Chinese food delivery apps deliver for Premium China Fund
When it comes to identifying investment opportunities in China, even something as obscure as food delivery, nothing beats local knowledge which is why Premium China Fund’s holdings has added fast-growing but still relatively obscure company Meituan Dianping to its portfolio.
While many investors in China have looked for opportune technology plays, Premium China has looked to Meituan Dianping because while it is a tech stock it reflects not only China’s growing embrace of the convenient “uber eats” concept but also the growth momentum of China’s second and third tier cities.
According to PCFM Chief Investment Specialist Jonathan Wu, the rapid growth already exhibited by Meituan Dianping made it an easy addition as a top five holding with the firm’s marquee Premium China Fund as well as a holding in the broader Premium Asia Fund.
“It is a tech company, but one with a difference in terms of the breadth of its offering and its ongoing growth potential,” Wu said.
Meituan is all about food delivery while Dianping is focused on restaurant reviews but Wu notes that in just the first half of last year, Meituan Dinaping recorded over $33.8 billion RMB (7.12 bn AUD) in transactions for more than 350 million people through its platform.
He said that the strength of the firm lay in its food and beverage focus and its geographic reach, most notably the fact that it offers services in 2,800 different cities.
Wu said Premium China were particularly attracted to Meituan’s dominance in the food delivery arena.
“For the last 2-3 years food delivery has been very competitive in China and we’ve watched carefully while Meituan grew its market share,” he said. “Other delivery companies have recently been cutting subsidies and so their prices have been going up, leaving Meituan to further grow its market share.”
Wu said Premium China had been rewarded for its investment in Meituan Dianping because of its rising share price.
“And notwithstanding that valuations have gone up, we are still comfortable with our holding,” he said.