jpm-0702-china consumer what's in store for 2h

www.morganmarkets.com

Asia Pacific Equity Research02 July 2012

China ConsumerWhat's in store for 2H?

China, Hong Kong, Singapore, Luxembourg

Consumer

Ebru Sener Kurumlu AC

(852) 2800-8521

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

Jessica Hong AC

(852) 2800-8559

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

Kshitij Gupta

(91-22) 6157-3283

[email protected]

J.P. Morgan India Private Limited

See page 158 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Following a weak 1Q and stable 2Q, retailers’ sales performance isgenerally tracking in line with our estimates, but it is unlikely to reach corporates’ expectations of a rebound in 2H. While we do not see a big risk to our sales estimates, cost pressure could be slightly worse than we thought, and we lower our 2012 earnings estimates for the discretionary space on average by 5% to account for this. On the staples front we are not making across-the-board changes to estimates but have some stock-specific revisions. We do expect 1H results to be weak for the retail space and 3Q SSSG to not show a big recovery, but these are all well flagged by now and in the price, in our view. We do not expect further negative news on the retail front and believe 4Q12 and 1Q13 will show a sequential improvement. We reiterate our view that discretionary space at 12x 1-yr forward P/E is compelling. Staples valuations look stretched; the space is trading at 20x 1-yr forward P/E with high expectations built into earnings. Retailers earnings lowered on cost pressures: SSSG for discretionary

stabilized at a high-single-digit rate in 2Q. Based on recent activity on the ground, 3Q is not like to show a strong recovery. This is no surprise to us, as we have already been building in conservative sales estimates for 2H. However we think cost pressures could be slightly worse than we thought and hence cut our earnings estimates by 5% on average.

Retailers top picks: We focus on companies offering strong, sustainable long-term growth. Our top picks among department stores are Golden Eagle and Lifestyle (upgraded to OW). Among apparel and shoe retailers our top picks are Belle, Trinity, and I.T. Limited. We continue to be cautious on the sportswear sector, Parkson and Ports Design.

In staples, stock-selective earnings revisions: In the staples universewe keep most of our estimates unchanged. However, we increase our Want Want earnings estimates by 10% to account for lower-than-expected milk powder prices, and we lower our Ajisen, Mengniu and Tibet Water earnings estimates by 50%, 7% and 21%.

Staples top picks: Given stretched valuations we remain cautious on staples and have an UW rating on Hengan, Tsingtao, UPC, and Yurun. Our top picks in the space are China Foods and Mengniu. On Mengniu in the short term, sentiment is likely to be weak as the company will see a23% decline in 1H12 net profit, based on our estimates. We see short-term share price weakness as a buying opportunity, as a key attraction of Mengniu is its multi-year margin expansion potential driven by product mix improvement. We rate China Foods OW as we are positive on the margin improvement on the back of product mix upgrades in the wine division. Further earnings upside in 2013 could come from potential acquisitions – the company is looking into areas such as Chinese white wine (Baiju), and seasoning and spices products.

Retailers SSSG (excluding sportswear)

Source: J.P. Morgan estimates Company data.22

%

20%

19%

11%

6%9%

14%

15% 19

%15

%8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1Q12

2


Ebru Sener Kurumlu(852) [email protected]

Equity Ratings and Price Targets

Mkt Cap Price Rating Price TargetCompany Symbol ($ mn) CCY Price Cur Prev Cur PrevAjisen China Holdings Ltd 0538.HK 737.55 HKD 5.33 N n/c 6.00 9.00Anta Sports Products Ltd. 2020.HK 1,504.39 HKD 4.68 UW n/c 4.00 5.50Belle International Holdings Ltd. 1880.HK 14,261.59 HKD 13.12 OW n/c 15.50 16.00Cafe de Coral Holdings Ltd 0341.HK 1,519.90 HKD 20.65 N n/c 18.70 n/cChina Foods Ltd 0506.HK 2,740.79 HKD 7.61 OW n/c 8.40 n/cChina Lilang Ltd. 1234.HK 818.64 HKD 5.29 OW n/c 8.30 10.00China Mengniu Dairy Co. Ltd. 2319.HK 4,636.24 HKD 20.35 OW n/c 25.00 26.00China Resources Enterprise 0291.HK 7,098.80 HKD 22.95 N n/c 24.50 n/cChina Yurun Food Group 1068.HK 1,585.56 HKD 6.75 UW n/c 7.60 n/cChow Tai Fook Jewellery Company Ltd. 1929.HK 12,370.50 HKD 9.60 OW n/c 12.00 n/cDairy Farm International Holdings Limited DAIR.SI 14,339.12 USD 10.62 N n/c 9.00 n/cGiordano 0709.HK 1,084.57 HKD 5.47 OW n/c 6.50 7.00Golden Eagle Retail Group Ltd 3308.HK 3,938.38 HKD 15.74 OW n/c 22.50 24.00Hengan International Group Ltd 1044.HK 11,870.88 HKD 74.95 UW n/c 53.00 n/cI.T Ltd. 0999.HK 530.25 HKD 3.35 OW n/c 5.50 8.00L'Occitane International SA 0973.HK 4,064.03 HKD 21.35 N n/c 18.00 n/cLi Ning Co Ltd 2331.HK 590.56 HKD 4.34 UW n/c 4.50 n/cLifestyle International Holdings 1212.HK 3,629.77 HKD 16.92 OW N 19.00 n/cParkson Retail Group Ltd 3368.HK 2,484.60 HKD 6.86 N n/c 7.50 n/cPorts Design 0589.HK 586.60 HKD 8.05 UW n/c 7.00 10.00Sa Sa International Holdings Limited 0178.HK 1,762.19 HKD 4.85 N n/c 5.30 5.00Tibet 5100 Water Resources Holdings Ltd 1115.HK 490.05 HKD 1.48 OW n/c 2.20 2.60Tingyi (Cayman Islands) Holding Corp 0322.HK 14,283.47 HKD 19.82 N n/c 16.50 n/cTsingtao Brewery - A 600600.SS 7,893.91 CNY 38.19 UW n/c 26.80 n/cTrinity Limited 0891.HK 1,075.88 HKD 4.87 OW n/c 8.00 10.00Uni-President China Holdings Ltd 0220.HK 3,339.78 HKD 7.20 UW n/c 5.00 n/cWant Want China Holdings Ltd 0151.HK 16,195.63 HKD 9.50 N n/c 7.60 7.00Xtep International Holdings Limited 1368.HK 757.28 HKD 2.70 UW n/c 2.20 2.60Source: Company data, Bloomberg, J.P.Morgan estimates. n/c = no change. All prices as of 29 Jun 12.

Table 1: Top picks and stocks to avoid

Company Ticker Rating PT (HK$)

CP (HK$)

Mcap (US$MM)

12E P/E(x)

13E P/E(x)

12E P/BV (x)

13E P/BV (x)

12E ROE (%)

13E ROE (%)

Top picks

Belle 1880 HK OW 15.5 13.1 14,266 19.3 15.7 4.0 3.5 22.4 23.7China Foods 506 HK OW 8.4 7.6 2,742 23.8 18.5 2.9 2.7 12.8 15.1China Lilang 1234 HK OW 8.3 5.3 819 8.1 6.9 2.0 1.8 27.2 27.4China Mengniu 2319 HK OW 25.0 20.4 4,638 16.3 13.8 2.3 2.1 13.0 14.9Giordano 709 HK OW 6.5 5.5 1,085 10.8 8.6 2.8 2.5 26.9 31.0Golden Eagle 3308 HK OW 22.5 15.7 3,940 18.8 15.1 4.8 4.1 27.2 29.4I.T Ltd.* 999 HK OW 5.5 3.4 530 7.9 6.6 1.6 1.4 21.4 22.3Lifestyle 1212 HK OW 19.0 16.9 3,631 15.7 13.9 3.0 2.7 20.3 20.3Tibet 5100 1115 HK OW 2.2 1.5 490 9.3 6.9 1.4 1.1 21.4 23.3Trinity 891 HK OW 8.0 4.9 1,076 14.6 11.6 2.5 2.3 17.3 20.7Top picks

Anta 2020 HK UW 4.0 4.7 1,505 6.6 7.6 1.4 1.3 21.8 17.9China Yurun 1068 HK UW 7.6 6.8 1,586 9.2 7.1 0.7 0.7 9.5 12.2Hengan 1044 HK UW 53.0 75.0 11,876 25.3 21.3 6.8 6.1 28.0 30.1Li Ning 2331 HK UW 4.5 4.3 591 13.9 9.2 1.0 0.9 7.2 10.2Ports Design 589 HK UW 7.0 8.1 587 8.2 7.3 1.8 1.6 23.4 23.4Tsingtao Brewery - H 168 HK UW 33.0 44.1 7,902 24.4 20.6 3.8 3.2 16.7 17.0Uni-President China 220 HK UW 5.0 7.2 3,341 33.7 25.4 2.9 2.7 9.0 11.1Xtep 1368 HK UW 2.2 2.7 758 5.7 7.7 1.1 1.0 20.5 13.9

Source: Company, Bloomberg, J.P. Morgan estimates. Prices as of June 29, 2012. *FY13 figures given under 2012 as the year ends in Jan-Jun.

3



Table of Contents2H is not likely to show a major recovery but that is no surprise to us............................................................................................ 4

Changes to our estimates ....................................................................... 4

For discretionary we believe weak expectations are already priced in..................................................................................................... 6

Outlook from J.P. Morgan macro team.................................................. 7

Long-term drivers for consumption still in place................................. 7

Company section - Discretionary.........................................................18

Company section – Staples ..................................................................37

Appendix 1: Forward PE charts: Retailers ..........................................62

Appendix 2: Forward PE charts: Staples.............................................65

Appendix 3: Raw material price charts ................................................68

Companies ..............................................................................................71

Ajisen China Holdings Ltd ..................................................................................72

Anta Sports Products Ltd. ....................................................................................75

Belle International Holdings Ltd. ........................................................................78

Cafe de Coral Holdings Ltd .................................................................................81

China Foods Ltd ..................................................................................................84

China Lilang Ltd..................................................................................................87

China Mengniu Dairy Co. Ltd. ............................................................................91

China Resources Enterprise .................................................................................94

China Yurun Food Group ....................................................................................97

Chow Tai Fook Jewellery Company Ltd. ..........................................................100

Dairy Farm International Holdings Limited ......................................................103

Giordano ............................................................................................................106

Golden Eagle Retail Group Ltd .........................................................................109

Hengan International Group Ltd........................................................................112

I.T Ltd. ...............................................................................................................115

L'Occitane International SA ..............................................................................118

Li Ning Co Ltd ..................................................................................................121

Lifestyle International Holdings ........................................................................124

Parkson Retail Group Ltd ..................................................................................127

Ports Design.......................................................................................................130

Sa Sa International Holdings Limited................................................................133

Tibet 5100 Water Resources Holdings Ltd........................................................136

Tingyi (Cayman Islands) Holding Corp ............................................................139

Tsingtao Brewery – A & H................................................................................142

Trinity Limited ..................................................................................................146

Uni-President China Holdings Ltd ....................................................................149

Want Want China Holdings Ltd ........................................................................152

Xtep International Holdings Limited .................................................................155

4



2H is not likely to show a major recovery but that is no surprise to us

Since 4Q11 we have been witnessing a slowdown in retail sales generally in China,and companies on the ground are seeing a slowdown in SSSG. Earlier in the year expectations across the companies was for a recovery in 2H12. We now think this will be pushed out to 4Q12, or more likely to 1Q13. This is generally in line with the overall slowdown we are seeing in China (please see the extract from our macro team below) and our macro team’s expectation. After two cuts to GDP growth forecasts our macro team now expects 2Q, 3Q and 4Q12 y/y real GDP growth to be at 7.7%, 7.5% and 7.4%. They expect further policy easing to come before end of 3Q.

Figure 1: Retailers SSSG (excluding sportswear)

Source: J.P. Morgan estimates Company data.

While companies have been expecting a recovery in second half, we have been more cautious on this front and have built in conservative sales estimates for the second half as well. Therefore, we do not see a big risk to our sales estimates on the discretionary front as outlined below.

Changes to our estimates

Discretionary: We were already conservative on sales; now we build in some further margin pressure

In the discretionary universe we are revising our discretionary 2012 earnings estimates down by around 5%. This is the second major revision we are making across the board to our 2012 estimates following the first one in October 2011. While in the first round we had cut both sales and margin assumptions, it is worth highlighting that this time we are revising largely our margin estimates. On the sales front we believe we earlier had quite conservative estimates, and we have not built in a big recovery in 2H; therefore the current environment does not prompt us to make sizeable cuts to sales estimates across the board. However cost pressure is coming through more than we expected on three fronts: i) greater-than-expected promotional efforts – summer promotions are starting earlier, with more sales coming via outlets; ii) higher-than-expected pressure on staff costs – companies telling us that in some

22%20%

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6%

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19%

15%

8%

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1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1Q12

SSSG Retailers (ex sportswear)

5



cases salaries were up by 20-25% with SSSG at a single-digit-rate; and iii) in some cases, new stores that opened during 1H impacting margins given lower productivity.

As a result we cut our sales and earnings estimates by 2% and 5%, respectively, on average. After the revision we expect the space to deliver c10% earnings growth in 2012.

Figure 2: Sales and earnings growth expectations for discretionary

Source: Company, J.P. Morgan estimates.

Staples: No significant across-the-board revisions

We are not making significant across-the-board changes for our staples universe. It is true that some categories have seen slowdown but we do not see it across the board. Therefore, our earnings revisions have been generally stock-specific.

After some stock-specific revisions (details on Table 12) we are trimming our earnings estimates by c1% on average for the staples universe. We are now looking for 21% sales and 31% earnings growth in 2012.

Figure 3: Sales and earnings growth expectations for staples


30.0%

15.6%

19.7%

32.1%

9.7%

19.9%

0.0%

5.0%

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15.0%

20.0%

25.0%

30.0%

35.0%

2011 2012E 2013E

Sales Earnings

24.4%20.9%

19.0%

7.7%

31.0%

21.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2011 2012E 2013E

Sales Earnings

6



For discretionary we believe weak expectations are already priced in

Discretionary at 12x P/E and we don’t expect more negative surprises

Discretionary companies under our coverage have come down 19% ytd, underperforming staples by 20% and MSCI China by 19%. We do expect upcoming 1H results to be weak for the retail space and 3Q SSSG to not show a big recovery,but these are all well flagged by now and in the price, in our view. We do not expect further negative news on the retail front and believe 4Q12 and 1Q13 will show a sequential improvement. We reiterate our view that the discretionary space at 12x one-year forward P/E is compelling. We suggest adding discretionary names at these levels and over the course of next two months.

Figure 4: Retailers’ (ex sportswear) one-year forward P/E chart


Staples have been resilient, down only 2% YTD and underperforming MSCI China by 2%. At current levels they trade at 20x one-year forward P/E, and we are having difficulty seeing any further catalysts for the space to continue to outperform. We are already building in strong earnings growth driven by gross margin expansion and we think there could be some downside risk to earnings if the companies need to spend more on A&P.

Figure 5: Staples’ one-year forward P/E chart

Source: Company, J.P. Morgan estimates, Bloomberg.

12.2

14.8

19.2

23.7

9.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

P/E -1SD Mean +1SD Trough

20.015.0

20.8

26.6

12.7

5.0

10.0

15.0

20.0

25.0

30.0

35.0

P/E -1SD Mean +1SD Trough

7



Outlook from J.P. Morgan macro team

The slowing in economic growth has been driven by both external and internal factors. On the external front, uncertainties surrounding the euro-area sovereign debt crisis persist, and in fact have returned to center stage in recent weeks. The US economy has been an outperformer among developed economies, but has also showed signs of slowing in recent weeks. The sluggish external environment has caused stresses on China’s export sector, and trade data have been very choppy but overall on the weak side.

On the domestic front, the slowdown in domestic demand has been largely due to the government’s efforts to address imbalances in the economy. Such imbalances include high investment but low consumption as a share of GDP, rapid economic growth at high social/environment/energy costs, housing bubbles, and income inequality. Tightening in the housing market and sectors with overcapacity (e.g., autos and steel) is an important part of these efforts. While these restructuring efforts are positive for China’s long-term growth, they have been a drag on economic growth in the near term. As economic activity likely will remain on the weak side in the near term, we expect further policy easing to be introduced in the coming months: we expect one more interest rate cut and two more RRR cuts before the end of 3Q. The next RRR cut is likely to occur in July (or even as early as late June), which could help introduce stable liquidity into the banking system. (Extracted from Greater China by Haibin Zhu, dated June 22, 20112)

Long-term drivers for consumption still in place

While for the next 3-6 months SSSG numbers are likely to hover around a high-single-digit rate to 10% for most retailers in China, long-term drivers for consumption are still in place, in our view.

1) Favorable demographics: Urbanization, growing middle income consumer, high-net-worth individuals, new migrant workers that have more tendency to spend – though the increasing dependency ratio is one negative among all these.

2) Rising disposal income: Increases in wages, increase in share of services employment as well as well as potential adjustments in personal income tax.

3) Pick-up in modern retail channels: Consumers are getting more sophisticated. This means more POS for high-end brands but at the same time presents some challenges to the traditional distributional channels such as department stores.

4) Improvement in healthcare coverage and pension plans: That will serve to help precautionary savings.

8



Table 2: Urban household income distribution

% of urban households

<55K Rmb Between 55-100K Rmb >100 Rmb2005 87.7 10.2 2.12006 83.8 13.1 3.02007 77.2 18.3 4.52008 68.3 24.3 7.52009 62.1 28.4 9.52010 55.3 32.5 12.2

Source: CEIC, J.P. Morgan.

Table 3: Disposable income per capita by income levels for urban households

Rmb

Low Income

Lower Middle Income

Middle Income

Upper Middle Income

High Income

Highest Income

2000 3,634 4,624 5,898 7,487 9,434 13,3112005 4,885 6,711 9,190 12,603 17,203 28,7732010 9,285 12,702 17,224 23,189 31,044 51,432CAGR over (2000-10) 9.8% 10.6% 11.3% 12.0% 12.6% 14.5%

Source: CEIC, J.P. Morgan

Figure 6: Nominal GDP vs retail sales growth%

Source: CEIC, Euromonitor, J.P. Morgan. Retail sales is defined as retail sales of personal and

household consumption (ex auto and foodservice).

Figure 7: Urbanization rate trend%

Source: United Nations, Department of Economic and Social Affairs, Population Division

(2012). World Urbanization Prospects: The 2011 Revision. Urbanization rate is the percentage

of urban population out of the total population.

Figure 8: CNY to USD quarterly period-end rates

Source: Bloomberg, J.P. Morgan FX Research.

0.0

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25.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP Retail sales0.0

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1950

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9



Figure 9: Urban household consumption pattern by income levels (2010)

%

Source: CEIC, J.P. Morgan.

Figure 10: Share of urban household by urban income class

Source: McKinsey Insights China - Wealthy Consumer Studies (2008, 2010); team analysis 2 Including households with assets over

10MN

44% 41% 38% 35% 32% 27%

11%11%

11% 11%11%

10%

6%6%

7% 7%7%

7%

6% 7% 7% 7%6%

6%

9% 11% 13% 15% 17%21%

10% 11% 11% 12% 13% 14%

11% 10% 10% 9% 10% 9%

3% 3% 3% 4% 4% 5%

Low Income Lower Middle Income Middle Income Upper Middle Income High Income Highest Income

Food Clothing Household Facility, Article & Service

Medicine & Medical Service Transport & Communication Recreation, Educational & Cultural Service

Residence Miscellaneous

2 4

223 273

28

43

25

38

54

6

2010 2015

<55K

55-100K

100-200K

>200K

CAGR('10-'15)Percent

4

43

0

-4

2010

0.21.20.7

2015

0.42.01.2

CAGR

2.01518

>1MN²

300K-1MN200-300K

10



Figure 11: No. of millionaires

Source: Hurun 2011 Wealth Reports. *Individuals in China with personal wealth of 10 million

Yuan or more

Figure 12: Breakdown of millionaires by regions (2011)

Source: Hurun 2011 Wealth Reports. *Individuals in China with personal wealth of 10 million

Yuan or more

Table 4: Income tax calculation for 2011 (Threshold: 3,500)

Tier Whole month taxable income Tax rate

1 excess part lower than 1,500 3%2 excess part higher than 1,500, but lower than 4,500 10%3 excess part higher than 4,500, but lower than 9,000 20%4 excess part higher than 9,000, but lower than 35,000 25%5 excess part higher than 35,000, but lower than 55,000 30%6 excess part higher than 55,000, but lower than 80,000 35%7 excess part higher than 800,000 45%

Source: http://finance.ifeng.com/news/macro/20120618/6623064.shtml

Table 5: Income tax calculation for 2007 (Threshold: 2,000)

Tier Whole month taxable income Tax rate 1 excess part lower than 500 5%2 excess part higher than 500, but lower than 2,000 10%3 excess part higher than 2000, but lower than 5,000 15%4 excess part higher than 5,000, but lower than 20,000 20%5 excess part higher than 20,000, but lower than 40,000 25%6 excess part higher than 40,000, but lower than 60,000 30%7 excess part higher than 60,000, but 80,000 35%

Source: http://news.qq.com/a/20090831/002478.htm

Table 6: Changes to our earnings estimates – discretionary

2011 2012E-new % chg y/y 2012E-old New vs old

Department StoresGolden Eagle (RMBm) 1,193 1,331 11.6% 1,392 -4.4%Lifestyle (HK$m) 1,576 1,816 15.2% 1,757 3.3%Parkson (RMBm) 1,123 1,150 2.4% 1,150 0.0%Sportswear BrandsAnta (RMBm) 1,730 1,443 -16.6% 1,516 -4.8%Li Ning (RMBm) 386 314 -18.6% 314 0.0%Xtep (Rmbm) 965 848 -12.2% 857 -1.1%Jewellery & Watch RetailersChow Tai Fook* (HK$m) 6,341 7,296 15.1% 7,296 0.0%Shoes and ClothingBelle (RMBm) 4,255 4,689 10.2% 4,863 -3.6%Trinity (HK$m) 513 579 12.9% 614 -5.7%Giordano (HK$m) 728 768 5.5% 818 -6.1%China Lilang (RMBm) 623 643 3.2% 663 -3.0%Ports (RMBm) 428 456 6.4% 472 -3.5%I.T* (HK$m) 474 519 9.4% 539 -3.8%CosmeticsSa Sa* (HK$m) 690 793 15.0% 765 3.7%Average 4.3% -2.1%Average (ex sportswear) 9.7% -2.1%Average (ex sportswear, Lifestyle and Sa Sa, and incl. CTF) 8.5% -4.7%

Source: Company, J.P. Morgan estimates. Average (ex sportswear, Lifestyle and Sa Sa, and incl. CTF) includes 12% earnings cut on

27 June 2012 for CTF.

825,000875,000

960,000

6%

10%

750,000

800,000

850,000

900,000

950,000

1,000,000

2009 2010 2011

No. of millionaires* % chg y/y

Beijing18%

Guangdong16%

Shanghai14%

Zhejiang13%

Jiangsu7%

Fujian4%

Shandong3%

Liaoning3%

Sichuan2%

Henan2%

Others18%

http://news.qq.com/a/20090831/002478.htm

http://finance.ifeng.com/news/macro/20120618/6623064.shtml

11



Table 7: Changes to our sales estimates – discretionary


Department StoresGolden Eagle - Gross Sales (RMBm) 14,340 17,633 23.0% 18,105 -2.6%Golden Eagle - Net Sales (RMBm) 3,217 3,912 21.6% 4,017 -2.6%Lifestyle - Gross Sales (HK$m) 12,052 13,184 9.4% 12,652 4.2%Lifestyle - Net Sales (HK$m) 5,132 5,536 7.9% 5,472 1.2%Parkson - Gross Sales (RMBm) 16,426 18,212 10.9% 18,212 0.0%Parkson - Net Sales (RMBm) 4,938 5,462 10.6% 5,462 0.0%Sportswear BrandsAnta (RMBm) 8,905 8,168 -8.3% 8,532 -4.3%Li Ning (RMBm) 8,929 8,041 -9.9% 8,041 0.0%Xtep (Rmbm) 5,540 5,653 2.0% 5,953 -5.0%Jewellery & Watch RetailersChow Tai Fook* (HK$m) 56,571 69,818 23.4% 69,818 0.0%Shoes and ClothingBelle (RMBm) 28,945 35,166 21.5% 35,587 -1.2%Trinity (HK$m) 2,607 3,101 18.9% 3,082 0.6%Giordano (HK$m) 5,614 5,791 3.1% 6,088 -4.9%China Lilang (RMBm) 2,708 3,148 16.3% 3,265 -3.6%Ports (RMBm) 1,985 2,190 10.3% 2,219 -1.3%I.T* (HK$m) 5,742 6,684 16.4% 6,838 -2.3%CosmeticsSa Sa* (HK$m) 6,405 7,596 18.6% 7,189 5.7%Average 11.1% -1.0%Average (ex sportswear) 15.6% -0.5%Average (ex sportswear, Lifestyle and Sa Sa, and incl. CTF) 16.0% -2.4%

Source: Company, J.P. Morgan estimates. Average (ex sportswear, Lifestyle and Sa Sa, and incl. CTF) includes 7% sales cut on 27

June 2012 for CTF.

Table 8: JPM vs BBG – Discretionary sales

2012E -JPM

2012E -BBG

JPM vs BBG

Department Stores

Golden Eagle (RMBm) 3,912 4,060 -3.6%Lifestyle (HK$m) 5,536 5,857 -5.5%Parkson (RMBm) 5,462 5,400 1.1%Sportswear BrandsAnta (RMBm) 8,168 8,589 -4.9%Li Ning (RMBm) 8,041 8,551 -6.0%Xtep (RMBm) 5,653 5,675 -0.4%Jewellery & Watch RetailersChow Tai Fook* (HK$m) 69,818 70,715 -1.3%Shoes and ClothingBelle (RMBm) 35,166 34,189 2.9%Trinity (HK$m) 3,101 3,116 -0.5%Giordano (HK$m) 5,791 6,256 -7.4%China Lilang (RMBm) 3,148 3,288 -4.2%Ports (RMBm) 2,190 2,250 -2.7%I.T* (HK$m) 6,684 6,574 1.7%CosmeticsSa Sa* (HK$m) 7,596 7,541 0.7%Average -2.2%Average (ex sportswear) -1.7%

Source: Company, J.P. Morgan estimate, Bloomberg.

Table 9: JPM vs BBG – Discretionary earnings

2012E -JPM

2012E -BBG

JPM vs BBG

Department StoresGolden Eagle (RMBm) 1,331 1,401 -5.0%Lifestyle (HK$m) 1,816 1,959 -7.3%Parkson (RMBm) 1,150 1,236 -6.9%Sportswear BrandsAnta (RMBm) 1,443 1,503 -3.9%Li Ning (RMBm) 314 312 0.6%Xtep (Rmbm) 848 891 -4.9%Jewellery & Watch RetailersChow Tai Fook* (HK$m) 7,296 7,590 -3.9%Shoes and ClothingBelle (RMBm) 4,689 4,850 -3.3%Trinity (HK$m) 579 603 -3.9%Giordano (HK$m) 768 814 -5.7%China Lilang (RMBm) 643 692 -7.0%Ports (RMBm) 456 461 -1.0%I.T* (HK$m) 519 527 -1.6%CosmeticsSa Sa* (HK$m) 793 807 -1.7%Average -4.0%Average (ex sportswear) -4.3%

Source: Company, J.P. Morgan estimate, Bloomberg.

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Table 10: Earnings growth trend for discretionary

1H08 2H08 2008 1H09 2H09 2009 1H10 2H10 2010 1H11 2H11 2011 2012E 2013EDepartment StoresGolden Eagle 65.4% 35.4% 47.8% 44.0% 43.9% 44.0% 43.1% 27.1% 34.7% 30.2% 23.4% 26.6% 11.6% 24.6%Lifestyle 3.0% 3.9% 3.5% -7.3% 6.4% 0.1% 36.6% 23.5% 29.0% 39.1% 17.9% 27.4% 15.2% 12.7%Parkson 35.7% 15.2% 24.4% 12.2% 4.5% 8.3% 9.3% 8.5% 8.9% 15.8% 10.6% 13.2% 2.4% 14.7%Sportswear BrandsAnta 113.6% 37.7% 66.4% 40.1% 39.5% 39.8% 25.0% 23.1% 24.0% 22.0% 1.5% 11.5% -16.6% -12.5%Li Ning 68.3% 40.8% 52.3% 41.6% 21.8% 31.0% 23.1% 14.1% 17.4% -49.5% -82.9% -65.2% -18.6% 29.1%Xtep 214.1% 80.0% 129.0% 20.4% 34.5% 27.4% 21.8% 29.1% 25.7% 24.8% 13.4% 18.6% -12.2% -26.0%Jewellery & Watch RetailersChow Tai Fook* NA NA NA NA NA 12.8% NA NA 65.4% 129.0% 54.5% 79.2% 15.1% 22.7%Shoes and ClothingBelle -1.4% 4.7% 1.6% 14.9% 36.7% 26.0% 37.0% 33.7% 35.2% 29.0% 20.3% 24.2% 10.2% 23.1%Trinity NA NA NA -44.8% NM 35.3% 116.4% 61.6% 85.0% 63.5% 40.7% 50.5% 12.9% 26.2%Giordano 45.9% -52.2% -7.1% -77.6% 215.8% 5.5% 320.8% 39.6% 91.0% 63.2% 13.0% 32.4% 5.5% 25.4%China Lilang NA NA NA 29.8% 151.2% 96.6% 55.6% 30.9% 38.2% 63.1% 41.7% 48.8% 3.2% 17.6%Ports 42.5% 3.0% 17.5% 12.6% 3.0% 7.3% 1.4% 7.6% 4.7% -17.4% 1.4% -7.2% 6.4% 12.3%I.T* -42.3% -29.9% -33.0% 71.9% 149.2% 132.3% 178.7% 27.0% 51.4% 28.9% 14.8% 19.0% 9.4% 18.8%CosmeticsSa Sa* -2.6% 24.4% 14.4% 41.4% 13.8% 21.4% 33.6% 28.1% 29.9% 42.8% 36.3% 38.4% 15.0% 20.5%Average 49.3% 14.8% 28.8% 15.3% 60.0% 34.8% 69.4% 27.2% 38.6% 34.6% 14.7% 22.7% 4.3% 14.9%Average (ex. Sportswear) 18.3% 0.6% 8.6% 9.7% 69.4% 35.4% 83.2% 28.8% 43.0% 44.3% 24.9% 32.1% 9.7% 19.9%


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Table 11: Sales growth trend for discretionary

1H08 2H08 2008 1H09 2H09 2009 1H10 2H10 2010 1H11 2H11 2011 2012E 2013EDepartment StoresGolden Eagle - Gross Sales 34.3% 23.8% 28.6% 24.7% 37.0% 31.1% 34.2% 33.2% 33.7% 37.1% 25.7% 31.0% 23.0% 32.5%Golden Eagle - Net Sales 32.9% 25.2% 28.8% 27.7% 31.5% 29.7% 32.3% 32.6% 32.4% 37.1% 27.8% 31.3% 21.6% 33.0%Lifestyle - Gross Sales 19.5% 7.9% 13.2% 4.7% 13.8% 9.4% 17.5% 16.8% 17.1% 24.5% 20.8% 22.5% 9.4% 15.3%Lifestyle - Net Sales 20.7% 7.0% 13.2% 2.5% 10.5% 6.6% 14.6% 15.2% 15.1% 20.7% 17.4% 18.7% 7.9% 13.2%Parkson - Gross Sales 21.0% 16.7% 18.7% 17.0% 14.4% 15.7% 12.8% 15.3% 14.1% 18.5% 14.5% 16.5% 10.9% 18.5%Parkson - Net Sales 18.6% 12.8% 15.6% 11.2% 9.9% 10.5% 10.2% 15.0% 12.6% 14.1% 10.4% 12.2% 10.6% 17.9%Sportswear BrandsAnta 47.2% 62.4% 54.8% 27.7% 26.3% 27.0% 22.6% 29.4% 26.1% 28.9% 12.6% 20.2% -8.3% 6.0%Li Ning 60.3% 48.8% 53.8% 32.4% 19.4% 25.4% 11.2% 13.2% 13.0% -4.8% -5.5% -5.8% -9.9% 5.9%Xtep 174.3% 71.3% 110.1% 19.1% 28.0% 23.7% 21.6% 29.4% 25.7% 26.0% 22.9% 24.3% 2.0% 4.5%Jewellery & Watch RetailersChow Tai Fook* NA NA NA NA NA 24.6% NA NA 52.8% 79.3% 50.5% 61.4% 23.4% 23.9%Shoes and ClothingBelle 60.4% 47.2% 53.0% 13.1% 8.6% 10.7% 19.8% 20.1% 20.0% 24.6% 19.9% 22.1% 21.5% 18.0%Trinity NA NA NA 1.2% 14.0% 7.6% 20.3% 23.9% 22.3% 30.4% 29.0% 29.6% 18.9% 22.3%Giordano 11.6% 1.6% 6.3% -14.5% -5.8% -10.1% 6.7% 16.3% 11.8% 24.0% 14.3% 18.7% 3.1% 19.4%China Lilang NA NA NA 24.0% 47.3% 37.4% 31.1% 31.9% 31.6% 31.2% 32.4% 31.9% 16.3% 21.7%Ports 19.9% 2.4% 9.8% 5.5% 1.4% 3.3% 7.9% 15.1% 11.7% 13.8% 17.0% 15.5% 10.3% 11.2%I.T* 46.1% 28.0% 35.2% 5.2% 13.0% 9.6% 20.8% 33.1% 28.0% 60.3% 42.9% 49.7% 16.4% 16.9%CosmeticsSa Sa* 16.5% 8.6% 12.0% 8.3% 18.6% 13.9% 19.0% 19.4% 19.2% 32.7% 29.2% 30.7% 18.6% 17.0%Average 46.5% 29.0% 36.0% 13.0% 18.1% 16.4% 18.9% 22.9% 23.4% 30.5% 23.3% 26.3% 11.1% 16.7%Average (ex. Sportswear) 28.7% 17.0% 22.1% 8.9% 16.2% 13.9% 19.0% 22.5% 23.8% 34.2% 26.9% 30.0% 15.6% 19.7%


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Table 12: Changes to our earnings estimates – staples

2011 2012E-new % chg y/y 2012E-old New vs oldBreweriesChina Resources Enterprise (HK$m) 1,889 2,393 26.7% 2,393 0.0%Tsingtao Brewery (RMBm) 1,738 2,000 15.1% 2,000 0.0%DairiesChina Mengniu Dairy (RMBm) 1,726 1,793 3.9% 1,934 -7.3%Instant noodles & juicesTingyi (US$m) 381 437 14.8% 437 0.0%Uni President China (RMBm) 312 630 101.9% 630 0.0%Meat ProcessorsChina Yurun (RMBm) 1,071 1,465 36.8% 1,465 0.0%Snack manufacturersWant Want (US$) 372 538 44.7% 490 9.9%Personal CareHengan (HK$m) 2,649 3,637 37.3% 3,637 0.0%Wines and beveragesChina Foods (HK$m) 647 894 38.2% 894 0.0%Tibet 5100 Water Resources (RMBm) 268 336 25.6% 426 -21.1%Restaurants and SupermarketsAjisen (HK$m) 350 196 -43.9% 391 -49.8%Dairy Farm (US$m) 484 551 13.7% 551 0.0%Café de Coral* (HK$) 428 547 28.0% 547 0.0%

Average (ex Tibet) 26.4% -3.9%Average (ex Ajisen, Yurun, Tibet) 32.4% 0.3%

Source: Company, J.P. Morgan estimates. Core earnings estimates used in the table.

Table 13: Changes to our sales estimates – staples


BreweriesChina Resources Enterprise (HK$m) 110,164 135,786 23.3% 135,786 0.0%Tsingtao Brewery (RMBm) 23,158 26,508 14.5% 26,508 0.0%DairiesChina Mengniu Dairy (RMBm) 37,388 40,363 8.0% 43,066 -6.3%Instant noodles & juicesTingyi (US$m) 7,867 11,001 39.8% 11,001 0.0%Uni President China (RMBm) 16,932 21,931 29.5% 21,931 0.0%Meat ProcessorsChina Yurun (RMBm) 32,315 30,825 -4.6% 30,825 0.0%Snack manufacturersWant Want (US$) 2,947 3,592 21.9% 3,592 0.0%Personal CareHengan (HK$m) 17,051 21,573 26.5% 21,573 0.0%Wines and beveragesChina Foods (HK$m) 28,011 34,151 21.9% 34,151 0.0%Tibet 5100 Water Resources (RMBm) 633 814 28.6% 1,139 -28.5%Restaurants and SupermarketsAjisen (HK$m) 3,075 3,096 0.7% 3,425 -9.6%Dairy Farm (US$m) 9,134 10,215 11.8% 10,215 0.0%Café de Coral* (HK$) 5,956 6,635 11.4% 6,635 0.0%Average (ex Tibet) 17.1% -1.3%Average (ex Ajisen, Yurun, Tibet) 20.9% -0.6%


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Table 14: JPM vs BBG – Staples sales

2012E -JPM

2012E -BBG

JPM vs BBG

BreweriesChina Resources Enterprise (HK$m) 135,786 132,160 2.7%Tsingtao Brewery (RMBm) 26,508 26,106 1.5%DairiesChina Mengniu Dairy (RMBm) 40,363 41,719 -3.2%Instant noodles & juicesTingyi (US$m) 11,001 9,810 12.1%Uni President China (RMBm) 21,931 22,112 -0.8%Meat ProcessorsChina Yurun (RMBm) 30,825 31,370 -1.7%Snack manufacturersWant Want (US$) 3,592 3,645 -1.5%Personal CareHengan (HK$m) 21,573 21,275 1.4%Wines and beveragesChina Foods (HK$m) 34,151 33,877 0.8%Tibet 5100 Water Resources (RMBm) 814 906 -10.1%Restaurants and SupermarketsAjisen (HK$m) 3,096 3,473 -10.9%Dairy Farm (US$m) 10,215 10,065 1.5%Café de Coral* (HK$) 6,635 6,615 0.3%Average (ex Tibet) 0.2%Average (ex Ajisen, Yurun, Tibet) 1.5%


Table 15: JPM vs BBG – Staples earnings

2012E -JPM

2012E -BBG

JPM vs BBG

BreweriesChina Resources Enterprise (HK$m) 2,393 2,596 -7.8%Tsingtao Brewery (RMBm) 2,000 2,043 -2.1%DairiesChina Mengniu Dairy (RMBm) 1,793 1,705 5.2%Instant noodles & juicesTingyi (US$m) 437 491 -11.1%Uni President China (RMBm) 630 742 -15.2%Meat ProcessorsChina Yurun (RMBm) 1,465 1,481 -1.1%Snack manufacturersWant Want (US$) 538 546 -1.4%Personal CareHengan (HK$m) 3,637 3,569 1.9%Wines and beveragesChina Foods (HK$m) 894 886 0.9%Tibet 5100 Water Resources (RMBm) 440 453 -2.9%Restaurants and SupermarketsAjisen (HK$m) 196 333 -41.1%Dairy Farm (US$m) 551 552 -0.3%Café de Coral* (HK$) 547 538 1.8%Average (ex Tibet) -5.8%Average (ex Ajisen, Yurun, Tibet) -2.8%


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Table 16: Earnings growth trend for staples

1H08 2H08 2008 1H09 2H09 2009 1H10 2H10 2010 1H11 2H11 2011 2012E 2013EBreweriesChina Resources Enterprise NA NA NA NA NA 11.6% 4.5% 15.3% 9.2% 18.2% -22.0% -0.3% 26.7% 21.4%Tsingtao Brewery 32.4% 17.8% 25.3% 67.9% 91.6% 78.7% 29.7% 13.1% 21.6% 19.3% 8.3% 14.3% 15.1% 18.2%DairiesChina Mengniu Dairy 25.2% -398.7% -186.8% 13.4% NA NA -6.5% 36.3% 10.9% 27.6% 29.3% 28.4% -1.0% 27.4%Instant noodles & juicesTingyi 33.2% 34.1% 33.7% 40.6% 53.5% 47.2% 10.2% 37.0% 24.4% 15.9% -31.8% -12.0% 26.8% 7.8%Uni President China 34.7% 54.8% 42.7% 25.4% 4.4% 16.4% -30.1% -20.6% -26.4% -40.8% -38.7% -39.9% 101.9% 32.8%Meat ProcessorsChina Yurun 41.7% -33.0% -7.5% 25.2% 96.7% 59.4% -16.0% 220.0% 54.0% 22.9% -86.6% -34.1% -11.6% 38.8%Snack manufacturersWant Want 71.3% 31.8% 48.6% -6.4% 43.6% 19.0% 33.5% 2.8% 14.6% 3.6% 28.0% 17.0% 35.7% 22.2%Personal CareHengan 33.4% 32.7% 33.0% 54.1% 61.2% 57.8% 24.4% 7.5% 15.2% -1.7% 18.7% 8.6% 37.3% 19.3%Wines and beveragesChina Foods 75.7% -41.6% -12.4% 24.5% 10.5% 17.5% -40.6% -6.9% -24.7% 81.9% 29.2% 51.2% 38.2% 28.4%Tibet 5100 Water Resources NA NA NA NA NA 300.8% NA NA 150.8% 96.9% 161.6% 137.4% 25.6% 34.1%Restaurants and SupermarketsAjisen 8.3% -16.3% -4.6% 12.1% 77.5% 42.4% 36.0% 65.0% 51.0% 32.4% -60.2% -21.8% -43.9% 40.6%Dairy Farm 39.7% 13.9% 24.0% 10.3% 16.5% 13.8% 16.9% 10.4% 13.2% 24.2% 12.1% 17.4% 13.7% 16.7%Café de Coral* 14.6% -8.5% 0.7% 10.3% 21.0% 16.2% 1.1% -0.5% 0.2% -14.7% -2.6% -7.9% 15.5% 19.7%

Average (ex Tibet 5100)* 38.5% 8.6% 18.3% 26.4% 47.7% 34.5% 5.3% 31.6% 13.6% 15.7% -9.7% 1.8% 21.2% 24.4%Average (ex Tibet 5100, Ajisen and Yurun)* 41.9% 16.9% 24.4% 28.3% 37.8% 30.9% 4.3% 9.4% 5.8% 13.3% 3.1% 7.7% 31.0% 21.4%


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Table 17: Sales growth trend for staples

1H08 2H08 2008 1H09 2H09 2009 1H10 2H10 2010 1H11 2H11 2011 2012E 2013EBreweriesChina Resources Enterprise NA NA NA NA NA 12.1% 31.7% 38.7% 35.2% 28.0% 26.1% 27.0% 23.3% 18.1%Tsingtao Brewery 15.7% 18.1% 16.9% 15.2% 9.9% 12.5% 9.0% 11.8% 10.4% 21.4% 11.4% 16.4% 14.5% 14.1%DairiesChina Mengniu Dairy 36.7% -10.0% 11.9% -11.7% 34.0% 7.7% 19.3% 16.3% 17.7% 28.7% 18.8% 23.5% 8.0% 17.5%Instant noodles & juicesTingyi 36.4% 29.8% 32.9% 22.1% 16.0% 18.9% 29.6% 33.3% 31.5% 27.6% 8.4% 17.7% 39.8% 24.8%Uni President China 13.1% 0.0% 6.8% -10.4% 9.3% -1.4% 36.6% 39.8% 38.2% 42.8% 26.5% 34.5% 29.5% 23.0%Meat ProcessorsChina Yurun 75.2% 34.6% 50.8% -3.5% 15.1% 6.5% 49.0% 59.0% 54.8% 89.3% 24.1% 50.5% -4.6% 25.3%Snack manufacturersWant Want 41.8% 42.1% 42.0% 12.5% 8.1% 10.1% 25.6% 36.0% 31.2% 27.6% 34.3% 31.3% 21.9% 19.0%Personal CareHengan 36.8% 44.3% 40.7% 36.2% 34.7% 35.4% 25.7% 22.4% 24.0% 27.4% 26.5% 26.9% 26.5% 25.0%Wines and beveragesChina Foods 89.9% 11.7% 46.2% 0.4% 41.9% 18.1% 3.1% 33.4% 18.6% 59.7% 26.2% 40.4% 21.9% 22.0%Tibet 5100 Water Resources NA NA NA NA NA 80.6% NA NA 67.1% 51.2% 90.8% 75.6% 28.6% 26.7%Restaurants and SupermarketsAjisen 66.7% 46.0% 54.6% 24.3% 14.1% 18.7% 26.8% 42.3% 35.0% 40.1% -5.5% 14.7% 0.7% 21.9%Dairy Farm 18.6% 10.5% 14.4% 1.2% 7.5% 4.4% 13.1% 13.7% 13.4% 16.0% 13.3% 14.6% 11.8% 13.0%Café de Coral* 12.3% 6.1% 9.1% 1.9% 7.1% 4.5% 10.3% 8.1% 9.2% 10.2% 13.2% 11.7% 11.4% 13.6%

Average (ex Tibet 5100) 40.3% 21.2% 29.7% 8.0% 18.0% 12.3% 23.3% 29.6% 26.6% 34.9% 18.6% 25.8% 17.1% 19.8%Average (ex Tibet 5100, Ajisen and Yurun) 33.5% 16.9% 24.5% 7.5% 18.7% 12.2% 20.4% 25.4% 22.9% 28.9% 20.5% 24.4% 20.9% 19.0%


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Company section - Discretionary

Anta

Changes to 2012 estimates: Following Anta’s 4Q order book announcement and FY order book growth guidance of a high-single-digit decline we cut our 2012 sales and earnings estimates by 4% and 5%, respectively.

Maintain UW: We believe 2012 will be another difficult year for all sportswear brands across the board and continue to recommend staying away from the sector. (refer to our note “PRC Specialty Retail: Trade Sportswear for Fashion”) We maintain UW on Anta. We have further cut our PT to HK$4 (from HK$5.5) based on the present value of the long-term target P/E of 10x 2014 earnings, which are based on normalized margins. We have reduced our target P/E to 10x (pointing to c30% discount to the international brands’ long-term average of 15-16x on brand recognition) from 13x as we become more cautious on local sportswear brands’ long-term prospects. Risks to our PT include lower-than-expected A&P expenses at the expense of long-term sustainability, and higher-than-expected trade-fair order growth at the expense of retail inventory level.

Table 18: Changes to 2012 estimates - Anta

Rmb in millions

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBG

Sales 8,905 8,168 -8.3% 8,532 -4.3% 8,589 -4.9%Gross profit 3,762 3,416 -9.2% 3,571 -4.3%Operating profit 2,011 1,678 -16.6% 1,769 -5.1% 1,772 -5.3%Net interest inc./(exp.) 149 125 125Share of associates and JVs 0 0 0Other inc./(exp.) 0 0 0PBT 2,160 1,804 -16.5% 1,895 -4.8% 1,904 -5.3%Tax -436 -361 -17.2% -379 -4.8%PAT 1,724 1,443 -16.3% 1,516 -4.8%Minority 6 0 0Net profit 1,730 1,443 -16.6% 1,516 -4.8%Recurring net profit 1,730 1,443 -16.6% 1,516 -4.8% 1,503 -3.9%MarginsGross margin 42.3% 41.8% -0.4% 41.9% 0.0%Operating margin 22.6% 20.5% -2.0% 20.7% -0.2%Net margin 19.4% 17.7% -1.8% 17.8% -0.1%Tax rate -20.2% -20.0% 0.2% -20.0% 0.0%


Belle

Recent trading: After a weak 1Q during when the footwear segment posted 2.8% SSSG and sportswear a small decline in SSSG, we believe Belle's SSSG improved sequentially to a high single digit in footwear and flat to small positive in sportswear. We have not seen aggressive discounting at Belle's counters during 1H12 and most recently saw that summer sales started.

Changes to FY12 estimates: We are cutting our FY12 earnings estimate by 4% as we now model i) slightly lower productivity at new stores added last year and this year, and ii) higher pressure on operating margin of the sportswear segment as we expect the promotion activity to pick up in this segment before the Olympics as inventory levels are slightly higher than preferred levels. We now expect Belle to

https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-791309-0.pdf

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post 21% revenue growth in 2012, i) 3% driven by the sportswear acquisition, ii) 7% from SSSG, and iii) the remainder from new stores. We are looking for 10% net profit growth as we expect 1% erosion in operating margin and we have built in conservative assumptions for government grants (other income represented c3% of net profit in 2011 we lower it to 1% in 2012). After this revision to estimates our FY12 earnings estimates are now 4-5% below consensus mainly due to more conservative sportswear margins.

1H12 results preview: For 1H12 we are looking for c14% sales growth and 7% earnings growth as we expect pressure on operating margin due to sportswear division. While we expect relatively weak 1H for Belle, we believe that a sequential recovery in SSSG in 2Q will be generally taken positively for Belle. Since 4Q11 the focus has been on Belle’s relatively weak footwear SSSG rather than how successful the company was holding on to the margins. 4Q11 and 1Q12 SSSG of 8% and 3%, respectively, led to lots of discussion about the brand losing its attraction in China without taking into account the lack of promotional activity. If we see 2Q SSSG accelerating to average levels of the sector, that will bring back confidence in the brand, in our view.

Maintain OW: After 2012 we expect Belle to go back to c22% EPS CAGR, driven by low teens SSSG and store additions. We believe current valuations are attractive and already prices in the weak 1H at 16x one-year forward P/E, and we maintain our OW rating. Our new Dec-12 PT of HK$15.5 (down from the previous PT of HK$16 due to earnings revisions) is based on 1x PEG and c22% two-year earnings CAGR post 2012. Key risks are slower-than-expected SSSG and a sharp erosion in margins. Management is planning to add mass market brands to its portfolio, and if it pursuesthis strategy aggressively in 2012 this can pose downside risk to our 2012 and 2013 estimates and thus PT. Belle has not been doing aggressive discounting over the pastfew months; if it changes this strategy and starts aggressive discounting, this couldpose a downside risk to our near-term estimates, especially in 2012.

Table 19: Changes to 2012 estimates – Belle

Rmb in millions

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 28,945 35,166 21.5% 35,587 -1.2% 34,189 2.9%Gross profit 16,556 19,849 19.9% 20,083 -1.2%Operating profit 5,151 5,922 15.0% 6,150 -3.7% 6,125 -3.3%Net interest inc./(exp.) 205 198 198Share of associates and JVs 0 0 0Other inc./(exp.) 114 50 50PBT 5,471 6,170 12.8% 6,398 -3.6% 6,334 -2.6%Tax -1,232 -1,481 20.2% -1,536 -3.6%PAT 4,238 4,689 10.6% 4,863 -3.6%Minority 16 0 0Net profit 4,255 4,689 10.2% 4,863 -3.6%Recurring net profit 4,255 4,689 10.2% 4,863 -3.6% 4,850 -3.3%MarginsGross margin 57.2% 56.4% -0.8% 56.4% 0.0%Operating margin 17.8% 16.8% -1.0% 17.3% -0.4%Net margin 14.7% 13.3% -1.4% 13.7% -0.3%Tax rate -22.5% -24.0% -1.5% -24.0% 0.0%

Source: J.P. Morgan estimates.

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Table 20: 1H12 and 2H12 P&L summary – Belle

Rmb in millions

% chg y/y As % of full year1H11 1H11 1H12E 2H12E 1H12E 2H12E 1H12E 2H12E

Sales 13,891 15,054 15,838 19,328 14.0% 28.4% 45.0% 55.0%Gross profit 7,921 8,635 8,986 10,863 13.4% 25.8% 45.3% 54.7%Operating profit 2,500 2,651 2,714 3,208 8.6% 21.0% 45.8% 54.2%Net interest inc./(exp.) 86 119 99 99 50.0% 50.0%Share of associates and JVs 0 0 0 0Other inc./(exp.) 27 87 25 25PBT 2,613 2,858 2,838 3,332 8.6% 16.6% 46.0% 54.0%Tax -606 -627 -681 -800 12.5% 27.6% 46.0% 54.0%PAT 2,007 2,231 2,157 2,532 7.5% 13.5% 46.0% 54.0%Minority 0 0 0 0Net profit 2,007 2,248 2,157 2,532 7.5% 12.7% 46.0% 54.0%Recurring net profit 2,007 2,248 2,157 2,532 7.5% 12.7% 46.0% 54.0%

MarginsGross margin 57.0% 57.4% 56.7% 56.2% -0.3% -1.2%Operating margin 18.0% 17.6% 17.1% 16.6% -0.9% -1.0%Net margin 14.4% 14.9% 13.6% 13.1% -0.8% -1.8%Tax rate -23.2% -21.9% -24.0% -24.0% -0.8% -2.1%

Source: Company, J.P. Morgan estimates

China Lilang

Current trading: After some heavy discounting in Jan+Feb channel inventory is quite healthy currently and discounting is back to normal levels since then. 1Q SSSG was close to a mid-teen rate, April was at the same rate, and May was still up double digits. While SSSG was largely driven by ASPs increases in 2011 this year so far it is mostly driven by volumes which have been around a low-teen rate. Li Lang typically opens around 250 stores per annum and management does not expect to see very aggressive store openings from peers.

Changes to our 2012 estimates: We are cutting our 2012 earnings estimate by 3% mainly on the back of the recent winter trade-fair data which came in lower than our expectations. We are not making significant changes to our margin expectations and expect Li Lang to post 16% sales, 18% operating profit and 3% net profit growth in 2012. Net profit will be impacted due to the increase in tax rate.

Maintain OW: Our new Dec-12 PT is HK$8.3, based on a two-year earnings CAGR of 18% and 0.7x PEG (discount to 1x PEG used for our big-cap coverage to reflect the risks associated with the overall franchising model). The revision in our PT is a result of our earnings revisions for 2012 and two-year CAGR. We maintain our OW rating on Li Lang as we believe at current valuation levels of one-year forward P/E of 7x, risks associated with franchisee model are more than priced in. In addition to this, we believe this is quite a remote risk for mainstream menswear names as the sector is not as overcrowded as sportswear, there is higher degree of product/brand differentiation, and brands are generally keeping channel inventory under control. Key downside risks to our price target are a lower-than-expected ASP increase and an abrupt increase in A&P expenses. Higher-than-expected wholesale discounts, subsidies and A&P expenses could pose downside risks to our margin assumptions and result in downside risks to our 2012 earnings estimates and PT. Worse-than-expected performance of the sub-brand L2 are downside risks to our earningsestimates and PT.

