HK/China Consumer Staples

June 13, 2014

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SEE PAGE 72 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

HK/China Consumer Staples Avoid the herd; Winner takes all MSCI Consumer Staples Index underperformed HSI/HSCEI by

10%/7% YTD. Anticipate prolonged down-cycle for consumer stocks amid weak macro outlook and lack of stimulus policy.

Foresee well-est’d leaders widening comp. adv. against small peers amid economic headwinds/accelerating consolidation.Top Pick is Tingyi for the best EPS CAGR prospects. Also likeWant Want and Hengan for favourable risk-reward profile.

Reiterate contrarian SELL on Biostime for deteriorating near-term growth dynamics. Downgrade Mengniu to non-consensus SELL on rising competition. U/G UPC /Ajisen to HOLD/BUY.

Two key themes: #1. Complacency. Investors are holding onto their consensus longs,despite deteriorating fundamentals.

Reiterate contrarian SELL on Biostime as we believe the Goldenage of Infant Milk Formula is over, “100% imported with originalpackaging” products will flood the market. Biostime is losing itscompetitive edge.

We also downgrade Mengniu to non-consensus SELL as our channel checks suggest higher-than-usual inventory, we expect promotions to hurt margins, little upside to ASPs. More importantly, investors are switching away from UHT milk, the company’s core market.

#2. Prefer large-cap staples. Expect well-established incumbents will extend their comparative advantages over smaller challengersamid the economic headwinds and acceleration in industryconsolidation. We like Tingyi as it offers the best EPS CAGRprospects, and Want Want and Hengan for their favourable risk-reward profiles.

Lofty sector valuation; cherry pick The sector is trading at a 24x 12-month rolling forward PER, a 20% premium to the five-year historic average of 20x, which is notcheap. We believe being selective is key.

Analyst

(Unchanged)UNDERWEIGHT

Jacqueline Ko, CFA(852) [email protected]

Stock Mkt cap Rating Price TP Upside

(USD'm) (LC) (LC) (%) 14E 15E 14E 15E 14E 15E

Want Want China 18,048.9 Buy 10.58 13.18 27 23.6 19.8 8.2 7.3 2.9 3.4

Tingyi 15,781.1 Buy 21.85 29.60 37 25.0 20.0 3.6 3.2 2.0 2.5

Hengan Int'l 12,867.4 Buy 81.00 102.60 29 22.9 18.6 5.3 4.7 2.6 3.1

China Mengniu 8,645.1 Sell 36.50 29.35 (19) 32.8 26.7 2.6 2.4 0.7 0.9

CRE 6,635.2 Sell 21.40 18.70 (11) 33.8 23.4 1.1 1.1 1.2 1.7

Biostime 3,935.5 Sell 50.65 41.50 (15) 24.5 19.9 8.5 7.3 2.9 3.5

Uni-President China 2,595.7 Hold 5.59 5.77 4 43.9 26.8 1.7 1.6 0.5 0.7

Vinda Int'l 1,594.5 Hold 12.38 11.84 (3) 23.4 19.1 2.3 2.1 1.1 1.4

China Foods 999.6 Buy 2.77 3.80 37 839.4 21.8 1.3 1.2 0.0 1.8

Ajisen (China) 828.0 Buy 5.89 8.75 52 18.6 15.4 1.9 1.8 3.5 4.2

Goodbaby 547.3 Sell 4.22 3.54 (15) 25.1 20.7 1.9 1.8 1.2 1.5

P/E (x) P/B (x) Dividend yld (%)

YTD share price return

Security Name 1M

%Chg 3M

%Chg 6M

%Chg 12M

%Chg YTD

%Chg

Ajisen (11.20) (29.70) (22.46) (6.83) (26.81)

Biostime 5.85 (20.59) (24.68) 16.10 (28.05)

China Foods 5.66 4.09 (20.68) (15.41) (14.89)

China Mengniu (9.10) (8.16) 0.42 28.44 (3.67)

CRE (1.83) 6.17 (17.94) (15.19) (16.50)

Goodbaby 6.87 (6.04) 6.60 8.53 (2.33)

Hengan 0.93 (1.34) (15.54) 3.05 (11.57)

Tingyi (1.58) 1.64 (5.23) 9.41 (2.90)

UPC 0.27 (21.40) (22.22) (26.30) (23.59)

Vinda 5.88 2.68 (10.53) 40.21 (5.12)

Want Want (12.97) (8.62) (4.50) (2.21) (5.36)

MSCI China Con. staples (4.51) (3.89) (10.35) (1.47) (10.25)

Source: Bloomberg, Maybank KE

June 13, 2014 2

China/HK Consumer Staples

Contents

Investment thesis ............................................... 3

Top Call#1: Biostime - IMF’s golden era ends ............... 5

Top Call#2: China Mengniu – ‘Milk Deluxe’ is no longer a deluxe! A risky consensus buy ................................. 8

Top Call#3: Winner takes all ................................. 10

Industry overview and outlook .............................. 11

Valuations ...................................................... 15

Appendix: China 101 .......................................... 17

Appendix: China 101-City tiers .............................. 19

Appendix: Raw materials cost trend ....................... 20

Biostime (1112 HK) ............................................ 21

China Mengniu (2319 HK) .................................... 26

Want Want China (151 HK) .................................. 31

Hengan International (1044 HK) ............................ 36

Goodbaby (1086 HK) .......................................... 40

Ajisen (China) (538 HK) ...................................... 44

Uni-President China (220 HK) ............................... 48

China Foods (506 HK) ......................................... 52

Vinda International (3331 HK) ............................... 56

Tingyi (322 HK) ................................................ 60

China Resources Enterprise (291 HK) ...................... 66

June 13, 2014 3


Investment thesis The MSCI Consumer Staples Index underperformed the HSI/HSCEI by 10%/7% YTD. We expect the key macro-consumption indicators to remain weak in the coming months and thus UNDERWEIGHT the sector. Across our coverage, we have identified two key themes.

#1. Complacency. Investors are holding onto their consensus longs despite the structural shift in the industry landscape and deteriorating operational dynamics.

Reiterate contrarian SELL on Biostime. With an increasing number of infant milk powder products from multi-nationals and domestic peers labelled as “100% imported with original packaging”, Biostime is losing its competitive edge. Furthermore, the frequency and aggressiveness of promotions will be extended to Biostime’s physical stores, as confirmed by our channel checks, putting margins under further pressure.

Downgrade Mengniu to non-consensus SELL. Our channel checks suggest higher-than-usual channel inventory will lead to more aggressive promotions in the near term. Contrary to consensus, we believe there is little room for Mengniu to raise ASPs for its high-end products going forward. Finally, we believe consumer preference for UHT milk will soften, speeding up rotation to yogurt and pasteurized milk.

#2. Winner takes all. We believe the well-established incumbents will extend their comparative advantages over smaller challengers amid the economic headwinds and acceleration in industry consolidation. We like Tingyi as it offers the best EPS CAGR prospects, and Want Want and Hengan for their favourable risk-reward profiles. We forecast large companies under our coverage to witness steadily improving (or at least stable) gross margins over FY14-16F given: i) moderate rise in raw material input costs; ii) solid mix improvement; and iii) more disciplined promotional discounts. Also, we believe efforts to enhance sales channel efficiency over the past few years, such as IT system upgrades and improvements in production automation, should translate into effective cost savings ahead. Meanwhile, we expect more M&A opportunities to emerge and companies with deep pockets are better placed to consolidate their position and expand their product portfolios through horizontal integration for extra revenue streams and potential synergies. Overall, we expect a lower organic growth era for the staples sector while ‘buying’ growth will be the key to winning. Hence, integration and execution track record are key attributes to also consider.

Quick glance on sub-sectors Our top-down screening reveals positive sector earnings growth momentum for dairy and infant-related products given the favourable policy support and demographic pattern shifts. We are more cautious on growth among sub-sectors such as wine and carbonated soft drinks given the structural change in consumption habits. We are also negative on the outlook for food retailers amid the mounting competition risk from increasing price transparency online and better warehouse logistics investment by e-commerce competitors. CRE and Sun Art’s SSSG are below the YTD rise in CPI. We believe this represents structural sales weakness for food retailers going forward.

China retail sales growth (YoY)

Source: NBS, Maybank Kim Eng

China CPI - food vs. non-food


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June 13, 2014 4


Figure 1: Our FY14-16 EPS forecasts vs. consensus FY14F EPS FY15F EPS FY16F EPS

Company KE Mkt Devi % KE Mkt Devi % KE Mkt Devi % Want Want 151 HK USD 0.058 0.057 1.75 0.069 0.068 1.47 0.079 0.074 6.76 Tingyi 322 HK USD 0.113 0.097 16.49 0.141 0.120 17.50 0.191 0.135 41.48 UPC 220 HK CNY 0.102 0.175 (41.71) 0.167 0.205 (18.54) 0.190 0.200 (5.00) Hengan 1044 HK HKD 3.54 3.40 4.00 4.35 3.97 10.0 5.32 4.68 14.0 Mengniu 2319 HK CNY 0.89 1.08 (18.0) 1.10 1.36 (19.0) 1.23 1.72 (28.0) China Foods 506 HK HKD 0.00 (0.01) N/A 0.13 0.11 18.18 0.18 0.17 5.88 CRE 291 HK HKD 0.63 0.71 (11.27) 0.91 0.83 9.64 1.08 1.01 6.93 Biostime 1112 HK CNY 1.66 1.77 (6.21) 2.05 2.26 (9.29) 2.42 2.62 (7.63) Goodbaby 1086 HK HKD 0.17 0.23 (26.09) 0.20 0.29 (31.03) 0.24 0.33 (27.27) Vinda 3331 HK HKD 0.53 0.54 (1.85) 0.65 0.65 0.00 0.89 0.80 11.25 Ajisen 538 HK HKD 0.32 0.29 10.34 0.38 0.34 11.76 0.49 0.45 9.00 Source: Company data, Maybank Kim Eng estimates

Figure 2: YTD relative performance of MSCI Staples vs. MSCI China

Source: Bloomberg, Maybank Kim Eng

Figure 3: YTD relative performance of MSCI China Sta. vs. MSCI China Dis.


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June 13, 2014 5


Top Call#1: Biostime - IMF’s golden era ends Infant milk formula - industry prices to fall; ‘100% imported’ products are now ubiquitous; e-commerce a rising channel. Biostime’s de-rating will continue…

Reiterate contrarian SELL on Biostime, and recently lowered our TP to HKD41.5 (from HKD48.0). We adopted 18x FY14/15F PER as our valuation multiple vs. 22x FY14 previously. Despite Biostime’s sound business model and proven management quality, we believe the low visibility on its new initiatives (i.e. officially dividing up the sales team into four units, launching diapers manufactured in-house and the low-end Adimil in 2H14F) and intensified competition will be the key overhangs. Worth noting is that more infant milk powder products from MNCs and domestic peers now also mention they are “100% imported with original packaging” from various countries. Hence, we think this will dilute Biostime’s competitive advantage or product uniqueness. Also, Biostime has just launched an aggressive “Buy two, get one free’ campaign on its JD online store. We believe more frequent and aggressive promotions will be extended to Biostime’s physical stores, as confirmed by our latest channel checks.

New regulations “legalize” OEM brands for import. We believe the market has been too optimistic regarding the pace of industry consolidation brought about by the latest implementation of new regulations governing the safety of infant formulas. To recap, only 82 of the current 127 infant formula producers in China were able to renew their production licenses by the 31 May 2014 deadline. However, we believe less than 5% of the current supply will be phased out despite one-third of the producers ceasing production. Also, 134 foreign brands (most of these were Chinese overseas OEM brands previously) up till now have been permitted to be imported into China for sale. Therefore, the number of “imported” brands increased.

Customers to be more indifferent to domestic/overseas manufactured products. Our channel checks also suggest market supply of infant formula is adequate and consumer confidence in domestically manufactured baby milk powder is almost at a new high since the melamine incident in 2008. Therefore, we believe consumers have reduced the quantity purchased each time as they no longer feel the pressure to stock up due to supply shortages previously. On a separate note, market data indicated domestic brands (Yili, Wonderson and Feihe etc) have gained market share YTD; Feihe said its 1Q14 sales surged 66% YoY. AC Nielson data suggest the top 15 domestic brands accounted for 84.8% market share in Feb 2014 vs. 83.5% in Feb 2013. The latest survey by CSISC also confirmed this trend. Recently, China FDA officials also said locally manufactured products are at least on par or even superior in terms of product quality.

100% imported products becoming ubiquitous. Meanwhile, we observe that products which are “100% imported with original packaging” have now become mainstream and pricing is becoming more competitive. For instance, Dumex’s “Precinutri +TM from Ireland” infant formula is priced at CNY198-248 vs. Biostime’s CNY220-360/Adimil’s CNY260/360. This could pose an increasing competitive threat to Biostime as its perceived product quality (which its pricing premium is based on) over peers disappears.

Illuma is taking mkt share in Supreme-tier

Source: Yihaodian , Maybank Kim Eng Channel checks

Biostime-12m fwd rolling PER

Source: Factset, Maybank Kim Eng

Junelebao’s new launch a huge success

Source: Tmall, Maybank Kim Eng

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June 13, 2014 6


Random search results on Leyou/Tmall/Yihaodian suggest there are plenty of brands featuring the 100% import concept. Our channel checks suggest Biostime’s YTD sales in modern channels/maternity specialty stores are down low single-digit/ up low-to-mid teens level YoY.

Inflection point … IMF to be more affordable? According to China FDA officials and industry experts, the current price of infant formula is unreasonably high at CNY250 or above, which is higher than the retail price of CNY130 in Europe. Therefore, it is believed that product prices will have to come down in the future and be in line with global prices following rationalization of channel inefficiency and high mark-ups. Potential industry oversupply is also in sight as industry players are aggressively adding capacity for infant formula. Overall, we believe the industry is at an inflection point where margins may be squeezed with limited room for ASPs to rise. This is to be exacerbated by Junlebao’s lead in launching CNY130 infant formula products, in our view. Worth noting is that Junlebao already ranks among the top 20 in Tmall despite having just launched two months ago. Management targets CNY10b in sales in five years.

Figure 4: Biostime’s latest marketing campaign on JD.com (Buy 2 get 1 free & ~20% discount for every 2 cans of purchase, 26

May to 25 June 2014)

Source: Company JD online store, Maybank Kim Eng

June 13, 2014 7


Figure 5: Biostime’s online marketing campaign extended to physical stores

Source: Maybank Kim Eng channel checks

Figure 6: 1Q14 PRC infant formula consumer feedback from online survey by CSISC (under NBS) and Xinhua shows increasing

brand awareness in domestic brands; Biostime’s overall ranking dropped to last (No.30) on the list vs. No.13 in 1Q13

Source: http://www.cqn.com.cn/news/cjpd/907130.html, maybank kim eng

June 13, 2014 8


Top Call#2: China Mengniu – ‘Milk Deluxe’ is no longer a deluxe! A risky consensus buy

We downgrade Mengniu to contrarian SELL as competition has intensified and there is rising ASP/A&P pressure on its Milk Deluxe product from imported and domestic brands. Our channel checks suggest domestic brands such as Modern Dairy, Yili and China Mengniu, among others, have recently increased their promotional discounts/A&P (such as launching “Buy 1 get 1 free” campaigns). We also believe higher-than-usual retail channel inventory (1.5-2 months based on Mengniu’s estimates vs normal inventory of 1-1.5 month) should lead to more aggressive promotions in the near term. Overall, we believe room for Mengniu to raise ASPs for its high-end products is limited considering the competitively priced imported brands. Also, we believe consumer preference for UHT milk will soften, speeding up the switch to more healthy alternatives such as room-temperature yogurt and pasteurized milk.

Yes, demand is growing but …. Our discussions with investors YTD indicate a crowded trade on the dairy sector. This is largely due to the ‘premiumization’ trend of dairy consumption in China, increasing consumption per capita and strong government support for domestic dairy giants. Investors believe large dairy farms and processors should benefit from the secular demand growth. However, our recent ground checks suggest competition has been more keen, which contradicts market beliefs.

Upstream - near term S/D balanced. We visited YuangShengtai (1431 HK, NR, one of Mengniu’s suppliers). YST believes the raw milk supply and demand in China have almost rebalanced now with sufficient inventory on the market though premium raw milk such as YST’s are still in strong demand. In the medium-to-long term, management expects the elimination of the EU quota in 2015 to create an additional 20-30% of supply in five years, therefore the S/D gap will ease mildly. Raw milk prices should rise more than the CPI in the near future while premium raw milk manufacturers should possess stronger pricing power against others.

Downstream - mind the changing consumption pattern. We anticipate customers’ preference for non-traditional categories to increase, thanks to accelerated product launches by different players, more online sales platforms and increasing health awareness. Better cold chain development also facilitates the penetration of chilled products. For example, yogurt accounts for less than 20% of industry sales vs. 40% for developed countries. Our channel checks suggest imports of liquid milk products in China will jump by at least 50% YoY and reach 300,000 tonnes in 2014 (40% will be sold through Yihaodian), accounting for approximately 3%/15-20% of the country’s total/high-end liquid milk sales volume. Upstream players are also moving into downstream thus heightening the competition. Modern Dairy (1117, NR) should surpass its UHT milk sales target of CNY600m vs. Mengniu’s Deluxe brand’s expected sales of CNY7.5b (>20% YoY growth vs. 35% growth in 2013) (both on ex-factory level). Modern Dairy will also launch its pasteurized milk products shortly while YST is also looking into the option for its medium- to long-term development.

China Mengniu-12m fwd rolling PER


High-end UHT milk retail price

Source: Yihaodian(YHD.com), Maybank Kim Eng

China Mengniu-NPAT growth estimates comp.


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June 13, 2014 9


Figure 7: Aggressive promotions by China Modern Dairy (Buy 1 get 1 free, and buy 1 get extra 0.5 box free)

Source: Maybank Kim Eng channel checks(Shanghai & Beijing)

Figure 8: Promotions by Yili and Mengniu (up to Buy 1 get 1 free)

Source: Maybank Kim Eng channel checks

Figure 9: 29 May promotion on Yihaodian, 50% off imported milk

Source: Yihaodian’s advertisement, Maybank Kim Eng

June 13, 2014 10


Top Call#3: Winner takes all

We anticipate lacklustre demand and consumers’ increasing desire for innovative products should put further pressure on small companies and thus worsen the current competitive landscape. Meanwhile, we expect more M&A opportunities to emerge and companies with deep pockets are in a better position to consolidate their position and expand their product portfolios via horizontal integration. Therefore, we prefer large companies to small companies amid the new ‘low-growth era’.

Tingyi - the giant is back! Our FY14-15 NPAT forecasts for Tingyi are approximately 20% above consensus as: i) our GPM assumptions are 0.9%-1.3ppt above the Street; and ii) our NPM assumption is 5-7% vs Street’s 4-5% for FY14-16F. We believe investors are overly bearish on the sales growth outlook for the noodles and beverage markets (which have admittedly matured), and the negative margin impact caused by the free sausage promotion. However, as the 1Q14 results show, we believe the decline in margins for noodles can be adequately offset by the expansion in beverage margins from the procurement alliance with Pepsi. Meanwhile, it is disciplined in its SG&A control as the distribution cost ratio fell YoY in 1Q14. All in all, we forecast A&P to increase slightly, yet offset by a streamlined fixed cost base and better operating efficiency, which has resulted in largely flat S&D costs YoY. We are also positive on the company’s greater number of product launches in new categories such as the recent high-end non-fried bowl noodles, snack noodles, new flavor green tea, and more. Our latest channel checks suggest the company is launching 200ml small bottled beverages (retail price of CNY2 vs. 330ml at retail price of CNY2.4), which should enhance its margins going forward.

Hengan - sanitary napkins/tissue sales beat

Reiterate BUY on Hengan as we expect competition to ease for its ‘crown jewels’ sanitary napkins business (50% of EBIT) as rival Johnson & Johnson’s Carefree product will exit the China market (~3% market share based on Euromonitor). Hengan’s ‘Space Seven’ tissues remain popular among teenage girls thanks to its youthful brand image. We expect the launch of the upgraded Princess Series in 2H14 will help Hengan pick up the market share left by Johnson & Johnson. On a separate note, despite A&P not intensifying further in the tissue industry YTD (vs 2H13), Hengan’s tissue volume growth still exceeded industry peers (albeit sales were weak). The performance of Hengan’s tissue segment indeed beat internal projections, based on our latest conversation with management. Overall, we like Hengan’s favourable risk-reward profile and exposure to the adult continence market. Key downside risk to our forecast is CNY weakness-led forex loss.

Tingyi-12m fwd rolling PER


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June 13, 2014 11


Want Want China - 2H sales/margin recovery is in sight We remain positive on Want Want despite 1H14 sales weakness. An approximate 30% share price correction recently has already reflected an overly bearish forecast of no growth to its Hot-Kid milk sales in FY14 &15F, based on our analysis. Also, we believe the negative sales effect caused by the ASP hike in Jan-14 should stabilize in six months, based on past experience. In addition, we believe its more active A&P efforts since May should accelerate sales growth in 2H14F. We expect sales growth to rebound from HoH in 2H14F. On the margins front, we anticipate a 3ppt HoH rebound in the beverage gross profit margin in 2H14F as the ~20% YTD decline in the New Zealand milk powder cost and ASP hike in Jan-14 should be reflected in 4Q14. A&P should stay within 3-4% of total sales. We like Want Want’s strong distribution network (600,000 POS) in particular in the rural/county areas, as well as its highly proven track record. Also, we expect its market-segmentation strategy adopted in 2013 to gradually bear fruit.

Industry overview and outlook Instant noodles Sector volume has stagnated at around 44b packs per annum in the last several years. We estimate bowl noodles account for 15% of sales in China, high-end packets (25%), mid-end packets (10%) and low-end packets (50%). Braise beef noodles remain the No.1 flavour on the market (dominated by Tingyi) while Laotan pickled cabbage beef flavour noodles now rank No.2 (Tingyi/Uni-President market share split of 44:56). We anticipate volume growth ahead to remain low, while product upgrade and higher prices will be key. Tingyi expects to raise the suggested retail price for its bowl/packet noodles from CNY3.8/2.2 to CNY5.0/3.0 in next three years. Figure 10: PRC instant noodle sales volume trend (2005-2018F)

Source: Euromonitor, Maybank Kim Eng

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Want Want China-12m fwd rolling PER


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Source: Nielsen, Maybank Kim Eng

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June 13, 2014 12


Beverage (ex-dairy & beer) Sector growth slowed dramatically in 2013 and YTD vs over 20% CAGR in the past. Bottled water is the one bright spot, while other growth items include functional & sports drinks and Asian traditional drinks. Diversifying consumer preference has been observed, while product life cycle has shortened. Of note, pear juice, coffee and milk tea saw sharp deceleration in growth after being introduced to the market for two to three years. Tingyi is the market leader with over 50% market share in the ready-to-drink tea category by value, and 60% by volume. Uni-President ranks 2nd with about 30% market share, followed by Wahaha and Coke. We believe product innovation and health drinks will be the key drivers ahead.

Figure 11: China beverage retail sales growth


Dairy products Frost & Sullivan estimates the retail value of dairy products in China reached CNY274b in 2012. It forecasts a 17% sales CAGR over FY13-FY17F, driven by product mix ‘premiumization’ and growing per capita consumption. Premium liquid milk products (~30% of liquid milk sales in China) are expected to experience faster growth at 25% CAGR. Top products include Mengniu’s Milk Deluxe, Yili’s Satine and Bright Dairy’s U+. Worth noting is that we have seen fast growing demand in pasteurized milk and UHT yogurt products. Mengniu and Yili followed Bright Dairy to launch room-temperature yoghurt given Bright’s huge success with its Mosilian (Bright set sales target for Mosilian at CNY6b in FY14F, +100% YoY).

