well-placed to benefit from growing demand/urbanization; buy · +86(10)6627-3191 [email protected]...

July 7, 2010

INITIATION NVC Lighting Holding (2222.HK)

Buy Research Report

Well-placed to benefit from growing demand/urbanization; Buy

Investment view

We initiate coverage on NVC Lighting Holding (NVC) with a Buy rating

and 12-month DCF-based target price of HKD$ 3.6, implying an upside

potential of 57%. We believe the lighting industry has embarked on a

period of strong growth in China that will continue to 2014E, mainly

driven by increasing demand for energy-saving lighting products and the

spreading of the urbanization trend from coastal to inland areas. We

believe NVC is well positioned to capture the strong industry growth via

its focus on energy-efficient and own-brand products, and its exclusive

third-party-owned distribution channels.

Core drivers of growth

We estimate a 42% CAGR (excluding the fair value loss of the derivative

component of preference shares in 2009) for 2009-2011E net earnings,

mainly driven by sales volume growth on capacity expansion, and

sustainable gross margin trend on its backward vertical integration.

Risks to the investment case

Rising competition; execution risk around its rapid expansion; potential

monetary/property market tightening policies could mean weaker growth.

Valuation

We believe DCF methodology best captures its potential cash generating

capability. We expect evidence of strong earnings growth momentum to

lead to further valuation re-rating.

Industry context

According to industry consultant, Freedonia Custom Research Inc,

China’s lighting industry is expected to grow at a CAGR of 9.3% during

2007-2014E. We believe the key drivers are ongoing urbanization and

rising residential GFA per capita as economic grows, and growing

demand in energy-saving lighting products.

INVESTMENT LIST MEMBERSHIP

Asia Pacific Buy List

Coverage View: Neutral China Housing

Jim Hung SAC License No. S1420110030009 +86(10)6627-3191 [email protected] Beijing Gao Hua Securities Company Limited

Beijing Gao Hua Securities Company Limited and its affiliates do and seek 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. For analyst certification, see the end of the text. Other important disclosures follow the Reg AC certification, or contact your investment representative.

Rowena Chang SAC License No. S1420110030002 +86(10)6627-3054 [email protected] Beijing Gao Hua Securities Company Limited

Beijing Gao Hua Securities Company Limited Investment Research

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the

investment profile measures please refer to

the disclosure section of this document.

NVC Lighting Holding (2222.HK)

Asia Pacific Industrials Peer Group Average

Key data Current

Price (HK$) 2.32

12 month price target (HK$) 3.60

Market cap (HK$ mn / US$ mn) 6,875.7 / 882.2

Foreign ownership (%) --

12/09 12/10E 12/11E 12/12E

EPS (HK$) 75.11 0.17 0.15 0.19

EPS growth (%) (39.7) (99.8) (10.6) 22.5

EPS (diluted) ($) 7.95 0.02 0.02 0.02

EPS (basic pre-ex) ($) 9.68 0.02 0.02 0.02

P/E (X) 0.0 13.7 15.4 12.5

P/B (X) 0.0 1.9 1.7 1.5

EV/EBITDA (X) NM 4.9 5.9 4.6

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 12.4 17.3 11.4 12.4

CROCI (%) 29.6 33.0 28.6 27.6

Price performance chart

1.8

1.9

2.0

2.1

2.2

2.3

2.4

Apr-10 May-10 Jun-10

18,500

19,500

20,500

21,500

22,500

23,500

24,500

NVC Lighting Holding (L) Hang Seng Index (R)

Share price performance (%) 3 month 6 month 12 monthAbsolute -- -- --

Rel. to Hang Seng Index -- -- --

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 7/06/2010 close.

July 7, 2010 NVC Lighting Holding (2222.HK)

NVC Lighting Holding: Summary Financials

Analyst Contributors

Jim Hung

[email protected]

Rowena Chang

[email protected]

Gao Hua Securities Investment Research 2

Profit model ($ mn) 12/09 12/10E 12/11E 12/12E Balance sheet ($ mn) 12/09 12/10E 12/11E 12/12E

Total revenue 305.8 398.7 500.2 613.8 Cash & equivalents 44.0 253.4 271.1 298.5

Cost of goods sold (221.7) (288.8) (363.4) (445.5) Accounts receivable 85.8 125.6 157.6 193.4

SG&A (47.2) (59.8) (80.0) (98.2) Inventory 47.6 55.4 69.7 85.4

R&D -- -- -- -- Other current assets 10.0 10.0 10.0 10.0

Other operating profit/(expense) 7.0 10.0 10.0 12.3 Total current assets 187.3 444.3 508.4 587.3

EBITDA 53.8 91.6 104.5 127.3 Net PP&E 67.8 106.4 151.9 199.2

Depreciation & amortization (10.0) (31.5) (37.7) (45.0) Net intangibles 86.8 68.6 50.4 32.3

EBIT 43.8 60.1 66.7 82.4 Total investments 0.5 0.5 0.5 0.5

Interest income 0.8 3.0 5.2 5.7 Other long-term assets 13.2 13.0 13.0 13.0

Interest expense (8.7) (0.6) (0.6) (0.6) Total assets 355.7 632.9 724.3 832.3

Income/(loss) from uncons. subs. 0.1 0.0 0.0 0.0

Others (15.8) 0.0 0.0 0.0 Accounts payable 96.6 118.7 149.4 183.1

Pretax profits 20.1 62.4 71.4 87.4 Short-term debt 6.1 6.1 6.1 6.1

Income tax (5.4) (9.4) (10.7) (13.1) Other current liabilities 3.2 3.2 3.2 3.2

Minorities (1.8) (2.6) (3.2) (4.0) Total current liabilities 105.9 128.0 158.7 192.4

Long-term debt 0.3 0.3 0.3 0.3

Net income pre-preferred dividends 12.8 50.4 57.4 70.3 Other long-term liabilities 81.8 23.8 23.8 23.8

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 82.1 24.1 24.1 24.1

Net income (pre-exceptionals) 12.8 50.4 57.4 70.3 Total liabilities 188.0 152.1 182.8 216.5

Post-tax exceptionals 0.0 0.0 0.0 0.0

Net income 12.8 50.4 57.4 70.3 Preferred shares 54.5 0.0 0.0 0.0

Total common equity 109.7 474.7 532.1 602.4

EPS (basic, pre-except) ($) 9.68 0.02 0.02 0.02 Minority interest 3.5 6.2 9.4 13.4

EPS (basic, post-except) ($) 9.68 0.02 0.02 0.02

EPS (diluted, post-except) ($) 7.95 0.02 0.02 0.02 Total liabilities & equity 355.7 632.9 724.3 832.3

DPS ($) 0.00 0.00 0.00 0.00

Dividend payout ratio (%) 0.0 0.0 0.0 0.0 BVPS ($) 82.68 0.16 0.18 0.20

Free cash flow yield (%) NM 4.2 5.3 6.4

Growth & margins (%) 12/09 12/10E 12/11E 12/12E Ratios 12/09 12/10E 12/11E 12/12E