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Table 21: Changes to 2012 estimates – China Lilang

Rmb in millions

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 2,708 3,148 16.3% 3,265 -3.6% 3,288 -4.2%Gross profit 1,055 1,275 20.8% 1,306 -2.4%Operating profit 704 827 17.5% 853 -3.1% 870 -5.0%Net interest inc./(exp.) 44 31 31Share of associates and JVs 0 0 0Other inc./(exp.) 6 0 0PBT 753 858 13.9% 884 -3.0% 914 -6.1%Tax -130 -214 65.3% -221 -3.0%PAT 623 643 3.2% 663 -3.0%Minority 0 0 0Net profit 623 643 3.2% 663 -3.0%Recurring net profit 623 643 3.2% 663 -3.0% 692 -7.0%MarginsGross margin 39.0% 40.5% 1.5% 40.0% 0.5%Operating margin 26.0% 26.3% 0.3% 26.1% 0.1%Net margin 23.0% 20.4% -2.6% 20.3% 0.1%Tax rate -17.2% -25.0% -7.8% -25.0% 0.0%


Chow Tai Fook

Chow Tai Fook (CTF) announced HK$6.34bn net profit for FY12, up 79% y/y and in line with our estimate and with the profit forecast printed in the IPO prospectus. Management noted that due to the high base there is some slowdown in recent months. Given the broader slowdown we are seeing in the discretionary space in China, we believe it is difficult for CTF to stay totally immune and thus cut our earnings estimate by 12% for FY13, modeling low teens SSSG and a 0.4% decline in operating margin. Our new Mar-13 PT is HK$12. We maintain our OW rating as we believe a slowdown is more than priced in with the stock trading at 12.5x Mar-13E earnings. Management will kick off quarterly updates next month, which should improve transparency on the name. We continue to argue that with higher exposure to lower-tier cities, a high ratio of self-operated stores and a policy of fully hedging gold exposure, CTF should outperform peers in the space.

Good opex control but 2H GM under pressure. FY12 SSSG came in at 40% (1H at c60%/2H at c20%) vs. our estimate of 45%. With better productivity at new stores, revenue was in line. Ninety-two percent of new stores in PRC were outside of tier 1 cities. 2H gross margin was weaker than our expectation (1H GM at 29.9%/2H GM at 28.5%). Management noted that this was partly due to annual sales and partly due to terms given to franchises to promote gem-set sales. With operating expenses under control, OPM was generally in line. Inventory days came in at 213.

Guidance for FY13 and long-term target: Management plans to open more than 200 stores in FY13. 1QFY13 SSSG data will be disclosed next month but management noted that especially given a high base they are seeing a slowdown. In FY13 gross margin is targeted to maintain at 28-29% levels and inventory days is targeted to remain at current levels. Management targets to double revenue in three years’ time, c26% CAGR.

Changes to our estimates: We cut our SSSG estimates to low teens for FY13 and cut our gross margin estimates to 28.7% due to promotions, which led to a 12% cut

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in our earnings estimates. For the next three years, we expect revenue to increase by 85% vs. the company’s target of doubling sales.

Extracted from the note Chow Tai Fook Jewellery Company Ltd.: Maintain OW; Valuations attractive even after building in conservative estimates, published by Ebru Sener Kurumlu on 27 June 2012.

Table 22: FY12 estimates – Chow Tai Fook

HK$ in millions

FY12 FY13E % chg y/y FY13E - BBG JPM vs BBGSales 56,571 69,818 23.4% 70,715 -1.3%Gross profit 16,448 20,030 21.8%Operating profit 8,440 9,863 16.9% 10,413 -5.3%Net interest inc./(exp.) -274 -363Share of associates and JVs 0 0Other inc./(exp.) 0 0PBT 8,166 9,501 16.3% 10,075 -5.7%Tax -1,595 -1,900 19.1%PAT 6,571 7,600 15.7%Minority -230 -304Net profit 6,341 7,296 15.1%Recurring net profit 6,341 7,296 15.1% 7,590 -3.9%MarginsGross margin 29.1% 28.7% -0.4%Operating margin 14.9% 14.1% -0.8%Net margin 11.2% 10.5% -0.8%Tax rate -19.5% -20.0% -0.5%


Giordano

Current trading: China performance in 2Q remains relatively weak though management is seeing some sequential improvement from 1Q numbers (1Q12 China SSSG was down 7.9% and China sales were down 9.1%). Management believes they overdid the margin over volumes strategy in China especially in difficult times like 1H of this year. Management expects to see improvement in China as we move into 2H of 2012 on the back of a low base, new products of the new general managers and lower costs which will help them to give a bit more better pricing. In Hong Kong, 2Q is tracking better than 1Q, where local design and strategy is working very well.

Changes to our FY12 estimates: We are cutting our FY12 earnings estimates by 6% mainly to reflect the weak 1Q operational update and slightly weak 2Q in China. After our revisions, we expect Giordano to post 3% sales and 5% earnings growth in FY12. We do expect earnings growth to be back loaded in 2H12 and are looking for flat earnings in 1H12. While we cut our FY12 estimates, we keep our FY13 and FY14 estimates almost unchanged as we expect a favorable 7-8% earnings addition from the Middle East acquisition that was announced recently. We have not built this into our FY12 numbers.

Maintain OW: While we acknowledge that 1H12 will be a difficult period for Giordano, leading to flat earnings, looking beyond that we maintain our OW rating. With the first time consolidation of ME acquisition we are looking for 25% earnings growth in FY13, followed by a normalized 14% earnings growth in FY14E. The stock trades at 9.5x one-year forward earnings and is offering c7% yield. Our new Dec-12 PT is HK$6.5 based on an unchanged target P/E of 13x, corresponding to its 5-yr historical average. Our PT is revised down 5% due to earnings revision. Risks to

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our thesis include 1) Lower-than-expected HK sales will lead to worse-than expected operating deleverage and result in downside risks to our 2012 earnings forecasts and PT. 2) Slower-than-expected sales through will cause higher pressure on inventory and hence margins. This would also result in downside risks to our 2012 earnings estimates and PT. 3) Slower-than-expected execution of China management restructuring plan will also dilute the country’s margin assumptions and result in downside risks to our forecasts.

Table 23: Changes to 2012 estimates – Giordano

HK$m

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 5,614 5,791 3.1% 6,088 -4.9% 6,256 -7.4%Gross profit 3,283 3,371 2.7% 3,572 -5.6%Operating profit 909 964 6.1% 1,038 -7.1% 1,014 -4.9%Net interest inc./(exp.) -2 -2 -2Share of associates and JVs 97 91 86Other inc./(exp.) 0 0 0PBT 1,004 1,054 4.9% 1,122 -6.1% 1,126 -6.5%Tax -225 -232 3.0% -247 -6.1%PAT 779 822 5.5% 875 -6.1%Minority -51 -54 -57Net profit 728 768 5.5% 818 -6.1%Recurring net profit 728 768 5.5% 818 -6.1% 814 -5.7%MarginsGross margin 58.5% 58.2% -0.3% 58.7% -0.4%Operating margin 16.2% 16.7% 0.5% 17.0% -0.4%Net margin 13.0% 13.3% 0.3% 13.4% -0.2%Tax rate -22.4% -22.0% 0.4% -22.0% 0.0%


Table 24: 1H12 and 2H12 P&L summary – Giordano

HK$m


Sales 2,649 2,965 2,661 3,129 0.5% 5.5% 46.0% 54.0%Gross profit 1,581 1,702 1,565 1,806 -1.0% 6.1% 46.4% 53.6%Operating profit 452 457 432 532 -4.5% 16.5% 44.8% 55.2%Net interest inc./(exp.) -1 -1 -1 -1 50.0% 50.0%Share of associates and JVs 39 58 46 46 50.0% 50.0%Other inc./(exp.) 0 0 0 0PBT 490 514 476 577 -2.8% 12.3% 45.2% 54.8%Tax -119 -106 -105 -127 -11.9% 19.8% 45.2% 54.8%PAT 371 408 372 450 0.2% 10.3% 45.2% 54.8%Minority -25 -26 -27 -27Net profit 346 382 345 423 -0.4% 10.8% 44.9% 55.1%Recurring net profit 346 382 345 423 -0.4% 10.8% 44.9% 55.1%

MarginsGross margin 59.7% 57.4% 58.8% 57.7% -0.9% 0.3%Operating margin 17.1% 15.4% 16.2% 17.0% -0.8% 1.6%Net margin 13.1% 12.9% 13.0% 13.5% -0.1% 0.6%Tax rate -24.3% -20.6% -22.0% -22.0% 2.3% -1.4%

Source: Company data, J.P. Morgan estimates.

Golden Eagle

Recent trading: We believe Golden Eagle is likely to close 1H12 with high single digits to 10% SSSG. While 1Q was a tad weak and April saw a recovery, May was

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on the weak side as well and management says weekly performance has been volatile during June. The company is not doing aggressive promotions across the board, onlydoing promotions at some new stores where traffic needs to improve.

Changes to our 2012 estimates: We cut our FY12 estimates by 5% on the back of slower than expected recovery in SSSG. We are now building 9% SSSG in 1H and 13.5% in 2H mainly on the back of the weak base of 4Q11. For FY12 we expect 23% revenue growth with 11% driven by SSSG and the remaining by the new stores. We continue to expect pressure on concessionaire rates and there are no major changes in our view on that front. We are building 0.5% erosion on concessionaire rate down to 16.3% in FY12 from 16.8% in FY11. With some additional pressure on operating expenses (due to new store openings) we are looking for 10% earnings growth.

1H12 results preview: It is also worth highlighting that 1H12 will be one of the difficult 1Hs for Golden Eagle. Not only is demand generally weak impacting sales performance across existing stores but also in 2012 Golden Eagle's new store openings are front loaded. Out of the new 7 stores targeted for this year, 5 opened in the 1H. All new stores preopening costs falls in 1H12 and sales contribution from these stores that just opened will be insignificant. Therefore, we expect operating margin to be down by 1.2% y/y in 1H12, leading to almost flat earnings. We expect this to improve partly in 2H, with some sales contribution kicking in and cost base stabilizing to a recurring level.

Maintain OW: As we caution for weak 1H results and some more downside risk to consensus earnings estimates (which are 5% above ours), we maintain our OW rating for Golden Eagle taking a longer-term view. The stock is trading at 16x 1-yr forward P/E, pricing in the short-term weakness already in our view. We believe it is one of the best-positioned department stores in China and we are looking for 27% earnings CAGR post 2012 driven largely by new store additions and SSSG (around 14% post 2012). Our New Dec-12 PT is HK$22.5 (down 5% from the previous PT of HK$23) is based on 1x PEG and 27% two-year earnings CAGR post 2012. Main risk on the downside is execution risk at opening new stores. We assume 11% SSSG for all the stores at a blended level in 2012E and 14% for 2013E and 2014E. If SSSG comesbelow our estimate this will pose downside risk to our estimates and PT; we assume c1% EBIT margin erosion due to new stores. If new stores perform below our expectations given the slowdown in 2012E, this will also pose downside risks to our 2012 estimates and PT.

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Table 25: Changes to 2012 estimates – Golden Eagle

RMBm

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGGross sales proceeds 14,340 17,633 23.0% 18,105 -2.6%Sales 3,217 3,912 21.6% 4,017 -2.6% 4,060 -3.6%Gross profit 2,453 2,945 20.1% 3,024 -2.6%Operating profit 1,533 1,727 12.6% 1,810 -4.6% 1,825 -5.4%Net interest inc./(exp.) 73 71 71Share of associates and JVs -20 0 0Other inc./(exp.) 40 0 0PBT 1,626 1,798 10.6% 1,881 -4.4% 1,890 -4.9%Tax -414 -468 12.9% -489 -4.4%PAT 1,212 1,331 9.8% 1,392 -4.4%Minority 0 0 0Net profit 1,212 1,331 9.8% 1,392 -4.4%Recurring net profit 1,193 1,331 11.6% 1,392 -4.4% 1,401 -5.0%MarginsGross margin 17.1% 16.7% -0.4% 16.7% 0.0%Operating margin 10.7% 9.8% -0.9% 10.0% -0.2%Net margin 8.5% 7.5% -0.9% 7.7% -0.1%Tax rate -25.5% -26.0% -0.5% -26.0% 0.0%

Source: Company data, J.P. Morgan estimates, Bloomberg.

Table 26: 1H12 and 2H12 P&L summary – Golden Eagle

RMBm


Gross sales proceeds 6,903 7,437 8,095 9,538 17.3% 28.2% 45.9% 54.1%Sales 1,557 1,660 1,818 2,094 16.8% 26.2% 46.5% 53.5%Gross profit 1,211 1,242 1,374 1,571 13.4% 26.5% 46.7% 53.3%Operating profit 777 756 812 915 4.5% 21.0% 47.0% 53.0%Net interest inc./(exp.) 34 39 35 35 50.0% 50.0%Share of associates and JVs 1 -21 0 0Other inc./(exp.) 16 24 0 0PBT 828 798 848 951 2.3% 19.2% 47.1% 52.9%Tax -212 -202 -220 -247 3.8% 22.5% 47.1% 52.9%PAT 616 596 627 703 1.8% 18.0% 47.1% 52.9%Minority 0 0 0 0Net profit 616 596 627 703 1.8% 18.0% 47.1% 52.9%

MarginsGross margin 17.6% 16.7% 17.0% 16.5% -0.6% -0.2%Operating margin 11.3% 10.2% 10.0% 9.6% -1.2% -0.6%Net margin 8.9% 8.0% 7.7% 7.4% -1.2% -0.6%Tax rate -25.6% -25.3% -26.0% -26.0% -0.4% -0.7%


I.T Ltd

Current trading: I.T. management notes that current trading has been generally weak and management has taken the view to push sales via promotions. In terms of store openings, they will be opportunistic and would not set a hard target for store openings.

Changes to FY13 estimates: We cut our FY13 estimates by 4%, half of it coming from lower sales and half from margin cuts. We now expect IT to deliver 9% earnings growth in FY13 with 16% top-line increase. We are modeling 5% SSSG for HK and 7% in China and c10% addition to average sales area sq ft in FY13.

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Maintain OW: I.T. has a multi-brand and multi-channel merchandise offering allowing the company to cover the full spectrum of mid- to high-end fashion market targeting customers from teenage years to late 40s. We believe the structural upgrade trends and shifting from sportswear to fast fashion names will allow IT to notably expand its market share in China. We maintain our OW rating with a new Mar-13 PT of HK$5.5 based on 0.7x PEG (discount to big cap space due to lower Mcap and liquidity) and 18% two-year earnings CAGR post FY13. Our PT is revised down due to FY13 earnings revision and cut in our long-term EPS CAGR expectation. Downside risks to our rating and price target: We currently assume 2H FY12 will be the trough of the current cycle. Worse-than-expected macro slowdown would cause downside for FY13, especially for 1H; an abrupt slowdown in SSS growth; higher-than-expected operating expenses. Professionalization of the business is a potential long-term risk, i.e., how the family-based management team will grow to include more non-family professionals as the business expands, especially in China.

Table 27: Changes to FY13 estimates – I.T Ltd

HK$m

FY12FY13E-

new% chg

y/yFY13E-

oldNew vs

oldFY13E -

BBGJPM vs

BBGSales 5,742 6,684 16.4% 6,838 -2.3% 6,574 1.7%Gross profit 3,540 4,087 15.5% 4,233 -3.4%Operating profit 575 640 11.3% 665 -3.8% 630 1.6%Net interest inc./(exp.) -6 -6 -6Share of associates and JVs 4 24 25Other inc./(exp.) 0 0 0PBT 574 658 14.7% 684 -3.8% 623 5.6%Tax -101 -138 37.3% -144 -3.8%PAT 473 520 9.9% 541 -3.8%Minority -2 -1 -1Net profit 471 519 10.1% 539 -3.8%Recurring net profit 474 519 9.4% 539 -3.8% 527 -1.6%MarginsGross margin 61.7% 61.1% -0.5% 61.9% -0.8%Operating margin 10.0% 9.6% -0.4% 9.7% -0.2%Net margin 8.2% 7.8% -0.4% 7.9% -0.1%Tax rate -17.5% -21.0% -3.5% -21.0% 0.0%


L’Occitane

“L’Occitane announced FY12 year net profit of €121m, up 22% y/y and 13.7% better than our estimates; 5% driven by better than expected sales, 6% driven by better control on operating expenses and the remaining 3% driven by FX gains. Following the results we lift up our FY13 estimates by 15% and revise our PT to HK$18. The stock had strong performance YTD and trades at 20.5x FY13E P/E vs international brands average PE of 19x. While we appreciate the higher growth outlook for L’Occitane compared to international brands, we believe valuations are fair at these levels (pointing to 1x PEG) and maintain Neutral. We would be buyers on declines.

FY12 sales by market: Sales from HK and China grew strongly at 29% and 55% respectively, contributing c.16% to the total sales. USA and Japan sales grew 10% and 13% respectively, contributing 11.5% and 23.6% to the total. As highlighted in our previous note, sales from DMs and sell-in & B-to-B was the main cause of sales surprise. Overall, FX contribution to sales was negligible. SSSG in HK, China, UK, US and Japan was 34.3%, 19.9%, 14.8%, 10.3% and -3.3%, respectively. A net of 158 self-operated stores were added during FY12.

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Details on FY12 margins: Full year gross margin improved 20bps, driven by the sell-in & B-to-B segment gross margin improvement of 2ppt and 0.7ppt decline in sell-out margin. Overall operating margin declined 0.4ppt, largely due to investments in the brand and channel mix while retail efficiency and prices product mix contributed positively to operating margin. Management decided to increase dividend payout ratio to 30% from 20% last year as cash flow remains comfortable and there are no major M&A targets on the horizon. Cash conversion cycle increased to 109 days from 74 days last year largely due to increase in inventory days. Inventory rose to 263 days (250 days excluding MPP) driven by FX rates, improvement in safety stock which was too low last year and increase in inventory coverage.

Guidance for FY13: i) Management noted that while markets are challenging they are working hard and delivering nice growth. ii) Putting some investment at gross margin level. While benefitting from operating leverage they target to invest some of this into marketing spending iii) Not totally immune from the slowdown in China but still delivering healthy double digit growth. In China will be introducing 50-60 SKUs this year and expect this to impact the growth positively iv) FY13 capex will step up to €90-100mn given the renovation in Manosque factory. v) revising up the original 5-yr plan as two years into the plan running ahead of expectations.”

Extracted from the note “L'Occitane International SA: L'Occitane results better than expected but priced in”, published by Ebru Sener Kurumlu on 18 June 2012.

Table 28: FY13 estimates – L’Occitane

€m

FY12 FY13E-new % chg y/y FY13E - BBG JPM vs BBGSales 913 1,056 15.6% 1,065 -0.8%Gross profit 755 872 15.5%Operating profit 152 181 18.9% 181 -0.2%Net interest inc./(exp.) 0 1Share of associates and JVs 0 0Other inc./(exp.) 4 4PBT 157 186 18.9% 183 1.9%Tax -32 -41 26.5%PAT 124 145 17.0%Minority -3 -4Net profit 121 142 17.0%Recurring net profit 121 142 17.0% 141 0.4%MarginsGross margin 82.7% 82.6% -0.1%Operating margin 16.7% 17.1% 0.5%Net margin 13.3% 13.4% 0.2%Tax rate -20.7% -22.0% -1.3%


Li Ning

Weak operational update. FY12 trade fair orders were down by high single digitsy/y, bringing the FY trade fair order decline to high single digit level on a y/y basis. Management is taking a proactive approach as they want to control sell in, given weak sell through and high discounting in the sector. Li Ning's focus will be on functional products and core brand. Li Ning also announced that it signed an agreement with CBA as its equipment supplier. While management did not disclose the amount they noted: i) Impact on 2012 will be small as it kicks in 4Q, ii) despite CBA agreement, they expect SG&A to remain flat in 2013 vs. 2012 as they are cutting costs on staff front (partly related to the reduction of self-operated stores

28



which bear all the retail costs), cutting some of the media spending since CBA willbring additional media awareness, cutting inefficient sponsorships and finally focusing on core brand and putting less effort into other brands.

Terms change for Lotto agreement. On June 12 Li Ning also announced that they have reduced the duration of Lotto license agreement to 10 years i.e., ending in end 2018 vs. 2028 earlier. This translates into lower aggregate minimum royalty to be paid; hence, a saving of cRMB34mn per annum on finance costs and royalty payments per annum based on our estimates. However, due to reduction in intangible assets’ value, there will be a one-off non-cash expense of RMB59.5mn that will be booked in 2012. This was the main reason for company warning about a rather substantial decline in profit y/y and we would not read too much into this.

Changes to FY12 estimate: We had cut our earrings estimates by around 10% on June 12 on the back of Li Ning's announcement of an operational update. We are therefore not making changes in this Note.

Maintain UW: We maintain our UW rating. We believe the sportswear sector is still struggling with inventory problems and heavy discounting. We have not yet seen any major consolidation taking place in the sector and expect more shake-up as franchisees in our view find it difficult to run profitable businesses given high discount levels. As we assume the sector’s margin will fall to a new normalized level by 2014, our Dec-12 PT of HK$4.5 equals the present value of the long-term target P/E of 10x 2014 earnings, which are based on normalized margins. Our normalized target P/E represents c30% discount to the international brands’ long-term average of 15-16x on brand recognition. The company is working on streamlining operations for different markets which could lead to lower-than-expected staff costs and thus some margin upside. Better-than-expected sell-through of outlet business could help accelerate destocking and thus improve top-line growth; this would cause upside risks to our sales forecasts. Other risks include lower-than-expected A&P expenses (we think at the expense of long-term sustainability) and higher-than-expected trade fair order growth (we think at the expense of retail inventory level).

Table 29: 2012 estimates – Li Ning

RMBm

2011 2012E % chg y/y 2012E - BBG JPM vs BBGSales 8,929 8,041 -9.9% 8,551 -6.0%Gross profit 4,115 3,653 -11.2%Operating profit 631 507 -19.7% 532 -4.8%Net interest inc./(exp.) -82 -51Share of associates and JVs -2 0Other inc./(exp.) 0 -60PBT 547 397 -27.5% 469 -15.3%Tax -136 -99 -27.3%PAT 411 298 -27.6%Minority -25 -28Net profit 386 269 -30.2%Recurring net profit 386 314 -18.6% 312 0.6%MarginsGross margin 46.1% 45.4% -0.6%Operating margin 7.1% 6.3% -0.8%Net margin 4.3% 3.3% -1.0%Tax rate -24.9% -25.0% -0.1%


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Lifestyle

Current trading: Hong Kong stores continue to deliver relatively good growth compared to China and in 2Q as well HK is running with low to mid teens SSSG. Management notes that after April they had moved into high base (3Q11 and 4Q11was particularly strong) so they expect 2H to slow down slightly vs. the 1H in Hong Kong. Sales at the Shanghai store has been weak throughout 1H12, showing flat to slight declines. Suzhou store is generally doing fine and seeing double-digit growth though as good as the management initially expected due to a generally weak environment. The train line started to operate since end of April and we expect more traffic on the back of this. Dalian store seems to be the weakest among the new stores and struggling.

Changes to FY12 estimates: Incorporating better-than-expected HK sales performance in 1H12, we lift our sales and earnings estimates by 4% and 3%, respectively. We are modeling c10% SSSG for CWB store in FY12 which points to c6-7% in 2H12, which should be achievable in our view, given 1H performance. For Shanghai store, we have flat sales for FY12E, which conservatively assumes no sequential improvement at the store. With these assumptions, we expect c9% sales growth and 15% recurring profit growth for FY12 (note that FY11 headline earnings includes one-off gains of cHK$300mn on the back of FV changes on investment properties).

Upgrade to OW: Our Dec-12 PT is HK$19 based on SOTP method, where we value HK operations at 15x P/E and Shanghai at 13x. There is no change to our PT as we had only a 3% tweak in our FY12 earnings estimates. Lifestyle's share price has been weak for the past 3 months mainly due to i) weak sales performance in Shanghai ii) departure of the general manager iii) news flow around one of the major shareholder Joseph Lau (please see link Chinese estates announcement dated 23 May). We believe Shanghai store weakness is more than in the price and the latter two news items will not have any material fundamental impact on Lifestyle’s operations. Hence we believe selling s overdone and upgrade the stock to OW as a proxy to Hong Kong retail sales growth (with no pressure on cost side given that the main store is self-owned). Main risk to our PT would be further weakening of performance at Shanghai store, HK store sales seeing a sharp slowdown in 2H12, Suzhou store and Dalian store posting higher than expected losses in 2012 due to weakness in demand.

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Table 30: Changes to 2012 estimates – Lifestyle

HK$m

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGGross sales proceeds 12,052 13,184 9.4% 12,652 4.2%Sales 5,132 5,536 7.9% 5,472 1.2% 5,857 -5.5%Gross profit 3,000 3,272 9.1% 3,163 3.4%Operating profit 2,039 2,274 11.5% 2,192 3.7% 2,470 -7.9%Net interest inc./(exp.) -6 -108 -57Share of associates and JVs 251 284 190Other inc./(exp.) 310 0 0PBT 2,594 2,450 -5.6% 2,325 5.4% 2,633 -6.9%Tax -535 -453 -15.4% -415 9.0%PAT 2,059 1,997 -3.0% 1,910 4.6%Minority -173 -182 -153Net profit 1,886 1,816 -3.7% 1,757 3.3%Recurring net profit 1,576 1,816 15.2% 1,757 3.3% 1,959 -7.3%MarginsGross margin 24.9% 24.8% -0.1% 25.0% -0.2%Operating margin 16.9% 17.2% 0.3% 17.3% -0.1%Net margin 15.7% 13.8% -1.9% 13.9% -0.1%Tax rate -20.6% -18.5% 2.1% -17.9% -0.6%


Parkson

Current trading: Parkson had announced weak 1Q12 results, pointing to a 12% decline in operating profit, a 5% decline in net profit as sales were weak (SSSG at 2%) and operating expenses surged (up 25% y/y). Management noted that April SSSG recovered to 7% and it expected 2Q SSSG to be around mid-single-digits.

Changes to our estimates: We had cut our FY12 earnings estimates by 7% and our Dec-12 end PT to HK$7.5 on May 17 after 1Q results announcement. We are not making further changes to estimates in this Note.

Maintain Neutral: While we maintain our Neutral rating for the longer term we remain cautious about this name in the mid-term as it continues to underperform peers and deliver weak earnings. Our Dec-12 PT of HK$7.5 is based on 1x PEG and 15% two-year earnings CAGR after 2012. A key risk on the downside is SSSG further slowing down in Shanghai and Beijing stores, while key upside risks include better-than-expected cost control and better-than-expected margins and performance at the new stores.

31



Table 31: 2012 estimates – Parkson

RMBm

2011 2012E-new % chg y/y 2012E - BBG JPM vs BBGGross sales proceeds 16,426 18,212 10.9%Sales 4,938 5,462 10.6% 5,400 1.1%Gross profit 3,699 4,113 11.2%Operating profit 1,509 1,495 -0.9% 1,543 -3.1%Net interest inc./(exp.) 9 83Share of associates and JVs 0 0Other inc./(exp.) 0 0PBT 1,519 1,579 4.0% 1,682 -6.1%Tax -366 -395 7.9%PAT 1,153 1,184 2.7%Minority -30 -34Net profit 1,123 1,150 2.4%Recurring net profit 1,123 1,150 2.4% 1,236 -6.9%MarginsGross margin 22.5% 22.6% 0.1%Operating margin 9.2% 8.2% -1.0%Net margin 6.8% 6.3% -0.5%Tax rate -24.1% -25.0% -0.9%


Table 32: 1H12 and 2H12 P&L Summary – Parkson

RMBm


Gross sales proceeds 8,159 8,268 8,852 9,359 8.5% 13.2% 48.6% 51.4%Sales 2,455 2,484 2,655 2,807 8.2% 13.0% 48.6% 51.4%Gross profit 1,830 1,869 2,002 2,111 9.4% 13.0% 48.7% 51.3%Operating profit 808 701 758 737 -6.2% 5.2% 50.7% 49.3%Net interest inc./(exp.) -7 16 42 42 50.0% 50.0%Share of associates and JVs 0 0 0 0Other inc./(exp.) 0 0 9 -9PBT 802 717 809 770 0.9% 7.4% 51.2% 48.8%Tax -201 -165 -203 -192 1.1% 16.1% 51.4% 48.6%PAT 601 552 606 578 0.8% 4.8% 51.2% 48.8%Minority -16 -13 -18 -16Net profit 585 538 588 562 0.7% 4.4% 51.2% 48.8%Recurring net profit 585 538 588 562 0.7% 4.4% 51.2% 48.8%

MarginsGross margin 22.4% 22.6% 22.6% 22.6% 0.2% 0.0%Operating margin 9.9% 8.5% 8.6% 7.9% -1.3% -0.6%Net margin 7.2% 6.5% 6.6% 6.0% -0.5% -0.5%Tax rate -25.0% -23.1% -25.1% -24.9% 0.0% -1.9%


Ports Design

Current trading: China's retail scene slowed down significantly in 4Q11 and continues to slow down in 1Q12. Ports is still holding up in the first five months and seeing low double digit sales growth. For 2012, management continues to target 10% new store openings. Out of the 40 new stores planned to be opened 25-28 will be Ports ladies, 10 menswear and the rest for licensed brands. Currently, menswear accounts for 30% of total revenue and Ports expects it to grow faster than womenswear in the next five years.

Changes to our 2012 estimates: We fine-tune our earnings estimates and cut by 3% incorporating slightly lower sales and lower operating margin. We are modeling 10% SSSG for FY10 and 9% store additions during FY12. We are looking for 10% y/y

32



increase in sales and 6% y/y increase in net profit. We have further lowered our long-term estimates and expect c11% two-year CAGR after 2012.

Maintain UW: Our new Dec-12 PT is HK$7.3 based on 0.7x PEG and 10.5% two-year earnings CAGR post 2012. We have not changed our PT method but due to the revision in 2012 earnings and earnings CAGR we lower our PT by 27%. We maintain our UW rating for Ports Design. We have structural concerns on Ports Design due to rising competition and unproven multi-brand strategy. We expect the company’s main growth pillar SSSG to slow down as international brands roll out their points of sales more aggressively in lower-tier cities.

Table 33: Changes to 2012 estimates – Ports Design

RMBm

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 1,985 2,190 10.3% 2,219 -1.3% 2,250 -2.7%Gross profit 1,629 1,793 10.0% 1,799 -0.4%Operating profit 526 616 17.2% 642 -4.0% 638 -3.3%Net interest inc./(exp.) 12 17 14Share of associates and JVs 0 0 0Other inc./(exp.) 51 0 0PBT 589 633 7.5% 656 -3.5% 636 -0.5%Tax -159 -177 11.8% -184 -3.5%PAT 430 456 5.9% 472 -3.5%Minority 0 0 0Net profit 430 456 6.0% 472 -3.5%Recurring net profit 428 456 6.4% 472 -3.5% 461 -1.0%MarginsGross margin 82.1% 81.9% -0.2% 81.1% 0.8%Operating margin 26.5% 28.2% 1.7% 28.9% -0.8%Net margin 21.7% 20.8% -0.8% 21.3% -0.5%Tax rate -26.9% -28.0% -1.1% -28.0% 0.0%


Table 34: 1H12 and 2H12 P&L summary – Ports Design

RMBm


Sales 898 1,087 993 1,197 10.6% 10.1% 45.3% 54.7%Gross profit 733 897 809 983 10.4% 9.7% 45.1% 54.9%Operating profit 246 280 263 353 7.1% 26.1% 42.7% 57.3%Net interest inc./(exp.) 6 6 8 8 50.0% 50.0%Share of associates and JVs 0 0 0 0Other inc./(exp.) 45 6 0 0PBT 298 291 272 362 -8.7% 24.1% 42.9% 57.1%Tax -84 -75 -76 -101 -9.2% 35.4% 42.9% 57.1%PAT 214 217 196 260 -8.6% 20.2% 42.9% 57.1%Minority 1 0 0 0Net profit 213 217 196 260 -8.3% 20.1% 42.9% 57.1%Recurring net profit 173 256 196 260 13.1% 1.9% 42.9% 57.1%

MarginsGross margin 81.6% 82.5% 81.5% 82.2% -0.1% -0.3%Operating margin 27.4% 25.8% 26.5% 29.5% -0.9% 3.8%Net margin 23.7% 19.9% 19.7% 21.8% -4.0% 1.8%Tax rate -28.1% -25.7% -28.0% -28.0% 0.1% -2.3%


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Sa Sa International

Current trading: There is some slowdown in 1QFY13, following c20% SSSG in 2HFY12. Management still targets a low teens SSSG for FY13 and plans to have c100 new store openings. Expect some pressure on rental costs given that renewal rates are around 25% and would be focusing more on residential areas vs. traditional tourist areas to mitigate the cost pressure.

Changes to our FY13 estimates: Following FY12 results which beat our estimates by 6%, we are lifting our FY13 earnings estimates for Sa Sa by 4%. We are buildingc16% revenue growth in HK in FY13 largely driven by low teens SSSG. We are building slight erosion in operating margin on the back of rent costs and expect c15% earnings growth in FY13.

Maintain Neutral: Our new Mar-13 PT is HK$5.3 based on 0.9x PEG and two-year earnings CAGR of 21%. While we slightly lower our earnings CAGR estimate from 22% to 21%, we roll forward the time frame by six months and lift FY13 estimates by 4%; hence, our PT is changed only marginally. Sa Sa trades at 17x Mar-13 earnings and currently we see c13% upside potential to our PT and would be buyers of the stock on declines. Key upside risks include higher-than-expected gross margins; key downside risks include lower-than-expected transaction volume and higher-than-expected losses of China market.

Table 35: Changes to FY13 estimates – Sa Sa International

HK$m

FY12FY13E-

new% chg

y/yFY13E-

oldNew vs

oldFY13E -

BBGJPM vs

BBGSales 6,405 7,596 18.6% 7,189 5.7% 7,541 0.7%Gross profit 2,897 3,444 18.9% 3,154 9.2%Operating profit 828 972 17.3% 950 2.3% 991 -1.9%Net interest inc./(exp.) 6 8 7Share of associates and JVs 0 0 0Other inc./(exp.) 0 0 0PBT 835 979 17.3% 956 2.4% 976 0.3%Tax -145 -186 28.2% -191 -2.7%PAT 690 793 15.0% 765 3.7%Minority 0 0 0Net profit 690 793 15.0% 765 3.7%Recurring net profit 690 793 15.0% 765 3.7% 807 -1.7%MarginsGross margin 45.2% 45.3% 0.1% 43.9% 1.5%Operating margin 12.9% 12.8% -0.1% 13.2% -0.4%Net margin 10.8% 10.4% -0.3% 10.6% -0.2%Tax rate -17.4% -19.0% -1.6% -20.0% 1.0%


Trinity

Current trading: Management notes that SSSG is running around single digitsduring the 1H of 2012 and the company continues to target low teens for FY12 which means a strong recovery needs to kick in in 2H12. Taiwan SSSG is quite weak but it is only 8% of the business. So far, there are no major discounts on their end or from competitors as well.

Changes to our FY12 estimates: We keep China SSSG rate at 8% for FY12, increase HK SSSG rate from 6% to 8% level. Without including Gieves and Hawkes

34



acquisition, we would have cut our overall sales estimate by 2% as we build lower sales from Taiwan, lower new store openings (35 new net stores planned for FY12) and lower productivity at the new stores. After including the Gieves and Hawkes acquisition, our 2012 sales estimate is almost unchanged. We cut our earnings estimates by 5% as now do not model any operating margin improvement due to leverage and after incorporating the Gieves and Hawkes acquisition we cut it by 5%. We expect Trinity just to maintain its operating margin in FY12 as we are not modeling big promotions.

Maintain OW: Following the revision to FY12 earnings estimates, we lower our Dec-12 PT to HK$8 due to the earnings revision in 2012 and changes in CAGR post 2012. Our PT is based on 1x PEG and a two-year earnings CAGR of c25%. After a sharp correction YTD, Trinity now trades at 13x one-year forward P/E. With its high-end menswear brands that have plenty of penetration potential in China, we believe Trinity offers multiple years of growth opportunity and the current slowdownis more than priced in. Maintain our OW rating. Main risks are further slowdown in SSSG rates in China and HK and one more round of sharp increases in staff costs.

Table 36: Changes to 2012 estimates - Trinity

HK$m

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 2,607 3,101 18.9% 3,082 0.6% 3,116 -0.5%Gross profit 2,104 2,455 16.7% 2,447 0.3%Operating profit 614 712 16.1% 770 -7.5% 728 -2.2%Net interest inc./(exp.) 1 -4 3Share of associates and JVs 62 64 57Other inc./(exp.) 0 0 0PBT 677 772 14.1% 830 -6.9% 793 -2.6%Tax -164 -193 17.8% -216 -10.5%PAT 513 579 12.9% 614 -5.7%Minority 0 0 0Net profit 513 579 12.9% 614 -5.7%Recurring net profit 513 579 12.9% 614 -5.7% 603 -3.9%MarginsGross margin 80.7% 79.2% -1.5% 79.4% -0.2%Operating margin 23.5% 23.0% -0.6% 25.0% -2.0%Net margin 19.7% 18.7% -1.0% 19.9% -1.2%Tax rate -24.2% -25.0% -0.8% -26.0% 1.0%


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Table 37: 1H12 and 2H12 P&L summary - Trinity

HK$m


Sales 1,206 1,401 1,392 1,709 15.4% 21.9% 44.9% 55.1%Gross profit 974 1,130 1,122 1,333 15.2% 18.0% 45.7% 54.3%Operating profit 298 315 342 371 14.5% 17.6% 48.0% 52.0%Net interest inc./(exp.) 1 0 1 -5 -12.5% 112.5%Share of associates and JVs 30 33 31 34 47.7% 52.3%Other inc./(exp.) 0 0 0 0PBT 329 348 373 400 13.3% 14.8% 48.2% 51.8%Tax -89 -75 -101 -92 13.2% 23.3% 52.1% 47.9%PAT 240 273 272 307 13.3% 12.5% 47.0% 53.0%Minority 0 0 0 0Net profit 240 273 272 307 13.3% 12.5% 47.0% 53.0%Recurring net profit 240 273 272 307 13.3% 12.5% 47.0% 53.0%

MarginsGross margin 80.8% 80.6% 80.6% 78.0% -0.2% -2.6%Operating margin 24.7% 22.5% 24.5% 21.7% -0.2% -0.8%Net margin 19.9% 19.5% 19.5% 18.0% -0.4% -1.5%Tax rate -27.0% -21.6% -27.0% -23.1% 0.0% -1.6%

Source: Company data, J.P. Morgan estimates

Xtep

Current trading: SSSG in 2Q was around a low single digit increase, SSSG in 1Q was lower around flat. Channel inventory is around five months. While it is better than last year and management does not expect it to deteriorate but will not improve a lot either until the end of the year. Average discounting is around 30% plus levels. The company does not expect to make big changes to store numbers during the year.

Changes to FY12 estimates: We tweak our FY12 earnings estimate by 1% as we incorporate:i) single-digit increase in orders, ii) remove Disney from our estimates as operations ceased, iii) incorporate a higher tax rate.

Maintain UW: We believe 2012 will be another difficult year for all sportswear brands across the board and continue to recommend staying away from the sector. (refer to our note “PRC Specialty Retail: Trade Sportswear for Fashion”) We maintain our UW in Xtep. We have further cut our PT to HK$2.25 (from previous HK$2.6) based on the present value of the long-term target P/E of 10x 2014Eearnings, which are based on normalized margins. We have reduced the target P/E to 10x (pointing to c30% discount to the international brands’ long-term average of 15-16x on brand recognition) from 13x as we become more cautious on local sportswear brands’ long-term prospects than earlier. Risks to our PT include lower-than-expected A&P expenses at the expense of long-term sustainability, and higher-than-expected trade fair order growth at the expense of retail inventory level.

https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-791309-0.pdf

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Table 38: Changes to 2012 estimates - Xtep

RMBm

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 5,540 5,653 2.0% 5,953 -5.0% 5,675 -0.4%Gross profit 2,258 2,284 1.2% 2,318 -1.5%Operating profit 1,219 1,107 -9.2% 1,062 4.2% 971 14.0%Net interest inc./(exp.) -5 -20 10Share of associates and JVs 0 0 0Other inc./(exp.) -3 0 0PBT 1,211 1,087 -10.3% 1,071 1.5% 1,143 -4.9%Tax -246 -239 -2.8% -214 11.6%PAT 965 848 -12.2% 857 -1.1%Minority 0 0 0Net profit 965 848 -12.2% 857 -1.1%Recurring net profit 965 848 -12.2% 857 -1.1% 891 -4.9%MarginsGross margin 40.8% 40.4% -0.4% 38.9% 1.5%Operating margin 22.0% 19.6% -2.4% 17.8% 1.7%Net margin 17.4% 15.0% -2.4% 14.4% 0.6%Tax rate -20.3% -22.0% -1.7% -20.0% -2.0%


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Company section – Staples

Ajisen

Operation updates

Same-store sales in China have been trending at negative 20-25% year to date, which is below our expectation of -15% in 1H12 for China. Same-stores sales in Hong Kong were doing better, trending between -4% and 5%. Due to the decline in sales per stores, around 200+ stores are loss-making right now (total stores in China were 622 as of end 2011). During the first half, the company closed 16 non-performing stores and had a net opening number of stores of 12.

New TV commercial program has been launched since March in Shanghai. Sales improved immediately by 14% month-on-month, according to the company. The roll-out of the new TV commercial in Hong Kong has started since May and will be launched in Shenzhen later. In addition, the company is more active in doing media interviews in an effort to rebuild the brand image.

Forecast changes

For the full year of 2012, the company is guiding for positive single digit revenue growth on flat to single digit negative SSSG and net opening of 80 stores (to close 30 stores).

Given that the slower same-store sales trend in China, we are lowering our revenue forecasts by 10%. We now assume revenue to increase 1% y/y in 2012 and SSS in China to be -20% in 1H12 and flat in 2H12. Our full-year SSS assumption for China is lowered to -10% from 0% previously. Due to operating deleverage, net profits is lowered by 50%.

Beyond 2012, we expect Ajisen to deliver 34% earnings CAGR in 2012-2014 driven by 20% top-line CAGR and 1.5ppt net margin improvement. We have assummed140 new stores in 2013 and 2014 and SSSG of 10% and 5% for 2013 and 2014, respectively.

Table 39: Changes to our estimates

New Old ChangeYear to Dec (US$ m) 2012E 2013E 2012E 2013E 2012E 2012E

Turnover 3096 3775 3425 4218 -9.6% -10.5%Gross Profit 2028 2473 2314 2850 -12.4% -13.2%Total operating expenses -1882 -2223 -1904 -2290 -1.2% -2.9%Other income 136 136 136 136EBIT 258 362 522 672 -50.6% -46.2%Profit before tax 281 385 546 695 -48.4% -44.6%Income Tax -76 -96 -136 -174 -44.3% -44.6%Minority Interests -9 -13 -18 -23 -49.8% -44.6%Net Profit 196 276 391 499 -49.8% -44.6%


Neutral, PT HK$6.0.

We are keeping Ajisen as Neutral despite our 2012 earnings forecast is 43% below consensus as we are taking a longer-term view and believe the company will resume earnings growth of 34% in 2012-14. We believe it would take some time for the company to rebuild the brand because the issue with Ajisen is more related to

38



consumers’feeling of being misled by the company and is less willing to pay a premium for its products, in our view,we would be a buyer of the stock when SSS starts to show positive growth.

Our Dec-12 PT is lowered to HK$6.0 (from HK$9.0), which is based on 0.9x PEG and an EPS CAGR of 34% in 2012E-14E. Main upside risk to our call would be a faster recovery and main downside risk to our call would be further earnings downgrades by consensus. We would be a buyer of the stock once same-store sales start showing positive growth.

Table 40: Changes to 2012 estimates – Ajisen

HK$m

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 3,075 3,096 0.7% 3,425 -9.6% 3,473 -10.9%Gross profit 2,084 2,028 -2.7% 2,314 -12.4%Operating profit 497 258 -48.0% 522 -50.6% 395 -34.7%Net interest inc./(exp.) -4 0 0Share of associates and JVs 0 0 0Other inc./(exp.) 23 23PBT 516 281 -45.5% 546 -48.4% 473 -40.5%Tax -150 -76 -49.4% -136 -44.3%PAT 366 205 -43.9% 409 -49.8%Minority -16 -9 -18Net profit 350 196 -43.9% 391 -49.8%Recurring net profit 350 196 -43.9% 391 -49.8% 333 -41.1%MarginsGross margin 67.8% 65.5% -2.3% 67.6% -2.1%Operating margin 16.2% 8.3% -7.8% 15.3% -6.9%Net margin 11.4% 6.3% -5.0% 11.4% -5.1%Tax rate -29.1% -27.0% 2.1% -25.0% -2.0%


Table 41: 1H12 and 2H12 P&L summary – Ajisen

HK$m


Sales 1,665 1,410 1,306 1,790 -21.5% 26.9% 42.2% 57.8%Gross profit 1,140 944 849 1,179 -25.5% 24.9% 41.9% 58.1%Operating profit 375 122 84 174 -77.6% 42.5% 32.5% 67.5%Net interest inc./(exp.) -2 -2 -2 2Share of associates and JVs 0 0 0 0Other inc./(exp.) 13 10 13 10PBT 386 130 95 186 -75.4% 42.8% 33.8% 66.2%Tax -118 -32 -26 -50 -78.3% 56.8% 33.8% 66.2%PAT 268 98 69 136 -74.1% 38.3% 33.8% 66.2%Minority -12 -4 -12 3Net profit 255 95 57 139 -77.7% 47.2% 29.0% 71.0%Recurring net profit 255 95 57 139 -77.7% 47.2% 29.0% 71.0%

MarginsGross margin 68.5% 66.9% 65.0% 65.9% -3.5% -1.1%Operating margin 22.5% 8.7% 6.4% 9.7% -16.1% 1.1%Net margin 15.3% 6.7% 4.4% 7.8% -11.0% 1.1%Tax rate -30.6% -24.6% -27.0% -27.0% 3.6% -2.4%


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Café de Coral

Operation updates

Café de Coral (CDC) reported full-year results ending March 2012 showing revenue increased 12% y/y to HK$5.9bn and net profits declined 8% to HK$474m. The results were 4% below our expectation on lower profits from China operation. The board recommends a final dividend of HK$0.45, representing a payout ratio of 74.6%.

Overall, revenue was 1% better than our estimate. Gross margin declined 1.4ppt from last year on higher food costs but was 0.2ppt better than our expectation. EBITDA margin for its China dropped to 9% from 15.7% in FY11 due to relocation costs to the new central kitchen in Guangzhou and some write-off expenses on old equipments, which accounted for half of the decline, according to the management.

SSSG

During the year, same store sales growth (SSSG) was 6% in Hong Kong driven by 6% ASP increase and flat volume. For Southern China, SSSG was 8%, driven by 8% ASP increase and also flat volume. For Eastern China, SSSG was 13%, driven by 13% ASP and 5% volume.

For April and May of this year, management indicated that HK SSSG improved from March. China has seen SSSG softened a little and April and May SSSG in China was trending at mid- to high- single digit.

New stores plan

For FY13, CDC plans to open 50 stores, among that 20 in Hong Kong and 30 in China. During FY12, CDC opened 32 new stores in Hong Kong and closed 20 stores (new opening of 12). In China, CDC opened 22 new stores and closed7 stores in FY12.

Neutral, Mar-13 PT HK$18.7

Our Mar-13 SOTP-based target price is HK$18.7. We stay Neutral as we believe the expectation of higher China margins is priced-in. A key upside risk is stronger volume growth in HK, while a key downside risk is another sudden increase in food costs that cannot be passed on to consumers

40



Table 42: FY12 estimates – Café de Coral

HK$m

FY12 FY13E % chg y/y FY13E - BBG JPM vs BBGSales 5,956 6,635 11.4% 6,615 0.3%Gross profit 814 929 14.1%Operating profit 559 659 17.9% 611 7.9%Net interest inc./(exp.) 9 8Share of associates and JVs 0 0Other inc./(exp.) 0 0PBT 568 667 17.5% 660 1.1%Tax -94 -120 27.5%PAT 473 547 15.5%Minority 0 0Net profit 474 547 15.5%Recurring net profit 428 547 28.0% 538 1.8%MarginsGross margin 13.7% 14.0% 0.3%Operating margin 9.4% 9.9% 0.5%Net margin 8.0% 8.2% 0.3%Tax rate -16.6% -18.0% -1.4%


China Foods

Operation updates

According to the company, the wine industry in China experienced some slowdown in 1Q12. One of the peers Changyu (200869 CH) had an 8% decline in 1Q12 wine sales. China Foods continues to perform better than its peers, with positive revenue growth, however, the growth rate has slowed to single digits, according to the company. OP margin continues to improve on the back of product mix upgrades. For 2H12, the company expects sales to accelerate driven by new product launches. New imported wine from France and Chile is expected to be launched in August to capture the demand for mid autumn festival. The signature product under the cooperation with Michel Rolland is also scheduled to launch in August this year.

The beverage market is competitive, according to the company, but we had already expected that and assume 15% revenue growth for 2012 compared to 33% in 2011. Margin in 1H12 is slightly lower than 1H11, according to the company, because of more sales from bottled water, which is a lower-margin product.

Edible oil division is in line with expectations and company expects EBIT margin of around 1% this year, compared to 1.2% last year. Confectionary division is in line with expectations and management believes that once revenue reaches HK$700m, this division will be breakeven. We believe the target is achievable, given the confectionary division grew 14% in 2011 and reached sales of HK$659m last year.

Overweight, PT HK$8.4

We rate China Foods Overweight as we are positive on the margin improvement on the back of product mix upgrades of the wine division (51% of EBIT in 2011) and breakeven in the confectionary division (was making HK$95m loses in 2011). According to the company, high-end wine accounted for 19% of wine sales in 2011 and we expect high-end wine to account for 27% of wine sales in 2012, driven by new imported prodcuts from Chile and France (launched this year). In addition, new product under the cooperation with Michel Rollands, one of the most influential winemakers in the world, is schedule to launch this year.

41



Further earnings upside in 2013 could come from potential acquisitions - the company is looking into areas such as Chinese white wine (Baiju) and seasoning and spices products. We estimate that China Foods could generate cHK$600m in cash flow from operations in 2012. Assuming no leverage and P/E of 15x on the acquired target, we estimate that China Foods has the capacity to buy something making HK$40m in profits (or 3.5% of 2013 estimated earnings). China Foods expects to leverage on its distribution network to drive higher sales on the acquired business.

Our Dec-12 PT of HK$8.4 is based on 1.0x PEG with two-year (2012- 2014) EPS CAGR of 26%. Key downside risk is slower improvement in China Foods’ wine andkitchen foods margins.

Table 43: 2012 estimates – China Foods

HK$m

2011 2012E % chg y/y 2012E - BBG JPM vs BBGSales 28,011 34,151 21.9% 33,877 0.8%Gross profit 6,662 8,549 28.3%Operating profit 1,180 1,576 33.6% 1,505 4.7%Net interest inc./(exp.) -37 -40Share of associates and JVs 65 75Other inc./(exp.) 0 0PBT 1,208 1,610 33.3% 1,579 2.0%Tax -341 -458 34.2%PAT 867 1,153 32.9%Minority -222 -259Net profit 646 894 38.4%Recurring net profit 646 894 38.4% 886 0.9%MarginsGross margin 23.8% 25.0% 1.2%Operating margin 4.2% 4.6% 0.4%Net margin 2.3% 2.6% 0.3%Tax rate -28.2% -28.4% -0.2%


Table 44: 1H12 and 2H12 P&L summary – China Foods

HK$m


Sales 13,482 14,529 15,774 18,377 17.0% 26.5% 46.2% 53.8%Gross profit 3,187 3,476 3,914 4,635 22.8% 33.3% 45.8% 54.2%Operating profit 611 568 686 889 12.3% 56.5% 43.6% 56.4%Net interest inc./(exp.) -34 -3 -34 -6Share of associates and JVs 27 39 30 45Other inc./(exp.) 0 0 0 0PBT 604 604 683 928 13.0% 53.6% 42.4% 57.6%Tax -187 -154 -191 -266 2.1% 73.3% 41.8% 58.2%PAT 417 450 491 661 17.9% 46.9% 42.6% 57.4%Minority -99 -123 -117 -143Net profit 318 327 375 519 17.7% 58.5% 41.9% 58.1%Recurring net profit 318 327 375 519 17.7% 58.5% 41.9% 58.1%

MarginsGross margin 23.6% 23.9% 24.8% 25.2% 1.2% 1.3%Operating margin 4.5% 3.9% 4.4% 4.8% -0.2% 0.9%Net margin 2.4% 2.3% 2.4% 2.8% 0.0% 0.6%Tax rate -31.0% -25.4% -28.0% -28.7% 3.0% -3.3%


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China Mengniu

Operation updates

Due to the flavacin M1 incident in December last year, Mengniu's revenue in Jan-May this year was only flat to low single digit increase, according to the company. The operating environment remains challenging due to the needs for discounting and extra spend on promotional activities.

On 15 June, Mengniu announced that Arla Foods, a leading dairy company in Denmark, agreed to acquire a 5.9% stake in Mengniu from Hopu. Separately on 17 June, Mengniu announced it has signed a long-term Strategic Cooperation Agreement with Arla Foods (please see details in our report dated June 15, 2012). We believe that cooperation with Arla Foods is positive for Mengniu and could help Mengniu to improve food safety control and product mix in the long run.

Forecast changes

We are lowering revenue forecasts by 6% for 2012 and 2013 because the current sales run rate, which shows flat to single-digit growth in Jan-May period, was below our expectations. We were earlier expecting Mengniu to see c9% sales increase in 1H12 and 13% for the full year. Given the slower-than-expected Jan-May run rate, we now assume revenue to increase 4% in 1H12 and 8% for 2012.

In terms of product mix, we expect high-end/high-margin products, such as Deluxe milk and milk powder, to account for 23% of revenue in 2012 (from 22% in 2011). We assume raw milk costs will increase2.5% in 2012 but gross margin to be relatively stable due to c1.5% blended ASP increase on the back of product mix upgrades.

Given the food safety concerns, we expect A&P plus display spacing leasing fees to be 10.6% of sales in 2012 compared to 9.4% in 2011. Net profits forecasts were revised down by 8% and 7% for 2012 and 2013, respectively, mainly driven by lower revenue.


New Old ChangeYear to Dec (Rmb m) 2012E 2013E 2012E 2013E 2012E 2013ETurnover 40,363 47,413 43,066 50,514 -6% -6%Gross profit 10,202 12,148 10,885 12,998 -6% -7%EBIT 1,847 2,419 2,031 2,598 -9% -7%Net profit 1,573 2,003 1,714 2,148 -8% -7%Key assumptionsGross margin 25.3% 25.6% 25.3% 25.7% 0.0% -0.1%EBIT margin 4.6% 5.1% 4.7% 5.1% -0.1% 0.0%Net margin 3.9% 4.2% 4.0% 4.3% -0.1% 0.0%


Overweight, PT HK$25.0

The key attraction of Mengniu, in our view, is its multi-year margin expansion potential driven by product mix improvement. We will be a long-term buyer of the stock for: 1) margin improvement on the back of product mix updates, and 2) re-rating of the valuation multiple as the food safety control improves. In the short term, sentiment of the stock might remain weak as the company is likely to see a 23%decline in 1H12 net profits, based on our estimates. We see short-term share price weakness as a good buying opportunity for the long term.