Figure 12: Dairy products market retail sales in China (CNY b)

Source: Frost & Sullivan,Yili , Maybank Kim Eng

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Farmer Spring22.8%

Wahaha16.8%

CRE15.2%

Coke11.5%

Danone9.6%

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Car-bonates17.5%

Fruit/Vege-table Juice5.9%

RTD Tea20.0%

Others6.0%

Yili 21.7%

Mengniu 18.8%

Wahaha9.6%Bright

6.9%

Want Want 5.4%

San Yuan2.1%

Others35.5%

June 13, 2014 13


Infant milk formula Euromonitor estimates RPC IMF retail value will grow at an 18% CAGR over FY13-17F. We believe sales will mostly be driven by volume growth as a like-for-like pricing increment is unlikely following the NDRC’s high-profile investigation last year. China FDA officials and industry experts even said the industry-wide ASP should come down. We estimate industry growth volume should be in the high single-digits, mostly driven by demand growth in 3rd and 4th tier cities while demand in 1st and 2nd tier cities has largely matured for now. Our channel checks also suggest there has been a major improvement in the quality of locally manufactured IMF in general and the frequent quality issues related to the products of multi-nationals in recent years have substantially narrowed the quality gap perception.

Figure 13: Retail sales value - China IMF (CNYb)


Brewery Beer sales/volume in China grew at an 11.2%/5.3% CAGR over 2007-2012 to CNY451m/52b million litres. 50%/65% of industry sales volume/sales are from on-trade consumption. Beer consumption per capita in China (37 liter in 2012) is close to developed peers in Asia such as South Korea (39.2 liter per capita), therefore, migration to premium products is the key industry revenue growth driver. Euromonitor forecasts a 9.4% sales CAGR over 2013-2017 on the back of a 4% sales volume CAGR. The top five players have 70-80% market share, yet none of them are absolute market leaders nationwide. For example, CRE is strong in Sichuan, Liaoning and Anhui while Tsingtao has dominant leadership in Shandong and Shaanxi.

Figure 14: PRC beer market sales volume/retail sales growth trend

Source: Euromonitor Maybank Kim Eng

33.640.9 41.4

50.962.0

75.291.2

109.1

129.5

152.4

178.2

21.7%1.1%

23.2%

21.6%

21.5% 21.2% 19.7% 18.6% 17.7% 16.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

CNYb Retail sales value Annual growth rate

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F2015F2016F2017F2018F

Volume growth(yoy) Retail sales value growth(YoY)

PRC infant formula market shares (2013)


Infant formula sales by channel (2013)

Source: Euromonitor , Maybank Kim Eng

PRC beer market shares (2013)

Source: CRE, NBS, Maybank Kim Eng

Mead Johnson11.1%

Nestle 10.6%

Danone 10.3%

Being-mate 9.9%

Biostime6.3%

Mengniu (Yashili)

6.1%

Abbott4.5%

Yili 4.1%

Others37.1%

Maternity specialty

stores42.0%

E-commerce

22.0%

Modern channel36.0%

CRE23%

Tsingtao16%

AB InBev11%

Yanjing12%

Key regional players

11%

Small regional players

27%

June 13, 2014 14


Household/personal hygiene products Market statistics show diapers is the highest growth category in the HPC segment given its current low penetration rate at 30-40%. P&G (Pampers) is the market leader. Nonetheless, Huggies is seeing faster market-share gains. For tissue & toilet paper, we expect sales volume to grow at a 10% CAGR (YTD est. up 5-10% YoY), in line with the historical trend. We believe the industry supply-demand landscape will turn more favourable from 2015F onwards as major leaders slow the expansion pipeline and small players exit the market. Meanwhile, usage upgrade from toilet roll to non-toilet roll (40% of sales) remains a key trend. For sanitary napkins, our channel checks suggest the penetration rate is high at ~80%, therefore mix upgrade and ASP hikes are the major growth drivers. Hengan and Unicharm are gaining market share while P&G’s share is declining.

Figure 15: Retail sales value-growth-HPC (YoY, %)


0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015 2016 2017 2018

Toilet paper Nappies/Diapers/Pants

Tissues Sanitary Protection

PRC Sanitary napkins market shares (2013)


PRC diaper market shares (2013)


Hengan11%

P&G8%

Uni-charm

7%J&J 3%

Kimberly-Clark

2%

Kingdom marketin

g2%

Kao1%

Others66%

P&G 36%

Hengan12%Uni-

charm 11%

Kimberly-Clark

8%

Others33%

June 13, 2014 15


Valuations

The sector is trading at 24x 12-month rolling forward PER or 13x EV/EBITDA. This represents a 20% premium to the five-year historic average of 20x PER. This premium should be sustained on enhanced product innovation capability and market-share gains.

Figure 16: 12m rolling forward PER- MSCI China Staples & Discretionary


Figure 17: 12m rolling forward EV/EBITDA- MSCI China Staples & Discretionary


0

5

10

15

20

25

30

35

Jan 08 Sep 08 May 09 Jan 10 Sep 10 May 11 Jan 12 Sep 12 May 13 Jan 14

MSCI Con. Disc. MSCI Con. Sta.

0

2

4

6

8

10

12

14

16

18

Jan 08 Sep 08 May 09 Jan 10 Sep 10 May 11 Jan 12 Sep 12 May 13 Jan 14

MSCI Con. Dis. MSCI Con. Sta.

C

hin

a/HK

Con

sum

er Staples

June 13, 2014

16

Figure 18: China consumer staples sector valuation comparison

Company Ticker Price Mkt cap (USDm)

3-mth avg t/o (USDm) PER-FY13 PER-FY14

PER-FY15F PBR-FY13

EV/EBITDA

Div %-FY14F

ROE-FY13

ROA-FY13

Net gearing-

FY13 GPM(%)

FY13 OPM(%)-

FY13 EBITDAM(

%)-FY13 NPM(%)-

FY13 Sh px

1-mth % Sh px

3-mth %

Food retailers

Sun Art 6808 HK 9.28 11,420.52 9.10 24.78 23.23 20.14 3.78 10.68 2.19 15.60 5.87 Net cash 21.59 4.43 7.08 3.22 (10.60) (4.53)

CRE 291 HK 21.50 6,667.76 8.46 27.41 28.60 24.16 1.18 8.30 1.35 4.50 1.35 2.52 25.53 3.02 5.68 1.30 1.18 8.30

Wumart 1025 HK 6.37 1,052.90 4.06 14.03 11.96 10.77 1.76 9.94 4.24 12.68 4.27 Net cash 11.18 0.41 2.98 2.70 1.76 9.94

Lianhua-H 980 HK 4.50 649.95 0.97 71.93 21.66 18.07 1.19 N/A 1.87 1.56 0.26 Net cash 14.36 N/A 1.18 0.17 1.19 N/A

F&B manufacturers

Tingyi 322 HK 21.75 15,708.58 10.76 25.42 29.54 24.40 5.37 13.79 1.68 15.45 5.01 11.13 30.25 6.12 10.83 3.73 (0.68) 1.16

WWC 151 HK 10.60 18,066.90 21.68 26.30 23.58 20.11 9.30 18.92 2.71 38.84 17.60 Net cash 41.54 21.15 23.92 18.00 (11.81) (10.02)

Yurun 1068 HK 3.80 893.54 2.96 158.33 N/A 44.30 0.43 22.73 0.52 0.28 0.17 37.59 3.57 N/A 2.67 0.20 7.04 (9.74)

Mengniu 2319 HK 35.45 8,954.76 29.96 32.03 25.84 20.58 3.39 20.83 0.87 11.71 5.33 16.57 26.98 3.97 6.78 3.76 (9.57) (7.92)

Modern dairy 1117 HK 3.38 2,104.88 7.06 27.13 14.79 11.33 2.28 17.90 0.59 8.90 4.55 78.14 N/A 25.00 N/A 14.62 (1.74) (2.59)

Yashili 1230 HK 2.96 1,359.08 2.26 19.34 17.18 14.03 2.72 16.18 2.56 12.17 8.68 Net cash 53.47 9.62 11.82 11.25 (22.31) (27.80)

China Foods 506 HK 2.80 1,010.39 0.87 N/A 47.46 20.74 1.27 119.72 0.54 (13.74) (4.32) 20.32 20.15 N/A 0.37 N/A 4.48 3.70

Tsingtao -H 168 HK 60.80 9,700.17 8.00 31.76 29.71 25.01 4.50 N/A 0.95 15.03 7.68 Net cash 34.75 7.22 N/A 7.57 1.50 4.47

Huiyuan 1886 HK 4.56 1,176.68 3.38 26.71 19.74 14.32 1.22 35.23 0.47 3.51 1.61 34.37 31.05 N/A 8.80 5.07 3.17 (9.70)

Biostime 1112 HK 49.75 3,875.73 9.94 29.09 21.68 17.27 9.54 21.07 3.10 33.93 20.13 Net cash 65.23 23.48 24.07 17.99 4.30 (19.89)

UPC 220 HK 5.77 3,215.11 4.68 19.06 26.41 21.90 2.14 15.98 0.75 11.59 5.16 56.37 33.35 1.87 6.61 3.93 0.60 (25.02)

Huishan 6863 HK 1.92 3,568.63 21.93 15.38 12.50 9.67 1.68 137.49 1.69 13.10 7.92 8.70 20.08 0.17 4.80 35.38 2.67 (22.58)

Tenwow 1219 HK 3.14 839.96 0.94 14.79 13.60 11.28 2.21 10.94 2.47 17.66 6.97 10.02 15.59 9.59 10.65 6.06 0.96 (8.45)

YuanshengTai 1431 HK 1.36 685.77 2.37 19.34 17.18 14.03 2.72 16.18 2.56 12.17 8.68 Net cash 53.47 9.62 11.82 11.25 4.62 (12.82)

Changshouhua 1006 HK 8.05 595.63 1.09 13.05 11.22 8.81 1.88 8.17 2.05 15.46 13.60 Net cash 20.36 11.24 13.24 9.22 7.91 2.42

Honworld GP 2226 HK 5.80 388.14 4.62 9.97 10.21 8.22 N/A 17.52 4.51 116.65 25.48 160.90 57.22 43.53 44.36 32.84 11.32 (44.34)

Average

Household & Personal care

Hengan 1044 HK 81.00 12,834.21 21.63 26.81 23.33 19.90 6.04 18.40 2.61 24.31 10.72 Net cash 45.12 22.29 25.60 17.56 (0.92) (1.34)

Vinda 3331 HK 12.24 1,576.42 0.48 22.58 21.55 18.35 2.63 14.61 1.31 12.39 6.31 43.98 29.00 10.34 14.38 7.99 6.07 4.26

Prince Frog 1259 HK 2.08 271.14 1.75 8.41 5.37 4.38 1.27 2.59 3.84 16.08 14.61 Net cash 47.33 17.69 18.58 11.66 2.97 (35.20)

Restaurants

Ajisen 538 HK 5.87 826.06 1.52 23.45 18.58 15.78 1.96 9.19 2.91 8.71 7.10 Net cash 67.38 10.83 16.55 8.38 (10.95) (26.90)

Cafe De Coral 341 HK 25.25 1,885.11 0.75 25.57 23.98 21.01 4.12 16.27 3.02 16.61 13.09 Net cash 14.24 8.90 12.72 8.52 2.64 3.91

Fairwood 52 HK 16.50 267.94 0.14 14.47 N/A N/A 3.94 7.12 N/A 28.65 15.17 Net cash 13.67 8.42 12.25 7.23 2.48 3.13

Tsui Wah 1314 HK 4.01 726.70 1.47 35.48 26.27 18.87 5.22 23.28 1.59 23.33 18.66 Net cash N/A 12.40 15.68 11.95 5.25 (14.13)

Xiao Nan Guo 3666 HK 1.16 221.30 0.09 9.38 15.56 12.23 3.02 12.48 1.41 36.98 20.30 Net cash 36.41 25.05 28.28 34.96 4.50 (21.09)

Future Bright 703 HK 3.89 348.42 1.32 929.13 51.62 16.59 1.67 5.97 0.32 20.18 9.90 Net cash 68.14 11.11 17.29 0.08 10.83 (11.59)

Tang Palace 1181 HK 1.28 69.28 0.03 11.61 N/A N/A 1.16 1.73 N/A 10.01 7.21 Net cash N/A 5.20 10.89 4.08 2.40 (1.54)

Source: Bloomberg conseusus, Maybank Kim Eng

C

hin

a/HK

Con

sum

er Staples

June 13, 2014

17

Appendix: China 101 Figure 19: Average monthly minimum wage in 2013 (CNY)

Source: NBS, CEIC, Maybank Kim Eng, WIND

Top 5 - per capita disposable income(2012)

1. Shanghai (CNY 40,188)

2. Beijing (CNY 36,469)

3. Zhejiang (CNY 34,550)

4. Guangdong (CNY 30,227)

5. Jiangsu (CNY 29,677)

Top 5 - number of newborns (2013)

1. Henan (115,000)

2. Guangdong (114,000)

3. Shandong (111,000)

4. Hebei (96,000)

5. Hunan (90,000)

Top 5 – population aged 0-14 (2012)

1. Henan (19,344,000)

2. Guangdong (17,425,000)

3. Shandong (15,707,000 )

4. Hebei (13,158,000)

5. Sichuan (13,157,000)

1,160

1,320

1,300

1,400

1,380 1,290

1,350

1,200

1,240

1,260

1,300

1,480

1,230

1,320 1,550

1,120

1,265

1,030

1,265

1,200

1,200

1,070

1,150

1,300

1,200

1,520

1,050

1,470

1,620

1,320 1,500

June 10, 2014 18


Figure 20: China’s population structure (by gender and age)


Figure 21: Infant population aged 0-4 in China( relaxation of one-child policy

should lead to 1-2m additional new-borns for FY14-16F)

Source: NBS, United Nation estimates, Maybank Kim Eng

Figure 22: Breakdown of urban household disposable income(%)


Aged 0-4

Age 5 to 9

Age 10 to 14

Age 15 to 19

Age 20 to 24

Age 25 to 29

Age 30 to 34

Age 35 to 39

Age 40 to 44

Age 45 to 49

Age 50 to 54

Age 55 to 59

Above 60

Female

Male

94

90

87

8482 81 81 82 82.4 82.3 82 81 80 79 78

-3.9%

-4.0%

-2.7%-2.7%

-1.1%

0.1%

0.3%

-0.1%

0.7%

-0.3%

-1.0%-1.3%

-1.2%

-1.4%

-1.0%

-5%

-4%

-3%

-2%

-1%

0%

1%

70

75

80

85

90

95

100Infant population aged 0-4 (mn, LHS) YoY growth (%, RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012

Others

Entertainment &educationTransportation &communicationHealthcare & medicine

Household & DailynecessityProperty(rent &installment)Clothing

Food

June 10, 2014 19


Appendix: China 101-City tiers Figure 23: Classification of Tier 1/2/3 /4cities (2013) (Tier 5 not included here)

Tier 1： Beijing北京 Shanghai上海 Guangzhou广州 Shenzhen深圳 Tianjin天津 Tier 2 (developed)： Hangzhou杭州 Nanjing南京 Jinan济南 Chongqomg重庆 Qingdao青岛 Dalian大连 Ningbo宁波 Xiamen厦门

Tier 2 (medium-developed)：成都(经济发展较好、区域中心、副省级省会) 武汉(经济发展较好、区域中心、副省级省会) 哈尔滨(经济发展较好、区域中心、副省级省会) 沈阳(经济发展较好、区域中心、副省级省会) 西安(区域中心、副省级省会) 长春(区域中心、副省级省会) 长沙(经济发展较好、地级市省会) 福州(经济发展较好、地级市省会) 郑州(经济发展较好、地级市省会) 石家庄(经济发展较好、地级市省会) 苏州(经济强市、中国地级市经济最强市) 佛山(经济强市) 东莞(经济强市) 无锡(经济强市) 烟台(经济强市) 太原(经济市、地级市省会)

Tier 2 (less-developed)：合肥 (地级市省会) 南昌 (地级市省会) 南宁 (地级市省会）昆明 (地级市省会) 温州 (重要的经济城市) 淄博 (重要的工业城市) 唐山（河北经济强市）

Tier 3 cities：乌鲁木齐（新疆自治区首府）贵阳（贵州省会）海口（海南省会）兰州（甘肃省会）银川（宁夏自治区首府）西宁（青海省会）呼和浩特（内蒙古首府）

泉州（福建经济第一强市）包头（内蒙古第一大城市，经济第二强市）南通（江苏经济强市）大庆（黑龙江经济强市）徐州（江苏经济强市）潍坊（山东

经济强市）常州（江苏经济强市）鄂尔多斯（内蒙古经济第一强市）绍兴（浙江经济强市）济宁（山东经济强市）盐城（江苏经济强市）邯郸（河北经济

第三强市）临沂（山东经济强市）洛阳（河南经济强市、古都）东营（山东经济强市）扬州（江苏经济强市）台州（浙江经济强市）嘉兴（浙江经济强

市）沧州（河北经济强市）榆林（陕西经济第二强市）泰州（江苏经济强市）镇江（江苏经济强市）昆山（全国百强县第一名）江阴（全国百强县第二

名）张家港（全国百强县第三名）义乌（浙江经济强市县）金华（浙江经济强市）保定（河北经济强市）吉林（吉林经济第二强市）鞍山（辽宁经济第三

强市）泰安（山东经济强市）宜昌（湖北经济第二强市）襄阳（湖北经济第三强市）中山（广东经济强市）惠州（广东经济强市）南阳（河南经济强市）

威海（山东经济强市）德州（山东经济强市）岳阳（湖南经济第二强市）聊城（山东经济强市）常德（湖南经济强市）漳州（福建经济第四强市）滨州

（山东经济强市）茂名（广东经济强市）淮安（江苏经济强市）江门（广东经济强市）芜湖（安徽经济第二强市）湛江（广东经济强市）廊坊（河北经济

强市）菏泽（山东经济强市）柳州（广西经济第二强市）宝鸡（陕西第二大城市、经济第四强市）珠海（特区、广东经济第十强市）绵阳（四川第二大城

市） Tier-4 cities 株洲（湖南经济第五强市）枣庄（山东经济第十五强市）许昌（河南经济第四强市）通辽（内蒙古经济第四强市）湖州（浙江经济第八强市）新乡（河南

经济第五强市）咸阳（陕西经济第三强市）松原（吉林经济第三强市）连云港（江苏经济第十二强市）安阳（河南经济第六强市）周口（河南经济第七强

市）焦作（河南经济第八强市）赤峰（内蒙古经济第五强市）邢台（河北经济第七强市）郴州（湖南经济第六强市）宿迁（江苏经济第十三强市）赣州

（江西经济第二强市）平顶山（河南经济第九强市）桂林（广西经济第三强市）肇庆（广东经济第十一强市）曲靖（云南经济第二强市）九江（江西经济

第三强市）商丘（河南经济第十强市）汕头（广东经济第十二强市）信阳（河南经济第十一强市）驻马店（河南经济第十二强市）营口（辽宁经济第四强

市）揭阳（广东经济第十三强市）龙岩（福建经济第五强市）安庆（安徽经济第三强市）日照（山东经济第十五强市）遵义（贵州经济第二强市）三明

（福建经济第六强市）呼伦贝尔（内蒙古经济第六强市）长治（山西经济第二强市）湘潭（湖南经济第七强市）德阳（四川经济第三强市）南充（四川地

级市）乐山（四川地级市）达州（四川地级市）盘锦（辽宁地级市）延安（陕西地级市）上饶（江西地级市）锦州（辽宁地级市）宜春（江西地级市）宜

宾（四川地级市）张家口（河北地级市）马鞍山（安徽地级市）吕梁（山西地级市）抚顺（辽宁地级市）临汾（山西地级市）渭南（陕西地级市）开封

（河南地级市，古都）莆田（福建地级市）荆州（湖北地级市）黄冈（湖北地级市）四平（吉林地级市）承德（河北地级市）齐齐哈尔（黑龙江地级市）

三门峡（河南地级市）秦皇岛（河北地级市）本溪（辽宁地级市）玉林（广西地级市）孝感（湖北地级市）牡丹江（黑龙江地级市）荆门（湖北地级市）

宁德（湖南地级市）运城（山西地级市）绥化（黑龙江地级市）永州（湖南地级市）怀化（湖南地级市、湘西第一大市）黄石（湖北地级市）泸州（四川

地级市）清远（广东地级市）邵阳（湖南地级市）衡水（河北地级市）益阳（湖南地级市）丹东（辽宁地级市、中国口岸第一大市）铁岭（辽宁地级市）

晋城（山西地级市）朔州（山西地级市）吉安（江西地级市）娄底（湖南地级市）玉溪（云南地级市）辽阳（辽宁地级市）南平（福建地级市）濮阳（河

南地级市）晋中（山西地级市）资阳（四川地级市）都江堰（四川县级市）攀枝花（四川地级市）衢州（浙江地级市）内江（四川地级市）滁州（安徽地

级市）阜阳（安徽地级市）十堰（湖北地级市）大同（山西地级市）朝阳（辽宁地级市）六安（安徽地级市）宿州（安徽地级市）通化（吉林地级市）蚌

埠（安徽地级市）韶关（广东地级市）丽水（浙江地级市）自贡（四川地级市）阳江（广东地级市）毕节（贵州地级市） Source: CBN Week Magazine, Maybank Kim Eng

June 10, 2014 20


Appendix: Raw materials cost trend China raw milk price(CNY/kg) New Zealand milk powder(USD/MT) PET resin(CNY/ton)

Source: Wind, Maybank Kim Eng Source: Fonterra, Maybank Kim Eng Source: Tingyi, Maybank Kim Eng

Domestic sugar spot(CNY/MT) Domestic wheat price(CNY/MT) Tianjin Palm Oil spot(CNY/MT)

Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng

Barley-International(C$/ton) Orange juice concentrate(USD/lb) Global soybean price(USD/MT)


Wood pulp price(USD/MT) Live hog price(CNY/kg) Domestic rice price(CNY/kg)


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jul 08 Dec 09 May 11 Oct 12 Mar 140

1,000

2,000

3,000

4,000

5,000

6,000

Jun 09 Aug 10 Oct 11 Dec 12 Feb 140

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

101Q 104Q 113Q 12 2Q 131Q 134Q

0

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2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

May 09 Jul 10 Sep 11 Nov 12 Jan 140

500

1,000

1,500

2,000

2,500

3,000


0

2,000

4,000

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Nov 09 Nov 10 Nov 11 Nov 12 Nov 13

0

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May 13 Aug 13 Nov 13 Feb 14 May 140

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Jun 67 Jun 76 Jun 85 Jun 94 Jun 03 Jun 120

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Nov 10 Sep 11 Jul 12 May 13 Mar 14

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Jan 08 Jul 09 Jan 11 Jul 12 Jan 14

NBSK(USD/MT) BHKP(USD/MT)

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3

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Jun 09 May 10 Apr 11 Mar 12 Feb 13 Jan 14

June 13, 2014

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Biostime (1112 HK)

Beware of reversal of expectations Latest CSISC survey shows Biostime’s overall ranking in PRC

IMF space dropped to No.30 in 1Q14 from No.13 in 1Q13. Customer awareness of domestic brands has risen, while ACNielson revealed rising market share for domestic brands.

Our latest channel checks reveal the “buy 2 cans of milkpowder, get 1 pack of diapers free” promotion has extendedto physical stores. We expect more promotions ahead.

Biostime’s “100% imported” no longer unique and thus itsperceived quality gap/pricing premium over peers shouldnarrow. De-rating may happen once reversal of industry-wide ASP trend kicks in. Maintain contrarian SELL.

What’s New We believe the poorer brand perception by customers, as revealedby the CSISC survey, is worth highlighting as this may deterioratefurther if not addressed properly. Biostime’s various overlappingSKUs and talent bottleneck appear to be the key culprits.

We estimate the sales growth of Biostime’s flagship IMF brand willbe largely flat YoY in 1H14. Overall, its IMF sales should be downYoY/up low-teens YoY in modern trade and specialty stores. Yet,sales of certain domestic brands such as Feihe and Junelebao havebeen impressive given the shift in strength in markets and channels(from tier-1/2 to tier-3/4/5 cities and offline to online stores).