Sales growth 19.2 30.4 25.5 22.7 CROCI (%) 29.6 33.0 28.6 27.6

EBITDA growth 25.2 70.3 14.1 21.9 ROE (%) 12.4 17.3 11.4 12.4

EBIT growth 11.0 37.2 11.1 23.4 ROA (%) 3.9 10.2 8.5 9.0

Net income growth (28.4) 292.8 13.8 22.5 ROACE (%) 18.7 28.2 22.3 23.4

EPS growth (40.1) (99.8) (10.3) 22.5 Inventory days 57.0 65.1 62.8 63.6

Gross margin 27.5 27.6 27.3 27.4 Receivables days 99.1 96.8 103.3 104.4

EBITDA margin 17.6 23.0 20.9 20.7 Payable days 148.5 136.1 134.6 136.2

EBIT margin 14.3 15.1 13.3 13.4 Net debt/equity (%) (22.4) (51.4) (48.9) (47.4)

Interest cover - EBIT (X) 5.5 NM NM NM

Cash flow statement ($ mn) 12/09 12/10E 12/11E 12/12E Valuation 12/09 12/10E 12/11E 12/12E

Net income pre-preferred dividends 12.8 50.4 57.4 70.3

D&A add-back 10.0 31.5 37.7 45.0 P/E (analyst) (X) 0.0 13.7 15.4 12.5

Minorities interests add-back 1.8 2.6 3.2 4.0 P/B (X) 0.0 1.9 1.7 1.5

Net (inc)/dec working capital (8.8) (25.6) (15.6) (17.8) EV/EBITDA (X) NM 4.9 5.9 4.6

Other operating cash flow 26.3 0.2 0.0 0.0 EV/GCI (X) NM 1.6 1.7 1.3

Cash flow from operations 42.1 59.1 82.7 101.5 Dividend yield (%) 0.0 0.0 0.0 0.0

Capital expenditures (12.2) (31.9) (40.0) (49.1)

Acquisitions (20.5) (20.0) (25.0) (25.0)

Divestitures 0.0 0.0 0.0 0.0

Others 7.7 0.0 0.0 0.0

Cash flow from investments (25.0) (51.9) (65.0) (74.1)

Dividends paid (common & pref) 0.0 0.0 0.0 0.0

Inc/(dec) in debt (2.5) 0.0 0.0 0.0

Common stock issuance (repurchase) 0.0 202.1 0.0 0.0

Other financing cash flows 7.4 0.0 0.0 0.0

Cash flow from financing 4.8 202.1 0.0 0.0

Total cash flow 21.9 209.4 17.7 27.4 Note: Last actual year may include reported and estimated data.

Source: Company data, Goldman Sachs Research estimates.



Table of Contents

Overview: A changing lighting industry landscape 3

Key risks: Competition, execution, potential policy tightening 4

Lighting industry – fluorescent replacing incandescent 5

China – the key growth driver for the global lighting industry 6

Energy-saving and urbanization are secular trends for China 7

NVC — Beneficiary of China’s growth and potential industry consolidation 12

Brand premium and distribution channels differentiate NVC 16

Financial analysis – Strong growth 18

Valuation methodology 22

Company history 24

The prices in the body of this report are based on the market close of July 2, 2010.

Overview: A changing lighting industry landscape

In our view, the lighting industry in both China and globally is undergoing a period of

change — driven by the increasing focus on energy efficiency and increasing urbanization.

As the largest domestic supplier of lighting products (in terms of sales revenue in 2009) in

China, we believe NVC will be able to leverage its well-recognized brand name, its

business strategy of focusing on energy-saving and own-brand products, and its

exclusive third-party distribution channels in China to take advantage of strong industry

growth in China over the next few years.

A shift from incandescent to fluorescent lighting products

Increasing demand for higher energy-efficient lighting products on rising global

concerns over high energy consumption.

Industry consultant Global Markets Direct expects the market share for the traditional

(more energy hungry) incandescent lighting products to shrink from 60% in 2008 to

30% in 2010E, and market share for (more energy-efficient) fluorescent lighting

products to expand from 30% in 2008 to above 40% in 2010E.

China becoming the key driver for global lighting industry growth

With increasing demand in China, lighting industry CAGR (9.3%) in China is

substantially higher than that of the global lighting industry (4.6%) during 2007-

2014E, according to industry consultant Freedonia Custom Research Inc.

Urbanization and energy-saving are secular trends in China

In line with the global trend towards energy-saving lighting products, Freedonia

Custom Research Inc. expects China’s demand for energy-saving lighting products to

rise from 32.8% of total domestic demand in 2007 to 50.8% in 2014E.

Meanwhile, we see a further pickup in the rate of urbanization in China on the back of

strong economic growth. The urbanization rate has increased from 18% in 1978 to



46% in 2008, and — according to “World Urbanization Prospects: The 2009 Revision”

published by the United Nations, Department of Economic and Social Affairs,

Population Division — the urbanization rate in China will climb to 51% in 2010 with

continued economic growth.

In addition, we believe potential ongoing increase in residential GFA per capita may

also boost demand for lighting products.

Business strategy on energy-saving and own-brand products

NVC’s business strategy is set around maintaining a high sales exposure to energy-

saving and own-brand products.

We expect NVC to further grow its business by maintaining its extensive and

dedicated distribution channels and looking to expand the number of own-branded

sales outlets to capture the business opportunity in tier-two to tier-four cities.

Valuation

We believe DCF methodology best captures its potential cash generating capability.

We also see earnings, book value and EV/EBITDA valuation methodologies as useful

in order to compare the company against domestic lighting peers or other retail

companies.

Key risks

Intense competition from both local and global lighting product producers.

Execution risk around its plans for rapid expansion and vertical integration.

Potential government tightening to lead to slower-than-expected demand growth.

Financials

Excluding the fair value loss of the derivative component of preference shares in

2009, which created a low base, our 2009-2011E net earnings CAGR estimate is

42%(111% if including the fair value loss of the derivative component of preference

shares in 2009).

Key earnings drivers are (1) sales volume growth on capacity expansion and (2)

sustainable gross margin trend on its backward vertical integration.

Key risks: Competition, execution, potential policy tightening

We identify below three key risks for the company’s growth:

Intensifying competition from both global and local lighting product producers:

China’s lighting industry is highly-fragmented — with no single producer holding

more than 1% domestic market share — we believe NVC will continue to face strong

competition from both domestic and global lighting product makers.

Execution risk around of its rapid expansion: NVC currently sells its products

through 2,461 own-branded sales outlets in China, and we believe this number could

grow 10%-15% by year-end 2010E and potentially reach 3,600-4,000 outlets by year -

end 2012E. Since we estimate 80%-85% of its retail outlets are in tier-two to tier-four



cities, maintaining the quality of its distributors’ sales service and delivery efficiency

will be key as the company expands its distribution network.