43



Our new Dec-12 target price is lowered to HK$25 from HK$26 due to earnings revisions. Our PT is based on 0.9x PEG with a two-year (2012E-14E) EPS CAGR of 25%. Key risks are larger-than- expected promotional spending in 1Q12 and shortage of raw milk supply in China.

Table 46: Changes to 2012 estimates – China Mengniu

RMBm

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 37,388 40,363 8.0% 43,066 -6.3% 41,719 -3.2%Gross profit 9,592 10,202 6.4% 10,885 -6.3%Operating profit 1,896 1,847 -2.6% 2,031 -9.1% 2,055 -10.1%Net interest inc./(exp.) 112 137 137Share of associates and JVs 52 55 55Other inc./(exp.) 0 0 0PBT 2,061 2,039 -1.1% 2,223 -8.3% 2,181 -6.5%Tax -276 -273 -1.2% -298 -8.5%PAT 1,785 1,766 -1.0% 1,925 -8.3%Minority -195 -193 -211Net profit 1,589 1,573 -1.0% 1,714 -8.2%Recurring net profit 1,726 1,793 3.9% 1,934 -7.3% 1,705 5.2%MarginsGross margin 25.7% 25.3% -0.4% 25.3% 0.0%Operating margin 5.1% 4.6% -0.5% 4.7% -0.1%Net margin 4.3% 3.9% -0.4% 4.0% -0.1%Tax rate -13.4% -13.4% 0.0% -13.4% 0.0%


Table 47: 1H12 and 2H12 P&L summary – China Mengniu

RMBm


Sales 18,579 18,809 19,340 21,023 4.1% 11.8% 47.9% 52.1%Gross profit 4,825 4,767 4,932 5,270 2.2% 10.5% 48.3% 51.7%Operating profit 995 901 781 1,065 -21.5% 18.2% 42.3% 57.7%Net interest inc./(exp.) 37 75 41 96Share of associates and JVs 16 36 18 37Other inc./(exp.) 0 0 0 0PBT 1,049 1,012 840 1,199 -19.9% 18.4% 41.2% 58.8%Tax -156 -120 -126 -147 -19.4% 22.5% 46.2% 53.8%PAT 892 892 714 1,052 -20.0% 17.9% 40.4% 59.6%Minority -102 -93 -102 -91Net profit 790 799 612 961 -22.6% 20.2% 38.9% 61.1%

MarginsGross margin 26.0% 25.3% 25.5% 25.1% -0.5% -0.3%Operating margin 5.4% 4.8% 4.0% 5.1% -1.3% 0.3%Net margin 4.3% 4.3% 3.2% 4.6% -1.1% 0.3%Tax rate -14.9% -11.8% -15.0% -12.2% -0.1% -0.4%


China Resources Enterprise

1Q Results: During 1Q12 retail business margin impacted by brand building. Retail business reported a 27% sales and 5% recurring profit growth. Management noted that while staff and rental cost ratios were maintained at 1Q11 levels, the brand-building exercise has continued to have an impact on margins. Beer revenue was up 18% y/y, almost half of this growth driven by ASP increases thanks to the higher

44



proportion of mid-to-high-end products, which now account for 32% of sales and has grown c35% y/y. CRE decided to pull forward some of the ad spending to 1Q this year (vs 2Q last year) to get ready for Olympics and have more effective brand building. Therefore, beer margins were negatively impacted and the division posted a small loss, which we would not read into too much given low season. Revenue growth of 65% was stronger than expected thanks to a solid c20% price increase as management boosted brand image and introduced Kirin products as well (milk tea and coffee). One-off losses due to Kirin JV affected margins negatively. Food business posted 14% sales growth; due to the impact of high input costs, earnings were down 50%. As a result CRE reported HK$560MM in recurring net profit for 1Q12, down 15% y/y

FY12 estimates: During 2H11 CRE’s retail margins were exceptionally weak and we expect due to a low base in 2HFY12 retail margins to start showing some improvement on y/y basis. As a result, we expect CRE’s earnings to start posting growth in 2Q and onwards leading to c26% earnings growth for FY12.

Maintain Neutral: Our Dec-12 PT of HK$24.5 is based on SOTP in which we value the beer division at 25x 2012E (in line with Tsingtao) and retail division at 22x 2012E (average of the space). A key risk to our call on the upside is a sizeable M&A and on the downside is further deterioration in retail margins. Retail businessmargins have disappointed in FY11. We are assuming that they will slowly recover and at least maintain margin for FY12. If they do not, it would pose a downside risk to our 2012 earnings estimate and PT. We assumed barley costs to be flat in 2012. If barley costs strengthen this would present another downside risk to our estimates

Table 48: 2012 estimates – CRE

HK$m

2011 2012E-new % chg y/y 2012E - BBG JPM vs BBGSales 110,164 135,786 23.3% 132,160 2.7%Gross profit 27,357 34,082 24.6%Operating profit 5,339 6,610 23.8% 5,560 18.9%Net interest inc./(exp.) 77 67Share of associates and JVs 10 0Other inc./(exp.) 0 0PBT 5,426 6,677 23.1% 5,535 20.6%Tax -1,556 -2,144 37.8%PAT 3,870 4,533 17.1%Minority -1,038 -1,240Net profit 2,832 3,293 16.3%Recurring net profit 1,889 2,393 26.7% 2,596 -7.8%MarginsGross margin 24.8% 25.1% 0.3%Operating margin 4.8% 4.9% 0.0%Net margin 2.6% 2.4% -0.1%Tax rate -28.7% -32.1% -3.4%


China Yurun

Operation updates

According to the company, the operating environment remains challenging for Yurun in the first half due to Clenbuterol concerns. Margins improved in 2Q from 1Q thanks to less discounting but is still not yet back to normal levels. For 2012, the company is keeping the guidance of 5% volume growth for the upstream products and flat volume growth for the downstream products. The pork market in China is

45



growing at a 10-15% CAGR, according to the company, suggesting Yurun will lose market share in 2012. The average hog price is expected to decline 15% in 2012 based on Yurun's estimates.

We have assumed sales volume to increased 5.5% and ASP to decline 8.5% for upstream products in 2012. For the downstream products, we expect flat volume and flat ASP in 2012. GPM is likely to increase by 1.3ppt to 9.9%, based on our estimates thanks to the increase in ASP and a drop in hogs price.

Underweight, PT HK$7.6

We rate Yurun Underweight as the operating environment remains difficult for Yurun and earnings remain unpredictable. Yurun believes that the Clenbuterol contamination is an industry-wide phenomenon. Taking the melamine incident in 2008 as a reference, Yurun expects the whole industry will take about one year to recover. However, we are concerned that Yurun might be facing some company-specific issues as Zhongpin (HOGS US), though facing the same margin pressure, is expecting sales volume growth of 30% in 2012, better than Yurun's 5% target for upstream.

Our Dec-12 PT is based on 0.8x 2012E book value, in line with Smithfield (SFD US). We use PB as our methodology because we believe Yurun was loss-making in 2H11 and is still loss-making in 1Q12, based on our estimates. Key upside risk would be a fast recovery in demand for Yurun’s pork products.

Table 49: 2012 estimates – China Yurun

RMBm

2011 2012E % chg y/y 2012E - BBG JPM vs BBGSales 32,315 30,825 -4.6% 31,370 -1.7%Gross profit 2,785 3,043 9.3%Operating profit 1,942 1,932 -0.5% 1,831 5.5%Net interest inc./(exp.) -36 -88Share of associates and JVs 0 0Other inc./(exp.) 0 0PBT 1,905 1,843 -3.3% 1,722 7.0%Tax -100 -124 24.5%PAT 1,806 1,719 -4.8%Minority -7 -9Net profit 1,799 1,710 -5.0%Recurring net profit 1,071 1,465 36.8% 1,481 -1.1%MarginsGross margin 8.6% 9.9% 1.3%Operating margin 6.0% 6.3% 0.3%Net margin 5.6% 5.5% 0.0%Tax rate -5.2% -6.7% -1.5%


46



Table 50: 1H12 and 2H12 P&L summary – China Yurun

RMBm


Sales 16,456 15,859 15,066 15,759 -8.4% -0.6% 48.9% 51.1%Gross profit 2,066 719 904 2,139 -56.2% 197.6% 29.7% 70.3%Operating profit 1,734 208 633 1,299 -63.5% 523.9% 32.7% 67.3%Net interest inc./(exp.) -12 -24 -35 -53Share of associates and JVs 0 0 0 0Other inc./(exp.) 0 0 0 0PBT 1,721 184 597 1,246 -65.3% 575.5% 32.4% 67.6%Tax -106 6 -36 -88 -66.2% -1456.8% 28.9% 71.1%PAT 1,615 191 561 1,158 -65.2% 506.4% 32.7% 67.3%Minority -6 -1 -5 -5Net profit 1,609 190 557 1,153 -65.4% 506.2% 32.6% 67.4%Recurring net profit 1,213 -142 169 1,619 -86.0% NA 9.5% 90.5%

MarginsGross margin 12.6% 4.5% 6.0% 13.6% -6.6% 9.0%Operating margin 10.5% 1.3% 4.2% 8.2% -6.3% 6.9%Net margin 9.8% 1.2% 3.7% 7.3% -6.1% 6.1%Tax rate -6.2% 3.5% -6.0% -7.1% 0.2% -10.6%


Dairy Farm

We expect revenue to increase12% to US$10bn and net profit to increase14% to US$551m in 2012. North Asia is likely to be the fastest-growing market and increase revenue by 16% and profits by 29%, based on our estimates, driven by expansion in China. According to the company, 7-Eleven stores in China have turned profitable (we expect 1.5% EBIT margin in 2012 compared to -2% in 2011) and the management is committed to deliver positive stores growth in 2012 (we expect net add of 35 7-Eleven stores compared to a decline of 5 stores in 2011. There is a risk of lower margin in Malaysia market as management expects more challenges in this market.

Neutral, Dec-12 PT S$9.0

Our PT is based on 1x PEG with a two-year (2012-14) EPS CAGR of 17.6%. At the current share price, Dairy Farm is trading at 2012 PE of 26x, a premium to Jardine Matheson and Jardine Strategic (12x 12E P/E). Key downside risk is higher costs in HK. Key upside risk is higher currency benefits.

47



Table 51: 2012 estimates – Dairy Farm

US$m

2011 2012E-new % chg y/y 2012E - BBG JPM vs BBGSales 9,134 10,215 11.8% 10,065 1.5%Gross profit 2,683 3,000 11.8%Operating profit 535 598 11.7% 597 0.1%Net interest inc./(exp.) -18 -5Share of associates and JVs 66 69Other inc./(exp.) 0 0PBT 584 662 13.4% 664 -0.3%Tax -99 -113 13.4%PAT 485 550 13.4%Minority 0 1Net profit 484 551 13.7%Recurring net profit 484 551 13.7% 552 -0.3%MarginsGross margin 29.4% 29.4% 0.0%Operating margin 5.9% 5.9% 0.0%Net margin 5.3% 5.4% 0.1%Tax rate -17.0% -17.0% 0.0%


Hengan

Operation updates

According to the company, diaper sales were below expectations year to date. Hengan believes that tier 2 and below cities are the key growth areas for diaper consumption, given the low penetration. However, demand for Hengan’s diapers in the tier 2 and below cities has not yet picked up. We expect diaper sales to grow 10% in 1H12 and 13% for the full year.

Demand for Hengan’s tissue paper product s were impacted by the slower economy, according to the company, as consumers are switching to lower-end tissue products, such as paper towels and toilet paper from higher-end products such as pocket-size tissue packs and tissue box. Hengan positions itself as a high-end tissue products provider; hence, it was negatively impacted by the trend. In addition, competition from the No. 2 and No. 3 tissue product companies has intensified as they put out more promotions during the period. We expect tissue paper sales to grow 15% in 1H and 31% for the full year.

Snack food division was also negatively impacted by the food safety concern in the entire F&B sector in China. We expect snack foods to grow 15% in 1H and 25% for the full year. Overall, Hengan comments that in 1H12 top-line growth was challenging but margins have improved nicely on the back of lower raw material prices. We assume the top line to grow 17% y/y and gross margin to expand 4.9ppt, driven by 6.6ppt for tissue paper, 1.5ppt for sanitary napkins, and 1.8ppt for diapers.

Going into 2H12, Hengan plans to spend more on A&P, especially for the tissue paper products. For the full year of 2012, Hengan targets to have double-digit top line growth and margin expansion in 2012 from 2011.

Wood pulp prices, which accounted for c56% of tissue paper cost, had bottomed in 4Q11/1Q12. Hengan keeps 4.5 months of inventory on average and we estimate that wood pulp costs for Hengan in 1H12 is c18% lower y/y. GPM for tissues could expand by 6-7ppt in 1H12 based on our estimates. However, current wood pulp price has risen c21% from the bottom. GPM expansion in 2H12 is likely to be less than in

48



1H12, in our view. For the petrochemical-related raw material (for sanitary napkin and diaper), Hengan is keeping only two months of inventory; therefore, it could benefit from the recent price fall.

Figure 13: Long fiber pulp price trend

Source: Bloomberg (FOEXUSNB Index).

Figure 14: Short fiber pulp price trend

Source: Bloomberg (FOEXBHKP Index).

Figure 15: LDPE Polymers Far East spot price

Source: Bloomberg (MERSETL1 Index).

Figure 16: HDPE Polymers Far East spot price

Source: Bloomberg (MERSETH1 Index).

Underweight, PT HK$53

Hengan is currently trading at 2012 P/E of 25x, which reflects the high expectation of margin expansion on the back of lower raw material costs, in our view. We are Underweight the stock and note that 1H12 sales are likely to be disappointing. We expect Hegnan to deliver 17% top-line growth and 38% earnings growth in 1H12.

We rate Hengan Underweight as we expect tissue paper segment to account for 52% of the sales by 2014 (from 47% in 2011) driven by capacity expansion. With more than half of the revenue coming from commodity products, we expect Hengan’s earnings volatility to increase going forward. In addition, we believe due to the product positioning, we see Hengan has little advantage in the diaper segment and have doubts on Hengan’s ability to delivery diaper growth.

Our Dec-12 target price of HK$53.0 is based on 1x PEG with a two-year (2012E-14E) EPS CAGR of 18%. Key upside risks to our call would be a sudden drop in pulp prices and a faster-than-expected roll-out of new diaper products.

500

600

700

800

900

1,000

1,100

Jan-

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Jan-

08

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8

Jan-

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Jul-0

9

Jan-

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Jul-1

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Jan-

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Jul-1

1

Jan-

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Jul-1

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400

500

600

700

800

900

1,000

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

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Jul-0

9

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500

1,000

1,500

2,000

2,500

Jan-

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Jan-

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Jul-0

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Jan-

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Jan-

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500

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1500

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49



Table 52: 2012 estimates – Hengan

RMBm

2011 2012E % chg y/y 2012E - BBG JPM vs BBGSales 17,051 21,573 26.5% 21,275 1.4%Gross profit 6,800 9,330 37.2%Operating profit 3,294 4,609 39.9% 4,429 4.1%Net interest inc./(exp.) -38 -3Share of associates and JVs 0 0Other inc./(exp.) 0 0PBT 3,255 4,605 41.5% 4,440 3.7%Tax -570 -921 61.6%PAT 2,686 3,684 37.2%Minority -37 -47Net profit 2,649 3,637 37.3%Recurring net profit 2,649 3,637 37.3% 3,569 1.9%MarginsGross margin 39.9% 43.2% 3.4%Operating margin 19.3% 21.4% 2.0%Net margin 15.5% 16.9% 1.3%Tax rate -17.5% -20.0% -2.5%


Table 53: 1H12 and 2H12 P&L summary – Hengan

RMBm


Sales 8,189 8,862 9,590 11,983 17.1% 35.2% 44.5% 55.5%Gross profit 3,160 3,640 4,171 5,159 32.0% 41.7% 44.7% 55.3%Operating profit 1,349 1,945 2,062 2,547 52.8% 31.0% 44.7% 55.3%Net interest inc./(exp.) 65 -103 -2 -2Share of associates and JVs 0 0 0 0Other inc./(exp.) 0 0 0 0PBT 1,414 1,841 2,060 2,545 45.7% 38.2% 44.7% 55.3%Tax -206 -363 -412 -509 99.6% 40.0% 44.7% 55.3%PAT 1,207 1,478 1,648 2,036 36.5% 37.8% 44.7% 55.3%Minority -26 -11 -11 -36Net profit 1,182 1,467 1,637 2,000 38.5% 36.4% 45.0% 55.0%Recurring net profit 1,182 1,467 1,637 2,000 38.5% 36.4% 45.0% 55.0%

MarginsGross margin 38.6% 41.1% 43.5% 43.0% 4.9% 2.0%Operating margin 16.5% 21.9% 21.5% 21.3% 5.0% -0.7%Net margin 14.4% 16.6% 17.1% 16.7% 2.6% 0.1%Tax rate -14.6% -19.7% -20.0% -20.0% -5.4% -0.3%


Tibet 5100

Operation updates

Retail sales shown rapid growth and accounted for c25% of revenue in 1H12 compared to 14% in 2011, according to the company. Key retail channels include: 1) supermarket/hypermarkets. 2) 5-star hotels, 3) chain restaurants, 4) club/bar, 5) golf course/ theater, and 6) airports.

As the company continues to diversify the customer base, reliance to CRE will further reduce to less than 50% of total in 2012 from 62% in 2011, according to the company. Due to seasonality, shipments to CRE in 1H and 2H usually accounts for 15-20% and 80-85%, respectively. For the full year, the company is expecting top-line growth of 25-30% y/y.

50



Gross margin is expected to expand, according to the company, driven by more sales to non CRE customers. GPM for CRE sales was 76% and GPM for non CRE sales was 83% in 2011, based on our estimates. Distribution cost as a percentage of sales would increase because transportation costs for non CRE sales are higher. The company budgets 5% of sales for A&P spending in 2012, compared to 2% in 2011.

Receivable days could come down from 123 days at the end of 2011 to less than 100 days at end of June 2012, based on our estimates. This is because Tibet 5100 gives credit terms to CRE only and sales to CRE in 1H is 18% of the full year. It is likely that receivable days could go up again by end of 2012.

Overall, we expect revenue to increase 28.6% y/y to Rmb815m and net profits to increase 19.4% y/y to Rmb446m in 2012. Excluding the government grants, we expect net profits to increase 27% y/y to RMb340m in 2012.

Forecast changes

We are lowering our revenue forecasts by 29% for 2012 and 2013 to be in line with the company's guidance (25-30% top-line growth). We had previously expected sales volume for non CRE customers to double assuming three more institutional clients and each to order the same amount as the existing clients. The latest guidance suggests that the new clients signed up this year are ordering less volume compared to the existing clients each. Our core net profit estimates are lowered by 20% and 16% for 2012 and 2013, respectively, mainly due to the downward revision of sales but partially offset by lower transportation costs due to savings in transportation costs for orders from the Lhasa government.


Old New ChangeYear to Dec (Rmb m) 2012E 2013E 2012E 2013E 2012E 2013ESales 1,139 1,449 814 1,032 -28.5% -28.8%COGS 231 296 165 207 -28.5% -30.2%Gross profit 908 1,153 649 825 -28.5% -28.5%GPM 79.7% 79.6% 79.7% 80.0% 0.0% 0.4%EBIT 633 802 511 666 -19.3% -16.9%EBIT margin 55.6% 55.4% 62.8% 64.6%Net profit 545 691 445 591 -18.3% -14.6%NP margin 47.9% 47.7% 54.7% 57.2%Core NP 426 544 340 458 -20.1% -15.9%Cor NP margin 37.4% 37.6% 41.8% 44.4%


Valuation

Given Tibet 5100’s production and cash flow characteristics, a DCF approach is appropriate for this company, in our view. We use an 15.5% cost of equity (risk-free rate of 5%, equity risk premium of 7% and beta of 1.5) and 2.0% terminal growth rate. We use a two-stage DCF model—30% core earnings CAGR over 2012-14E and 3% core earnings CAGR over 2015-20E.

Our Dec-12 price target is lowered to HK$2.2 from HK$2.6 due to the earnings revision. At our target price, Tibet 5100 would be trading at 10x 2012E reported earnings and 14x 2012E core earnings.

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Table 55: DCF valuation breakdown

Year to Dec (Rmb m) 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020EPre-tax profit 454.9 519.1 687.5 Add: Depreciation and Amortization 24.0 33.5 53.2 Less: Tax Paid (60.9) (81.9) (78.8)Less: Capex (50.0) (100.0) (200.0)Less: Working Capital Changes 478.6 (92.9) (110.6)Free cash flow to equity holders 846.5 277.8 351.3 368.8 384.5 398.4 410.6 421.4 430.7Discount factor 1.0 1.2 1.3 1.5 1.8 2.1 2.4 2.7 3.2PV of operating free cash flow 846.5 240.6 263.3 239.4 216.1 193.8 173.0 153.7 136.0Terminal 889.6

NPV of free cash flow (Rmb m) 3,352 Net cash (2012E) 1,569 Equity value (Rmb m) 4,921 Equity value (HK$ m) 5,709# of outstanding shares 2,569Value per share (HK$) 2.2


Table 56: Changes to 2012 estimates – Tibet 5100

RMBm

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 633 814 28.6% 1,139 -28.5% 906 -10.1%Gross profit 499 649 30.2% 908 -28.5%Operating profit 441 505 14.5% 633 -20.2% 582 -13.2%Net interest inc./(exp.) 14 14 12Share of associates and JVs 0 0 0Other inc./(exp.) 0 0 0PBT 455 519 14.1% 645 -19.6% 589 -11.9%Tax -82 -79 -3.7% -100 -21.1%PAT 373 440 18.0% 545 -19.3%Minority 0 0 0Net profit 373 440 18.0% 545 -19.3%Recurring net profit 268 336 25.6% 426 -21.1% 453 -25.9%MarginsGross margin 78.8% 79.7% 0.9% 79.7% 0.0%Operating margin 69.6% 62.0% -7.6% 55.6% 6.4%Net margin 58.9% 54.1% -4.9% 47.9% 6.2%Tax rate -18.0% -15.2% 2.8% -15.5% 0.3%


52



Table 57: 1H12 and 2H12 P&L summary – Tibet 5100

RMBm


Sales 209 424 260 554 24.4% 30.7% 32.0% 68.0%Gross profit 164 334 211 438 28.6% 30.9% 32.6% 67.4%Operating profit 179 262 202 302 13.1% 15.5% 40.1% 59.9%Net interest inc./(exp.) -2 16 7 7Share of associates and JVs 0 0 0 0Other inc./(exp.) 0 0 0 0PBT 177 278 210 310 18.4% 11.4% 40.4% 59.6%Tax -29 -53 -34 -45 18.4% -15.7% 43.3% 56.7%PAT 148 225 175 265 18.4% 17.8% 39.8% 60.2%Minority 0 0 0 0Net profit 148 225 175 265 18.4% 17.8% 39.8% 60.2%Recurring net profit 83 184 109 227 31.6% 22.8% 32.6% 67.4%

MarginsGross margin 78.6% 78.9% 81.2% 79.0% 2.7% 0.1%Operating margin 85.6% 61.8% 77.8% 54.6% -7.8% -7.2%Net margin 70.8% 53.1% 67.4% 47.8% -3.4% -5.3%Tax rate -16.3% -19.1% -16.3% -14.4% 0.0% 4.6%


Tingyi

1Q Details: In instant noodles category Tingyi posted 10% revenue and 24% EBIT growth respectively in 1Q12. While bowl noodles sales slowed down, mid to low end pack noodles sales accelerated. Thanks to decline in input costs, noodles division posted 29.8% gross margin up from 26.1% in 1Q11. During 1Q12 in beverages segment RTD sales were particularly slow, down 40% y/y. While part of this was due to seasonality (2011 RTD sales front loaded in 1Q), part of it was due to shift to other beverages from RTD. In particular, the newly developed milk tea category has been very successful in China. Given that Tingyi did not have this product in 1Q, they lost share to Uni-President during the quarter. Thanks to decline in input costs gross margin edged slightly higher on y/y basis but product mix shift (RTD has higher margins than other beverage categories) and operating deleveraging led to a sharp 65% decline in EBIT.

2Q expectations: We expect noodles sales growth to improve sequentially in 2Q12 as it is entering a low base. On the beverages front we expect Tingyi to turn into small positive growth helped by the low base and the introduction of milk tea in April. Management notes that milk tea sales have been performing well since the introduction, and taking some market share from competitors. In 2Q12 we expect Tingyi to post c15% revenue growth for existing products. We are looking for 47% growth at headline sales and 10% growth at headline earnings with the first time consolidation of Pepsi business.

Maintain Neutral: While Tingyi’s 1Q12 earnings were weak down 16% y/y at recurring level with seasonality effect easing and with the introduction of milk tea we expect Tingyi’s earnings to go back to growth in coming quarters, posting 15% recurring profit growth for FY12. We maintain our Neutral rating but remain negative on Tingyi in the short term given heightened competition in noodles and slowdown in tea sales both putting pressure on the extent of margin improvement. Our Dec-12 PT of HK$16.5 is based on SOTP. We value existing Tingyi business at HK$16 based on 1x PEG and 25% two-year earnings CAGR post 2012 and Pepsi business at HK$ 0.3 based on DCF. Key upside risks to our PT are a deep

53



unexpected cut in distribution costs in remainder of 2012, and a sharp decline in input costs across the board, while downside risk is a sudden slowdown in sales growth and longer than expected turn-around time for acquired Pepsi business.

Table 58: 2012 estimates – Tingyi

US$m

2011 2012E-new % chg y/y 2012E - BBG JPM vs BBGSales 7,867 11,001 39.8% 9,810 12.1%Gross profit 2,088 3,091 48.0%Operating profit 618 805 30.3% 821 -1.9%Net interest inc./(exp.) 29 20Share of associates and JVs 0 0Other inc./(exp.) 16 0PBT 663 825 24.5% 862 -4.2%Tax -163 -173 5.9%PAT 500 652 30.5%Minority -80 -120Net profit 420 532 26.8%Recurring net profit 381 437 14.8% 491 -11.1%MarginsGross margin 26.5% 28.1% 1.6%Operating margin 7.9% 7.3% -0.5%Net margin 5.3% 4.8% -0.5%Tax rate -24.6% -21.0% 3.7%


Tsingtao

1Q12 Results: Tsingtao reported a 7% y/y increase in the top line in 1Q12, driven by a 9% increase in sales volume and decline in blended ASP. Tsingtao brand volumes were almost flat, up 1% y/y. At the same time, second-tier brands were up 23% y/y. Strong increase in second-tier brands led to a decline in blended ASPs. Gross margin declined sharply in 1Q12 to 31.1% from 35.8% in 1Q11. In terms of quarterly performance this was the sharpest decline in gross margin in a single quarter since gross margins started to fall 12 months ago. The decline in gross margin was driven partly by high input costs and partly by the product mix change, which shifted towards second-tier brands. In 1Q12 operating expenses fell 10% y/y, helping the company report almost flat operating profit in 1Q12 and together with higher net financial income led to 15% growth in net profit.

2Q Expectation: We expect Tsingtao to post c12% revenue growth in 2Q given that big seasonality in sales will be over and recent industry data also showing c9% increase in beer output across China in April and May y/y. While we expect 1% y/y increase in gross margin, we also model c1% y/y increase in A&P expenses as well, leading to c12% earnings growth as well.

Maintain UW: We believe the cut in operating expenses is not sustainable throughout the remainder of the year and we expect 15% earnings growth for the FY12 on the back of 14% increase in revenue. We expect that while the pressure from gross margin will ease in coming quarters, operating expenses will go back up again, still leading to c15% earnings growth for FY12. We maintain UW as the stock trades at demanding 2012 P/E of 24x, with 2-yr EPS CAGR of 17.5% after 2012. We assume barley costs to be flat to mildly up in 2012. If barley costs weaken this couldpresent upside risks to our 2012 estimates and PT. If management spends more A&P on second tier brands this could present downside risks to our 2012 estimates and PT.

54



Table 59: 2012 estimates – Tsingtao

RMBm

2011 2012E % chg y/y 2012E - BBG JPM vs BBGSales 23,158 26,508 14.5% 26,106 1.5%Gross profit 7,717 9,021 16.9%Operating profit 2,118 2,553 20.5% 2,721 -6.2%Net interest inc./(exp.) 50 43Share of associates and JVs 4 10Other inc./(exp.) 282 191PBT 2,455 2,797 13.9% 2,848 -1.8%Tax -657 -713 8.5%PAT 1,798 2,084 15.9%Minority -60 -83Net profit 1,738 2,000 15.1%Recurring net profit 1,738 2,000 15.1% 2,043 -2.1%MarginsGross margin 33.3% 34.0% 0.7%Operating margin 9.1% 9.6% 0.5%Net margin 7.5% 7.5% 0.0%Tax rate -26.8% -25.5% 1.3%


Uni-President China

Operation updates

Based on Tingyi’s 1Q12 revenue growth and market share data, we estimate that UPC revenue for instant noodles grew 35% and beverages grew 27% in 1Q12. According to AC Nielsen data, UPC market share in RTD tea market increased to 28.6% as of March 2012, from 22.5% a year a go. During the same period, Tingyi market share declined from 54.2% to 45.8% and revenue for RTD tea. We have applied the same growth rate that UPC achieved in 1Q12 to the full year revenue assumptions.

Tingyi launched its milk tea products in April 2012 and, according to Tingyi, UPC’s milk tea sales drop 16-17% month-on-month in the first month of the new Tingyi new milk tea products launch. In light of intensified completion from Tingyi, UPC is guiding A&P to be 12% sales this year compared to 10% last year.

Given the raw material price trend, we expect GPM for beverages to improve by 4.2ppt to 33.5% and GPM for noodles to increase by 4.9ppt to 34.7% in 2012.

Underweight, PT HK$5.0.

We rate UPC Underweight as we believe the consensus’s A&P assumptions are too low given the intensified competition from Tingyi. UPC’s earnings are highly leveraged to A&P costs - every 5 bps increase in A&P expenses cuts our FY12E EPS estimate by 14%.

Our new Dec-12 target price of HK$5.0 is based on a 0.9x PEG with a two-year (2012E-14E) EPS CAGR of 28%. Key upside risks are lower than expected PET prices and A&P spending.

55



Table 60: 2012 estimates – Uni-President China

RMBm

2011 2012E % chg y/y 2012E - BBG JPM vs BBGSales 16,932 21,931 29.5% 22,112 -0.8%Gross profit 4,943 6,986 41.3%Operating profit 261 684 161.7% 834 -18.0%Net interest inc./(exp.) 95 64Share of associates and JVs 40 60Other inc./(exp.) 0 0PBT 396 807 103.7% 938 -14.0%Tax -84 -178 110.3%PAT 312 630 101.9%Minority 0 0Net profit 312 630 101.9%Recurring net profit 312 630 101.9% 742 -15.2%MarginsGross margin 29.2% 31.9% 2.7%Operating margin 1.5% 3.1% 1.6%Net margin 1.8% 2.9% 1.0%Tax rate -21.3% -22.0% -0.7%


Table 61: 1H12 and 2H12 P&L summary – Uni-President China

RMBm


Sales 8,799 8,133 11,386 10,545 29.4% 29.7% 51.9% 48.1%Gross profit 2,481 2,462 3,517 3,469 41.8% 40.9% 50.3% 49.7%Operating profit 156 105 496 188 218.0% 78.3% 72.5% 27.5%Net interest inc./(exp.) 30 65 32 32Share of associates and JVs 42 -2 36 24Other inc./(exp.) 0 0 0 0PBT 227 169 564 244 147.9% 44.2% 69.8% 30.2%Tax -51 -34 -124 -54 143.8% 59.6% 69.8% 30.2%PAT 177 135 440 190 149.1% 40.3% 69.8% 30.2%Minority 0 0 0 0Net profit 177 135 440 190 149.1% 40.3% 69.8% 30.2%Recurring net profit 177 135 440 190 149.1% 40.3% 69.8% 30.2%

MarginsGross margin 28.2% 30.3% 30.9% 32.9% 2.7% 2.6%Operating margin 1.8% 1.3% 4.4% 1.8% 2.6% 0.5%Net margin 2.0% 1.7% 3.9% 1.8% 1.9% 0.1%Tax rate -22.4% -19.9% -22.0% -22.0% 0.4% -2.1%


Want Want

Operation updates

According to the company, revenue has been on-track to the full year guidance of 20% growth for Dry Foods division (rice cracker and snacks) and 25% for Beverage division. The roll-out of new appraisal system for third-party distributors has started; as a result, total number of third-party distributors is expected to decline further from 8,000 at the end of 2011. But efficiency for each distributor should improve as Want Want plans to install the information system that it uses for KA accounts onto the wholesales customers.

On the cost side, we note that the milk powder prices have been trending below our expectation. Year-to-date, the average imported milk powder price is about 20% lower from 1H11. We had previously factored in only 3% decline in milk powder

56



costs. Milk powder is the key raw material for Want Want’s Hot Kid milk drink and accounted for 16.9% of the COGs in 2011.

Overall, we expect revenue to increase 22% and GPM to expand 3.7ppt to 38.5% (rice cracker up 2.4ppt, dairy and beverage up 4.3ppt and snack foods up3.4ppt). The increase in GPM will be partially offset by higher A&P (up by 1ppt). Net net, we expect earnings to increase by 36% IN 2012.

Figure 17: Milk powder price trend

Source: Fonterra

Forecast changes

We are keeping our revenue forecasts largely unchanged but lifting earnings forecasts by 6% and 7% for 2012 and 2013 respectively due to lower milk powder prices. We have now factored in milk powder to decline 20% y/y in 2012. Our sensitivity suggests that for every 5ppt changes in milk powder price, Want Want’s earnings would vary by 2%.


New Old ChangeYear to Dec (US$ m) 2012E 2013E 2012E 2013E 2012E 2013ETurnover 3,592 4,273 3,592 4,284 0.0% -0.2%- Rice carcker 976 1,172 976 1,183 0.0% -0.9%- Dairy & beverage 1,737 2,086 1,737 2,086 0.0% 0.0%- Snack foods 866 1,002 866 1,002 0.0% 0.0%

Gross profit 1,381 1,690 1,339 1,612 3.2% 4.8%EBIT 730 910 687 852 6.2% 6.9%Net profit 569 696 537 651 6.0% 6.8%EPS (US$) 0.0431 0.0526 0.0406 0.0493 6.0% 6.8%


Neutral PT HK$7.6

Our new Dec-12 target price of HK$7.6 (previously HK$7.0) is based on 1x PEG and a two-year (2012E-14E) EPS CAGR of 22.5%. The key upside risk would be a greater-than-expected decline in raw material costs and key downside risk would be slower-than-expected sales if the new distribution initiatives resulted in turnover in distributors. We would be holding the share until the result, which could surprise the market on the upside due to lower milk powder costs.

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12

USD/MT

57



Table 63: Changes to 2012 estimates – Want Want

US$m

20112012E-

new% chg

y/y2012E-

oldNew vs

old2012E -

BBGJPM vs

BBGSales 2,947 3,592 21.9% 3,592 0.0% 3,645 -1.5%Gross profit 1,025 1,381 34.8% 1,339 3.2%Operating profit 522 730 39.7% 687 6.2% 696 4.9%Net interest inc./(exp.) 16 19 19Share of associates and JVs 0 0 0Other inc./(exp.) 0 0PBT 538 749 39.2% 707 6.0% 717 4.5%Tax -119 -180 51.5% -170 6.0%PAT 420 569 35.7% 537 6.0%Minority 0 0 0Net profit 419 569 35.7% 537 6.0%Recurring net profit 372 538 44.7% 490 9.9% 546 -1.4%MarginsGross margin 34.8% 38.5% 3.7% 37.3% 1.2%Operating margin 17.7% 20.3% 2.6% 19.1% 1.2%Net margin 14.2% 15.9% 1.6% 14.9% 0.9%Tax rate -22.0% -24.0% -2.0% -24.0% 0.0%


Table 64: 1H12 and 2H12 P&L summary – Want Want

US$m


Sales 1,279 1,667 1,565 2,027 22.3% 21.6% 43.6% 56.4%Gross profit 422 603 571 810 35.3% 34.4% 41.3% 58.7%Operating profit 204 319 284 446 39.3% 40.0% 38.9% 61.1%Net interest inc./(exp.) 5 10 7 13Share of associates and JVs 0 0 0 0Other inc./(exp.) 0 0 0 0PBT 209 329 290 459 38.8% 39.5% 38.7% 61.3%Tax -42 -77 -67 -113 58.8% 47.6% 37.1% 62.9%PAT 167 253 223 346 33.8% 37.0% 39.2% 60.8%Minority 0 0 0 0Net profit 167 252 223 346 33.8% 37.0% 39.3% 60.7%

MarginsGross margin 33.0% 36.2% 36.5% 40.0% 3.5% 3.8%Operating margin 15.9% 19.1% 18.1% 22.0% 2.2% 2.9%Net margin 13.1% 15.1% 14.3% 17.1% 1.2% 1.9%Tax rate -20.1% -23.3% -23.0% -24.6% -2.9% -1.4%


58



Retail Valuation Table

Company Ticker Price Mkt Cap P/E EPS CAGR PEG (x) P/B Div yield EV/EBITDA ROE(LC) (USD mn) 11 12E 13E 12E-14E 12E-14E 11 12E 13E 11.0 12E 13E 11 12E 13E 11 12E 13E

CHINA Department StoresIntime Stores^ 1833 HK 7.6 1,957 14.5 13.2 11.3 19.3% 0.7 1.9 1.7 1.5 2.7 3.2 3.7 14.6 10.2 8.4 13.8 14.0 14.5 Golden Eagle 3308 HK 15.7 3,940 21.0 18.8 15.1 28.3% 0.7 5.5 4.8 4.1 1.2 2.7 3.3 13.7 11.9 9.3 29.4 27.2 29.4 Parkson Retail 3368 HK 6.9 2,486 14.1 13.7 12.0 15.0% 0.9 3.0 2.7 2.4 3.2 3.6 4.2 7.7 7.6 6.6 23.0 20.7 21.4 NWDS*^ 825 HK 4.2 906 11.3 9.9 8.6 ~ ~ 1.2 1.1 1.0 3.5 4.0 4.8 3.4 2.8 2.4 11.0 11.9 13.5 Maoye International Hldgs^ 848 HK 1.4 976 9.6 9.1 7.0 26.1% 0.3 1.1 0.9 0.9 4.2 3.5 4.4 6.4 7.0 5.7 13.7 11.8 13.5 PCD Stores^ 331 HK 0.7 392 8.0 7.5 5.8 20.7% 0.4 1.0 1.1 1.0 6.3 4.7 5.8 4.1 4.0 3.3 13.2 15.1 17.5 Average 13.1 12.0 10.0 21.9% 0.6 2.3 2.1 1.8 3.5 3.6 4.4 8.3 7.3 5.9 17.4 16.8 18.3

Fashionwear/footwear RetailBelle International 1880 HK 13.1 14,266 21.3 19.3 15.7 22.2% 0.9 4.7 4.0 3.5 1.4 2.1 2.5 14.5 12.6 10.3 23.3 22.4 23.7 Ports Design 589 HK 8.1 587 8.7 8.2 7.3 10.7% 0.8 2.0 1.8 1.6 5.8 6.1 6.9 5.9 5.1 4.6 24.7 23.4 23.4 Daphne International^ 210 HK 7.8 1,661 13.7 12.2 9.9 21.7% 0.6 3.2 2.7 2.3 2.2 2.6 3.2 7.6 6.6 5.3 26.1 24.9 25.7 Trinity Limited 891 HK 4.9 1,076 16.5 14.6 11.6 25.2% 0.6 2.6 2.5 2.3 4.6 4.8 6.0 10.6 9.3 7.4 18.6 17.3 20.7 China Lilang 1234 HK 5.3 819 8.4 8.1 6.9 18.0% 0.4 2.4 2.0 1.8 7.7 6.2 7.3 5.6 4.8 3.9 30.9 27.2 27.4 Average 13.7 12.5 10.3 19.6% 0.6 3.0 2.6 2.3 4.3 4.3 5.2 8.9 7.7 6.3 24.7 23.1 24.2

Jewellery & Watch RetailXinyu Hengdeli^ 3389 HK 2.4 1,382 10.8 10.1 8.3 20.0% 0.5 1.8 1.6 1.4 3.2 3.2 3.9 7.5 6.5 5.4 17.7 16.5 17.4 Chow Tai Fook* 1929 HK 9.6 12,377 15.1 13.2 10.7 21.9% 0.6 3.3 2.8 2.3 5.8 1.5 1.9 12.2 10.4 8.5 31.5 22.9 23.3 Average 13.0 11.6 9.5 21.0% 0.6 2.6 2.2 1.8 4.5 2.3 2.9 9.8 8.4 6.9 24.6 19.7 20.3

Sportswear BrandsAnta 2020 HK 4.7 1,505 5.5 6.6 7.6 -17.8% -0.4 1.5 1.4 1.3 11.1 9.2 8.1 2.6 3.1 3.6 28.7 21.8 17.9 China Dongxiang^ 3818 HK 0.7 500 31.5 8.1 7.4 11.3% 0.7 0.5 0.4 0.4 2.1 6.3 7.0 ~ ~ ~ 1.4 4.9 5.0 Li Ning 2331 HK 4.3 591 9.7 13.9 9.2 34.7% 0.4 1.0 1.0 0.9 3.1 2.9 4.3 4.8 5.7 4.7 10.7 7.2 10.2 Xtep 1368 HK 2.7 758 5.0 5.7 7.7 -24.6% -0.2 1.2 1.1 1.0 9.3 8.2 6.1 2.7 2.9 3.7 26.6 20.5 13.9 361 Degrees^ 1361 HK 1.7 461 3.2 3.3 3.2 ~ ~ 0.6 0.5 0.4 15.0 14.3 14.3 2.4 2.3 2.3 20.7 18.2 17.6 Peak Sports^ 1968 HK 1.3 352 2.9 4.4 4.0 5.8% 0.8 0.6 0.5 0.5 10.7 7.3 7.8 0.0 0.0 0.0 20.7 12.5 12.0 Average 9.6 7.0 6.5 1.9% 0.3 0.9 0.8 0.8 8.6 8.0 7.9 2.5 2.8 2.9 18.1 14.2 12.8

Electrical ApplianceGome Electrical Appliances^ 493 HK 1.0 2,219 7.7 9.2 7.2 23.1% 0.4 0.9 0.8 0.8 2.6 2.6 3.8 3.7 4.4 3.5 12.0 8.9 10.7

Suning^002024

CH 8.4 9,236 12.2 11.6 9.9 18.2% 0.6 2.6 2.2 1.8 1.8 1.3 1.5 8.9 7.2 5.8 23.7 18.9 18.1 Average 9.9 10.4 8.6 20.7% 0.5 1.8 1.5 1.3 2.2 1.9 2.6 6.3 5.8 4.6 17.9 13.9 14.4

Supermarkets, Hypermarkets, Convenience Stores Beijing Jingkelong^ 814 HK 5.7 305 9.2 8.1 6.8 13.7% 0.6 1.2 1.1 1.0 4.3 4.9 5.7 7.5 5.7 5.0 13.5 13.6 14.6 Lianhua^ 980 HK 7.4 1,068 10.8 10.7 9.6 13.4% 0.8 2.0 1.9 1.7 3.3 3.2 3.6 0.6 0.4 0.4 20.2 18.1 18.0 Wumart Stores^ 1025 HK 15.7 2,590 27.9 21.7 18.0 21.1% 1.0 5.2 4.9 4.2 1.6 2.1 2.5 17.7 10.4 8.7 19.4 22.1 23.5 Average 16.0 13.5 11.5 16.1% 0.8 2.8 2.6 2.3 3.0 3.4 3.9 8.6 5.5 4.7 17.7 18.0 18.7

China Average 12.3 10.8 9.1 15.5% 0.5 2.1 1.9 1.6 4.8 4.7 5.2 6.9 5.9 5.0 19.3 17.4 17.8

59



Company Ticker Price Mkt Cap P/E EPS CAGR PEG (x) P/B Div yield EV/EBITDA ROE(LC) (USD mn) 11 12E 13E 12E-14E 12E-14E 11 12E 13E 11.0 12E 13E 11 12E 13E 11 12E 13E

HONG KONGApparelEsprit Holdings 330 HK 9.9 1,646 20.9 14.6 7.8 83.5% 0.2 0.8 0.8 0.7 2.9 4.1 7.7 7.5 5.8 3.7 3.7 5.3 9.6 Giordano 709 HK 5.5 1,085 11.3 10.8 8.6 19.7% 0.5 3.0 2.8 2.5 7.0 6.5 8.2 7.3 6.9 5.4 28.3 26.9 31.0 I.T* 999 HK 3.4 530 8.6 7.9 6.6 18.7% 0.4 1.8 1.6 1.4 4.6 5.1 6.0 5.1 4.6 3.8 22.9 21.4 22.3

Jewelry RetailChow Sang Sang^ 116 HK 15.0 1,309 9.3 8.1 6.8 18.5% 0.4 1.6 1.4 1.2 4.0 4.4 5.1 7.4 6.7 5.7 18.2 17.6 18.1 Luk Fook*^ 590 HK 16.1 1,220 6.8 7.1 6.1 19.2% 0.4 1.7 1.5 1.3 5.7 5.5 6.3 5.5 5.6 4.7 30.5 22.6 21.7

Department StoresDickson Concepts*^ 113 HK 4.2 200 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ NA NA NALifestyle 1212 HK 16.9 3,631 18.0 15.7 13.9 13.1% 1.2 3.4 3.0 2.7 2.4 2.6 2.9 12.1 10.9 9.7 24.2 20.3 20.3

Supermarkets, Hypermarkets, Convenience Stores Convenience Retail Asia^ 831 HK 4.4 422 19.6 18.5 17.1 15.5% 1.2 3.5 ~ ~ 3.3 3.4 3.8 9.5 ~ ~ 18.6 18.1 20.1 Dairy Farm DFI SP 10.6 14,339 29.6 27.0 23.1 18.1% 1.5 15.6 11.8 9.4 1.8 2.2 2.6 19.4 17.5 15.3 57.3 49.9 45.1

Cosmetics & Healthcare GoodsBonjour^ 653 HK 1.1 433 14.0 11.4 9.3 23.7% 0.5 11.7 9.3 8.0 5.8 7.2 8.8 9.7 7.8 6.4 94.4 88.3 89.8 Sa Sa International* 178 HK 4.9 1,763 19.8 17.2 14.3 21.0% 0.8 8.4 5.6 4.8 3.6 4.1 4.9 13.8 11.9 10.1 46.2 39.1 36.4 HK Average 15.8 13.8 11.3 25.1% 0.7 5.1 4.2 3.6 4.1 4.5 5.6 9.7 8.6 7.2 34.4 31.0 31.4

Total Average 13.4 11.7 9.8 18.7% 0.6 3.0 2.5 2.2 4.6 4.6 5.3 7.9 6.8 5.7 24.1 21.5 22.0

Source: Company, J.P. Morgan estimates. Bloomberg. Prices as of Jun 29, 2012. *FY12 figure given under 11E as the year ends in Jan-Jun. ^Not Covered. Bloomberg consensus estimates used for the companies.

60



Staples Valuation Table

Company Ticker Mkt Cap P/E (x) EPS CAGR PEG (x) P/B (x) Div yield EV/EBITDA (x) ROE(USD mn) 11 12E 13E 12E-14E 12E-14E 11 12E 13E 11.0 12E 13E 11 12E 13E 11 12E 13E

Instant noodles & juicesChina Huiyuan Juice 1886 HK 526 22.8 13.1 ~ ~ ~ 0.6 0.5 ~ 1.1 1.9 ~ 11.8 9.5 ~ 2.7 4.2 NATingyi 322 HK 14,289 37.5 32.7 24.9 29.6% 1.1 6.8 5.9 5.2 1.5 1.9 2.0 16.5 12.9 11.9 21.4 23.5 22.3Uni-president China 220 HK 3,341 68.1 33.7 25.4 28.4% 1.2 3.1 2.9 2.7 0.4 0.9 1.2 28.7 16.1 10.4 4.6 9.0 11.1Tibet 5100 Water Resources 1115 HK 490 10.4 9.3 6.9 29.6% 0.3 1.7 1.4 1.1 0.0 0.0 0.0 4.0 3.5 2.7 34.9 21.4 23.3Average 34.7 22.2 19.1 29.2% 0.9 3.1 2.7 3.0 0.8 1.2 1.1 15.2 10.5 8.3 15.9 14.5 18.9Snack manufacturersChina Lifestyle^ 1262 HK 367 8.3 7.7 6.6 15.5% 0.5 1.6 1.4 1.2 2.4 2.7 3.1 6.0 7.5 6.4 21.2 17.4 17.3Want Want 151 HK 16,201 38.6 28.4 23.3 21.3% 1.3 12.2 10.5 8.9 1.6 2.2 2.7 26.7 19.1 15.3 34.9 39.6 41.4Average 23.4 18.1 14.9 18.4% 0.9 6.9 5.9 5.1 2.0 2.4 2.9 16.3 13.3 10.9 28.1 28.5 29.4Personal CareHengan International 1044 HK 11,876 34.7 25.3 21.3 17.8% 1.4 7.5 6.8 6.1 1.8 2.6 3.1 24.7 17.7 14.4 23.2 28.0 30.1Vinda^ 3331 HK 1,477 26.5 15.9 13.0 22.9% 0.7 3.4 2.8 2.4 1.0 1.6 2.0 19.1 11.0 8.7 13.9 19.4 20.2Fook Woo Group^ 923 HK 426 6.5 5.4 4.6 ~ ~ 0.8 0.7 0.7 3.1 3.6 4.2 2.5 2.1 1.8 12.9 13.3 13.8Magic Holdings^ 1633 HK 351 13.7 9.9 7.3 ~ ~ 2.1 1.8 3.6 1.5 1.8 2.4 6.6 4.6 3.6 15.0 18.4 24.4Bawang^ 1338 HK 225 -2.6 -5.1 -44.7 ~ ~ 1.4 1.9 1.8 0.0 0.6 0.0 -0.9 -1.7 -22.5 (42.7) (33.1) 2.4Average 15.8 10.3 0.3 20.4% 1.1 3.0 2.8 2.9 1.5 2.0 2.3 10.4 6.7 1.2 4.5 9.2 18.2BreweriesBeijing Yanjing Brewery^ 000729 CH 2,898 21.6 18.1 15.1 18.9% 1.0 2.0 ~ ~ 1.4 ~ ~ 12.9 ~ ~ 9.7 11.1 11.8China Resources Enterprise 291 HK 7,102 29.1 23.0 18.9 23.0% 1.0 1.5 1.4 1.4 2.0 2.4 2.8 7.9 6.3 5.2 8.4 8.8 9.6Tsingtao Brewery 168 HK 7,902 28.1 24.4 20.6 17.8% 1.4 4.4 3.8 3.2 0.5 0.6 0.7 16.2 13.5 11.6 16.8 16.7 17.0Average 26.3 21.8 18.2 19.9% 1.1 2.6 2.6 2.3 1.3 1.5 1.7 12.3 9.9 8.4 11.6 12.2 12.8LiquorKweichow Moutai^ 600519 CH 39,067 28.3 19.2 13.5 35.8% 0.5 9.9 7.1 5.2 1.7 1.4 2.2 18.7 15.4 12.5 40.4 39.5 40.2Luzhou Laojiao^ 000568 CH 9,282 20.3 14.5 11.1 32.3% 0.4 8.2 6.3 4.9 3.3 4.4 5.6 13.6 11.5 9.4 45.8 47.3 48.1Shanxi Fen Wine^ 600809 CH 5,135 41.8 27.6 19.2 47.2% 0.6 13.1 9.1 6.5 0.7 0.9 1.3 22.0 15.3 10.9 35.3 36.2 37.4Wuliangye Yibin^ 000858 CH 19,568 20.2 14.3 11.3 23.8% 0.6 5.4 4.1 3.1 1.5 2.0 2.4 11.6 8.5 6.7 29.9 29.6 29.1Average 27.7 18.9 13.8 34.8% 0.5 9.2 6.6 4.9 1.8 2.2 2.9 16.5 12.7 9.9 37.9 38.1 38.7WineriesChina Foods 506 HK 2,742 32.9 23.8 18.5 26.3% 0.9 3.2 2.9 2.7 1.1 1.5 1.9 14.6 11.1 8.8 10.3 12.8 15.1Dynasty Fine Wines^ 828 HK 204 373.5 31.8 19.8 45.8% 0.7 0.8 0.8 0.8 1.2 1.3 2.1 15.3 10.6 7.6 0.2 2.4 3.8China Tontine Wines^ 389 HK 192 6.5 5.5 5.5 ~ ~ 0.7 ~ ~ 4.8 ~ ~ ~ ~ ~ 11.0 9.2 9.9Yantai Changyu Pioneer Wine^ 200869 CH 6,363 15.4 13.3 10.7 26.8% 0.5 5.9 4.8 3.8 2.7 3.1 3.6 14.7 11.6 9.3 43.1 37.9 36.4Average 107.1 18.6 13.6 33.0% 0.7 2.6 2.8 2.4 2.4 2.0 2.6 14.9 11.1 8.6 16.1 15.6 16.3DairiesBright Dairy^ 600597 CH 1,539 40.5 32.7 25.9 31.1% 1.1 4.0 3.6 3.2 1.6 ~ ~ 20.0 21.2 18.7 9.9 10.9 13.2China Mengniu Dairy 2319 HK 4,638 17.0 16.3 13.8 17.1% 1.0 2.6 2.3 2.1 1.2 1.2 1.5 8.8 7.6 5.7 15.0 13.0 14.9China Modern Dairy^ 1117 HK 1,120 16.9 10.1 6.9 ~ ~ 1.3 1.2 1.0 0.0 0.0 1.6 15.6 9.7 6.8 9.5 13.6 16.4Yashili International^ 1230 HK 540 11.2 9.8 9.5 -8.3% -1.2 0.9 0.9 0.8 5.8 5.4 5.7 1.9 1.4 1.3 8.1 9.1 8.2Synutra^ SYUT US 300 15.4 5.2 4.1 22.9% 0.2 ~ ~ ~ ~ ~ ~ 8.6 4.5 4.2 22.0 17.0 NAInner Mongolia Yili Industrial^ 600887 CH 5,177 18.2 18.3 13.8 25.2% 0.7 5.5 4.0 3.3 1.2 1.2 1.2 15.6 10.2 8.4 35.3 21.5 21.6Average 19.9 15.4 12.3 17.6% 0.4 2.9 2.4 2.1 2.0 1.9 2.5 11.8 9.1 7.5 16.6 14.2 14.8

61



Company Ticker Mkt Cap P/E (x) EPS CAGR PEG (x) P/B (x) Div yield EV/EBITDA (x) ROE(USD mn) 11 12E 13E 12E-14E 12E-14E 11 12E 13E 11.0 12E 13E 11 12E 13E 11 12E 13E

Food retailersBeijing Jingkelong^ 814 HK 305 9.2 8.1 6.8 13.7% 0.6 1.2 1.1 1.0 4.3 4.9 5.7 7.5 5.7 5.0 13.5 13.6 14.6Sun Art^ 6808 HK 10,442 34.8 27.8 22.6 21.0% 1.3 4.4 4.1 3.7 1.2 1.3 1.6 15.0 11.2 9.0 16.4 14.9 16.6Lianhua^ 980 HK 1,068 10.8 10.7 9.6 13.4% 0.8 2.0 1.9 1.7 3.3 3.2 3.6 0.6 0.4 0.4 20.2 18.1 18.0Wumart Stores^ 1025 HK 2,590 27.9 21.7 18.0 21.1% 1.0 5.2 4.9 4.2 1.6 2.1 2.5 17.7 10.4 8.7 19.4 22.1 23.5Average 20.7 17.1 14.2 17.3% 0.9 3.2 3.0 2.6 2.6 2.9 3.4 10.2 6.9 5.8 17.4 17.2 18.2China RestaurantsCountry Style Cooking^ CCSC US 181 -158.4 21.9 15.5 22.9% 1.0 5.9 1.4 1.3 0.0 0.0 0.0 10.2 6.8 4.6 (0.9) 10.2 13.6Café de Coral* 341 HK 1,520 27.5 21.5 18.0 18.5% 1.2 3.6 3.5 3.3 3.0 3.5 4.2 13.4 11.2 9.3 15.0 16.5 18.9Ajisen China Holdings Ltd. 538 HK 738 16.5 29.4 20.9 33.9% 0.9 2.0 1.9 1.8 3.4 1.9 2.7 6.4 9.4 7.2 12.3 6.6 9.0Fairwood*^ 52 HK 231 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ NA NA NAAverage -38.1 24.3 18.1 0.3 1.0 3.8 2.3 2.1 2.1 1.8 2.3 10.0 9.1 7.0 8.8 11.1 13.8Meat ProcessorsChina Yurun 1068 HK 1,586 11.5 9.2 7.1 26.9% 0.3 0.8 0.7 0.7 3.3 3.2 4.5 5.7 5.5 4.0 11.8 9.5 12.2Henan Shuanghui^ 000895 CH 5,901 66.5 20.3 16.2 25.1% 0.8 10.2 7.1 5.6 0.9 1.2 2.3 38.7 10.4 8.2 15.4 30.9 30.3Zhongpin^ HOGS US 343 5.6 6.2 4.9 31.6% 0.2 0.7 0.6 0.5 0.0 ~ ~ 6.4 6.6 5.2 14.7 13.0 NAPeople's Food^ PFH SP 445 21.9 ~ ~ ~ ~ 0.5 ~ ~ 0.0 ~ ~ 4.4 ~ ~ 2.5 NA NAAverage 26.4 11.9 9.4 27.9% 0.4 3.1 2.8 2.3 1.0 2.2 3.4 13.8 7.5 5.8 11.1 17.8 21.2Tobacco and Tobacco FlavourHuabao International* 336 HK 1,540 6.8 6.5 5.9 9.2% 0.7 1.9 1.6 1.3 5.8 4.6 5.1 5.0 4.6 4.0 30.8 26.4 24.2AMVIG Holdings^ 2300 HK 406 5.8 5.9 5.4 10.8% 0.5 0.7 0.7 0.6 7.0 6.3 7.0 3.0 2.9 2.5 13.4 11.3 11.8China Flavors & Fragrances^ 3318 HK 68 8.3 ~ ~ ~ ~ 0.5 ~ ~ 0.0 ~ ~ 3.6 ~ ~ 6.6 NA NAAverage 6.9 6.2 5.6 10.0% 0.6 1.0 1.1 1.0 4.2 5.4 6.0 3.9 3.8 3.3 16.9 18.8 18.0Agri-industrial companiesChina Agri-Industries 606 HK 2,202 7.8 6.3 5.0 22.2% 0.3 0.8 0.8 0.7 2.6 3.1 4.0 8.1 6.6 5.5 11.5 12.7 14.2China Green^* 904 HK 197 2.8 2.6 2.0 ~ ~ 0.4 0.3 0.3 9.9 10.6 10.6 1.1 1.0 0.9 11.7 11.7 10.9Chaoda Agricultural^ 682 HK 467 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ NA NA NAGlobal Bio-chem Technology^ 809 HK 467 2.8 2.6 2.3 14.9% 0.2 0.4 0.3 0.3 3.2 2.8 3.4 4.3 4.1 3.9 13.9 11.1 10.6Xiwang Sugar^ 2088 HK 95 3.3 2.4 2.5 ~ ~ 0.3 0.2 0.2 4.7 8.4 8.4 5.0 ~ ~ 8.7 6.2 7.4Average 4.2 3.5 3.0 18.5% 0.2 0.5 0.4 0.4 5.1 6.2 6.6 4.7 3.9 3.4 11.4 10.4 10.8

Source: Company, J.P. Morgan estimates. Bloomberg. Prices as of June 29, 2013. *FY12 figure given under 11E as the year ends in Jan-Jun. ^Not covered, Bloomberg consensus estimates used for the companies

62



Appendix 1:Forward PE charts: Retailers

Figure 18: Anta

Source: Bloomberg, J.P. Morgan estimates.