Our channel checks suggest customers no longer fear supplyshortages and are not stockpiling milk powder as there are moreimported brands in the domestic market. With bargaining powershifting to the hands of consumers, the high margin/retail priceera may end, for example, with more competitors launchingcompetitively priced 100% imported products.

What’s Our View Maintain our below-consensus forecasts. Downside risks: i) YTDstrength in the EUR is negative to GPM; ii) more aggressive bundledsales and promotions; and iii) potential disruption to sales andexecution risk with the restructuring of the internal sales teams.

Key Data

Share Price Performance

Maybank vs Market

Share Price: HKD50.65 MCap (USD): 3.9B Hong Kong

Target Price: HKD41.50(-15%) ADTV (USD): 10M Consumer Staples (Unchanged)SELL52w high/low (HKD)

3m avg turnover (USDm)

Free float (%)

Issued shares (m)

Market capitalization

Major shareholders:

-Biostime Pharmaceuticals (China) Ltd. 74.7%

-Wasatch Advisors, Inc. 1.0%

-Thornburg Investment Management, Inc. 0.6%

72.40/31.00

602

25.2

HKD30.5B

10.0

50

100

150

200

250

300

350

400

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14

Biostime - (LHS, HKD) Biostime / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) 7.8 (19.2) 18.2

Relative to index (%) 3.5 (23.6) 8.9

Positive Neutral Negative

Market Recs 10 2 1

Maybank Consensus % +/-

Target Price (HKD) 41.50 62.00 (33.1)

'14 PATMI (CNYm) 1,001 1,070 (6.4)

'15 PATMI (CNYm) 1,235 1,366 (9.6)

Source: FactSet; Maybank

FYE Dec (CNY m) FY12A FY13A FY14E FY15E FY16ERevenue 3,381.9 4,561.3 5,597.8 6,618.6 7,791.0EBITDA 1,075.0 1,361.7 1,452.5 1,792.5 2,096.9Core net profit 743.1 983.6 1,001.5 1,234.7 1,462.7Core EPS (CNY) 1.23 1.63 1.66 2.05 2.42Core EPS growth (%) 40.9 32.4 1.6 23.3 18.2Net DPS (CNY) 0.87 0.96 1.16 1.43 1.69Core P/E (x) 32.9 24.9 24.5 19.9 16.8P/BV (x) 10.5 9.7 8.5 7.3 6.3Net dividend yield (%) 2.2 2.4 2.9 3.5 4.2ROAE (%) 34.6 40.7 37.0 39.4 40.2ROAA (%) 24.9 24.1 16.0 15.1 16.6EV/EBITDA (x) 9.6 23.2 16.4 13.2 11.1Net debt/equity (%) net cash net cash net cash net cash net cash


June 13, 2014 22

Biostime

Figure 24: Sales estimates and assumptions

FY12A FY13A FY14F FY15F FY16F Sales (CNY’000) Probiotic supplements 379,203 458,164 494,817 534,402 577,155 Infant formula 2,715,291 3,752,116 4,701,601 5,615,337 6,675,285 Dried baby food & nutritional supplements

181,418 198,778 218,656 240,521 264,574

Baby care 105,989 152,241 182,689 228,362 274,034 Total 3,381,901 4,561,299 5,597,763 6,618,623 7,791,047 Growth rate (%) Probiotic supplements 14.23 20.82 8.00 8.00 8.00 Infant formula 61.18 38.18 25.31 19.43 18.88 Dried baby food & nutritional supplements

45.63 9.57 10.00 10.00 10.00

Baby care 121.53 43.64 20.00 25.00 20.00 Total 54.49 34.87 22.72 18.24 17.71

Source: Company data, Maybank Kim Eng estimates

Figure 25: Gross margin assumptions for different segments Gross margin (%) FY12A FY13A FY14F FY15F FY16F Probiotic supplements 77.7 78.6 79.0 79.0 79.0 Infant formula 65.1 64.5 63.0 63.0 62.9 Dried baby food & nutritional supplements

59.1 55.6 55.5 55.3 55.0

Baby care 54.9 54.2 54.0 54.0 54.0 Total 65.9 65.2 63.8 63.7 63.6


Figure 26: Opex assumptions As % of sales FY12A FY13A FY14F FY15F FY16F S&D cost 31.87 33.17 34.50 34.20 33.80 Admin expense 3.46 3.89 3.90 3.95 4.00 Other expenses 1.14 1.22 1.25 1.30 1.30 Source: Company data, Maybank Kim Eng estimates

Figure 27: POS coverage FY12A FY13F FY14F FY15F FY16F VIP baby specialty stores 10,404 13,952 17,000 20,400 24,480 Supermarkets 4,174 5,235 6,000 7,500 9,375 Pharmacies 744 1,522 2,000 2,400 2,880 Total 15,322 20,709 25,000 30,300 36,735 Source: Company data, Maybank Kim Eng estimates

Total sales breakdown (FY13)

Source: company data, Maybank Kim Eng

Sales breakdown by channel (FY13)

Source: company data, Maybank Kim Eng

Infant formula82.3%

Dried baby food

& nutrition

supp-lements

4.4%

Baby care products

3.3%

Pro-biotics

supp-lements

10.0%

VIP baby specialty

stores67.9%

Super-markets25.6%

Phar-macies

6.5%

12m rolling forward PER band


12m rolling forward PBR band (HKD)


June 13, 2014 23

Biostime

Figure 28: 1Q14 PRC infant formula consumers online survey feedback

Source: CSISC (under NBS) & Xinhua, Maybank Kim Eng

June 13, 2014 24

Biostime

FYE 31 Dec FY12A FY13A FY14E FY15E FY16E

Key Metrics

P/E (reported) (x) 32.9 29.8 24.5 19.9 16.8

Core P/E (x) 32.9 24.9 24.5 19.9 16.8

P/BV (x) 10.5 9.7 8.5 7.3 6.3

P/NTA (x) 10.5 9.7 8.5 7.3 6.3

Net dividend yield (%) 2.2 2.4 2.9 3.5 4.2

FCF yield (%) 3.7 2.1 2.9 3.5 4.5

EV/EBITDA (x) 9.6 23.2 16.4 13.2 11.1

EV/EBIT (x) 9.8 23.7 16.8 13.5 11.4

INCOME STATEMENT (CNY m)

Revenue 3,381.9 4,561.3 5,597.8 6,618.6 7,791.0

Gross profit 2,228.9 2,975.1 3,574.0 4,215.3 4,951.3

EBITDA 1,075.0 1,361.7 1,452.5 1,792.5 2,096.9

Depreciation (21.8) (25.7) (31.9) (39.7) (46.7)

Amortisation (0.5) (0.5) (0.5) (0.5) (0.5)

EBIT 1,052.7 1,335.6 1,420.1 1,752.3 2,049.7

Net interest income /(exp) (2.1) (10.6) (84.8) (106.0) (99.4)

Associates & JV 0.0 0.0 0.0 0.0 0.0

Exceptionals 0.0 (162.9) 0.0 0.0 0.0

Other pretax income 0.0 0.0 0.0 0.0 0.0

Pretax profit 1,050.6 1,162.1 1,335.3 1,646.3 1,950.3

Income tax (307.5) (341.4) (333.8) (411.6) (487.6)

Minorities 0.0 0.0 0.0 0.0 0.0

Discontinued operations 0.0 0.0 0.0 0.0 0.0

Reported net profit 743.1 820.7 1,001.5 1,234.7 1,462.7

Core net profit 743.1 983.6 1,001.5 1,234.7 1,462.7

BALANCE SHEET (CNY m)

Cash & Short Term Investments 1,669.1 1,662.8 4,018.5 4,100.0 4,283.8

Accounts receivable 0.4 15.2 19.6 26.5 31.2

Inventory 523.3 971.9 1,254.8 1,502.1 1,789.0

Property, Plant & Equip (net) 77.1 322.0 540.1 750.4 953.7

Intangible assets 1.2 149.1 148.6 148.1 147.7

Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0

Other assets 1,262.5 1,499.0 1,913.7 1,936.5 1,964.6

Total assets 3,533.4 4,620.1 7,895.3 8,463.6 9,169.9

ST interest bearing debt 270.5 750.6 825.7 660.5 528.4

Accounts payable 263.1 361.6 461.4 548.0 647.5

LT interest bearing debt 0.0 0.0 2,520.3 2,520.3 2,520.3

Other liabilities 677.1 992.2 1,193.2 1,365.9 1,564.5

Total Liabilities 1,210.7 2,104.5 5,000.6 5,094.7 5,260.7

Shareholders Equity 2,322.7 2,515.6 2,894.7 3,368.9 3,909.2

Minority Interest 0.0 0.0 0.0 0.0 0.0

Total shareholder equity 2,322.7 2,515.6 2,894.7 3,368.9 3,909.2

CASH FLOW (CNY m)

Pretax profit 1,050.6 1,162.1 1,335.3 1,646.3 1,950.3

Depreciation & amortisation 22.3 26.1 32.4 40.2 47.2

Adj net interest (income)/exp (41.3) (72.3) (58.2) (140.6) (143.5)

Change in working capital 114.7 (166.5) (11.1) (17.8) (21.7)

Cash taxes paid (244.6) (347.5) (333.8) (411.6) (487.6)

Other operating cash flow 58.6 84.9 21.7 21.7 21.7

Cash flow from operations 947.2 660.5 964.6 1,116.4 1,344.8

Capex (39.3) (135.7) (250.0) (250.0) (250.0)

Free cash flow 907.9 524.8 714.6 866.4 1,094.8

Dividends paid (404.0) (621.9) (622.4) (760.5) (922.4)

Equity raised / (purchased) 0.0 0.0 0.0 0.0 0.0

Change in Debt 0.0 (165.1) 2,595.4 (165.1) (132.1)

Other invest/financing cash flow (1,869.4) (17.9) (39.9) 140.6 143.5

Effect of exch rate changes 5.1 (0.8) 0.0 0.0 0.0

Net cash flow (191.7) (214.7) 1,874.9 (925.6) (1,054.5)

June 13, 2014 25

Biostime


Key Ratios

Growth ratios (%)

Revenue growth 54.5 34.9 22.7 18.2 17.7

EBITDA growth 47.8 26.7 6.7 23.4 17.0

EBIT growth 47.5 26.9 6.3 23.4 17.0

Pretax growth 47.2 10.6 14.9 23.3 18.5

Reported net profit growth 40.9 10.4 22.0 23.3 18.5

Core net profit growth 40.9 32.4 1.8 23.3 18.5

Profitability ratios (%)

EBITDA margin 31.8 29.9 25.9 27.1 26.9

EBIT margin 31.1 29.3 25.4 26.5 26.3

Pretax profit margin 31.1 25.5 23.9 24.9 25.0

Payout ratio 70.9 70.4 70.0 70.0 70.0

DuPont analysis

Net profit margin (%) 22.0 18.0 17.9 18.7 18.8

Revenue/Assets (x) 1.0 1.0 0.7 0.8 0.8

Assets/Equity (x) 1.5 1.8 2.7 2.5 2.3

ROAE (%) 34.6 40.7 37.0 39.4 40.2

ROAA (%) 24.9 24.1 16.0 15.1 16.6

Liquidity & Efficiency

Cash conversion cycle 77.1 99.4 126.0 132.1 134.2

Days receivable outstanding 0.5 0.6 1.1 1.3 1.3

Days inventory outstanding 128.1 169.7 198.0 206.5 208.6

Days payables outstanding 51.6 70.9 73.2 75.6 75.8

Dividend cover (x) 1.4 1.4 1.4 1.4 1.4

Current ratio (x) 2.0 1.4 2.3 2.3 2.4

Leverage & Expense Analysis

Asset/Liability (x) 2.9 2.2 1.6 1.7 1.7

Net debt/equity (%) net cash net cash net cash net cash net cash

Net interest cover (x) nm nm 16.8 16.5 20.6

Debt/EBITDA (x) 0.3 0.6 2.3 1.8 1.5

Capex/revenue (%) 1.2 3.0 4.5 3.8 3.2

Net debt/ (net cash) (1,398.5) (912.2) (672.6) (919.2) (1,235.0)

June 13, 2014

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China Mengniu Dairy (2319 HK)

Competition heats up; D/G to SELL Downgrade to contrarian SELL on intensified competition and

rising ASP/A&P pressure on its ‘Milk Deluxe’ from imports and domestic brands. We lower our FY14/16F NPAT by 14/9%.New HKD29.35 TP pegged to 24X FY14/15F PER.

Our channel checks suggest softening demand growth forUHT milk (60% of Mengniu’s sales) but growing consumerpreference for UHT yogurt and pasteurized milk on risinghealth awareness and the products’ better taste.

We anticipate Mengniu will accelerate investment in high-growth items (<20% of sales) and amplify promotions on starproducts (~30% of sales), thus partly offsetting the mix-upgrade led GPM expansion. ASP hike room also appears tobe limited with competitive pricing of imported brands.

What’s New CMD has rolled out “buy 1 get 1 free” promotions in a number ofmarkets such as Shanghai and Beijing following Modern Dairy andimported brands’ 50% off campaigns. Search results on Yihaodiansuggest Milk Deluxe ranked no.17 in terms of sales volume lately.

We see limited upside for high-end liquid milk ASPs as over 100 foreign brands (most high-end focused) are now actively building up their customer base via online/offline retailers and ignoringprofits. Imported milk should reach 15-20% of total high-end milk volume. Milk Deluxe’s margins may be squeezed amid premium rawmilk input cost inflation in the medium to long run.

Our latest update with management revealed softening sales QoQin 2Q14 while retail channel inventory should be around one monthhigher than normal. However, Mengniu believes it can still achieve12-13% organic sales growth (ex-Yashili) YoY in 2014F. We reckonthe Street’s expectations are more bullish than guidance.

What’s Our View Our latest FY14/15F NPAT forecasts are 22%/22% below consensus.

Key Data


Maybank vs Market


Target Price: HKD29.35(-19%) ADTV (USD): 30M Consumer Staples (Downgrade)SELL52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-China State-Owned Assets Supervision & A 19.0%

-Prominent Achiever Ltd. 8.1%

-First State Investments (Hong Kong) Ltd. 4.2%

42.75/25.90

1,836

72.5

HKD67.0B

29.6

80

100

120

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160

180

200

15.0

20.0

25.0

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35.0

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45.0


China Mengniu - (LHS, HKD) China Mengniu / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) (6.4) (5.4) 32.2

Relative to index (%) (10.1) (10.6) 21.9


Market Recs 15 8 1


Target Price (HKD) 29.35 42.90 (31.6)

'14 PATMI (CNYm) 1,719 2,190 (21.5)

'15 PATMI (CNYm) 2,146 2,734 (21.5)


FYE Dec (CNY m) FY12A FY13A FY14E FY15E FY16ERevenue 36,000.0 43,356.9 50,824.5 56,720.2 63,125.8EBITDA 2,603.1 3,067.5 3,754.9 4,070.2 4,528.4Core net profit 1,303.1 1,630.9 1,718.9 2,146.0 2,398.7Core EPS (CNY) 0.74 0.90 0.89 1.10 1.23Core EPS growth (%) (18.8) 22.6 (1.3) 22.9 11.8Net DPS (CNY) 0.16 0.20 0.21 0.25 0.28Core P/E (x) 39.7 32.4 32.8 26.7 23.9P/BV (x) 4.1 3.4 2.6 2.4 2.2Net dividend yield (%) 0.5 0.7 0.7 0.9 1.0ROAE (%) 10.9 11.7 9.2 9.4 9.8ROAA (%) 6.3 5.3 4.1 4.8 5.1EV/EBITDA (x) 10.6 21.2 16.8 15.3 13.3Net debt/equity (%) net cash 29.9 net cash net cash net cash


June 13, 2014 27

China Mengniu Dairy

Figure 29: Our sales assumptions Sales (CNY’000) 2012A 2013A 2014F 2015F 2016F Liquid milk 32,336,980 37,902,800 42,872,964 47,593,767 52,635,889 YoY(%) (4.0) 17.2 13.1 11.0 10.6 UHT milk 19,705,500 22,053,300 23,817,564 25,484,793 27,268,729 YoY(%) (5.3) 11.9 8.0 7.0 7.0 Milk beverage 8,038,500 10,455,500 12,546,600 14,428,590 16,304,307

YoY(%) (3.4) 30.1 20.0 15.0 13.0 Yogurt 4,592,000 5,424,000 6,508,800 7,680,384 9,062,853

YoY(%) 1.0 18.1 20.0 18.0 18.0

Ice cream 3,171,482 3,023,400 3,386,208 3,724,829 4,097,312 YoY(%) (2.5) (4.7) 12.0 10.0 10.0 Other Dairy 130,300 253,500 314,340 386,638 475,565 YoY(%) (71.0) 94.6 24.0 23.0 23.0

Infant formula 441,600 2,177,300 4,251,000 5,015,000 5,917,000 YoY(%) N/A 393.0 95.2 18.0 18.0

Total 35,999,990 43,356,908 50,824,512 56,720,234 63,125,766 YoY(%) (3.7) 20.4 17.2 11.6 11.3

Source: Company data, Maybank Kim Eng, Bloomberg consensus for Yashili

Figure 30: Our gross margin assumptions

Gross margin (%) 2012A 2013A 2014F 2015F 2016F Blended 24.86 26.98 28.26% 28.72% 29.08%-infant formula - - 53.00% 53.70% 54.00%-non-infant formula - - 26.00% 26.30% 26.50%Source: Company data, Maybank Kim Eng estimates, Bloomberg consensus for Yashili

Figure 31: Our SG&A-to-sales ratio assumptions

% to sales 2011A 2012A 2013A 2014F 2015F 2016F S&D cost 17.91 17.29 18.84 19.51 20.05 20.30 -infant formula - - - 36.00 36.00 35.80 -non-infant formula - - - 18.00 18.50 18.70 Admin expenses 3.47 3.80 4.53 4.84 4.82 4.80 -infant formula - - - 5.60 5.50 5.40 -non-infant formula - - - 3.90 3.88 3.85 Other OPEX 0.50 0.54 0.83 0.80 0.80 0.80 Source: Company data, Blommberg consensus for Yashili, Maybank Kim Eng estimates

Figure 32: Top selling dairy brands on Yihaodian (mostly imports)

Source:YHD.com, Maybank Kim Eng

12m rolling forward PER


-

5

10

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25

30

35

40

45

50

Dec 04 Jan 07 Feb 09 Mar 11 Apr 13

9x11x14x

24x

34x

12m rolling forward PBR


June 13, 2014 28

China Mengniu Dairy

Figure 33: Industry monthly dairy output trend (80-90% is liquid milk)

Source: Wind, Maybank Kim Eng

Figure 34: Snapshot of Yuanshentai’s dairy farm & Mengniu’s factory this week

Source: Maybank Kim Eng visit

-40

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-10

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300

Jan 02 May 03 Sep 04 Jan 06 May 07 Sep 08 Jan 10 May 11 Sep 12 Jan 14

%Monthly dairy products output(tons) Growth(YoY,%)

June 13, 2014 29

China Mengniu Dairy


Key Metrics

P/E (reported) (x) 39.7 32.4 32.8 26.7 23.9

Core P/E (x) 39.7 32.4 32.8 26.7 23.9

P/BV (x) 4.1 3.4 2.6 2.4 2.2

P/NTA (x) 3.9 2.9 2.3 2.1 2.0


FCF yield (%) 2.8 5.6 5.0 4.7 5.6

EV/EBITDA (x) 10.6 21.2 16.8 15.3 13.3

EV/EBIT (x) 17.1 35.2 26.7 24.0 20.3


Revenue 36,000.0 43,356.9 50,824.5 56,720.2 63,125.8

Gross profit 8,950.0 11,697.2 14,362.1 16,291.5 18,355.5

EBITDA 2,603.1 3,067.5 3,754.9 4,070.2 4,528.4

Depreciation (972.7) (1,178.9) (1,359.2) (1,433.7) (1,517.5)

Amortisation (22.6) (36.8) (37.2) (37.6) (38.0)

EBIT 1,607.8 1,851.7 2,358.6 2,599.0 2,972.9

Net interest income /(exp) 179.0 198.9 (212.9) 66.9 177.0

Associates & JV (52.9) 153.9 251.9 329.7 214.1

Exceptionals 0.0 0.0 0.0 0.0 0.0


Pretax profit 1,733.9 2,204.5 2,397.6 2,995.6 3,364.1

Income tax (245.5) (366.7) (359.6) (449.3) (504.6)

Minorities (185.7) (231.1) (319.1) (400.2) (460.8)


Reported net profit 1,303.1 1,630.9 1,718.9 2,146.0 2,398.7

Core net profit 1,303.1 1,630.9 1,718.9 2,146.0 2,398.7



Accounts receivable 872.4 827.2 1,118.1 1,247.8 1,388.8

Inventory 1,362.7 2,577.1 1,936.2 2,150.8 2,381.8

Property, Plant & Equip (net) 7,739.3 9,246.1 9,686.9 10,253.3 10,735.8

Intangible assets 224.2 1,612.3 1,597.0 1,581.6 1,566.1

Investment in Associates & JVs 77.9 2,843.2 3,095.1 3,424.8 3,638.9

Other assets 4,887.4 16,132.0 16,183.0 16,160.8 16,138.4

Total assets 20,915.9 40,339.4 43,208.1 45,570.5 47,968.1

ST interest bearing debt 573.8 8,461.5 4,230.8 3,807.7 3,046.1

Accounts payable 3,629.5 4,761.3 4,944.4 5,603.3 6,333.6

LT interest bearing debt 0.0 3,235.5 2,912.0 2,620.8 2,358.7

Other liabilities 3,591.6 5,869.9 6,261.8 6,573.5 6,902.6



Minority Interest 631.9 2,650.2 2,969.3 3,369.5 3,830.3


CASH FLOW (CNY m)

Pretax profit 1,733.9 2,204.5 2,397.6 2,995.6 3,364.1

Depreciation & amortisation 995.3 1,215.8 1,396.4 1,471.3 1,555.4

Adj net interest (income)/exp (179.0) (198.9) 212.9 (66.9) (177.0)

Change in working capital 2,771.3 3,018.1 4,379.6 3,839.1 4,280.8

Cash taxes paid (299.7) (280.6) (359.6) (449.3) (504.6)

Other operating cash flow (2,250.5) (2,945.2) (3,647.2) (3,950.6) (4,237.9)

Cash flow from operations 2,197.8 3,697.8 4,610.3 4,699.8 5,219.4

Capex (768.9) (746.2) (1,800.0) (2,000.0) (2,000.0)

Free cash flow 1,428.9 2,951.6 2,810.3 2,699.8 3,219.4

Dividends paid (350.0) (290.5) (395.3) (493.6) (551.7)

Equity raised / (purchased) 12.1 1,228.7 5,152.5 0.0 0.0

Change in Debt 838.4 45,233.7 (4,554.3) (714.3) (1,023.6)

Other invest/financing cash flow (2,866.4) (40,401.9) 404.7 529.7 588.2

Net cash flow (350.0) (290.5) (395.3) (493.6) (551.7)

June 13, 2014 30

China Mengniu Dairy


Key Ratios

Growth ratios (%)

Revenue growth (3.7) 20.4 17.2 11.6 11.3

EBITDA growth (5.7) 17.8 22.4 8.4 11.3

EBIT growth (15.2) 15.2 27.4 10.2 14.4

Pretax growth (15.9) 27.1 8.8 24.9 12.3

Reported net profit growth (18.0) 25.2 5.4 24.9 11.8

Core net profit growth (18.0) 25.2 5.4 24.9 11.8


EBITDA margin 7.2 7.1 7.4 7.2 7.2

EBIT margin 4.5 4.3 4.6 4.6 4.7


Payout ratio 21.7 22.5 23.0 23.0 23.0

DuPont analysis


Revenue/Assets (x) 1.7 1.1 1.2 1.2 1.3

Assets/Equity (x) 1.7 2.6 2.0 1.9 1.9

ROAE (%) 10.9 11.7 9.2 9.4 9.8

ROAA (%) 6.3 5.3 4.1 4.8 5.1


Cash conversion cycle (19.8) (18.2) (18.7) (21.3) (22.3)




Dividend cover (x) 4.6 4.4 4.3 4.3 4.3

Current ratio (x) 1.4 0.9 1.3 1.3 1.4



Net debt/equity (%) net cash 29.9 net cash net cash net cash

Net interest cover (x) na na 11.1 na na

Debt/EBITDA (x) 0.2 3.8 1.9 1.6 1.2

Capex/revenue (%) 2.1 1.7 3.5 3.5 3.2

Net debt/ (net cash) (5,178.3) 4,595.5 (2,449.1) (4,322.9) (6,713.6)

June 13, 2014

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Want Want China (151 HK)

Market prices in worst case Sharp correction priced in overly bearish scenario of zero

growth in Hot-Kid milk sales for FY14F/15F, in our view.WWC at 24X 12m rolling FWD PER (5-yr avg: 25X) even for our worst case assumptions.

