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Yum Brands Inc., owner of KFC, earned more than 50 per cent of its revenue from China last year. (KIM KYUNG-HOON/REUTERS)
Yum Brands Inc., owner of KFC, earned more than 50 per cent of its revenue from China last year. (KIM KYUNG-HOON/REUTERS)

NUMBER CRUNCHER

Eighteen ways to play China’s latest resurgence Add to ...

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients. michael@wickhaminvestments.com

What are we looking for?

The International Monetary Fund reported that China is regaining traction after more than two years of cooling growth. This week, my colleague Rob Belanger and I take a look at North American companies that earn a portion of their revenue from China.

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The screen

We started with companies with more than $1-billion in market capitalization.

We are showing the percentage of revenue earned from China, and whether that revenue has grown or declined over the past three years.

Operating margin is a measurement of what portion of a company’s revenue is left over after paying for variable costs, such as wages and inventory. If a company has an operating margin of 10 per cent, it means that it makes 10 cents before interest and taxes for every dollar of sales.

Price-to-free-cash-flow (P/FCF) is a valuation metric that compares a company’s market price to its level of annual free cash flow, which is operating cash flow reduced by capital expenditures. The higher the number, the more overvalued the company is considered.

Return on equity (ROE) shows whether a company is a profit creator or a profit burner, and if it is growing profit without pouring new capital into the business. It indicates how much profit the company generates with the money shareholders have invested. A high number is favoured.

What did we find?

  • Yum Brands Inc. earned more than 50 per cent of its revenue from China last year. The company has 6,000 restaurants in 850 Chinese cities.
  • Corning Inc. is a world leader in specialty glass and ceramics used in the electronics, telecommunications and life sciences industries. Since 2010, the firm has more than doubled its revenue from China.
  • Micron Technology Inc. designs and builds some of the world’s most advanced memory and semiconductor technologies, earning nearly 36 per cent of its revenue in China last year. The company has one of the worst operating margins and one of the worst P/FCF ratios, and is the only company with a negative return on equity – yet, the stock has more than doubled in the past 12 months.
  • Qualcomm Inc. bills itself as the world’s largest provider of wireless chip-set and software technology. Chinese revenue has grown more than 12 percentage points between 2010 and 2012, and the company scores well in all of our categories.

Investors should contact an investment professional or conduct further research before investing.

 

Companies with a significant portion of their revenue from China

Company Ticker Market
Cap
($-bil)
% of
Sales
2012
(China)
% of
Sales
2011
(China)
% of
Sales
2010
(China)
Intel Corp. INTC-Q 119.85 15.56 15.03 16.49
Qualcomm Inc. QCOM-Q 117.87 41.69 31.72 29.08
Boeing Co. BA-N 91.6 7.45 6.95 4.83
Danaher Corp. DHR-N 50.13 7.91 7.04 5.97
Yum Brands Inc. YUM-N 29.68 50.6 44.08 36.45
TE Connectivity TEL-N 22.2 16.26 15.76 15.68
Corning Inc. GLW-N 22.01 26.25 19.65 12.5
Mosaic Co. MOS-N 19.81 1.98 1.23 1.3
Agilent Tech Inc. A-N 17.36 15.72 15.65 13.67
Micron Tech. MU-Q 17.25 35.66 33.94 38.84
Motorola Solutions MSI-N 16.21 3.95 3.93 4.03
Analog Devices ADI-Q 14.79 12.63 12.05 18.41
Xilinx Inc. XLNX-Q 12.17 19.78 18.66 19.25
BorgWarner Inc. BWA-N 11.99 6.95 5.86 5.85
PerkinElmer Inc. PKI-N 4.22 10.23 8.55 7.72
West Fraser Timber WFT-T 3.81 16.52 12.28 11.66
CAE Inc. CAE-T 2.85 7.34 6.46 5.46
Celestica Inc. CLS-T 2.01 17 14 14

All currencies are US$. Source: Bloomberg and Wickham Investment Counsel Inc.

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  • GLW-N
  • MU-Q
  • INTC-Q
  • QCOM-Q
  • BA-N
  • DHR-N
  • YUM-N
  • TEL-N
  • MOS-N
  • A-N
  • MSI-N
  • ADI-Q
  • XLNX-Q
  • BWA-N
  • PKI-N
  • WFT-T
  • CAE-T
  • CLS-T
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