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Interview | Past tense of income and harvest Jian Zhijian and Hong Longquan teach how to discover growth stocks early

2020-10-31T02:08:49.130Z

With the rise of the "home economy" and "epidemic economy", growth stocks led by technology, medicine, and consumption have outperformed the market significantly this year. Although valuations are already exaggerated, it does not mean that the market has no new opportunities. Centaline Asset Management Investment



Special interview

Written by: Ou Jiajun

2020-10-31 07:00

Last update date: 2020-10-31 10:02

With the rise of the "home economy" and "epidemic economy", growth stocks led by technology, medicine, and consumption have outperformed the market significantly this year. Although valuations are already exaggerated, it does not mean that the market has no new opportunities.

The investment directors of Centaline Asset Management (Michael) and Hong Longquan (Larry) accepted an exclusive interview with "Hong Kong 01" and talked about the process and tips for discovering growth stocks. They believe that the investment style of the market has changed and investment thinking needs to be changed to keep up with the times .

Looking for growth stocks must get rid of old economic thinking

Jian Zhijian and Hong Longquan, who founded the investment brand "Boli" together and managed investment portfolios for clients, are good at analyzing and identifying growth stocks and making mid- and long-term investments. Their funds have significantly outperformed the market this year. It is not simple.

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Based on the changes in the investment style of the stock market, the duo published the book "Aiming at the New Generation of Growth Stocks" to share with readers how to discover growth stocks, their valuation methods and investment value.

The two emphasized that to discover new-generation growth stocks, one must get rid of old economic thinking.

Jian Zhijian said that in the past, investors were fond of public stocks and real estate trusts for "income-income", but the local economy has deteriorated since last year. These companies have been unable to maintain dividends. Their valuations have been lowered accordingly, and their share prices have suffered a double blow. But they often expect the company to repeat the past growth story, stick to the old investment method, and even suffer losses.

He used the banking industry of HSBC (0005) and Hang Seng (0011) as examples. The industry environment has changed, not only competing with peers, but also facing the challenge of virtual banks. These emerging Internet rivals have more and more services. It is difficult for banks to perform well in their performance and stock prices.

He believes that the market orientation has shifted to growth stocks, "not slowly growing before, but stocks with high growth and high certainty."

(From left) Chian Zhijian, Investment Director of Centaline Asset Management and Longquan Hong published the book "Targeting the New Generation of Growth Stocks", sharing with readers how to discover growth stocks.

(Photo by Ou Jiajun)

Growth companies "Never stop"

The three major areas that the two focused on are common sectors of growth stocks, including the new economy, major consumption and major healthcare, which performed very well this year.

When asked about what investors are most concerned about, how to find growth stocks early, Hong Longquan replied: "At the beginning, I will think about which industries have growth prospects, how many potential markets (TAM, Total Addressable Market), and fast-growing industries. Easy, and then combine the company's own quality, company culture, and management capabilities."

Just like Yihai International (1579), the Boli investment portfolio managed by the two began to absorb at the level of 10 to 20 yuan. It reached a high of 134.1 yuan in September this year. It has risen dozens of times since its listing in July 2016 at an IPO price of 3.3 yuan. , The market value is promoted to the club of 100 billion yuan.

Yihai is a hot pot base material supplier for Haidilao (6862). Its products are divided into hot pot base material, Chinese compound seasoning and instant fast food.

Optimistic about Yihai Hotpot Track

Hong Longquan said that he is optimistic that Yihai is backed by the Haidilao brand, and hot pot is a huge market with a huge "track" for compound condiments and instant food. "My parents used to know how to cook, but now I go to the supermarket to buy a pack of sauce. Everyone emphasizes speed, quickness and convenience."

The second is that Yihai’s corporate culture has the shadow of Haidilao. For example, the employee incentive mechanism encourages employees to propose new products. "You can talk to the management. If the management thinks it is okay, they will go to trial production. If the production succeeds and sells well, the employees You can enjoy lifelong benefits. These things make the company so competitive, explaining why it can continue to introduce new ones."

Yihai’s share price rose sharply, partly because of the hot sales of its star product self-heating small hot pot. Hong Longquan pointed out that Yihai’s self-heating small hot pot is selling well, accounting for nearly 20% of its revenue. However, Yihai’s management does not just think about protecting the city. "It’s unrealistic to keep the products selling better and lasting for a long time. Because the consumer market will change and new competitors will appear. The company is not particularly concerned about what it has now, but about how to add new products. Enriching product lines. Yihai will set up a factory in Thailand and cooperate with manufacturers in the United States. It is the never-ending growth company we are looking for."

The two are optimistic about Yihai's hot pot track.

(Profile picture)

Management track record success rate

Jian Zhijian added that to discover growth stocks early, you can look at things around you and read more, "How can the self-heating small hot pot rise? There are a lot of free information, and continue to explore, and gradually it will become deeper and deeper, such as industry data. , User evaluation, step by step, and slowly build confidence.” In addition, you can pay attention to how management creates value. For example, Meituan (3690) CEO Wang Xing succeeds in business because he knows how to move and create different values. In addition to food delivery and travel, Meituan is now launching Meituan Foods. At the same time, it continues to think about how to improve the efficiency of food delivery. "The management who continues to create value can create another business even if the growth of one business slows down, keeping the company's engine alive."

The moat can be judged, but how do ordinary investors observe management?

Hong Longquan said that with the advancement of technology, even if there are some differences between the information held by ordinary investors and institutional investors, the difference is far from 10 years ago. Because there is diversified information on the Internet, the key is whether investors pay accordingly. Time is spent on researching the company, rather than looking at the stock price movement. "How did Meituan come out? Why did Wang Xing succeed when a thousand people did group buying? Why did it finally buy Dianping? By analyzing what the management did in the past. Every action helps predict the future when doing something new, what is the chance of success?"

Unpredictable market trends focus on profitable growth

However, increasing the stock-to-earnings ratio often exceeds one hundred times. How to ensure that there is a sufficient margin of safety after buying?

Hong Longquan said that the ideal situation for buying stocks is "Davis Double Click" (to enjoy earnings per share and valuation enhancement). At present, the valuation of individual companies is indeed not cheap, but the valuation depends on the market trend, and non-investors can control it. Therefore, they have been only concerned about the company's profit growth and whether the business development has met their original expectations, and they have selected long-term viable companies.

He gave an example: Tencent's (0700) price-earnings ratio will not suddenly rise to 60 times. The rising wave will continue for many years, mainly driven by earnings per share.

Jian Zhijian also pointed out that it is difficult to estimate the valuation level given by the market. However, assuming that the market lowers the valuation of a company, the stock price may fall in the initial stage, but as long as the company maintains high profit growth, investors can still enjoy the long-term stock price increase. And this is the reason for looking for high-growth companies.

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Source: hk1

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