However, despite YTD sales lagging FY guidance, growth is at high single-digit to low-teens. Assuming no growth overall in2H14F, beverages will grow at least 5% YoY.

Maintain BUY and TP of HKD13.18. We view HKD10.6 as levelto trigger share repurchase action. WWC is also generous indistributing higher dividend payouts if business is weak.

What’s New While it is hard to argue with market concerns that the growth ofWWC’s Hot-Kid milk range has reached a bottleneck, we apply aworst-case scenario to determine the stock’s near-term fair value. Zero sales growth in FY14/15F would cut our NPAT by 7%/15% andimply a valuation slightly below its historical average.

WWC’s weakness is the low sales efficiency of its non-star products (~80% of sales come from ~25 flagship SKUs out of a total 600-700). We believe the market segmentation strategy adopted in 1H13 willhelp to enhance penetration and coverage of its non-star products.

We appreciate WWC realizing the importance of new productlaunches. We view the launch of banana milk, sour milk and UHTyogurt as good for its future growth. Also, WWC has been quietregarding M&A since listing; we believe it will be more open tobuying growth in the future with its strong net cash cushion.

What’s Our View Maintain forecasts as the negative volume impact from ASP hikes stabilizes in 3Q while more active A&P efforts and increasingrebates from May should boost growth in 2H14F. Lower NZ milkpowder costs should back our +3ppt HoH beverage margin forecast.

Key Data


Maybank vs Market


Target Price: HKD13.18(+27%) ADTV (USD): 21M Consumer Staples (Unchanged)BUY

52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-TSAI ENG MENG 46.5%

-Iwatsuka Confectionery Co., Ltd. 4.7%

-CHENG WEN HSIEN 3.5%

13.06/10.04

13,224

42.4

HKD139.9B

21.0

85

90

95

100

105

110

115

120

125

130

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5


Want Want China - (LHS, HKD) Want Want China / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) (13.1) (8.8) (2.4)

Relative to index (%) (16.6) (13.8) (10.1)


Market Recs 12 13 2


Target Price (HKD) 13.18 12.65 4.2

'14 PATMI (USDm) 763 779 (2.0)

'15 PATMI (USDm) 909 898 1.3


FYE Dec (USD m) FY12A FY13A FY14E FY15E FY16ERevenue 3,358.7 3,817.7 4,319.4 5,012.8 5,758.7EBITDA 798.0 988.5 1,098.1 1,319.3 1,524.3Core net profit 553.8 687.3 763.3 909.5 1,041.3Core EPS (cts) 4.2 5.2 5.8 6.9 7.9Core EPS growth (%) 32.0 24.1 11.1 19.1 14.5Net DPS (cts) 2.9 3.5 3.9 4.7 5.4Core P/E (x) 32.6 26.2 23.6 19.8 17.3P/BV (x) 11.3 9.3 8.2 7.3 6.4Net dividend yield (%) 2.1 2.5 2.9 3.4 3.9ROAE (%) 37.9 38.8 37.0 39.0 39.4ROAA (%) 16.8 17.6 16.7 18.1 18.8EV/EBITDA (x) 22.2 18.5 15.8 13.2 11.4Net debt/equity (%) net cash net cash net cash net cash net cash


June 13, 2014 32

Want Want China

Figure 35: Our assumptions for sales estimates

FY12A FY13A FY14F FY15F FY16F

Sales (USD’000) Rice crackers 812,083 909,860 1,000,846 1,110,939 1,222,033 Dairy products & beverages 1,708,559 1,998,851 2,318,667 2,782,401 3,283,233 Snack foods 829,840 899,807 989,788 1,108,562 1,241,590 Others 8,171 9,193 10,112 10,921 11,795 Growth rate (%) Rice crackers (0.58) 12.04 13.14 16.05 14.88 Dairy products & beverages 22.60 16.99 10.00 11.00 10.00 Snack foods 14.78 8.43 16.00 20.00 18.00 Others (37.41) 12.51 10.00 12.00 12.00

Sales mix (%) Rice crackers 24.18 23.83 23.17 22.16 21.22 Dairy products & beverages 50.87 52.36 53.68 55.51 57.01 Snack foods 24.71 23.57 22.91 22.11 21.56 Others 0.24 0.24 0.23 0.22 0.20 Source: Company data, Maybank Kim Eng

Figure 36: Our gross margin assumptions for different segments Gross margin (%) FY12A FY13F FY14F FY15F FY16F Overall 39.54 41.54 41.22 42.42 42.82 Rice crackers 39.00 40.80 41.00 41.30 41.50 Dairy products & beverages 39.50 41.30 40.50 42.50 43.00 Snack foods 40.40 43.00 43.30 43.50 43.80 Source: Company data, Maybank Kim Eng

Figure 37: Our key OPEX assumptions As a % of sales FY13A FY14F FY15F FY16F Selling & distribution 11.91 11.80 12.00 12.20 Transportation 4.00 4.00 4.00 4.00 A&P 3.00 3.30 3.50 3.70 Others 4.91 4.50 4.50 4.50 Administrative expense 8.54 8.50 8.50 8.50 Source: Company data, Maybank Kim Eng

Figure 38: Our worst-case scenario is above historical ROE average in FY14-16F

Source: Company data, Maybank Kim Eng

0.0

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June 13, 2014 33

Want Want China

Figure 39: Hot-Kid milk is among top 3 brands in kids’ milk category at major online stores

Source: Maybank Kim Eng online checks

June 13, 2014 34

Want Want China

FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey MetricsP/E (reported) (x) 32.6 26.2 23.6 19.8 17.3Core P/E (x) 32.6 26.2 23.6 19.8 17.3P/BV (x) 11.3 9.3 8.2 7.3 6.4P/NTA (x) 11.2 9.2 8.2 7.3 6.4Net dividend yield (%) 2.1 2.5 2.9 3.4 3.9FCF yield (%) 2.1 3.6 2.1 2.7 3.6EV/EBITDA (x) 22.2 18.5 15.8 13.2 11.4EV/EBIT (x) 24.9 20.7 17.7 14.8 12.8

INCOME STATEMENT (USD m)Revenue 3,358.7 3,817.7 4,319.4 5,012.8 5,758.7Gross profit 1,328.1 1,586.1 1,780.6 2,126.4 2,465.8EBITDA 798.0 988.5 1,098.1 1,319.3 1,524.3Depreciation (85.7) (102.2) (120.9) (140.4) (164.1)Amortisation (1.4) (1.2) (1.2) (1.2) (1.2)EBIT 710.5 883.2 977.2 1,179.0 1,360.2Net interest income /(exp) 37.8 48.9 58.5 55.4 53.5Associates & JV 0.6 1.6 1.7 1.9 2.1Exceptionals 0.0 0.0 0.0 0.0 0.0Other pretax income 0.0 0.0 0.0 0.0 0.0Pretax profit 749.0 933.7 1,037.5 1,236.3 1,415.7Income tax (195.0) (247.1) (274.9) (327.6) (375.2)Minorities (0.3) (0.3) (0.3) (0.3) (0.3)Discontinued operations 0.0 0.0 0.0 0.0 0.0Reported net profit 553.8 687.3 763.3 909.5 1,041.3Core net profit 553.8 687.3 763.3 909.5 1,041.3

BALANCE SHEET (USD m)Cash & Short Term Investments 1,499.2 2,059.8 2,003.6 1,971.1 2,015.0Accounts receivable 165.9 164.5 216.0 250.6 287.9Inventory 460.8 534.0 604.7 701.8 806.2Property, Plant & Equip (net) 1,045.7 1,235.6 1,572.6 1,932.3 2,268.1Intangible assets 1.0 1.0 1.0 1.0 1.0Investment in Associates & JVs 5.4 9.6 11.3 13.2 15.3Other assets 283.0 343.6 364.0 391.8 421.6Total assets 3,461.1 4,348.1 4,773.3 5,261.8 5,815.2ST interest bearing debt 350.0 410.4 418.7 427.0 435.6Accounts payable 231.4 281.4 312.3 360.8 411.6LT interest bearing debt 653.0 847.3 889.7 916.4 943.9Other liabilities 623.1 856.7 956.9 1,071.6 1,205.8Total Liabilities 1,857.5 2,395.9 2,577.5 2,775.9 2,996.8Shareholders Equity 1,595.5 1,943.4 2,187.6 2,478.6 2,811.9Minority Interest 8.1 8.9 8.1 7.3 6.5Total shareholder equity 1,603.6 1,952.2 2,195.7 2,486.0 2,818.4

CASH FLOW (USD m)Pretax profit 749.0 933.7 1,037.5 1,236.3 1,415.7Depreciation & amortisation 87.4 105.3 120.9 140.4 164.1Adj net interest (income)/exp (37.8) (48.9) (58.5) (55.4) (53.5)Change in working capital (23.8) 166.0 (11.5) 3.8 13.4Cash taxes paid (165.7) (247.1) (274.9) (327.6) (375.2)Other operating cash flow (0.6) (1.6) (1.7) (1.9) (2.1)Cash flow from operations 615.8 933.6 831.7 986.1 1,157.5Capex (244.0) (280.0) (458.0) (500.0) (500.0)Free cash flow 371.8 653.6 373.7 486.1 657.5Dividends paid (298.8) (419.3) (480.5) (553.6) (649.6)Equity raised / (purchased) 0.0 0.0 0.0 0.0 0.0Change in Debt (28.0) 254.8 50.6 35.1 36.0Other invest/financing cash flow 0.0 0.0 0.0 0.0 0.0Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0Net cash flow 45.0 489.1 (56.2) (32.5) 43.9

June 13, 2014 35

Want Want China

FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey RatiosGrowth ratios (%)Revenue growth 14.0 13.7 13.1 16.1 14.9EBITDA growth 34.2 23.9 11.1 20.1 15.5EBIT growth 36.0 24.3 10.6 20.6 15.4Pretax growth 39.2 24.7 11.1 19.2 14.5Reported net profit growth 32.0 24.1 11.1 19.1 14.5Core net profit growth 32.0 24.1 11.1 19.1 14.5

Profitability ratios (%)EBITDA margin 23.8 25.9 25.4 26.3 26.5EBIT margin 21.2 23.1 22.6 23.5 23.6Pretax profit margin 22.3 24.5 24.0 24.7 24.6Payout ratio 68.2 66.8 67.9 67.9 67.9

DuPont analysisNet profit margin (%) 16.5 18.0 17.7 18.1 18.1Revenue/Assets (x) 1.0 0.9 0.9 1.0 1.0Assets/Equity (x) 2.2 2.2 2.2 2.1 2.1ROAE (%) 37.9 38.8 37.0 39.0 39.4ROAA (%) 16.8 17.6 16.7 18.1 18.8

Liquidity & EfficiencyCash conversion cycle 55.4 54.5 54.5 56.3 57.0Days receivable outstanding 17.5 15.6 15.9 16.8 16.8Days inventory outstanding 77.2 80.2 80.7 81.5 82.4Days payables outstanding 39.2 41.4 42.1 42.0 42.2Dividend cover (x) 1.5 1.5 1.5 1.5 1.5Current ratio (x) 1.9 1.9 1.8 1.7 1.7

Leverage & Expense AnalysisAsset/Liability (x) 1.9 1.8 1.9 1.9 1.9Net debt/equity (%) net cash net cash net cash net cash net cashNet interest cover (x) na na na na naDebt/EBITDA (x) 1.3 1.3 1.2 1.0 0.9Capex/revenue (%) 7.3 7.3 10.6 10.0 8.7Net debt/ (net cash) (496.2) (802.0) (695.3) (627.7) (635.6)

June 13, 2014

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Hengan International (1044 HK)

Sales of key product beat; Stay BUY Reiterate BUY on strong YTD sanitary napkin (50% of EBIT)

sales while tissue sales/margin also beat company’s internaltarget, though diaper sales slowed down in April-May. Raise TP to HKD102.6, pegged to 27x FY14/15F PER (old: FY14F).

Latest conversation with management indicates overall sales/margin performance in line with our expectations butforex loss on CNY weakness creates an uncertain drag.

Key catalysts: i) softening BHKP price; ii) J&J’s Carefree exitsmarket; iii) upgraded Princess Series to be launched soon.

What’s New Our channel checks indicate the tissue industry’s sales remain soft,yet A&P efforts have not further intensified YTD from 2H13. The input-cost outlook has turned more favourable with softening BHKPlately. Hengan may also postpone its capacity addition progress.

Management remains confident about its Space Seven sanitarynapkin brand. Latest statistics suggest Unicharm and Hengan aregaining market share at the expense of P&G. Meanwhile, J&J’sCarefree (~3% market share) is exiting the PRC market and this should create room for sector leaders to grow.

For diapers, 1Q14 sales were strong but softened in April-May, in line with the industry trend. Low-end diaper sales (20% of totaldiaper sales) still declined YoY, mid-end (c. 50-55%) recorded mild growth while mid-to-high end (c. 20-25%, led by Super Absorbent &Pull-up series) witnessed respectable growth.

Hengan will conservatively expand its diaper sales in maternitystores given profitability concerns (due to higher entrance costs asit is a late-comer to this channel). Meanwhile, e-commerce sales contribution should remain insignificant (very low single digit).

What’s Our View Our forecasts are largely unchanged post the latest business updates.

Key Data


Maybank vs Market


Target Price: HKD102.60(+29%) ADTV (USD): 22M Consumer Staples (Unchanged)BUY52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-SZE MAN BOK 18.6%

-HUI LIN CHIT 18.2%

-The Vanguard Group, Inc. 1.7%

98.55/74.65

1,231

59.8

HKD99.7B

21.7

70

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100

105

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100


Hengan Int'l - (LHS, HKD) Hengan Int'l / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) 0.9 (1.3) 3.1



Market Recs 14 10 2


Target Price (HKD) 102.60 90.95 12.8

'14 PATMI (HKDm) 4,327 4,299 0.6

'15 PATMI (HKDm) 5,319 5,052 5.3


FYE Dec (HKD m) FY12A FY13A FY14E FY15E FY16ERevenue 18,524.2 21,186.4 24,910.7 29,272.2 34,239.1EBITDA 5,301.6 5,790.8 7,410.4 8,754.6 10,349.1Core net profit 3,518.7 3,721.0 4,326.6 5,318.7 6,496.7Core EPS (HKD) 2.88 3.05 3.54 4.35 5.32Core EPS growth (%) 32.8 5.8 16.3 22.9 22.1Net DPS (HKD) 1.70 1.85 2.07 2.49 2.98Core P/E (x) 28.1 26.6 22.9 18.6 15.2P/BV (x) 7.0 6.0 5.3 4.7 4.1Net dividend yield (%) 2.1 2.3 2.6 3.1 3.7ROAE (%) 26.6 24.3 24.7 26.8 28.7ROAA (%) 13.4 10.7 10.5 12.3 14.0EV/EBITDA (x) 16.5 19.4 13.1 10.9 9.0Net debt/equity (%) 12.0 net cash net cash net cash net cash


June 13, 2014 37

Hengan International


FY11A FY12A FY13A FY14F FY15F FY16F Sales (HKD’000) Sanitary napkins 4,114,425 4,915,462 5,972,695 7,465,869 9,108,360 10,930,032 Disposable diapers 2,723,014 2,685,473 2,938,186 3,408,296 4,021,789 4,745,711 Tissue paper products

8,017,520 9,146,766 10,204,020 11,734,623 13,494,816 15,519,039

Food & snacks 1,542,511 1,387,487 1,604,655 1,765,121 2,029,889 2,334,372 Others 653,087 389,045 466,812 536,834 617,359 709,963 Total 17,050,557 18,524,233 21,186,368 24,910,742 29,272,213 34,239,116

Growth rate (%) Sanitary napkins 29.8 19.5 21.5 25.0 22.0 20.0 Disposable diapers 11.3 (1.4) 9.4 16.0 18.0 18.0 Tissue paper products

31.1 14.1 11.6 15.0 15.0 15.0

Food & snacks 28.3 (10.1) 15.7 10.0 15.0 15.0 Others 31.1 (40.4) 20.0 15.0 15.0 15.0 Total 26.9 8.6 14.4 17.6 17.5 17.0

Sales mix (%) Sanitary napkins 24.1 26.5 28.2 30.0 31.1 31.9 Disposable diapers 16.0 14.5 13.9 13.7 13.7 13.9 Tissue paper products

47.0 49.4 48.2 47.1 46.1 45.3

Food & snacks 9.0 7.5 7.6 7.1 6.9 6.8 Others 3.8 2.1 2.2 2.2 2.1 2.1 Source: Company data, Maybank Kim Eng estimates

Figure 41: Our gross margin assumptions for different segments Gross margin (%) FY11A FY12A FY13A FY14F FY15F FY16F Overall 39.3 44.9 45.1 46.5 47.3 48.1 Sanitary napkins 60.4 65.8 66.3 67.2 67.5 68.0 Disposable diapers 35.2 42.9 44.5 46.0 46.8 48.0 Tissue paper products 31.4 35.4 34.1 34.7 35.3 35.6 Food and snacks 32.4 38.2 42.3 43.0 43.0 43.5 Others 52.0 41.3 28.6 30.0 30.0 30.0 Source: Company data, Maybank Kim Eng estimates

Figure 42: Major OPEX ratios assumptions As % of sales FY11A FY12A FY13A FY14F FY15F FY16F Distribution cost 18.8 17.5 18.3 18.4 18.3 18.1 Admin expenses 4.40 4.85 6.43 6.10 6.00 5.80 Total OPEX 23.2 22.3 24.8 24.5 24.3 23.9 Source: Company data, Maybank Kim Eng estimates





NBSK wood pulp market price(USD/MT)


BHKP wood pulp market price(USD/MT)


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22.2x

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June 13, 2014 38



Key Metrics

P/E (reported) (x) 28.1 26.6 22.9 18.6 15.2

Core P/E (x) 28.1 26.6 22.9 18.6 15.2

P/BV (x) 7.0 6.0 5.3 4.7 4.1

P/NTA (x) 6.9 5.8 5.2 4.6 4.0


FCF yield (%) 0.9 2.6 5.1 5.2 6.3

EV/EBITDA (x) 16.5 19.4 13.1 10.9 9.0

EV/EBIT (x) 18.4 22.0 15.6 12.6 10.2

INCOME STATEMENT (HKD m)

Revenue 18,524.2 21,186.4 24,910.7 29,272.2 34,239.1

Gross profit 8,315.2 9,559.5 11,576.8 13,852.1 16,463.6

EBITDA 5,301.6 5,790.8 7,410.4 8,754.6 10,349.1

Depreciation (527.4) (664.9) (880.0) (892.2) (913.4)

Amortisation (33.4) (38.0) (299.9) (302.8) (305.7)

EBIT 4,740.8 5,087.8 6,230.5 7,559.6 9,130.0


Associates & JV 0.0 0.0 0.0 0.0 0.0

Exceptionals 0.0 0.0 0.0 0.0 0.0


Pretax profit 4,539.0 5,015.5 5,845.8 7,186.2 8,777.9

Income tax (1,001.2) (1,244.9) (1,461.5) (1,796.6) (2,194.5)

Minorities (19.0) (49.6) (57.8) (71.0) (86.7)


Reported net profit 3,518.7 3,721.0 4,326.6 5,318.7 6,496.7

Core net profit 3,518.7 3,721.0 4,326.6 5,318.7 6,496.7

BALANCE SHEET (HKD m)


Accounts receivable 1,870.5 2,184.5 1,669.0 1,961.2 2,294.0

Inventory 3,830.5 4,385.9 5,156.5 6,059.3 7,087.5




Other assets 5,553.1 4,847.8 4,557.7 4,264.7 3,968.9

Total assets 29,204.8 40,190.5 42,085.7 44,665.0 47,917.6

ST interest bearing debt 7,440.6 13,232.9 12,571.3 11,942.7 11,345.6


LT interest bearing debt 3,787.2 6,186.8 6,378.7 6,609.0 6,885.4






CASH FLOW (HKD m)

Pretax profit 4,539.0 5,015.5 5,845.8 7,186.2 8,777.9

Depreciation & amortisation 560.8 702.9 1,179.9 1,195.0 1,219.1

Adj net interest (income)/exp (36.0) (261.3) 384.7 373.4 352.0

Change in working capital (1,156.7) (380.2) 48.0 (819.5) (937.0)

Cash taxes paid (1,007.5) (1,354.7) (1,461.5) (1,796.6) (2,194.5)



Capex (2,101.0) (1,337.5) (1,000.0) (1,100.0) (1,100.0)

Free cash flow 855.2 2,527.5 5,078.4 5,120.0 6,199.1

Dividends paid (1,843.5) (2,216.5) (2,399.6) (2,863.8) (3,509.3)


Change in Debt 4,000.8 8,332.0 (469.7) (398.2) (320.8)

Other invest/financing cash flow 3.5 1.1 (389.1) (378.6) (358.4)

Effect of exch rate changes 7.2 67.1 0.0 0.0 0.0

Net cash flow 1,862.4 4,545.6 1,820.0 1,479.3 2,010.7

June 13, 2014 39



Key Ratios

Growth ratios (%)

Revenue growth 8.6 14.4 17.6 17.5 17.0

EBITDA growth 41.9 9.2 28.0 18.1 18.2

EBIT growth 43.9 7.3 22.5 21.3 20.8

Pretax growth 39.4 10.5 16.6 22.9 22.1

Reported net profit growth 32.8 5.8 16.3 22.9 22.1

Core net profit growth 32.8 5.8 16.3 22.9 22.1


EBITDA margin 28.6 27.3 29.7 29.9 30.2

EBIT margin 25.6 24.0 25.0 25.8 26.7


Payout ratio 59.0 60.8 58.4 57.2 56.1

DuPont analysis


Revenue/Assets (x) 0.6 0.5 0.6 0.7 0.7

Assets/Equity (x) 2.1 2.4 2.3 2.1 2.0

ROAE (%) 26.6 24.3 24.7 26.8 28.7

ROAA (%) 13.4 10.7 10.5 12.3 14.0






Dividend cover (x) 1.7 1.6 1.7 1.7 1.8

Current ratio (x) 1.5 1.6 1.8 2.0 2.2



Net debt/equity (%) 12.0 net cash net cash net cash net cash

Net interest cover (x) 23.5 70.3 16.2 20.2 25.9

Debt/EBITDA (x) 2.1 3.4 2.6 2.1 1.8

Capex/revenue (%) 11.3 6.3 4.0 3.8 3.2

Net debt/ (net cash) 1,683.4 (144.3) (2,434.0) (4,311.5) (6,643.0)

June 13, 2014

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Goodbaby International (1086 HK)

Game becoming more complicated

Neutral on Goodbaby’s latest acquisition of US-based low/mid-tier branded juvenile products manufacturerEvenflo. Not cheap at 4.2x/0.7x FY13 PBR/P to sales.

Our channel checks suggest Goodbaby’s China sales growthYTD (at low single-digit) lagged upbeat guidance in highteens, although overseas sales performance is encouraging.