Potential government tightening policy could slow industry growth: As the

lighting industry is closely correlated with residential and commercial property

development and public construction projects, any slowdown in these areas would

likely curb lighting industry growth. With rising concerns over inflation in China, there

is potential for the government to tighten monetary or property market policy, which

might then lead to lower-than-expected revenue growth for NVC.

Lighting industry – fluorescent replacing incandescent

Incandescent lighting products used to dominate the global market… Lighting is the major source of power consumption for both residential and commercial

users, with incandescent bulbs dominating the global market historically. According to

industry consultant Global Markets Direct, total lighting products sold in 2008 numbered

20bn units (representing sales value of US$78 bn) — with 14.4 bn of those being

incandescent lighting products.

Exhibit 1: Electric Lighting Sources

Source: Global Markets Direct.

…however, the trend is towards fluorescent lighting products

With energy-saving lighting product prices declining in recent years, fluorescent lighting

products are taking a greater share of the market share (along with LED lighting products).

According to Global Markets Direct, the market shares of fluorescent and LED lighting

products will increase from 33% and 8% in 2008 to 39% and 16% in 2012E.

Lamps

Incandescent Lamp Discharge Lamp Solid-State Lighting

Original LED (OLED)Light Emitting Diode (LED)

Gas-filled LampVacuum Lamp

High Intensity Discharge (HID)Fluorescent Lamps & CFL

Halogen Lamp Non-Halogen Lamp



Exhibit 2: Although LED may be the trend of the future, cost analysis suggests that CFL

(a fluorescent product) comes top in terms of cost efficiency


Exhibit 3: Lighting features comparison

Note: A CFL is 70% more efficient than a normal incandescent source, and a LED is 80% more

efficient than a normal incandescent source.

Note: A “v” indicates the lighting source possesses the specified feature, and “x” indicates it does

not.


China – the key growth driver for the global lighting industry

Although we expect stable growth for the lighting industry globally, we believe demand

in China will outstrip growth globally and will therefore become a larger part of the

overall market. We expect China’s growth to be driven by the government’s energy-

saving policies, and ongoing rapid urbanization. Industry consultant Freedonia Custom

Research Inc. currently forecasts global lighting industry CAGR of 4.6% over 2007 to

2014E, and China growth CAGR of 9.3% over the same period — with China therefore

driving most global growth.

Incandescent CFL LEDWatt 100.00 26.00 7.00 Initial Cost ($) (A) 0.50 6.31 80.00 Light output (Lumes) 870.00 1,700.00 350.00 Life (Hours) 1,000.00 12,000.00 50,000.00 Charge ($ per unit kWh) 0.08 0.08 0.08 Cost of electricity ($) 6.96 24.96 6.72 Cost over 12,000 hours ($) (B) 83.52 24.96 6.72 Total cost ($) (A+B) 84.02 31.27 86.72

Features Incandescent CFL LED

Energy Efficiency x 70% 80%Bright Yellow Light v x xInstant On v x vDimmability v x xMercury contect x v xTimer and Photo Control Applicability v x vExtended Life x v vNeed to be recycled x v xPrice range (US$ for a 1,000W equivalent) 0.5 to 27.0 2.0 to 67.0 13.0 to 97.0



Exhibit 4: China’s share of the global lighting market to rise from 15.4% in 2007 to 21.0%

in 2014E

Source: Freedonia Custom Research, Inc.

Energy-saving and urbanization are secular trends for China

We believe energy-saving and urbanization will be the two key trends driving growth in

China’s lighting industry in the next 5 years — spurred on by strong government support

and rapid economic growth.

Energy-saving is a multi-year theme

Energy efficiency has become a key trend globally as rapid economic expansion has led

to a rapid increase in energy consumption worldwide, with the U.S. Energy Information

Administration projecting total world consumption of energy to increase by 44% from

2006 to 2030. Given the general trend towards greater energy efficiency and energy

saving, we expect the lighting industry to follow suit, with energy-efficient lighting

products gaining market share over the next few years.

Freedonia also forecasts global demand for energy-saving lighting products to grow from

35.5% of total global demand for overall lighting products in 2007 to 55.4% in 2014E. For

China, Freedonia forecasts demand to grow from 32.8% to 50.8% over the same period.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2007 2008 2009 2010E 2011E 2012E 2013E 2014E

US$ mn

Rest of the world Japan China Western Europe US



Exhibit 5: Global demand for energy-saving lighting

products is expected to increase significantly during the

next 5 years...

Exhibit 6: ...and the energy-saving trend is taking place in

China as well



Assessing lighting alternatives — fluorescent looks best placed

Global Markets Direct and Freedonia Custom Research, Inc., expect that among all types

of lighting products, fluorescent and LED lamp products will grow their market shares on

their higher energy efficiency, at the expense of traditional incandescent lighting products.

However — regarding preferences for fluorescent or LED lamp products — although LED

lamp products rank number one in terms energy efficiency and usage life, our industry

checks lead us to believe that LED lighting will not be widely applied to indoor lighting in

the next 5 years as it too bright for indoor use (10-20 times brighter) and is priced higher

than fluorescent lights. We therefore believe that demand growth for LED will come from

outdoor lighting over the next 5 years and that fluorescent lighting products will continue

to experience strong demand growth globally.

Given its high energy efficiency and reasonable price, we expect fluorescent lamp

products to gradually replace traditional incandescent lamp products and become

mainstream products. Fluorescent lighting products are separated into three categories

based on their structure (straight-tube fluorescent lamps, circline fluorescent lamps and

the compact fluorescent lamps), and we expect compact fluorescent lamps (CFLs) to be

preferred alternative to incandescent bulbs (as CFL is usually 70% more efficient in terms

of energy consumption than incandescent lamps).

Global Markets Direct, forecasts global CFL sales volume to grow at a CAGR of 9.3%

during 2010E-2015E (double the CAGR for global lighting industry during the same

period), we estimate CFL sales volume in China will increase at a CAGR of 20%-30%

during 2010E-2015E driven by the fast growth in the lighting industry, ongoing

urbanization, and government subsidies.

35.5% 37.8%

55.4%

64.5% 62.2%

44.6%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2007 2009E 2014E

Other Products Energy-saving Products

32.8% 35.9%

50.8%

67.2% 64.1%

49.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2007 2009E 2014E

Energy-saving Products Other Products



Exhibit 7: Energy-saving lighting products (fluorescent and LED) are forecast to take

market share from traditional incandescent lighting products Global market share trend of different lighting products, 2009-2015


Exhibit 8: Comparative analysis of different types of fluorescent


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009E 2010E 2011E 2012E 2013E 2014E 2015E

Incandescent lighting products Fluorescent lighting products LED lighting products

Fluorescent lighting types Efficacy Color temperature Lifetime Color Rendition Index Application(Lumens/watt) (Kelvin) (Hours) (CRI)

Circline 40 to 50 2,850 to 6,500 12,000 52 to 85 IndoorsStraight Tube 30 to 110 2,700 to 6,500 7,000 to 24,000 50 to 90 Indoor/ OutdoorCompact fluorescent (CFL) 50 to 70 2,700 to 6,500 10,000 to 20,000 65 to 88 Indoor/ Outdoor



Exhibit 9: We observe a fast growing trend for global CFL

sales volume during 1998 to 2009E... Global CFL sales volume, 1998-2009E

Exhibit 10: ...and we expect this growth will continue in

coming years, albeit more tempered Global CFL sales volume, 2010E-2015E



Urbanization too is an ongoing theme

Since economic reforms began in 1978, the urbanization rate in China has increased from

17.9% to 45.7% in 2008. Prefecture-level cities have increased from 111 in 1978 to 287 in

2008. Furthermore, according to “World Urbanization Prospects: The 2009 Revision”

published by the United Nations, Department of Economic and Social Affairs, Population

Division, the urbanization rate in China will climb to 51% in 2010 with continued economic

growth.