Figure 19: Belle

Source: Source: Bloomberg, J.P. Morgan estimates.

Figure 20: China Dongxiang


Figure 21: China Lilang


Figure 22: Chow Tai Fook


Figure 23: Giordano


6.8

15.3

5.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11

Jul-1

1

Nov

-11

Mar

-12

P/E Mean Trough

17.1

23.3

9.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

Nov

-11

May

-12

P/E Mean Trough

5.8

17.3

5.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Oct

-07

Feb

-08

Jun-

08

Oct

-08

Feb

-09

Jun-

09

Oct

-09

Feb

-10

Jun-

10

Oct

-10

Feb

-11

Jun-

11

Oct

-11

Feb

-12

Jun-

12

P/E Mean Trough

7.4

14.7

14.7

7.4

0.0

5.0

10.0

15.0

20.0

25.0S

ep-0

9

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

P/E Mean Trough

12.4

16.5

11.910.0

12.0

14.0

16.0

18.0

20.0

22.0

Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12

P/E Mean Trough

9.617.2

5.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean Trough

63



Figure 24: Golden Eagle


Figure 25: I.T


Figure 26: L'Occitane


Figure 27: Lifestyle


Figure 28: Li Ning


Figure 29: Parkson


16.8

24.2

9.1

0.05.0

10.015.020.025.030.035.040.045.0

Mar

-06

Jul-0

6

Nov

-06

Mar

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11

Jul-1

1

Nov

-11

Mar

-12

P/E Mean Trough

7.310.8

1.80.0

5.0

10.0

15.0

20.0

25.0

30.0

Mar

-05

Aug

-05

Jan-

06

Jun-

06

Nov

-06

Apr

-07

Sep

-07

Feb

-08

Jul-0

8

Dec

-08

May

-09

Oct

-09

Mar

-10

Aug

-10

Jan-

11

Jun-

11

Nov

-11

Apr

-12

P/E Mean Trough

21.9

21.3

14.4

13.015.017.019.021.023.025.027.029.0

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

P/E Mean Trough

14.3

19.1

8.8

0.05.0

10.015.020.025.030.035.040.045.0

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

P/E Mean Trough

11.4

24.1

9.2

0.05.0

10.015.020.025.030.035.040.045.0

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

Jun-

10

Jun-

11

Jun-

12

P/E Mean Trough

12.8

29.0

12.80.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Nov

-05

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

Nov

-11

May

-12

P/E Mean Trough

64



Figure 30: Ports Design


Figure 31: Sa Sa International

Source: Source: Bloomberg, J.P. Morgan estimates.

Figure 32: Trinity


Figure 33: Xtep


7.8

20.2

7.5

0.05.0

10.015.020.025.030.035.040.045.0

Oct

-03

Oct

-04

Oct

-05

Oct

-06

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

P/E Mean Trough

16.315.94.5

-10.0-5.00.05.0

10.015.020.025.030.035.040.0

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

P/E Mean Trough

12.8

21.2

11.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

P/E Mean Trough

7.0

9.0

3.1

0.02.04.06.08.0

10.012.014.016.0

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

P/E Mean Trough

65



Appendix 2:Forward PE charts: Staples

Figure 34: Ajisen


Figure 35: Café de Coral


Figure 36: China Foods


Figure 37: Dairy Farm


Figure 38: Mengniu


Figure 39: China Resource Enterprise


23.9

34.1

8.8

0.010.020.030.040.050.060.070.080.0

Mar

-07

Jun-

07S

ep-0

7D

ec-0

7M

ar-0

8Ju

n-08

Sep

-08

Dec

-08

Mar

-09

Jun-

09S

ep-0

9D

ec-0

9M

ar-1

0Ju

n-10

Sep

-10

Dec

-10

Mar

-11

Jun-

11S

ep-1

1D

ec-1

1M

ar-1

2Ju

n-12

P/E Mean Trough

20.5

16.9

6.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean Trough

15.918.0

5.5

0.05.0

10.015.020.025.030.035.040.045.0

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

P/E Mean Trough

24.917.7

8.4

0.0

5.0

10.0

15.0

20.0

25.0

30.0Ja

n-01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean Trough

15.0

55.8

-5.05.0

15.025.035.045.055.065.075.0

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

Jun-

10

Jun-

11

P/E Mean

20.223.1

8.50

10

20

30

40

50

60

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean Trough

66



Figure 40: China Yurun


Figure 41: Hengan


Figure 42: Huabao


Figure 43: Tingyi


Figure 44: Tsingtao


Figure 45: Uni-president China


7.7

20.57.7

0.05.0

10.015.020.025.030.035.040.045.050.0

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

P/E Mean Trough

22.9

17.9

6.9

0.05.0

10.015.020.025.030.035.040.0

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean Trough

6.317.5

-30.0-20.0-10.0

0.010.020.030.040.050.0

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean

27.7

21.7

4.6

0.05.0

10.015.020.025.030.035.040.045.0

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E Mean Trough

22.6

27.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Forward P/E Mean

28.026.6

7.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

P/E Mean Trough

67



Figure 46: Want Want


24.5

22.8

16.0

15.017.019.021.023.025.027.029.031.033.0

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11

Jul-1

1

Nov

-11

Mar

-12

P/E Mean Trough

68



Appendix 3:Raw material price charts

Figure 47: Palm Oil- International (M$/ton)

Source: Bloomberg (PAL2MALY Index)

Figure 48:Palm Oil- Local (Rmb/ton)

Source: Bloomberg (CNOM24HU Index)

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Figure 52: PET- Local (Rmb/ton)

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Figure 53: Wheat- International (US$/bu)

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Figure 54: Wheat- Local (Rmb/ton)

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Figure 55: Milk – International (US$/cwt)

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Figure 56: Milk – Local (RMB/kg)

Source: http://www.sn110.com/

Figure 57: Pulp- International (US$/ton)

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Figure 58: Barley- International (C$/ton)

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Figure 59: Hog- Local (Rmb/kg)

Source: www.sn110.com

Figure 60: Rice – International (US$/cwt)

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Figure 61: Orange Juice Concentrate – International (US$/lb)

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Ajisen China Holdings Ltd

Company DataShares O/S (mn) 1,074Market cap (HK$ mn) 5,723Market cap ($ mn) 738Price (HK$) 5.33Date Of Price 29 Jun 12Free float (%) -3mth Avg daily volume 4,368,608.003M - Average daily Value (HK$ mn)

33.11

Average 3m Daily Turnover ($ mn)

4.27

HSI 19,441Exchange Rate 7.76Fiscal Year End Dec

Ajisen China Holdings Ltd (Reuters: 0538.HK, Bloomberg: 538 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 2,681 3,075 3,096 3,775 4,491Net Profit (HK$ mn) 447 350 196 276 352EPS (HK$) 0.41 0.32 0.18 0.25 0.32DPS (HK$) 0.23 0.18 0.10 0.14 0.18Revenue growth (%) 32.6% 17.5% 0.7% 21.0% 18.3%Net profit growth (%) 42.3% -21.8% -43.9% 40.6% 27.5%EPS growth (%) 40.8% -22.1% -43.9% 40.6% 27.5%ROA 14.3% 9.6% 5.2% 7.2% 8.6%P/BV (x) 2.1 2.0 1.9 1.8 1.8P/E (x) 12.9 16.5 29.4 20.9 16.4EV/EBITDA (x) 5.3 6.3 9.7 7.7 6.3Dividend Yield 4.3% 3.4% 1.9% 2.7% 3.4%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileAjisen (China) Holdings Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]

Local Share Price Current: 5.87 12 Mth Forward EPS Current: 0.38

Earnings Yield (& local bond Yield) Current: 6% Implied Value Of Growth* Current: -1.93%

PE (1Yr Forward) Current: 15.5x Price/Book Value Current: 2.2x

ROE (Trailing) Current: 12.27 Dividend Yield (Trailing) Current: 1.29

Summary

Ajisen (China) Holdings Ltd. 759.40 As Of:

HONG KONG 5.83599 SEDOL B1TNRD8 Local Price: 5.87Consumer Discretionary Hotels Restaurants & Leisure EPS: 0.38

Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg

12mth Forward PE 15.51x 8.47 46.27 21.51 22.68 39.17 6.20 -45% 198% 39% 46%

P/BV (Trailing) 2.16x 1.32 59.57 3.84 6.09 26.47 -14.30 -39% 2664% 78% 182%Dividend Yield (Trailing) 1.29 0.00 2.04 0.88 0.87 1.88 -0.15 -100% 58% -32% -33%

ROE (Trailing) 12.27 10.20 98.38 18.99 41.13 110.45 -28.19 -17% 702% 55% 235%

Implied Value of Growth -1.9% -0.77 0.76 0.37 0.31 0.97 -0.36 -3902% 4024% 1999% 1685%

Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs * Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP)

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73



Company Description P&L sensitivity metrics for FY12 EBIT EPS

impact (%) impact (%)

Ajisen is engaged in restaurant chain operations in China and Hong Kong, specialized in Japanese-style ramen. The average per capita spending in Ajisen’s stores is Rmb38.3 in China and HK$58.9 in Hong Kong. Average table turnover rates were 5 times per day in China and 6 times per day in Hong Kong. As of 31 Dec 10, the company operated 471restaurants in the PRC and 35 restaurants in HK.

Sales per average area

Impact of each 5% decrease -4.1% -4.3%

Average saleable area


Gross margin assumption



2011 Revenue Breakdown Price target and valuation analysisOur new Dec-12 PT of HK$6.0 (lowered from HK$9.0) is based on PEG ratio of 0.9x PEG with 2-year (2012-2014E) EPS CAGR of 34%. We base our PT on 0.9x PEG which is a discount to 1.0x for the average of China consumer staples (excluding Huabao and Yurun) to reflect the near term risks in business recovery. We are using PEG in order to capture earnings growth prospects. ..

Target PEG 0.9

2012-14E EPS CAGR 33.9%

Implied Dec-12 target PE (x) 30.5

EPS Dec-12 (HK$) 0.181

Target price (HK$) 6.0

Source: Company.

Key upside risks to our call would be a faster-than-expected same store sales recovery, and key downside risks to our call would be further earnings downgrades by consensus.EPS J.P. Morgan vs consensus

HK$ J.P. Morgan Consensus

FY12E 0.181 0.314

FY13E 0.255 0.392

FY14E 0.325 0.486

Source: Bloomberg, JPMorgan

Peer comparison valuations

Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012EAjisen China 538 HK N 5.3 6.0 738 16.5 29.4 20.9 9.4 6.6 1.9 1.9%Café de Coral* 341 HK N 20.7 NA 1,520 27.5 21.5 18.0 11.2 16.5 3.5 3.5%Country Style Cooking^ CCSC US NR 7.0 NA 181 (158.4) 21.9 15.5 6.8 10.2 1.4 0.0%Gourmet Master^ 2723 TT NR 206.0 NA 974 ~ 20.8 15.8 ~ 22.3 4.2 2.2%Sector average (38.1) 23.4 17.6 9.1 13.9 2.7 1.9%

Source: Bloomberg, J.P. Morgan estimates. Share prices are as of close of 29 Jun 2012. Bloomberg consensus estimates for NR stocks.

Restaurants96%

Noodles sales4%

74



Ajisen China Holdings Ltd: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 2,681 3,075 3,096 3,775 4,491 PBT 622 516 281 385 491% change Y/Y 32.6% 17.5% 0.7% 21.0% 18.3% Depr. & amortization 127 157 190 223 256

Gross Profit 1,854 2,084 2,028 2,473 2,942 Change in working capital 50 24 36 43 45% change Y/Y 33.9% 12.4% -2.7% 21.9% 19.0% Tax -154 -150 -76 -96 -123Gross margin 67.8% 64.9% 62.7% 63.2% 63.6% Other 0 0 0 0 0EBITDA 728 654 448 585 723 Cash flow from operations 624 524 408 531 646

% change Y/Y 37.8% -10.2% -31.5% 30.5% 23.7%EBITDA Margin 26.6% 20.4% 13.9% 15.0% 15.6% Capex -486 -500 -550 -550 -550EBIT 601 497 258 362 467 Acquisition of subsidiaries/intangibles - - - - -

% change Y/Y 44.7% NM NM 40.2% 29.2% Other - - - - -EBIT Margin 22.0% 15.5% 8.0% 9.3% 10.1% Cash flow from investing -627 -503 -526 -526 -526Net Interest 21 19 23 23 23Share of JVs - - - - - Equity raised/(repaid) 0 0 0 0 0Earnings before tax 622 516 281 385 491 Debt raised/(repaid) 142 152 -291 1 1

% change Y/Y 43.3% -17.1% -45.5% 36.9% 27.5% Dividends paid -248 -194 -109 -153 -195Tax -154 -150 -76 -96 -123 Other 0 0 0 0 0

as % of EBT 24.7% 29.1% 27.0% 25.0% 25.0% Cash flow from financing -106 -42 -400 -152 -194Minority Interest -21 -16 -9 -13 -16Net income (reported) 447 350 196 276 352 Net change in cash -108 -22 -519 -147 -74

% change Y/Y 42.3% -21.8% -43.9% 40.6% 27.5% Ending Cash 1,971 1,947 1,367 1,218 1,142EPS (reported) 0.41 0.32 0.18 0.25 0.32 DPS 0.23 0.18 0.10 0.14 0.18

% change Y/Y 40.8% (22.1%) (43.9%) 40.6% 27.5%

Balance sheet Ratio AnalysisHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Cash and cash equivalents 1,971 1,887 1,367 1,218 1,142 Gross margin 67.8% 64.9% 62.7% 63.2% 63.6%Accounts receivable 145 150 167 204 242 EBITDA margin 26.6% 20.4% 13.9% 15.0% 15.6%Inventories 82 98 106 130 154 Operating margin - - - - -Others 5 4 4 4 4 Net margin 16.4% 10.9% 6.1% 7.1% 7.6%Current assets 2,203 2,140 1,645 1,556 1,543 Recurring net profit margin - - - - -Intangible assets 37 45 45 45 45 Sales growth 32.6% 17.5% 0.7% 21.0% 18.3%Net fixed assets 773 1,075 1,435 1,762 2,056 Net profit growth 42.3% -21.8% -43.9% 40.6% 27.5%Other assets - - - - - Recurring net profit growth - - - - -Total Assets 3,474 3,832 3,697 3,936 4,217 EPS growth 40.8% (22.1%) (43.9%) 40.6% 27.5%Liabilities Net debt to equity -65.8% -54.5% -45.4% -38.9% -34.7%Short-term loans 142 293 1 1 1 Sales/assets 0.87 0.88 0.86 1.02 1.14Trade & other payables - 155 197 - 226 Assets/equity 1.20 1.31 1.23 1.26 1.28Others 97 112 112 112 112 ROE 17.3% 12.3% 6.6% 9.0% 11.0%Total current liabilities 602 813 581 684 793 ROCE 22.6% 16.2% 8.3% 11.8% 14.5%Long-term debt 0 0 0 0 0Others 25 22 22 22 22Total Liabilities 627 835 604 707 815Shareholders' equity 2,781 2,922 3,009 3,132 3,289BVPS 2.58 2.70 2.78 2.89 3.04

Source: Company reports and J.P. Morgan estimates.

75



Anta Sports Products Ltd.

Company DataShares O/S (mn) 2,494Market cap (Rmb mn) 9,564Market cap ($ mn) 1,504Price (HK$) 4.68Date Of Price 29 Jun 12Free float (%) 30.5%3mth Avg daily volume 4,759,374.003M - Average daily Value (HK$ mn)

31.53


4.06

MSCI-Cnx 5,329Exchange Rate 7.76Fiscal Year End Dec

Anta Sports Products Ltd. (Reuters: 2020.HK, Bloomberg: 2020 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 7,408 8,905 8,168 8,660 9,443Net Profit (Rmb mn) 1,551 1,730 1,443 1,263 976EPS (Rmb) 0.62 0.69 0.58 0.51 0.39Recurring EPS (Rmb) 0.62 0.69 0.58 0.51 0.39DPS (Rmb) 0.39 0.42 0.35 0.31 0.24Revenue growth (%) 26.1% 20.2% -8.3% 6.0% 9.0%Net profit growth (%) 24.0% 11.5% -16.6% -12.5% -22.7%EPS growth (%) 23.8% 11.5% -16.6% -12.5% -22.7%ROE 28.8% 28.7% 21.8% 17.9% 13.1%ROA 23.6% 22.7% 17.3% 14.4% 10.5%P/BV (x) 1.7 1.5 1.4 1.3 1.3P/E (x) 6.2 5.5 6.6 7.6 9.8EV/EBITDA (x) 3.0 2.5 2.8 3.0 3.8Dividend Yield 10.1% 11.1% 9.2% 8.1% 6.2%Source: Company data, Bloomberg, J.P. Morgan estimates.

Anta Sports Products Ltd. (CHINA / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Anta Sports Products Ltd. 1796.85 As Of:CHINA 5.18505 SEDOL B1YVKN8 Local Price: 5.69Consumer Discretionary Textiles, Apparel & Luxury Goo EPS: 0.60


12mth Forward PE 7.77x 5.87 35.26 15.59 16.32 30.78 1.86 -24% 354% 101% 110%P/BV (Trailing) 1.83x 1.42 39.49 4.48 6.72 24.85 -11.42 -22% 2063% 145% 268%Dividend Yield (Trailing) 8.27 0.00 8.27 2.90 3.43 7.97 -1.11 -100% 0% -65% -59%ROE (Trailing) 28.72 20.92 84.49 28.84 37.10 78.27 -4.07 -27% 194% 0% 29%



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Company Description P&L sensitivity metrics EBITDA FY12E EPS FY12E


Anta is primarily engaged in designing, developing, manufacturing and marketing sportswear, including sports footwear and apparel for professionals and the general public under the ANTA brand. Through a large network of 9,297 stores, the group enjoys a leading presence in the second and third tier cities across PRC.

Sales volume growth assumption


ASP increase assumption




Operating expense assumption (% chg y/y)

Impact of each 1% increase -0.7% -0.7%


2011 Revenue breakdown Price target and valuation analysis

We have further cut our Dec-12 PT to HK$4 (from previous HK$5.5) based on the present value of the long term target PE of 10x 2014 earnings, which are based on normalized margins. We have reduced the target PE to 10x (pointing to c30% discount to the international brands’ long term average of 15-16x on brand recognition) from 13x as we become more cautious on local sportswear brands long term prospects than earlier.

Risks to our PT include lower than expected A&P expenses at the expense of long term sustainability, and higher than expected trade fair order growth at the expense of retail inventory level.

Source: Company reports

EPS: J.P. Morgan vs consensus

J. P. Morgan Consensus

FY12E 0.58 0.60

FY13E 0.51 0.61

FY14E 0.39 0.64

Source: J.P. Morgan estimates, Bloomberg

Peer group valuation comparison table

Company Ticker Rating Price PT Mkt Cap P/E P/B(HK$) (HK$) (USD mn) 2011 2012E 2013E 2012E 2013E

China retailersSportswear BrandsLi Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9China Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Xtep 1368 HK UW 2.7 2.20 758 5.0 5.7 7.7 1.1 1.0Other Chinese retailersBelle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Parkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Ports Design 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Sector average 17.7 14.1 11.7 2.7 2.4

Source: Company reports, Bloomberg, J.P. Morgan estimates. Based on COB prices as on 29 June 2011.

Footwear

52%

Apparel

45%

Accessory 3%

77



Anta Sports Products Ltd.: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 7,408 8,905 8,168 8,660 9,443 PBT 1,843 2,160 1,804 1,579 1,220% change Y/Y 26.1% 20.2% (8.3%) 6.0% 9.0% Depr. & amortization 84 90 81 91 101

Gross Profit 3,171 3,762 3,416 3,444 3,667 Change in working capital -295 -454 27 -213 -82% change Y/Y 28.2% 18.7% -9.2% 0.8% 6.5% Tax -224 -387 -361 -316 -244Gross margin 42.8% 42.3% 41.8% 39.8% 38.8% Other 25 38 0 0 0EBITDA 1,776 2,026 1,690 1,463 1,110 Cash flow from operations 1,433 1,448 1,552 1,141 995

% change Y/Y 24.3% 14.0% -16.6% -13.4% -24.1%EBITDA Margin 24.0% 22.8% 20.7% 16.9% 11.8% Capex -89 -127 -100 -100 -100Operating Profit 1,737 2,011 1,678 1,442 1,079 Sale of assets 1 2 - - -

% change Y/Y 24.5% 15.8% -16.6% -14.1% -25.2% Acquisition of subsidiaries/intangibles -15 -54 0 0 0Operating margin 23.4% 22.6% 20.5% 16.7% 11.4% Other 599 -559 0 0 0Net Interest 106 149 125 137 141 Cash flow from investing 496 -738 -100 -100 -100Share of JVs - - - - -Earnings before tax 1,843 2,160 1,804 1,579 1,220 Equity raised/(repaid) 6 1 - - -

% change Y/Y 27.5% 17.2% -16.5% -12.5% -22.7% Debt raised/(repaid) 0 0 0 0 0Tax -297 -436 -361 -316 -244 Dividends paid -940 -1,055 -969 -826 -684

as % of EBT 16.1% 20.2% 20.0% 20.0% 20.0% Other -5 -5 0 0 0Minorities 5 6 0 0 0 Cash flow from financing -939 -1,059 -969 -826 -684Other income/(exp) 44 74 70 70 70Net income (reported) 1,551 1,730 1,443 1,263 976 Net change in cash 990 -350 483 215 212

% change Y/Y 24.0% 11.5% -16.6% -12.5% -22.7% FX gain/(loss) -36 -23 - - -Recurring Net Income 1,551 1,730 1,443 1,263 976 Ending cash 3,391 3,019 3,501 3,716 3,928% change Y/Y 24.0% 11.5% -16.6% -12.5% -22.7% DPS 0.39 0.42 0.35 0.31 0.24EPS (reported) 0.62 0.69 0.58 0.51 0.39

% change Y/Y 23.8% 11.5% (16.6%) (12.5%) (22.7%)Recurring EPS 0.62 0.69 0.58 0.51 0.39

% change Y/Y 23.9% 11.6% (16.6%) (12.5%) (22.7%)

Balance sheet Ratio AnalysisRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Cash and cash equivalents 4,291 4,429 4,911 5,126 5,338 Gross margin 42.8% 42.3% 41.8% 39.8% 38.8%Accounts receivable 990 1,709 1,539 1,751 1,909 EBITDA margin 24.0% 22.8% 20.7% 16.9% 11.8%Inventories 454 618 586 714 791 Operating margin 23.4% 22.6% 20.5% 16.7% 11.4%Others 10 15 15 15 15 Net margin 20.9% 19.4% 17.7% 14.6% 10.3%Current assets 5,745 6,770 7,051 7,606 8,053 Recurring net profit margin 20.9% 19.4% 17.7% 14.6% 10.3%Intangible assets 531 541 539 538 537 Sales growth 26.1% 20.2% (8.3%) 6.0% 9.0%Long term investments 79 132 131 131 130 Net profit growth 24.0% 11.5% -16.6% -12.5% -22.7%Net fixed assets 653 701 721 732 732 Recurring net profit growth 24.0% 11.5% -16.6% -12.5% -22.7%Other assets 46 52 52 52 52 EPS growth 23.8% 11.5% (16.6%) (12.5%) (22.7%)Total Assets 7,054 8,195 8,495 9,058 9,504

Net debt to equity -75.6% -69.5% -71.7% -70.4% -70.5%Liabilities Sales/assets 1.13 1.17 0.98 0.99 1.02Short-term loans 0 0 0 0 0 Assets/equity 1.13 1.13 1.24 1.24 1.25Trade & other payables 1,071 1,471 1,297 1,424 1,577 ROE 28.8% 28.7% 21.8% 17.9% 13.1%Others 93 133 133 133 133 ROCE 31.5% 32.1% 24.3% 19.4% 13.6%Total current liabilities 1,163 1,604 1,430 1,557 1,710Long-term debt 0 0 0 0 0Others 160 171 171 171 171Total Liabilities 1,324 1,776 1,602 1,728 1,881Minorities 53 47 46 46 46Shareholders' equity 5,678 6,372 6,846 7,283 7,576BVPS 2.28 2.56 2.75 2.92 3.04


78



Belle International Holdings Ltd.

Company DataShares O/S (mn) 8,434Market cap (Rmb mn) 90,667Market cap ($ mn) 14,262Price (HK$) 13.12Date Of Price 29 Jun 12Free float (%) 53.3%3mth Avg daily volume 15,776,990.003M - Average daily Value(HK$ mn)

211.83


27.30


Belle International Holdings Ltd. (Reuters: 1880.HK, Bloomberg: 1880 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 23,706 28,945 35,166 41,485 47,370Net Profit (Rmb mn) 3,425 4,255 4,689 5,774 7,000EPS (Rmb) 0.41 0.50 0.56 0.68 0.83Recurring EPS (Rmb) 0.41 0.50 0.56 0.68 0.83Revenue growth (%) 20.0% 22.1% 21.5% 18.0% 14.2%Net profit growth (%) 35.2% 24.2% 10.2% 23.1% 21.2%Recurring profit growth (%) 35.2% 24.2% 10.2% 23.1% 21.2%ROE 21.1% 23.3% 22.4% 23.7% 24.8%P/E (x) 26.5 21.3 19.3 15.7 13.0P/BV (x) 5.3 4.7 4.0 3.5 3.0EV/EBITDA (x) 19.4 15.2 12.8 10.2 8.3Dividend Yield 2.9% 1.4% 2.1% 2.6% 3.1%Source: Company data, Bloomberg, J.P. Morgan estimates.

Belle International Holdings Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]


Earnings Yield (& local bond Yield) Current: 6% Implied Value Of Growth* Current: 1.32%



Summary

Belle International Holdings Ltd. 13521.99 As Of:

HONG KONG 30.36614 SEDOL B1WJ4X2 Local Price: 12.40Consumer Discretionary Specialty Retail EPS: 0.63


12mth Forward PE 16.02x 9.08 45.49 22.23 22.71 37.43 7.98 -43% 184% 39% 42%

P/BV (Trailing) 4.41x 1.75 24.94 5.19 5.37 11.26 -0.53 -60% 465% 17% 22%

Dividend Yield (Trailing) 1.47 0.00 2.34 0.96 1.03 1.98 0.07 -100% 60% -35% -30%

ROE (Trailing) 23.29 15.86 56.43 22.60 28.87 57.74 0.00 -32% 142% -3% 24%Implied Value of Growth 1.3% -0.65 0.77 0.41 0.32 0.94 -0.29 -5040% 5707% 3007% 2340%


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Belle International Holdings Limited is engaged in the manufacturing, distribution and retail sales of shoes and footwear products. Footwear and sportswear are the two segments it operates in with China & HK being the main markets. The company-owned footwear brands include Belle, Staccato, Teenmix, Tata, Fato and JipiJapa. The sportswear brands distributed by it include first-tier sportswear brands Nike and Adidas, and second-tier sportswear brands Reebok, PUMA, Kappa, Mizuno, Converse and LiNing. By the end of Dec-11 the Company had 10,270 footwear and 4,680 sportswear stores in mainland China.

Revenue per store


Gross margin


Change in operating expenses (y/y)


Source: J.P. Morgan estimates

Price target and valuation analysisOur new Dec-12 PT is HK$15.5 (down from the previous PT of HK$16 due to earnings revisions) is based on 1x PEG and c22% 2-yr earnings CAGR post 2012.

FY11 revenue breakdown

Key risk is slower than expected SSSG or sharp erosion in margins. Management is planning to add mass market brands to its portfolio and if they pursue this strategy aggressively in 2012 this can pose downside risk to our 2012 and 2013 estimates and thus PT. Belle has not been doing aggressive discounting over the few months, if they change this strategy and start aggressive discounting this can pose downside risk toour near term estimates, especially 2012




FY12E 0.56 0.57

FY13E 0.68 0.68

FY14E 0.83 0.80Source: J.P. Morgan estimates, Bloomberg.

Peer group valuations


Fashionwear/footwear RetailPorts Design 589 HK UW 8.1 7.00 587 8.7 8.2 7.3 1.8 1.6Other Chinese retailersParkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3China Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Li Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9Sector average 15.1 11.6 9.8 2.0 1.8

Source: J.P. Morgan estimates, Bloomberg, Company Data. Prices as of 29 Jun 2012 close. Bloomberg consensus estimates for NR stock.

Footwear

64%

Sportswear36%

80



Belle International Holdings Ltd.: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 23,706 28,945 35,166 41,485 47,370 PBT 4,125 5,471 6,170 7,699 9,334% change Y/Y 20.0% 22.1% 21.5% 18.0% 14.2% Depr. & amortization 693 763 927 947 966

Gross Profit 13,208 16,556 19,849 23,540 27,146 Change in working capital -1,648 -2,257 -310 -1,212 -1,095% change Y/Y 25.3% 25.3% 19.9% 18.6% 15.3% Tax -401 -1232 -1481 -1925 -2333Gross margin 55.7% 57.2% 56.4% 56.7% 57.3% Other -120 273 -198 -264 -351EBITDA 4,596 5,914 6,849 8,327 9,888 Cash flow from operations 2,649 3,018 5,108 5,245 6,520

% change Y/Y 33.2% 28.7% 15.8% 21.6% 18.8%EBITDA Margin 19.4% 20.4% 19.5% 20.1% 20.9% Capex -1,239 -1,664 -1,750 -750 -750EBIT 3,903 5,151 5,922 7,380 8,922 Sale of assets 14 0 0 0 0

% change Y/Y 38.5% 32.0% 15.0% 24.6% 20.9% Acquisition of subsidiaries/intangibles 0 0 0 0 0EBIT Margin 16.5% 17.8% 16.8% 17.8% 18.8% Other 992 -258 0 0 0Net Interest 163 205 198 264 351 Cash flow from investing -232 -1,922 -1,750 -750 -750Share of JVs 0 0 0 0 0Earnings before tax 4,125 5,471 6,170 7,699 9,334 Equity raised/(repaid) 0 0 0 0 0

% change Y/Y 44.3% 32.6% 12.8% 24.8% 21.2% Debt raised/(repaid) 691 1,277 0 0 0Tax -701 -1,232 -1,481 -1,925 -2,333 Dividends paid -1,603 -1,940 -1,613 -2,093 -2,800

as % of EBT 17.0% 22.5% 24.0% 25.0% 25.0% Other -1,003 281 198 264 351Minorities 0 -16 0 0 0 Cash flow from financing -1,915 -382 -1,414 -1,828 -2,449Other income/(exp) 60 114 50 55 61Net income (reported) 3,425 4,255 4,689 5,774 7,000 Net change in cash 502 714 1,944 2,667 3,321

% change Y/Y 35.2% 24.2% 10.2% 23.1% 21.2% FX gain/(loss) -20 0 0 0 0Recurring Net Income 3,425 4,255 4,689 5,774 7,000 Ending cash 2,173 2,887 4,831 7,497 10,818% change Y/Y 35.2% 24.2% 10.2% 23.1% 21.2% DPS 0.31 0.15 0.22 0.27 0.33EPS (reported) 0.41 0.50 0.56 0.68 0.83

% change Y/Y 35.2% 24.2% 10.2% 23.1% 21.2%Recurring EPS 0.41 0.50 0.56 0.68 0.83

% change Y/Y 35.2% 24.2% 10.2% 23.1% 21.2%


Cash and cash equivalents 2,173 2,887 4,831 7,497 10,818 Gross margin 55.7% 57.2% 56.4% 56.7% 57.3%Accounts receivable 2,120 2,746 2,890 3,410 3,893 EBITDA margin 19.4% 20.4% 19.5% 20.1% 20.9%Inventories 4,859 6,517 6,295 7,375 8,311 Operating margin 16.5% 17.8% 16.8% 17.8% 18.8%Others 4,971 5,617 5,791 6,137 6,460 Net margin 14.5% 14.7% 13.3% 13.9% 14.8%Current assets 14,122 17,767 19,806 24,419 29,482 Recurring net profit margin 14.5% 14.7% 13.3% 13.9% 14.8%Intangible assets 2,713 2,790 3,690 3,690 3,690 Sales growth 20.0% 22.1% 21.5% 18.0% 14.2%Long term investments 1,297 1,792 1,638 1,484 1,330 Net profit growth 35.2% 24.2% 10.2% 23.1% 21.2%Net fixed assets 2,354 2,852 2,928 2,885 2,823 Recurring net profit growth 35.2% 24.2% 10.2% 23.1% 21.2%Other assets 346 481 481 481 481 EPS growth 35.2% 24.2% 10.2% 23.1% 21.2%Total Assets 20,832 25,681 28,543 32,958 37,806

Net debt to equity -8.7% -5.1% -13.0% -21.4% -29.4%Liabilities Sales/assets 1.20 1.24 1.30 1.35 1.34Short-term loans 681 1,895 1,895 1,895 1,895 Assets/equity 1.21 1.21 1.27 1.26 1.24Trade & other payables 1,106 1,248 1,595 1,868 2,105 ROE 21.1% 23.3% 22.4% 23.7% 24.8%Others 1,674 2,686 2,125 2,585 2,995 ROCE 23.6% 26.3% 25.9% 28.1% 29.6%Total current liabilities 3,460 5,830 5,615 6,348 6,996Long-term debt 0 0 0 0 0Others 257 258 258 258 258Total Liabilities 3,717 6,087 5,873 6,606 7,254Minorities 0 0 0 0 0Shareholders' equity 17,115 19,424 22,500 26,182 30,382BVPS 2.03 2.30 2.67 3.10 3.60


81



Cafe de Coral Holdings Ltd

Company DataShares O/S (mn) 571Market cap (HK$ mn) 11,793Market cap ($ mn) 1,520Price (HK$) 20.65Date Of Price 29 Jun 12Free float (%) 57.7%3mth Avg daily volume 289,515.003M - Average daily Value (HK$ mn)

6.06


0.78

HSI 19,441Exchange Rate 7.76Fiscal Year End Mar

Cafe de Coral Holdings Ltd (Reuters: 0341.HK, Bloomberg: 341 HK)

HK$ in mn, year-end Mar FY11A FY12A FY13E FY14E FY15ERevenue (HK$ mn) 5,333 5,956 6,635 7,537 8,416Net Profit (HK$ mn) 514 474 547 655 769EPS (HK$) 0.90 0.83 0.96 1.15 1.35Recurring EPS (HK$) 0.77 0.75 0.96 1.15 1.35DPS (HK$) 0.86 0.62 0.72 0.86 1.01Revenue growth (%) 9.2% 11.7% 11.4% 13.6% 11.7%Net profit growth (%) 0.2% -7.9% 15.5% 19.7% 17.3%EPS growth (%) -0.9% -8.1% 15.5% 19.7% 17.3%ROE 17.4% 15.0% 16.5% 18.9% 21.1%ROA 14.1% 12.1% 13.1% 14.9% 16.5%P/E (x) 22.8 24.8 21.5 18.0 15.3P/BV (x) 3.8 3.6 3.5 3.3 3.1EV/EBITDA (x) 13.2 13.9 11.8 9.6 8.0Dividend Yield 4.2% 3.0% 3.5% 4.2% 4.9%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileCafe de Coral Holdings Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Cafe de Coral Holdings Ltd. 1470.63 As Of:

HONG KONG 0.9596366 SEDOL 6160953 Local Price: 20.30Consumer Discretionary Hotels Restaurants & Leisure EPS: 0.96


12mth Forward PE 21.19x 5.20 22.34 13.68 12.74 22.45 3.02 -75% 5% -35% -40%

P/BV (Trailing) 3.50x 1.16 4.38 2.83 2.69 4.52 0.86 -67% 25% -19% -23%

Dividend Yield (Trailing) 3.02 2.35 9.59 3.99 4.32 7.04 1.60 -22% 217% 32% 43%

ROE (Trailing) 15.66 14.74 22.66 19.10 19.03 22.68 15.38 -6% 45% 22% 22%Implied Value of Growth 25.4% -0.60 0.48 0.15 0.07 0.57 -0.43 -337% 89% -40% -72%


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82



Company Description P&L sensitivity metrics for FY12 EBIT EPS


Café de Coral is a leading quick-service restaurants (QSR) operator in Hong Kong. As of March 2011, the Group manages 568operating units, including 305 in Hong Kong, 104 in China and the remaining 159 in North America. CDC owns popular outlet brands including Cafe de Coral, Spaghetti House, Oliver's Super Sandwiches, and Manchu Wok.

Hong Kong ASP

Impact of each 1 percentage points increase 5.4% 5.2%

Food cost

Impact of each 1 percentage points increase -2.5% -2.4%

Labor cost


Rent cost



FY12 Revenue Breakdown Price target and valuation analysis

Our Mar-13 SOTP-based target price of HK$18.7 is based on PEG of 0.9x for

CDC’s China business and PE of 15x for CDC's Hong Kong business. We have

assumed a net profit CAGR of 72% in FY13-15E for CDC’s China business.

China valuation methodology PEG Hong Kong valuation methodology PE

Multiple (x) 0.9 Multiple (x) 15.0

China value (HK$ per share) 5.3 Hong Kong value (HK$ per share) 13.4

SOTP (HK$ per share) 18.7

Source: Company.

Key upside risk would be a stronger volume growth in HK. We have assumed 2% volume growth for HK in FY13. For every 1ppt upside on volume growth, CDC’s earnings would increase by 3%.

Key downside risk is another sudden increase in food costs that cannot be passed on to consumers. We estimate that for every 1ppt increase in food cost, CDC’s earnings would decrease by 2.4%.

EPS J.P. Morgan vs consensus


FY12E 0.961 0.973

FY13E 1.150 1.072

FY14E 1.350 1.248



Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012E

Cafe De Coral 341 HK N 20.7 18.70 1,520 27.5 21.5 18.0 11.2 16.5 3.5 3.5%Ajisen China Hol 538 HK N 5.3 6.00 738 16.5 29.4 20.9 9.4 6.6 1.9 1.9%Gourmet Master 2723 TT NR 206.0 NA 974 ~ 20.8 15.8 ~ 22.3 4.2 2.2%Tao Heung 573 HK NR 3.9 NA 514 15.6 13.9 12.6 6.3 19.6 ~ ~Fairwood Hldgs 52 HK NR 14.4 NA 231 ~ ~ ~ ~ ~ ~ ~Country-Spon Adr CCSC US NR 7.0 NA 181 (158.4) 21.9 15.5 6.8 10.2 1.4 0.0%Tang Palace Hldg 1181 HK NR 1.6 NA 83 9.5 6.5 5.2 3.3 17.7 1.3 5.4%Sector average (17.9) 19.0 14.7 7.4 15.5 2.5 2.6%

Source: Bloomberg, J.P. Morgan estimates. Share prices are as of close of 29 Jun 2012; ^Stock not under J.P. Morgan coverage. Bloomberg consensus estimates for NR stocks.

Hong Kong80%

China16%

North America

4%

83



Cafe de Coral Holdings Ltd: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E


Gross Profit 804 814 929 1,103 1,259 Change in working capital -124 279 -0 -10 -16% change Y/Y -3.4% 1.2% 14.1% 18.8% 14.2% Tax -112 -105 -94 -120 -154Gross margin 15.1% 13.7% 14.0% 14.6% 15.0% Other -6 0 0 0 0EBITDA 815 788 938 1,136 1,325 Cash flow from operations 587 971 852 1,013 1,162

% change Y/Y 4.1% -3.4% 19.1% 21.1% 16.6%EBITDA Margin 15.3% 13.2% 14.1% 15.1% 15.8% Capex -310 -650 -605 -350 -368EBIT 606 559 659 801 953 Sale of assets - - - - -

% change Y/Y NM NM 17.9% 21.7% 19.0% Acquisition of subsidiaries/intangibles - - - - -EBIT Margin 11.4% 9.4% 9.9% 10.6% 11.3% Other 32 -46 -17 -18 -18Net Interest 7 9 8 7 7 Cash flow from investing -278 -696 -622 -368 -386Share of JVs 3 -0 -0 -0 -0Earnings before tax 619 568 667 808 960 Equity raised/(repaid) 52 - - - -

% change Y/Y 0.3% -8.4% 17.5% 21.2% 18.8% Debt raised/(repaid) 0 9 10 13 12Tax -105 -94 -120 -154 -192 Dividends paid -334 -422 -381 -449 -532

as % of EBT 17.0% 16.6% 18.0% 19.0% 20.0% Other -2 0 0 0 0Minorities 2 1 1 1 0 Cash flow from financing -284 -413 -372 -436 -520Other income/(exp) 72 54 10 13 15Net income (reported) 514 474 547 655 769 Net change in cash 25 -139 -142 209 257

% change Y/Y 0.2% -7.9% 15.5% 19.7% 17.3% FX gain/(loss) 0 0 0 0 0Recurring Net Income 437 428 547 655 769 Ending cash 993 854 712 921 1,178% change Y/Y -8.1% -2.2% 28.0% 19.7% 17.3% DPS 0.86 0.62 0.72 0.86 1.01EPS (reported) 0.90 0.83 0.96 1.15 1.35

% change Y/Y (0.9%) (8.1%) 15.5% 19.7% 17.3%Recurring EPS 0.77 0.75 0.96 1.15 1.35

% change Y/Y (9.1%) (2.4%) 28.0% 19.7% 17.3%

Balance sheet Ratio AnalysisHK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E

Cash and cash equivalents 993 854 712 921 1,178 Gross margin 15.1% 13.7% 14.0% 14.6% 15.0%Accounts receivable 54 74 78 87 95 EBITDA margin 15.3% 13.2% 14.1% 15.1% 15.8%Inventories 171 172 182 203 222 Operating margin 11.4% 9.4% 9.9% 10.6% 11.3%Others 167 185 166 136 110 Net margin 9.6% 8.0% 8.3% 8.7% 9.1%Current assets 1,386 1,286 1,139 1,346 1,605 Recurring net profit margin 8.2% 7.2% 8.3% 8.7% 9.1%Intangible assets - - 0 0 0 Sales growth 9.2% 11.7% 11.4% 13.6% 11.7%Long term investments - - - - - Net profit growth 0.2% -7.9% 15.5% 19.7% 17.3%Net fixed assets 1,560 1,906 2,232 2,247 2,242 Recurring net profit growth -8.1% -2.2% 28.0% 19.7% 17.3%Other assets 2,222 2,168 2,039 2,264 2,542 EPS growth (0.9%) (8.1%) 15.5% 19.7% 17.3%Total Assets 3,781 4,074 4,270 4,511 4,784

Net debt to equity -32.4% -26.3% -21.0% -25.9% -31.4%Liabilities Sales/assets 1.46 1.52 1.59 1.72 1.81Short-term loans 0 0 0 0 0 Assets/equity 1.27 1.25 1.26 1.27 1.28Trade & other payables 172 171 187 208 228 ROE 17.4% 15.0% 16.5% 18.9% 21.1%Others 466 568 601 643 690 ROCE 20.5% 17.7% 19.9% 23.1% 26.1%Total current liabilities 639 739 788 851 917Long-term debt 0 0 0 0 0Others 75 84 94 107 119Total Liabilities 714 823 882 957 1,036Minorities 2 1 1 1 0Shareholders' equity 3,066 3,249 3,387 3,553 3,747BVPS 5.44 5.69 5.93 6.22 6.56


84



China Foods Ltd

Company DataShares O/S (mn) 2,795Market cap (HK$ mn) 21,268Market cap ($ mn) 2,741Price (HK$) 7.61Date Of Price 29 Jun 12Free float (%) 25.8%3mth Avg daily volume 3.303M - Avg daily Value (HK$ mn)

25.18

3M - Avg daily Value (USD) ($ mn)

3.14


China Foods Ltd (Reuters: 0506.HK, Bloomberg: 506 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 19,956 28,011 34,151 41,652 50,199Net Profit (HK$ mn) 427.6 646.6 893.5 1,147.7 1,425.8EPS (HK$) 0.15 0.23 0.32 0.41 0.51Core EPS (HK$) 0.15 0.23 0.32 0.41 0.51DPS (HK$) 0.06 0.08 0.11 0.15 0.18Revenue growth (%) 18.6% 40.4% 21.9% 22.0% 20.5%EPS growth (%) -24.8% 51.2% 38.2% 28.5% 24.2%ROCE 12.6% 14.8% 17.9% 20.8% 23.4%ROE 7.5% 10.3% 12.9% 15.1% 16.9%ROA 3.1% 3.9% 4.6% 5.4% 6.0%P/E (x) 49.7 32.9 23.8 18.5 14.9P/BV (x) 3.6 3.2 2.9 2.7 2.4EV/EBITDA (x) 17.2 13.2 10.0 7.8 6.2Dividend Yield 0.7% 1.1% 1.5% 1.9% 2.4%Source: Company data, Bloomberg, J.P. Morgan estimates.

China Foods Ltd. (HONG KONG / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

China Foods Ltd. 2490.78 As Of:

HONG KONG 2.627005 SEDOL 6105738 Local Price: 6.98Consumer Staples Food Products EPS: 0.36


12mth Forward PE 19.47x 5.81 44.73 13.76 14.92 27.79 2.06 -70% 130% -29% -23%P/BV (Trailing) 2.92x 0.62 4.04 1.44 1.76 3.58 -0.07 -79% 38% -51% -40%

Dividend Yield (Trailing) 1.16 0.00 5.84 2.16 2.54 5.65 -0.56 -100% 402% 86% 119%

ROE (Trailing) 10.23 2.03 14.67 9.04 8.63 13.94 3.32 -80% 43% -12% -16%

Implied Value of Growth 18.8% -0.42 0.81 0.22 0.19 0.70 -0.33 -323% 330% 18% -1%


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85



Company description P&L sensitivity metrics for FY12E EBITDA EPS


China Foods is a leading manufacturer and distributor of wines in China, under the brand,“Greatwall” (長城), and one of the three key bottlers and distributors of Coca-Cola beverages in China. In addition, it distributes one of the top four edible oil brands, “Fortune” (福臨門), in China.

Operating margin of wine segment

Impact of each 1 percentage points decrease -5.6 -3.7%

Operating margin of beverage segment

Impact of each 1 percentage points decrease -7.3 -3.7

Operating margin of kitchen foods segment

Impact of each 1 percentage points decrease -10.6 -13.1

Source: J.P.Morgan estimates.

2011 revenue breakdown Price target and valuation analysisOur Dec-12 target price of HK$8.4 is based on 1x PEG with 2-year (2012-2014) EPS CAGR of 26%. We base our PT on 1.0x PEG, in-line with other China consumer staples companies.

Target PEG 1

2012-14E EPS CAGR 26.3%


2012E EPS (HK$) 0.320


Source: Company.

Key downside risk to our call would be a slower recovery in wine margins. We have assumed wine EBIT margin to recovery back to 18%/19% in 2012/2013. Our sensitivity analysis suggests that for every 1% variance in the EBIT margin for the wine division, China Foods’ 2012 earnings would change by 3.7%.



FY12E 0.320 0.318

FY13E 0.411 0.411

FY14E 0.510 0.503

Source: Bloomberg, J.P. Morgan estimates


Price PT Mkt cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)

Company TickerRatin

g(HK$) (HK$) (US$MM)

2011 2012E 2013E 2012E 2012E 2012E 2012E

China Foods 506 HK OW 7.6 8.4 2,742 32.9 23.8 18.5 11.1 12.8 2.9 1.5%Tingyi 322 HK N 19.8 16.5 14,289 37.5 32.7 24.9 12.9 23.5 5.9 1.9%Want Want 151 HK N 9.5 7.6 16,201 38.6 28.4 23.3 19.1 39.6 10.5 2.2%CRE 291 HK N 23.0 24.5 7,102 29.1 23.0 18.9 6.3 8.8 1.4 2.4%China Mengniu Dairy 2319 HK OW 20.4 25.0 4,638 17.0 16.3 13.8 7.6 13.0 2.3 1.2%Uni-president China 220 HK UW 7.2 5.0 3,341 68.1 33.7 25.4 16.1 9.0 2.9 0.9%Tsingtao Brewery 168 HK UW 44.1 33.0 7,902 28.1 24.4 20.6 13.5 16.7 3.8 0.6%Sector average 35.9 26.1 20.8 12.4 17.6 4.3 1.5%

Source: Bloomberg, J.P. Morgan estimates. Share prices are as of close of 29 June 2012.