Maintain contrarian SELL, lower TP to HKD3.54. Customeroverlap with Evenflo and potential increase in conflicts withOEM/ODM customers, in particular Dorel, are key issues.

What’s New Key highlight: Goodbaby proposes to acquire Evenflo for USD143m.Evenflo derives ~60% of sales from baby car seats and it’s mostlyUS-market focused. FY13 EBITDA margin 4.3% vs. Goodbaby’s 7.2%.

P&L effect: i) GB should turn from net cash to 65% net gearing inFY14F; ii) sales/EBITDA to increase by 21%/18% on full-year basis (expected deal completion is 8 Aug, so just one quarter ofinclusion), assuming flat YoY sales/margins like in FY13; and iii)extra finance cost of HKD28m-49m for FY14-16F.

Business update: i) growth in China sales YTD at a low single-digit vs guidance in high teens; car seat sales growth at high double-digits, yet lagging the overall market; and ii) upbeat sales for bothOEM/ODM export orders and self-branded “Umbri”.

What’s Our View We revise our FY14-16F earnings by (11%)/2%/0.9% based on theaforementioned changes. In particular we lower our PRC salesgrowth forecast to 8-9% p.a over FY14-16F vs. previous mid-teens CAGR assumption. Poor execution remains the key weakness,despite superior R&D strength. We believe Goodbaby’s vision tobecome a global juvenile brand operator will compromise its near-term profitability.

Key Data


Maybank vs Market

Share Price: HKD4.22 MCap (USD): 547M Hong Kong

Target Price: HKD3.54(-15%) ADTV (USD): 2M Consumer Disc. (Unchanged)SELL52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-Pacific United Developments Ltd. 25.8%

-GIC Pte Ltd. (Investment Management) 7.0%

-FIL Investment Management (Hong Kong) 5.0%

4.68/2.80

1,005

70.6

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Goodbaby - (LHS, HKD) Goodbaby / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) 7.4 (5.6) 9.0



Market Recs 6 1 1


Target Price (HKD) 3.54 4.90 (27.8)

'14 PATMI (HKDm) 185 227 (18.5)

'15 PATMI (HKDm) 225 319 (29.6)


FYE Dec (HKD m) FY12A FY13A FY14E FY15E FY16ERevenue 4,554.5 4,188.8 5,516.3 7,427.0 8,106.0EBITDA 319.9 302.1 394.4 650.1 694.1Core net profit 181.2 171.1 185.1 224.7 268.4Core EPS (HKD) 0.18 0.17 0.17 0.20 0.24Core EPS growth (%) 2.4 (5.9) (1.3) 21.4 19.5Net DPS (HKD) 0.05 0.05 0.05 0.06 0.07Core P/E (x) 23.3 24.7 25.1 20.7 17.3P/BV (x) 2.4 2.2 1.9 1.8 1.7Net dividend yield (%) 1.2 1.3 1.2 1.5 1.7ROAE (%) 10.7 9.2 8.5 9.0 10.1ROAA (%) 5.7 5.1 3.4 3.0 3.6EV/EBITDA (x) 7.6 13.9 15.8 9.3 8.4Net debt/equity (%) net cash net cash 65.3 54.1 42.1


June 13, 2014 41

Goodbaby International


FY12A FY13A FY14F FY15F FY16F Sales (HKDm) North America 1,330 1,127 2,010 3,544 3,863 China 1,303 1,358 1,466 1,598 1,742 Europe 1,271 1,016 1,282 1,450 1,583 Other overseas market 650 689 758 834 917 Total 4,554 4,189 5,516 7,427 8,106

Growth rate (%) North America 16.6 (15.3) 78.4 76.3 9.0 China 30.2 4.2 8.0 9.0 9.0 Europe 3.9 (20.1) 26.2 13.2 9.2 Other overseas market 12.6 6.0 10.0 10.0 10.0 Total 15.5 (8.0) 31.7 34.6 9.1

Sales mix (%) North America 29.2 26.9 36.4 47.7 47.7 China 28.6 32.4 26.6 21.5 21.5 Europe 27.9 24.2 23.2 19.5 19.5 Other overseas market 14.3 16.5 13.7 11.2 11.3 Source: Company data, Maybank Kim Eng estimates

Figure 44: Our gross margin assumptions for different segments Gross margin (%) FY12A FY13A FY14F FY15F FY16F Overall 19.1 22.9 24.5 25.0 25.1 - Overseas market 16.6 20.2 22.9 23.8 23.9 *North America 15.1 19.8 23.5 24.6 24.7 *Europe 18.0 20.0 23.0 23.4 23.6 *Others 17.0 21.0 21.0 21.0 21.0 - China market 25.5 28.7 29.0 29.2 29.4 Source: Company data, Maybank Kim Eng estimates

Figure 45: Our major OPEX assumptions As a % of sales FY12A FY13A FY14F FY15F FY16F Selling & distribution cost 7.9 10.7 11.5 11.7 11.7 Administrative expense 7.5 8.6 8.9 8.9 8.8 Other OPEX 0.1 0.3 0.4 0.4 0.4 Source: Company data, Maybank Kim Eng estimates

Revenue analysis by category (FY13)


12-m rolling forward PER band


12-m rolling forward PBR band


Strollers and

accessories,

44.6%

Car seats and

accessories,

14.0%

Other durable juvenile products, 41.4%

-

1

2

3

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Dec 10 Sep 11 Jun 12 Mar 13 Dec 13

9.7x

14.2x

18.7x

24.8x

30.8x

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3

4

5

6

7

8

Dec 10 Dec 11 Dec 12 Dec 13

0.9x

1.3x

1.7x

2.5x

3.2x

June 13, 2014 42



Key Metrics

P/E (reported) (x) 23.3 24.7 25.1 20.7 17.3

Core P/E (x) 23.3 24.7 25.1 20.7 17.3

P/BV (x) 2.4 2.2 1.9 1.8 1.7

P/NTA (x) 2.4 2.1 1.9 1.7 1.6


FCF yield (%) 0.3 nm nm 7.7 8.8

EV/EBITDA (x) 7.6 13.9 15.8 9.3 8.4

EV/EBIT (x) 11.0 21.9 25.1 17.9 15.2


Revenue 4,554.5 4,188.8 5,516.3 7,427.0 8,106.0

Gross profit 871.9 960.6 1,352.1 1,854.8 2,033.5

EBITDA 319.9 302.1 394.4 650.1 694.1

Depreciation (93.2) (103.5) (137.9) (185.7) (202.7)

Amortisation (6.7) (7.4) (7.4) (124.9) (107.6)

EBIT 219.9 191.2 249.1 339.5 383.8

Net interest income /(exp) (4.0) 3.8 (31.5) (75.4) (68.2)

Associates & JV (0.0) (0.0) 0.0 0.0 0.0

Exceptionals 0.0 0.0 0.0 0.0 0.0


Pretax profit 215.9 194.9 217.6 264.2 315.6

Income tax (32.8) (23.8) (32.6) (39.6) (47.3)

Minorities 1.9 (0.1) (0.1) (0.1) (0.1)


Reported net profit 181.2 171.1 185.1 224.7 268.4

Core net profit 181.2 171.1 185.1 224.7 268.4


Cash & Short Term Investments 633.0 608.3 1,893.8 1,791.3 1,494.7

Accounts receivable 758.7 738.0 1,158.4 1,336.9 1,515.8

Inventory 624.9 798.0 999.4 1,326.2 1,427.0

Property, Plant & Equip (net) 676.0 707.9 720.0 684.3 631.7



Other assets 463.8 576.5 1,625.3 1,680.2 1,698.3

Total assets 3,191.7 3,463.7 7,271.5 7,571.1 7,414.4

ST interest bearing debt 220.8 447.2 460.7 474.5 488.7

Accounts payable 791.3 714.4 957.8 1,281.6 1,427.0

LT interest bearing debt 0.0 0.0 3,009.0 2,708.1 2,166.5

Other liabilities 327.5 274.6 345.2 450.8 488.3





CASH FLOW (HKD m)

Pretax profit 215.9 194.9 217.6 264.2 315.6


Adj net interest (income)/exp 4.0 (3.8) 31.5 75.4 68.2

Change in working capital (23.2) (360.9) (344.1) (133.1) (117.2)

Cash taxes paid (36.6) (26.2) (32.6) (39.6) (47.3)


Cash flow from operations 260.2 (81.4) 17.7 477.4 529.5

Capex (130.1) (118.5) (150.0) (150.0) (150.0)

Free cash flow 12.2 (195.4) (1,981.5) 359.5 409.9

Dividends paid (50.0) (50.2) (55.5) (67.4) (80.5)


Change in Debt (105.6) 216.3 3,022.4 (287.1) (527.4)

Other invest/financing cash flow (7.0) (1.6) (31.5) (75.4) (68.2)

Net cash flow (155.3) (24.7) 1,285.5 (102.5) (296.6)

June 13, 2014 43



Key Ratios

Growth ratios (%)

Revenue growth 15.5 (8.0) 31.7 34.6 9.1

EBITDA growth 13.8 (5.6) 30.6 64.8 6.8

EBIT growth 9.0 (13.1) 30.3 36.3 13.0

Pretax growth 11.4 (9.7) 11.6 21.4 19.5

Reported net profit growth 2.4 (5.6) 8.1 21.4 19.5

Core net profit growth 2.4 (5.6) 8.1 21.4 19.5


EBITDA margin 7.0 7.2 7.2 8.8 8.6

EBIT margin 4.8 4.6 4.5 4.6 4.7


Payout ratio 27.6 32.2 30.0 30.0 30.0

DuPont analysis


Revenue/Assets (x) 1.4 1.2 0.8 1.0 1.1

Assets/Equity (x) 1.8 1.8 3.0 2.9 2.7

ROAE (%) 10.7 9.2 8.5 9.0 10.1

ROAA (%) 5.7 5.1 3.4 3.0 3.6






Dividend cover (x) 3.6 3.1 3.3 3.3 3.3

Current ratio (x) 1.8 1.9 2.6 2.3 2.1



Net debt/equity (%) net cash net cash 65.3 54.1 42.1

Net interest cover (x) 55.2 na 7.9 4.5 5.6

Debt/EBITDA (x) 0.7 1.5 8.8 4.9 3.8

Capex/revenue (%) 2.9 2.8 2.7 2.0 1.9

Net debt/ (net cash) (412.2) (161.1) 1,575.8 1,391.2 1,160.5

June 13, 2014

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Ajisen (China) (538 HK)

U/G to BUY on valuations U/G to BUY from SELL on valuations. Raise TP to HKD8.75 on

good long-term operational initiatives and rolling valuation basis to FY14/15F PER. New target multiple 25x (from 20x).

Ajisen targets 80 net store openings after net closure of 30 outlets in FY13 (1Q14 net add zero). We believe the closure of non-performing stores will largely be done by FY14F whilethe opex savings effort since last year starts to bear fruit.

Enhanced automation, optimization of store portfolio andrenovation, simplified menu and disintermediation ofsuppliers bode well for margin outlook.

What’s New We are upbeat on Ajisen’s competitive outlook given its variousnew initiatives are addressing customer needs correctly, includingproviding in-store free WiFi access, delivery services, Wechatmobile payment and electronic ordering etc. Partnership withcoffee chain UCC should increase traffic during non-peak hours.

SSSG should gradually improve (despite slowing in April-May) on more active online/offline promotions while China’s macrocondition stabilises. Also, Ajisen recently appointed popular SouthKorean celebrity Park Hae Jin as its first spokesperson. Ajisen’supcoming advertisement campaign may also help to boostcustomer traffic.

We note Ajisen is raising the direct procurement proportion foringredients such as pork to reduce costs. Along with the adoption of better equipment to enhance efficiency in its kitchens and simplified menu offerings, we believe Ajisen’s gross margin profilehas been enhanced. Ajisen targets NPM of 13-14% as optimal.

What’s Our View We raise our FY14/15F earnings 10-15% and introduce our FY16forecasts. We forecast 25.5% NPAT CAGR over FY14-16F as we project NPM to be restored to 12.3% by end-FY15F.

Key Data


Maybank vs Market

Share Price: HKD5.89 MCap (USD): 828M Hong Kong

Target Price: HKD8.75(+52%) ADTV (USD): 2M Consumer Disc. (Upgrade)BUY

52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-POON WAI 46.5%

-Janus Capital Management LLC 3.6%

-SHIGEMITSU KATSUAKI 3.0%

9.45/5.89

1,090

48.1

HKD6.4B

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Ajisen (China) - (LHS, HKD) Ajisen (China) / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) (10.9) (29.5) (6.5)



Market Recs 7 4 0



'14 PATMI (HKDm) 343 340 0.9

'15 PATMI (HKDm) 416 410 1.6


FYE Dec (HKD m) FY12A FY13A FY14E FY15E FY16ERevenue 3,043.2 3,240.7 3,433.1 3,866.6 4,375.8EBITDA 356.1 525.8 657.4 795.9 1,007.3Core net profit 154.2 271.7 342.9 416.5 536.2Core EPS (HKD) 0.14 0.25 0.32 0.38 0.49Core EPS growth (%) (56.2) 75.3 26.2 21.5 28.8Net DPS (HKD) 0.14 0.16 0.21 0.25 0.32Core P/E (x) 41.2 23.5 18.6 15.4 11.9P/BV (x) 2.1 2.0 1.9 1.8 1.7Net dividend yield (%) 2.4 2.8 3.5 4.2 5.5ROAE (%) 5.2 8.7 10.3 11.9 14.5ROAA (%) 4.1 7.1 8.3 9.5 11.5EV/EBITDA (x) 18.2 13.8 7.4 5.9 4.4Net debt/equity (%) net cash net cash net cash net cash net cash


June 13, 2014 45

Ajisen (China)

Figure 46: Store portfolio profile Number of stores 2012 2013 2014F 2015F 2016F China 626 598 680 800 920 HK 35 38 36 36 36 Total saleable GFA 151,748 147,459 157,859 173,459 189,059 Total stores number 661 636 716 836 956 Source: Company data, Maybank Kim Eng estimates

Figure 47: Major ratios assumptions summary Ratio 2012 2013 2014F 2015F 2016F GPM 66.44 67.38 68.50 69.00 69.10 Property rental to sales 15.72 14.88 14.43 14.50 13.83 Staff cost 24.20 23.11 22.65 21.99 20.97 Depreciation to sales 5.76 5.72 6.19 6.52 6.91 Other opex to sales 16.85 15.05 14.45 13.95 13.17 Effective tax rate 30.15 21.72 22.00 22.00 22.00 Payout 100.77 64.72 65.00 65.00 65.00 Source: Company data, Maybank Kim Eng estimates

Figure 48: Sales assumptions summary CNY m 2012 2013 2014F 2015F 2016F Restaurant Operations 2,936,766 3,102,626 3,239,868 3,625,047 4,085,957 (0.78) 5.65 4.42 11.89 12.71 China 2,612,737 2,802,493 2,928,387 3,305,778 3,758,706 (1.10) 7.26 4.49 12.89 13.70 HK 324,029 300,133 311,482 319,269 327,251 1.92 (7.37) 3.78 2.50 2.50 Packaged noodles 106,396 138,024 193,234 241,542 289,850 (7.67) 29.73 40.00 25.00 20.00 Revenue 3,043,162 3,240,650 3,433,102 3,866,589 4,375,807 Source: Company data, Maybank Kim Eng estimates

Ajisen-12m rolling FWD PER


Ajisen-12m rolling FWD PBR

Source:Factsect, Maybank Kim Eng

June 13, 2014 46

Ajisen (China)


INCOME STATEMENT (HKD m)Revenue 3,043.2 3,240.7 3,433.1 3,866.6 4,375.8Gross profit 2,021.7 2,183.6 2,351.7 2,667.9 3,023.7EBITDA 356.1 525.8 657.4 795.9 1,007.3Depreciation (173.7) (185.5) (212.5) (252.2) (302.3)Amortisation 0.0 0.0 0.0 0.0 0.0EBIT 182.3 340.4 445.0 543.7 705.0Net interest income /(exp) 54.2 29.8 23.9 25.7 28.2Pretax profit 236.5 370.2 468.9 569.4 733.2Income tax (71.3) (80.4) (103.2) (125.3) (161.3)Minorities (11.0) (18.1) (22.8) (27.7) (35.7)Reported net profit 154.2 271.7 342.9 416.5 536.2Core net profit 154.2 271.7 342.9 416.5 536.2

BALANCE SHEET (HKD m)Cash & Short Term Investments 1,650.0 1,708.7 1,816.6 1,996.6 2,287.1Accounts receivable 118.3 109.6 114.7 127.6 142.2Inventory 87.8 117.0 123.6 139.2 157.5Property, Plant & Equip (net) 1,083.3 1,321.2 1,408.8 1,456.6 1,454.3Intangible assets 6.4 6.4 6.4 6.4 6.4Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0Other assets 661.6 779.7 778.2 776.7 775.3Total assets 3,607.6 4,042.6 4,248.3 4,503.1 4,822.8ST interest bearing debt 60.0 63.4 63.4 63.4 63.4Accounts payable 352.5 378.3 388.2 431.5 486.8LT interest bearing debt 0.0 74.6 74.6 74.6 74.6Other liabilities 133.0 164.6 183.8 188.0 194.7Total Liabilities 545.5 680.9 710.1 757.5 819.5Shareholders Equity 2,974.1 3,265.5 3,419.2 3,598.9 3,820.9Minority Interest 87.9 96.2 119.0 146.7 182.4Total shareholder equity 3,062.0 3,361.7 3,538.2 3,745.6 4,003.3

CASH FLOW (HKD m)Pretax profit 236.5 370.2 468.9 569.4 733.2Depreciation & amortisation 173.7 185.5 212.5 252.2 302.3Adj net interest (income)/exp (54.2) (29.8) (23.9) (25.7) (28.2)Change in working capital 31.5 34.8 35.1 35.5 35.8Cash taxes paid (80.9) (80.4) (103.2) (125.3) (161.3)Other operating cash flow 0.0 0.0 0.0 0.0 0.0Cash flow from operations 286.1 485.6 587.7 720.8 904.1Capex (203.1) (290.9) (300.0) (300.0) (300.0)Free cash flow 83.0 194.8 287.7 420.8 604.1Dividends paid (153.2) (155.3) (203.6) (266.6) (341.8)Equity raised / (purchased) 5.3 0.0 0.0 0.0 0.0Change in Debt (233.5) 74.6 0.0 0.0 0.0Other invest/financing cash flow 63.6 29.8 23.9 25.7 28.2Effect of exch rate changes 11.1 0.0 0.0 0.0 0.0Net cash flow (248.2) 144.0 108.0 180.0 290.5

June 13, 2014 47

Ajisen (China)

FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey RatiosGrowth ratios (%)Revenue growth (1.0) 6.5 5.9 12.6 13.2EBITDA growth (44.2) 47.7 25.0 21.1 26.6EBIT growth (63.0) 86.7 30.7 22.2 29.7Pretax growth (54.2) 56.5 26.7 21.5 28.8Reported net profit growth (55.9) 76.2 26.2 21.5 28.8Core net profit growth (55.9) 76.2 26.2 21.5 28.8

Profitability ratios (%)EBITDA margin 11.7 16.2 19.1 20.6 23.0EBIT margin 6.0 10.5 13.0 14.1 16.1Pretax profit margin 7.8 11.4 13.7 14.7 16.8Payout ratio nm 64.7 65.0 65.0 65.0


Liquidity & EfficiencyCash conversion cycle (85.3) (76.9) (75.8) (72.4) (71.6)Days receivable outstanding 15.9 12.7 11.8 11.3 11.1Days inventory outstanding 32.8 34.9 40.0 39.5 39.5Days payables outstanding 134.0 124.4 127.6 123.1 122.2Dividend cover (x) 1.0 1.5 1.5 1.5 1.5Current ratio (x) 3.5 3.7 3.7 3.8 3.9

Leverage & Expense AnalysisAsset/Liability (x) 6.6 5.9 6.0 5.9 5.9Net debt/equity (%) net cash net cash net cash net cash net cashNet interest cover (x) na na na na naDebt/EBITDA (x) 0.2 0.3 0.2 0.2 0.1Capex/revenue (%) 6.7 9.0 8.7 7.8 6.9Net debt/ (net cash) (1,590.0) (1,570.7) (1,678.6) (1,858.6) (2,149.1)

June 13, 2014

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Uni-President China (220 HK)

Negatives priced in; U/G to HOLD Upgrade to HOLD on valuations. Our new HKD5.77 TP is

derived at 11x FY15F EV/EBITDA (from FY14F). We believenear-term catalysts will be: i) stronger balance sheet postrights issue; and ii) potential margin inflection in FY15F.

Despite on-going free sausage war between Tingyi/UPC, webelieve UPC will ultimately shift its campaign to just focus onits flagship Laotan flavoured noodles as Tingyi’s braised beef flavour’s absolute leadership is difficult to challenge.

Believe UPC will resume its product-differentiation strategy amid demand weakness for its core products. Anticipate the diversified consumer demand for beverage products leavesroom for UPC to innovate, which is its strength.

What’s New We believe Tingyi’s firm stance should lead UPC to reconsider its competitive strategy in the noodle segment. We believe UPC willrestore its A&P discipline in the near future, starting by removingthe free sausage offer for its braised beef-flavoured soup noodles.

Muted top-line growth prospects are well anticipated. Nonetheless, any potential launch of a hype product is not yet known. Accordingto Tingyi, UPC has given up on battleground categories such asgreen tea. We therefore believe UPC is repositioning its focus.

We believe UPC, as a price follower, will benefit from a structuralindustry-wide ASP hike as Tingyi has vowed to raise noodles ASP byapproximately 30% in three years. The recent strength in palm oiland flour prices offers a good excuse for noodles makers to raiseprices and cushion part of the sausage offer.

What’s Our View We revise our FY14-16F EPS forecasts by (29%)/31%/46% to factorin the rights issue-led earnings dilution, relevant finance costsavings and higher profit margins in FY14F.