With the focus for urbanization spreading inland, we believe demand growth could be

stronger in tier-two and tier-three cities than tier-one cities.

Exhibit 11: The urban population grew at a CAGR of 6.5% during 1978-2008 in China vs.

the total population growth of 1.6% CAGR during the same period

Source: National Bureau of Statistics.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E

Bn units

CAGR = 23.5%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2010E 2011E 2012E 2013E 2014E 2015E

Bn units

CAGR = 9.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

200

400

600

800

1,000

1,200

1,400

19

78

19

80

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

%mn people

Total Population Urbanization Rate



GFA per capita also rising

We also note that average residential gross floor area (GFA) per capita has increased from

22.8 square meters in 2002 to about 28 square meters in 2007. This is due to higher living

standards, but also regulatory requirements and review criteria for local government

officials to replace older residential properties.

With rising urbanization rate and GFA per capita, demand for indoor lighting products has

increased substantially. According to local industry consultant, Zero Power Intelligence

Co., the average lighting fixture/lamps per household has increased from 6.5 units in 1986

to 13.9 units in 1996. Moreover, our checks with the local developers indicate this number

could have doubled since then. Looking forward, we see continued strong demand

growth in lighting products as new residential property projects are built and also from

replacement demand for existing lighting products.

Exhibit 12: Urbanization trend is moving from coastal areas to inland China Total population and urbanization rate by region, 2008

Source: National Bureau of Statistics.

Region Total Population Urbanization Rate(Mn people) (%)

National Total 132,802 45.68%

Beijing 1,695 84.90%Tianjin 1,176 77.23%Hebei 6,989 41.90%Shanxi 3,411 45.11%Inner Mongolia 2,414 51.71%

Liaoning 4,315 60.05%Jilin 2,734 53.21%Heilongjiang 3,825 55.40%

Shanghai 1,888 88.60%Jiangsu 7,677 54.30%Zhejiang 5,120 57.60%Anhui 6,135 40.50%Fujian 3,604 49.90%Jiangxi 4,400 41.36%Shangdong 9,417 47.60%

Henan 9,429 36.03%Hubei 5,711 45.20%Hunan 6,380 42.15%Guangdong 9,544 63.37%Guangxi 4,816 38.16%Hainan 854 48.00%

Chongqing 2,839 49.99%Sichuan 8,138 37.40%Guizhou 3,793 29.11%Yunnan 4,543 33.00%Tibet 287 22.61%

Shannxi 3,762 42.10%Gansu 2,628 32.15%Qinghai 554 40.86%Ningsha 618 44.98%Xinjiang 2,131 39.64%



NVC — Beneficiary of China’s growth and potential industry

consolidation

NVC is the largest domestic lighting product supplier in China in terms of sales revenue in

2009 and has a well-recognized brand name in China. With its large operating scale, as

well as its brand name, we expect the company to benefit from potential industry

consolidation in the coming years. Moreover, we continue to see strong sales and

earnings growth momentum for the company in the next few years, mainly driven by

China’s energy-saving policy and ongoing urbanization.

Focus on energy-saving products through vertical integration

Starting from a lighting fixture maker in 1998, NVC has begun to focus on the lamp

market over the past few years concentrating on energy-saving lighting products

(especially fluorescent lamp products).

Capacity growth and pick up in utilization rates to drive future earnings: The company plans to grow its capacity by 11% and 13% in 2010E and 2011E, which

we believe will boost its energy-saving lighting product sales revenue. We also

expect a stable margin trend in energy-saving products (under the rising material

price environment) on better vertical integration, along with sales volume growth to

lead to net earnings growth in 2010E and 2011E.

Exhibit 13: We see strong growth in sales revenue in the

coming years mainly driven by energy-saving lamp

products... We see the sales revenue growing at a CAGR of 36% during

2007 to 2012E

Exhibit 14: ...with improving gross margins in energy-

saving lamp products providing strong earnings growth

momentum Gross margin by product

Source: Gao Hua Securities Research estimates.

Source: Company data.

Vertical integration to help sustain gross margins: In August 2008, the

company acquired World Through (Private), which owns the largest domestic raw

fluorescent tube supplier in China, Sunny (Private). With this acquisition, NVC has

integrated up the supply chain (fluorescent tube manufacturing), enabling a better

cost structure. Controlling the supply chain from manufacturing to distribution, and

economies of scale in production and distribution should allow it to maintain margins

in the face of rising raw material prices, in our view.

0

100

200

300

400

500

600

700

2007 2008 2009 2010E 2011E 2012E

US$ mn

Total Revenue

CAGR = 36%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2007 2008 2009

(%)

Lamps Luminaires Lighting electronics



Riding the urbanization trend through its brand premium and

channel advantage

Given its brand premium in China, as well as its broad retail channels, we believe NVC

will be able to enjoy high growth opportunities during the urbanization process in China.

Having a well-recognized brand may assist market penetration

NVC differentiates itself in that 62.6% of its 2009 sales revenue came from its own-brand

product sales, while most local peers are mainly focusing on ODM/OEM business.

Moreover, NVC’s brand was named “The Most Popular Commercial Lighting Brands

Among Chinese Designers in Year of 2009” by the China Architecture Decoration

Association, with its NVC trademark being recognized as a “China Well-Known

Trademark” by the State Administration for Industry and Commerce of the PRC.

Demonstrating its brand premium, NVC’s specially designed “Wing” series luminaire

products were adopted for the Beijing 2008 Olympic Games. The company also won

several other high-profile government projects (i.e. Guangzhou 2010 Asian Games). Other

than government projects, we believe NVC’s brand premium could also provide the

company with the opportunity to penetrate leading retail and hotel players.

With this brand premium, we think NVC will be able to maintain its ASP premium (top

brand products usually sell at a 10%-20% premium over non-branded lighting products, in

our estimate), and should therefore be in a better position to take advantage of business

growth opportunities, and potential M&A opportunities than many of its local peers.

Exhibit 15: NVC’s wing-series lighting products

Olympic center, Beijing


Exclusive distributor network allows NVC to expand local market share quickly

NVC currently has contracts with 36 exclusive distributors in China, through which NVC

has access to 2,461 own-branded outlets nationwide. Most of its exclusive distributors

have worked with NVC for around 5-6 years, and we estimate have an average annual

turnover of between Rmb10 mn and Rmb150 mn.