Wines13.0%

Kitchen foods45.8%

Beverages39.4%

Confectionary1.8%

86



China Foods Ltd: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 19,956 28,011 34,151 41,652 50,199 PBT 881 1,209 1,610 2,042 2,514% change Y/Y 18.6% 40.4% 21.9% 22.0% 20.5% Depr. & amortization 332 400 505 626 760

Gross Profit 5,081 6,662 8,549 10,601 12,566 Change in working capital -587 -552 -453 -492 -838% change Y/Y 8.1% 31.1% 28.3% 24.0% 18.5% Tax -208 -260 -341 -458 -582Gross margin 25.5% 23.8% 25.0% 25.5% 25.0% Other -64 -65 -75 -89 -103EBITDA 1,195 1,580 2,081 2,620 3,212 Cash flow from operations 354 731 1,247 1,630 1,751

% change Y/Y -3.2% 32.3% 31.7% 25.9% 22.6%EBITDA Margin 6.0% 5.6% 6.1% 6.3% 6.4% Capex -798 -598 -628 -660 -693EBIT 862 1,181 1,576 1,993 2,451 Sale of assets - - - - -

% change Y/Y (8.6%) 36.9% 33.5% 26.5% 23.0% Acquisition of subsidiaries/intangibles - - - - -EBIT Margin 4.3% 4.2% 4.6% 4.8% 4.9% Other -17 -216 -166 -195 -227Net Interest -27 -13 -10 -7 1 Cash flow from investing -815 -814 -794 -855 -920Share of JVs 64 65 75 89 103Earnings before tax 881 1,209 1,610 2,042 2,514 Equity raised/(repaid) - - - - -

% change Y/Y -7.2% 37.2% 33.2% 26.8% 23.1% Debt raised/(repaid) 713 325 26 32 37Tax -260 -341 -458 -582 -718 Dividends paid -205 -193 -277 -367 -462

as % of EBT 29.5% 28.2% 28.4% 28.5% 28.6% Other -300 0 0 0 0Minorities -193 -222 -259 -312 -370 Cash flow from financing 209 132 -250 -334 -426Other income/(exp) 1,143 1,377 1,669 2,080 2,534Net income (reported) 427.6 646.6 893.5 1,147.7 1,425.8 Net change in cash -202 49 202 441 405

% change Y/Y -24.7% 51.2% 38.2% 28.4% 24.2% FX gain/(loss) 51 0 0 0 0Recurring Net Income 428 647 894 1,148 1,426 Ending cash 1,741 1,790 1,992 2,433 2,838% change Y/Y -24.7% 51.2% 38.2% 28.4% 24.2% DPS 0.06 0.08 0.11 0.15 0.18EPS (reported) 0.15 0.23 0.32 0.41 0.51

% change Y/Y (24.8%) 51.2% 38.2% 28.5% 24.2%Recurring EPS 0.15 0.23 0.32 0.41 0.51

% change Y/Y (24.8%) 51.2% 38.2% 28.4% 24.2%


Cash and cash equivalents 1,741 1,790 1,992 2,433 2,838 Gross margin 25.5% 23.8% 25.0% 25.5% 25.0%Accounts receivable 1,616 1,945 2,252 2,610 3,082 EBITDA margin 6.0% 5.6% 6.1% 6.3% 6.4%Inventories 3,490 5,702 6,604 7,652 9,038 Operating margin 4.3% 4.2% 4.6% 4.8% 4.9%Others 1,512 1,789 1,758 1,692 1,613 Net margin 2.1% 2.3% 2.6% 2.8% 2.8%Current assets 8,359 11,225 12,606 14,386 16,571 Recurring net profit margin 2.1% 2.3% 2.6% 2.8% 2.8%Intangible assets 1,680 1,728 2,107 2,569 3,096 Sales growth 18.6% 40.4% 21.9% 22.0% 20.5%Long term investments - - - - - Net profit growth -24.7% 51.2% 38.2% 28.4% 24.2%Net fixed assets 3,548 3,889 4,012 4,046 3,978 Recurring net profit growth -20.3% 47.6% 24.5% 20.0% 17.0%Other assets 1,388 1,487 1,517 1,547 1,578 EPS growth (24.8%) 51.2% 38.2% 28.5% 24.2%Total Assets 14,975 18,330 20,242 22,549 25,224

Net debt to equity -3.8% 0.4% -1.2% -5.4% -8.3%Liabilities Sales/assets 1.45 1.68 1.77 1.95 2.10Short-term loans 1,021 1,517 1,593 1,672 1,756 Assets/equity 2.52 2.75 2.80 2.83 2.84Trade & other payables 2,663 3,939 4,707 5,626 6,645 ROE 7.5% 10.3% 12.9% 15.1% 16.9%Others 3,150 3,939 4,135 4,348 4,584 ROCE 12.6% 14.8% 17.9% 20.8% 23.4%Total current liabilities 6,834 9,396 10,435 11,646 12,985Long-term debt 495 300 315 331 347Others 96 120 147 179 216Total Liabilities 7,426 9,816 10,896 12,156 13,548Minorities 1,603 1,844 2,104 2,415 2,785Shareholders' equity 5,947 6,670 7,242 7,977 8,891BVPS 2.13 2.39 2.59 2.85 3.18


87



China Lilang Ltd.

Company DataShares O/S (mn) 1,201Market cap (Rmb mn) 5,204Market cap ($ mn) 819Price (HK$) 5.29Date Of Price 29 Jun 12Free float (%) 31.8%3mth Avg daily volume 1,818,053.003M - Average daily Value (HK$ mn)

12.03


1.55


China Lilang Ltd. (Reuters: 1234.HK, Bloomberg: 1234 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 2,053 2,708 3,148 3,831 4,624Net Profit (Rmb mn) 419 623 643 756 896EPS (Rmb) 0.35 0.52 0.54 0.63 0.75Recurring EPS (Rmb) 0.35 0.52 0.54 0.63 0.75DPS (Rmb) 0.17 0.33 0.27 0.32 0.37Revenue growth (%) 31.6% 31.9% 16.3% 21.7% 20.7%Net profit growth (%) 38.2% 48.8% 3.2% 17.6% 18.5%EPS growth (%) 13.0% 48.8% 3.2% 17.6% 18.5%ROE 23.9% 30.9% 27.2% 27.4% 27.9%ROA 18.9% 24.9% 21.6% 21.7% 22.0%P/E (x) 12.4 8.4 8.1 6.9 5.8P/BV (x) 2.8 2.4 2.0 1.8 1.5EV/EBITDA (x) 8.9 5.6 4.0 3.5 2.3Dividend Yield 3.9% 7.7% 6.2% 7.3% 8.6%Source: Company data, Bloomberg, J.P. Morgan estimates.

88



China Lilang Ltd. (CHINA / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

China Lilang Ltd. 830.99 As Of:

CHINA 1.945539 SEDOL B4JMX94 Local Price: 5.45Consumer Discretionary Textiles, Apparel & Luxury Goo EPS: 0.63


12mth Forward PE 7.12x 7.12 25.91 17.06 15.90 26.17 5.63 0% 264% 140% 123%

P/BV (Trailing) 2.46x 2.46 8.16 5.41 5.11 8.31 1.91 0% 231% 120% 107%

Dividend Yield (Trailing) 5.23 0.00 5.23 2.10 2.41 5.11 -0.28 -100% 0% -60% -54%

ROE (Trailing) 30.87 23.91 99.34 32.44 49.51 106.10 -7.09 -23% 222% 5% 60%Implied Value of Growth -64.9% -0.65 0.53 0.33 0.18 0.81 -0.46 0% 182% 151% 127%


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89





China Lilang is a leading mainstream menswear brand company in the PRC. It was ranked No.1 by retail sales in the mainstream brands market for 2007 and 2008, according to Frost & Sullivan. The company is mainly engaged in the design, sourcing, manufacturing and wholesaling a wide range of menswear products under two self-owned brands, LILANZ and L2, mainly targeting the mid-end business formal and casual, fashion-casual markets. As of Dec-11, Lilang had a total of 3,032 LILANZ-branded stores operated by its distributors and sub-distributors across the country.

Trade fair growth assumption

--Impact of 1% decrease -0.8% -0.8%

Replenishment order as % of sales




Operating expenses as % of sales

--Impact of 1% increase -4.0% -4.0%


Price target and valuation analysisOur new Dec-12 PT is HK$8.3 based on 2-yr earnings CAGR of 18% and 0.7x PEG (discount to 1x PEG used for our big cap coverage to reflect the risks associated with the overall franchising model). The revision in our PT is a result of earnings revision for 2012 and 2-yr CAGR. FY11 revenue breakdown

Key downside risks to our price target are a lower-than-expected ASP increase and an abrupt increase in A&P expenses. Higher-than expected wholesale discounts, subsidies and A&P expenses could pose downside risks to our margins assumptions and result in downside risks to our 2012 earnings estimates and PT. Worse-than expected performance of the sub-brand L2 should generate downside risks to our earnings and PT

Source: Company reports.

EPS: J.P. Morgan vs. consensus


FY12E 0.54 0.58

FY13E 0.63 0.67

FY14E 0.75 0.77



Company Ticker Rating Price PT Mkt Cap P/E P/B(USD mn) 2011 2012E 2013E 2012E 2013E

Lifestyle 1212 HK OW 16.9 19.00 3,631 18.0 15.7 13.9 3.0 2.7Sa Sa* 178 HK N 4.9 5.30 1,763 19.8 17.2 14.3 5.6 4.8Giordano 709 HK OW 5.5 6.50 1,085 11.3 10.8 8.6 2.8 2.5Chow Sang Sang^ 116 HK NR 15.0 1,309 9.3 8.1 6.8 1.4 1.2Luk Fook*^ 590 HK NR 16.1 1,220 6.8 7.1 6.1 1.5 1.3Belle 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Trinity 891 HK OW 4.9 8.00 1,076 16.5 14.6 11.6 2.5 2.3China Lilang 1234 HK OW 5.3 8.30 819 8.4 8.1 6.9 2.0 1.8Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Sector average 14.7 13.3 11.0 3.1 2.7

Source: Bloomberg, J.P. Morgan estimates. Prices as of 29 Jun 2012 close. ^Bloomberg consensus estimates used for the NR (not rated) companies

Tops72%

Pants18%

Apparel/suits4%

Accessories6%

90



China Lilang Ltd.: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 2,053 2,708 3,148 3,831 4,624 PBT 488 753 858 1,051 1,245% change Y/Y 31.6% 31.9% 16.3% 21.7% 20.7% Depr. & amortization 16 19 22 27 30

Gross Profit 778 1,055 1,275 1,571 1,896 Change in working capital 71 -399 315 -518 267% change Y/Y 41.2% 35.7% 20.8% 23.2% 20.7% Tax -49 -92 -214 -294 -349Gross margin 37.9% 39.0% 40.5% 41.0% 41.0% Other -8 -47 -31 -46 -41EBITDA 487 711 837 1,020 1,220 Cash flow from operations 518 234 950 220 1,152

% change Y/Y 41.3% 46.0% 17.7% 21.8% 19.7%EBITDA Margin 23.7% 26.3% 26.6% 26.6% 26.4% Capex -49 -120 -120 -100 -50Operating Profit 480 704 827 1,005 1,203 Acquisition of subsidiaries/intangibles - - - - -

% change Y/Y 42.0% 46.7% 17.5% 21.6% 19.8% Other -262 582 31 46 41Operating margin 23.4% 26.0% 26.3% 26.2% 26.0% Cash flow from investing -311 462 -89 -54 -9Net Interest 11 44 31 46 41Earnings before tax 488 753 858 1,051 1,245 Equity raised/(repaid) 1 1 0 0 0

% change Y/Y 46.8% 54.2% 13.9% 22.5% 18.5% Debt raised/(repaid) -1 0 0 0 0Tax -69 -130 -214 -294 -349 Dividends paid -192 -300 -271 -337 -397

as % of EBT 14.2% 17.2% 25.0% 28.0% 28.0% Other -0 -0 0 0 0Net income (reported) 419 623 643 756 896 Cash flow from financing -192 -300 -271 -337 -397

% change Y/Y 38.2% 48.8% 3.2% 17.6% 18.5%Recurring Net Income 419 623 643 756 896 Net change in cash 15 396 589 -171 746% change Y/Y 38.2% 48.8% 3.2% 17.6% 18.5% Ending Cash 847 1,241 1,830 1,660 2,406EPS (reported) 0.35 0.52 0.54 0.63 0.75 DPS 0.17 0.33 0.27 0.32 0.37


% change Y/Y 13.0% 48.7% 3.2% 17.6% 18.5%


Cash and cash equivalents 847 1,241 1,830 1,660 2,406 Gross margin 37.9% 39.0% 40.5% 41.0% 41.0%Accounts receivable 501 715 769 1,058 1,172 EBITDA margin 23.7% 26.3% 26.6% 26.6% 26.4%Inventories 182 225 255 308 372 Operating margin 23.4% 26.0% 26.3% 26.2% 26.0%Others 614 4 4 4 4 Net margin 20.4% 23.0% 20.4% 19.8% 19.4%Current assets 2,144 2,185 2,858 3,029 3,954 Recurring net profit margin 20.4% 23.0% 20.4% 19.8% 19.4%Intangible assets 46 166 166 166 166 Sales growth 31.6% 31.9% 16.3% 21.7% 20.7%Net fixed assets 180 204 302 374 394 Net profit growth 38.2% 48.8% 3.2% 17.6% 18.5%LT Investments 30 29 29 29 29 Recurring net profit growth 38.2% 48.8% 3.2% 17.6% 18.5%Other assets 8 10 10 8 8 EPS growth 13.0% 48.8% 3.2% 17.6% 18.5%Total Assets 2,408 2,595 3,366 3,607 4,551

Net debt to equity -45.6% -57.0% -71.8% -55.9% -69.4%Liabilities Sales/assets 0.93 1.08 1.06 1.10 1.13Short-term loans 0 0 0 0 0 Assets/equity 1.29 1.19 1.32 1.21 1.31Trade & other payables 509 339 738 562 1,007 ROE 23.9% 30.9% 27.2% 27.4% 27.9%Others 27 29 29 29 29 ROCE 26.9% 34.3% 34.5% 35.9% 37.0%Total current liabilities 536 368 767 591 1,036Long-term debt 0 0 0 0 0Others 12 49 49 49 49Total Liabilities 548 418 816 640 1,085Shareholders' equity 1,860 2,177 2,549 2,969 3,468BVPS 1.55 1.81 2.12 2.47 2.89


91



China Mengniu Dairy Co. Ltd.

Company DataShares O/S (mn) 1,768Market cap (Rmb mn) 29,474Market cap ($ mn) 4,636Price (HK$) 20.35Date Of Price 29 Jun 12Free float (%) 80.0%3mth Avg daily volume 6,631,444.003M - Avg daily Value (HK$ mn)

147.20


18.97


China Mengniu Dairy Co. Ltd. (Reuters: 2319.HK, Bloomberg: 2319 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 30,265 37,388 40,363 47,413 55,530Net Profit (Rmb mn) 1,237.3 1,589.3 1,572.8 2,003.2 2,456.9EPS (Rmb) 0.71 0.90 0.90 1.14 1.40DPS (Rmb) 0.16 0.20 0.20 0.25 0.31Revenue growth (%) 17.7% 23.5% 8.0% 17.5% 17.1%EPS growth (%) 4.3% 27.3% -1.0% 27.4% 22.7%ROE 13.5% 15.0% 13.0% 14.9% 16.2%P/E (Non-Financial) 23.5 18.4 18.6 14.6 11.9ROA 7.9% 8.5% 7.5% 8.6% 9.5%P/BV (x) 3.0 2.6 2.3 2.1 1.8EV/EBITDA (x) 10.7 8.4 7.3 5.2 3.7Dividend Yield 1.0% 1.2% 1.2% 1.5% 1.8%Source: Company data, Bloomberg, J.P. Morgan estimates.

China Mengniu Dairy Co. Ltd. (HONG KONG / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

China Mengniu Dairy Co. Ltd. 4942.87 As Of:

HONG KONG 19.39241 SEDOL B01B1L9 Local Price: 21.50Consumer Staples Food Products EPS: 1.09


12mth Forward PE 16.21x 7.35 38.48 20.69 22.13 34.33 9.93 -55% 137% 28% 36%

P/BV (Trailing) 2.72x 1.68 11.39 3.98 4.78 9.22 0.34 -38% 320% 47% 76%


ROE (Trailing) 14.97 -19.88 27.30 19.54 14.83 41.90 -12.23 -233% 82% 30% -1%Implied Value of Growth 2.5% -0.57 0.73 0.40 0.39 0.80 -0.03 -2373% 2817% 1508% 1444%


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92



Company Description P&L sensitivity metrics for FY12E EBIT EPS


Mengniu is a leading dairy producer in China. Its major products include liquid milk product and ice cream. In 2008, it ranked No.1 in the sectors of liquid milk, yogurt and ice cream in China dairy industry.

ASP assumption

Impact of a 0.5% increase 11% 10%

Raw milk cost assumption

Impact of a 1% increase -9% -8%

Selling expense as % of sales assumption

Impact of a 0.5% increase -12% -11%


2011 Revenue Breakdown Price target and valuation analysisOur Dec-12 target price of HK$25.0 (lowered from HK$26.0) is based on 0.9x PEG, a discount to 1x for other China consumer staples to reflect higher system risk for the diary industry, with 2-year (2012-2014) EPS CAGR of 25%. We are using PEG in order to capture earnings growth prospects.

Target PEG 0.9

2012-14E EPS CAGR 25.0%


2012E EPS (CNY) 0.895


Source: Company.

Key risks to our target price are larger-than-expected promotional spending in 1Q12 or shortage of raw milk supply in China.


J.P. Morgan Consensus

FY12E 0.895 0.968

FY13E 1.140 1.228

FY14E 1.399 1.494



Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012EChina Mengniu Dairy 2319 HK OW 20.4 25.0 4,638 17.0 16.3 13.8 7.6 13.0 2.3 1.2%Want Want 151 HK N 9.5 7.6 16,201 38.6 28.4 23.3 19.1 39.6 10.5 2.2%China Resources Enterprise 291 HK N 23.0 24.5 7,102 29.1 23.0 18.9 6.3 8.8 1.4 2.4%Tsingtao Brewery 168 HK UW 44.1 33.0 7,902 28.1 24.4 20.6 13.5 16.7 3.8 0.6%Uni-president China 220 HK UW 7.2 5.0 3,341 68.1 33.7 25.4 16.1 9.0 2.9 0.9%Sector average 36.2 25.2 20.4 12.5 17.4 4.2 1.4%

Source: Bloomberg, J.P. Morgan estimates. Share prices are as of close of 29 Jun 2012.

Liquid milk90%

Ice cream

9%

Others1%

93



China Mengniu Dairy Co. Ltd.: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 30,265 37,388 40,363 47,413 55,530 PBT 1,538 2,061 2,039 2,615 3,231% change Y/Y 17.7% 23.5% 8.0% 17.5% 17.1% Depreciation & amortization 713 864 1,322 1,849 2,442

Gross Profit 7,786 9,592 10,202 12,148 14,338 Change in working capital -156 69 143 96 104EBITDA 2,168 2,760 3,169 4,268 5,440 Others - - - - -

% change Y/Y 11.5% 27.3% 14.8% 34.7% 27.5% Cash flow from operations 2,485 2,520 3,099 4,277 5,344EBITDA Margin 7.2% 7.4% 7.9% 9.0% 9.8%

EBIT 1,455 1,896 1,847 2,419 2,998 Capex -1,426 -2,631 -2,600 -2,730 -2,867% change Y/Y 11.7% 30.3% NM 31.0% 24.0% Free cash flow 1,059 -111 499 1,547 2,477

EBIT Margin 4.8% 5.1% 4.6% 5.1% 5.4% Others - - - - -Net Interest 43 112 137 139 172 Cashflow from investing -2,204 -1,645 -2,762 -2,929 -3,104Earnings before tax 1,538 2,061 2,039 2,615 3,231

% change Y/Y 14.2% 34.0% -1.1% 28.3% 23.5% Equity raised/(repaid) - - - - -Tax -182 -276 -273 -364 -467 Debt raised/(repaid) - - - - -

as % of EBT 11.8% 13.4% 13.4% 13.9% 14.5% Dividends paid -245 -278 -348 -394 -491Net income 1,237.3 1,589.3 1,572.8 2,003.2 2,456.9 Other - - - - -

% change Y/Y 10.9% 28.4% -1.0% 27.4% 22.7% Cashflow from financing 364 -998 -274 -219 -290Option expense - - - - -Net Income ex option expense 1,528 1,726 1,793 2,123 2,457 Net change in cash 644 -123 62 1,130 1,950No. of shares o/s 1,741 1,757 1,757 1,757 1,757 DPS 0.16 0.20 0.20 0.25 0.31EPS (reported) 0.71 0.90 0.90 1.14 1.40EPS ex option expense 0.878 0.983 1.021 1.209 1.399


Cash and cash equivalents 6,698 6,523 6,585 7,715 9,665 Gross margin 25.7% 25.7% 25.3% 25.6% 25.8%Trade & other receivable 555 275 282 314 361 EBITDA margin 7.2% 7.4% 7.9% 9.0% 9.8%Inventories 1,176 1,685 1,728 1,929 2,214 Operating margin 4.8% 5.1% 4.6% 5.1% 5.4%Others 1,235 1,903 1,999 2,099 2,203 Net margin 4.1% 4.3% 3.9% 4.2% 4.4%Total current assets 9,664 10,387 10,753 12,363 14,934

Sales growth 17.7% 23.5% 8.0% 17.5% 17.1%Net fixed assets 5,380 6,807 8,085 8,965 9,390 Net profit growth 10.9% 28.4% -1.0% 27.4% 22.7%Others - - - - - EPS growth 4.3% 27.3% (1.0%) 27.4% 22.7%Total Assets 17,306 20,202 21,906 24,458 27,517

Net debt to equity -61.5% -52.2% -47.6% -50.3% -56.4%LiabilitiesShort-term loans 551 538 538 538 538 Sales/assets 1.93 1.99 1.92 2.05 2.14Trade & other payables 2,061 2,543 2,691 3,098 3,555 Assets/equity 1.59 1.77 1.73 1.72 1.70Others 3,626 4,145 4,208 4,369 4,547 ROE 13.5% 15.0% 13.0% 14.9% 16.2%Total current liabilities 6,238 7,226 7,437 8,004 8,640 ROCE 14.1% 16.9% 14.6% 17.3% 19.0%Long-term debt 150 0 0 0 0Total Liabilities 7,088 8,153 8,438 9,180 10,017Minorities 459 578 771 1,019 1,325Shareholders' equity 9,758 11,471 12,698 14,260 16,176BVPS 5.62 6.49 7.18 8.07 9.15


94



China Resources Enterprise

Company DataShares O/S (mn) 2,400Market cap (HK$ mn) 55,085Market cap ($ mn) 7,099Price (HK$) 22.95Date Of Price 29 Jun 12Free float (%) 48.5%3mth Avg daily volume 3.773M - Average daily Value (HK$ mn)

97.56


14.34

R-CHIP 3,722Exchange Rate 7.76Fiscal Year End Dec

China Resources Enterprise (Reuters: 0291.HK, Bloomberg: 291 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 86,728 110,164 135,786 160,350 189,213Net Profit (HK$ mn) 2,673 2,832 3,293 3,805 4,517EPS (HK$) 1.12 1.18 1.37 1.59 1.89Recurring EPS (HK$) 0.79 0.79 1.00 1.21 1.51DPS (HK$) 0.52 0.47 0.55 0.63 0.75Revenue growth (%) 35.2% 27.0% 23.3% 18.1% 18.0%Net profit growth (%) -4.0% 5.9% 16.3% 15.6% 18.7%Recurring profit growth (%) 9.2% -0.3% 26.7% 21.4% 24.5%ROE 9.4% 8.4% 8.8% 9.6% 10.8%ROA 3.2% 2.8% 2.8% 2.9% 3.1%P/E (x) 20.6 19.4 16.7 14.5 12.2Adjusted P/E 29.03 29.15 22.98 18.93 15.20P/BV (x) 1.8 1.5 1.4 1.4 1.3EV/EBITDA (x) 8.0 7.3 5.9 4.7 3.7Dividend Yield 2.3% 2.1% 2.4% 2.8% 3.3%Source: Company data, Bloomberg, J.P. Morgan estimates.

China Resources Enterprise Ltd. (HONG KONG / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

China Resources Enterprise Ltd. 7220.76 As Of:

HONG KONG 14.353241 SEDOL 6972459 Local Price: 23.35Consumer Staples Food & Staples Retailing EPS: 1.25


12mth Forward PE 18.74x 5.47 35.43 14.28 17.17 31.72 2.62 -71% 89% -24% -8%P/BV (Trailing) 1.54x 0.97 7.60 1.91 2.10 4.10 0.10 -37% 393% 24% 36%Dividend Yield (Trailing) 1.91 0.28 8.77 2.04 2.89 7.18 -1.40 -85% 358% 7% 51%ROE (Trailing) 8.43 7.68 18.84 10.92 11.78 17.53 6.02 -9% 123% 30% 40%

Implied Value of Growth 15.6% -0.34 0.77 0.32 0.29 0.78 -0.20 -318% 395% 103% 84%


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95



Company Description P&L sensitivity metrics EBITDA 12E EPS 12E


China Resources Enterprise focuses on the consumer businesses in both the Chinese Mainland and Hong Kong, with core activities being retail, beverage, food processing and distribution, textile and investment property. Its ultimate holding company is China Resources National Corporation, which had a 51.4% effective interest in the Company as at the end of December 2010. The Company employs around 200,000 staff, of which about 95% work in the Chinese Mainland.

Beer EBIT


Retail EBIT


Food EBIT



Price target and valuation analysisOur Dec-12 PT of HK$24.5 is based on SOTP in which we value the beer division at 25x 2012E (in line with Tsingtao) and retail division at 22x 2012E (average of the space).

2011 core earnings breakdown

A key risk to our call on the upside is a sizeable M&A and on the downside is further deterioration in retail margins. Retail business margins have disappointed in FY11. We are assuming that they will slowly recover and at least maintain margin for FY12. If they don't it would pose a downside risk to our 2012 earnings estimate and PT. We assumed barley costs to be flat in 2012. If barley costs strengthen this would present another downside risk to our estimates



HK$ J. P. Morgan Consensus

FY12E 1.00 1.10

FY13E 1.21 1.34

FY14E 1.51 1.63

Source: Bloomberg, J.P. Morgan.

Figure 62: Peer valuation comparison

Company Ticker Rating Price PT Mkt Cap P/E P/B(HK$) (HK$) (US$ MM) 2011 2012E 2013E 2012E 2013E

Beer companiesBeijing Yanjing^ 000729 CH NR 7.3 2,898 21.6 18.1 15.1 ~ ~Tsingtao 168 HK UW 44.1 33.00 7,902 28.1 24.4 20.6 3.8 3.2Food retailersLianhua^ 980 HK NR 7.4 1,068 10.8 10.7 9.6 1.9 1.7Wumart 1025 HK NR 15.7 2,590 27.9 21.7 18.0 4.9 4.2Other China F&B companiesChina Yurun 1068 HK UW 6.8 7.60 1,586 11.5 9.2 7.1 0.7 0.7China Huiyuan Juice 1886 HK N 2.8 5.00 526 22.8 13.1 ~ 0.5 ~China Mengniu Dairy 2319 HK OW 20.4 25.00 4,638 17.0 16.3 13.8 2.3 2.1Tingyi 322 HK NR 19.8 14,289 37.5 32.7 24.9 5.9 5.2Uni-president China 220 HK UW 7.2 5.00 3,341 68.1 33.7 25.4 2.9 2.7Sector average 27.3 20.0 16.8 2.9 2.8

Source: J.P. Morgan estimates, Bloomberg. *Next yr estimates taken since FY ends in Jan-May. ^Bloomberg estimates used for the NR companies. Prices as of Jun 29, 2012.

Retail and

property41%

Beer40%

Beverage6%

Food processin

g and distributio

n13%

96



China Resources Enterprise: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 86,728 110,164 135,786 160,350 189,213 PBT 5,012 5,426 6,677 7,941 9,428% change Y/Y 35.2% 27.0% 23.3% 18.1% 18.0% Depr. & amortization 2,576 2,894 3,724 4,554 5,184

Gross Profit 22,324 27,357 34,082 40,408 47,682 Change in working capital 1,575 3,236 45 2,360 2,816% change Y/Y 32.6% 22.6% 24.6% 18.6% 18.0% Tax -991 -1556 -2144 -2646 -3141Gross margin 25.7% 24.8% 25.1% 25.2% 25.2% Other -1,193 -1,279 -67 -79 -150EBITDA 7,564 8,233 10,334 12,416 14,462 Cash flow from operations 6,979 8,721 8,234 12,130 14,136

% change Y/Y 13.3% 8.8% 25.5% 20.2% 16.5%EBITDA Margin 8.7% 7.5% 7.6% 7.7% 7.6% Capex -4,037 -10,246 -8,300 -8,300 -7,000EBIT 4,988 5,339 6,610 7,862 9,278 Sale of assets 4,204 - - - -

% change Y/Y 18.4% 7.0% 23.8% 19.0% 18.0% Acquisition of subsidiaries/intangibles -457 0 0 0 0EBIT Margin 5.8% 4.9% 4.9% 4.9% 4.9% Other 360 301 317 329 400Net Interest -3 77 67 79 150 Cash flow from investing 70 -9,945 -7,983 -7,971 -6,600Share of JVs 27 10 0 0 -Earnings before tax 5,012 5,426 6,677 7,941 9,428 Equity raised/(repaid) 26 - - - -

% change Y/Y 13.1% 8.3% 23.1% 18.9% 18.7% Debt raised/(repaid) 86 3,225 0 0 0Tax -1,395 -1,556 -2,144 -2,646 -3,141 Dividends paid -1,175 -1,128 -1,312 -1,516 -1,799

as % of EBT 27.8% 28.7% 32.1% 33.3% 33.3% Other -392 -224 -250 -250 -250Minorities -944 -1,038 -1,240 -1,490 -1,769 Cash flow from financing -1,455 1,873 -1,562 -1,766 -2,049Other income/(exp) 0 0 0 0 0Net income (reported) 2,673 2,832 3,293 3,805 4,517 Net change in cash 5,594 649 -1,310 2,393 5,487

% change Y/Y -4.0% 5.9% 16.3% 15.6% 18.7% FX gain/(loss) -51 3,536 - - -Recurring Net Income 1,895 1,889 2,393 2,905 3,617 Ending cash 14,071 18,256 16,946 19,339 24,827% change Y/Y 9.2% -0.3% 26.7% 21.4% 24.5% DPS 0.52 0.47 0.55 0.63 0.75EPS (reported) 1.12 1.18 1.37 1.59 1.89

% change Y/Y (4.1%) 5.9% 16.4% 15.6% 18.7%Recurring EPS 0.79 0.79 1.00 1.21 1.51

% change Y/Y 9.2% (0.4%) 26.8% 21.4% 24.5%


Cash and cash equivalents 14,071 18,256 16,946 19,339 24,827 Gross margin 25.7% 24.8% 25.1% 25.2% 25.2%Accounts receivable 6,843 11,534 14,217 16,788 19,810 EBITDA margin 8.7% 7.5% 7.6% 7.7% 7.6%Inventories 15,626 20,715 25,442 30,005 35,406 Operating margin 5.8% 4.9% 4.9% 4.9% 4.9%Others 280 309 309 309 309 Net margin 3.1% 2.6% 2.4% 2.4% 2.4%Current assets 36,820 50,814 56,914 66,442 80,351 Recurring net profit margin 2.2% 1.7% 1.8% 1.8% 1.9%Intangible assets 9,873 11,065 11,048 11,031 11,014 Sales growth 35.2% 27.0% 23.3% 18.1% 18.0%Long term investments 376 432 432 432 432 Net profit growth -4.0% 5.9% 16.3% 15.6% 18.7%Net fixed assets 41,443 50,240 54,833 58,596 60,359 Recurring net profit growth 9.2% -0.3% 26.7% 21.4% 24.5%Other assets 890 1,098 1,098 1,098 1,098 EPS growth (4.1%) 5.9% 16.4% 15.6% 18.7%Total Assets 89,402 113,649 124,325 137,599 153,254

Net debt to equity -5.7% -7.5% -3.7% -9.4% -21.5%Liabilities Sales/assets 1.05 1.09 1.14 1.22 1.30Short-term loans 4,151 7,092 7,092 7,092 7,092 Assets/equity 182.30 193.43 3.24 3.39 3.54Trade & other payables 32,476 45,487 52,942 62,436 73,674 ROE 9.4% 8.4% 8.8% 9.6% 10.8%Others 871 618 618 618 618 ROCE 12.3% 11.2% 12.5% 14.3% 16.1%Total current liabilities 37,498 53,197 60,652 70,146 81,384Long-term debt 8,158 8,442 8,442 8,442 8,442Others 2,457 3,028 3,028 3,028 3,028Total Liabilities 48,113 64,667 72,122 81,616 92,854Minorities 10,470 12,628 13,868 15,358 17,128Shareholders' equity 30,819 36,354 38,335 40,625 43,273BVPS 12.86 15.15 16.00 16.96 18.06


97



China Yurun Food Group


64.99


9.42


China Yurun Food Group (Reuters: 1068.HK, Bloomberg: 1068 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 21,473 32,315 30,825 38,620 47,495Net Profit (HK$ mn) 2,728 1,799 1,710 2,229 2,699Recurring Profit (HK$ mn) 1,788 1,071 1,465 1,750 2,220EPS (HK$) 1.55 0.98 0.94 1.22 1.48DPS (HK$) 0.41 0.22 0.23 0.30 0.37Revenue growth (%) 54.8% 50.5% -4.6% 25.3% 23.0%Recurring profit growth (%) 49.5% -40.1% 36.8% 19.5% 26.9%EPS growth (%) 44.4% -36.5% -5.0% 30.4% 21.1%ROE 23.9% 11.8% 10.2% 12.2% 13.4%ROA 16.4% 7.9% 6.6% 8.1% 8.9%P/E (x) 4.4 6.9 7.2 5.5 4.6P/BV (x) 0.8 0.8 0.7 0.6 0.6EV/EBITDA (x) 12.8 19.1 17.7 13.6 10.7Dividend Yield 6.0% 3.3% 3.5% 4.5% 5.5%Source: Company data, Bloomberg, J.P. Morgan estimates.

China Yurun Food Group Ltd. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

China Yurun Food Group Ltd. 1801.77 As Of:CHINA 15.808397 SEDOL B0D01C5 Local Price: 7.70Consumer Staples Food Products EPS: 1.08


12mth Forward PE 7.14x 4.18 24.78 15.73 15.15 23.87 6.43 -41% 247% 120% 112%

P/BV (Trailing) 0.87x 0.87 9.57 3.88 3.72 6.73 0.72 0% 999% 345% 327%Dividend Yield (Trailing) 2.77 0.00 4.99 1.43 1.55 2.93 0.18 -100% 80% -48% -44%ROE (Trailing) 11.78 11.78 30.20 24.99 24.51 32.88 16.15 0% 156% 112% 108%



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98



Company Description P&L sensitivity metrics for FY12 EBITDA Core EPS


China Yurun Food is a leading meat processing company in China. Its business includes upstream hog slaughtering and downstream meat processing. China Yurun has been expanding capacity over years and expected to benefit from industry consolidation.

Upstream chilled pork sales volume

Impact of each 10 percentage points increase 3.0 4.1%

Downstream LTMP sales volume



2011Revenue Breakdown Price target and valuation analysis

Our Dec-12 target price of HK$7.6 is based on 0.8x 2012E book value. We base target price on book value because we believe Yurun’s earnings has become less predictable given the increased risks on the business model in light of declining sales volume and dollar margins. We target 0.8x 2012E P/B, which is in-line with the 3-year average PB of the U.S. peer , Smithfield (SFD US), the leading US pork producer. At our target price of HK7.6 Yurun would be trading at 9.5x on 2012E core EPS.

Total Shareholders' Equity 2012 (HK$m) 17,392

Number of shares 1,825

Book value per share 2012 (HK$) 9.5

Target P/B 0.8


Source: Company.

Key upside risks would be a fast recovery in demand for Yurun's pork products, which would lead to upside in sales volume, and a reverse shift in customer base towards higher margin supermarket clients, which would lead to upside in margins.


Reported EPS J.P. Morgan Consensus

FY12E 0.936 0.946

FY13E 1.220 1.307

FY14E 1.478 2.005



Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012EChina Yurun 1068 HK UW 6.8 7.6 1,586 11.5 9.2 7.1 5.5 9.5 0.7 3.2%Zhongpin^ HOGS US NR 9.2 NA 343 5.6 6.2 4.9 6.6 13.0 0.6 ~Henan Shuanghui^ 000895 CH NR 61.9 NA 5,901 66.5 20.3 16.2 10.4 30.9 7.1 1.2%Smithfield Foods*^ SFD US NR 21.4 NA 3,317 8.1 8.7 7.8 5.2 9.8 0.8 0.0%Average 22.9 11.1 9.0 6.9 15.8 2.3 1.5%

Source: Bloomberg, J.P. Morgan estimates. Share prices are as of close of 29 Jun 2012; ^Stock not under J.P. Morgan coverage. Bloomberg consensus estimates for NR stocks.

Chilled meat74%

Frozen meat15%

LTMP10%

HTMP1%

99



China Yurun Food Group: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 21,473 32,315 30,825 38,620 47,495 PBT 2,926 1,905 1,843 2,441 3,006% change Y/Y 54.8% 50.5% (4.6%) 25.3% 23.0% Depr. & amortization 286 406 613 831 1,155

Gross Profit 3,098 2,785 3,043 3,934 4,888 Change in working capital -134 174 -188 -271 -63% change Y/Y 43.4% -10.1% 9.3% 29.3% 24.3% Tax -140 -250 -100 -124 -201Gross margin 14.4% 8.6% 9.9% 10.2% 10.3% Other 48 37 0 0 0EBITDA 3,260 2,348 2,544 3,361 4,273 Cash flow from operations 2,986 2,272 2,168 2,878 3,898

% change Y/Y 54.6% -28.0% 8.4% 32.1% 27.1%EBITDA Margin 15.2% 7.3% 8.3% 8.7% 9.0% Capex -3,460 -4,812 -1,500 -3,223 -3,223EBIT 2,974 1,942 1,932 2,530 3,118 Sale of assets - - - - -

% change Y/Y 52.1% NM NM 31.0% 23.2% Acquisition of subsidiaries/intangibles - - - - -EBIT Margin 13.9% 6.0% 6.3% 6.6% 6.6% Other -39 -0 -96 -99 -103Net Interest -48 -36 -88 -89 -111 Cash flow from investing -3,499 -4,812 -1,596 -3,323 -3,327Share of JVs -0 -0 -0 -0 -0Earnings before tax 2,926 1,905 1,843 2,441 3,006 Equity raised/(repaid) 3,515 0 - - -

% change Y/Y 54.7% -34.9% -3.3% 32.5% 23.2% Debt raised/(repaid) 549 2,245 -164 43 49Tax -189 -100 -124 -201 -292 Dividends paid -502 -715 -414 -491 -615

as % of EBT 6.5% 5.2% 6.7% 8.2% 9.7% Other 296 107 0 0 0Minorities -9 -7 -9 -11 -14 Cash flow from financing 3,858 1,637 -577 -448 -566Other income/(exp) 1,014 740 375 611 613Net income (reported) 2,728 1,799 1,710 2,229 2,699 Net change in cash 3,507 -904 -6 -893 5

% change Y/Y 56.3% -34.1% -5.0% 30.4% 21.1% FX gain/(loss) 162 0 0 0 0Recurring Net Income 1,788 1,071 1,465 1,750 2,220 Ending cash 5,972 5,069 5,063 4,170 4,176% change Y/Y 49.5% -40.1% 36.8% 19.5% 26.9% DPS 0.41 0.22 0.23 0.30 0.37EPS (reported) 1.55 0.98 0.94 1.22 1.48

% change Y/Y 44.4% (36.5%) (5.0%) 30.4% 21.1%Recurring EPS 1.02 0.59 0.80 0.96 1.22

% change Y/Y 38.2% (42.3%) 36.8% 19.5% 26.9%


Cash and cash equivalents 5,972 5,069 5,063 4,170 4,176 Gross margin 14.4% 8.6% 9.9% 10.2% 10.3%Accounts receivable 1,190 1,466 1,468 1,932 2,328 EBITDA margin 15.2% 7.3% 8.3% 8.7% 9.0%Inventories 1,268 1,453 1,456 1,915 2,308 Operating margin 13.9% 6.0% 6.3% 6.6% 6.6%Others 429 362 373 334 305 Net margin 12.7% 5.6% 5.6% 5.8% 5.7%Current assets 8,859 8,350 8,360 8,351 9,116 Recurring net profit margin 8.3% 3.3% 4.8% 4.5% 4.7%Intangible assets - - 0 0 0 Sales growth 54.8% 50.5% (4.6%) 25.3% 23.0%Long term investments - - - - - Net profit growth 56.3% -34.1% -5.0% 30.4% 21.1%Net fixed assets 8,037 12,635 13,523 15,915 17,983 Recurring net profit growth 33.4% 31.1% 24.7% 23.7% 19.3%Other assets 3,464 4,494 4,584 4,675 4,769 EPS growth 44.4% (36.5%) (5.0%) 30.4% 21.1%Total Assets 20,361 25,479 26,466 28,941 31,869

Net debt to equity -15.9% 5.3% 5.0% 9.2% 8.3%Liabilities Sales/assets 1.29 1.41 1.19 1.39 1.56Short-term loans 3,151 5,141 5,141 5,141 5,141 Assets/equity 1.72 1.73 1.52 1.52 1.51Trade & other payables 1,817 3,015 2,818 3,460 4,170 ROE 23.9% 11.8% 10.2% 12.2% 13.4%Others 30 33 89 195 323 ROCE 20.1% 9.7% 8.5% 10.5% 12.0%Total current liabilities 4,998 8,189 8,048 8,796 9,634Long-term debt 530 785 785 785 785Others 350 333 169 212 261Total Liabilities 5,878 9,307 9,002 9,793 10,680Minorities 46 63 72 83 98Shareholders' equity 14,437 16,109 17,392 19,065 21,091BVPS 8.21 8.82 9.52 10.44 11.55


100



Chow Tai Fook Jewellery Company Ltd.

Company DataShares O/S (mn) 10,000Market cap (HK$ mn) 96,000Market cap ($ mn) 12,371Price (HK$) 9.60Date Of Price 29 Jun 12Free float (%) 10.6%3mth Avg daily volume 6.413M - Average daily Value (HK$ mn)

66.54


8.29


Chow Tai Fook Jewellery Company Ltd. (Reuters: 1929.HK, Bloomberg: 1929 HK)

HK$ in mn, year-end Mar FY11A FY12A FY13E FY14E FY15ERevenue (HK$ mn) 35,043 56,571 69,818 86,487 104,636Net Profit (HK$ mn) 3,538 6,341 7,296 8,952 10,848EPS (HK$) 0.40 0.63 0.73 0.90 1.08DPS (HK$) 0.08 0.56 0.15 0.18 0.22Revenue growth (%) 52.8% 61.4% 23.4% 23.9% 21.0%Net profit growth (%) 65.4% 79.2% 15.1% 22.7% 21.2%EPS growth (%) 84.8% 60.4% 15.1% 22.7% 21.2%ROE 36.4% 31.5% 22.9% 23.3% 23.4%P/E (x) 24.3 15.1 13.2 10.7 8.8P/BV (x) 7.6 3.3 2.8 2.3 1.9EV/EBITDA (x) 20.5 10.6 9.0 7.3 6.1Dividend Yield 0.9% 5.8% 1.5% 1.9% 2.3%Source: Company data, Bloomberg, J.P. Morgan estimates.

Chow Tai Fook Jewellery Group Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Chow Tai Fook Jewellery Group Ltd. 11946.88 As Of:

HONG KONG 9.7438 SEDOL B4R39F7 Local Price: 9.47Consumer Discretionary Specialty Retail EPS: 0.85


12mth Forward PE 11.12x 10.23 16.67 13.63 13.39 18.21 8.57 -8% 50% 23% 20%

P/BV (Trailing) 8.67x 8.22 13.42 11.26 11.00 14.95 7.06 -5% 55% 30% 27%

Dividend Yield (Trailing) 0.00 0.00 0.00 0.00 0.00 0.00 0.00

ROE (Trailing) 36.35 29.50 36.35 36.35 33.41 40.32 26.51 -19% 0% 0% -8%Implied Value of Growth -42.2% -0.53 0.03 -0.14 -0.21 0.24 -0.65 -27% 107% 67% 51%


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Chow Tai Fook is a leading jewellery and watch retailer in the Greater China region. Jewellery sales represent c93% of sales with the remainder coming from watch sales. It retails mass luxury and high-end luxury jewellery products including gem-set jewellery, platinum/karat gold products, gold products and watches. It has an extensive retail network, with 1,421 jewellery POS and 85 watch POS as of Sep-2011. With its 80-year heritage Chow Tai Fook ranks #1 in the jewellery retail industry in the PRC with 12.6% market share and in Hong Kong and Macau with 20.1% market share, according to Frost & Sullivan.

Same store sales growth assumption

--Impact of 1% increase +0.9% +1.0%

Gold price assumptions

--Impact of 1% increase +0.5% +0.5%


--Impact of 1% ppt increase +6.8% +7.3%

Hong Hong rentals

--Impact of 5% increase -0.3% -0.3%


Price target and valuation analysisWe have come up with the following peer group for Chow Tai Fook. We think both Golden Eagle and Trinity provide good comparisons for high-end exposure in China with strong management track records and self-operated store networks Belle is a good comparison from a penetration and size bias point of view as it is one of the leading players among China retailers. The companies in this peer group trade at an average P/E of 16x for 2012E (Mar-13E period for Chow Tai Fook). Based on 16x Mar-13 P/E, our Mar-13 PT is HK$12.


Main risks to our view are a further slowdown in sales, inability to keep cost plus model, and unexpected pressure on margins from promotions and costs.Source: Company reports.



FY13E 0.73 0.76

FY14E 0.90 0.95

FY15E 1.08 1.14


Peer group valuationsCompany Ticker Rating Price PT Mkt Cap P/E P/B

(LC) (LC) (USD mn) 11 12E 13E 12E 13E

Asian and Global jewellery and watch retailersLuk Fook*^ 590 HK NR 16.1 1,220 6.8 7.1 6.1 1.5 1.3Chow Sang Sang^ 116 HK NR 15.0 1,309 9.3 8.1 6.8 1.4 1.2Tiffany* TIF US N 51.1 62.00 6,472 14.2 13.8 12.2 2.5 ~Richemont* CFR VX N 51.5 60.00 30,950 15.6 14.6 12.3 2.4 2.1Swatch UHR VX N 373.4 355.00 20,543 15.3 15.8 13.1 1.3 1.1Hengdeli^ 3389 HK NR 2.4 1,382 10.8 10.1 8.3 1.6 1.4Titan Industries* TTAN IN UW 223.4 225.00 3,552 32.7 26.9 22.1 10.2 7.9Chinese retailersGolden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Parkson 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4Belle 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Trinity 891 HK OW 4.9 8.00 1,076 16.5 14.6 11.6 2.5 2.3Sector average 16.1 14.8 12.3 3.2 2.7

Source: Company, Bloomberg, J.P. Morgan estimates. Prices as of 29 June 2012 close. ^Bloomberg consensus estimates used for the NR (not rated) companies. FY12 data given under 11E as

the year ends in Jan-Jun.

Gem-set jewellery

27%

Platinum/karat gold products

14%

Gold products53%

Watches6%

102



Chow Tai Fook Jewellery Company Ltd.: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E


Gross Profit 9,928 16,448 20,030 24,836 30,079 Change in working capital -7,507 -14,900 -5,211 -7,461 -9,603% change Y/Y 51.4% 65.7% 21.8% 24.0% 21.1% Tax -730 -1595 -1900 -2479 -3004Gross margin 28.3% 29.1% 28.7% 28.7% 28.7% Other 749 1,274 1,002 525 412EBITDA 4,869 8,815 10,325 12,693 15,250 Cash flow from operations -2,612 -6,654 3,891 2,949 2,720

% change Y/Y 65.6% 81.0% 17.1% 22.9% 20.1%EBITDA Margin 13.9% 15.6% 14.8% 14.7% 14.6% Capex -769 -850 -1,100 -600 -500EBIT 4,614 8,413 9,824 12,133 14,640 Acquisition of subsidiaries/intangibles -55 - - - -

% change Y/Y 70.0% 82.3% 16.8% 23.5% 20.7% Other 748 1,327 96 104 94EBIT Margin 13.2% 14.9% 14.1% 14.0% 14.0% Cash flow from investing -76 477 -1,004 -496 -406Net Interest -32 -274 -363 -386 -412Share of JVs -5 0 0 0 - Equity raised/(repaid) 2 16,249 - - -Earnings before tax 4,620 8,166 9,501 11,804 14,304 Debt raised/(repaid) 6,123 161 500 300 1,500

% change Y/Y 69.9% 76.8% 16.3% 24.2% 21.2% Dividends paid -9 -5,550 -1,459 -1,790 -2,170Tax -947 -1,595 -1,900 -2,479 -3,004 Other -8 -363 -462 -491 -510

as % of EBT 20.5% 19.5% 20.0% 21.0% 21.0% Cash flow from financing 6,107 10,497 -1,422 -1,981 -1,180Net income (reported) 3,538 6,341 7,296 8,952 10,848

% change Y/Y 65.4% 79.2% 15.1% 22.7% 21.2% Net change in cash 3,419 4,320 1,466 472 1,134Recurring Net Income 3,538 6,341 7,296 8,952 10,848 FX effects 79 63 0 0 0% change Y/Y 65.4% 79.2% 15.1% 22.7% 21.2% Ending Cash 5,605 9,988 11,453 11,925 13,059EPS (reported) 0.40 0.63 0.73 0.90 1.08 DPS 0.08 0.56 0.15 0.18 0.22


% change Y/Y 84.8% 60.4% 15.1% 22.7% 21.2%


Cash and cash equivalents 7,175 10,169 11,637 12,110 13,249 Gross margin 28.3% 29.1% 28.7% 28.7% 28.7%Accounts receivable 3,228 5,323 6,570 8,139 9,846 EBITDA margin 13.9% 15.6% 14.8% 14.7% 14.6%Inventories 17,101 29,694 34,102 40,538 49,024 Operating margin 13.3% 14.9% 14.1% 14.1% 14.1%Others 0 72 72 72 73 Net margin 10.1% 11.2% 10.5% 10.4% 10.4%Current assets 27,503 45,258 52,382 60,859 72,192 Recurring net profit margin 10.1% 11.2% 10.5% 10.4% 10.4%Intangible assets 87 96 96 96 96 Sales growth 52.8% 61.4% 23.4% 23.9% 21.0%Net fixed assets 1,165 1,688 2,287 2,327 2,216 Net profit growth 65.4% 79.2% 15.1% 22.7% 21.2%Other assets 293 373 373 373 373 Recurring net profit growth 65.4% 79.2% 15.1% 22.7% 21.2%Total Assets 29,049 47,414 55,137 63,654 74,877 EPS growth 84.8% 60.4% 15.1% 22.7% 21.2%Liabilities Net debt to equity 66.1% 4.2% 2.5% 2.0% 2.4%Short-term loans 14,646 11,381 12,520 12,958 14,458 Sales/assets 1.52 1.48 1.36 1.46 1.51Trade & other payables 2,050 1,838 2,281 2,825 3,416 Assets/equity 2.57 1.64 1.58 1.52 1.48Others 518 999 999 999 999 ROE 36.4% 31.5% 22.9% 23.3% 23.4%Total current liabilities 17,213 14,218 15,800 16,782 18,873 ROCE 22.5% 25.4% 22.4% 23.7% 24.4%Long-term debt 0 0 0 0 0Others 163 3,623 3,623 3,623 3,623Total Liabilities 17,376 17,841 19,423 20,405 22,497Shareholders' equity 11,307 28,978 34,815 41,977 50,655BVPS 1.26 2.90 3.48 4.20 5.07


103



Dairy Farm International Holdings Limited

Company DataShares O/S (mn) 1,350Market cap ($ mn) 14,339Market cap ($ mn) 14,339Price ($) 10.62Date Of Price 29 Jun 12Free float (%) 22.0%3mth Avg daily volume 0.093M - Average daily Value ($ mn)

0.77


0.83

FTSTI 2,847Exchange Rate 1.00Fiscal Year End Dec

Dairy Farm International Holdings Limited (Reuters: DAIR.SI, Bloomberg: DFI SP)

$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue ($ mn) 7,971 9,134 10,215 11,548 12,938Net Profit ($ mn) 412 484 551 642 761EPS ($) 0.31 0.36 0.41 0.48 0.56Recurring EPS ($) 0.31 0.36 0.41 0.48 0.56DPS ($) 0.16 0.19 0.19 0.24 0.29Revenue growth (%) 13.4% 14.6% 11.8% 13.1% 12.0%Net profit growth (%) 13.2% 17.4% 13.7% 16.7% 18.5%EPS growth (%) 13.0% 17.3% 13.7% 16.7% 18.5%ROE 65.5% 58.5% 51.5% 46.8% 44.3%ROA 13.6% 14.2% 14.7% 15.0% 15.5%P/BV (x) 19.5 15.5 11.8 9.4 7.5P/E (x) 34.7 29.6 26.0 22.3 18.8EV/EBITDA (x) 17.9 15.6 13.7 11.4 9.4Dividend Yield 1.6% 1.8% 1.8% 2.3% 2.7%Source: Company data, Bloomberg, J.P. Morgan estimates.

Dairy Farm International Holdings Ltd. (HONG KONG / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Dairy Farm International Holdings Ltd. 13934.06 As Of:

HONG KONG 0.9290535 SEDOL 6180274 Local Price: 10.34

Consumer Staples Food & Staples Retailing EPS: 0.43


12mth Forward PE 23.91x

P/BV (Trailing) 15.13x 0.91 39.88 10.66 11.15 30.09 -7.79 -94% 164% -30% -26%


ROE (Trailing) 58.50 -30.92 122.17 58.50 51.94 137.26 -33.37 -153% 109% 0% -11%

Implied Value of Growth 33.9% -0.13 1.00 0.37 0.38 0.73 0.03 -140% 195% 10% 13%


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104



Company Description P&L sensitivity metrics for FY12 EBITDA EPS


Dairy Farm operates 5,267 retail outlets(supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishings stores and restaurants) in Hong Kong, Taiwan, China, Singapore, Malaysia, Indonesia and India. Its retail names would include Wellcome, ColdStorage, Giant, Health & Glow, Woolworths, Hero, Guardian and 7-Eleven. The Group has a 50% interest in Maxim’s, Hong Kong’s leading catering chain. It employs over 76,000 people.

North Asia Sales


East Asia Sales


South Asia Sales


North Asia Operating margin assumption


East Asia Operating margin assumption


South Asia Operating margin assumption



2011 Revenue Breakdown Price target and valuation analysisOur Dec-12 target price is S$9.0. Our target price is based on 1x PEG, with 2-year (2012-14) EPS CAGR of 14.2%. We base our PT on 1x PEG, in-line with the average for Chinese consumer staples companies.

Target PEG 1

2012-14E EPS CAGR 17.6%


Dec-12 EPS (US$) 0.408

Target price (S$) 9.0

Downside risks include a sudden slowdown in store expansion and higher than expected costs in HK. Upside risks include stronger SSS growth on benign food inflation and higher currency benefits.EPS J.P. Morgan vs consensus

US$ J.P. Morgan Consensus

FY12E 0.39 0.41

FY13E 0.46 0.46

FY14E 0.55 0.52



Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012EDairy Farm DFI SP N 10.6 9.00 14,339 29.6 27.0 23.1 17.5 49.9 11.8 2.2%Beijing Jingkelong^ 814 HK NR 5.7 NA 305 9.2 8.1 6.8 5.7 13.6 1.1 4.9%Lianhua^ 980 HK NR 7.4 NA 1,068 10.8 10.7 9.6 0.4 18.1 1.9 3.2%Wumart Stores^ 1025 HK NR 15.7 NA 2,590 27.9 21.7 18.0 10.4 22.1 4.9 2.1%Sun Art^ 6808 HK NR 8.5 NA 10,442 34.8 27.8 22.6 11.2 14.9 4.1 1.3%Yonghui Supers-A^ 601933 CH NR 27.1 NA 3,274 44.4 34.8 25.6 15.1 12.6 4.5 0.3%Sector average 26.1 21.7 17.6 10.0 21.9 4.7 2.3%

Source: Bloomberg, Share prices are as of close of 29 Jun 2012; ^Stock not under J.P. Morgan coverage. Bloomberg consensus estimates for NR stocks.

