Marubeni is well diversified in China

Recently I read a research paper from Macquarie and I was surprised to read that Marubeni was well diversified in China. I always saw Marubeni as commodity play and as you will see later on, it is more than that. Nonetheless, Marubeni’s stock price is still correlated with commodity prices (iron-ore, steel, gold …).

Marubeni’s presence in China dates back to 1979 and the first offices were set up in Beijing, Shanghai and Guangzhou. In 1993 China’s government relaxed foreign investment restriction, which coincided with Marubeni next big move in China. Today, Marubeni has 15 offices in 13 cities and employs more than 400 local workers and have about 100 employees with Japanese contracts. The company invests about $600 million a year in China, which suggests the management sees China has an important market for the coming years.

The company has also invested in more than 100 companies of which 45 are consolidated. Of course, as it is often the case in China, Marubeni’s investments result from existing trading relationships. Marubeni’s Chemical and lifestyle division employed most of the Chinese workers but the food division is closing up fast. The food business is being developed from upstream imports of soybeans and other bulk foods down to consumer facing businesses such as the Christine Bakery.

Marubeni took a 16,2% stake in Christine Bakery in 2008 (owns by Shanghai Christine Foodstuff). Today Shanghai Christine operates some 800 outlets in Shanghai and commands a 41% market share for baked goods in Shanghai. Shanghai Christine’s strategy revolves around bread as the management believes Chinese are changing their breakfast and lunch habits to bread based meals. Today only 10% of Chinese eat bread at breakfast and 5% at lunch. Just to give you an idea of the potential in that market: Japan’s consumption of floor is 6x bigger than China’s.

Shanghai Christine will use Marubeni’s expertise as Japan’s leading importer of coffee to develop its newly created Christine Café. Marubeni owns 75% of this new concept stores where Aroma Coffee is sold.

Finally Shanghai Christine is expected to be listed on the Taiwan stock exchange in the coming months. The company prefers Taiwan over Shanghai or Hong Kong due to the long waiting list to be listed on the Chinese financial markets.

Marubeni also has a 30% stake in a wine maker, Jiangsu Saint Fruit Winery. China’s wine consumption is really low with only 0,4L per person while France has 50L per person and the US 8L per person. Given the rapid expansion of the Chinese middle class, one can assume that wine consumption will go up as wine is a luxury good. Wine is also seen as product with health quality, especially red wine (90% of wine sold in China) due to its high level of phenols.

Shenhua Chemical is another company Marubeni is invested in. The company was established in 1995 and makes SBR and other products mainly for tires. 80% of sales are tire-related, with athletic shoes representing the better part of the remaining 20%. The company supplies all the Chinese tire makers as well as foreign tire makers affiliates based in China like Bridgestone, Michelin or Dunlop. It is listed company. Like many chemical stocks, the biggest source of volatility in profits is the oil price.

Since 2001 Marubeni has formed a joined venture (50:50) with Itochu to produce steel products. They operate six offices and eight main steel service centers. The company is surfing on the strong demand for steel in China and does not seem to believe there are any excess inventories at that time. China’s demand for auto has been one of the main factors for the strong demand for steel in mainland China this year.

Daiwa House is another partner of Marubeni. For more than 20 years Marubeni and Daiwa House have been invested in China thru gated communities like Hong Qiao villas or condominiums like the ones of Luming Garden. Marubeni is also partner with Shanghai House on a ¥4.5 billion Kirin Garden project (luxury housing). The average house sells for more than $1 million.

Finally Marubeni has created affiliates in China covering logistics and trucking industries thru Shanghai Baihong Trading Co and (Marubeni’s stake 49%) and Shanghai Jiaoyun Rihong International Logistics Corp. (34% held by Marubeni). Both companies are focused on distribution goods within China.

My goal here was to give a detail overview of Marubeni’s business in China. However, Marubeni is not only about China. Actually China represents only a small percentage of the company’s revenues. I find it just important for you investor to know that Marubeni is well implanted in China thru a lot of different businesses.