Key Data


Maybank vs Market


Target Price: HKD5.77(+4%) ADTV (USD): 5M Consumer Staples (Upgrade)HOLD52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-Uni-President Enterprises Corp. 70.5%

-Templeton Asset Management Ltd. (Hong 1.7%

-International Value Advisers LLC 1.1%

8.17/5.56

3,599

29.5

HKD20.1B

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Uni-President China - (LHS, HKD)

Uni-President China / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) (2.9) (23.9) (28.6)



Market Recs 3 9 12


Target Price (HKD) 5.77 5.78 (0.2)

'14 PATMI (CNYm) 442 634 (30.3)

'15 PATMI (CNYm) 722 707 2.1


FYE Dec (CNY m) FY12A FY13A FY14E FY15E FY16ERevenue 21,405.7 23,329.0 24,876.5 26,586.9 28,544.5EBITDA 1,651.9 1,996.1 1,882.9 2,318.8 2,563.1Core net profit 855.9 416.4 441.6 721.8 822.0Core EPS (CNY) 0.24 0.11 0.10 0.17 0.19Core EPS growth (%) 174.4 (55.8) (2.8) 63.5 13.9Net DPS (CNY) 0.05 0.05 0.02 0.03 0.04Core P/E (x) 18.9 42.6 43.9 26.8 23.6P/BV (x) 2.1 2.2 1.7 1.6 1.5Net dividend yield (%) 1.1 1.0 0.5 0.7 0.8ROAE (%) 11.8 5.3 4.5 6.0 6.5ROAA (%) 5.7 2.3 2.0 2.7 2.8EV/EBITDA (x) 14.8 14.0 12.4 10.7 10.0Net debt/equity (%) 21.9 56.4 34.5 44.6 49.0


June 13, 2014 49

Uni-President China

Figure 49: Our sales forecast assumptions

Sales (CNY’m) FY11A FY12A FY13A FY14F FY15F FY16F

Beverages 10,689 13,914 15,152 16,359 17,713 19,279 YoY growth (%) 21.51 30.17 8.90 7.97 8.28 8.84 - Juice drinks 3,217 3,996 4,259 4,472 4,740 5,119 YoY growth (%) 21.11 24.20 6.58 5.00 6.00 8.00 - RTD tea 4,992 5,597 6,143 6,757 7,433 8,176 YoY growth (%) (0.27) 12.13 9.76 10.00 10.00 10.00 - Other beverages 2,485 4,320 4,750 5,130 5,540 5,983 YoY growth (%) 118.99 73.84 9.95 8.00 8.00 8.00

Instant noodles 5,936 7,270 7,826 8,061 8,303 8,552 YoY growth (%) 67.26 22.46 7.65 3.00 3.00 3.00 Others 307 223 352 457 571 714 YoY growth (%) 25.14 (27.53) 57.99 30.00 25.00 25.00 Source: Company data, Maybank Kim Eng estimates

Figure 50: Our gross margin assumptions for different segments

Gross margin (%) FY13A FY14F FY15F FY16F

‐ Overall 29.19 34.58 33.35 33.08 ‐ Beverages 29.30 35.60 35.80 35.80 ‐ Instant noodles 29.80 33.20 29.20 28.30 ‐ Others 13.63 15.77 19.97 20.00


Figure 51: Our SG&A assumptions

As a % of sales FY13A FY14F FY15F FY16F

‐ Selling & distribution cost 29.26 29.19 28.70 28.50 ‐ Advertising & promotions 12.31 12.30 12.00 12.00 ‐ Transportation 4.65 4.60 4.50 4.40 ‐ Admin expense 3.60 3.60 3.50 3.50 Source: Company data, Maybank Kim Eng estimates

Figure 52: Major input cost trend (CNY per ton)

Source: Tingyi, Maybank Kim Eng

0

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8,000

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12,000

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16,000

101Q 103Q 111Q 113Q 12 1Q 12 3Q 131Q 133Q 141Q

Flour Palm oil PET resin Sugar

Sales breakdown(FY13)


Juice drinks 20.1%

RTD tea 25.4%

Other be-

verage20.7%

Instant noodles32.7%

Others1.2%

COGS breakdown(FY13)


June 13, 2014 50

Uni-President China


Key Metrics

P/E (reported) (x) 18.9 17.6 43.9 26.8 23.6

Core P/E (x) 18.9 42.6 43.9 26.8 23.6

P/BV (x) 2.1 2.2 1.7 1.6 1.5

P/NTA (x) 2.1 2.2 1.7 1.6 1.5


FCF yield (%) nm nm nm nm nm

EV/EBITDA (x) 14.8 14.0 12.4 10.7 10.0

EV/EBIT (x) 27.7 30.0 45.4 31.9 28.4


Revenue 21,405.7 23,329.0 24,876.5 26,586.9 28,544.5

Gross profit 7,401.8 7,779.6 8,229.0 8,856.1 9,563.2

EBITDA 1,651.9 1,996.1 1,882.9 2,318.8 2,563.1

Depreciation (761.7) (1,051.5) (1,356.7) (1,528.2) (1,645.9)

Amortisation (8.7) (12.2) (10.5) (10.2) (10.2)

EBIT 881.5 932.4 515.7 780.4 907.0

Net interest income /(exp) 63.8 95.2 (50.4) 35.4 33.1

Associates & JV 131.6 88.4 90.2 92.0 93.9

Exceptionals 0.0 0.0 0.0 0.0 0.0


Pretax profit 1,076.9 1,116.0 555.4 907.9 1,034.0

Income tax (221.0) (199.6) (113.9) (186.1) (212.0)

Minorities 0.0 0.0 0.0 0.0 0.0



Core net profit 855.9 416.4 441.6 721.8 822.0



Accounts receivable 512.6 548.1 592.1 630.1 676.5

Inventory 1,284.9 1,513.5 1,467.7 1,555.3 1,669.9



Investment in Associates & JVs 1,329.6 1,500.1 1,590.3 1,682.3 1,776.2

Other assets 3,203.3 3,789.7 3,948.0 4,147.4 4,396.0

Total assets 16,539.8 18,967.9 24,807.1 28,093.6 29,776.8

ST interest bearing debt 408.6 902.3 1,263.3 1,642.3 1,478.0


LT interest bearing debt 3,562.3 5,101.6 6,632.1 8,621.8 9,484.0






CASH FLOW (CNY m)

Pretax profit 1,076.9 1,116.0 555.4 907.9 1,034.0

Depreciation & amortisation 770.4 1,063.7 1,367.2 1,538.4 1,656.1

Adj net interest (income)/exp 52.9 83.9 50.4 (35.4) (33.1)

Change in working capital 1,035,571.0 (65,923.0) 204.2 (87.5) (148.8)

Cash taxes paid (213.1) (309.2) (113.9) (186.1) (212.0)



Capex (3,487.0) (4,547.7) (4,500.0) (3,500.0) (3,000.0)

Free cash flow (946.0) (3,313.6) (2,544.1) (1,380.2) (724.4)

Dividends paid (93.6) (171.2) (183.3) (88.3) (144.4)


Change in Debt 879.8 2,146.6 1,891.4 2,368.6 698.0

Other invest/financing cash flow 21.0 19.1 7.0 1.0 0.0

Effect of exch rate changes (0.1) 3.3 0.0 0.0 0.0

Net cash flow (78.1) (873.5) 2,453.0 901.1 (170.8)

June 13, 2014 51

Uni-President China


Key Ratios

Growth ratios (%)

Revenue growth 26.4 9.0 6.6 6.9 7.4

EBITDA growth 114.4 20.8 (5.7) 23.2 10.5

EBIT growth 237.4 5.8 (44.7) 51.3 16.2

Pretax growth 171.7 3.6 (50.2) 63.5 13.9

Reported net profit growth 174.4 7.1 (51.8) 63.5 13.9

Core net profit growth 174.4 (51.3) 6.0 63.5 13.9


EBITDA margin 7.7 8.6 7.6 8.7 9.0

EBIT margin 4.1 4.0 2.1 2.9 3.2


Payout ratio 20.0 18.2 20.0 20.0 20.0

DuPont analysis


Revenue/Assets (x) 1.3 1.2 1.0 0.9 1.0

Assets/Equity (x) 2.2 2.3 2.1 2.3 2.3

ROAE (%) 11.8 5.3 4.5 6.0 6.5

ROAA (%) 5.7 2.3 2.0 2.7 2.8






Dividend cover (x) 5.0 5.5 5.0 5.0 5.0

Current ratio (x) 1.0 0.8 1.2 1.2 1.3



Net debt/equity (%) 21.9 56.4 34.5 44.6 49.0

Net interest cover (x) na na 10.2 na na

Debt/EBITDA (x) 2.4 3.0 4.2 4.4 4.3

Capex/revenue (%) 16.3 19.5 18.1 13.2 10.5

Net debt/ (net cash) 1,680.1 4,590.0 4,028.4 5,495.9 6,364.7

June 13, 2014

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China Foods (506 HK)

Turnaround theme still on Maintain BUY on turnaround and SOE reform themes. New TP

HKD3.8 is pegged to 1.7x FY14/15F PBR (1 s.d below its 5-year 12m rolling FWD PBR average of 2.4x). Cost cutting and efficiency efforts should start to bear fruit.

New management’s renewed focus on brand managementand increasing attention on e-commerce, imported wine andmass-market products should reposition it for better growth.

We see possible exit of loss-making confectionary unit inFY14F to be a near-term catalyst.

What’s New We believe CF’s wine sales will remain sluggish in view of the weakindustry production data and its peers’ poor performance amid theweak macro economy. Still, we believe CF is on track to restore itswine inventory to normal levels by its end-1H14F target.

We anticipate the bottling unit’s EBIT margin will improve YoY in 2014F on the back of favourable sugar/PET input costs. Salesvolume should accelerate given the on-going product/flavour launches and new family-pack offerings. Hotter-than-usual weather and the World Cup should boost sales volume.

Staff levels are expected to be cut YoY and therefore SG&Aexpenses should fall despite muted top-line growth. The updated KPIs and profit-linked appraisal system adopted since managementcame on board should gradually boost efficiency as well.

We believe earnings volatility at its kitchen food business will fall from 2014F onwards with more flexible transaction agreementswith upstream suppliers.

What’s Our View We forecast breakeven in FY14 and for profit to be restored to FY12 levels in FY15.

Key Data


Maybank vs Market

Share Price: HKD2.77 MCap (USD): 1,000M Hong Kong

Target Price: HKD3.80(+37%) ADTV (USD): 0.9M Consumer Staples (Unchanged)BUY

52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:


-China Asset Management Co., Ltd. 1.6%

-First State Investments (Hong Kong) Ltd. 1.4%

3.85/2.49

2,797

25.9

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China Foods - (LHS, HKD) China Foods / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) 4.5 3.0 (16.3)

Relative to index (%) 0.4 (2.7) (22.9)


Market Recs 3 4 0



'14 PATMI (HKDm) 9 214 (95.7)

'15 PATMI (HKDm) 355 373 (4.9)


FYE Dec (HKD m) FY12A FY13A FY14E FY15E FY16ERevenue 30,878.4 26,218.4 29,225.3 32,973.8 37,255.3EBITDA 1,246.5 86.5 923.8 1,472.8 1,751.0Core net profit 381.9 (889.6) 9.2 354.8 500.5Core EPS (HKD) 0.14 (0.32) 0.00 0.13 0.18Core EPS growth (%) (40.9) nm nm 3,743.9 41.0Net DPS (HKD) 0.06 0.00 0.00 0.05 0.07Core P/E (x) 20.3 (8.7) 839.4 21.8 15.5P/BV (x) 1.1 1.3 1.3 1.2 1.2Net dividend yield (%) 2.2 0.0 0.0 1.8 2.6ROAE (%) 5.7 nm 0.2 5.7 7.7ROAA (%) 2.0 nm 0.0 1.6 2.1EV/EBITDA (x) 18.5 nm 12.0 7.9 7.1Net debt/equity (%) 17.6 27.3 19.4 25.8 34.1


June 13, 2014 53

China Foods

Figure 53: Our earnings projections– key assumptions FY10 FY11 FY12 FY13 FY14F FY15F FY16F Wine Volume (tons) 101,639 99,466 102,516 53,308 56,507 62,157 68,373 YoY growth (%) (14.25) (2.14) 3.07 (48.00) 6.00 10.00 10.00 ASP (HKD/ton) 30,642 37,133 37,908 34,657 33,964 33,284 33,284 YoY growth (%) 13.62 21.19 2.09 (8.58) (2.00) (2.00) 0.00 EBIT margin (%) 11.70 17.20 13.78 (24.60) (14.79) 3.72 6.03 Turnover(HKDm) 3,114 3,693 3,886 1,847 1,919 2,069 2,276 Beverages Volume (mil unit case) 486 570 613 619 674 742 816 YoY growth (%) 25.33 17.30 7.40 1.00 9.00 10.00 10.00 ASP (HKD/mil unit case) 16,292 18,440 18,137 18,408 18,960 19,529 20,115 YoY growth (%) (10.97) 13.18 (1.65) 1.50 3.00 3.00 3.00 EBIT margin 6.60 5.05 5.21 4.40 5.60 5.70 5.70 Turnover(HKDm) 7,921 10,517 11,110 11,389 12,786 14,487 16,413 Kitchen Food Volume (tons) 802,995 1,034,792 1,167,559 1,050,803 1,155,883 1,271,472 1,398,619 YoY growth (%) 26.19 28.87 12.83 (10.00) 10.00 10.00 10.00 ASP (HKD/ton) 10,392 12,699 12,826 11,683 11,917 12,274 12,642 YoY growth (%) 10.06 22.20 1.00 (8.91) 2.00 3.00 3.00 EBIT margin 0.40 1.20 (1.53) (1.20) 0.50 0.50 0.60 Turnover(HKDm) 8,344 13,141 14,975 12,276 13,774 15,606 17,682 Confectionary Volume (tons) 7,614 9,070 8,498 5,827 6,002 6,302 6,617 YoY growth (%) 41.37 19.12 (6.31) (31.43) 3.00 5.00 5.00 ASP (HKD/ton) 75,686 72,707 85,396 74,639 74,639 76,879 79,185 YoY growth (%) (21.55) (3.94) 17.45 (12.60) 0.00 3.00 3.00 EBIT margin (13.79) (14.35) (7.80) (51.20) (46.35) (35.20) (25.46) Turnover(HKDm) 576 659 726 435 448 484 524 Source: Company data, Maybank Kim Eng estimates

June 13, 2014 54

China Foods

FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey MetricsP/E (reported) (x) 20.3 (8.7) nm 21.8 15.5Core P/E (x) 20.3 (8.7) 839.4 21.8 15.5P/BV (x) 1.1 1.3 1.3 1.2 1.2P/NTA (x) 0.9 0.9 0.9 0.9 0.8Net dividend yield (%) 2.2 0.0 0.0 1.8 2.6FCF yield (%) nm nm 5.1 nm nmEV/EBITDA (x) 18.5 nm 12.0 7.9 7.1EV/EBIT (x) 29.4 nm 33.4 13.9 11.5

INCOME STATEMENT (HKD m)Revenue 30,878.4 26,218.4 29,225.3 32,973.8 37,255.3Gross profit 6,489.8 5,283.9 6,195.6 6,986.1 7,954.0EBITDA 1,246.5 86.5 923.8 1,472.8 1,751.0Depreciation (457.0) (486.1) (580.9) (624.1) (657.2)Amortisation (11.8) (10.6) (10.6) (10.6) (10.7)EBIT 786.9 (405.5) 332.3 838.1 1,083.2Net interest income /(exp) (70.2) (103.1) (165.5) (180.0) (195.8)Associates & JV 67.3 113.9 119.6 125.6 131.9Exceptionals 0.0 0.0 0.0 0.0 0.0Other pretax income 0.0 0.0 0.0 0.0 0.0Pretax profit 784.0 (394.7) 286.5 783.7 1,019.2Income tax (191.9) (311.8) (71.6) (195.9) (254.8)Minorities 210.2 183.1 205.6 233.0 263.9Reported net profit 381.9 (889.6) 9.2 354.8 500.5Core net profit 381.9 (889.6) 9.2 354.8 500.5

BALANCE SHEET (HKD m)Cash & Short Term Investments 1,901.3 2,458.0 3,308.2 3,256.4 3,052.9Accounts receivable 2,516.3 1,694.8 2,308.8 2,588.4 2,924.5Inventory 5,075.0 5,866.2 5,114.4 5,605.5 6,333.4Property, Plant & Equip (net) 4,574.4 4,881.3 5,200.4 5,476.4 5,719.2Intangible assets 1,778.1 1,786.6 1,775.9 1,765.3 1,754.6Investment in Associates & JVs 637.0 704.8 776.5 851.8 930.9Other assets 3,730.0 3,581.8 3,581.8 3,581.8 3,581.8Total assets 20,212.2 20,973.5 22,066.2 23,125.7 24,297.4ST interest bearing debt 2,000.7 2,537.6 2,740.6 2,959.8 3,196.6Accounts payable 1,791.8 1,191.7 1,796.3 2,045.2 2,306.0LT interest bearing debt 1,100.0 1,600.0 1,760.0 1,936.0 2,129.6Other liabilities 6,621.7 7,446.0 7,446.0 7,446.0 7,446.0Total Liabilities 11,514.2 12,775.3 13,742.9 14,387.1 15,078.2Shareholders Equity 6,805.1 6,146.0 6,151.5 6,364.4 6,664.7Minority Interest 1,892.9 2,052.3 2,170.0 2,303.3 2,454.4Total shareholder equity 8,698.0 8,198.2 8,321.5 8,667.7 9,119.1

CASH FLOW (HKD m)Pretax profit 784.0 (394.7) 286.5 783.7 1,019.2Depreciation & amortisation 459.5 492.0 591.5 634.7 667.8Adj net interest (income)/exp 39.4 77.3 136.0 137.0 153.5Change in working capital 801.7 379.8 595.2 (698.5) (1,015.1)Cash taxes paid (390.9) (205.1) (71.6) (195.9) (254.8)Other operating cash flow 203.8 138.6 (36.8) 97.4 170.3Cash flow from operations 371.4 97.4 1,293.1 425.4 332.7Capex (1,217.3) (757.9) (900.0) (900.0) (900.0)Free cash flow (845.9) (660.5) 393.1 (474.6) (567.3)Dividends paid (212.6) (78.3) (87.9) (99.6) (112.8)Equity raised / (purchased) 0.0 0.0 0.0 0.0 0.0Change in Debt 1,282.9 1,022.9 363.0 395.2 430.4Other invest/financing cash flow (99.5) 219.8 182.1 127.1 46.3Effect of exch rate changes 0.7 70.1 0.0 0.0 0.0Net cash flow 110.8 486.7 850.2 (51.8) (203.5)

June 13, 2014 55

China Foods

FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey RatiosGrowth ratios (%)Revenue growth 10.2 (15.1) 11.5 12.8 13.0EBITDA growth (21.5) (93.1) 968.5 59.4 18.9EBIT growth (33.3) nm nm 152.2 29.2Pretax growth (35.1) nm nm 173.6 30.0Reported net profit growth (40.8) nm nm 3,743.7 41.0Core net profit growth (40.8) nm nm 3,743.7 41.0

Profitability ratios (%)EBITDA margin 4.0 0.3 3.2 4.5 4.7EBIT margin 2.5 nm 1.1 2.5 2.9Pretax profit margin 2.5 nm 1.0 2.4 2.7Payout ratio 44.7 0.0 40.0 40.0 40.0

DuPont analysisNet profit margin (%) 1.2 nm 0.0 1.1 1.3Revenue/Assets (x) 1.5 1.3 1.3 1.4 1.5Assets/Equity (x) 3.0 3.4 3.6 3.6 3.6ROAE (%) 5.7 nm 0.2 5.7 7.7ROAA (%) 2.0 nm 0.0 1.6 2.1

Liquidity & EfficiencyCash conversion cycle 80.8 97.3 87.1 74.4 73.2Days receivable outstanding 26.0 28.9 24.7 26.7 26.6Days inventory outstanding 79.5 94.1 85.8 74.3 73.3Days payables outstanding 24.7 25.7 23.4 26.6 26.7Dividend cover (x) 2.2 nm 2.5 2.5 2.5Current ratio (x) 1.2 1.1 1.1 1.1 1.2

Leverage & Expense AnalysisAsset/Liability (x) 1.8 1.6 1.6 1.6 1.6Net debt/equity (%) 17.6 27.3 19.4 25.8 34.1Net interest cover (x) 11.2 na 2.0 4.7 5.5Debt/EBITDA (x) 2.5 nm 4.9 3.3 3.0Capex/revenue (%) 3.9 2.9 3.1 2.7 2.4Net debt/ (net cash) 1,199.4 1,679.5 1,192.3 1,639.4 2,273.3

June 13, 2014

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Vinda International (3331 HK)

Unexciting if not for SCA angle Maintain HOLD. Raise TP to HKD11.84, pegged to 22x 12m

rolling FWD PER. Industry oversupply, keen competition andlack of breakthrough on new businesses are ST overhangs.

We forecast EBIT margin will contract by 0.6ppt in FY14 as itcontinues its aggressive A&P efforts to safeguard marketshare. Softening hard wood pulp price (BHKP) outlook andproduct-mix upgrade will alleviate part of the impact though.

Vinda is trading at a 10% premium to its 3-yr historic average PER, which is justified as potential collaboration with SCA may see additional revenue streams and produce synergies.

What’s New We reckon sales should be largely in line with 1Q14’s sluggishtrend. Continuing consumption upgrade to non-toilet rolls (eg. box tissues) is the key driver. However, A&P expense ratio will furtherrise on keen market competition & behind-budget top-line growth.

Our latest conversation with Vinda confirmed no changes to itscapacity expansion plan in FY14F (+130k tons) as it believes market-share gains and industry consolidation are under way. It isalso believed that the industry oversupply will ease in 2015F.

We note that its diaper “Babifit” is facing intensifying competitionfrom both MNCs and new entrants and thus it may not be able toachieve its turnaround target in FY14F. On a separate note, femalecare product “Via” saw satisfactory feedback so far but scale remains small. Overall, we forecast JV loss to be flat YoY in FY14F.

What’s Our View Our latest forecasts are on average 15% below consensus. Forexloss on CNY weakness adds uncertainty to FY14F.

Key Data


Maybank vs Market


Target Price: HKD11.84(-3%) ADTV (USD): 0.5M Consumer Staples (Unchanged)HOLD52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-Svenska Cellulosa AB 51.4%

-Fu An International Co. Ltd. 21.7%

-Invesco Hong Kong Ltd. 4.9%

13.92/7.46

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Vinda Int'l - (LHS, HKD) Vinda Int'l / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) 7.1 3.9 41.8



Market Recs 5 4 3


Target Price (HKD) 11.84 12.70 (6.8)

'14 PATMI (HKDm) 483 568 (14.9)

'15 PATMI (HKDm) 592 689 (14.1)


FYE Dec (HKD m) FY12A FY13A FY14E FY15E FY16ERevenue 6,024.0 6,798.0 7,607.9 8,633.7 9,980.6EBITDA 1,045.7 986.2 1,023.7 1,163.3 1,453.9Core net profit 536.6 542.9 483.2 592.3 814.4Core EPS (HKD) 0.59 0.59 0.53 0.65 0.89Core EPS growth (%) 32.3 1.2 (11.0) 22.6 37.5Net DPS (HKD) 0.16 0.16 0.14 0.17 0.24Core P/E (x) 21.1 20.8 23.4 19.1 13.9P/BV (x) 2.7 2.4 2.3 2.1 1.9Net dividend yield (%) 1.3 1.3 1.1 1.4 1.9ROAE (%) 14.8 12.4 10.0 11.4 14.3ROAA (%) 7.5 6.3 4.9 5.5 6.9EV/EBITDA (x) 10.5 14.0 13.2 11.7 9.3Net debt/equity (%) 31.9 44.1 43.9 42.2 38.0


June 13, 2014 57

Vinda International

Figure 54: Our earnings estimates key assumptions

FY11A FY12A FY13A FY14F FY15F FY16FWood Pulp assumptions Average pulp cost (USD/tonne) 766 677 679 696 689 682 Total pulp purchase (HKD’000) 2,201,568 2,463,835 2,875,537 3,188,763 3,547,051 3,979,791 As of % of COGS 63.47 59.10 59.58 59.44 58.79 58.06 As of % of sales 46.2 40.9 42.3 41.9 41.1 39.9 Sales volume (tonnes) 335,044 424,358 481,920 534,000 600,000 680,000 YoY growth (%) 18.9 26.7 13.6 10.8 12.4 13.3

COGS assumptions as of % of sales Pulp 46.2 40.9 42.3 41.9 41.1 39.9 Packaging 9.3 9.7 9.8 9.8 9.9 9.9 Chemicals 1.0 1.1 1.1 1.1 1.2 1.2 Water & electricity 8.0 8.2 8.3 8.4 8.5 8.5 Labour costs 3.4 4.0 4.0 3.9 3.8 3.8 Depreciations 2.9 2.9 3.0 3.0 3.0 3.0 Others 1.5 2.4 2.5 2.4 2.4 2.4 Gross margins (%) 27.2 30.8 29.0 29.5 30.1 31.3 OPEX assumptions Selling & distribution as % of sales 12.1 12.8 13.9 14.5 14.5 14.3 Admin expense as % of sales 5.0 6.1 5.5 5.9 6.0 5.8 OPEX as % of sales 17.1 18.9 19.4 20.4 20.5 20.1 ASP assumptions Product ASP (HKD/tonne) 14,223 14,196 14,106 14,247 14,390 14,677 YoY changes (%) 11.27 (0.19) (0.63) 1.00 1.00 2.00 Source: Company data, CHPNIA, Maybank Kim Eng

Figure 55: Wood pulp price trend (USD/MT)


0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14

NBSK BHKP



Sales breakdown by category (FY13)