While NVC does not have any ownership in the 36 exclusive distributors, it helps finance

their working capital, provides branding for the stores, and provides them with

operational guidance, as well as economic incentive to grow their market shares in the

retail markets.

Of the retail outlets, we estimate 15%-20% are located in tier-one cities and that 80%-85%

are in tier-two to tier-four cities. We expect NVC to grow its retail outlets by 10%-15% yoy

in 2010E (and possibly reach 3,600-4,000 retail outlets by year-end 2012E) through

expansion by its exclusive distributors. We believe the company should see strong sales

and earnings growth momentum as these lower-tier cities see ongoing urbanization.

While traditional distribution channels (department stores, supermarkets, home

decoration & furnishing stores, and Mom & Pop stores) can produce a cluster effect to

help boost sales, we believe the higher distribution fees will further squeeze suppliers’

margins. Therefore, we believe NVC’s distributor-based distribution channels will not only

help it penetrate tier-two to tier-four cities, but also enable it to maintain stable margins.

Moreover, we think NVC will also be able to grow its market share faster than most

domestic peers by leveraging its distribution channel advantage.

Exhibit 16: NVC’s distribution channel network structure

Source: Company data

NVCNVC

Exclusive Regional Distributors

NVC outlets

Retail End Customers▪ Households

Professional End Customers▪ Retail chains▪ Department Stores▪ Hotels▪ Offices▪ Public infrastructure and facilities



Exhibit 17: We expect NVC to take more market share through expansion of its exclusive

distributor network


Exhibit 18: Pros and cons of different distribution channels

Source: Gao Hua Securities Research

Pros Cons

Supermarket/ Department Stores ．Easier to sell to end-customers．Difficulty in selling lighting fixtures and electronic ballasts

Home Decoration & Furnishing Stores．Strong cluster effect．Cross-selling opportunities (in lighting fixtures and lamp products)

．High distribution fee．Little brand recognition．Mostly in tier one cities, with limited exposure to tier two and tier three cities

Mom & Pop Stores ．Opportunity to penetrate tier-two and tier-three cities．Difficulty in controlling the distribution/ service quality．Long account receivable days

NVC's Distribution Channels．High entry barrier for its exclusive distribution channels．Opportunity to penetrate tier two and tier three cities．Low distribution fee charges

．Little cluster effect．Potential turnover risk for its retail agents．Annual contract risk with its distributors



Brand premium and distribution channels differentiate NVC

NVC’s 2009 sales revenue increased 135% over 2007. By comparison, the global and

China lighting industries grew 0% and 23% in terms sales revenue over the same period,

according to industry consultant Freedonia Custom Research Inc.

Exhibit 19: Stronger sales growth momentum for NVC than for its key local competitors

in 2009 Rmb mn


We believe NVC’s core competitive advantages are its focus on:

Brand name development: Own-brand product sales for NVC are 62.6% of its total

revenue in 2009, whereas — according to our industry checks — local competitors’

own-brand product sales exposure are generally substantially lower as they tend to

focus on ODM/OEM business. We believe NVC’s brand premium, as well as the

increasing sales contribution from the higher-margin energy-saving lamp products

will be key elements to sustain higher sales and maintain a stable and sustainable

gross margin trend for NVC in the coming years.

Vertical integration structure and one-stop shopping platform: While its local

peers mainly focus on lamp product sales, we believe NVC should be able to sustain

a stable gross margin through its vertical integration into a full product line by selling

energy-saving lamps, luminaires, and lighting electronics. With a broader, more

vertically integrated product profile, we believe the company will be able to gain

more market share by providing a one-stop shopping service for customers through

its network of exclusive distributors.

0

500

1,000

1,500

2,000

2,500

2007 2008 2009

NVC Zhejiang Yankon Group Foshan Electrical and Lighting Neon-Neon Holdings



Exhibit 20: NVC stands out from its peers by having a broader product range Data as of 2008


Distribution channel development: With the trend of ongoing urbanization in

China, as well as the Chinese government pushing for stronger domestic

consumption growth (especially in tier-two and tier-three cities), we believe NVC will

be well-placed to expand its business rapidly. In our view, its existing channel

network should provide it a platform to expand more rapidly than local peers and

leading global brand names (such as Phillips or GE) who mainly sell through home

decoration, furnishing stores or distribution channels in tier-one cities.

Other than the comparison between NVC and other lighting companies in China, we also

compare NVC to some domestic retailers in China given its operating strategy (of using a

network of exclusive independent distributors).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NVC 31% 60% 9% 0%

Zhejiang Yankon Group 75% 21% 4% 0%

Foshan Electrical and Lighting 100% 0% 0% 0%

Cnlight 96% 0% 0% 4%

Lamp Products

Luminaire Products

Lighting Electronics Products

Others



Exhibit 21: SWOT analysis for NVC

Source: Gao Hua Securities Research.

Financial analysis – Strong growth

P&L analysis

We see strong sales and earnings growth momentum for NVC in 2010E and 2011E mainly

due to:

Increasing product sales volumes on capacity growth: We believe yoy capacity

growth will drive 30% and 25% yoy revenue growth in 2010E and 2011E. We forecast

production capacity growth as follows for 2010E and 2011E (with utilization rate

picking up from 81% in 2009 to 92% and 100% in 2010E and 2011E): luminaire

0%/10%, lamp 15%/13%, and lighting electronics (i.e. electronic transformers,

electronic and inductive ballasts, and HID ballast boxes) 40%/29%. We expect its ASP

to remain largely stable. Meanwhile, we expect the company to grow the number of

its retail outlets by 10%-15% by end-2010E, and possibly reach 3,600-4,000 retail

outlets by year-end 2012E. This growth should support its sales momentum.

Sustainable gross margin trend: Under an environment of rising raw material

prices (cold coils, lacquered wires, copper and aluminum materials, glass

components, phosphors, fuses, mercury, printed circuit boards, resistors and

condensers), we expect NVC can sustain a gross margin at 27%-28% in 2010E and

2011E due to its improving economic scale and its vertical integration, leading to

continued net earnings growth in 2010E and 2011E.

Net net, with strong sales growth and sustainable margin trend, we expect NVC to have

42% CAGR growth in net earnings during 2009-2011E (111% if we include the fair value

Opportunity Threat

Strength

．Energy-saving is an ongoing trend in China and an opportunity in the lighting industry. With its production scale economic and one-stop shopping platform, we expect NVC to grow its market share and maintain a margin premium over peers.

．Continued urbanization in tier two and tier three cities presents another opportunity for NVC. With its brand premium, and dedicated distribution channels, we think the NVC will be able to generate stronger business growth than its peers.

．Premium global lighting brand names are also aggressively targeting the Chinese market (especially key construction projects), leading to more intense competition. Continued investment in R&D and defending its existing commercial markets (especially retail stores) will be key for NVC to maintain its leading position.

