Zhang Kun rarely participates in the IPO of Hong Kong stocks! What signal does this send?

On March 6th, Zhang Kun's QDII subscription for 1,000 shares of MIXUE GROUP closed up about 15%. Considering that the E Fund Asia Select QDII Fund has a scale of 3.6 billion yuan, if it were merely a new share strategy, this stock would not constitute a substantial performance boost for Zhang Kun's ultra-large fund products. Given that his participation in the Hong Kong IPO is also a rare operation, it may signal the fund's preparation for a consumer sector layout.

At the same time, as the market's profit-making effect spreads across multiple industries, the E Fund Asia Select Fund managed by Zhang Kun has actually reached a point of balanced position structure. Previously, this QDII was almost entirely directed towards tech stocks and had faded out of most consumer goods heavyweights. By the end of December last year, there was only one consumer goods company left among the top ten stocks, and the food and beverage industry had not appeared in this star QDII's heavy positions for nearly three years. Zhang Kun's first coverage of the milk tea sector through a new share subscription may reflect his thoughts on re-establishing a layout in consumer goods and even the food and beverage industry, with the company's free cash flow potentially becoming a key factor guiding his purchases in the secondary market.

Subscription for 1,000 Shares of MIXUE GROUP

On March 6th, MIXUE GROUP closed up about 15%, with a market value reaching HKD 128.7 billion. Information disclosed by E Fund regarding related transactions shows that five public products under the company were allocated 1,500 shares of MIXUE GROUP, with allocated funds of HKD 300,000. This includes the Hong Kong QDII product E Fund Asia Select Fund managed by top fund manager Zhang Kun, which received an allocation of 1,000 shares, totaling about HKD 200,000, equivalent to approximately RMB 186,000.

It is worth mentioning that the E Fund Asia Select Fund managed by Zhang Kun is a relatively large QDII fund. Previously disclosed information indicates that as of December 30, 2024, the fund's asset scale exceeds 3.6 billion yuan. This large asset scale implies that the 1,000 shares and the subscription amount of 186,000 yuan for MIXUE GROUP will not contribute significantly to the earnings of the E Fund Asia Select Fund, as its position in the fund can be almost negligible.

This means that Zhang Kun's participation in the new share subscription for MIXUE GROUP, especially considering that it is one of the rare instances in recent years where he has participated in the IPO of a Hong Kong-listed company, may indicate his optimism about MIXUE GROUP and even the possibility of buying the stock in the secondary market.

It is noteworthy that although Nayuki's Tea achieved its IPO in Hong Kong in June 2021, marking the first IPO in the milk tea sector of China's capital market, and attracted a large number of fund managers to heavily buy after listing, this did not include the funds managed by Zhang Kun. Based on Zhang Kun's criteria for stock coverage, which almost exclusively targets companies with the largest market share and highest cash flow levels in the industry, the overall competitive landscape of the milk tea sector at that time was brutal, with ongoing low-price marketing. This led Zhang Kun, who prefers stable industry patterns, to refrain from covering related listed companies in the milk tea sector. The recent disclosure of subscription news following MIXUE GROUP's IPO indicates that Zhang Kun, a top fund manager with a preference for new consumption, has finally initiated his first layout in the milk tea sector

After Two Years, "Return" to Food and Beverage

In the QDII fund managed by Zhang Kun, there is actually only one pure consumer goods company left in the heavy positions, while the more specific food and beverage sector has not appeared for two consecutive years.

Industry insiders believe that the subtle allocation of 1,000 shares of MIXUE GROUP in Zhang Kun's QDII fund, which manages 3.6 billion yuan, not only indicates that this large star fund product may have substantial buying demand in the secondary market, but also shows that Zhang Kun's QDII fund is beginning to return to the food and beverage industry. Previously, this QDII fund managed by Zhang Kun mainly held tech stocks amid a backdrop of continued consumer sluggishness.

According to a reporter from Securities Times·Broker China, as of the end of December 2024, among the top ten heavy positions of the E Fund Asia Select Fund, if we exclude its own internet elements, there is only one pure consumer goods company left in this QDII fund. This reflects the continuous sluggishness of the consumer sector, especially the pure consumer goods industry, over the past few years, while the tech sector has been strong and siphoning off funds from consumer funds, forcing many fund managers who prefer consumer goods to continuously reduce their positions in listed consumer goods companies.

This is reflected in the top ten heavy positions of the E Fund Asia Select Fund, which covers popular market sectors such as semiconductors and artificial intelligence. Zhang Kun has almost operated this fund as a technology internet-themed fund product, which somewhat differs from the market's firm optimism about the consumer sector. The only remaining consumer goods company is Prada, but Zhang Kun's strong preference for food and beverage stocks is not reflected in any positions in this QDII fund.