-

2

4

6

8

10

12

14

16

18

Jan 08Jan 09Jan 10Jan 11Jan 12Jan 13Jan 14

4.0x

10.1x

16.1x

22.3x

28.6x

Toilet roll

58.3%Hand-kerchief tissue11.3%

Box tissue3.7%

Paper napkin2.9%

Softpack19.3%

Others4.5%



-

5

10

15

20

25

Jan 08Jan 09Jan 10Jan 11Jan 12Jan 13Jan 14

0.7x

1.4x

2.0x

2.7x

3.4x

Sales breakdown by channel (FY13)


Distri-butors46.8%

Modern channels

37.6%

B2B (Cor-

porate clients)13.0%

E-commer

ce2.6%

June 13, 2014 58

Vinda International


Key Metrics

P/E (reported) (x) 21.1 20.8 23.4 19.1 13.9

Core P/E (x) 21.1 20.8 23.4 19.1 13.9

P/BV (x) 2.7 2.4 2.3 2.1 1.9

P/NTA (x) 2.7 2.4 2.3 2.1 1.9


FCF yield (%) nm nm nm 0.7 2.1

EV/EBITDA (x) 10.5 14.0 13.2 11.7 9.3

EV/EBIT (x) 14.2 19.4 18.0 15.3 11.5


Revenue 6,024.0 6,798.0 7,607.9 8,633.7 9,980.6

Gross profit 1,854.9 1,971.7 2,243.3 2,600.2 3,126.4

EBITDA 1,045.7 986.2 1,023.7 1,163.3 1,453.9

Depreciation (262.6) (262.6) (262.6) (262.6) (262.6)

Amortisation (8.0) (11.2) (11.2) (11.2) (11.2)

EBIT 775.1 712.5 750.0 889.5 1,180.1


Associates & JV (15.9) (27.0) (27.0) (13.5) 0.0


Pretax profit 718.5 672.5 644.3 789.8 1,085.9

Income tax (181.9) (129.6) (161.1) (197.4) (271.5)


Core net profit 536.6 542.9 483.2 592.3 814.4


Cash & Short Term Investments 753.6 689.7 820.4 1,030.3 1,367.0

Accounts receivable 1,116.0 1,286.3 1,445.5 1,640.4 1,906.3

Inventory 1,446.6 1,642.8 1,841.1 2,089.4 2,395.3




Other assets 441.7 572.2 566.7 561.1 555.6

Total assets 7,822.6 9,372.9 10,197.5 11,178.1 12,405.5

ST interest bearing debt 1,218.9 1,032.4 1,135.7 1,249.2 1,374.2


LT interest bearing debt 850.3 1,705.0 1,875.5 2,063.1 2,269.4

Other liabilities 211.5 168.6 168.6 168.6 168.6





CASH FLOW (HKD m)

Pretax profit 718.5 672.5 644.3 789.8 1,085.9


Adj net interest (income)/exp 40.9 57.0 78.7 86.2 94.2

Change in working capital (38.9) 19.8 (149.7) (184.3) (254.0)

Cash taxes paid (217.1) (240.6) (161.1) (197.4) (271.5)


Cash flow from operations 740.1 819.6 693.7 776.4 936.6

Capex (1,237.8) (1,373.0) (700.0) (700.0) (700.0)

Free cash flow (497.6) (553.4) (6.3) 76.4 236.6

Dividends paid (130.0) (160.9) (140.1) (171.8) (236.2)

Equity raised / (purchased) 530.7 (8.8) 0.0 0.0 0.0

Change in Debt 117.2 675.6 273.7 301.1 331.2

Other invest/financing cash flow 7.4 3.8 3.4 4.1 5.2

Effect of exch rate changes 2.0 11.6 0.0 0.0 0.0

Net cash flow 37.0 (75.5) 130.7 209.8 336.8

June 13, 2014 59

Vinda International


Key Ratios

Growth ratios (%)

Revenue growth 26.4 12.8 11.9 13.5 15.6

EBITDA growth 34.7 (5.7) 3.8 13.6 25.0

EBIT growth 53.3 (8.1) 5.3 18.6 32.7

Pretax growth 37.7 (6.4) (4.2) 22.6 37.5

Reported net profit growth 32.3 1.2 (11.0) 22.6 37.5

Core net profit growth 32.3 1.2 (11.0) 22.6 37.5


EBITDA margin 17.4 14.5 13.5 13.5 14.6

EBIT margin 12.9 10.5 9.9 10.3 11.8


Payout ratio 27.0 26.2 26.5 26.5 26.5

DuPont analysis


Revenue/Assets (x) 0.8 0.7 0.7 0.8 0.8

Assets/Equity (x) 1.9 2.0 2.0 2.1 2.1

ROAE (%) 14.8 12.4 10.0 11.4 14.3

ROAA (%) 7.5 6.3 4.9 5.5 6.9






Dividend cover (x) 3.7 3.8 3.8 3.8 3.8

Current ratio (x) 1.2 1.3 1.3 1.3 1.4



Net debt/equity (%) 31.9 44.1 43.9 42.2 38.0

Net interest cover (x) 18.9 12.5 9.5 10.3 12.5

Debt/EBITDA (x) 2.0 2.8 2.9 2.8 2.5

Capex/revenue (%) 20.5 20.2 9.2 8.1 7.0

Net debt/ (net cash) 1,315.6 2,047.7 2,190.7 2,282.0 2,276.5

June 13, 2014

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Tingyi (Cayman Islands) Holding (322 HK)

A&P war to persist, yet still in good shape Reiterate BUY with Street-high TP at HKD29.6 and 38.4% 3-yr

NPAT CAGR. We believe positive operating leverage and synergywith Pepsi is underestimated by the Street. 1Q NPAT reaches20%/25% of our/Street’s FY14F despite low season.

Trade promotion efforts will persist until market share split forLaotan flavour between Tingyi/UPC reaches 70/30 vs. current44:56. However, we expect squeeze in noodle GPM to be offsetby better beverage GPM and OPEX savings.

Key challenge is slow growth for both instant noodles andbeverage markets except bottled water submarket.

What’s New 1Q14 recap: i) NPAT/EBITDA +22%/24% YoY on weak sales acrossthe board except bottled water and RTD-tea (CSD down YoY on CNY sales shift); ii) GPM+1ppt YoY driven by full integration of Pepsi’sraw materials procurement process and mix changes; iii) SG&Adown YoY on reduced fixed cost base and inefficient headcounts.

New products pipeline: “Fresh Banquet” range of high-end bowl noodles, “Crispy Fatty” snack noodles, new iced-chrysanthemum & honey with jasmine green tea flavours, new rock candy flavourpear drink. Plans to launch water melon CSD in summer.

Key highlights of 5-year plan: i) targeting 5-year sales CAGR at 1.5-2X GDP growth; ii) to achieve 8-10% NPM for instant noodlesand 8% NPM for beverages in 5-10 years.

Key strategies: i) product innovation; ii) production automationand operation efficiency improvement; iii) supply chain synergies;iv) strengthen modern trade/e-commerce exposure; v) strengthen the existing cash cow products and develop the next generationcash cows; vi) M&A opportunities.

What’s Our View We believe Tingyi is moving in the right direction which shouldfurther strengthen its competitive edge over competitors.

Key Data


Maybank vs Market


Target Price: HKD29.60(+37%) ADTV (USD): 11M Consumer Staples (Unchanged)BUY

52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:

-WEI FAMILY 33.1%

-Sanyo Foods Co., Ltd. (Instant Noodles) 33.1%

-OppenheimerFunds, Inc. 3.4%

23.30/18.38

5,599

33.5

HKD122.3B

10.8

85

95

105

115

125

135

145

155

18.0

19.0

20.0

21.0

22.0

23.0

24.0

25.0


Tingyi - (LHS, HKD) Tingyi / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) (1.1) 2.1 9.9

Relative to index (%) (5.0) (3.5) 1.3


Market Recs 15 10 3



'14 PATMI (USDm) 633 529 19.6

'15 PATMI (USDm) 795 642 23.8


FYE Dec (USD m) FY12A FY13A FY14E FY15E FY16ERevenue 9,211.9 10,941.0 12,377.5 14,131.3 16,065.8EBITDA 1,200.0 1,144.4 1,438.0 1,733.2 2,174.9Core net profit 360.2 408.5 633.2 794.6 1,081.9Core EPS (cts) 6.4 7.3 11.3 14.1 19.1Core EPS growth (%) (5.4) 13.4 54.2 24.9 35.5Net DPS (cts) 3.2 3.7 5.6 7.0 9.5Core P/E (x) 43.8 38.6 25.0 20.0 14.8P/BV (x) 4.5 4.0 3.6 3.2 2.8Net dividend yield (%) 1.1 1.3 2.0 2.5 3.4ROAE (%) 15.5 15.1 20.8 23.4 28.0ROAA (%) 5.4 5.1 7.1 8.1 9.9EV/EBITDA (x) 14.3 15.4 12.1 10.0 7.8Net debt/equity (%) 25.7 15.3 10.0 net cash net cash


(Published on 21 May 2014)

June 13, 2014 61

Tingyi (Cayman Islands) Holdings

Key takeaway from Chairman’s presentation

The company hosted an investor dinner on 19th May and analyst briefing on 20th May in Hong Kong. In his presentation Chairman Mr Wei Ing-Chou mostly focussed on the five year development blueprint for both the food and beverage businesses. Most initiatives are for medium-to-long term development, and we believe the major takeaways for short-term is A&P war against UPC will not disappear.

Overall five year target Mr Wei is targeting for sales CAGR of 1.5-2X GDP over the next five years. The beverage sector is expected to have the fastest growth rate, followed by instant noodles. Carbonated soft drinks (CSD) are expected to grow at a rate of 0.5-0.8X GDP. In terms of targeted profitability over the next five years, the aim is for noodles to achieve a net margin of 8-10% and beverages to reach an 8% net margin. It is targeting a 60% share of the instant noodle market.

Instant noodles In 2014, the major direction is to develop new revenue sources and save costs via enhanced production logistic efficiency. Key strategies: i) new product innovation. YTD Tingyi has launched several new products including the “Crispy Fatty” range of snack noodles and “Fresh Banquet” range of high-end bowl noodles. As snack foods account for 15% of total industry sales volume, Tingyi will pay more attention to this segment; ii) to widen market share gap between competitors in different categories and flavours to at least 70/30 split between Tingyi and 2nd player in order to achieve absolute price bargaining power. The current market share splits between Tingyi/UPC in Laotan/braised beef/braised pork flavours are 44:56/95:5/65:35; iii) product upgrade and rationalization of suggested retail prices (to lift retail prices of bowl noodles from CNY3.8 to CNY5 and packet noodles from CNY2.2 to CNY3 in next three years); iv) strengthen cooperation with E-commerce and modern trade channels; v) to capitalise on distributors/wholesalers to tap into new markets; vi) lower raw materials cost.

Instant food In 2014, the major direction is to consolidate and resume growth. Five major strategies: i) restructure the bakery business; ii) set up the new instant food business unit; iii) expand potato-processed products business; iv) develop frozen meat products business; v) continue to seek good M&A opportunities. M&A criteria are revenue size above CNY3b, to own majority stakes, decent B2C platform, potential synergies, leading market share in respective sector, and no overseas M&A.

Beverage The target for 2014 is to consistently grow sales volume and improve profitability. Key strategies: i) To gain markets ahead of competitors with new products. For example the roll out of new green tea products with flavours such as iced chrysanthemum and honey jasmine. The market share split between Tingyi/UPC for green tea is 55:45, for red tea it is 65:35, jasmine tea is 98:2 and for iced crystal sugar pear juice it is 70:30. ; ii) to

June 13, 2014 62


strengthen the cash cow products (ie, sales above USD1b) such as green tea, red tea, bottled water, iced crystal sugar pear and jasmine tea; iii) supply chain synergy with Pepsi, iv) to identify and develop the next cash cow products such as iced crystal lemon and honey pomelo; v) to strengthen modern trade/e-commerce channel exposure.

Pepsi In 2014, the major business direction is to keep up the results and reform. Several key strategies are: i) reinforce brand image and consolidate the brand management; ii) innovative CSD to be launched (water melon flavor); iii) all-round technique upgrade and training for staff; iv) supply chain synergy.

Other key highlights Reasonable market size of beverage should be five times of food market.

The company will continue to focus on existing beverage categories as they already make up of 95% of industry sales volume.

Per capita beverage consumption is expected to double from 150 bottles per annum currently within 10 years. Therefore, Mr Wei is upbeat on the revenue growth of its beverage unit, especially in the coming three years.

Expect increasing competition in flavoured milk market.

Regarding succession, Mr Wei’s elder son is expected to take charge of the food business while his younger son is expected to take control of the beverage business. He expects to lead both sons for three years before full-retirement.

Regarding spin-off, Mr Wei is seeking appropriate timing for separate listing of its food business and beverage business in future.

Company is not ready to aggressively tap into 100% juice category except with the Tropicana range.

June 13, 2014 63


Figure 56: Our sales forecast assumptions

Sales (USDm) FY12A FY13A FY14F FY15F FY16F Beverages 4,932 6,268 7,255 8,407 9,671 YoY growth (%) 23.3 27.1 15.8 15.9 15.0 - Juice drinks 1,187 1,340 1,407 1,618 1,812 YoY growth (%) 73.5 12.9 5.0 15.0 12.0 - RTD tea 1,829 2,292 2,750 3,163 3,637 YoY growth (%) (26.2) 25.3 20.0 15.0 15.0 - Bottled water 899 1,141 1,483 1,899 2,373 YoY growth (%) 7.3 26.9 30.0 28.0 25.0 - CSD & others 1,017 1,495 1,615 1,728 1,849 YoY growth (%) N/A 47.0 8.0 7.0 7.0 Instant noodles 3,961 4,332 4,708 5,238 5,830 YoY growth (%) 10.3 9.4 8.7 11.2 11.3 - Bowl noodles 1,881 2,066 2,211 2,432 2,675 YoY growth (%) 13.2 9.8 7.0 10.0 10.0 - High-end packets 1,615 1,693 1,778 1,920 2,073 YoY growth (%) 11.8 4.8 5.0 8.0 8.0 - Mid-end packets 400 469 553 636 732 YoY growth (%) (15.1) 17.3 18.0 15.0 15.0 - Others 65. 104 166 250 349 YoY growth (%) 306.3 60.0 60.0 50.0 40.0 Instant Food 234 203 207 217 228 YoY growth (%) 16.2 (13.3) 2.0 5.0 5.0 Others 87 138 207 269 336 Yoy growth (%) 17.3 58.6 50.0 30.0 25.0 Source: Company data, Maybank Kim Eng estimates

Figure 57: Our OPEX ratios assumptions

Cost ratio (%) FY12A FY13A FY14F FY15F FY16F ‐ Gross margins 29.90 30.25 31.61 31.95 32.64 ‐ Distribution cost 20.26 21.14 21.10 20.70 20.00 ‐ Admin expense 3.23 3.21 2.95 2.85 2.78 ‐ Other OPEX 0.81 1.08 0.90 0.85 0.80 Source: Company data, Maybank Kim Eng estimates

Figure 58: Major input cost trend (CNY per ton)


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

101Q 103Q 111Q 113Q 12 1Q 12 3Q 131Q 133Q 141Q

Flour Palm oil PET resin Sugar

Sales breakdown (FY13)


Noodles sales breakdown (FY13)


Beverage sales breakdown (FY13)

Source: Company data, Maybank Kim

COGS breakdown (FY13)

Source: Company data, Maybank Kim

Beverages

57%

Noodles40%

Instant Food2%

Others1%

Bowl48%

High-end packet

39%

Mid-end packet

11%

Others2%

Tea 37%

Water18%

Juice21%

CSD & others24%

Flour7.2%

Palm oil6.0%

Sugar5.7%

PET34.1%

Others47.0%

June 13, 2014 64



INCOME STATEMENT (USD m)Revenue 9,211.9 10,941.0 12,377.5 14,131.3 16,065.8Gross profit 2,754.5 3,310.0 3,912.5 4,514.5 5,244.2EBITDA 1,200.0 1,144.4 1,438.0 1,733.2 2,174.9Depreciation 380.8 444.3 463.9 501.0 534.9Amortisation 6.3 7.3 3.7 3.5 3.3EBIT 812.8 692.8 970.4 1,228.6 1,636.7Net interest income /(exp) 15.7 14.2 37.2 45.7 68.2Associates & JV 4.0 16.0 17.7 19.4 21.4Exceptionals 0.0 0.0 0.0 0.0 0.0Other pretax income 0.0 0.0 0.0 0.0 0.0Pretax profit 832.5 723.0 1,025.2 1,293.8 1,726.2Income tax (227.8) (228.7) (256.3) (323.4) (431.6)Minorities (145.0) (85.8) (135.7) (175.7) (212.8)Discontinued operations 0.0 0.0 0.0 0.0 0.0Reported net profit 455.2 408.5 633.2 794.6 1,081.9Core net profit 360.2 408.5 633.2 794.6 1,081.9

BALANCE SHEET (USD m)Cash & Short Term Investments 830.2 1,234.4 1,392.2 1,780.0 2,419.3Accounts receivable 233.1 260.4 305.7 343.4 390.4Inventory 478.1 480.9 544.6 621.8 706.9Property, Plant & Equip (net) 5,001.7 5,485.1 5,921.2 6,320.2 6,685.3Intangible assets 28.8 28.1 24.3 20.8 17.4Investment in Associates & JVs 84.4 109.3 127.0 146.4 167.8Other assets 816.8 826.1 976.6 1,058.0 1,146.4Total assets 7,473.3 8,424.3 9,291.6 10,290.6 11,533.5ST interest bearing debt 499.7 1,016.6 1,118.3 1,230.1 1,353.1Accounts payable 1,043.3 1,251.7 1,362.9 1,543.5 1,736.9LT interest bearing debt 984.8 659.6 593.7 534.3 480.9Other liabilities 1,456.3 1,569.9 1,838.1 2,030.9 2,257.2Total Liabilities 3,984.1 4,497.9 4,912.9 5,338.8 5,828.1Shareholders Equity 2,544.2 2,880.3 3,196.9 3,594.2 4,135.2Minority Interest 945.0 1,046.1 1,181.8 1,357.5 1,570.3Total shareholder equity 3,489.2 3,926.4 4,378.7 4,951.7 5,705.4

CASH FLOW (USD m)Pretax profit 832.5 723.0 1,025.2 1,293.8 1,726.2Depreciation & amortisation (387.2) (451.6) (467.7) (504.5) (538.2)Adj net interest (income)/exp 81.1 89.0 115.9 126.9 152.5Change in working capital 330.9 302.5 119.8 177.2 199.2Cash taxes paid (159.1) (224.3) (256.3) (323.4) (431.6)Other operating cash flow (176.1) 21.4 (31.0) (17.4) (19.7)Cash flow from operations 1,156.0 1,214.4 1,245.0 1,544.8 1,898.7Capex (838.9) (852.0) (900.0) (900.0) (900.0)Free cash flow 116.2 202.2 421.5 684.3 1,065.8Dividends paid (209.7) (180.1) (232.0) (290.0) (393.0)Equity raised / (purchased) 3.9 4.2 0.0 0.0 0.0Change in Debt (21.6) 186.4 35.7 52.5 69.6Other invest/financing cash flow 112.5 (28.0) (6.1) (19.0) (35.6)Effect of exch rate changes 6.3 23.1 (0.4) (0.4) (0.4)Net cash flow 231.5 388.9 142.7 388.3 639.7

June 13, 2014 65


FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey RatiosGrowth ratios (%)Revenue growth 17.1 18.8 13.1 14.2 13.7EBITDA growth 25.6 (4.6) 25.7 20.5 25.5EBIT growth 28.2 (14.8) 40.1 26.6 33.2Pretax growth 25.6 (13.2) 41.8 26.2 33.4Reported net profit growth 8.5 (10.2) 55.0 25.5 36.2Core net profit growth (5.3) 13.4 55.0 25.5 36.2




Leverage & Expense AnalysisAsset/Liability (x) 1.9 1.9 1.9 1.9 2.0Net debt/equity (%) 25.7 15.3 10.0 net cash net cashNet interest cover (x) na na na na naDebt/EBITDA (x) 1.2 1.5 1.2 1.0 0.8Capex/revenue (%) 9.1 7.8 7.3 6.4 5.6Net debt/ (net cash) 654.2 441.9 319.8 (15.6) (585.3)

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June 13, 2014


China Resources Enterprise (291 HK)

D/G on retail Op deleveraging D/G to SELL on negative SSSG outlook given rising competition

from e-commerce and management’s focus on upcoming Tescointegration. Widening losses YoY also reveals on-going structural problems in weak regions, in our view.

Slash FY14-16F earnings (ex-Tesco) by 9-19% on sluggish retail sales prospects and food-restructuring losses despite good beer& beverage sales/margins. Key downside risks are fading raw material costs tailwind and hike in A&P costs.

New TP of HKD18.7 is pegged at 24X 12m rolling FWD PER.

What’s New 1Q14 disappointed: core NPAT -32% YoY with negative SSSG (-0.4%) the key shock. Its food unit reported losses amid the transition.Beer & water had respectable sales volume (+12%/+44% YoY) andshowed decent like-for-like ASP growth in addition to mix upgrade.

April & May SSSG was mixed and volatile. Together with challengesfaced by Sun Art’s SSSG, it may be a key indication physical stores will continue to lose sales to online retailers in future. However,CRE expects SSSG to recover in 2H as the economy stabilises.

Beer/beverage GPM rose 1/2ppt YoY due to favourable input costs.Beer premiumisation helped to offset Kingway’s undisclosedintegration losses, while any beverage GP upside ahead will bereinvested for brand building and expansion into new markets.

Losses at its food unit should persist until end-FY14F given initial start-up investment for rice distribution and other new businesses.

What’s Our View Our ex-Tesco projections translate into 16.6% 3-year profit CAGR vs original forecast of 21.6%. Our new TP of HKD18.7 is pegged at 24XPER but we roll over our valuation basis to FY14/15F, with the bookvalue offering good downside protection, we believe.

