Any ASX company that manages to tap into larger overseas markets can see a huge surge in demand for its products, and it's no secret that China is a huge market.
It is also no secret that China's middle class has been growing. In fact, China's middle class exploded from 4% of its population to 31% within the decade starting from 2002. This is a large group of people who now potentially have a disposable income.
So, with this in mind, it is interesting to see how this growth can affect ASX stocks.
Below are 2 ASX companies that have managed to ride the coat tails of the soaring Chinese middle class, banking impressive shareholder returns along the way.
A2 Milk Company Ltd (ASX: A2M)
The a2 Milk Company sources, produces and supplies a2 brand milk and milk-related products such as infant formula in Australia, New Zealand, the United Kingdom, USA and China/other Asian countries. a2 Milk's differentiation comes from its cows, which are selected to naturally only produce the A2 protein and not the A1 protein, with a2 Milk claiming that "[m]any consumers and healthcare professionals report that certain people who experience challenges drinking conventional cows' milk may experience benefits when they switch to a2 Milk™"
Since listing in 2015, a2 milk has been rapidly growing. In its 2019 annual report, it noted a 41.4% rise in total revenue, accompanied by a 45.4% rise in basic earnings per share. This was underpinned by the China/Asian region booking an impressive 73.6% rise in revenue, thanks to its huge demand for infant formula. On a segment basis, infant formula accounted for 46.9% of a2's revenue.
Impressively, a2 also managed to increase its market share in the Chinese infant nutrition market to 6.4%. This growth of market share shows preference for a2's product. Additionally, at only 6.4% it shows that there is still plenty of room to move.
Treasury Wine Estates Ltd (ASX: TWE)
Treasury Wine is one of the world's leading wine companies, supplying wine to more than 100 countries. Recently, however, the Treasury Wine share price has performed poorly. This is largely due to the announcement of CEO Michael Clarke to retire and efforts by Treasury Wines to protect its valuable Penfolds brand from copycats in China.
It is this Chinese market that is generating much of Treasury's growth. In FY19, Treasury experienced its largest regional volume growth in the Asian region at 6.8%, far greater than Treasury's total growth of 2.7%.
Also, the net sales revenue (NSR) for Asia far outperformed other regions, with a constant currency NSR increase of 35.6% compared to 12% for the greater portfolio.
Pleasingly, this growth looks like it could be set to continue, with the Chinese wine consumption 5-year compound annual growth rate forecasted at 9.8%.
Foolish takeaway
The Treasury Wines share price has almost quadrupled in 5 years. Even more impressive is the a2 Milk share price, which is up a staggering 26-fold since its IPO in 2015. I'm not saying that these gains are all thanks to the growth in demand from China and the Asian region, but I do believe it has been a major contributor. Pleasingly, both companies appear to be set up for continued growth in this region.