．With LED eventually becoming an economic choice for indoor lighting, NVC may need to move into this area to ward off this threat and provide additional earnings momentum.

Weakness

．LED presents a future opportunity, but so far NVC has limited exposure. Potential industry alliances or M&A may help NVC further develop its franchise in this area.

．NVC has limited exposure to overseas markets. Entry to these may provide additional potential growth opportunities.

．NVC's current OEM/ODM business is lower-margin than its own-brand businessn and is likely to face competition from other low cost producers. A greater proportion of own-brand sales would ameliorate this threat.

．Expect more competition in the lighting industry in China given its substantial growth potential.

External analysis

Internal analysis



loss of the derivative component of preference shares in 2009, which created a low base)

vs. a 30%-35% growth for its peers during the period.

Exhibit 22: Earnings sensitivity – 2010E

US$/ share


Exhibit 23: Earnings sensitivity – 2011E

US$/ share


Balance sheet analysis

NVC has US$44mn of cash and cash equivalents (excluding the non-pledged time

deposits with original maturity of more than three months when acquired and pledged

time deposits for banking facilities) on hand as of 2009. It has a net cash/ equity ratio of

22% and EBIT interest coverage ratio of 5x.

The company has increased its net receivable days from 55 days in 2007 to 102 days in

2009 (with average trade receivable days up from 27 days in 2007 to 74 days in 2009). We

forecast this to rise to 115 days in 2010E/2011E as NVC looks to provide working capital

support its 36 regional distribution centers (i.e. provide sufficient incentive to expand their

market share). However, we do not think this would jeopardize the company’s financial

condition, as we forecast net payable days of 150 days in 2010E/2011E.

Cash flow analysis

While the company is in a fast growing status and is likely to continue to invest capex to

grow its business, we believe it can finance itself through its strong operating cash flow.

That said, even with increasing capex in the next 5 years, we still see improving free cash

flow generating ability for the company.

-20% -10% 0.0% 10.0% 20.0%-20% 0.014 0.015 0.017 0.019 0.021 -10% 0.015 0.017 0.019 0.021 0.023 0% 0.017 0.019 0.022 0.024 0.026

10% 0.019 0.021 0.024 0.026 0.029 20% 0.021 0.023 0.026 0.029 0.031

Upside/ downside to our sales volume forecast

Upside/ downside to our ASP

forecast

-20% -10% 0.0% 10.0% 20.0%-20% 0.012 0.014 0.016 0.017 0.019 -10% 0.014 0.016 0.017 0.019 0.021 0% 0.016 0.017 0.019 0.021 0.023

10% 0.017 0.019 0.021 0.023 0.025 20% 0.019 0.021 0.023 0.025 0.028

Upside/ downside to our sales volume forecast

Upside/ downside to our ASP

forecast



Exhibit 24: Summary P&L

Normalized net income excludes the fair value loss of the derivative component of preference shares.

Note: D&A included in COGS.


Summary P&L (USD mn) 2007 2008 2009 2010E 2011E 2012E

Total revenues 130 256 306 399 500 614

COGS (99) (194) (222) (289) (363) (445)Gross profit 31 63 84 110 137 168

SG&A (18) (28) (47) (60) (80) (98)Other operating income (expenses), net 2 4 7 10 10 12EBIT (Operating profit) 15 39 44 60 67 82 Depreciation (1) (3) (7) (13) (20) (27)Amortization (0) (1) (3) (18) (18) (18)EBITDA 16 43 54 92 104 127

Interest income 1 1 1 3 5 6Interest expense (3) (5) (9) (1) (1) (1)Net interest income/(expense) (2) (4) (8) 2 5 5

Other non-operating income/(loss) (0) (15) (16) 0 0 0Non-operating income/(loss) (2) (19) (24) 2 5 5

Pre-tax profit (Income before tax) 13 20 20 62 71 87

Provision for taxes 0 (2) (5) (9) (11) (13)Minority interest (0) (0) (2) (3) (3) (4)Exceptionals (including preference dividend) 0 0 0 0 0 0Net income, post exceptionals 13 18 13 50 57 70Normalized net income 13 33 29 50 57 70

Margin analysis 2007 2008 2009 2010E 2011E 2012EGross margin 24% 25% 27% 28% 27% 27%EBITDA margin 12% 17% 18% 23% 21% 21%Operating profit margin 11% 15% 14% 15% 13% 13%Pre-tax profit margin 10% 8% 7% 16% 14% 14%Net profit margin 10% 7% 4% 13% 11% 11%

YoY growth 2007 2008 2009 2010E 2011E 2012ERevenue 97% 19% 30% 25% 23%Gross profit 104% 34% 31% 24% 23%EBITDA 167% 25% 70% 14% 22%Operating profit 168% 11% 37% 11% 23%Net income 40% (28%) 293% 14% 23%Normalized net income 155% (13%) 77% 14% 23%

Net income CAGR, 2007-2012E 40%Net income CAGR, 2009-2012E 76%Normalized net income CAGR, 2007-2012E 40%Normalized net income CAGR, 2009-2012E 35%



Exhibit 25: Summary Balance Sheet

Note: Our cash & cash equivalent does not include the non-pledged time deposits with original

maturity of more than three months when acquired and pledged time deposits for banking facilities.


Summary Balance Sheet (USD mn) 2007 2008 2009 2010E 2011E 2012E

Cash and equivalents 12 22 44 253 271 299Net receivables 20 80 86 126 158 193Inventory/stocks 21 22 48 55 70 85Other current assets 3 24 10 10 10 10Current assets 55 148 187 444 508 587

Net PP&E/Fixed assets 24 56 68 106 152 199Net intantigibles 37 84 87 69 50 32Total investments 0 1 1 1 1 1Other long-term assets 5 10 13 13 13 13Non-current assets 66 151 168 189 216 245

Total assets 122 299 356 633 724 832

Accounts payable 32 84 97 119 149 183Short-term debt and current portion of long-term debt 4 8 6 6 6 6Other current liabilities 1 16 3 3 3 3Current liabilities 37 108 106 128 159 192 Long-term debt 0 0 0 0 0 0Other long-term liabilities/creditors 33 85 82 24 24 24Long-term liabilities 33 85 82 24 24 24

Total liabilities 69 193 188 152 183 217

Preferred shares 0 7 54 0 0 0

Common stock (includes par value, capital surplus, and treasury) 1 24 24 338 338 338Treasury stock 0 0 0 0 0 0Retained earnings 50 73 86 137 194 264Others 0 0 0 0 0 0Total common equity 51 97 110 475 532 602

Minority interest (balance sheet) 2 2 4 6 9 13Total shareholders funds/equity 53 105 168 481 541 616

Total liabilities and equity 122 299 356 633 724 832



Exhibit 26: Summary Cash Flow Statement


Exhibit 27: Key ratio analysis


Valuation methodology

We believe DCF methodology best captures its potential cash generating capability.