60%

19%

17%

4%

Supermarkets/hypermarkets

Home furnishing stores

ConvenienceStores

Health and Beauty

Services

105



Dairy Farm International Holdings Limited: Summary of FinancialsIncome Statement Cash flow statement$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


Gross Profit 2,375 2,683 3,000 3,391 3,799 Change in working capital 101 73 116 142 148% change Y/Y 12.2% 13.0% 11.8% 13.1% 12.0% Tax -74 -88 -113 -131 -156Gross margin 29.8% 29.4% 29.4% 29.4% 29.4% Other -13 -19 0 0 0EBITDA 637 717 793 907 1,026 Cash flow from operations 677 730 860 985 1,089

% change Y/Y 12.3% 12.6% 10.7% 14.3% 13.1%EBITDA Margin 8.0% 7.9% 7.8% 7.9% 7.9% Capex -211 -214 -288 -118 -90EBIT 469 535 598 705 845 Sale of assets 38 1 0 0 0

% change Y/Y 10.8% 14.1% 11.7% 17.9% 19.8% Acquisition of subsidiaries/intangibles -65 -29 0 0 0EBIT Margin 5.9% 5.9% 5.9% 6.1% 6.5% Other 0 0 0 0 0Net Interest -23 -18 -5 -5 -5 Cash flow from investing -238 -242 -288 -118 -90Share of JVs 47 66 69 73 77Earnings before tax 495 584 662 773 916 Equity raised/(repaid) 8 2 0 0 0

% change Y/Y 12.9% 18.0% 13.4% 16.7% 18.5% Debt raised/(repaid) -75 -199 0 0 0Tax -84 -99 -113 -131 -156 Dividends paid -223 -257 -257 -330 -385

as % of EBT 16.9% 17.0% 17.0% 17.0% 17.0% Other 0 7 1 1 1Minorities 1 -0 1 1 1 Cash flow from financing -289 -447 -256 -329 -384Other income/(exp) 122 133 0 0 0Net income (reported) 412 484 551 642 761 Net change in cash 159 39 316 537 615

% change Y/Y 13.2% 17.4% 13.7% 16.7% 18.5% FX gain/(loss) 10 -3 0 0 0Recurring Net Income 412 484 551 642 761 Ending cash 680 719 1,035 1,573 2,187% change Y/Y 13.2% 17.4% 13.7% 16.7% 18.5% DPS 0.16 0.19 0.19 0.24 0.29EPS (reported) 0.31 0.36 0.41 0.48 0.56


% change Y/Y 13.0% 17.3% 13.7% 16.7% 18.5%

Balance sheet Ratio Analysis$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Cash and cash equivalents 682 730 1,035 1,573 2,187 Gross margin 29.8% 29.4% 29.4% 29.4% 29.4%Accounts receivable 160 218 196 221 248 EBITDA margin 8.0% 7.9% 7.8% 7.9% 7.9%Inventories 816 949 988 1,117 1,252 Operating margin 5.9% 5.9% 5.9% 6.1% 6.5%Others 1 48 59 59 58 Net margin 5.2% 5.3% 5.4% 5.6% 5.9%Current assets 1,659 1,945 2,279 2,971 3,746 Recurring net profit margin 5.2% 5.3% 5.4% 5.6% 5.9%Intangible assets 344 352 352 352 352 Sales growth 13.4% 14.6% 11.8% 13.1% 12.0%Long term investments 161 194 194 194 194 Net profit growth 13.2% 17.4% 13.7% 16.7% 18.5%Net fixed assets 921 896 989 906 815 Recurring net profit growth 13.2% 17.4% 13.7% 16.7% 18.5%Other assets 173 152 152 152 152 EPS growth 13.0% 17.3% 13.7% 16.7% 18.5%Total Assets 3,258 3,539 3,966 4,575 5,260

Net debt to equity -30.5% -50.5% -63.4% -85.6% -101.1%Liabilities Sales/assets 2.63 2.69 2.72 2.70 2.63Short-term loans 121 130 130 130 130 Assets/equity 4.71 4.09 3.26 2.99 2.76Trade & other payables 1,870 2,140 2,273 2,570 2,879 ROE 65.5% 58.5% 51.5% 46.8% 44.3%Others 75 87 87 87 87 ROCE 42.4% 45.0% 44.9% 43.1% 42.7%Total current liabilities 2,065 2,357 2,490 2,787 3,096Long-term debt 338 133 133 133 133Others 121 118 118 118 118Total Liabilities 2,524 2,609 2,742 3,038 3,348Minorities 1 8 8 8 8Shareholders' equity 733 923 1,217 1,529 1,904BVPS 0.54 0.68 0.90 1.13 1.41


106



Giordano

Company DataShares O/S (mn) 1,538Market cap (HK$ mn) 8,415Market cap ($ mn) 1,085Price (HK$) 5.47Date Of Price 29 Jun 12Free float (%) 72.8%3mth Avg daily volume 6,145,092.003M - Average daily Value (HK$ mn)

37.08


4.78


Giordano (Reuters: 0709.HK, Bloomberg: 709 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 4,731 5,614 5,790 6,915 7,485Net Profit (HK$ mn) 537 728 768 963 1,101EPS (HK$) 0.36 0.48 0.51 0.64 0.73Recurring EPS (HK$) 0.36 0.48 0.51 0.64 0.73DPS (HK$) 0.27 0.38 0.36 0.45 0.51Revenue growth (%) 11.8% 18.7% 3.1% 19.4% 8.2%Net profit growth (%) 86.5% 35.6% 5.5% 25.4% 14.3%EPS growth (%) 86.3% 34.1% 5.5% 25.4% 14.3%ROE 23.7% 28.3% 26.9% 31.0% 32.2%ROA 17.5% 20.4% 19.9% 23.9% 26.0%P/BV (x) 3.4 3.0 2.8 2.5 2.3P/E (x) 15.2 11.3 10.8 8.6 7.5EV/EBITDA (x) 9.4 7.2 6.7 5.6 4.6Dividend Yield 5.0% 7.0% 6.5% 8.2% 9.3%Source: Company data, Bloomberg, J.P. Morgan estimates.

Giordano International Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Giordano International Ltd. 1041.07 As Of:

HONG KONG 3.655118 SEDOL 6282040 Local Price: 5.52Consumer Discretionary Specialty Retail EPS: 0.58


12mth Forward PE 9.60x 3.97 24.44 13.52 13.17 20.48 5.86 -59% 155% 41% 37%

P/BV (Trailing) 3.07x 1.06 14.40 3.09 3.66 8.24 -0.92 -66% 369% 1% 19%


ROE (Trailing) 28.31 6.16 30.48 19.92 18.75 34.53 2.98 -78% 8% -30% -34%Implied Value of Growth -64.7% -1.28 0.65 0.19 0.11 0.77 -0.55 -98% 201% 130% 117%


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107





Giordano is an HK-based retailer and distributor of casual apparel and accessories under the Giordano & Giordano Junior (87% of FY11 retail revenue), Giordano Ladies (7% of FY11 retail revenue), Giordano Concepts (1% of FY10retail revenue) and BSX (5% of FY11 retail revenue) brands. It is also engaged in manufacturing apparel and supplying products to third parties.

Mainland China Sales growth assumption

Impact of each 5% increase 5.0% 5.1%






Price target and valuation analysisOur new Dec-12 PT is HK$6.5 based on unchanged target PE of 13x, corresponding to its 5-yr historical average. Our PT is revised down 5% due to earnings revision.

Retail and Distribution sales - FY11

Risks to our thesis include 1) Lower-than-expected HK sales will lead to worse-than expected operating deleverage and result in downside risks to our 2012 earnings forecasts and PT. 2) Slower-than-expected sales through will cause higher pressure on inventory and hence margins. This would also result in downside risks to our 2012 earnings estimates and PT. 3) Slower-than-expected execution of China management restructuring plan will also dilute the country’s margin assumptions and result in downside risks to our forecasts.Source: Company data



FY12E 0.51 0.54

FY13E 0.64 0.61

FY14E 0.73 0.69


Valuation Table

Company Ticker Rating Price PT Mkt Cap P/E P/B

(HK$) (HK$) (USD mn) 2011 2012E 2013E 2012E 2013E

HK retailersLifestyle 1212 HK OW 16.9 19.00 3,631 18.0 15.7 13.9 3.0 2.7Sa Sa International* 178 HK N 4.9 5.30 1,763 19.8 17.2 14.3 5.6 4.8I.T*^ 999 HK OW 3.4 5.50 530 8.6 7.9 6.6 1.6 1.4China sportswearLi Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Xtep 1368 HK UW 2.7 2.20 758 5.0 5.7 7.7 1.1 1.0China Dongxiang^ 3818 HK 0.7 500 31.5 8.1 7.4 0.4 0.4Average 14.0 10.7 9.5 2.0 1.8

Source: Bloomberg, J.P. Morgan estimates. Based on COB prices as at 29 June 2012. ^ Consensus estimates used for NR companies, * Next FY figures taken because FY ends in the period Jan-

May

Mainland China

40%

HK & Macau

19%

Taiwan15%

Singapore8%

Australia4% Other

markets14%

108



Giordano: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 4,731 5,614 5,790 6,915 7,485 PBT 748 1,004 1,053 1,335 1,526% change Y/Y 11.8% 18.7% 3.1% 19.4% 8.2% Depr. & amortization 99 95 95 97 100

Gross Profit 2,731 3,283 3,371 4,065 4,408 Change in working capital -114 -175 5 -223 113% change Y/Y 25.6% 20.2% 2.7% 20.6% 8.4% Tax -103 -153 -264 -263 -315Gross margin 57.7% 58.5% 58.2% 58.8% 58.9% Other -20 -68 -91 -82 -84EBITDA 794 1,004 1,059 1,353 1,543 Cash flow from operations 610 704 798 866 1,340

% change Y/Y 88.1% 26.5% 5.5% 27.7% 14.1%EBITDA Margin 16.8% 17.9% 18.3% 19.6% 20.6% Capex -91 -125 -115 -121 -121EBIT 695 909 964 1,255 1,444 Acquisition of subsidiaries/intangibles - - - - -

% change Y/Y 121.3% 30.8% 6.1% 30.2% 15.0% Other -132 70 -40 -563 -40EBIT Margin 14.7% 16.2% 16.7% 18.2% 19.3% Cash flow from investing -223 -55 -155 -684 -161Net Interest -2 -2 -2 -2 -2Share of JVs 68 97 91 82 84 Equity raised/(repaid) 15 0 0 0 0Earnings before tax 748 1,004 1,053 1,335 1,526 Debt raised/(repaid) 0 -21 0 0 0

% change Y/Y 106.1% 34.2% 4.9% 26.8% 14.3% Dividends paid -336 -578 -538 -674 -770Tax -181 -225 -232 -294 -336 Other -20 0 0 0 0

as % of EBT 24.2% 22.4% 22.0% 22.0% 22.0% Cash flow from financing -341 -599 -538 -674 -770Minorities -30 -51 -54 -78 -90Other income/(exp) 123 148 150 158 166 Net change in cash 46 50 106 -492 409Net income (reported) 537 728 768 963 1,101 FX gain/(loss) 52 0 0 0 0

% change Y/Y 86.5% 35.6% 5.5% 25.4% 14.3% Ending cash 688 738 843 351 760Recurring Net Income 550 728 768 963 1,101 DPS 0.27 0.38 0.36 0.45 0.51% change Y/Y 91.0% 32.4% 5.5% 25.4% 14.3%EPS (reported) 0.36 0.48 0.51 0.64 0.73


% change Y/Y 86.3% 34.1% 5.5% 25.4% 14.3%


Cash and cash equivalents 1,062 1,272 1,418 965 1,414 Gross margin 57.7% 58.5% 58.2% 58.8% 58.9%Accounts receivable 597 636 728 901 863 EBITDA margin 16.8% 17.9% 18.3% 19.6% 20.6%Inventories 404 605 323 770 410 Operating margin 12.1% 13.6% 14.1% 15.9% 17.1%Others 41 45 45 45 45 Net margin 11.4% 13.0% 13.3% 13.9% 14.7%Current assets 2,104 2,558 2,514 2,681 2,732 Recurring net profit margin 11.6% 13.0% 13.3% 13.9% 14.7%Intangible assets 5 5 5 5 5 Sales growth 11.8% 18.7% 3.1% 19.4% 8.2%Long term investments 980 988 1,079 1,161 1,244 Net profit growth 86.5% 35.6% 5.5% 25.4% 14.3%Net fixed assets 202 229 249 273 294 Recurring net profit growth 91.0% 32.4% 5.5% 25.4% 14.3%Other assets 29 42 42 42 42 EPS growth 86.3% 34.1% 5.5% 25.4% 14.3%Total Assets 3,320 3,822 3,889 4,162 4,318

Net debt to equity -40.6% -44.2% -45.7% -27.7% -37.7%Liabilities Sales/assets 1.54 1.57 1.50 1.72 1.77Short-term loans 84 63 63 63 63 Assets/equity 1.45 1.40 1.31 1.28 1.20Trade & other payables 548 689 504 901 616 ROE 23.7% 28.3% 26.9% 31.0% 32.2%Others 87 148 116 147 168 ROCE 29.7% 34.4% 33.1% 39.6% 41.5%Total current liabilities 719 900 683 1,111 847Long-term debt 0 0 0 0 0Others 108 101 101 101 101Total Liabilities 827 1,001 784 1,212 948Minorities 85 86 140 218 308Shareholders' equity 2,408 2,735 2,965 3,254 3,584BVPS 1.61 1.81 1.96 2.16 2.37


109



Golden Eagle Retail Group Ltd

Company DataShares O/S (mn) 1,941Market cap (Rmb mn) 25,038Market cap ($ mn) 3,938Price (HK$) 15.74Date Of Price 29 Jun 12Free float (%) 31.5%3mth Avg daily volume 4,308,926.003M - Average daily Value (HK$ mn)

76.66


9.88


Golden Eagle Retail Group Ltd (Reuters: 3308.HK, Bloomberg: 3308 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 2,450 3,217 3,912 5,202 7,001Net Profit (Rmb mn) 959 1,212 1,331 1,658 2,192EPS (Rmb) 0.49 0.62 0.68 0.85 1.13Recurring EPS (Rmb) 0.49 0.61 0.68 0.85 1.13DPS (Rmb) 0.11 0.15 0.34 0.43 0.56Revenue growth (%) 32.5% 31.3% 21.6% 33.0% 34.6%Net profit growth (%) 282.3% 26.4% 9.8% 24.6% 32.2%EPS growth (%) 260.8% 26.2% 9.8% 24.6% 32.2%ROE 29.1% 29.4% 27.2% 29.4% 33.2%ROA 13.7% 12.6% 11.1% 12.2% 14.0%P/BV (x) 6.8 5.5 4.8 4.1 3.5P/E (x) 26.1 20.7 18.8 15.1 11.4EV/EBITDA (x) 16.7 13.6 12.2 9.9 7.5Dividend Yield 0.8% 1.2% 2.7% 3.3% 4.4%Source: Company data, Bloomberg, J.P. Morgan estimates.

Golden Eagle Retail Group Ltd. (CHINA / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Golden Eagle Retail Group Ltd. 3952.53 As Of:CHINA 9.650587 SEDOL B10S7M1 Local Price: 15.90Consumer Discretionary Multiline Retail EPS: 0.80


12mth Forward PE 16.26x 10.33 39.51 24.61 23.76 35.81 11.71 -36% 143% 51% 46%

P/BV (Trailing) 5.55x 3.87 21.88 9.03 9.66 17.30 2.02 -30% 294% 63% 74%Dividend Yield (Trailing) 1.35 0.00 8.52 0.88 1.38 4.94 -2.18 -100% 531% -35% 2%ROE (Trailing) 29.39 10.97 66.62 29.20 30.32 63.22 -2.59 -63% 127% -1% 3%

Implied Value of Growth 27.8% -0.19 0.73 0.52 0.47 0.84 0.10 -168% 163% 86% 68%


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110





Golden Eagle Retail Group is the biggest department store chain operator in the Jiangsu province of China. Its flagship store is Nanjing Xinjiekou Store which was its first store, set up in April 1996 at Nanjing. The company got listed on the Hong Kong Stock Exchange in March 2006. The company operated 20 chain department stores in 13 cities with an aggregate gross floor area of over 677,000 sqm.

Gross concessionaire sales


Concessionary rate assumption


Operating expenses as % of revenue



Price target and valuation analysisThe stock is trading at 16x 1-yr forward PE pricing in the short term weakness already in our view. We believe it is one of the best positioned department stores in China and we are looking for 27% earnings CAGR post 2012 driven largely by new store additions and SSSG (around 14% post 2012). Our new Dec-12 PT is HK$22.5 (down 5% from the previous PT) is based on 1x PEG and 27% 2-yr earnings CAGR post 2012.

FY11 gross sales breakdown

Main risk on the downside is execution risk at opening new stores. We assumed 11% SSSG for all the stores at a blended level in 2012E and 14% for 2013E and 2014E. If SSSG come below our estimates this will pose downside risk to our estimates and PT - we assumed c1% EBIT margin erosion due to new stores. If new stores perform below our expectations given the slowdown in 2012E, this will also pose downside risks to our 2012E estimates and PT.




FY12E 0.68 0.72

FY13E 0.85 0.89

FY14E 1.13 1.07

Source: J.P. Morgan estimates, Bloomberg.



Other Department storesParkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4Other Chinese retailersBelle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Li Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9China Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Sector average 16.4 12.3 10.4 1.9 1.7

Source: J.P. Morgan estimates. Prices as of 29 Jun 2012. ^ Bloomberg consensus estimates for NR company

Direct Sales8%

Concessionaire sales

92%

Rental Income

0%

Management service

fee0%

111



Golden Eagle Retail Group Ltd: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Gross Sales 10,949 14,340 17,633 23,368 31,089 PBT 1,296 1,626 1,798 2,240 2,962Revenues 2,450 3,217 3,912 5,202 7,001 Depr. & amortization 119 139 190 266 343

% change Y/Y 32.5% 31.3% 21.6% 33.0% 34.6% Change in working capital 797 919 785 725 969Gross Profit 1,925 2,453 2,945 3,840 5,083 Tax -280 -414 -468 -583 -770% change Y/Y 32.6% 27.4% 20.1% 30.4% 32.4% Other -18 -110 -71 -54 -35Gross margin 17.6% 17.1% 16.7% 16.4% 16.3% Cash flow from operations 1,914 2,160 2,235 2,594 3,469EBITDA 1,364 1,672 1,917 2,452 3,270

% change Y/Y 29.1% 22.6% 14.6% 27.9% 33.4% Capex -1,740 -1,990 -2,400 -2,600 -2,600EBITDA Margin 12.5% 11.7% 10.9% 10.5% 10.5% Sale of assets - - - - -EBIT 1,246 1,533 1,727 2,186 2,927 Acquisition of subsidiaries/intangibles -379 -78 0 0 0

% change Y/Y 30.0% 23.1% 12.6% 26.6% 33.9% Other 30 -166 95 78 59EBIT Margin 11.4% 10.7% 9.8% 9.4% 9.4% Cash flow from investing -2,089 -2,234 -2,305 -2,522 -2,541Net Interest 33 73 71 54 35Share of JVs 1 -20 0 0 0 Equity raised/(repaid) - 0 0 0 1Earnings before tax 1,296 1,626 1,798 2,240 2,962 Debt raised/(repaid) 189 1,026 0 0 1

% change Y/Y 157.3% 25.4% 10.6% 24.6% 32.2% Dividends paid -208 -290 -665 -829 -1,096Minorities 0 -0 0 0 0 Other -8 390 -24 -24 -23Other income/(exp) 17 40 0 0 0 Cash flow from financing -27 1,126 -689 -853 -1,117Tax -337 -414 -468 -583 -770

as % of EBT 26.0% 25.5% 26.0% 26.0% 26.0% Net change in cash -202 1,052 -759 -781 -188Net income (reported) 959 1,212 1,331 1,658 2,192 Ending cash flow 1,819 2,872 1,304 996 1,370

% change Y/Y 282.3% 26.4% 9.8% 24.6% 32.2% DPS 0.11 0.15 0.34 0.43 0.56Recurring Net Income 942 1,193 1,331 1,658 2,192% change Y/Y 34.7% 26.6% 11.6% 24.6% 32.2%EPS (reported) 0.49 0.62 0.68 0.85 1.13


% change Y/Y 27.1% 26.4% 11.6% 24.6% 32.2%


Cash and cash equivalents 2,747 3,799 3,039 2,259 2,070 Gross margin 17.6% 17.1% 16.7% 16.4% 16.3%Accounts receivable 211 248 242 320 426 EBITDA margin 12.5% 11.7% 10.9% 10.5% 10.5%Inventories 213 304 265 373 526 Operating margin 11.4% 10.7% 9.8% 9.4% 9.4%Others 27 32 32 32 32 Net margin 8.8% 8.5% 7.5% 7.1% 7.1%Current assets 3,197 4,383 3,578 2,984 3,053 Recurring net profit margin 8.6% 7.8% 7.4% 7.4% 7.4%Intangible assets 252 257 257 257 257 Gross Sales growth 33.7% 31.0% 23.0% 32.5% 33.0%Long term investments 39 112 112 112 112 Sales growth 32.5% 31.3% 21.6% 33.0% 34.6%Net fixed assets 2,722 3,906 6,116 8,451 10,708 Net profit growth 282.3% 26.4% 9.8% 24.6% 32.2%Other assets 1,770 2,684 2,684 2,684 2,684 Recurring net profit growth 34.7% 26.6% 11.6% 24.6% 32.2%Total Assets 7,979 11,343 12,747 14,487 16,814 EPS growth 260.8% 26.2% 9.8% 24.6% 32.2%Liabilities Net debt to equity -62.2% -50.7% -29.7% -12.8% -8.2%Short-term loans 458 1,484 1,484 1,484 1,484 Sales/assets 0.35 0.33 0.32 0.38 0.45Trade & other payables 1,719 2,063 2,802 3,713 4,940 Assets/equity 2.46 2.24 2.44 2.39 2.35Others 2,027 3,101 3,101 3,101 3,101 ROE 29.1% 29.4% 27.2% 29.4% 33.2%Total current liabilities 4,204 6,648 7,387 8,298 9,525 ROCE 34.0% 30.1% 27.1% 30.7% 36.2%Long-term debt 0 0 0 0 0Others 95 125 125 125 125Total Liabilities 4,299 6,773 7,512 8,423 9,650Minorities 0 3 3 3 3Shareholders' equity 3,680 4,567 5,232 6,061 7,161BVPS 1.90 2.35 2.69 3.12 3.68


112



Hengan International Group Ltd


166.34


21.63


Hengan International Group Ltd (Reuters: 1044.HK, Bloomberg: 1044 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 13,432 17,051 21,573 26,968 32,675Net Profit (HK$ mn) 2,438.3 2,648.8 3,637.5 4,327.4 5,047.9EPS (HK$) 2.00 2.16 2.96 3.52 4.11DPS (HK$) 1.30 1.35 1.92 2.29 2.67Revenue growth (%) 24.0% 26.9% 26.5% 25.0% 21.2%EPS growth (%) 12.8% 8.2% 37.0% 19.0% 16.7%ROE 25.0% 23.2% 28.0% 30.1% 31.5%ROA 14.9% 12.6% 14.9% 16.1% 17.0%P/E (x) 37.5 34.7 25.3 21.3 18.2P/BV (x) 8.7 7.5 6.8 6.1 5.5EV/EBITDA (x) 24.8 22.3 16.2 13.1 10.9Dividend Yield 1.7% 1.8% 2.6% 3.1% 3.6%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileHengan International Group Co. Ltd. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Hengan International Group Co. Ltd. 12536.71 As Of:CHINA 21.588 SEDOL 6136233 Local Price: 76.65Consumer Staples Personal Products EPS: 3.24


12mth Forward PE 23.66x 4.72 31.70 16.40 17.30 33.20 1.39 -80% 34% -31% -27%P/BV (Trailing) 7.63x 0.96 11.73 3.60 4.38 10.19 -1.44 -87% 54% -53% -43%Dividend Yield (Trailing) 1.82 1.55 14.37 3.33 4.87 11.89 -2.15 -15% 690% 83% 168%ROE (Trailing) 23.19 11.93 29.65 20.36 20.12 31.20 9.04 -49% 28% -12% -13%Implied Value of Growth 50.4% -0.97 0.67 0.32 0.18 1.05 -0.69 -293% 33% -37% -64%


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113





Established in 1985 and listed in 1998, Hengan is the leading personal hygiene products company in China with No.1 position in the tissue paper, sanitary napkin, and diaper markets. In 2008, it acquired 51% equity interests in QinQin food, a confectionary manufacture in China.

Change in wood pulp cost (%)


Chang in petrochemical cost (%)


A&P cost % of sales



2011 Revenue Breakdown Price target and valuation analysisOur Dec-12 target price of HK$53.0 is based on 1x PEG, in-line with other China consumer staples, with 2-year (2012-2014) EPS CAGR of 18%. We are using PEG in order to capture earnings growth prospects.

Target PEG 1

2012-14E EPS CAGR 17.8%


Dec-12 EPS (HK$) 2.961


Source: Company

Key upside risk to our TP would be a larger than expected decline in wood pulp prices. Wood pulp accounts for c56% of the COGs for tissue paper products. We had assumed wood pulp costs to drop 15% yoy in 2012. Also, a faster than expected roll out of new diaper products would be another upside risk. We are cautious on Hengan’s ability to outgrow the diaper market and assume diaper sales growth of 13% yoy in 2012.



FY12E 2.96 2.91

FY13E 3.52 3.59

FY14E 4.11 4.29



Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012EHengan 1044 HK UW 75.0 53.0 11,876 34.7 25.3 21.3 17.7 28.0 6.8 2.6%Vinda^ 3331 HK NR 11.5 NA 1,477 26.5 15.9 13.0 11.0 19.4 2.8 1.6%Bawang^ 1338 HK NR 0.6 NA 225 (2.6) (5.1) (44.7) (1.7) (33.1) 1.9 0.6%HUL* HUVR IN UW 454.5 410.0 17,599 37.0 31.7 27.9 22.2 78.4 22.0 1.9%Unilever Indonesia UNVR IJ UW 22900.0 18000.0 18,602 41.9 37.9 30.0 26.5 103.4 33.4 1.7%Unicharm Corp*^ 8113 JP NR 4545.0 NA 11,832 31.4 26.1 23.1 13.2 15.2 3.6 0.8%

Source: Bloomberg for NR companies, J.P. Morgan estimates. Share prices are as of close of 29 June 2012; ^Stock not under J.P. Morgan coverage, Bloomberg consensus used.

Tissue papers

47%

Sanitary napkins

24%

Disposable diapers

16%

Food and snacks

9%

Skin care and

others4%

114



Hengan International Group Ltd: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


Gross Profit 5,945 6,800 9,330 11,879 14,650 Change in working capital -689 2,389 -718 -925 -971% change Y/Y 19.4% 14.4% 37.2% 27.3% 23.3% Tax -388 -552 -570 -921 -1240Gross margin 44.3% 39.9% 43.3% 44.1% 44.8% Other 39 -38 -3 -19 -5EBITDA 3,356 3,709 5,164 6,333 7,503 Cash flow from operations 2,280 5,508 3,873 4,467 5,287

% change Y/Y 14.9% 10.5% 39.3% 22.6% 18.5%EBITDA Margin 25.0% 21.8% 23.9% 23.5% 23.0% Capex -1,261 -2,437 -2,681 -1,000 -1,100EBIT 3,000 3,294 4,609 5,655 6,757 Sale of assets - - - - -

% change Y/Y 15.4% 9.8% 39.9% 22.7% 19.5% Acquisition of subsidiaries/intangibles - - - - -EBIT Margin 22.3% 19.3% 21.4% 21.0% 20.7% Other -316 -1,064 -87 -89 -91Net Interest 39 -38 -3 -19 -5 Cash flow from investing -1,577 -3,526 -2,800 -1,135 -1,247Share of JVs 0 0 0 0 0Earnings before tax 3,038 3,255 4,605 5,636 6,752 Equity raised/(repaid) - - - - -

% change Y/Y 17.6% 7.1% 41.5% 22.4% 19.8% Debt raised/(repaid) 2,582 1,913 49 58 62Tax -552 -570 -921 -1,240 -1,620 Dividends paid -1,341 -1,625 -2,012 -2,589 -3,047

as % of EBT 18.2% 17.5% 20.0% 22.0% 24.0% Other -506 - - - -Minorities - - - - - Cash flow from financing 735 288 -1,963 -2,530 -2,985Other income/(exp) - - - - -Net income (reported) 2,438.3 2,648.8 3,637.5 4,327.4 5,047.9 Net change in cash 1,539 2,269 -890 802 1,055

% change Y/Y 15.2% 8.6% 37.3% 19.0% 16.7% FX gain/(loss) - - - - -Recurring Net Income - - - - - Ending cash 5,989 8,258 7,369 8,171 9,225% change Y/Y - - - - - DPS 1.30 1.35 1.92 2.29 2.67EPS (reported) 2.00 2.16 2.96 3.52 4.11

% change Y/Y 12.8% 8.2% 37.0% 19.0% 16.7%Recurring EPS - - - - -

% change Y/Y - - - - -


Cash and cash equivalents 5,989 8,258 7,369 8,171 9,225 Gross margin 44.3% 39.9% 43.3% 44.1% 44.8%Accounts receivable 1,396 1,893 2,395 2,993 3,627 EBITDA margin 25.0% 21.8% 23.9% 23.5% 23.0%Inventories 2,760 2,934 3,713 4,641 5,623 Operating margin 22.3% 19.3% 21.4% 21.0% 20.7%Others 606 659 370 227 85 Net margin 18.2% 15.5% 16.9% 16.1% 15.5%Current assets 10,750 13,744 13,846 16,032 18,560 Recurring net profit margin - - - - -Intangible assets - - - - - Sales growth 24.0% 26.9% 26.5% 25.0% 21.2%Long term investments - - - - - Net profit growth 15.2% 8.6% 37.3% 19.0% 16.7%Net fixed assets 4,519 5,203 7,329 7,651 8,005 Recurring net profit growth 8.0% 32.4% 25.4% 18.0% 13.8%Other assets 3,308 4,372 4,459 4,549 4,640 EPS growth 12.8% 8.2% 37.0% 19.0% 16.7%Total Assets 18,577 23,319 25,634 28,231 31,204

Net debt to equity -6.4% -8.4% -1.1% -6.3% -11.9%Liabilities Sales/assets 0.82 0.81 0.88 1.00 1.10Short-term loans 3,815 6,815 361 361 361 Assets/equity 1.23 1.24 1.88 1.87 1.85Trade & other payables 1,319 1,881 2,380 2,976 3,605 ROE 25.0% 23.2% 28.0% 30.1% 31.5%Others 943 1,316 1,763 2,123 2,555 ROCE 21.8% 18.6% 22.8% 26.2% 29.1%Total current liabilities 6,077 10,012 4,504 5,460 6,521Long-term debt 1,497 404 6,857 6,857 6,857Others 178 185 234 292 354Total Liabilities 7,752 10,600 11,595 12,609 13,732Minorities 322 377 424 493 576Shareholders' equity 10,503 12,341 13,615 15,129 16,896BVPS 8.61 10.04 11.08 12.31 13.75


115



I.T Ltd.

Company DataShares O/S (mn) 1,228Market cap (HK$ mn) 4,114Market cap ($ mn) 530Price (HK$) 3.35Date Of Price 29 Jun 12Free float (%) 36.1%3mth Avg daily volume 3,919,949.003M - Average daily Value (HK$ mn)

13.80


1.78

HSI 19,441Exchange Rate 7.76Fiscal Year End Feb

I.T Ltd. (Reuters: 0999.HK, Bloomberg: 999 HK)

HK$ in mn, year-end Feb FY11A FY12A FY13E FY14E FY15ERevenue (HK$ mn) 3,834 5,742 6,684 7,812 9,257Net Profit (HK$ mn) 388 471 519 616 731Recurring EPS (HK$) 0.34 0.39 0.43 0.51 0.60EPS (HK$) 0.33 0.39 0.43 0.51 0.60DPS (HK$) 0.15 0.15 0.17 0.20 0.24Revenue growth (%) 28.0% 49.7% 16.4% 16.9% 18.5%Net profit growth (%) 47.7% 21.5% 10.1% 18.8% 18.6%Recurring profit growth (%) 51.4% 19.0% 9.4% 18.8% 18.6%EPS growth (%) 45.1% 17.4% 10.1% 18.8% 18.6%ROE 23.3% 22.9% 21.4% 22.3% 23.1%ROA 14.8% 13.0% 12.4% 13.4% 14.4%P/E (x) 10.2 8.6 7.9 6.6 5.6P/BV (x) 2.1 1.8 1.6 1.4 1.2EV/EBITDA (x) 1.4 5.1 4.4 3.6 3.0Dividend Yield 4.4% 4.6% 5.1% 6.0% 7.2%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileI.T Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

I.T Ltd. 481.17 As Of:HONG KONG 1.958654 SEDOL B0693Z6 Local Price: 3.36Consumer Discretionary Specialty Retail EPS: 0.46


12mth Forward PE 7.24x 7.14 21.19 11.73 12.64 21.09 4.19 -1% 193% 62% 75%P/BV (Trailing) 1.81x 0.35 5.42 2.01 2.22 4.65 -0.21 -81% 200% 11% 23%Dividend Yield (Trailing) 4.39 0.00 23.94 3.12 3.94 12.37 -4.49 -100% 446% -29% -10%

ROE (Trailing) 22.89 3.50 71.00 22.89 26.97 64.11 -10.16 -85% 210% 0% 18%Implied Value of Growth -118.3% -1.20 0.32 -0.23 -0.25 0.65 -1.15 -1% 127% 80% 79%


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116



Company description P&L sensitivity metrics EBITDA FY13E EPS FY13E


I.T offers a wide range of fashion apparels and accessories from international labels and in-house brands, via multi-brand or mono-brand stores, targeting diversified customers with varying spending power in Greater China and Japan. I.T sells over 300 international designer labels in Hong Kong and the PRC, and also owns 10 in-house brands. As of FY12, in-house brands and international brands accounted for 58% and 39% of the company’s total retail sales, respectively, with remaining 3% from licensed brands. As of FY12, I.T had a total of 534 directly operated stores with an aggregated GFA of over 1.3 million sqft in Greater China, including FCUK stores.

Hong Kong SSS growth


Mainland China SSS growth


Mainland China retail space


Gross Margin assumption



Price target and valuation analysisOur new Mar-13 PT of HK$5.5 is based on 0.7x PEG (discount to big cap space due to lower Mcap and liquidity) and 18% 2-yr earnings CAGR post FY13. Our PT is revised down due to FY13 earnings revision and cut in our long term EPS CAGR expectation.

FY12 sales breakdown

Downside risks to our rating and price target: We currently assume 2H FY12 will be the trough of the current cycle. Worse-thanexpected macro slowdown would cause downside for FY13, especially for 1H; an abrupt slowdown in SSS growth; higher-than expected operating expenses. Professionalization of the business is a potential long-term risk, i.e., how the family-based management team will grow to include more non-family professionals as the business expands, especially in China.




FY13E 0.43 0.43

FY14E 0.51 0.53

FY15E 0.60 0.61

Source: Bloomberg,.J.P. Morgan estimates.


Company Ticker Rating Price PT Mkt cap P/E P/B

(HK$) (HK$) (US$ MM) 2011 2012E 2013E 2012E 2013E

Belle 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Lifestyle 1212 HK OW 16.9 19.00 3,631 18.0 15.7 13.9 3.0 2.7Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Luk Fook*^ 590 HK NR 16.1 1,220 6.8 7.1 6.1 1.5 1.3Chow Sang Sang^ 116 HK NR 15.0 1,309 9.3 8.1 6.8 1.4 1.2Sa Sa* 178 HK N 4.9 5.30 1,763 19.8 17.2 14.3 5.6 4.8Trinity 891 HK OW 4.9 8.00 1,076 16.5 14.6 11.6 2.5 2.3China Lilang 1234 HK OW 5.3 8.30 819 8.4 8.1 6.9 2.0 1.8Giordano 709 HK OW 5.5 6.50 1,085 11.3 10.8 8.6 2.8 2.5Sector average 14.7 13.3 11.0 3.1 2.7

Source: Bloomberg, J.P. Morgan estimates. Prices are as of 29 Jun 2012. ^Bloomberg consensus estimates used for NR companies; * FY11 estimates given under 2010 as the year ends in

January-June.

Hong Kong59%

Mainland China

27%

Others4% Japan

10%

117



I.T Ltd.: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Feb FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Feb FY11 FY12 FY13E FY14E FY15E


Gross Profit 2,429 3,540 4,087 4,951 5,904 Change in working capital -98 -366 -160 -121 -206% change Y/Y 33.5% 45.7% 15.5% 21.1% 19.3% Tax -71 -101 -138 -174 -207Gross margin 63.3% 61.7% 61.2% 63.4% 63.8% Other 4 19 -31 -31 -46EBITDA 604 810 898 1,071 1,245 Cash flow from operations 450 359 587 762 817

% change Y/Y 39.0% 34.1% 10.9% 19.2% 16.3%EBITDA Margin 15.8% 14.1% 13.4% 13.7% 13.5% Capex -489 -388 -262 -367 -411EBIT 471 578 640 776 909 Sale of assets 0 - - - -

% change Y/Y 53.0% 22.8% 10.8% 21.2% 17.2% Acquisition of subsidiaries/intangibles -14 0 0 0 0EBIT Margin 12.3% 10.1% 9.6% 9.9% 9.8% Other -5 6 6 6 8Net Interest 2 -6 -6 -6 -5 Cash flow from investing -508 -382 -256 -361 -403Share of JVs 16 4 24 23 36Earnings before tax 481 574 658 793 940 Equity raised/(repaid) 26 0 0 0 0

% change Y/Y 13.9% 19.2% 14.7% 20.4% 18.7% Debt raised/(repaid) 267 27 0 0 0Tax -93 -101 -138 -174 -207 Dividends paid -88 -155 -207 -246 -292

as % of EBT 19.4% 17.5% 21.0% 22.0% 22.0% Other -0 3 0 0 0Minorities -0 -2 -1 -2 -2 Cash flow from financing 204 -125 -207 -246 -292Other income/(exp) -8 -3 0 0 0Net income (reported) 388 471 519 616 731 Net change in cash 146 -148 124 155 122

% change Y/Y 47.7% 21.5% 10.1% 18.8% 18.6% FX gain/(loss) 7 0 0 0 0Recurring Net Income 398 474 519 616 731 Ending cash 775 627 751 906 1,028% change Y/Y 51.4% 19.0% 9.4% 18.8% 18.6% DPS 0.15 0.15 0.17 0.20 0.24EPS (reported) 0.33 0.39 0.43 0.51 0.60


% change Y/Y 48.7% 15.1% 9.4% 18.8% 18.6%

Balance sheet Ratio AnalysisHK$ in millions, year end Feb FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Feb FY11 FY12 FY13E FY14E FY15E

Cash and cash equivalents 776 627 751 906 1,028 Gross margin 63.3% 61.7% 61.2% 63.4% 63.8%Accounts receivable 121 155 181 212 251 EBITDA margin 15.8% 14.1% 13.4% 13.7% 13.5%Inventories 737 1,238 1,460 1,609 1,885 Operating margin 12.1% 10.0% 9.6% 9.9% 9.8%Others 239 240 240 240 240 Net margin 10.1% 8.2% 7.8% 7.9% 7.9%Current assets 1,873 2,260 2,632 2,966 3,403 Recurring net profit margin 10.4% 8.3% 7.8% 7.9% 7.9%Intangible assets 371 373 360 347 335 Sales growth 28.0% 49.7% 16.4% 16.9% 18.5%Long term investments 64 118 142 164 200 Net profit growth 47.7% 21.5% 10.1% 18.8% 18.6%Net fixed assets 727 881 898 983 1,071 Recurring net profit growth 51.4% 19.0% 9.4% 18.8% 18.6%Other assets 251 360 360 360 360 EPS growth 45.1% 17.4% 10.1% 18.8% 18.6%Total Assets 3,286 3,992 4,391 4,821 5,369

Net debt to equity -9.8% -0.3% -5.0% -9.6% -12.0%Liabilities Sales/assets 1.46 1.58 1.59 1.70 1.82Short-term loans 215 184 184 184 184 Assets/equity 1.78 1.76 1.70 1.63 1.58Trade & other payables 361 488 576 634 743 ROE 23.3% 22.9% 21.4% 22.3% 23.1%Others 437 562 562 562 562 ROCE 8.8% 21.7% 21.0% 22.9% 24.0%Total current liabilities 1,012 1,235 1,322 1,381 1,490Long-term debt 379 437 437 437 437Others 51 52 52 52 52Total Liabilities 1,442 1,723 1,811 1,869 1,978Minorities -4 -2 -1 1 3Shareholders' equity 1,847 2,271 2,581 2,950 3,388BVPS 1.57 1.87 2.12 2.43 2.78


118



L'Occitane International SA

Company DataShares O/S (mn) 1,477Market cap (€ mn) 3,266Market cap ($ mn) 4,064Price (HK$) 21.35Date Of Price 29 Jun 12Free float (%) 30.7%3mth Avg daily volume 896,348.003M - Average daily Value (HK$ mn)

17.62


2.27


L'Occitane International SA (Reuters: 0973.HK, Bloomberg: 973 HK)

€ in mn, year-end Mar FY11A FY12A FY13E FY14E FY15ERevenue (€ mn) 772 913 1,056 1,212 1,380Net Profit (€ mn) 100 121 142 168 200EPS (€) 0.07 0.08 0.10 0.11 0.14Recurring EPS (€) 0.07 0.08 0.10 0.11 0.14DPS (€) 0.01 0.02 0.03 0.03 0.04Revenue growth (%) 26.1% 18.3% 15.6% 14.8% 13.8%Net profit growth (%) 21.9% 21.8% 17.0% 18.3% 19.5%Recurring profit growth (%) 21.9% 21.8% 17.0% 18.3% 19.5%EPS growth (%) 6.7% 20.2% 16.9% 18.3% 19.5%ROE 27.7% 20.0% 20.2% 20.5% 21.0%ROA 16.3% 14.3% 14.6% 15.3% 16.2%P/E (x) 32.3 26.9 23.0 19.4 16.3P/BV (x) 5.7 5.0 4.3 3.7 3.2EV/EBITDA (x) 18.5 15.7 13.1 10.8 8.7Dividend Yield 0.6% 1.1% 1.3% 1.5% 1.8%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileL'Occitane International S.A. (LUXEMBOURG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

L'Occitane International S.A. 3780.28 As Of:

LUXEMBOURG 2.994704 SEDOL B3PG229 Local Price: 20.65Consumer Discretionary Specialty Retail EPS: 0.10


12mth Forward PE 22.00x 14.13 25.91 21.47 21.03 26.68 15.39 -36% 18% -2% -4%P/BV (Trailing) 4.76x 0.20 6.31 4.53 4.11 7.82 0.40 -96% 33% -5% -14%

Dividend Yield (Trailing) 1.25 0.70 3.89 1.24 1.88 4.39 -0.63 -44% 211% -1% 50%ROE (Trailing) 20.02 18.54 47.66 32.81 33.43 52.62 14.25 -7% 138% 64% 67%

Implied Value of Growth 37.1% 0.01 0.52 0.40 0.37 0.60 0.13 -98% 39% 7% -2%


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Company Description P&L sensitivity metrics EBITDA FY13 E EPS FY13 E


L’Occitane is a leading natural ingredientcosmetics and personal care product retailer. It originated in Provence, in the south of France, with three self-owned premium brands, L’Occitane, Melvita, and Le Couvent des Minimes. L’Occitane is the company’s signature brand, contributing 96% of total sales in FY09. In FY12, the company operated a direct-operated retail network of 1,053 stores worldwide; sell-out segment (i.e. retail business) accounted for c.75% of total revenue. The products include face care, body care, hair care, fragrances, toiletries, Men's grooming, and home fragrances.

Average number of stores


Average retail sales per store





Price target and valuation analysisOur Mar-13 price target of HK$18 is based on a 19% two-year EPS CAGR and a 1x PEG ratio, in line with our big-cap discretionary target PEG.


Key downside risks to our PT are any abrupt change in euro exposure and A&P budget, execution risks in expansion of the store network, and slower SSS growth in key markets. Key upside risks include faster than expected sell-in sales growth and lower than expected tax rates.Source: Company reports.



FY13E 0.096 0..096

FY14E 0.114 0.114

FY15E 0.136 0.136

Source: Bloomberg, J.P. Morgan.

Peer valuation comparison

Company Ticker Rating Price PT Mkt cap P/E (x) P/BV (x)

(LC) (LC) (USD mn) 2011 2012E 2013E 2012E 2013ETrinity 891 HK OW 4.9 8.00 1,076 16.5 14.6 11.6 2.5 2.3Lifestyle 1212 HK OW 16.9 19.00 3,631 18.0 15.7 13.9 3.0 2.7Hengdeli^ 3389 HK NR 2.4 1,382 10.8 10.1 8.3 1.6 1.4Belle 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Sa Sa* 178 HK N 4.9 5.30 1,763 19.8 17.2 14.3 5.6 4.8L'Oreal OR FP OW 91.3 97.00 69,330 21.1 19.6 18.0 3.1 2.9Estee Lauder* EL US N 52.9 65.00 20,582 22.7 20.0 ~ 7.6 ~Shiseido* 4911 JP OW 1255.0 1700.00 6,315 22.4 17.0 15.3 1.6 1.5LVMH MC FP N 118.6 120.00 75,782 19.0 18.2 16.2 2.5 2.3Richemont* CFR VX N 51.5 60.00 30,950 15.6 14.6 12.3 2.4 2.1Burberry^* BRBY LN N 1324.0 1460.00 9,064 0.2 0.2 0.2 5.5 4.5Sector average 17.0 15.1 12.6 3.6 2.8

Source: Bloomberg, J.P. Morgan estimates. Prices as of Jun 29, 2012. *FY11 figures given under 2010 as the year ends in Jan-Jun. ^Bloomberg consensus estimates

Japan24%

Hong Kong10%

China6%Taiwan

4%France8%

UK5%

USA11%

Brazil5%

Russia5%

Other countries

22%

120



L'Occitane International SA: Summary of FinancialsIncome Statement Cash flow statement€ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E € in millions, year end Mar FY11 FY12 FY13E FY14E FY15E

Revenues 772 913 1,056 1,212 1,380 PBT 128 157 186 220 263% change Y/Y 26.1% 18.3% 15.6% 14.8% 13.8% Depr. & amortization 30 36 41 46 51

Gross Profit 637 755 872 1,002 1,141 Change in working capital -19 -4 -8 -42 -23% change Y/Y 28.1% 18.6% 15.5% 14.9% 13.8% Tax - - - - -Gross margin 82.5% 82.7% 82.6% 82.7% 82.7% Other -41 -53 -41 -48 -58EBITDA 160 189 222 265 312 Cash flow from operations 99 135 178 176 233

% change Y/Y 19.5% 18.3% 17.3% 19.2% 17.8%EBITDA Margin 20.7% 20.7% 21.0% 21.9% 22.6% Capex -49 -71 -90 -70 -60EBIT 130 153 181 219 261 Sale of assets 4 - - - -

% change Y/Y 20.8% 18.2% 18.1% 20.8% 19.3% Acquisition of subsidiaries/intangibles -3 -13 - - -EBIT Margin 16.8% 16.8% 17.1% 18.1% 18.9% Other -1 0 0 0 0Net Interest - 0 1 2 2 Cash flow from investing -49 -83 -90 -70 -60Share of JVs 0 0 - - -Earnings before tax 128 157 186 220 263 Equity raised/(repaid) 301 0 0 0 0


as % of EBT 19.5% 20.7% 22.0% 22.0% 22.0% Other -5 -34 0 0 0Minorities -3 -3 -4 -4 -5 Cash flow from financing 213 -38 -36 -43 -50Other income/(exp) -1 3 4 0 0Net income (reported) 100 121 142 168 200 Net change in cash 263 14 52 64 123

% change Y/Y 21.9% 21.8% 17.0% 18.3% 19.5% FX gain/(loss) -1 -6 - - -Recurring Net Income 100 121 142 168 200 Ending cash 300 308 360 424 547% change Y/Y 21.9% 21.8% 17.0% 18.3% 19.5% DPS 0.01 0.02 0.03 0.03 0.04EPS (reported) 0.07 0.08 0.10 0.11 0.14


% change Y/Y 6.8% 20.2% 17.0% 18.3% 19.5%

Balance sheet Ratio Analysis€ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E € in millions, year end Mar FY11 FY12 FY13E FY14E FY15E

Cash and cash equivalents 300 308 360 424 547 Gross margin 82.5% 82.7% 82.6% 82.7% 82.7%Accounts receivable 60 77 87 100 113 EBITDA margin 20.7% 20.7% 21.0% 21.9% 22.6%Inventories 101 126 141 155 177 Operating margin 17.1% 16.7% 17.1% 18.1% 18.9%Others 35 49 49 49 49 Net margin 12.9% 13.3% 13.4% 13.8% 14.5%Current assets 496 560 637 728 886 Recurring net profit margin 12.9% 13.3% 13.4% 13.8% 14.5%Intangible assets 138 162 162 162 162 Sales growth 26.1% 18.3% 15.6% 14.8% 13.8%Long term investments 0 0 0 0 0 Net profit growth 21.9% 21.8% 17.0% 18.3% 19.5%Net fixed assets 91 121 170 193 202 Recurring net profit growth 21.9% 21.8% 17.0% 18.3% 19.5%Other assets 61 68 68 68 68 EPS growth 6.7% 20.2% 16.9% 18.3% 19.5%Total Assets 786 910 1,036 1,151 1,318

Net debt to equity -42.9% -36.8% -38.5% -40.3% -46.4%Liabilities Sales/assets 1.26 1.08 1.09 1.11 1.12Short-term loans 6 4 4 4 4 Assets/equity 1.40 1.40 1.37 1.31 1.28Trade & other payables 72 85 101 86 98 ROE 27.7% 20.0% 20.2% 20.5% 21.0%Others 69 76 76 76 76 ROCE 30.9% 22.9% 23.5% 24.7% 25.5%Total current liabilities 148 165 181 167 179Long-term debt 54 65 65 65 65Others 19 25 25 25 25Total Liabilities 221 255 271 257 269Minorities 5 5 9 13 18Shareholders' equity 560 650 756 881 1,031BVPS 0.38 0.44 0.51 0.60 0.70


121



Li Ning Co Ltd

Company DataShares O/S (mn) 1,056Market cap (Rmb mn) 3,759Market cap ($ mn) 591Price (HK$) 4.34Date Of Price 29 Jun 12Free float (%) 65.5%3mth Avg daily volume 3.323M - Average daily Value (HK$ mn)

21.76


3.26


Li Ning Co Ltd (Reuters: 2331.HK, Bloomberg: 2331 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 9,479 8,929 8,041 8,518 9,262Net Profit (Rmb mn) 1,108 386 269 405 489EPS (Rmb) 1.06 0.37 0.26 0.39 0.46DPS (Rmb) 0.42 0.11 0.10 0.15 0.19Revenue growth (%) 13.0% -5.8% -9.9% 5.9% 8.7%Net profit growth (%) 17.4% -65.2% -30.2% 50.5% 20.6%EPS growth (%) 16.6% -65.3% -30.2% 50.5% 20.6%ROE 34.5% 10.7% 7.2% 10.2% 11.4%P/E (x) 3.4 9.7 13.9 9.2 7.7P/BV (x) 1.0 1.0 1.0 0.9 0.8EV/EBITDA (x) 2.4 6.1 7.7 6.0 4.9Dividend Yield 11.9% 3.1% 2.9% 4.3% 5.2%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileLi Ning Co. Ltd. (CHINA / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Li Ning Co. Ltd. 672.10 As Of:CHINA 3.937268 SEDOL B01JCK9 Local Price: 4.99Consumer Discretionary Textiles, Apparel & Luxury Goo EPS: 0.37


12mth Forward PE 11.13x 9.46 48.65 21.11 22.32 41.33 3.32 -15% 337% 90% 101%

P/BV (Trailing) 1.24x 1.24 18.64 6.47 6.92 14.71 -0.86 0% 1399% 420% 457%Dividend Yield (Trailing) 2.15 0.00 6.36 1.28 1.54 3.82 -0.75 -100% 196% -41% -28%

ROE (Trailing) 11.28 11.28 41.33 31.08 29.07 47.96 10.18 0% 266% 176% 158%Implied Value of Growth -5.5% -0.30 0.78 0.47 0.38 0.91 -0.14 -446% 1528% 956% 800%


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122





Established in 1989, Li Ning Co. Ltd. is one of the largest domestic sportswear companies in the PRC in terms of market share. It is engaged in the research and development, design, manufacturing, distribution and retail of sports footwear, apparel and accessories. These are primarily sold under its flagship LI-NING brand which contributed c.91% of total revenues in 2011. In July 2008, the company acquired 57.5% stake in Double Happiness, and in Aug 2008 signed an exclusive 20 year license agreement to manufacture and sell Lotto branded products in the PRC.










Price target and valuation analysisAs we assume the sector’s margin to fall to a new normalized level by 2014, our Dec-12 PT of HK$4.5 equals the present value of the long term target PE of 10x 2014 earnings, which are based on normalized margins. Our normalized target PE represents c30% discount to the international brands’ long term average of 15-16x on brand recognition. 2011 Li Ning brands’ sales breakdown

The company is working on streamlining operations for different markets which could lead to lower than expected staff costs and thus some margin upside. Better than expected sell-through of outlet business could help accelerate destocking and thus improve top line growth; this would cause upside risks to our sales forecasts. Other risks include lower than expected A&P expenses (we think at the expense of long term sustainability), and higher than expected trade fair order growth (we think at the expense of retail inventory level).




FY12E 0.26 0.31

FY13E 0.39 0.42

FY14E 0.46 0.56


Table 65: Peer comparison valuation table


China retailersSportswear BrandsChina Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Xtep 1368 HK UW 2.7 2.20 758 5.0 5.7 7.7 1.1 1.0Other Chinese retailersBelle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Parkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Ports Design 589 HK UW 8.1 7.00 587 8.7 8.2 7.3 1.8 1.6Sector average 15.3 11.5 10.4 2.3 2.1

Source: J.P. Morgan estimates, Bloomberg. Prices as of Jun 29, 2012. ^Bloomberg consensus estimates used for the company.