Clearly, within the entire consumer goods sector, food and beverage is one of the categories that has put the most pressure on the performance of consumer fund managers. The last time Zhang Kun included food and beverage stocks in the top ten heavy positions was exactly three years ago in June 2022, when Mengniu Dairy, listed in Hong Kong, was the sixth largest heavy position in the E Fund Asia Select Fund. However, in the third quarter of 2022, Mengniu Dairy was sold by Zhang Kun, and since then, the E Fund Asia Select Fund has not included any heavy positions in food and beverage in its top ten heavy positions.

This information also indicates that when Zhang Kun rarely participates in IPOs of Hong Kong stocks, especially consumer goods companies, after many years, it not only means that the E Fund Asia Select Fund he manages may have buying demand in the secondary market, but also highlights that the E Fund Asia Select Fund, which has been absent from food and beverage heavy positions for two consecutive years, is able to return to positions due to Zhang Kun's perception of changes in the sector's prosperity during a critical window period.

Stock Selection Highlights "Free Cash Flow"

It is worth noting that the MIXUE GROUP covered by Zhang Kun has almost surpassed Starbucks, which public QDII funds have been continuously reducing their positions in, in terms of market capitalization. The leading position and free cash flow are key factors in fund manager Zhang Kun's stock selection.

As of September 30, 2024, MIXUE Ice City has over 45,000 stores, covering 11 countries in China and abroad. The prospectus anticipates a net profit of approximately 4.4 billion yuan in 2024, resulting in a listing PE multiple of 15.9 times, slightly lower than the valuations of its listed peers Industrial Securities pointed out that the company is expected to maintain steady store expansion both domestically and overseas in the future, with the pace of opening stores overseas expected to be faster than that domestically. The overall store efficiency is expected to remain stable, driving continuous revenue growth, while profitability remains industry-leading, with net profit growth exceeding revenue growth.

The prospectus of MIXUE GROUP shows that from 2021 to 2023, MIXUE Ice City achieved revenues of 10.351 billion yuan, 13.576 billion yuan, and 20.302 billion yuan respectively. In the first three quarters of 2024, its revenue reached 18.660 billion yuan, a year-on-year increase of approximately 21.22%, with net profit exceeding the total level of 2023. However, from 2021 to the first three quarters of 2024, MIXUE Ice City derived only 1.9%, 2.0%, 2.0%, and 2.4% of its revenue from franchise fees and related service fees. For example, in the first three quarters of 2024, revenue from the sale of goods and equipment accounted for 97.6% of the company's total revenue, with sales revenue from goods accounting for 94.3% of total revenue.

It is worth noting that the return on equity, free cash flow, and gross profit margin of MIXUE GROUP, covered by Zhang Kun, also meet the stringent requirements of this fund manager. MIXUE GROUP significantly outperforms its industry peers in terms of return on equity and gross profit margin, especially the free cash flow metric displayed by MIXUE GROUP, which is likely to mean that this top fund manager, who just won 1,000 shares of MIXUE GROUP, may use funds to buy in the secondary market.

Recently, Zhang Kun explained his focus on free cash flow metrics in a regular fund report. He stated that for the vast majority of the past time, high-quality growth mainly included outstanding competitive advantages, high return on invested capital (ROIC), and abundant free cash flow. High-quality assets often have valuation premiums, hence low dividend yields. Now, fund managers can find more and more assets that satisfy both high quality and high dividend yield attributes. These companies have achieved stable or continuous growth in net profit and free cash flow through improved operational efficiency in relatively difficult environments, demonstrating their ability to cope with adversity. Many companies also show the ability and willingness to increase returns to shareholders, and are expected to make long-term commitments, which undoubtedly provides a solid basis for long-term investors' returns. Long-term investors can increase their equity stake in high-quality companies over time without making new investments, and firmly hold onto companies with excellent business models, clear industry patterns, and strong competitiveness.

Author of this article: Xu Nuo, Source: [Securities China (ID:gh_0363ffcb9324)](https://mp.weixin.qq.com/s?__biz=MzA3NjM5MjIwOQ==&mid=2652208385&idx=2&sn=6ea9f68c029c7f8940e0a3216fa81efb&chksm=85e8c65e4fed8e21f213d486d334a8f4d4eaec90e33e4a3d84b4f35793da684b7e889ad37c4e&mpshare=1&scene=23&srcid=0308vLWZeclfMdNrfm7k7k3H&sharer_shareinfo=d4c6e67613a452347fcf631ecb634e3a&sharer_shareinfo_first=e5eb2a292ad153f54179768 cc30bde88#rd), Original title: "Zhang Kun Rarely Participates in New Hong Kong Stocks! What Signal?"

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