We also see earnings, book value and EV/EBITDA valuation methodologies as useful

in order to compare the stock against domestic lighting peers or other retail

companies. But given the limited comparables, we think DCF would be a more

appropriate valuation methodology to use.

Summary Cash Flow Statement (USD mn) 2007 2008 2009 2010E 2011E 2012E

Income pre-preferred share dividends 13 18 13 50 57 70Minority interest add-back 0 0 2 3 3 4Depreciation and amortization add-back 1 3 10 31 38 45Net income from associates and jointly controlled entities 0 (0) (0) 0 0 0Net loss/(gain) on asset sales 0 0 0 0 0 0

(Increase)/decrease in working capital : (17) (27) (9) (26) (16) (18)Accounts receivable (11) (29) (3) (40) (32) (36)Inventory (11) 13 (24) (8) (14) (16)Accounts payable 5 (12) 18 22 31 34

Other operating cash flow items 2 20 26 0 0 0Cash flow from operations (0) 14 42 59 83 101 Capital expenditure (8) (7) (12) (32) (40) (49)(Acquisitions)/divestitures 0 (17) (20) (20) (25) (25)Investments 4 (12) 7 0 0 0Other investment cash flow items 1 0 0 0 0 0Cash flow from investing (3) (37) (25) (52) (65) (74)

Dividends paid (common and preferred) 0 0 0 0 0 0Share repurchase/issue (change In common stock) 2 0 0 202 0 0Increase/(decrease) in short-term debt 4 (16) (3) 0 0 0Increase/(decrease) in long-term debt 0 0 0 0 0 0Increase/(decrease) in preferred shares 0 46 0 0 0 0Change in minority interest 0 0 0 0 0 0Other financing cash flow items 0 2 7 0 0 0Cash flow from financing 6 32 5 202 0 0 Effect of foreign exchange rate changes (1) 1 0 0 0 0

Total cash flow 3 10 22 209 18 27

Ratio analysis 2007 2008 2009 2010E 2011E 2012E

ROE (%) 25% 24% 12% 17% 11% 12%ROA (%) 11% 9% 4% 10% 8% 9%

Inventory days (days) 77 41 78 70 70 70Receivable days (days) 55 114 102 115 115 115Payable days (days) 118 158 159 150 150 150

Current ratio (x) 2 1 2 3 3 3Quick ratio (x) 1 1 1 3 3 3Net debt to equity ratio (%) -14% -13% -22% -51% -49% -47%EBIT Interest coverage ratio (x) 5 8 5 94 105 129



Exhibit 28: Discounted cash flow model


Exhibit 29: WACC calculation

Exhibit 30: DCF summary results



Exhibit 31: DCF sensitivity analysis

Exhibit 32: DCF sensitivity analysis



We take both lighting companies and retail companies as peers for NVC, as NVC’s

business model and distribution channels share characteristics of both.

Based on Reuters consensus estimates, the peer group averages are 14x-35x 2010E P/E;

1x-7x 2010E P/B; and 9x-25x 2010E EV/EBITDA. However, we note the peer group contains

two A-share listed Chinese lighting companies, and that A-share companies usually tend

to trade at a premium to HK-listed companies.

DCF calculation 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020EEBIT 60 67 82 96 111 129 149 162 177 186 196 - EBIT x tax rate 9 10 12 14 17 26 30 41 44 47 49 + Depreciation and amortization 31 38 45 53 62 70 69 77 71 77 82 - Increase/(decrease) in net working capital 26 16 18 20 23 24 25 17 19 21 23 - Capital expenditure 32 40 49 59 73 84 94 105 103 108 114 FCF (US$ mn) 25 39 48 55 60 65 69 77 82 87 92

% growth 55% 24% 14% 9% 8% 7% 11% 6% 6% 6%Terminal value - - - - - - - - - - 1,896

6.5%4.5%

1.0 11.0%

6.0%

25.0%

4.5%

30%

WACC 9.1%

Terminal growth rate 4.0%

Equity market premiumRisk free rate

WACC calculation

Debt componentCost of debt

Cost of equity

Tax rate

After-tax cost of debt

Beta

Equity component

Long-run debt-to-capital ratio

DCF summary resultsFirm value (USD mn) 1,125

Net debt (USD mn) (247) Minority interest (USD mn) 6

Fair value (USD mn) 1,366 Shares outstanding (current) 2,964 Equity value (EV)/share (USD) 0.46

USD/HK$ Exchange rate 7.8

DCF value/H share (HK$) 3.6

3.60 8.7% 8.9% 9.1% 9.3% 9.5%3.0% 3.5 3.4 3.3 3.2 3.13.5% 3.7 3.5 3.4 3.3 3.24.0% 3.9 3.7 3.6 3.5 3.44.5% 4.1 4.0 3.8 3.7 3.5

5.0% 4.5 4.3 4.1 3.9 3.8

WACC

Terminal growth

rate

(10.0%) (5.0%) 0.0% 5.0% 10.0%(2.0%) 2.4 2.6 2.8 3.0 3.2(1.0%) 2.8 3.0 3.2 3.4 3.70.0% 3.1 3.4 3.6 3.8 4.11.0% 3.5 3.7 4.0 4.2 4.52.0% 3.8 4.1 4.4 4.6 4.9

GM ppt changes

ASP



Exhibit 33: Valuation comparison table

Note: We use 2009 net debt to calculate the EV for Neo-Neon, Zhejiang Yankon, and Foshan Electrical and Lighting.

Note: We use Reuters consensus for the stocks that are not under Goldman Sachs/ Gao Hua Securities coverage universe.

Source: Company data, Reuters, Gao Hua Securities Research estimates.

Company history

Exhibit 34: Key milestones for NVC

Source: Company data

Ticker Pricing Price Net earnings CAGRCurrency as of 2-July 2009-2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E

(%) (X) (X) (X) (X) (X) (X) (X) (X) (X) (%) (%) (%)LightingNeo-Neon 1868.HK HKD 4.17 62% 21.4 19.0 10.7 1.2 1.1 1.0 13.8 9.4 5.9 5.5% 6.0% 10.0%NVC Lighting 2222.HK HKD 2.29 111% NM 13.6 15.2 NM 1.8 1.6 NM 4.8 5.8 12.4% 17.3% 11.4%Zhejiang Yankon 600261.SS Rmb 21.48 37% 44.8 35.8 29.4 5.3 2.9 2.7 37.5 25.1 NA 9.7% 7.6% 9.1%

Foshan Electrical and Lighting 000541.SZ Rmb 11.69 32% 53.9 40.3 33.4 4.3 3.8 3.7 22.8 NA NA 8.0% 9.5% 11.0%

