daily care products in China. The company produces and sells paper products, such as paper towels, and women’s care products, such as sanitary napkins. Within the sanitary napkins space, there is a move towards higher quality products. Hengan has introduced more premium products which aim to improve users’ comfort. The stock is currently trading at a P/E ratio of around 15 times, below its historical levels which were usually above 20 times. Its dividend yield is also close to 5%, a respectable achievement for a company still in a growing phase.

With domestic consumption rising, Hengan is poised to benefit from increased spending on napkins, paper, and other essentials. Hengan has three major divisions: sanitary napkin products, disposable diaper products, and tissue paper products.

The group has grown from strength to strength over the years, releasing new products within each major division every year. The group has established more than 40 manufacturing facilities in 15 provinces, and these are underpinned by a robust nationwide sales network that involves more than 3,000 distributors.

#2 Shenzhou International Group Holdings Ltd (2313.HK) 

Shenzhou International Group Holdings Ltdis a vertically integrated clothing manufacturer. It is the largest vertically integrated knitwear manufacturer in China. Its clients include Uniqlo, Adidas, and Nike. The company has demonstrated competitive advantage by being able to achieve higher operating and net margins than non-vertically integrated players. The company has also been raising dividends annually from HKD 1 per share in FY 2014 to HKD 1.75 per share in 2018. With a rising middle-income class globally, there remains a lot of room for growth.

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#3 Mengniu Dairy (2319.HK)

China Mengniu Dairy Company Limited (2319.HK) manufactures and distributes quality dairy products in China. The group is one of the leading dairy product manufacturers in China with its trademark MENGNIU brand, and the group’s diversified portfolio also includes products such as liquid milk, ice cream, formula milk, and yogurt.

As milk is a staple food for babies and young children, China Mengniu’s business should benefit greatly from the easing of the one-child policy. As more and more parents are able to afford formula milk, the group’s formula milk and liquid milk divisions will ultimately benefit.

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