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Beer and cars fuel optimism for Asian corporate profits

Increased consumer spending puts Nikkei Asia300 companies on track for another record year

A small SUV that Tata Motors released in 2017 is a hot item among Indian drivers.   © Reuters

SHANGHAI -- The rising tide of Asian consumption is lifting many constituents of the Nikkei Asia300, the latest profit projections show.

For fiscal 2018, the aggregate net profit of the bulk of companies on the list is forecast to set a second straight annual record. The figure is expected to rise 18% on the year, to three times the level seen a decade earlier.

The outlook reflects analysts' average estimates and includes 283 companies for which comparable profit figures years were available. Consumer goods companies and automakers, in particular, are enjoying strong growth thanks to increased middle-class spending.

One company riding that wave is China Resources Beer, the country's largest brewer. At the end of March, it released Yongchuang Tianya beer, an upscale brew priced four times higher than the company's mainstay brand. "It will be the first brand for our policy of offering high-quality products," chief executive Hou Xiaohai said.

Chinese drinkers are increasingly willing to spend more for quality. At restaurants in Shanghai and Beijing, craft beer that sells for 100 yuan ($15.70) a glass is popular among the younger set. China Resources Beer is responding by expanding its high-end lineup, hitherto smaller than those of its rivals. So far so good: Market analysts estimate the company's net profit will surge 81% this fiscal year.

Over in Thailand, CP All is also benefiting from brisk consumer spending. The operator of 7-Eleven convenience stores in the country is pulling in shoppers with a broad range of goods, compared with local retailers, and aims to expand to 13,000 stores by 2021. Already, with around 11,000 locations, Thailand is home to the world's second-largest 7-Eleven chain, after Japan.

Thailand's per capita gross domestic product was $6,590 in 2017, according to the International Monetary Fund. In Bangkok, however, the figure had reached about $16,000 back in 2015 -- a level comparable with developed countries.

In India, meanwhile, per capita GDP is projected to exceed $2,000 for the first time in 2018,approaching $3000, a level at which sales of electoric appliances and cars are said to accelerate.

Tata Motors is already reaping the benefits. The company is selling large volumes of a small SUV released in 2017, which appeals to Indian drivers who often contend with poor road conditions.

The Indian automaker has had its struggles. The Nano, a low-priced minicar, was a bust. But now analysts see Tata Motors' net profit rising as much as 70% for fiscal 2018.

While some companies are cashing in on demand in their domestic markets, others are achieving results regionally.

Gree Electric Appliances, a Chinese air conditioner maker, saw shipments to the rest of Asia account for 23% of its total exports in 2015. With its reasonable prices, the company is giving global players like Japan's Daikin Industries a run for their money in a sweltering region.

Stock investors like what they see. The Nikkei Asia300, which tracks A300 companies, was up 20% on the year at the end of April, putting it in record territory. The increase exceeded the Nikkei Stock Average's 17% gain and the Dow Jones Industrial Average's 15% rise.

Improvement in the investment environment is also buoying stocks. U.S. financial tools provider MSCI is adding hundreds of Chinese stocks to its emerging market indexes, effective June 1.

Spreading protectionism and geopolitical risks are cause for concern.

South Korea's Kia Motors is on track to double its profit in 2018. But this is largely a correction from a sharp sales drop in China in 2017, as relations between Beijing and Seoul soured over the deployment of a U.S. missile defense system on South Korean soil.

If U.S.-China trade friction intensifies, it could put a damper on Asian demand. Rising U.S. interest rates are another risk factor, since they could pull money out of the Asian market.

Asia's growth, itself, creates a challenge in the form of increased competition. Major Japanese and Western companies could put more pressure on Asian companies as they move to capitalize on opportunities across the region.

The Asia300 is Nikkei's exclusive list of the biggest and fastest-growing companies from 11 economies across the continent. Companies are picked based on market capitalization, with consideration also given to growth potential and geographic balance to highlight Southeast Asian economies in particular. 

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