Average - Lighting 61% 40.0 27.2 22.2 3.6 2.4 2.2 24.7 13.1 5.8 9% 10% 10.4%

RetailAnta Sports Products 2020.HK HKD 14.00 21% 24.2 20.2 16.8 5.0 5.4 4.5 18.2 14.5 11.8 24.3% 26.5% 26.8%Li Ning 2331.HK HKD 25.50 26% 24.6 19.4 15.8 10.2 6.9 5.2 15.5 12.7 10.3 33.0% 33.5% 31.2%China Dongxiang 3818.HK HKD 5.05 22% 17.0 14.4 11.6 4.1 3.2 2.8 11.2 8.8 6.9 19.9% 22.1% 24.0%

Average - Retail 23% 21.9 18.0 14.7 6.4 5.2 4.2 14.9 12.0 9.6 25.7% 27.4% 27.3%Average - Total 44% 31.0 23.2 19.0 5.0 3.6 3.1 19.8 12.6 8.1 16.1% 17.5% 17.6%

ROEP/E P/B EV/EBITDA

20032002200019991998 20052001 20062004 2007 2008

Established in HuizhouFocus on commercial lighting sector

The first NVC outlet

“Top 10 Brands of the Industry” by China Association of Decorative Building Materials

SAP ERP system implemented

SAIF investmentStrengthened management team

Acquired Sunny2nd round investment: GS, SAIF

Established the first oversea subsidiary - NVC UK

Acquired Shanghai ArcataBecame the largest domestic lighting supplier based on 2009 revenue

Established exclusive regional distributors

“Guangdong Top Brand”

“2005 China 100 Growing Company”, the only one in lighting industry

“Top Ten Most Competitive Brands of the Industry” by China Illumination Engineering Society

“China Well-known Trademark”

“The Best Business Model of China in 21st Century ” by 21st Century Business Herald

2009

“Merit Green Enterprise" of "CAPITAL Entrepreneur Green EnterpriseAwards 2010”



Reg AC

I, Jim Hung, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or

companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific

recommendations or views expressed in this report.

Investment Profile

The Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four

key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several

methodologies to determine the stocks percentile ranking within the region's coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate

of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend

yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for

in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Jim Hung: Asia Chemicals, Asia Commodities Companies, Asia Energy, China Industrials, Greater China Industrials.

Asia Chemicals: China BlueChemical, Far Eastern New Century Corp., Formosa Chemicals & Fibre, Formosa Plastics, Hualu-Hengsheng Chemical,

Hubei Yihua Chemical Industry, Jiangsu Yangnong Chemical Co., Kingfa Sci. & Tec., Lianhe Chemical Technology Co., Lier Chemical Co., Nan Ya

Plastics, Qinghai Salt Lake Industry Group, Qinghai Salt Lake Potash, Shenzhen Noposion Agrochemicals Co., Sinofert Holdings, Sinopec Shanghai

Petrochemical (A), Sinopec Shanghai Petrochemical (H), Sinopec Yizheng Chemical Fibre (A), Sinopec Yizheng Chemical Fibre (H), Yantai Wanhua

Polyurethanes, Yingde Gases Group, Yunnan Yuntianhua, Zhejiang Xinan Chemical.

Asia Commodities Companies: ACC, Ambuja Cements, Asia Cement, Banpu Public Company, Bumi Resources, China Molybdenum Co., Grasim

Industries, Hindalco Industries, Hindustan Zinc, India Cement, Jilin Ji En Nickel Industry, Jinduicheng Molybdenum Co., National Aluminium

Company, PT Adaro Energy Tbk, PT Indo Tambangraya Megah, PT Tambang Batubara Bukit Asam, Shanxi Taigang Stainless Steel, Shenzhen

Zhongjin Lingnan Nonfemet, Sterlite Industries (India), Straits Asia Resources, Taiwan Cement, Ultratech Cement, Western Mining, Yunnan

Chihong Zinc & Germanium.

Asia Energy: China Gas Holdings, China Oilfield Services (A), China Oilfield Services (H), China Petroleum & Chemical (A), China Petroleum and

Chemical (ADS), China Petroleum and Chemical (H), China Resources Gas Group, CITIC Resources Holdings, CNOOC, CNOOC (ADR), Formosa

Petrochemical Corp., Honghua Group, Kunlun Energy Company, Offshore Oil Engineering, PetroChina (A), PetroChina (ADR), PetroChina (H), Xinao

Gas Holdings.

China Industrials: NVC Lighting Holding.

Greater China Industrials: Aluminum Corporation of China (A), Aluminum Corporation of China (H), Angang Steel (A), Angang Steel (H), Anhui

Conch Cement (A), Anhui Conch Cement (H), Baoshan Iron & Steel, China National Building Material, China Steel (GDR), China Steel Corporation,

Jiangxi Copper (A), Jiangxi Copper (H), Maanshan Iron & Steel (A), Maanshan Iron & Steel (H), Taiwan Fertilizer, Wuhan Iron and Steel.

Company-specific regulatory disclosures

The following disclosures relate to relationships between Goldman Sachs Gao Hua Securities Company Limited ("Goldman Sachs Gao Hua") and

companies covered by the Investment Research Division of Beijing Gao Hua Securities Company Limited ("Gao Hua Securities") and referred to in

this research.

Goldman Sachs Gao Hua has received compensation for investment banking services in the past 12 months: NVC Lighting Holding (HK$2.32)

Goldman Sachs Gao Hua expects to receive or intends to seek compensation for investment banking services in the next 3 months: NVC Lighting

Holding (HK$2.32)

Goldman Sachs Gao Hua had an investment banking services client relationship during the past 12 months: NVC Lighting Holding (HK$2.32)

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as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment

Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular



coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent

investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.

Return potential represents the price differential between the current share price and the price target expected during the time horizon associated

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Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at

http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment

outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the

following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook

over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment

outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.

Not Rated (NR). The investment rating and target price have been removed pursuant to Gao Hua Securities policy when Goldman Sachs Gao Hua

is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). We have suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for determining

an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied

upon. Coverage Suspended (CS). We have suspended coverage of this company. Not Covered (NC). We do not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not

meaningful and is therefore excluded.

General disclosures

This research is disseminated in China by Gao Hua Securities.

This research is for our clients only. This research is based on current public information that we consider reliable, but we do not represent it is

accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent

us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals

as appropriate in the analyst's judgment.

Goldman Sachs Gao Hua, an affiliate of Gao Hua Securities, conducts an investment banking business. Gao Hua Securities, Goldman Sachs Gao

Hua and their affiliates have investment banking and other business relationships with a substantial percentage of the companies referred to in this

document.

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our

proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our proprietary trading desks and

investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.

Gao Hua Securities and its affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or

short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be

illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of

individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and,

if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from

them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may

occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all

investors. Investors should review current options disclosure documents which are available from Gao Hua sales representatives or at

http://www.theocc.com/publications/risks/riskchap1.jsp. Transactions cost may be significant in option strategies calling for multiple purchase and

sales of options such as spreads. Supporting documentation will be supplied upon request.

Copyright 2010 Beijing Gao Hua Securities Company Limited

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Beijing Gao Hua Securities Company Limited.

well-placed to benefit from growing demand/urbanization; buy · +86(10)6627-3191 [email protected]...

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