Key Data


Maybank vs Market


Target Price: HKD18.70(-11%) ADTV (USD): 8M Consumer Staples (Unchanged)SELL

52w high/low (HKD)


Free float (%)

Issued shares (m)


Major shareholders:


-Genesis Investment Management LLP 6.0%

-First State Investment Management (UK) 4.6%

27.80/19.18

2,403

48.7

HKD51.4B

8.5

70

75

80

85

90

95

100

105

110

115

120

125

19.0

20.0

21.0

22.0

23.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0


China Resources Enterprise - (LHS, HKD)

China Resources Enterprise / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) (2.3) 5.7 (15.6)


FYE Dec (HKD m) FY12A FY13A FY14E FY15E FY16ERevenue 126,236.0 146,413.0 167,897.2 190,734.6 214,336.0EBITDA 9,890.0 8,678.0 7,897.8 9,660.9 11,003.5Core net profit 1,527.0 1,642.0 1,521.6 2,193.2 2,602.2Core EPS (HKD) 0.64 0.68 0.63 0.91 1.08Core EPS growth (%) (19.2) 7.4 (7.3) 44.1 18.6Net DPS (HKD) 0.30 0.27 0.25 0.37 0.43Core P/E (x) 33.6 31.3 33.8 23.4 19.8P/BV (x) 1.3 1.2 1.1 1.1 1.1Net dividend yield (%) 1.4 1.3 1.2 1.7 2.0ROAE (%) 3.9 3.9 3.4 4.9 5.6ROAA (%) 1.3 1.2 0.9 1.2 1.4EV/EBITDA (x) 8.3 9.1 8.7 7.0 5.9Net debt/equity (%) 4.2 3.4 1.7 net cash net cash



Market Recs 3 11 3


Target Price (HKD) 18.70 23.50 (20.4)

'14 PATMI (HKDm) 1,522 1,812 (16.0)

'15 PATMI (HKDm) 2,193 2,178 0.70


(Downgrade)

(Published on 27 May 2014)

June 13, 2014 67

China Resources Enterprise

Figure 1: Our sales and earnings forecast (ex-Tesco) 1Q13A 2Q13A 3Q13A 4Q13A 1Q14A FY12A FY13A FY14F FY15F FY16F Turnover (before-inter segments sales reduction)(HKDm)

Retail 25,923 21,984 23,920 23,347 28,081 83,506 95,174 103,740 115,151 126,666 YoY growth (%) 7.34 22.30 14.22 14.23 8.32 19.14 13.97 9.00 11.00 10.00 Beer 6,548 9,530 11,332 5,584 7,876 28,064 32,994 41,272 47,631 53,398 YoY growth (%) 13.33 7.62 23.81 30.53 20.28 5.15 17.57 25.09 15.41 12.11 Food 2,433 2,571 3,171 3,894 3,942 10,379 12,069 13,517 14,869 16,059 YoY growth (%) (5.70) 1.46 20.30 48.12 62.02 (3.05) 16.28 12.00 10.00 8.00 Beverage 1,453 1,922 2,494 1,436 2,259 4,766 7,305 10,662 14,553 19,865 YoY growth (%) 56.40 41.32 54.05 67.37 55.47 53.15 53.27 45.95 36.50 36.50 Elimination of inter-segment (204) (303) (334) (334) 28,081 (479) (1,129) (1,295) (1,471) (1,653) Turnover 36,154 35,705 40,584 33,929 42,158 126,236 146,414 167,897 190,735 214,336 Core net profit(HKDm) Retail 525 99 75 35 464 525 734 674 783 887 YoY growth (%) (6.25 10.00 (2.60) (117.33) (11.62) (35.02) 39.81 (8.13) 16.12 13.24 Beer(after MI) (23) 381 749 (164) 6 823 943 1,076 1,386 1,563 YoY growth (%) (30.30) (6.62) 48.91 198.18 N/A 4.84 14.58 14.09 28.81 12.81 Food 57 14 30 (48) (50) 259 53 (189) 0 48 YoY growth (%) 0.00 (83.91) (55.88) (202.13) N/A (1.52) (79.54) N/A N/A N/A Beverage 8 31 90 (23) 10 86 106 155 218 298 YoY growth (%) 33.33 29.17 55.17 (1050.00) 25.00 (31.75) 23.26 45.84 41.21 36.50 EBITDA margin (%) Retail 4.7 3.3 3.1 3.3 4.5 3.4 3.6 3.0 3.5 3.6 Beer 6.7 15.7 20.2 3.5 8.5 13.6 13.4 12.8 13.0 13.1 Food 5.8 4.2 4.2 0.6 1.8 6.4 3.4 1.6 2.0 2.3 Beverage 2.9 4.8 8.7 (1.9) 2.5 5.5 4.4 4.5 4.5 4.6 Core net margin (%) Retail 2.03 0.45 0.31 0.15 1.65 0.63 0.77 0.65 0.68 0.70 Beer(after MI) (0.35) 4.00 6.61 (2.94) 0.08 2.93 2.86 2.61 2.91 2.93 Food 2.34 0.54 0.95 (1.23) (1.27) 2.50 0.44 (1.40) 0.00 0.30 Beverage 0.55 1.61 3.61 (1.60) 0.44 1.80 1.45 1.45 1.50 1.50 Turnover contribution (%) Retail 71.70 61.57 58.94 68.81 67.16 66.15 65.00 61.79 60.37 59.10 Beer 18.01 26.47 27.70 16.30 18.68 22.15 22.36 24.39 24.78 24.72 Food 6.69 7.14 7.75 11.37 9.35 8.19 8.18 7.99 7.74 7.43 Beverage 4.00 5.34 6.10 4.19 5.36 3.76 4.95 6.30 7.57 9.20 EBITDA contribution (%) Retail 66.4 30.0 21.7 79.8 61.6 37.7 40.1 34.2 36.1 35.5 Beer 23.6 61.7 67.9 20.6 32.4 50.2 51.4 58.1 55.4 54.5 Food 7.7 4.5 4.0 2.5 3.3 8.7 4.8 2.4 2.7 2.9 Beverage 2.3 3.8 6.5 (2.9) 2.7 3.5 3.8 5.3 5.9 7.1 Core net profit contribution (%) Retail 92.6 18.9 7.9 (17.5) 107.9 31.0 40.0 39.3 32.8 31.7 Beer (4.1) 72.6 79.3 82.0 1.4 48.6 51.4 62.7 58.1 55.9 Food 10.1 2.7 3.2 24.0 (11.6) 15.3 2.9 (11.0) 0.0 1.7 Beverage 1.4 5.9 9.5 11.5 2.3 5.1 5.8 9.0 9.1 10.7 Source: Company data, Maybank Kim Eng estimates

Figure 2: CRE’s sum-of-the-parts (SOTP) valuation

Business segments Valuation Reference

Attributable FY14F EV

(HKDm) HKD/

Share Retail 0.2X FY14F P/S ~30% of Sun Art’s 20,748 8.63 Beer 26X FY14F PER At par to Tsingtao 27,974 10.35 Beverage 18X FY14F PER 25% discount to market

leaders 2,783 1.16

Food 10X EV/EBITDA Global peers’ average 2,160 0.90 Less net debt (738) (0.31) NAV 52,927 NAV per share(HKD) 22.03 Source: Company data, Maybank Kim Eng estimates

June 13, 2014 68


Figure 3: Peer valuation comparison FY14F Latest price EV/ Div Net (local Stock Mkt PER (x) P/BV EBITDA ROE yield gearing Company currency) code Cap(USD) 2013 2014F 2015F (x) (x) (%) (%) (%) Breweries AB-InBev 81.31 ABI BB 178.33 12.13 21.00 18.82 3.36 11.73 16.87 2.71 70.7 Beijing Yanjing Brewery 6.72 000729 CH 3.02 26.88 21.68 19.20 1.54 -- 6.40 2.38 -- Carlsberg 572.50 CARLB DC 16.17 15.95 14.71 13.30 1.17 9.49 8.16 1.67 43.4 Heineken 51.47 HEIA NA 40.43 21.72 17.52 15.81 2.43 9.57 13.81 1.81 81.9 SABMiller* 3,327.50 SAB LN 90.03 25.53 21.31 19.23 3.03 15.52 14.80 2.09 42.5 Tsingtao Brewery 61.55 168 HK 9.98 33.39 29.75 25.13 4.10 15.66 14.64 0.94 -- Average 22.60 20.99 18.58 2.61 12.39 12.45 1.93 Food retailers Beijing Jingkelong 2.02 814 HK 0.11 11.44 11.21 9.56 0.40 6.77 3.60 6.19 -- Carrefour 27.04 CA FP 26.70 14.86 17.27 14.94 2.17 6.25 12.90 2.59 54.6 Lianhua 4.36 980 HK 0.63 69.11 20.64 17.20 1.12 -- 5.49 1.93 -- Walmart** 75.61 WMT US 244.04 15.00 14.54 13.34 2.92 7.97 20.64 2.59 54.7 Sun Art 9.46 6808 HK 11.64 25.85 23.79 20.63 3.60 9.59 15.99 2.15 -- Wumart 5.82 1025 HK 0.96 12.81 11.00 9.90 1.49 3.56 14.15 4.62 -- Tesco* 304.15 TSCO LN 41.48 197.50 11.39 11.18 1.52 7.15 13.60 4.62 40.2 Yonghui 6.12 601933 CH 3.19 26.61 18.60 14.54 2.37 9.34 13.20 2.34 18.9 Average N/A 16.06 13.91 1.95 7.23 12.45 3.38 Food processing China Yurun 3.59 1068 HK 0.84 149.58 -- 28.05 0.41 11.72 1.58 0.67 -- Henan Shuanghui 34.76 000895 CH 12.26 19.86 15.71 12.99 4.65 10.48 30.67 2.24 -- Nippon Meat * 1,973.00 2282 JP 4.42 24.84 17.73 16.46 1.23 8.71 6.99 1.57 26.1 Tyson Foods*** 39.72 TSN US 13.52 17.97 13.63 12.72 2.07 6.77 16.34 0.72 13.0 CP Food 28.00 CPF TB 6.65 29.17 18.54 13.40 1.77 15.73 10.12 2.75 148.1 JBS SA 7.75 JBSS3 BZ 10.26 23.97 10.84 8.96 0.95 6.32 7.93 1.77 106.9 Hormel Foods**** 46.66 HRL US 12.32 23.45 21.14 18.62 3.42 11.61 17.26 1.70 -- Average 23.21 16.27 15.89 2.07 10.19 12.98 1.63 Beverage Tingyi 21.95 322 HK 15.85 38.76 29.80 24.41 5.07 11.81 16.96 1.64 6.6 Vitasoy* 10.56 345 HK 1.41 35.68 32.49 29.33 6.07 16.55 19.15 2.08 -- UPC 5.91 220 HK 3.29 19.25 26.72 22.23 2.04 12.87 7.52 0.76 63.6 China Huiyuan Juice 4.59 1886 HK 1.18 26.95 19.97 14.49 0.75 10.83 4.77 0.46 15.6 Monster Beverage 69.67 MNST US 11.64 34.32 27.73 23.79 9.41 15.22 38.67 0.00 -- Dr Pepper Snapple 56.99 DPS US 11.19 18.50 16.45 15.51 4.98 10.02 29.91 2.85 107.0 Ito En Ltd***** 2,300.00 2593 JP 2.01 25.95 25.47 23.66 2.36 7.74 9.39 1.65 -- PepsiCo 85.83 PEP US 130.12 19.64 18.93 17.57 5.59 11.82 29.05 2.94 -- Average 27.38 24.69 21.37 4.53 12.11 19.43 1.55 *Mar year-end (3/2014,3/2015,3/2016F); ** Jan year-end (1/2014,1/2015,1/2016F); ***Sep year-end(9/2014,9/2015,9/2016F); **** Oct year-end,***** April year-end Source: Bloomberg consensus, Kim Eng Securities

Figure 4: Forward PBR band

Source: Factset, Bloomberg, Maybank Kim Eng

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INCOME STATEMENT (HKD m)Revenue 126,236.0 146,413.0 167,897.2 190,734.6 214,336.0Gross profit 30,401.0 37,373.0 43,149.6 49,591.0 55,727.4EBITDA 9,890.0 8,678.0 7,897.8 9,660.9 11,003.5Depreciation (3,274.0) (3,853.0) (4,365.3) (4,959.1) (5,572.7)Amortisation (36.0) (36.0) (36.0) (36.0) (36.0)EBIT 6,580.0 4,789.0 3,496.5 4,665.8 5,394.8Net interest income /(exp) 25.0 230.0 229.2 248.6 362.7Associates & JV 48.0 27.0 29.7 32.7 35.9Exceptionals 0.0 0.0 0.0 0.0 0.0Other pretax income 0.0 0.0 0.0 0.0 0.0Pretax profit 6,653.0 5,046.0 3,755.4 4,947.0 5,793.4Income tax (1,631.0) (1,894.0) (1,314.4) (1,731.5) (1,911.8)Minorities (1,077.0) (1,244.0) (1,179.0) (1,531.5) (1,762.1)Discontinued operations 0.0 0.0 0.0 0.0 0.0Reported net profit 3,945.0 1,908.0 1,262.1 1,684.1 2,119.5Core net profit 1,527.0 1,642.0 1,521.6 2,193.2 2,602.2

BALANCE SHEET (HKD m)Cash & Short Term Investments 16,005.0 21,200.0 23,899.4 28,911.3 35,709.4Accounts receivable 13,744.0 16,428.0 18,804.5 21,362.3 24,005.6Inventory 21,242.0 25,021.0 28,710.4 32,615.6 36,651.5Property, Plant & Equip (net) 37,970.0 44,673.0 48,807.7 51,848.6 54,275.8Intangible assets 14,948.0 19,428.0 19,428.0 19,428.0 19,428.0Investment in Associates & JVs 389.0 388.0 388.0 388.0 388.0Other assets 23,190.0 28,151.0 28,431.0 28,711.0 28,991.0Total assets 127,488.0 155,289.0 168,469.0 183,264.8 199,449.3ST interest bearing debt 4,374.0 3,357.0 3,357.0 3,357.0 3,357.0Accounts payable 53,104.0 69,178.0 78,591.0 88,920.5 99,923.4LT interest bearing debt 13,352.0 19,346.0 21,280.6 23,408.7 25,749.5Other liabilities 2,874.0 3,797.0 3,797.0 3,797.0 3,797.0Total Liabilities 73,704.0 95,678.0 107,025.6 119,483.1 132,827.0Shareholders Equity 40,742.0 44,073.0 44,726.4 45,533.3 46,611.9Minority Interest 13,042.0 15,538.0 16,717.0 18,248.4 20,010.5Total shareholder equity 53,784.0 59,611.0 61,443.4 63,781.7 66,622.4

CASH FLOW (HKD m)Pretax profit 6,653.0 5,046.0 3,755.4 4,947.0 5,793.4Depreciation & amortisation 3,310.0 3,889.0 4,401.3 4,995.1 5,608.7Adj net interest (income)/exp (92.0) (228.0) (229.2) (248.6) (362.7)Change in working capital 1,575.0 1,575.0 1,575.0 1,575.0 1,575.0Cash taxes paid (1,683.0) (2,047.0) (1,268.2) (1,680.6) (1,855.9)Other operating cash flow (3,005.0) (730.0) (355.9) (363.5) (371.8)Cash flow from operations 8,939.0 10,780.0 9,614.5 11,479.9 13,099.5Capex (6,933.0) (6,440.0) (8,500.0) (8,000.0) (8,000.0)Free cash flow 2,006.0 4,340.0 1,114.5 3,479.9 5,099.5Dividends paid (1,128.0) (673.0) (608.6) (877.3) (1,040.9)Equity raised / (purchased) 21.0 18.0 0.0 0.0 0.0Change in Debt 1,363.0 4,685.0 1,934.6 2,128.1 2,340.9Other invest/financing cash flow (4,763.0) 1,013.0 258.9 281.2 398.6Effect of exch rate changes (23.0) 265.0 0.0 0.0 0.0Net cash flow (2,228.0) 4,930.0 2,699.4 5,011.9 6,798.1

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FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey RatiosGrowth ratios (%)Revenue growth 14.6 16.0 14.7 13.6 12.4EBITDA growth 19.8 (12.3) (9.0) 22.3 13.9EBIT growth 23.2 (27.2) (27.0) 33.4 15.6Pretax growth 22.6 (24.2) (25.6) 31.7 17.1Reported net profit growth 39.3 (51.6) (33.9) 33.4 25.9Core net profit growth (19.2) 7.5 (7.3) 44.1 18.6




Leverage & Expense AnalysisAsset/Liability (x) 1.7 1.6 1.6 1.5 1.5Net debt/equity (%) 4.2 3.4 1.7 net cash net cashNet interest cover (x) na na na na naDebt/EBITDA (x) 1.8 2.6 3.1 2.8 2.6Capex/revenue (%) 5.5 4.4 5.1 4.2 3.7Net debt/ (net cash) 1,721.0 1,503.0 738.2 (2,145.7) (6,602.9)

June 13, 2014 71


Research Offices

REGIONAL

WONG Chew Hann, CA Regional Head of Institutional Research (603) 2297 8686 [email protected]

ONG Seng Yeow Regional Head of Retail Research (65) 6432 1453 [email protected]

Alexander GARTHOFF Institutional Product Manager (852) 2268 0638 [email protected]

ECONOMICS

Suhaimi ILIAS Chief Economist Singapore | Malaysia (603) 2297 8682 [email protected]

Luz LORENZO Philippines (63) 2 849 8836 [email protected]

Tim LEELAHAPHAN Thailand (662) 658 1420 [email protected]

JUNIMAN Chief Economist, BII Indonesia (62) 21 29228888 ext 29682 [email protected]

Josua PARDEDE Economist / Industry Analyst, BII Indonesia (62) 21 29228888 ext 29695 [email protected]

MALAYSIA

WONG Chew Hann, CA Head of Research (603) 2297 8686 [email protected] • Strategy • Construction & Infrastructure

Desmond CH’NG, ACA (603) 2297 8680 [email protected] • Banking & Finance

LIAW Thong Jung (603) 2297 8688 [email protected] • Oil & Gas - Regional • Shipping

ONG Chee Ting, CA (603) 2297 8678 [email protected] • Plantations - Regional

Mohshin AZIZ (603) 2297 8692 [email protected] • Aviation - Regional • Petrochem

YIN Shao Yang, CPA (603) 2297 8916 [email protected] • Gaming – Regional • Media

TAN Chi Wei, CFA (603) 2297 8690 [email protected] • Power • Telcos

WONG Wei Sum, CFA (603) 2297 8679 [email protected] • Property & REITs

LEE Yen Ling (603) 2297 8691 [email protected] • Building Materials • Glove Producers

CHAI Li Shin (603) 2297 8684 [email protected] • Plantation • Construction & Infrastructure

Ivan YAP (603) 2297 8612 [email protected] • Automotive

LEE Cheng Hooi Regional Chartist (603) 2297 8694 [email protected]

Tee Sze Chiah Head of Retail Research (603) 2297 6858 [email protected]

HONG KONG / CHINA

Howard WONG Head of Research (852) 2268 0648 [email protected] • Oil & Gas - Regional

Alexander LATZER (852) 2268 0647 [email protected] • Metals & Mining - Regional

Jacqueline KO, CFA (852) 2268 0633 [email protected] • Consumer

Karen KWAN (852) 2268 0640 [email protected] • Property & REITs

Osbert TK TANG, CFA (86) 21 5096 8370 [email protected] • Transport & Industrials

Ricky WK NG, CFA (852) 2268 0689 [email protected] • Utilities & Renewable Energy

Simon QIAN, CFA (852) 2268 0634 [email protected] • Telecom & Internet

Steven ST CHAN (852) 2268 0645 [email protected] • Banking & Financials - Regional

Warren LAU (852) 2268 0644 [email protected] • Technology – Regional

William YANG (852) 2268 0675 [email protected] • Technology – Regional

INDIA

Jigar SHAH Head of Research (91) 22 6623 2601 [email protected] • Oil & Gas • Automobile • Cement

Anubhav GUPTA (91) 22 6623 2605 [email protected] • Metal & Mining • Capital Goods • Property

Urmil SHAH (91) 22 6623 2606 [email protected] • Technology • Media

SINGAPORE

NG Wee Siang Head of Research (65) 6432 1467 [email protected] • Banking & Finance

Gregory YAP (65) 6432 1450 [email protected] • SMID Caps – Regional • Technology & Manufacturing • Telcos • Consumer

Wilson LIEW (65) 6432 1454 [email protected] • Property Developers

ONG Kian Lin (65) 6432 1470 [email protected] • S-REITs

YEAK Chee Keong, CFA (65) 6432 1460 [email protected] • Offshore & Marine

Derrick HENG (65) 6432 1446 [email protected] • Transport (Land, Shipping & Aviation)

WEI Bin (65) 6432 1455 [email protected] • Commodity • Logistics • S-chips

John CHEONG (65) 6432 1461 [email protected] • Small & Mid Caps • Healthcare

TRUONG Thanh Hang (65) 6432 1451 [email protected] • Small & Mid Caps

INDONESIA

Wilianto IE Head of Research (62) 21 2557 1125 [email protected] • Strategy

Rahmi MARINA (62) 21 2557 1128 [email protected] • Banking & Finance

Aurellia SETIABUDI (62) 21 2953 0785 [email protected] • Property

Anthony YUNUS (62) 21 2557 1136 [email protected] • Consumer • Poultry

Isnaputra ISKANDAR (62) 21 2557 1129 [email protected] • Metals & Mining • Cement

Pandu ANUGRAH (62) 21 2557 1137 [email protected] • Infrastructure • Construction • Transport

Janni ASMAN (62) 21 2953 0784 [email protected] • Cigarette • Healthcare • Retail

PHILIPPINES

Luz LORENZO Head of Research (63) 2 849 8836 [email protected] • Strategy

Laura DY-LIACCO (63) 2 849 8840 [email protected] • Utilities • Conglomerates • Telcos

Lovell SARREAL (63) 2 849 8841 [email protected] • Consumer • Media • Cement

Rommel RODRIGO (63) 2 849 8839 [email protected] • Conglomerates • Property • Gaming • Ports/ Logistics

Katherine TAN (63) 2 849 8843 [email protected] • Banks • Construction

Ramon ADVIENTO (63) 2 849 8845 [email protected] • Mining

THAILAND

Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected] • Consumer / Materials

Jesada TECHAHUSDIN, CFA (66) 2658 6300 ext 1394 [email protected] • Financial Services

Kittisorn PRUITIPAT, CFA, FRM (66) 2658 6300 ext 1395 [email protected] • Real Estate

Sittichai DUANGRATTANACHAYA (66) 2658 6300 ext 1393 [email protected] • Services Sector

Sukit UDOMSIRIKUL Head of Retail Research (66) 2658 6300 ext 5090 [email protected]

Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] • Strategy

Padon VANNARAT (66) 2658 6300 ext 1450 [email protected] • Strategy

Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] • Auto • Conmat • Contractor • Steel

Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] • Media • Commerce

Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] • Energy • Petrochem

Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] • Property

Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected] • Banking & Finance

Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] • Transportation • Small cap

Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected] • Electronics VIETNAM LE Hong Lien, ACCA Head of Institutional Research (84) 844 55 58 88 x 8181 [email protected] • Strategy • Consumer • Diversified • Utilities

THAI Quang Trung, CFA, Deputy Manager, Institutional Research (84) 844 55 58 88 x 8180 [email protected] • Real Estate • Construction • Materials

Le Nguyen Nhat Chuyen (84) 844 55 58 88 x 8082 [email protected] • Oil & Gas NGUYEN Thi Ngan Tuyen, Head of Retail Research(84) 8 44 555 888 x 8081 [email protected] • Food & Beverage • Oil&Gas • Banking

NGUYEN Trung Hoa, Dy Head of Retail Research (84) 8 44 555 888 x 8088 [email protected] • Macro • Steel • Real estate

TRINH Thi Ngoc Diep (84) 4 44 555 888 x 8208 [email protected] • Technology • Utilities • Construction

TRUONG Quang Binh (84) 4 44 555 888 x 8087 [email protected] • Rubber plantation • Tyres and Tubes • Oil&Gas

PHAM Nhat Bich (84) 8 44 555 888 x 8083 [email protected] • Consumer • Manufacturing • Fishery

NGUYEN Thi Sony Tra Mi (84) 8 44 555 888 x 8084 [email protected] • Port operation • Pharmaceutical • Food & Beverage

June 13, 2014 72


APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS

This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price andvolume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness ofthis report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

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MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law,from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report.

This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect.

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state,country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based ongeographical location of the person or entity receiving this report.

Malaysia

Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.

Singapore

This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legallyliable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.

Thailand

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in theCorporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.

Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect.

US

This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. Youshould satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations.

UK

This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the FinancialServices and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

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Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 13 June 2014, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by 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.

As of 13 June 2014, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings

Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

DISCLOSURES Legal Entities Disclosures

Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and ExchangeCommission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and isregulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

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Malaysia Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard #39-00 Suntec Tower 2 Singapore 038989 Tel: (65) 6336 9090 Fax: (65) 6339 6003

London Maybank Kim Eng Securities (London) Ltd 5th Floor, Aldermary House 10-15 Queen Street London EC4N 1TX, UK Tel: (44) 20 7332 0221 Fax: (44) 20 7332 0302

New York Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

Hong Kong Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia PT Maybank Kim Eng Securities Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India Kim Eng Securities India Pvt Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Philippines Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200 Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

Vietnam Maybank Kim Eng Securities Limited 4A-15+16 Floor Vincom Center Dong Khoi, 72 Le Thanh Ton St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 8 38 271 030

Saudi Arabia In association with Anfaal Capital Villa 47, Tujjar Jeddah Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352 Tel: (966) 2 6068686 Fax: (966) 26068787

South Asia Sales Trading Kevin FOY [email protected] Tel: (65) 6336-5157 US Toll Free: 1-866-406-7447

North Asia Sales Trading Alex TSUN [email protected] Tel: (852) 2268 0228 US Toll Free: 1 877 837 7635

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HK/China Consumer Staples

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