Footwear

42%

Apparel52%

Accessories and equipme

nt6%

123



Li Ning Co Ltd: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 9,479 8,929 8,041 8,518 9,262 PBT 1,510 547 397 580 693% change Y/Y 13.0% (5.8%) (9.9%) 5.9% 8.7% Depr. & amortization 212 261 266 271 276

Gross Profit 4,482 4,115 3,653 3,794 4,085 Change in working capital -384 -563 -594 -154 -227% change Y/Y 12.9% -8.2% -11.2% 3.8% 7.7% Tax -484 -136 -99 -145 -173Gross margin 47.3% 46.1% 45.4% 44.5% 44.1% Other 136 -94 51 63 62EBITDA 1,565 749 626 759 876 Cash flow from operations 991 16 20 615 631

% change Y/Y 11.9% -52.1% -16.4% 21.3% 15.4%EBITDA Margin 16.5% 8.4% 7.8% 8.9% 9.5% Capex -269 -386 -100 -100 -100Operating Profit 1,547 631 507 643 754 Acquisition of subsidiaries/intangibles - - - - -

% change Y/Y 15.3% -59.2% -19.7% 26.8% 17.3% Other -59 -105 -51 -63 -62Operating margin 16.3% 7.1% 6.3% 7.6% 8.1% Cash flow from investing -324 -491 -151 -163 -162Net Interest -37 -82 -51 -63 -62Earnings before tax 1,510 547 397 580 693 Equity raised/(repaid) 36 - - - -

% change Y/Y 17.6% -63.7% -27.5% 46.2% 19.5% Debt raised/(repaid) 55 529 750 0 0Tax -377 -136 -99 -145 -173 Dividends paid -497 -348 -108 -162 -195

as % of EBT 25.0% 24.9% 25.0% 25.0% 25.0% Other -49 20 -0 0 0Net income (reported) 1,108 386 269 405 489 Cash flow from financing -454 201 642 -162 -195

% change Y/Y 17.4% -65.2% -30.2% 50.5% 20.6%Recurring Net Income 1,108 386 269 405 489 Net change in cash 212 -274 512 290 274% change Y/Y 17.4% -65.2% -30.2% 50.5% 20.6% Ending Cash 1,470 1,196 1,708 1,998 2,271EPS (reported) 1.06 0.37 0.26 0.39 0.46 DPS 0.42 0.11 0.10 0.15 0.19

% change Y/Y 16.6% (65.3%) (30.2%) 50.5% 20.6%Recurring EPS 1.06 0.37 0.26 0.39 0.46

% change Y/Y 16.6% (65.3%) (30.2%) 50.5% 20.6%


Cash and cash equivalents 1,472 1,210 1,721 2,011 2,285 Gross margin 47.3% 46.1% 45.4% 44.5% 44.1%Accounts receivable 1,613 2,094 1,542 1,634 1,776 EBITDA margin 16.5% 8.4% 7.8% 8.9% 9.5%Inventories 806 1,133 1,803 1,942 2,128 Operating margin 16.3% 7.1% 6.3% 7.6% 8.1%Others 303 345 345 345 345 Net margin 11.7% 4.3% 3.4% 4.8% 5.3%Current assets 4,194 4,782 5,411 5,931 6,533 Recurring net profit margin 11.7% 4.3% 3.4% 4.8% 5.3%Intangible assets 1,195 1,124 1,021 918 815 Sales growth 13.0% (5.8%) (9.9%) 5.9% 8.7%Net fixed assets 721 832 768 700 626 Net profit growth 17.4% -65.2% -30.2% 50.5% 20.6%Other assets 453 592 592 592 592 Recurring net profit growth 17.4% -65.2% -30.2% 50.5% 20.6%Total Assets 6,562 7,329 7,792 8,140 8,566 EPS growth 16.6% (65.3%) (30.2%) 50.5% 20.6%Liabilities Net debt to equity -32.6% -10.1% -3.5% -10.3% -15.7%Short-term loans 312 838 1,588 1,588 1,588 Sales/assets 1.59 1.29 1.06 1.07 1.11Trade & other payables 1,191 1,462 986 1,061 1,163 Assets/equity 1.87 1.78 2.02 1.97 1.92Others 868 763 763 763 763 ROE 34.5% 10.7% 7.2% 10.2% 11.4%Total current liabilities 2,372 3,063 3,336 3,412 3,514 ROCE 38.7% 11.6% 7.2% 8.7% 10.2%Long-term debt - - - - -Others 631 601 601 601 601Total Liabilities 3,002 3,664 3,937 4,013 4,115Shareholders' equity 3,559 3,665 3,854 4,127 4,451BVPS 3.40 3.49 3.67 3.93 4.23


124



Lifestyle International Holdings


30.00


3.87


Lifestyle International Holdings (Reuters: 1212.HK, Bloomberg: 1212 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 4,322 5,132 5,536 6,268 7,050Net Profit (HK$ mn) 1,411 1,886 1,816 2,047 2,324EPS (HK$) 0.84 1.12 1.08 1.22 1.38Recurring EPS (HK$) 0.74 0.94 1.08 1.22 1.38DPS (HK$) 0.34 0.40 0.43 0.49 1.95Revenue growth (%) 15.1% 18.7% 7.9% 13.2% 12.5%Net profit growth (%) 23.5% 33.7% -3.7% 12.7% 13.5%EPS growth (%) 24.5% 33.6% -3.8% 12.7% 13.5%ROE 21.2% 24.2% 20.3% 20.3% 22.7%ROA 10.8% 11.6% 8.8% 8.7% 9.5%P/BV (x) 3.9 3.4 3.0 2.7 2.9P/E (x) 20.1 15.1 15.7 13.9 12.2EV/EBITDA (x) 15.7 12.3 10.7 9.0 8.7Dividend Yield 2.0% 2.4% 2.6% 2.9% 11.5%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileLifestyle International Holdings Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Lifestyle International Holdings Ltd. 3614.68 As Of:HONG KONG 4.432921 SEDOL B00LN47 Local Price: 16.76Consumer Discretionary Multiline Retail EPS: 1.26


12mth Forward PE 13.31x 7.22 37.87 18.73 19.76 31.31 8.22 -46% 184% 41% 48%P/BV (Trailing) 3.33x -5.82 8.99 4.33 4.28 8.31 0.25 -275% 170% 30% 29%

Dividend Yield (Trailing) 2.67 0.00 5.10 1.96 2.00 3.68 0.32 -100% 91% -27% -25%ROE (Trailing) 24.16 14.36 122.48 22.26 28.56 79.07 -21.95 -41% 407% -8% 18%



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Lifestyle is a Hong Kong based retailer of high-end department stores through its two brand names, SOGO and Jiuguang, in HK and the PRC. Currently the group operates two SOGO stores in HK (including the flagship store in Causeway Bay) and three stores in China (Shanghai, Dalian, Suzhou). Sogo Store has approx 290 concessionaire counters and merchandises include men, women and children fashion; cosmetic and beauty products; accessories; shoes and leather goods; sports goods; bathroom and kitchen equipment, and household electrical appliances.

SOGO CWB sales


Shanghai Jiuguang sales


Operating margin


Source: J.P. Morgan Estimates

Price target and valuation analysisOur Dec-12 PT is HK$19 based on SOTP method where we value HK operations at 15x PE and Shanghai at 13x. There is no change to our PT as we had only 3% tweak in our FY12 earnings estimates. Lifestyle's share price has been weak for the past 3 months mainly due to i) weak sales performance in Shanghai ii) departure of the general manager iii) news flow around one of the major shareholder Joseph Lau (please see link Chinese estates announcement dated 23 May). We believe Shanghai store weakness is more than in the price and the latter two news items will not have any material fundamental impact on Lifestyle’s operations. Hence we believe selling is overdone and upgrade the stock to OW as a proxy to Hong Kong retail sales growth (with no pressure on cost side given that the main store is self-owned).

Revenue breakdown (2011)

Main risk to our PT would be further weakening of performance at Shanghai store, HK store sales seeing a sharp slowdown in 2H12, Suzhou store and Dalian store posting higher than expected losses in 2012 due to weakness in demand.Source: Company.



FY12E 1.08 1.17

FY13E 1.22 1.35

FY14E 1.38 1.62

Source: J.P. Morgan Estimates & Bloomberg



HK RetailersCafé de Coral* 341 HK N 20.7 18.70 1,520 27.5 21.5 18.0 3.5 3.3Giordano 709 HK OW 5.5 6.50 1,085 11.3 10.8 8.6 2.8 2.5Sa Sa International* 178 HK N 4.9 5.30 1,763 19.8 17.2 14.3 5.6 4.8China department storesGolden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Parkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4Sector average 18.7 16.4 13.6 3.9 3.4

Source: Bloomberg, J.P. Morgan estimates. Based on COB prices as at February 27, 2012. * Next FY figures taken because FY ends in the period Jan-May

HK80%

China20%

126



Lifestyle International Holdings: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


% change Y/Y 15.1% 18.7% 7.9% 13.2% 12.5% Change in working capital 83 -124 158 285 336Gross Profit 2,486 3,000 3,272 3,750 4,273 Tax -248 -535 -453 -522 -573% change Y/Y 16.7% 20.7% 9.1% 14.6% 13.9% Other -163 -193 -88 -133 -179Gross margin 25.3% 24.9% 24.8% 24.7% 24.3% Cash flow from operations 1,782 1,954 2,277 2,688 2,908EBITDA 1,787 2,251 2,484 2,807 3,027

% change Y/Y 22.9% 26.0% 10.3% 13.0% 7.9% Capex -335 -482 -260 -370 -335EBITDA Margin 18.2% 18.7% 18.8% 18.5% 17.2% Sale of assets 0 - - - -EBIT 1,578 2,039 2,274 2,530 2,844 Acquisition of subsidiaries/intangibles -158 658 - - -

% change Y/Y 25.8% 29.2% 11.5% 11.2% 12.4% Other 772 -493 0 0 0EBIT Margin 16.0% 16.9% 17.2% 16.6% 16.2% Cash flow from investing 280 -317 -260 -370 -335Net Interest -23 -6 -108 -78 -78Share of JVs 124 251 284 329 375 Equity raised/(repaid) 34 0 0 0 0Earnings before tax 1,901 2,594 2,450 2,780 3,141 Debt raised/(repaid) 187 3,226 2,691 0 0

% change Y/Y 26.9% 36.4% -5.6% 13.5% 13.0% Dividends paid -583 -672 -730 -822 -3,268Minorities -159 -173 -182 -212 -244 Other 123 -1,492 -196 -196 -196Other income/(exp) 396 560 266 280 296 Cash flow from financing -238 1,061 1,766 -1,018 -3,464Tax -331 -535 -453 -522 -573

as % of EBT 17.4% 20.6% 18.5% 18.8% 18.3% Net change in cash 1,823 2,697 3,782 1,300 -891Net income (reported) 1,411 1,886 1,816 2,047 2,324 Ending cash flow 4,617 7,269 11,051 12,351 11,460

% change Y/Y 23.5% 33.7% -3.7% 12.7% 13.5% DPS 0.34 0.40 0.43 0.49 1.95Recurring Net Income 1,237 1,576 1,816 2,047 2,324% change Y/Y 29.0% 27.4% 15.2% 12.7% 13.5%EPS (reported) 0.84 1.12 1.08 1.22 1.38

% change Y/Y 24.5% 33.6% (3.8%) 12.7% 13.5%Recurring EPS 0.74 0.94 1.08 1.22 1.38

% change Y/Y 30.1% 27.3% 15.1% 12.7% 13.5%


Cash and cash equivalents 3,761 7,269 11,051 12,351 11,460 Gross margin 25.3% 24.9% 24.8% 24.7% 24.3%Accounts receivable 214 327 357 412 476 EBITDA margin 18.2% 18.7% 18.8% 18.5% 17.2%Inventories 62 72 79 87 96 Operating margin 16.0% 16.9% 17.2% 16.6% 16.2%Others 1,245 1,237 1,237 1,237 1,237 Net margin 14.3% 15.7% 13.8% 13.5% 13.2%Current assets 5,281 8,905 12,725 14,088 13,270 Recurring net profit margin 12.6% 13.1% 13.8% 13.5% 13.2%Intangible assets - - - - - Gross Sales growth 17.1% 22.5% 9.4% 15.3% 15.6%Long term investments 3,426 3,673 3,957 4,286 4,660 Sales growth 15.1% 18.7% 7.9% 13.2% 12.5%Net fixed assets 3,815 3,986 4,036 4,129 4,281 Net profit growth 23.5% 33.7% -3.7% 12.7% 13.5%Other assets 1,351 2,017 2,017 2,017 2,017 Recurring net profit growth 29.0% 27.4% 15.2% 12.7% 13.5%Total Assets 13,873 18,581 22,735 24,520 24,229 EPS growth 24.5% 33.6% (3.8%) 12.7% 13.5%Liabilities Net debt to equity -2.7% -5.6% -16.5% -26.7% -20.2%Short-term loans 2,985 2,693 2,693 2,693 2,693 Sales/assets 0.33 0.32 0.27 0.27 0.29Trade & other payables 2,009 2,079 2,274 2,622 3,031 Assets/equity 1.95 1.89 2.40 2.29 2.48Others 197 277 277 277 277 ROE 21.2% 24.2% 20.3% 20.3% 22.7%Total current liabilities 5,191 5,049 5,244 5,592 6,001 ROCE 15.7% 15.7% 13.3% 12.9% 14.4%Long-term debt 580 4,105 6,796 6,796 6,796Others 199 221 221 221 221Total Liabilities 5,970 9,375 12,261 12,609 13,018Minorities 686 807 988 1,200 1,444Shareholders' equity 7,217 8,400 9,486 10,711 9,767BVPS 4.30 5.00 5.65 6.38 5.81


127



Parkson Retail Group Ltd

Company DataShares O/S (mn) 2,810Market cap (Rmb mn) 15,815Market cap ($ mn) 2,485Price (HK$) 6.86Date Of Price 29 Jun 12Free float (%) 48.5%3mth Avg daily volume 4.803M - Average daily Value (HK$ mn)

38.46


5.87


Parkson Retail Group Ltd (Reuters: 3368.HK, Bloomberg: 3368 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 4,400 4,938 5,462 6,442 7,387Net Profit (Rmb mn) 992 1,123 1,150 1,320 1,521EPS (Rmb) 0.35 0.40 0.41 0.47 0.54Recurring EPS (Rmb) 0.35 0.40 0.41 0.47 0.54DPS (Rmb) 0.16 0.18 0.20 0.23 0.27Revenue growth (%) 12.6% 12.2% 10.6% 17.9% 14.7%Net profit growth (%) 8.9% 13.2% 2.4% 14.7% 15.3%Recurring profit growth (%) 8.9% 13.2% 2.4% 14.7% 15.3%EPS growth (%) 8.7% 13.2% 2.4% 14.7% 15.3%ROCE 18.2% 18.3% 18.7% 19.8% 20.7%ROE 23.5% 23.0% 20.7% 21.4% 22.1%ROA 8.4% 9.1% 9.1% 9.5% 9.9%P/E (x) 15.9 14.1 13.7 12.0 10.4P/BV (x) 3.5 3.0 2.7 2.4 2.2EV/EBITDA (x) 119.2 111.6 109.3 95.1 83.8Dividend Yield 2.9% 3.2% 3.6% 4.2% 4.8%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileParkson Retail Group Ltd. (CHINA / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Parkson Retail Group Ltd. 2549.94 As Of:CHINA 6.078036 SEDOL B0HZZ57 Local Price: 7.04Consumer Discretionary Multiline Retail EPS: 0.48


12mth Forward PE 12.11x 12.11 54.12 25.39 26.96 45.72 8.20 0% 347% 110% 123%

P/BV (Trailing) 3.08x 3.08 19.19 7.80 8.37 15.30 1.44 0% 523% 153% 172%

Dividend Yield (Trailing) 2.84 0.00 2.84 1.34 1.42 2.60 0.23 -100% 0% -53% -50%

ROE (Trailing) 17.28 17.28 28.91 23.72 23.88 29.90 17.87 0% 67% 37% 38%

Implied Value of Growth 3.1% 0.03 0.80 0.53 0.51 0.85 0.18 0% 2495% 1633% 1566%


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Parkson Retail is one of the few foreign-owned departmental stores operating in China since 1994. It targets the middle to upper middle-income consumers and focuses on four segments (% of revenue): Fashion & Apparel (48%); Cosmetics & Accessories (42%); Household & Electrical (4%); and Groceries & Perishables (7%).

Gross concessionaire sales


Concessionary rate assumption


Operating expenses as % of revenue



Price target and valuation analysisOur Dec-12 PT of HK$7.5 is based on 1x PEG and 15% two-year earnings CAGR post 2012.

FY11 gross sales breakdown

Key risks on the downside is SSSG further slowing down in Shanghai and Beijing stores and on the upside better than expected cost control, better than expected margins and performance at the new stores.




FY12E 0.41 0.44

FY13E 0.47 0.51

FY14E 0.54 0.59


Peer Valuation Table.


Other Department storesGolden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Maoye^ 848 HK 1.4 976 9.6 9.1 7.0 0.9 0.9Other Chinese retailersBelle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Li Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9China Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Sector average 16.4 12.6 10.3 2.1 1.9

Source: J.P. Morgan estimates, Bloomberg. Prices as of 29 June 2012 close. ^Bloomberg consensus estimates have been used

Direct Sales

9%

Concessionaire sales86%

Others5%

129



Parkson Retail Group Ltd: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


% change Y/Y 12.6% 12.2% 10.6% 17.9% 14.7% Change in working capital 360 226 616 619 632Gross Profit 3,301 3,699 4,113 4,840 5,541 Tax -301 -366 -395 -453 -522% change Y/Y 15.2% 12.0% 11.2% 17.7% 14.5% Other 112 -14 -83 -101 -150Gross margin 23.4% 22.5% 22.6% 22.4% 22.1% Cash flow from operations 1,679 1,601 2,001 2,202 2,407EBITDA 1,648 1,745 1,780 2,035 2,297

% change Y/Y 10.1% 5.9% 2.0% 14.4% 12.9% Capex -435 -389 -1,200 -750 -750EBITDA Margin 11.7% 10.6% 9.8% 9.4% 9.2% Sale of assets 60 5 5 5 5EBIT 1,468 1,509 1,495 1,710 1,937 Acquisition of subsidiaries/intangibles -32 0 0 0 0

% change Y/Y 10.4% 2.8% NM 14.4% 13.3% Other -1,563 -678 281 298 347EBIT Margin 10.4% 9.2% 8.2% 7.9% 7.7% Cash flow from investing -1,970 -1,062 -914 -447 -398Net Interest -140 9 83 101 150Share of JVs 0 0 0 0 0 Equity raised/(repaid) 22 0 0 0 0Earnings before tax 1,328 1,519 1,579 1,811 2,087 Debt raised/(repaid) 1,612 150 0 0 0

% change Y/Y 8.5% 14.4% 4.0% 14.7% 15.3% Dividends paid -451 -506 -575 -660 -760Minorities -32 -30 -34 -39 -45 Other -1,306 -816 -197 -197 -197Other income/(exp) - - - - - Cash flow from financing -145 -1,172 -773 -857 -958Tax -304 -366 -395 -453 -522

as % of EBT 22.9% 24.1% 25.0% 25.0% 25.0% Net change in cash -436 -633 314 897 1,052Net income (reported) 992 1,123 1,150 1,320 1,521 Ending cash flow 2,323 1,690 2,707 3,604 4,656

% change Y/Y 8.9% 13.2% 2.4% 14.7% 15.3% DPS 0.16 0.18 0.20 0.23 0.27Recurring Net Income 992 1,123 1,150 1,320 1,521% change Y/Y 8.9% 13.2% 2.4% 14.7% 15.3%EPS (reported) 0.35 0.40 0.41 0.47 0.54


% change Y/Y 8.7% 13.2% 2.4% 14.7% 15.3%


Cash and cash equivalents 5,238 5,103 5,418 6,315 7,367 Gross margin 23.4% 22.5% 22.6% 22.4% 22.1%Accounts receivable 20 14 15 18 20 EBITDA margin 11.7% 10.6% 9.8% 9.4% 9.2%Inventories 234 278 233 276 319 Operating margin 10.4% 9.2% 8.2% 7.9% 7.7%Others 1,777 725 649 769 891 Net margin 7.0% 6.8% 6.3% 6.1% 6.1%Current assets 7,269 6,120 6,314 7,378 8,597 Recurring net profit margin 7.0% 6.9% 6.8% 6.9% 6.9%Intangible assets 2,172 2,172 2,172 2,172 2,172 Gross Sales growth 14.1% 16.5% 10.9% 18.5% 15.9%Long term investments 53 52 51 50 49 Sales growth 12.6% 12.2% 10.6% 17.9% 14.7%Net fixed assets 2,494 2,683 3,614 4,054 4,458 Net profit growth 8.9% 13.2% 2.4% 14.7% 15.3%Other assets 603 1,035 1,009 991 973 Recurring net profit growth 8.9% 13.2% 2.4% 14.7% 15.3%Total Assets 12,591 12,063 13,161 14,645 16,249 EPS growth 8.7% 13.2% 2.4% 14.7% 15.3%Liabilities Net debt to equity -22.2% -50.0% -50.5% -59.2% -67.5%Short-term loans 2,620 0 0 0 0 Sales/assets 0.37 0.40 0.43 0.46 0.48Trade & other payables 1,721 1,982 2,245 2,661 3,084 Assets/equity 2.40 2.29 2.25 2.25 2.24Others 1,646 1,900 2,132 2,502 2,878 ROE 23.5% 23.0% 20.7% 21.4% 22.1%Total current liabilities 5,987 3,882 4,378 5,163 5,962 ROCE 18.2% 18.3% 18.7% 19.8% 20.7%Long-term debt 1,615 2,467 2,467 2,467 2,467Others 400 373 373 373 373Total Liabilities 8,002 6,722 7,218 8,003 8,802Minorities 77 73 106 145 190Shareholders' equity 4,512 5,268 5,837 6,497 7,257BVPS 1.61 1.88 2.08 2.31 2.58


130



Ports Design

Company DataShares O/S (mn) 565Market cap (Rmb mn) 3,729Market cap ($ mn) 587Price (HK$) 8.05Date Of Price 29 Jun 12Free float (%) 53.7%3mth Avg daily volume 2.593M - Average daily Value (HK$ mn)

19.27


2.48


Ports Design Ltd. (Reuters: 0589.HK, Bloomberg: 589 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 1,718 1,985 2,190 2,436 2,667Net Profit (Rmb mn) 473 430 456 512 558EPS (Rmb) 0.84 0.76 0.81 0.90 0.99Recurring EPS (Rmb) 0.81 0.76 0.81 0.90 0.99DPS (Rmb) 0.49 0.38 0.40 0.45 0.49Revenue growth (%) 11.7% 15.5% 10.3% 11.2% 9.5%Net profit growth (%) 1.0% -9.1% 6.0% 12.3% 9.1%Recurring profit growth (%) 4.7% -7.1% 6.4% 12.3% 9.1%ROE 31.5% 24.7% 23.4% 23.4% 22.7%ROA 18.1% 15.5% 14.4% 15.5% 15.6%P/E (x) 7.9 8.7 8.2 7.3 6.7P/BV (x) 2.3 2.0 1.8 1.6 1.4EV/EBITDA (x) 11.1 10.7 9.0 7.8 6.9Dividend Yield 7.4% 5.8% 6.1% 6.9% 7.5%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfilePorts Design Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Ports Design Ltd. 638.49 As Of:

HONG KONG 2.357892 SEDOL B03XK94 Local Price: 8.79Consumer Discretionary Textiles, Apparel & Luxury Goo EPS: 0.85


12mth Forward PE 8.48x 6.40 36.74 17.31 18.98 33.91 4.04 -24% 333% 104% 124%

P/BV (Trailing) 2.24x 1.96 15.68 6.64 6.96 13.73 0.18 -12% 602% 197% 211%Dividend Yield (Trailing) 7.75 1.18 7.75 2.51 2.72 5.35 0.08 -85% 0% -68% -65%

ROE (Trailing) 24.69 21.04 44.37 30.35 31.47 45.67 17.27 -15% 80% 23% 27%



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Peer Valuation Table


Belle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Parkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4China Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Li Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Intime Stores^ 1833 HK NR 7.6 1,957 14.5 13.2 11.3 1.7 1.5Sector average 16.8 13.4 11.2 2.3 2.0

Source: J.P. Morgan estimates, Bloomberg. Prices as of June 29, 2012. ^Bloomberg consensus estimates used for the company.



Ports Design, headquartered in Xiamen China, is a vertically integrated high-end fashion apparel retailer. Its retail business operates under two formats—‘Ports’, its own brand, and ‘BMW Lifestyle’, a licensed brand. Its target customers are the emerging affluent middle class in China. Ports Design also has 58% stake in a JV carrying out Vivienne Tam business in the PRC, has non-exclusive license to distribute imported Armani products and recently received an exclusive 15 year license to operate Ferrari concept stores in the PRC and HK.

Average retail sales per store


Average no of stores







Price target and valuation analysisOur new Dec-12 PT is HK$7 based on 0.7x PEG and 10.5% two-year earnings CAGR post 2012. We have not changed our PT method but due to the revision in 2012 earnings and earnings CAGR we lower our PT by 27%.

2011 Revenue breakdown

Key upside risks include better than expected SSS growth and faster network growth. Faster than expected network expansion or better than expected sales efficiency of new stores will result in upside risks to our retail sales growth forecasts and lead to upside risks to our 2012 earnings estimates and PT. Lower than expected effective tax rates will pose upside risks to our 2012 earnings estimates and PT.




FY12E 0.81 0.81

FY13E 0.90 0.92

FY14E 0.99 0.97


Retail94%

OEM4%

Others2%

132



Ports Design: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


Gross Profit 1,360 1,629 1,793 2,002 2,196 Change in working capital -164 -154 -114 -85 -83% change Y/Y 8.4% 19.8% 10.0% 11.7% 9.7% Tax -71 -88 -177 -199 -217Gross margin 79.1% 82.1% 81.9% 82.2% 82.3% Other 28 12 0 0 0EBITDA 561 613 708 787 855 Cash flow from operations 388 445 434 524 578

% change Y/Y 4.0% 9.3% 15.6% 11.1% 8.6%EBITDA Margin 32.6% 30.9% 32.4% 32.3% 32.0% Capex -155 -183 -50 -50 -50EBIT 498 526 616 690 753 Acquisition of subsidiaries/intangibles 0 0 0 0 0

% change Y/Y 0.5% 5.5% 17.2% 12.0% 9.1% Other 269 -385 0 0 0EBIT Margin 29.0% 26.5% 28.2% 28.3% 28.2% Cash flow from investing 131 -567 -50 -50 -50Net Interest 11 12 17 21 23Share of JVs - - - - - Equity raised/(repaid) 45 17 - - -Earnings before tax 533 589 633 711 775 Debt raised/(repaid) -378 346 0 0 0

% change Y/Y 2.1% 10.6% 7.5% 12.3% 9.1% Dividends paid -418 -279 -228 -256 -279Tax -61 -159 -177 -199 -217 Other -213 69 0 0 0

as % of EBT 11.5% 26.9% 28.0% 28.0% 28.0% Cash flow from financing -965 154 -228 -256 -279Net income (reported) 473 430 456 512 558

% change Y/Y 1.0% -9.1% 6.0% 12.3% 9.1% Net change in cash -446 32 156 218 248Recurring Net Income 461 428 456 512 558 Ending Cash 348 380 535 754 1,002% change Y/Y 4.7% -7.1% 6.4% 12.3% 9.1% DPS 0.49 0.38 0.40 0.45 0.49EPS (reported) 0.84 0.76 0.81 0.90 0.99

% change Y/Y 0.8% (9.1%) 6.0% 12.3% 9.1%Recurring EPS 0.81 0.76 0.81 0.90 0.99

% change Y/Y 4.5% (7.1%) 6.4% 12.3% 9.1%


Cash and cash equivalents 348 380 535 754 1,002 Gross margin 79.1% 82.1% 81.9% 82.2% 82.3%Accounts receivable 447 572 396 440 482 EBITDA margin 32.6% 30.9% 32.4% 32.3% 32.0%Inventories 545 633 685 749 814 Operating margin 29.0% 26.5% 28.2% 28.3% 28.2%Others 667 996 996 996 996 Net margin 27.5% 21.7% 20.8% 21.0% 20.9%Current assets 2,007 2,580 2,612 2,939 3,294 Recurring net profit margin 26.9% 21.6% 20.8% 21.0% 20.9%Intangible assets - - - - - Sales growth 11.7% 15.5% 10.3% 11.2% 9.5%Net fixed assets 349 515 473 426 374 Net profit growth 1.0% -9.1% 6.0% 12.3% 9.1%Other assets 47 68 68 68 68 Recurring net profit growth 4.7% -7.1% 6.4% 12.3% 9.1%Total Assets 2,402 3,163 3,153 3,433 3,736 EPS growth 0.8% (9.1%) 6.0% 12.3% 9.1%Liabilities Net debt to equity 0.5% 17.6% 8.1% -2.2% -11.6%Short-term loans 356 702 702 702 702 Sales/assets 0.66 0.71 0.69 0.74 0.74Trade & other payables 366 493 256 279 304 Assets/equity 1.50 1.44 1.53 1.48 1.44Others 23 117 117 117 117 ROE 31.5% 24.7% 23.4% 23.4% 22.7%Total current liabilities 745 1,312 1,074 1,098 1,122 ROCE 24.3% 23.2% 23.3% 23.9% 23.8%Long-term debt 0 0 0 0 0Others 8 7 7 7 7Total Liabilities 754 1,319 1,081 1,105 1,129Shareholders' equity 1,649 1,833 2,061 2,317 2,596BVPS 2.91 3.24 3.64 4.09 4.59


133



Sa Sa International Holdings Limited


22.50


2.90


Sa Sa International Holdings Limited (Reuters: 0178.HK, Bloomberg: 178 HK)

HK$ in mn, year-end Mar FY11A FY12A FY13E FY14E FY15ERevenue (HK$ mn) 4,901 6,405 7,596 8,890 10,523Net Profit (HK$ mn) 509 690 793 956 1,161EPS (HK$) 0.18 0.25 0.28 0.34 0.41DPS (HK$) 0.14 0.18 0.20 0.24 0.29Revenue growth (%) 19.2% 30.7% 18.6% 17.0% 18.4%Net profit growth (%) 33.4% 35.4% 15.0% 20.5% 21.5%ROE 40.1% 46.2% 39.1% 36.4% 37.8%ROA 29.6% 31.8% 28.2% 27.5% 29.0%P/E (x) 26.6 19.7 17.2 14.3 11.7P/BV (x) 10.0 8.4 5.6 4.8 4.1EV/EBITDA (x) 19.3 13.8 11.3 9.6 7.8Dividend Yield 2.9% 3.6% 4.1% 4.9% 6.0%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileSa Sa International Holdings Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Sa Sa International Holdings Ltd. 1694.02 As Of:HONG KONG 2.899351 SEDOL 6003401 Local Price: 4.72Consumer Discretionary Specialty Retail EPS: 0.30


12mth Forward PE 15.87x 2.39 25.06 15.13 14.41 24.36 4.46 -85% 58% -5% -9%P/BV (Trailing) 8.15x 0.52 12.82 3.78 3.97 9.81 -1.86 -94% 57% -54% -51%Dividend Yield (Trailing) 1.25 0.65 23.91 3.98 4.88 12.60 -2.83 -48% 1813% 219% 291%

ROE (Trailing) 46.23 -8.37 46.23 22.65 17.74 52.14 -16.66 -118% 0% -51% -62%Implied Value of Growth 0.4% -1.71 0.68 0.22 0.15 0.88 -0.59 -47167% 18477% 6078% 3911%


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Sa Sa International is primarily engaged in the retailing and wholesaling of cosmetic products in Hong Kong, Macau, China, Taiwan, Singapore and Malaysia, with a total store network of 227 stores and 22counters as of Mar-12. There are three classes of products at a Sa Sa store in HK 1) Department store products/parallel imports; 2) Local agent products; & 3) Private label and exclusively distributed products.

HK sales growth assumption






Source: JP Morgan estimates.

Price target and valuation analysis

Our new Mar-13 PT is HK$5.3 based on 0.9x PEG and two-year earnings CAGR of 21%. While we slightly lower our earnings CAGR estimate from 22% to 21% we rolled forward the time frame by 6 months and lifted FY13 estimates by 4%, hence our PT changed only marginally. Sa Sa trades at 17x Mar-13 earnings and currently we see c13% potential upside to our PT and would be buyers of the stock on declines.

FY12 Revenue breakdown

Source: Company reports Key upside risks include higher-than-expected gross margins; key downside risks include lower-than-expected transaction volume and higher-than-expected losses of China market.EPS: J.P. Morgan vs consensus


FY13E 0.28 0.29

FY14E 0.34 0.34

FY15E 0.41 0.40




HK RetailersLifestyle 1212 HK OW 16.9 19.00 3,631 18.0 15.7 13.9 3.0 2.7Chow Sang Sang^ 116 HK NR 15.0 1,309 9.3 8.1 6.8 1.4 1.2Luk Fook*^ 590 HK NR 16.1 1,220 6.8 7.1 6.1 1.5 1.3Giordano 709 HK OW 5.5 6.50 1,085 11.3 10.8 8.6 2.8 2.5I.T*^ 999 HK OW 3.4 5.50 530 8.6 7.9 6.6 1.6 1.4Bonjour^ 653 HK NR 1.1 433 14.0 11.4 9.3 9.3 8.0Sector average 11.3 10.1 8.5 2.1 1.8

Source: Company reports, Bloomberg, J.P. Morgan estimates. Based on COB prices as at 29 June 2012. ^ Consensus estimates used for the company, * Next FY figures taken because FY ends

in the period Jan-May

HK/Macau

79%

China5%

Taiwan3%

Singapore4%

Malaysia4%

SaSa.com5%

135



Sa Sa International Holdings Limited: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Mar FY11 FY12 FY13E FY14E FY15E

Revenues 4,901 6,405 7,596 8,890 10,523 PBT 614 835 979 1,180 1,433% change Y/Y 19.2% 30.7% 18.6% 17.0% 18.4% Depr. & amortization 79 117 126 130 131

Gross Profit 2,212 2,897 3,444 4,040 4,796 Change in working capital -156 -153 18 -288 -51% change Y/Y 21.9% 31.0% 18.9% 17.3% 18.7% Taxes -92 -145 -186 -224 -272

Gross margin 45.1% 45.2% 45.3% 45.4% 45.6% Other 769 1,067 1,224 1,421 1,676EBITDA 676 945 1,098 1,291 1,545 Cash flow from operations 443 651 930 779 1,221

% change Y/Y 29.2% 39.8% 16.1% 17.6% 19.6%EBITDA Margin 13.8% 14.8% 14.5% 14.5% 14.7% Capex -137 -247 -300 -200 -150

EBIT 597 828 972 1,161 1,414 Disposal/(purchase) 1 0 0 0 0% change Y/Y 29.5% 38.7% 17.3% 19.5% 21.7% Others 171 10 8 19 19EBIT Margin 12.2% 12.9% 12.8% 13.1% 13.4% Cash flow from investing 35 -237 -292 -181 -131

Other income (expense) 11 0 0 0 0Net Interest 5 6 8 19 19 Equity raised/(repaid) 28 1 0 0 0Earnings before tax 614 835 979 1,180 1,433 Debt raised/(repaid) 0 0 0 0 0

% change Y/Y 31.7% 36.1% 17.3% 20.5% 21.5% Dividends paid -391 -435 0 -555 -669Tax -104 -145 -186 -224 -272 Other 363 434 0 555 669

as % of EBT 17.0% 17.4% 19.0% 19.0% 19.0% Cash flow from financing -363 -434 0 -555 -669Net income (reported) 509 690 793 956 1,161

% change Y/Y 33.4% 35.4% 15.0% 20.5% 21.5% Net change in cash 115 -20 637 42 422EPS (reported) 0.18 0.25 0.28 0.34 0.41 FX effect 17 0 0 0 0

% change Y/Y 32.2% 34.7% 15.0% 20.5% 21.5% Ending cash 524 505 1,142 1,184 1,606DPS 0.14 0.18 0.20 0.24 0.29


Cash and cash equivalents 618 599 1,236 1,278 1,700 Gross margin 45.1% 45.2% 45.3% 45.4% 45.6%Accounts receivable 48 70 54 92 81 EBITDA margin 13.8% 14.8% 14.5% 14.5% 14.7%Inventories 802 1,191 1,084 1,574 1,564 Operating margin 12.2% 12.9% 12.8% 13.1% 13.4%Others 91 136 136 136 136 Net profit margin 10.4% 10.8% 10.4% 10.8% 11.0%Current assets 1,560 1,996 2,510 3,079 3,481

Sales growth 19.2% 30.7% 18.6% 17.0% 18.4%Intangible assets 0 0 0 0 0 Net profit growth 33.4% 35.4% 15.0% 20.5% 21.5%Net fixed assets 205 333 507 577 596 EPS growth 32.2% 34.7% 15.0% 20.5% 21.5%Other assets 111 138 138 138 138Total Assets 1,877 2,466 3,155 3,794 4,215 Interest coverage (x) - - - - -

Net debt to equity -45.7% -36.7% -51.0% -45.3% -51.3%Liabilities Sales/assets 2.84 2.95 2.70 2.56 2.63Short-term loans 0 0 0 0 0 Assets/equity 1.32 1.51 1.30 1.34 1.27Trade & other payables 254 451 346 585 514 ROE 40.1% 46.2% 39.1% 36.4% 37.8%Others 251 357 357 357 357 ROCE 47.1% 55.5% 47.9% 44.3% 46.1%Total current liabilities 506 808 703 942 871Long-term debt 0 0 0 0 0Others 0 0 0 0 0Total Liabilities 524 836 731 970 899Minorities 0 0 0 0 0Shareholders' equity 1,353 1,631 2,424 2,824 3,316BVPS 0.48 0.58 0.86 1.01 1.18


136



Tibet 5100 Water Resources Holdings Ltd

Company DataShares O/S (mn) 2,569Market cap (Rmb mn) 3,115Market cap ($ mn) 490Price (HK$) 1.48Date Of Price 29 Jun 12Free float (%) 30.8%3mth Avg daily volume 5.313M - Avg daily Value (HK$ mn)

9.26


1.21


Tibet 5100 Water Resources Holdings Ltd (Reuters: 1115.HK, Bloomberg: 1115 HK)

Rmb in mn, year-end Dec FY10A FY11E FY12E FY13E FY14ERevenue (Rmb mn) 361 633 814 1,032 1,266Net Profit (Rmb mn) 115 373 440 582 589Recurring Profit (Rmb mn) 113 268 336 451 564EPS (Rmb) 0.06 0.16 0.17 0.23 0.23DPS (Rmb) - - - - -Revenue growth (%) 67.1% 75.6% 28.6% 26.7% 22.8%Recurring profit growth (%) 150.8% 137.4% 25.6% 34.1% 25.2%EPS growth (%) 143.5% 186.4% 5.9% 32.2% 1.2%ROE 51.4% 34.9% 21.4% 23.3% 19.7%P/E (x) 21.5 7.5 7.1 5.4 5.3P/BV (x) 8.7 1.5 1.4 1.1 1.0EV/EBITDA (x) 39.1 11.4 8.2 5.7 5.2Dividend Yield - - - - -Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileTibet 5100 Water Resources Holdings Ltd. (HONG KONG / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Tibet 5100 Water Resources Holdings Ltd. 496.61 As Of:HONG KONG 1.471397 SEDOL B5BQTQ0 Local Price: 1.46Consumer Staples Beverages EPS: 0.22


12mth Forward PE 5.50x 5.50 13.61 7.41 8.16 12.69 3.64 0% 147% 35% 48%P/BV (Trailing) 1.66x 1.66 5.47 2.35 3.06 5.69 0.42 0% 230% 42% 84%

Dividend Yield (Trailing) 1.79 0.00 1.79 1.44 0.89 2.61 -0.83 -100% 0% -20% -50%ROE (Trailing) 34.91 34.04 51.44 34.91 40.97 57.89 24.05 -3% 47% 0% 17%

Implied Value of Growth -187.3% -1.87 -0.01 -1.12 -0.99 0.09 -2.08 0% 99% 40% 47%


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Company Description P&L sensitivity metrics for FY11 EBIT Core EPS


Tibet 5100 Water Resource Holdings Ltd (Tibet 5100) is a leading manufacturer of premium bottled mineral water under the “5100 Tibet Glacier Spring Water" or "5100" brand in China. CRE, the procurement agent of MOR, is the single largest customer of Tibet 5100 and accounted for 80.5% of its revenue in 2010.

Sales volume for water cards


PET prices

Impact of each 10% decrease 2.1% 2.1%

Transportation costs



2010 Revenue Breakdown Price target and valuation analysis

Our Dec-12 PT of HK$2.2 (lowered from HK$2.6) is based on DCF methodology, using 15.5% cost of equity (risk free rate of 5%, equity risk premium of 7% and beta of 1.5) and 2.0% terminal growth rate,( the bottled water volume growth rate in the U.S. in 2010). We believe the U.S. market is a good proxy for the growth rate for a matured market. We use a two-stage DCF model—30% core earnings CAGR over 2012-2014E and 3% core earnings CAGR over 2015-2021E. Our Dec-12 price target is lowered to HK$2.2 from HK$2.6 due to the earnings revision. At our target price, Tibet 5100 would be trading at 10x 2012E reported earnings and 14x 2012E core earnings.

Risk free rate: 5%

Market risk premium: 7%

Beta: 1.5

Cost of equity 15.5%

Terminal "g": 2.0%

Source: Company.

Key downside risks to our TP would be any quality issue with the water source as the company relies on single water source to produce all of its products. Also, any political and social changes in Tibet would be another risk to the company.


Rmb J.P. Morgan Consensus

FY12E 0.13 0.20

FY13E 0.18 0.25

FY14E 0.22 NA

Source: Bloomberg, JPMorgan estimates


Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012ETibet 5100 Water 1115 HK OW 1.5 2.20 490 10.4 9.3 6.9 3.5 21.4 1.4 0.0%Want Want China 151 HK N 9.5 7.60 16,201 38.6 28.4 23.3 19.1 39.6 10.5 2.2%Hengan Intl 1044 HK UW 75.0 53.00 11,876 34.7 25.3 21.3 17.7 28.0 6.8 2.6%CRE 291 HK N 23.0 24.50 7,102 29.1 23.0 18.9 6.3 8.8 1.4 2.4%Tsingtao Beer - H 168 HK UW 44.1 33.00 7,902 28.1 24.4 20.6 13.5 16.7 3.8 0.6%China Mengniu Diary 2319 HK OW 20.4 25.00 4,638 17.0 16.3 13.8 7.6 13.0 2.3 1.2%China Foods 506 HK OW 7.6 8.40 2,742 32.9 23.8 18.5 11.1 12.8 2.9 1.5%Uni-president 220 HK UW 7.2 5.00 3,341 68.1 33.7 25.4 16.1 9.0 2.9 0.9%China Yurun 1068 HK UW 6.8 7.60 1,586 11.5 9.2 7.1 5.5 9.5 0.7 3.2%Huabao International 336 HK N 3.8 3.70 1,540 6.8 6.5 5.9 4.6 26.4 1.6 4.6%Sector average 27.7 20.0 16.2 10.5 18.5 3.4 1.9%

Source: J.P. Morgan estimates, Bloomberg. Share prices are as of close of 29 Jun 2012. Huabao is March year end, using annualized P/E.

CRE81%

Non CRE19%

138



Tibet 5100 Water Resources Holdings Ltd: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY09 FY10 FY11E FY12E FY13E Rmb in millions, year end Dec FY09 FY10 FY11E FY12E FY13E

Revenues 216 361 633 814 1,032 PBT 51 133 455 519 688% change Y/Y 80.6% 67.1% 75.6% 28.6% 26.7% Depr. & amortization 12 15 16 24 33

Gross Profit 124 232 499 649 825 Change in working capital -2 -57 -373 -109 -123% change Y/Y 107.5% 86.8% 114.8% 30.2% 27.1% Tax -3 -21 -61 -82 -79Gross margin 57.6% 64.4% 78.8% 79.7% 80.0% Other 0 0 1,114 588 30EBITDA 67 150 457 529 690 Cash flow from operations 60 93 157 940 549

% change Y/Y 166.3% 122.7% 204.8% 15.7% 30.4%EBITDA Margin 31.2% 41.6% 72.2% 64.9% 66.8% Capex -82 -62 -90 -50 -100EBIT 55 135 441 505 656 Sale of assets - - - - -

% change Y/Y 203.7% 145.3% 227.4% 14.5% 29.9% Acquisition of subsidiaries/intangibles - - - - -EBIT Margin 25.5% 37.4% 69.6% 62.0% 63.6% Other - - - - -Net Interest -4 -2 14 14 31 Cash flow from investing -48 -17 -601 -75 -150Share of JVs - - - - -Earnings before tax 51 133 455 519 688 Equity raised/(repaid) - - - - -

% change Y/Y 292.6% 160.8% 242.9% 14.1% 32.5% Debt raised/(repaid) -37 -79 0 0 0Tax -3 -17 -82 -79 -106 Dividends paid - - - - -

as % of EBT 6.8% 13.2% 18.0% 15.2% 15.4% Other - - - - -Minorities - - - - - Cash flow from financing 5 -104 -0 -0 -0Other income/(exp) - - - - -Net income (reported) 47 115 373 440 582 Net change in cash 17 -28 670 865 399

% change Y/Y 323.0% 142.9% 223.8% 18.0% 32.2% FX gain/(loss) - - - - -Recurring Net Income 45 113 268 336 451 Ending cash 64 35 705 1,569 1,968% change Y/Y 300.8% 150.8% 137.4% 25.6% 34.1% DPS - - - - -EPS (reported) 0.02 0.06 0.16 0.17 0.23


% change Y/Y 300.8% 150.8% 110.1% 12.7% 34.1%


Cash and cash equivalents 64 35 705 1,569 1,968 Gross margin 57.6% 64.4% 78.8% 79.7% 80.0%Accounts receivable 43 72 356 467 560 EBITDA margin 31.2% 41.6% 72.2% 64.9% 66.8%Inventories 20 32 22 27 34 Operating margin - - - - -Others 99 54 1,357 1,616 1,961 Net margin 22.0% 32.0% 58.9% 54.1% 56.4%Current assets 162 158 1,736 2,110 2,555 Recurring net profit margin 20.8% 31.3% 42.3% 41.3% 43.7%Intangible assets - - - - - Sales growth 80.6% 67.1% 75.6% 28.6% 26.7%Long term investments - - - - - Net profit growth 323.0% 142.9% 223.8% 18.0% 32.2%Net fixed assets 246 292 283 309 376 Recurring net profit growth - - - - -Other assets 5 9 17 16 18 EPS growth 321.8% 143.5% 186.4% 5.9% 32.2%Total Assets 412 460 2,036 2,435 2,949

Net debt to equity 9.1% -12.3% -38.0% -69.6% -71.7%Liabilities Sales/assets 0.55 0.83 0.51 0.36 0.38Short-term loans 9 0 0 0 0 Assets/equity 2.50 1.62 1.10 1.08 1.07Trade & other payables 23 15 49 59 71 ROE 33.5% 51.4% 34.9% 21.4% 23.3%Others 145 151 111 107 113 ROCE 23.0% 51.1% 41.3% 24.6% 26.2%Total current liabilities 177 165 161 166 185Long-term debt 70 0 0 0 0Others 0 12 22 14 18Total Liabilities 247 177 182 180 203Minorities - - - - -Shareholders' equity 165 283 1,854 2,254 2,746BVPS 0.08 0.14 0.80 0.88 1.07


139



Tingyi (Cayman Islands) Holding Corp

Company DataShares O/S (mn) 5,592Market cap ($ mn) 14,283Market cap ($ mn) 14,283Price (HK$) 19.82Date Of Price 29 Jun 12Free float (%) 33.4%3mth Avg daily volume 7.443M - Average daily Value (HK$ mn)

149.83


23.15


Tingyi (Reuters: 0322.HK, Bloomberg: 322 HK)

$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue ($ mn) 6,681 7,867 11,001 13,734 16,356EPS ($) 0.085 0.075 0.095 0.103 0.131Recurring EPS ($) 0.073 0.068 0.078 0.103 0.131DPS ($) 0.043 0.038 0.048 0.051 0.066Revenue growth (%) 31.5% 17.7% 39.9% 24.8% 19.1%Net profit growth (%) 24.4% -12.0% 26.9% 7.8% 27.9%Recurring profit growth (%) 6.4% -6.7% 14.8% 31.4% 27.9%ROE 29.0% 21.4% 23.5% 22.3% 24.8%P/E (x) 29.9 34.0 26.8 24.9 19.5P/BV (x) 7.8 6.8 5.9 5.2 4.5EV/EBITDA (x) 13.6 15.4 11.7 10.6 8.0Dividend Yield 1.7% 1.5% 1.9% 2.0% 2.6%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileTingyi (Cayman Islands) Holding Corp. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Tingyi (Cayman Islands) Holding Corp. 13895.13 As Of:

CHINA 20.64389 SEDOL 6903556 Local Price: 19.28

Consumer Staples Food Products EPS: 0.10Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg

12mth Forward PE 24.36x

P/BV (Trailing) 5.59x 0.56 9.86 2.62 4.01 9.94 -1.92 -90% 76% -53% -28%


ROE (Trailing) 22.33 -7.87 43.81 17.39 16.90 42.51 -8.70 -135% 96% -22% -24%

Implied Value of Growth 51.8% -0.93 1.00 0.50 0.38 1.12 -0.36 -279% 93% -3% -27%


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Tingyi (Cayman Islands) Holding Corp. specializes in the production and distribution of instant noodles, beverages and baked goods in the People's Republic of China. The company operates primarily in four business segments: instant noodles, beverages, bakery and other businesses. As per the Dec 2011 survey of ACNielsen, the Group holds the leading position in the market of instant noodles and RTD tea, with market share of 40.9% and 50.0% by volume, respectively. The company’s products are marketed under the Master Kong brand name.



Palm oil price





Price target and valuation analysisOur Dec-12 PT of HK$16.5 based on SOTP. We value existing Tingyi business at HK$16 based on 1x PEG and 25% two-year earnings CAGR post 2012 and Pepsi business at HK$ 0.3 based on DCF.


Key upside risks to our PT are a deep unexpected cut in distribution costs in remainder of 2012, and a sharp decline in input costs across the board, while downside risks are a sudden slowdown in sales growth and longer than expected turn-around time for acquired Pepsi biz.Source: Company reports



2012E 0.078 0.089

2013E 0.103 0.108

2014E 0.131 0.134


Table 66: Peer comparison valuation

Company Ticker Rating Price PT Mkt Cap P/E P/B(HK$) (HK$) (US$ MM) 2011 2012E 2013E 2012E 2013E

China Mengniu Dairy 2319 HK OW 20.4 25.00 4,638 17.0 16.3 13.8 2.3 2.1China Resources Enterprise 291 HK N 23.0 24.50 7,102 29.1 23.0 18.9 1.4 1.4China Yurun 1068 HK UW 6.8 7.60 1,586 11.5 9.2 7.1 0.7 0.7Hengan International 1044 HK UW 75.0 53.00 11,876 34.7 25.3 21.3 6.8 6.1Huabao* 336 HK N 3.8 3.70 1,540 6.8 6.5 5.9 1.6 1.3Tsingtao 168 HK UW 44.1 33.00 7,902 28.1 24.4 20.6 3.8 3.2Unipresident China 220 HK UW 7.2 5.00 3,341 68.1 33.7 25.4 2.9 2.7Sector average 27.9 19.8 16.2 2.8 2.5

Source: J.P. Morgan estimates, Bloomberg. *Next yr estimates taken since FY ends in Jan-May. Prices as of June 29, 2012 close

Instant noodles

46%

Beverage

51%

Bakery2%

Others1%

141



Tingyi (Cayman Islands) Holding Corp: Summary of FinancialsIncome Statement Cash flow statement$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 6,681 7,867 11,001 13,734 16,356 PBT 747 663 825 902 1,226% change Y/Y 31.5% 17.7% 39.9% 24.8% 19.1% Depr. & amortization 280 321 395 431 455

Gross Profit 1,899 2,088 3,091 3,992 4,862 Change in working capital 350 -160 280 238 227% change Y/Y 8.0% 9.9% 48.0% 29.2% 21.8% Tax -129 -163 -173 -225 -302Gross margin 28.4% 26.5% 28.1% 29.1% 29.7% Other 14 -105 -27 -42 -65EBITDA 994 939 1,200 1,299 1,624 Cash flow from operations 1,260 556 1,299 1,303 1,540

% change Y/Y 22.1% -5.5% 27.8% 8.3% 25.0%EBITDA Margin 14.9% 11.9% 10.9% 9.5% 9.9% Capex -966 -1,349 -800 -800 -600EBIT 714 618 805 868 1,169 Sale of assets 33 - - - -

% change Y/Y 16.6% NM 30.3% 7.8% 34.6% Acquisition of subsidiaries/intangibles 1 - - - -EBIT Margin 10.7% 7.9% 7.3% 6.3% 7.1% Other -31 39 111 42 65Net Interest 15 29 20 33 57 Cash flow from investing -963 -1,311 -689 -758 -535Share of JVs 10 0 - 0 0Earnings before tax 747 663 825 902 1,226 Equity raised/(repaid) - - - - -

% change Y/Y 19.5% -11.2% 24.5% 9.3% 35.9% Debt raised/(repaid) 298 616 0 0 0Tax -134 -163 -173 -225 -302 Dividends paid -192 -239 -210 -266 -287

as % of EBT 18.0% 24.6% 21.0% 25.0% 24.6% Other -54 -0 0 0 0Minorities -136 -80 -120 -103 -191 Cash flow from financing 52 377 -210 -266 -287Other income/(exp) 162 131 286 170 205Net income (reported) 477 420 532 574 733 Net change in cash 349 -377 401 279 719

% change Y/Y 24.4% -12.0% 26.9% 7.8% 27.9% FX gain/(loss) 24 189 - - -Recurring Net Income 408 381 437 574 733 Ending cash 893 705 1,106 1,385 2,104% change Y/Y 6.4% -6.7% 14.8% 31.4% 27.9% DPS 0.043 0.038 0.048 0.051 0.066EPS (reported) 0.085 0.075 0.095 0.103 0.131

% change Y/Y 24.3% (12.0%) 26.8% 7.9% 27.8%Recurring EPS 0.073 0.068 0.078 0.103 0.131

% change Y/Y 6.4% (6.7%) 14.8% 31.4% 27.9%


Cash and cash equivalents 893 600 1,001 1,280 1,999 Gross margin 28.4% 26.5% 28.1% 29.1% 29.7%Accounts receivable 128 155 217 271 322 EBITDA margin 14.9% 11.9% 10.9% 9.5% 9.9%Inventories 310 313 428 527 622 Operating margin 10.7% 7.9% 7.3% 6.3% 7.1%Others 357 368 515 643 765 Net margin 7.1% 5.3% 4.8% 4.2% 4.5%Current assets 1,688 1,436 2,160 2,720 3,708 Recurring net profit margin 6.1% 4.8% 4.0% 4.2% 4.5%Intangible assets 0 0 8 8 8 Sales growth 31.5% 17.7% 39.9% 24.8% 19.1%Long term investments 230 291 445 442 438 Net profit growth 24.4% -12.0% 26.9% 7.8% 27.9%Net fixed assets 2,923 4,030 4,439 4,812 4,961 Recurring net profit growth 6.4% -6.7% 14.8% 31.4% 27.9%Other assets 50 52 52 52 52 EPS growth 24.3% (12.0%) 26.8% 7.9% 27.8%Total Assets 4,891 5,809 7,105 8,034 9,167

Net debt to equity -14.2% 31.0% 10.3% -1.1% -23.6%Liabilities Sales/assets 1.61 1.47 1.70 1.81 1.90Short-term loans 457 701 701 701 701 Assets/equity 2.31 2.31 2.93 2.94 2.89Trade & other payables 1,084 974 1,333 1,642 1,938 ROE 29.0% 21.4% 23.5% 22.3% 24.8%Others 685 753 997 1,207 1,407 ROCE 33.6% 21.3% 22.9% 22.7% 27.8%Total current liabilities 2,225 2,428 3,031 3,549 4,045Long-term debt 177 549 549 549 549Others 120 145 145 145 145Total Liabilities 2,522 3,123 3,726 4,244 4,740Minorities 548 587 957 1,060 1,250Shareholders' equity 1,821 2,100 2,422 2,730 3,177BVPS 0.33 0.38 0.43 0.49 0.57


142



Tsingtao Brewery – A & H

Tsingtao Brewery (Reuters: 600600.SS, 0168.HK; Bloomberg: 600600 CH, 168 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 19,898 23,158 26,508 30,235 34,452Net Profit (Rmb mn) 1,520 1,738 2,000 2,365 2,777EPS (Rmb) 1.13 1.29 1.48 1.75 2.06DPS (Rmb) 0.16 0.18 0.22 0.26 0.31Revenue growth (%) 10.4% 16.4% 14.5% 14.1% 14.0%Net profit growth (%) 21.6% 14.3% 15.1% 18.2% 17.4%EPS growth (%) 18.4% 14.3% 15.1% 18.2% 17.4%ROE 17.1% 16.8% 16.7% 17.0% 17.1%ROA 9.3% 8.8% 8.8% 9.5% 10.1%P/E (x) -A Share 33.9 29.7 25.8 21.8 18.6P/E (x) -H Share 32.1 28.1 24.4 20.6 17.6P/BV (x) -A Share 5.4 4.6 4.0 3.4 3.0P/BV (x) -H Share 5.1 4.4 3.8 3.3 2.8EV/EBITDA (x) -A Share 16.0 15.2 12.8 10.9 9.3EV/EBITDA (x) -H Share 16.0 15.2 12.8 10.9 9.3Dividend Yield -A Share 0.4% 0.5% 0.6% 0.7% 0.8%Dividend Yield -H Share 0.4% 0.5% 0.6% 0.7% 0.9%Source: Company data, Bloomberg, J.P. Morgan estimates.

