HONG KONG -- As a boy in China in the 1970s, Jason Zhuang Xiangsong was captivated by comics based on the legendary Monkey King and dreamed of creating a Chinese version of Astro Boy -- a renowned Japanese animated character who flies through the air on rocket-propelled feet.
Now Zhuang, chief executive officer of China Animation Characters Co., has managed to soar high himself. His company had the best-performing initial public offering in Hong Kong last year, returning more than 125 percent to investors between its March debut and the end of the year.
"We are very confident in our business model," Zhuang, 46, a native of Chaozhou in Guangdong province who in 2013 started his company making toys based on cartoons licensed from Japan and has been diversifying into animation-focused amusement centers in malls, filmmaking and virtual-reality games.
Along with China Animation, the next two top-performing consumer-focused companies that went public in Hong Kong last year, lingerie-maker Regina Miracle International Holdings Ltd. and cinema operator Imax China Holding Inc., highlight a shift in Chinese buying habits. They returned 102 percent and 76 percent respectively on the index of Hong Kong IPOs with at least $50 million in market value tracked by Bloomberg.
As Beijing's three-year austerity and anti-graft campaigns curb displays of wealth, rising average wages over three decades have spawned a working and middle-class with more discretionary cash.
"Anti-corruption campaigns hurt high-end luxury consumption, but mid-end luxury is more affordable for the middle class, and it will gain traction in China," said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. "Investors won't neglect the big trend of moving towards a more service- and consumption-driven economy."
There's room for growth. Recreation currently accounts for 9 percent of personal consumption spending in China, compared with 16 percent to 18 percent in the United States, Japan and Korea, Goldman Sachs analysts wrote in a September report.
Millennials -- typically considered to be those born after 1980 -- grew up in a more stable China than their parents and are exposed to Western culture, which "will make them the prime consumer group to drive spending on leisure," the report said, citing sports, travel, media and online gaming as key areas to monetize.
Box office revenue in the country is expected to grow 20 percent a year over the next five years to reach $18.8 billion in 2020, overtaking the U.S. market in 2017, according to Credit Suisse Group. That's benefiting large-screen cinema operator Imax Corp.'s China unit.
"We're very bullish on how the Chinese movie industry is going to evolve," Richard Gelfond, CEO of the Ontario, Canada-based parent company, said in an interview. "I think there are less entertainment options in China than in the U.S., for example, meaning sports leagues, concerts and other things like that."
Imax currently has 268 screens in China, plans to open more than 200 more, and expects to invest as much as $20 million in two Chinese movies a year, according to data provided by the company. Imax has "lots of capital" looking for more opportunities, Gelfond said.
Star Wars: The Force Awakens could gross as much as $230 million in the country, according to Nomura Holdings Co.
China Animation's growth plan focuses on developing animated characters, both for screen and amusement parks. It currently derives more than 90 percent of sales making toys for Japanese animators, and about 9 percent from an amusement park it opened a year ago in a Shanghai shopping mall.
Revenue rose 21 percent to $33 million in the six months ended Sept. 30, the latest period reported. The company is targeting its sales contribution from the theme parks and virtual reality businesses to rise to 50 percent by the end of this year, Zhuang said.
Licensed from Tokyo-based video game-maker Sega Sammy Holdings Inc., its Joypolis indoor theme park touts a digital aquarium and will add a roller coaster featuring animation characters and virtual reality machines.
Zhuang's creation to rival Astro Boy is a purple-haired, singing and dancing virtual pop singer named Violet who has released singles and held performances, including a concert in Shenzhen that sold $600,000 worth of tickets last year, he said. China Animation is currently producing a movie based on the doe-eyed, 3-D cartoon girl, scheduled to hit cinemas this year, he said.
Consumer sectors, including gambling, high-end liquors and luxury gifts, have suffered from President Xi Jinping's crackdown on graft, according to a Morgan Stanley report in December.
Among the large consumer IPOs in Hong Kong, Chow Tai Fook Jewellery Group is languishing at one-third of its offer price, while luxury goods-maker Prada Spa and casino operator MGM China Holdings Ltd. have both plunged more than 35 percent below their 2011 Hong Kong debuts.
While demand in the luxury sector has been negatively affected by anti-graft activities, "it is still unclear whether we have seen the bottom yet," Morgan Stanley analysts, including Louise Singlehurst, wrote in a Dec. 15 report.
High-end lingerie could be regarded as safe from scrutiny as it's not used as a gift in return for official favors, and even gem-encrusted bras are generally not worn to be shown in public. More Chinese consumers prefer branded intimate wear now, because of rising living standards and income levels, according to consultancy Frost & Sullivan's president of Greater China, Neil Wong.
The lingerie market in China has been growing in the double digits since 2010 and exceeded $20 billion as of 2014, the consultancy said.
That's a boon for Hong Kong-based Regina Miracle, whose factory in Shenzhen produces lingerie for premium brands such as Victoria's Secret, Calvin Klein and Under Armour. Its October public offering made Chairman Hung Yau Lit a billionaire.
"By definition it's not for ostentation, it's not to show off," said John Hooks, director of high-end Italian lingerie-maker La Perla, which has eight Chinese boutiques and plans to open as many as four more by the end of 2017. "We're not really affected by a lot of the more public clampdowns on conspicuous consumption."
Information for this article was contributed by Lisa Pham of Bloomberg News.
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