A-shares H-sharesShares O/S 696 655Market cap Rmb26,577 Rmb23,670Market cap $4,175 $3,719Price Rmb38.19 HK$44.05Date Of Price 29 Jun 12 29 Jun 12Free float (%) 36.9% 43.6%3mth Avg daily volume

2.51 2.15

3M - Average daily Value

92.26 100.49

Average 3m Daily Turnover

$13.68 $7.64

MSCI-Cnx 5,329 5,329Exchange Rate 6.37 7.76Fiscal Year End Dec Dec

JPM Q-ProfileTsingtao Brewery Co. Ltd. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Tsingtao Brewery Co. Ltd. 8280.87 As Of:

CHINA 14.440856 SEDOL 6902854 Local Price: 38.90Consumer Staples Beverages EPS: 1.69


12mth Forward PE 22.96x 19.76 75.00 28.94 32.87 58.46 7.27 -14% 227% 26% 43%

P/BV (Trailing) 4.55x 2.01 10.05 3.38 3.85 6.84 0.87 -56% 121% -26% -15%


ROE (Trailing) 16.65 2.84 19.12 7.51 8.82 19.28 -1.63 -83% 15% -55% -47%Implied Value of Growth 48.9% 0.41 0.86 0.59 0.60 0.83 0.37 -17% 76% 21% 23%


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143



JPM Q-ProfileTsingtao Brewery Co. Ltd. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Tsingtao Brewery Co. Ltd. 8113.54 As Of:

CHINA 10.568254 SEDOL 6905808 Local Price: 46.60

Consumer Staples Beverages EPS: 1.59Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg

12mth Forward PE 23.98x 9.88 59.82 24.52 25.38 41.93 8.83 -59% 149% 2% 6%

P/BV (Trailing) 4.64x 0.26 7.02 2.39 2.77 6.35 -0.80 -94% 51% -49% -40%Dividend Yield (Trailing) 0.65 0.00 8.72 1.68 2.09 5.50 -1.31 -100% 1238% 158% 221%

ROE (Trailing) 16.78 1.74 18.82 7.06 8.97 19.87 -1.92 -90% 12% -58% -47%

Implied Value of Growth 51.1% 0.03 0.83 0.55 0.54 0.81 0.26 -95% 63% 7% 5%


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144





Tsingtao Brewery Co. Ltd. is engaged in brewing and sales of beer, and other related businesses. Its principal brand is Tsingtao and secondary brands consist of Shanshui, Hans and Laoshan. Together these made up 90% of the company's revenues in FY11. As of 31 Dec 2011 Tsingtao had a market share of 14.2% by volume in China's brewery market, making it one of the largest brewers in China.

Packaging costs


Barley cost per tonne


SG&A expenses as % of sales



Price target and valuation analysisOur Dec-12 PT of HK$33 is based on 1x PEG and 17.8% earnings CAGR post 2012.


-We assumed barley costs to be flat to mildly up in 2012. If barley costs weaken this will present upside risks to our 2012 estimates and PT.-If the management spends more A&P on second tier brands this will present downside risks to our 2012 estimates and PT.




FY12E 1.48 1.51

FY13E 1.75 1.79

FY14E 2.06 2.14


Figure 63: Peer comparison valuation


China Beer UniverseBeijing Yanjing Brewery^ 000729 CH NR 7.3 2,898 21.6 18.1 15.1 ~ ~CRE 291 HK N 23.0 24.50 7,102 29.1 23.0 18.9 1.4 1.4China Staples UniverseChina Huiyuan 1886 HK N 2.8 5.00 526 22.8 13.1 ~ 0.5 ~China Yurun 1068 HK UW 6.8 7.60 1,586 11.5 9.2 7.1 0.7 0.7China Foods^ 506 HK OW 7.6 8.40 2,742 32.9 23.8 18.5 2.9 2.7Huabao International* 336 HK N 3.8 3.70 1,540 6.8 6.5 5.9 1.6 1.3Hengan International 1044 HK UW 75.0 53.00 11,876 34.7 25.3 21.3 6.8 6.1Tingyi 322 HK N 19.8 16.50 14,289 37.5 32.7 24.9 5.9 5.2

Source: J.P. Morgan estimates, Bloomberg. ^ Consensus estimates used for the company. *Next yr estimates taken since FY ends in Jan-May. Prices as of June 29, 2012.

Principal brand56%

Secondary brands

34%

Other brands10%

145



Tsingtao Brewery: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 19,898 23,158 26,508 30,235 34,452 PBT 2,123 2,455 2,797 3,307 3,883

% change Y/Y 10.4% 16.4% 14.5% 14.1% 14.0% Depr. & amortization 559 698 824 884 933Gross Profit 7,000 7,717 9,021 10,402 11,911 Change in working capital 958 -782 6 -159 -183

% change Y/Y 13.0% 10.2% 16.9% 15.3% 14.5% Tax - - - - -Gross margin 35.2% 33.3% 34.0% 34.4% 34.6% Other -356 -499 -806 -936 -1,083EBITDA 2,562 2,816 3,376 3,940 4,541 Cash flow from operations 3,284 1,872 2,821 3,097 3,550

% change Y/Y 13.4% 9.9% 19.9% 16.7% 15.3%EBITDA Margin 12.9% 12.2% 12.7% 13.0% 13.2% Capex -1,103 -2,442 -3,000 -2,500 -2,500EBIT 2,003 2,118 2,553 3,055 3,609 Sale of assets 17 37 0 0 0

% change Y/Y 17.1% 5.7% 20.5% 19.7% 18.1% Acquisition of subsidiaries/intangibles -174 0 -100 -100 -100EBIT Margin 10.1% 9.2% 9.6% 10.1% 10.5% Other 496 -1,532 0 0 0

Net Interest -5 36 43 41 52 Cash flow from investing -765 -3,937 -3,100 -2,600 -2,600Share of JVs 10 4 10 10 10Earnings before tax 2,123 2,455 2,797 3,307 3,883 Equity raised/(repaid) 0 0 0 0 0


as % of EBT 25.4% 26.8% 25.5% 25.5% 25.5% Other -44 -61 109 109 109

Minorities -64 -60 -83 -99 -116 Cash flow from financing -261 55 -191 -245 -307Other income/(exp) 115 333 234 242 265Net income (reported) 1,520 1,738 2,000 2,365 2,777 Net change in cash 2,259 -2,010 -469 252 643

% change Y/Y 21.6% 14.3% 15.1% 18.2% 17.4% FX gain/(loss) -3 -3 0 0 0Recurring Net Income 1,520 1,738 2,000 2,365 2,777 Ending cash 7,563 5,550 5,081 5,333 5,976

% change Y/Y 21.6% 14.3% 15.1% 18.2% 17.4% DPS 0.16 0.18 0.22 0.26 0.31EPS (reported) 1.13 1.29 1.48 1.75 2.06

% change Y/Y 18.4% 14.3% 15.1% 18.2% 17.4%

Recurring EPS 1.13 1.29 1.48 1.75 2.06% change Y/Y 18.4% 14.3% 15.1% 18.2% 17.4%


Cash and cash equivalents 7,598 6,108 5,638 5,890 6,533 Gross margin 35.2% 33.3% 34.0% 34.4% 34.6%Accounts receivable 90 88 101 115 131 EBITDA margin 12.9% 12.2% 12.7% 13.0% 13.2%Inventories 1,942 2,718 2,928 3,335 3,808 Operating margin 10.1% 9.2% 9.6% 10.1% 10.5%

Others 264 670 670 670 670 Net margin 7.6% 7.5% 7.6% 7.8% 8.1%Current assets 9,895 9,583 9,337 10,011 11,142 Recurring net profit margin 7.6% 7.5% 7.6% 7.8% 8.1%Intangible assets 1,442 3,460 3,334 3,207 3,080 Sales growth 10.4% 16.4% 14.5% 14.1% 14.0%

Long term investments 153 152 252 352 452 Net profit growth 21.6% 14.3% 15.1% 18.2% 17.4%Net fixed assets 5,797 7,832 10,119 11,844 13,521 Recurring net profit growth 21.6% 14.3% 15.1% 18.2% 17.4%

Other assets 491 606 606 606 606 EPS growth 18.4% 14.3% 15.1% 18.2% 17.4%Total Assets 17,777 21,634 23,647 26,019 28,801

Net debt to equity -63.6% -37.4% -28.6% -26.2% -26.2%

Liabilities Sales/assets 1.22 1.18 1.17 1.22 1.26Short-term loans 214 165 165 165 165 Assets/equity 1.85 1.95 1.83 1.73 1.65Trade & other payables 3,853 4,913 5,142 5,405 5,710 ROE 17.1% 16.8% 16.7% 17.0% 17.1%

Others 1,948 2,078 2,078 2,078 2,078 ROCE 19.3% 17.5% 18.3% 19.2% 19.8%Total current liabilities 6,016 7,156 7,385 7,649 7,954

Long-term debt 1,275 1,789 1,789 1,789 1,789Others 766 1,412 1,412 1,412 1,412Total Liabilities 8,057 10,357 10,586 10,850 11,155

Minorities 117 166 166 166 166Shareholders' equity 9,603 11,110 12,894 15,003 17,480BVPS 7.11 8.22 9.54 11.11 12.94


146



Trinity Limited


21.78


2.81


Trinity Limited (Reuters: 0891.HK, Bloomberg: 891 HK)

HK$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (HK$ mn) 2,011 2,607 3,101 3,792 4,600Net Profit (HK$ mn) 341 513 579 731 908EPS (HK$) 0.21 0.29 0.33 0.42 0.52DPS (HK$) 0.15 0.23 0.23 0.29 0.37Revenue growth (%) 22.3% 29.6% 18.9% 22.3% 21.3%Net profit growth (%) 81.4% 50.5% 12.9% 26.2% 24.2%EPS growth (%) 41.4% 40.5% 12.9% 26.2% 24.2%ROE 16.0% 18.6% 17.3% 20.7% 24.0%P/E (x) 23.2 16.5 14.6 11.6 9.3P/BV (x) 3.5 2.6 2.5 2.3 2.2EV/EBITDA (x) 16.5 10.6 9.5 7.5 6.1Dividend Yield 3.0% 4.6% 4.8% 6.0% 7.5%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileTrinity Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Trinity Ltd. 1219.70 As Of:

HONG KONG 3.395979 SEDOL B5497Y0 Local Price: 5.68Consumer Discretionary Textiles, Apparel & Luxury Goo EPS: 0.39


12mth Forward PE 14.64x 14.15 32.88 24.14 23.13 34.28 11.99 -3% 125% 65% 58%

P/BV (Trailing) 2.98x 0.00 5.95 3.94 4.04 6.57 1.50 -100% 100% 32% 35%

Dividend Yield (Trailing) 3.75 1.27 4.11 2.14 2.39 4.07 0.71 -66% 10% -43% -36%ROE (Trailing) 18.64 9.42 19.70 15.98 15.21 23.11 7.31 -49% 6% -14% -18%

Implied Value of Growth -8.0% -0.08 0.61 0.45 0.34 0.79 -0.11 0% 865% 663% 528%


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Trinity retails high-to-luxury end menswear and accessories under six brands: Kent & Curwen, Cerruti 1881, D’urban, Gieves & Hawkes, Intermezzo, and Altea. It also has JVs in the retail apparel and accessories segments under the Salvatore Ferragamo brand in South Korea and various countries in Southeast Asia. As of Dec -2011, the group operated 374 retail stores in Mainland China, 41 retail stores in Hong Kong and Macau, 43 retail stores in Taiwan, one flagship store in UK and on in France. The Group also has 41 stores in Southeast Asia and South Korea under the Salvatore Ferragamo joint ventures.

SSS growth in HK


SSS growth in PRC





Price target and valuation analysisFollowing the revision to FY12 earnings estimates we lower our Dec-12 PT to HK$8 due to the earnings revision in 2012 and changes in CAGR post 2012. Our PT is based on 1x PEG and 2-yr earnings CAGR of c25%. After a sharp correction YTD Trinity now trades at 13x 1-yr forward P/E. With its high-end menswear brands that have plenty of penetration potential in China we believe Trinity offers multiple years of growth opportunity and the current slowdown is more than priced in.


- Main downside risk is the abrupt decline in SSS growth and higher than expected operating expenses. Worse than expected macro economy will cause downside risks to our SSSG assumptions in HK and China which suggests potential operating deleverage. This could lead to downside risks to our 2012 earnings estimates and PT.

- Slower than expected sales through will lead to higher inventory and potential downside risks to our gross margins projections. This will also pose downside risks to our 2012 earnings estimates and PT.




FY12E 0.33 0.36

FY13E 0.42 0.43

FY14E 0.52 0.51


Peer Valuation Table


China retailersBelle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Parkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4China Dongxiang 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Li Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Xtep 1368 HK UW 2.7 2.20 758 5.0 5.7 7.7 1.1 1.0Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Ports Design 589 HK UW 8.1 7.00 587 8.7 8.2 7.3 1.8 1.6Sector average 14.6 11.8 10.2 2.2 1.9

Source: J.P. Morgan estimates, Bloomberg. Prices as of Jun 29, 2012.

HK & Macau (Retail)

32%

HK & Macau

(Wholesale)0%

China Retail56%

Taiwan Retail

8%

Europe Retail1%

Europe Licensin

g3%

148



Trinity Limited: Summary of FinancialsIncome Statement Cash flow statementHK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


Gross Profit 1,552 2,104 2,455 3,017 3,683 Change in working capital -3 162 -69 -163 -183% change Y/Y 28.2% 35.6% 16.7% 22.9% 22.1% Tax -60 -164 -193 -257 -319Gross margin 77.1% 80.7% 79.2% 79.6% 80.1% Other 14 -364 -60 -63 -65EBITDA 509 750 854 1,078 1,329 Cash flow from operations 513 452 592 658 827

% change Y/Y 54.2% 47.3% 13.9% 26.2% 23.3%EBITDA Margin 25.3% 28.8% 27.6% 28.4% 28.9% Capex -69 -83 -72 -125 -137EBIT 408 609 712 925 1,163 Acquisition of subsidiaries/intangibles -131 -390 -319 0 0

% change Y/Y 57.9% 49.3% 16.9% 29.8% 25.7% Other 1 44 7 9 9EBIT Margin 20.3% 23.4% 23.0% 24.4% 25.3% Cash flow from investing -199 -429 -384 -116 -128Net Interest -5 1 -4 -2 -2Share of JVs 36 62 64 65 67 Equity raised/(repaid) 11 751 0 0 0Earnings before tax 461 677 772 988 1,227 Debt raised/(repaid) -135 -200 0 0 0

% change Y/Y 74.9% 46.9% 14.1% 27.9% 24.2% Dividends paid -189 -295 -405 -512 -636Tax -120 -164 -193 -257 -319 Other -4 -4 -11 -11 -11


% change Y/Y 81.4% 50.5% 12.9% 26.2% 24.2% Net change in cash -3 276 -208 19 52Recurring Net Income 341 513 579 731 908 Ending Cash 515 790 583 602 654% change Y/Y 85.0% 50.5% 12.9% 26.2% 24.2% DPS 0.15 0.23 0.23 0.29 0.37EPS (reported) 0.21 0.29 0.33 0.42 0.52


% change Y/Y 41.0% 40.5% 12.9% 26.2% 24.2%


Cash and cash equivalents 515 790 583 602 654 Gross margin 77.1% 80.7% 79.2% 79.6% 80.1%Accounts receivable 215 233 267 326 395 EBITDA margin 25.3% 28.8% 27.6% 28.4% 28.9%Inventories 421 605 658 790 934 Operating margin 21.4% 23.5% 23.0% 24.4% 25.3%Others 200 65 65 65 65 Net margin 17.0% 19.7% 18.7% 19.3% 19.7%Current assets 1,351 1,693 1,572 1,782 2,048 Recurring net profit margin 17.0% 19.7% 18.7% 19.3% 19.7%Intangible assets 1,629 2,312 2,625 2,619 2,613 Sales growth 22.3% 29.6% 18.9% 22.3% 21.3%Net fixed assets 182 312 248 226 203 Net profit growth 81.4% 50.5% 12.9% 26.2% 24.2%LT Investments 248 275 339 404 471 Recurring net profit growth 85.0% 50.5% 12.9% 26.2% 24.2%Other assets 60 94 94 94 94 EPS growth 41.4% 40.5% 12.9% 26.2% 24.2%Total Assets 3,469 4,686 4,877 5,125 5,428

Net debt to equity 2.9% -12.6% -5.9% -6.1% -7.0%Liabilities Sales/assets 0.61 0.64 0.65 0.76 0.87Short-term loans 360 380 380 380 380 Assets/equity 1.54 1.44 1.42 1.40 1.38Trade & other payables 431 653 670 699 730 ROE 16.0% 18.6% 17.3% 20.7% 24.0%Others 58 112 112 112 112 ROCE 14.7% 18.8% 19.1% 23.6% 27.9%Total current liabilities 848 1,146 1,163 1,191 1,222Long-term debt 220 0 0 0 0Others 150 285 285 285 285Total Liabilities 1,218 1,431 1,448 1,476 1,507Shareholders' equity 2,251 3,255 3,429 3,649 3,921BVPS 1.39 1.87 1.97 2.10 2.25


149



Uni-President China Holdings Ltd

Company DataShares O/S (mn) 3,599Market cap (Rmb mn) 21,259Market cap ($ mn) 3,340Price (HK$) 7.20Date Of Price 29 Jun 12Free float (%) 26.5%3mth Avg daily volume 8.703M - Avg daily Value (HK$ mn)

57.08


7.40


Uni-President China Holdings Ltd (Reuters: 0220.HK, Bloomberg: 220 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 12,591 16,932 21,931 26,974 32,641Net Profit (Rmb mn) 519.1 311.9 629.8 836.4 1,038.5EPS (Rmb) 0.14 0.09 0.18 0.23 0.29DPS (Rmb) 0.04 0.03 0.05 0.07 0.09Revenue growth (%) 38.2% 34.5% 29.5% 23.0% 21.0%EPS growth (%) -26.4% -39.9% 101.9% 32.8% 24.1%ROCE 8.4% 3.1% 6.0% 6.9% 8.2%ROE 7.9% 4.6% 9.0% 11.1% 12.7%P/E (x) 41.0 68.1 33.7 25.4 20.5P/BV (x) 3.2 3.1 2.9 2.7 2.5EV/EBITDA (x) 15.2 22.2 14.2 10.5 7.7Dividend Yield 0.7% 0.4% 0.9% 1.2% 1.5%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileUni-President China Holdings Ltd. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Uni-President China Holdings Ltd. 3149.78 As Of:

CHINA 6.135231 SEDOL B29MKF5 Local Price: 6.85Consumer Staples Food Products EPS: 0.23


12mth Forward PE 24.05x 7.73 28.67 18.25 18.01 26.86 9.15 -68% 19% -24% -25%

P/BV (Trailing) 2.97x 0.93 3.91 2.16 2.16 3.26 1.07 -69% 32% -27% -27%Dividend Yield (Trailing) 0.46 0.00 1.62 0.96 0.85 1.94 -0.25 -100% 250% 107% 83%

ROE (Trailing) 4.63 4.63 11.56 8.69 8.23 12.81 3.64 0% 150% 88% 78%

Implied Value of Growth 51.2% -0.43 0.59 0.35 0.30 0.79 -0.19 -184% 15% -32% -41%


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Company Description P&L sensitivity metrics for FY12E EBIT EPS


Originally from Taiwan and established in

China in 1992, UPC is a leading manufacture

of RTD tea, juice and instant noodle products

in China. According to ACNielsen, UPC’s

market share was 28.6% for RTD tea (No.2),

18.7% for juice (No.2) and 14.1% (No.2) for

instant noodles in volume terms as of March

2012.

PET price


A&P as % of sales

Impact of each 0.5% increase -16.0% -13.9%



Our new Dec-12 target price of HK$5.0 is based on a 0.9x PEG with a two-year (2012E-14E) EPS CAGR of 28%. We base our PT on 0.9x PEG which is a discount to 1.0x for the other China consumer staples to reflect its smaller market share in the competitive noodle and beverage market. We are using PEG in order to capture earnings growth prospects.

Target PEG 0.9

2012-14E EPS CAGR 28.4%


EPS Dec-12 (Rmb) 0.175


Source: Company.

Key upside risk to our TP would be lower than expected PET prices, which would lead to higher gross margin expansion, and lower A&P spending. We had expected PET to drop 4% y/y in 2012 and assumed A&P to be 12% of sales in 2012. Our sensitivity analysis suggests that if PET price drop by 1ppt more, UPC’s earnings would increase by 3.5%. If A&P as % of sales increase/decrease by 0.5ppt, our UPC earnings estimate would decrease/increase by 13.9%.



FY12E 0.175 0.211

FY13E 0.232 0.267

FY14E 0.289 0.328

Source: Bloomberg, JPMorgan estimates


Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Company Ticker Rating (HK$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012E

Uni-president China 220 HK UW 7.2 5.0 3,341 68.1 33.7 25.4 16.1 9.0 2.9 0.9%China Mengniu Dairy 2319 HK OW 20.4 25.0 4,638 17.0 16.3 13.8 7.6 13.0 2.3 1.2%Tingyi 322 HK N 19.8 16.5 14,289 37.5 32.7 24.9 12.9 23.5 5.9 1.9%Want Want 151 HK N 9.5 7.6 16,201 38.6 28.4 23.3 19.1 39.6 10.5 2.2%Tsingtao Brewery 168 HK UW 44.1 33.0 7,902 28.1 24.4 20.6 13.5 16.7 3.8 0.6%Sector average 37.8 27.1 21.6 13.8 20.4 5.1 1.3%

Source: Bloomberg, J.P. Morgan estimates. Share prices are as of close of 29 Jun 2012.

Beverage63%

Instant noodles

35%

Others2%

151



Uni-President China Holdings Ltd: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 12,591 16,932 21,931 26,974 32,641 EBIT 558 261 684 978 1,300% change Y/Y 38.2% 34.5% 29.5% 23.0% 21.0% Depreciation & amortization 364 504 682 1,128 1,527

Gross Profit 4,043 4,943 6,986 8,642 10,473 Change in working capital -198 601 496 504 500EBITDA 922 765 1,366 2,107 2,827 Others - - - - -

% change Y/Y -13.7% -17.0% 78.6% 54.2% 34.2% Cash flow from operations 621 1,338 1,841 2,463 3,049EBIT 558 261 684 978 1,300

% change Y/Y NM NM 161.7% 43.1% 32.9% Capex -1,412 -4,162 -4,000 -5,000 -2,500EBITDA Margin 7.3% 4.5% 6.2% 7.8% 8.7%

EBIT Margin 4.4% 1.5% 3.1% 3.6% 4.0% Disposal of fixed assets - - - - -Net Interest 55 95 64 30 -27 Cashflow from investing -1,363 -4,144 -4,041 -5,033 -2,527Earnings before tax 682 396 807 1,086 1,366 Free cash flow -794 -2,826 -2,159 -2,537 549

% change Y/Y -23.9% -41.9% 103.7% 34.5% 25.8%Tax -163 -84 -178 -250 -328 Equity raised/(repaid) - - - - -

as % of EBT 23.9% 21.3% 22.0% 23.0% 24.0% Debt raised/(repaid) 166 2,930 2,383 2,048 54Net income 519.1 311.9 629.8 836.4 1,038.5 Dividends paid -352 -156 -141 -220 -281Recurring Net income 483 312 630 836 1,038 Other 0 34 -0 0 0No. of shares o/s 3,599 3,599 3,599 3,599 3,599 Cashflow from financing -187 2,809 2,242 1,829 -227EPS (reported) 0.14 0.09 0.18 0.23 0.29 Net change in cash -929 3 42 -742 296Recurring EPS 0.13 0.09 0.17 0.23 0.29

DPS 0.04 0.03 0.05 0.07 0.09


Cash and cash equivalents 2,427 2,428 2,470 1,729 2,024 Gross margin 32.1% 29.2% 31.9% 32.0% 32.1%Trade & other receivable 401 513 665 818 990 EBITDA margin 7.3% 4.5% 6.2% 7.8% 8.7%Inventories 1,139 1,274 1,568 1,832 2,172 Operating margin 4.4% 1.5% 3.1% 3.6% 4.0%Others 434 401 404 433 471 Net margin 4.1% 1.8% 2.9% 3.1% 3.2%Total current assets 4,402 4,617 5,107 4,811 5,658 Recurring profit margin 3.8% 1.8% 2.9% 3.1% 3.2%Net fixed assets 3,121 5,579 8,897 12,769 13,742 Sales growth 38.2% 34.5% 29.5% 23.0% 21.0%Others non current assets 2,058 3,541 3,612 3,684 3,758 Net profit growth -26.4% -39.9% 101.9% 32.8% 24.2%Total Assets 9,581 13,737 17,616 21,264 23,158 EPS growth (26.4%) (39.9%) 101.9% 32.8% 24.1%

Recurring EPS growth (30.5%) (35.4%) 101.9% 32.8% 24.2%LiabilitiesShort-term loans 166 1,584 2,863 3,887 3,887 Interest coverage (x) - - - - 103.85Trade & other payables 2,676 3,440 4,367 5,263 6,242 Net debt to equity -34.0% 9.8% 43.1% 74.9% 65.1%Others 63 62 191 308 442 Sales/assets 1.42 1.45 1.40 1.39 1.47Total current liabilities 2,904 5,087 7,421 9,458 10,571 Assets/equity 1.29 1.35 2.43 2.71 2.70Long-term debt 0 1,512 2,733 3,709 3,709 ROE 7.9% 4.6% 9.0% 11.1% 12.7%Total Liabilities 2,921 6,926 10,364 13,427 14,594 ROCE 8.4% 3.1% 6.0% 6.9% 8.2%Shareholders' equity 6,660 6,811 7,252 7,837 8,564Capital employed 6,825 9,907 12,848 15,433 16,160BVPS 1.85 1.89 2.01 2.18 2.38


152



Want Want China Holdings Ltd

Company DataShares O/S (mn) 13,228Market cap ($ mn) 16,196Market cap ($ mn) 16,196Price (HK$) 9.50Date Of Price 29 Jun 12Free float (%) 51.0%3mth Avg daily volume 13,660,360.003M - Avg daily Value (HK$ mn)

125.36


16.16


Want Want China Holdings Ltd (Reuters: 0151.HK, Bloomberg: 151 HK)

$ in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue ($ mn) 2,244 2,947 3,592 4,273 5,031Net Profit ($ mn) 358.4 419.5 569.4 695.9 854.6EPS ($) 0.03 0.03 0.04 0.05 0.06DPS ($) 0.02 0.02 0.03 0.03 0.04Revenue growth (%) 31.2% 31.3% 21.9% 19.0% 17.7%EPS growth (%) 14.4% 17.0% 36.0% 22.0% 22.8%ROE 34.8% 34.9% 39.6% 41.4% 43.2%ROA 17.7% 15.5% 17.3% 19.1% 21.0%P/E (x) 45.2 38.6 28.4 23.3 19.0P/BV (x) 15.1 12.2 10.5 8.9 7.6EV/EBITDA (x) 251.6 211.4 151.8 121.6 99.8Dividend Yield 1.8% 1.6% 2.2% 2.7% 3.3%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileWant Want China Holdings Ltd. (CHINA / Consumer Staples)As Of: 22-Jun-2012 [email protected]





Summary

Want Want China Holdings Ltd. 16577.27 As Of:CHINA 16.67369 SEDOL B2Q14Z3 Local Price: 9.81Consumer Staples Food Products EPS: 0.05


12mth Forward PE 26.90x 13.11 28.32 22.58 21.97 29.99 13.95 -51% 5% -16% -18%

P/BV (Trailing) 12.57x 5.31 12.79 9.58 9.28 13.71 4.86 -58% 2% -24% -26%Dividend Yield (Trailing) 1.71 1.60 4.95 2.82 2.94 4.65 1.24 -7% 189% 65% 72%

ROE (Trailing) 34.91 18.92 38.54 28.73 28.77 41.97 15.57 -46% 10% -18% -18%Implied Value of Growth 56.4% 0.06 0.60 0.47 0.45 0.70 0.19 -89% 6% -17% -21%


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153





Want Want was No.1 in terms of market share (2.5%) in the impulse snack foods market in China in 2006 (according to Euro Monitor). The company has a commanding market share in rice crackers, flavored milk, soft candy and extruded pellets.

A&P as % of sales


Transportation as % of sales


YoY change in milk price


YoY change in packaging material price




Our new Dec-12 target price of HK$7.6 (previously HK$7.0) is based on 1x PEG and a two-year (2012E-14E) EPS CAGR of 22.5%.

Target PEG 1

2012-14E EPS CAGR 22.5%

Implied target PE (x) 22.5

2012E EPS (US$) 0.043


Source: Company.

Key upside risk would be a greater-than-expected decline in raw material costs and key downside risk would be slower-than-expected sales if the new distribution initiatives resulted in turnover in distributors. We would be holding the share until the result, which is likely to surprise the market on the upside due to lower milk powder costs.


US$ J.P. Morgan Consensus

FY12E 0.043 0.041

FY13E 0.053 0.051

FY14E 0.065 0.062



Price PT Mkt Cap P/E (x) EV/EBITDA ROE P/B (x) Yld (%)Ticker Rating (lcl$) (HK$) (US$m) 2011 2012E 2013E 2012E 2012E 2012E 2012E

Want Want 151 HK N 9.5 7.6 16,201 38.6 28.4 23.3 19.1 39.6 10.5 2.2%CRE 291 HK N 23.0 24.5 7,102 29.1 23.0 18.9 6.3 8.8 1.4 2.4%Tsingtao Brewery 168 HK UW 44.1 33.0 7,902 28.1 24.4 20.6 13.5 16.7 3.8 0.6%China Mengniu Dairy 2319 HK OW 20.4 25.0 4,638 17.0 16.3 13.8 7.6 13.0 2.3 1.2%China Foods 506 HK OW 7.6 8.4 2,742 32.9 23.8 18.5 11.1 12.8 2.9 1.5%Uni-president China 220 HK UW 7.2 5.0 3,341 68.1 33.7 25.4 16.1 9.0 2.9 0.9%Sector average 35.6 24.9 20.1 12.3 16.6 4.0 1.5%

Source: Bloomberg, Share prices are as of close of 29 June 2012.

- Rice crackers

30%

46%

- Snack foods24%

- Dairy & beverages

154



Want Want China Holdings Ltd: Summary of FinancialsIncome Statement Cash flow statement$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E


Gross Profit 845 1,025 1,381 1,690 1,998 Change in working capital -53 78 -76 -108 -138% change Y/Y 22.0% 21.3% 34.8% 22.3% 18.3% Tax -72 -92 -119 -180 -232Gross margin 37.6% 34.8% 38.5% 39.5% 39.7% Other -4 -16 0 0 0EBITDA 498 592 825 1,029 1,252 Cash flow from operations 374 579 650 759 904

% change Y/Y 22.6% 18.8% 39.3% 24.7% 21.6%EBITDA Margin 22.2% 20.1% 23.0% 24.1% 24.9% Capex -171 -224 -409 -200 -220EBIT 439 522 730 910 1,118 Sale of assets - - - - -

% change Y/Y 23.4% 18.9% 39.9% 24.7% 22.8% Acquisition of subsidiaries/intangibles - - - - -EBIT Margin 19.6% 17.7% 20.3% 21.3% 22.2% Other 13 1 -3 -3 -3Net Interest 4 16 19 18 22 Cash flow from investing -158 -222 -412 -203 -223Share of JVs 0 0 0 0 0Earnings before tax 443 538 749 928 1,140 Equity raised/(repaid) - - - - -

% change Y/Y 23.0% 21.6% 39.2% 23.8% 22.8% Debt raised/(repaid) 287 381 5 6 6Tax -84 -119 -180 -232 -285 Dividends paid -288 -299 -305 -391 -479

as % of EBT 19.0% 22.1% 24.0% 25.0% 25.0% Other -39 41 -0 0 0Minorities 3 3 3 3 3 Cash flow from financing -40 123 -300 -385 -472Other income/(exp) 45 77 89 98 114Net income (reported) 358.4 419.5 569.4 695.9 854.6 Net change in cash 201 531 -62 171 208

% change Y/Y 14.6% 17.0% 35.7% 22.2% 22.8% FX gain/(loss) 24 51 0 0 0Recurring Net Income 359 419 569 696 855 Ending cash 906 1,437 1,375 1,546 1,754% change Y/Y 14.7% 16.9% 35.9% 22.2% 22.8% DPS 0.02 0.02 0.03 0.03 0.04EPS (reported) 0.03 0.03 0.04 0.05 0.06


% change Y/Y 14.6% 16.9% 35.7% 22.2% 22.8%


Cash and cash equivalents 906 1,437 1,375 1,546 1,754 Gross margin 37.6% 34.8% 38.5% 39.5% 39.7%Accounts receivable 101 160 195 232 273 EBITDA margin 22.2% 20.1% 23.0% 24.1% 24.9%Inventories 339 410 500 595 700 Operating margin 19.6% 17.7% 20.3% 21.3% 22.2%Others 108 96 55 50 56 Net margin 16.0% 14.2% 15.9% 16.3% 17.0%Current assets 1,454 2,103 2,125 2,423 2,784 Recurring net profit margin 16.0% 14.2% 15.9% 16.3% 17.0%Intangible assets - - 0 0 0 Sales growth 31.2% 31.3% 21.9% 19.0% 17.7%Long term investments - - - - - Net profit growth 14.6% 17.0% 35.7% 22.2% 22.8%Net fixed assets 758 891 1,205 1,286 1,372 Recurring net profit growth - - - - -Other assets 78 129 132 134 137 EPS growth 14.4% 17.0% 36.0% 22.0% 22.8%Total Assets 2,290 3,123 3,461 3,843 4,293

Net debt to equity -24.4% -31.0% -22.6% -28.7% -34.1%Liabilities Sales/assets 1.11 1.09 1.09 1.17 1.24Short-term loans 294 775 775 775 775 Assets/equity 2.13 2.35 2.24 2.12 2.01Trade & other payables 184 211 258 306 361 ROE 34.8% 34.9% 39.6% 41.4% 43.2%Others 378 531 600 660 723 ROCE 28.7% 25.6% 29.6% 33.7% 37.2%Total current liabilities 856 1,517 1,632 1,741 1,858Long-term debt 350 250 250 250 250Others 8 24 29 35 41Total Liabilities 1,214 1,791 1,911 2,026 2,149Minorities 3 3 3 3 3Shareholders' equity 1,073 1,330 1,547 1,814 2,141BVPS 0.08 0.10 0.12 0.14 0.16


155



Xtep International Holdings Limited

Company DataShares O/S (mn) 2,176Market cap (Rmb mn) 4,814Market cap ($ mn) 757Price (HK$) 2.70Date Of Price 29 Jun 12Free float (%) 39.3%3mth Avg daily volume 1,954,713.003M - Average daily Value (HK$ mn)

6.40


0.83


Xtep International Holdings Limited (Reuters: 1368.HK, Bloomberg: 1368 HK)

Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Rmb mn) 4,457 5,540 5,653 5,909 6,202Net Profit (Rmb mn) 814 965 848 627 482EPS (Rmb) 0.37 0.44 0.39 0.29 0.22Recurring EPS (Rmb) 0.37 0.44 0.39 0.29 0.22DPS (Rmb) 0.19 0.21 0.18 0.13 0.10Revenue growth (%) 25.7% 24.3% 2.0% 4.5% 5.0%Net profit growth (%) 25.7% 18.6% -12.2% -26.0% -23.1%Recurring profit growth (%) 25.7% 18.6% -12.2% -26.0% -23.1%EPS growth (%) 25.6% 18.6% -12.2% -26.0% -23.1%ROE 25.7% 26.6% 20.5% 13.9% 10.0%ROA 20.5% 19.7% 14.5% 10.0% 7.3%P/BV (x) 1.4 1.2 1.1 1.0 1.0P/E (x) 5.9 5.0 5.7 7.7 10.0EV/EBITDA (x) 2.7 2.9 3.1 3.7 4.4Dividend Yield 8.5% 9.3% 8.2% 6.1% 4.7%Source: Company data, Bloomberg, J.P. Morgan estimates.

JPM Q-ProfileXtep International Holdings Ltd. (HONG KONG / Consumer Discretionary)As Of: 22-Jun-2012 [email protected]





Summary

Xtep International Holdings Ltd. 889.08 As Of:HONG KONG 0.9613811 SEDOL B2RJYH8 Local Price: 3.14Consumer Discretionary Textiles, Apparel & Luxury Goo EPS: 0.42


12mth Forward PE 6.09x 2.76 15.33 9.53 9.05 15.65 2.45 -55% 152% 57% 49%P/BV (Trailing) 1.43x 0.75 4.11 2.60 2.39 4.34 0.44 -48% 187% 82% 67%Dividend Yield (Trailing) 8.72 2.12 11.24 4.26 5.30 10.44 0.16 -76% 29% -51% -39%

ROE (Trailing) 26.62 20.97 94.99 27.09 39.39 92.27 -13.48 -21% 257% 2% 48%Implied Value of Growth -159.5% -3.53 0.17 -0.40 -0.82 0.92 -2.56 -121% 110% 75% 49%


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Xtep is engaged in the production, distribution and branding of sports wear products. It was founded in 1999 by Ding Shui Po, who is the CEO of Xtep. It started as an OEM enterprise and manufactured sports footwear and sports apparel. In 2002, the company launched the Xtep brand and shifted from an OEM manufacturer to a branded sportswear player. According to Euromonitor, by the end of 2007, Xtep’s market share in China’s sportswear segment was 3.4% and it ranked No. 6 following Nike, adidas, Li Ning, Anta, and Kappa. Xtep targets itself to be a fashionable sportswear player in China. In addition to Xtep, the company has introduced a new brand, Koling, recently and also has a non-exclusive license from Disney Shanghai for the Disney Sport brand and is authorized to design and distribute its products under this brand.










Price target and valuation analysis

We have further cut our PT to HK$2.25 (from previous HK$2.6) based on the present value of the long term target PE of 10x 2014 earnings, which are based on normalized margins. We have reduced the target PE to 10x (pointing to c30% discount to the international brands’ long term average of 15-16x on brand recognition) from 13x as we become more cautious on local sportswear brands long term prospects than earlier.2011 Revenue breakdown

Risks to our PT include lower than expected A&P expenses at the expense of long term sustainability, and higher than expected trade fair order growth at the expense of retail inventory level.




FY12E 0.39 0.41

FY13E 0.29 0.41

FY14E 0.22 0.43


Peer comparison valuation table


China retailersBelle International 1880 HK OW 13.1 15.50 14,266 21.3 19.3 15.7 4.0 3.5Parkson Retail 3368 HK N 6.9 7.50 2,486 14.1 13.7 12.0 2.7 2.4China Dongxiang^ 3818 HK NR 0.7 500 31.5 8.1 7.4 0.4 0.4Li Ning 2331 HK UW 4.3 4.50 591 9.7 13.9 9.2 1.0 0.9Anta 2020 HK UW 4.7 4.00 1,505 5.5 6.6 7.6 1.4 1.3Golden Eagle 3308 HK OW 15.7 22.50 3,940 21.0 18.8 15.1 4.8 4.1Ports Design 589 HK UW 8.1 7.00 587 8.7 8.2 7.3 1.8 1.6Sector average 16.0 12.7 10.6 2.3 2.0

Source: J.P. Morgan estimates, Bloomberg. Prices as Jun 29, 2012 close. ^Bloomberg consensus estimates used for the company.

Footwear

45%Apparel 53%

Accessories 2%

157



Xtep International Holdings Limited: Summary of FinancialsIncome Statement Cash flow statementRmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 4,457 5,540 5,653 5,909 6,202 PBT 978 1,211 1,087 815 643% change Y/Y 25.7% 24.3% 2.0% 4.5% 5.0% Depr. & amortization 21 29 49 54 58

Gross Profit 1,812 2,258 2,284 2,213 2,233 Change in working capital -466 -955 -130 -14 -133% change Y/Y 30.6% 24.6% 1.2% -3.1% 0.9% Tax -88 -124 -239 -187 -161Gross margin 40.7% 40.8% 40.4% 37.5% 36.0% Other 10 43 0 0 0EBITDA 999 1,248 1,155 887 717 Cash flow from operations 456 204 767 667 408

% change Y/Y 39.3% 24.9% -7.4% -23.3% -19.1%EBITDA Margin 22.4% 22.5% 20.4% 15.0% 11.6% Capex -25 -214 -300 -60 -60EBIT 978 1,219 1,107 833 659 Acquisition of subsidiaries/intangibles - - - - -

% change Y/Y 39.4% 24.7% NM NM NM Other -29 -413 -115 0 0EBIT Margin 21.9% 22.0% 19.6% 14.1% 10.6% Cash flow from investing -54 -627 -415 -60 -60Net Interest 9 -5 -20 -18 -16Share of JVs - - - - - Equity raised/(repaid) - - - - -Earnings before tax 978 1,211 1,087 815 643 Debt raised/(repaid) 0 492 0 0 0

% change Y/Y 39.3% 23.8% -10.3% -25.0% -21.1% Dividends paid -471 -450 -395 -292 -225Tax -165 -246 -239 -187 -161 Other 7 6 -4 0 0


% change Y/Y 25.7% 18.6% -12.2% -26.0% -23.1% Net change in cash -63 -375 -47 315 123Recurring Net Income 814 965 848 627 482 Ending Cash 2,444 2,068 2,021 2,336 2,459% change Y/Y 25.7% 18.6% -12.2% -26.0% -23.1% DPS 0.19 0.21 0.18 0.13 0.10EPS (reported) 0.37 0.44 0.39 0.29 0.22

% change Y/Y 25.6% 18.6% (12.2%) (26.0%) (23.1%)Recurring EPS 0.37 0.44 0.39 0.29 0.22

% change Y/Y 25.6% 18.6% (12.2%) (26.0%) (23.1%)


Cash and cash equivalents 2,444 2,068 2,021 2,336 2,459 Gross margin 40.7% 40.8% 40.4% 37.5% 36.0%Accounts receivable 727 1,205 1,737 1,339 1,890 EBITDA margin 22.4% 22.5% 20.4% 15.0% 11.6%Inventories 463 672 621 797 726 Operating margin 21.9% 22.0% 19.6% 14.1% 10.6%Others 343 1,055 1,072 1,072 1,072 Net margin 18.3% 17.4% 15.0% 10.6% 7.8%Current assets 3,977 5,000 5,451 5,544 6,147 Recurring net profit margin 18.3% 17.4% 15.0% 10.6% 7.8%Intangible assets 1 1 1 1 1 Sales growth 25.7% 24.3% 2.0% 4.5% 5.0%Net fixed assets 197 257 509 515 517 Net profit growth 25.7% 18.6% -12.2% -26.0% -23.1%Other assets 110 237 237 237 237 Recurring net profit growth 25.7% 18.6% -12.2% -26.0% -23.1%Total Assets 4,284 5,495 6,197 6,297 6,901 EPS growth 25.6% 18.6% (12.2%) (26.0%) (23.1%)Liabilities Net debt to equity -72.9% -40.3% -35.1% -39.3% -39.7%Short-term loans 0 492 492 492 492 Sales/assets 1.12 1.13 0.97 0.95 0.94Trade & other payables 639 499 867 631 978 Assets/equity 1.23 1.22 1.42 1.34 1.39Others 253 409 409 409 409 ROE 25.7% 26.6% 20.5% 13.9% 10.0%Total current liabilities 892 1,400 1,768 1,533 1,879 ROCE 30.9% 31.5% 23.9% 16.6% 12.4%Long-term debt - - - - -Others 40 184 69 69 69Total Liabilities 932 1,584 1,837 1,602 1,948Shareholders' equity 3,352 3,907 4,360 4,695 4,953BVPS 1.54 1.80 2.00 2.16 2.28


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Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Chow TaiFook Jewellery Company Ltd., Dairy Farm International Holdings Limited, Lifestyle International Holdings, Parkson Retail Group Ltd, Tibet 5100 Water Resources Holdings Ltd, Tsingtao Brewery - A, Tsingtao Brewery - H within the past 12 months.

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Parkson Retail Group Ltd.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: China Mengniu Dairy Co. Ltd., China Resources Enterprise, Chow Tai Fook Jewellery Company Ltd., Dairy Farm International Holdings Limited, Hengan International Group Ltd, L'Occitane International SA, Li Ning Co Ltd, Lifestyle International Holdings, Parkson Retail Group Ltd, Tibet 5100 Water Resources Holdings Ltd, Tingyi (Cayman Islands) Holding Corp, Tsingtao Brewery - A, Tsingtao Brewery - H, Want Want China Holdings Ltd, Xtep International Holdings Limited.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Chow Tai Fook Jewellery Company Ltd., Dairy Farm International Holdings Limited, Lifestyle International Holdings, Parkson Retail Group Ltd, Tibet 5100 Water Resources Holdings Ltd, Tsingtao Brewery - A, Tsingtao Brewery - H.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Chow Tai Fook Jewellery Company Ltd., L'Occitane International SA, Lifestyle International Holdings, Parkson Retail Group Ltd, Tingyi (Cayman Islands) Holding Corp, Tsingtao Brewery - A, Tsingtao Brewery - H, Want Want China Holdings Ltd.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Chow Tai Fook Jewellery Company Ltd., Parkson Retail Group Ltd.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Chow Tai Fook Jewellery Company Ltd., Dairy Farm International Holdings Limited, Lifestyle International Holdings, Parkson Retail Group Ltd, Tibet 5100 Water Resources Holdings Ltd, Tsingtao Brewery - A, Tsingtao Brewery - H.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Chow Tai Fook Jewellery Company Ltd., Dairy Farm International Holdings Limited, Lifestyle International Holdings, Parkson Retail Group Ltd, Tibet 5100 Water Resources Holdings Ltd, Tsingtao Brewery - A, Tsingtao Brewery -H.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Chow Tai Fook Jewellery Company Ltd., L'Occitane International SA, Lifestyle InternationalHoldings, Parkson Retail Group Ltd, Tingyi (Cayman Islands) Holding Corp, Tsingtao Brewery - A, Tsingtao Brewery - H, Want Want China Holdings Ltd.

Broker: J.P. Morgan Securities Ltd. acts as Corporate Broker to Dairy Farm International Holdings Limited.

J.P. Morgan Securities (Asia Pacific) Ltd. and or its affiliates ("J.P. Morgan") is acting as sole bookrunner on the approx. USD197mm secondary selldown (the “Proposed Transaction”) of Tsingtao Brewery Co. Ltd ("Tsingtao"). J.P. Morgan will receive a fee for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for Tsingtao or its associates and may have other interests in or relationships with Tsingtao or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein has not been prepared in connection with the Proposed Transaction and is not an endorsement by J.P. Morgan of the Proposed Transaction or intended to result in procurement, withholding or revocation of a proxy or any other action by a security holder. This research report and the information herein does not constitute or form part of any offer, solicitation or invitation to subscribe or purchase any securities nor shall it or any part of it form the basis of or be relied upon in connection with any contract or commitment whatsoever. This report is based solely on publicly available information. No representation or warranty, expressed or implied, is made that it is accurate or complete. J.P. Morgan does not accept any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Opinions, estimates, forecasts and projections, if any, contained in this report are our current opinions as of the date appearing on this report only, based on information that may not be accurate or complete. Before acting on any opinion in this report, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. Forecasts, projections and valuations are inherently speculative in nature and may be based on a number of contingencies. Clients should not regard the inclusion of any forecasts, projections and valuations in this

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report as a representation or warranty by any person that these forecasts, projections or valuations or their underlying assumptions will be achieved. THIS DOCUMENT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT. IT IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. THE DISTRIBUTION OF THIS DOCUMENT IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU ACKNOWLEDGE THE FOREGOING AND AGREE TO BE BOUND BY THE FOREGOING INSTRUCTIONS.

J.P. Morgan Securities (Asia Pacific) Ltd. and or its affiliates ("J.P. Morgan") is acting as sole bookrunner on the approx. USD197mm secondary selldown (the “Proposed Transaction”) of Tsingtao Brewery Co. Ltd ("Tsingtao"). J.P. Morgan will receive a fee for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for Tsingtao or its associates and may have other interests in or relationships with Tsingtao or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein has not been prepared in connection with the Proposed Transaction and is not an endorsement by J.P. Morgan of the Proposed Transaction or intended to result in procurement, withholding or revocation of a proxy or any other action by a security holder. This research report and the information herein does not constitute or form part of any offer, solicitation or invitation to subscribe or purchase any securities nor shall it or any part of it form the basis of or be relied upon in connection with any contract or commitment whatsoever. This report is based solely on publicly available information. No representation or warranty, expressed or implied, is made that it is accurate or complete. J.P. Morgan does not accept any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Opinions, estimates, forecasts and projections, if any, contained in this report are our current opinions as of the date appearing on this report only, based on information that may not be accurate or complete. Before acting on any opinion in this report, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. Forecasts, projections and valuations are inherently speculative in nature and may be based on a number of contingencies. Clients should not regard the inclusion of any forecasts, projections and valuations in this report as a representation or warranty by any person that these forecasts, projections or valuations or their underlying assumptions will be achieved. THIS DOCUMENT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT. IT IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. THE DISTRIBUTION OF THIS DOCUMENT IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU ACKNOWLEDGE THE FOREGOING AND AGREE TO BE BOUND BY THE FOREGOING INSTRUCTIONS.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing [email protected] with your request.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.morganmarkets.com.

Coverage Universe: Sener, Kurumlu Ebru: Anta Sports Products Ltd. (2020.HK), Belle International Holdings Ltd. (1880.HK), Big C Supercenter Pcl (BIGC.BK), CP All Pcl (CPALL.BK), Charoen Pokphand Foods (CPF.BK), China Lilang Ltd. (1234.HK), China Resources Enterprise (0291.HK), Chow Tai Fook Jewellery Company Ltd. (1929.HK), Dairy Farm International Holdings Limited (DAIR.SI), Esprit Holdings (0330.HK), Giordano (0709.HK), Golden Eagle Retail Group Ltd (3308.HK), Home Product Center Pcl (HMPR.BK), I.T Ltd. (0999.HK), L'Occitane International SA (0973.HK), Li & Fung (0494.HK), Li Ning Co Ltd (2331.HK), Lifestyle International Holdings (1212.HK), Major Cineplex Group Plc (MAJO.BK), New World Department Stores Ltd (0825.HK), Parkson Retail Group Ltd (3368.HK), Ports Design (0589.HK), Robinson Department Store (ROBI.BK), Sa Sa International Holdings Limited(0178.HK), Siam Makro (MAKR.BK), Texwinca (0321.HK), Thai Beverage Public Company Ltd. (TBEV.SI), Thai Union Frozen Products (TUF.BK), Tingyi (Cayman Islands) Holding Corp (0322.HK), Trinity Limited (0891.HK), Tsingtao Brewery - A (600600.SS), Tsingtao Brewery - H (0168.HK), Xtep International Holdings Limited (1368.HK), Yue Yuen Industrial (0551.HK)

Hong, Jessica Chien Han: Ajisen China Holdings Ltd (0538.HK), Cafe de Coral Holdings Ltd (0341.HK), China Foods Ltd (0506.HK), China Huiyuan Juice Group Ltd (1886.HK), China Mengniu Dairy Co. Ltd. (2319.HK), China Yurun Food Group (1068.HK), Hengan International Group Ltd (1044.HK), Huabao International Holdings Limited (0336.HK), Tibet 5100 Water Resources Holdings Ltd (1115.HK), Uni-President China Holdings Ltd (0220.HK), Want Want China Holdings Ltd (0151.HK)

mailto:[email protected]

https://mm.jpmorgan.com/disclosures/company

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J.P. Morgan Equity Research Ratings Distribution, as of April 3, 2012

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 45% 43% 12%IB clients* 51% 45% 34%

JPMS Equity Research Coverage 43% 48% 9%IB clients* 70% 61% 53%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email [email protected].

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

Other Disclosures

J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf

Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 088/04/2012 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL.

http://www.optionsclearing.com/publications/risks/riskstoc.pdf

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Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Securities Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. 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Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised April 18, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P

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