Deutsche Bank Markets Research

Rating

Hold Asia Hong Kong

Consumer Food & Beverage

Company

Cafe de Coral

Date 26 June 2014

Forecast Change

Multi-brand: keyword for the new Five-Year Plan; maintaining Hold

Reuters Bloomberg Exchange Ticker 0341.HK 341 HK HKG 0341

ADR Ticker ISIN CFCGY US12770C1062

Forecasts And Ratios

Year End Mar 31 2013A 2014A 2015E 2016E 2017E

Sales (HKDm) 6,394.1 6,990.5 7,727.4 8,571.7 9,519.8

Reported NPAT (HKDm) 544.9 581.2 665.1 751.6 841.9

Reported EPS FD(HKD) 0.95 1.02 1.13 1.28 1.44

DB EPS FD (HKD) 0.95 1.02 1.13 1.28 1.44

OLD DB EPS FD (HKD) 0.95 1.04 1.19 1.34 –

% Change 0.0% -1.9% -4.5% -4.4% –

DB EPS growth (%) 13.1 6.5 11.6 13.0 12.0

PER (x) 23.1 24.4 22.1 19.6 17.5

DPS (net) (HKD) 0.92 0.70 0.83 0.93 1.04

Yield (net) (%) 4.2 2.8 3.3 3.7 4.2

Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close

Café de Coral: one of the few multi-brand players in China/HK catering space

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.

Price at 25 Jun 2014 (HKD) 25.10

Price target - 12mth (HKD) 25.50

52-week range (HKD) 26.70 - 22.80

HANG SENG INDEX 22,867

Lydia Ling

Research Analyst (+852) 2203 6181 lydia.ling@db.com

Anne Ling

Research Analyst (+852) 2203 6177 anne.ling@db.com

Key changes

Price target 24.00 to 25.50 ↑ 6.2%

Sales (FYE) 7,834 to 7,727 ↓ -1.4%

Op prof margin (FYE)

10.4 to 10.1 ↓ -3.5%

Net profit (FYE)

696.4 to 665.1 ↓ -4.5%

Source: Deutsche Bank

Price/price relative

20

21

23

24

26

27

6/12 12/12 6/13 12/13

Cafe de Coral

HANG SENG INDEX (Rebased)

Performance (%) 1m 3m 12m

Absolute 2.7 6.8 6.6

HANG SENG INDEX -0.4 5.2 15.2

Source: Deutsche Bank

CDC has mapped out its new Five-Year Plan with a focus on multi-brand expansion in both HK and the mainland. It initiated a multi-brand strategy as early as 1991 and now has over 10 brands across the mass catering and casual dining segments. Core CDC continues to be its mainstream but non-core brands will be the growth engine. Casual dining is the segment mgmt aims to develop further thus partnerships with overseas operators and franchisors are under consideration. Within the catering sector, we prefer a player with a multi-brand portfolio which helps it diversify into different consumer segments and maintain growth momentum. We believe CDC is the one; reiterating Hold.

FY14: earnings +8% to HKD581m on sales +9% to HKD6.99bn By market, HK recorded 10% sales growth with flat segment profit; the margin narrowed by 1.3ppt to 12.4%. China sales grew by 10% and segment profit surged by 157%; the margin improved by 2.3ppt to 4%. SSSG for core CDC was 9% in HK and 4% in China, with an accelerating trend in 2HFY14. The full-year dividend payout was 67.7% (vs. 94.9% in FY13). Net cash improved to HKD1.0bn vs. HKD772m as of end FY13.

FY15: Focus on expansion with new brands and concepts CDC plans to open 50 stores (30 in HK and 20 in China) in FY15 and introduce several new brands through cooperation with overseas brand owners and franchisors. In China, expansion is focused on the Southern region while CDC is still testing the water in the Eastern Region. N.A. business remains under review with no plan to dispose. Store profitability remains very important to mgmt thus Value Meal strategy will continue with limited ASP increase.

Raising target price to HKD25.5 (from HKD24.0); risks We base our DCF-based target price on a COE of 7.5%, beta of 1, and terminal growth of 2%. This translates into a P/E of 23.0x CY14E and 20.4x CY15E. Downside risks: SSSG slowdown and a further round of talks on minimum wages in HK. Upside risks: multi brand; China expansion; ASP increase.

26 June 2014

Food & Beverage

Cafe de Coral

Page 2 Deutsche Bank AG/Hong Kong

Model updated:25 June 2014

Running the numbers

Asia

Hong Kong

Food & Beverage

Cafe de Coral Reuters: 0341.HK Bloomberg: 341 HK

Hold Price (25 Jun 14) HKD 25.10

Target Price HKD 25.50

52 Week range HKD 22.80 - 26.70

Market Cap (m) HKDm 13,947

USDm 1,799

Company Profile

Cafe De Coral Holdings Limited, through its subsidiaries, operates quick service restaurants, fast casual dining, institutional catering and specialty restaurant chains, and food manufacturing business.

Price Performance

20

21

23

24

26

27

Jun 12Sep 12Dec 12Mar 13Jun 13Sep 13Dec 13Mar 14

Cafe de Coral HANG SENG INDEX (Rebased)

Margin Trends

9.010.011.012.013.014.015.0

12 13 14 15E 16E 17E

EBITDA Margin EBIT Margin

Growth & Profitability

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5

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02468

101214

12 13 14 15E 16E 17E

Sales growth (LHS) ROE (RHS)

Solvency

-60-50-40-30-20-10

0

12 13 14 15E 16E 17E

Net debt/equity (LHS) Net interest cover (RHS)

Lydia Ling +852 2203 6181 lydia.ling@db.com

Fiscal year end 31-Mar 2012 2013 2014 2015E 2016E 2017E

Financial Summary

DB EPS (HKD) 0.84 0.95 1.02 1.13 1.28 1.44 Reported EPS (HKD) 0.84 0.95 1.02 1.13 1.28 1.44 DPS (HKD) 0.63 0.92 0.70 0.83 0.93 1.04 BVPS (HKD) 5.4 5.5 6.1 6.4 6.8 7.3

Weighted average shares (m) 566 571 572 564 564 564 Average market cap (HKDm) 10,536 12,591 14,162 13,947 13,947 13,947 Enterprise value (HKDm) 8,474 10,530 11,850 11,337 10,979 10,570

Valuation Metrics

P/E (DB) (x) 22.1 23.1 24.4 22.1 19.6 17.5 P/E (Reported) (x) 22.1 23.1 24.4 22.1 19.6 17.5 P/BV (x) 4.03 4.26 3.85 3.90 3.67 3.44

FCF Yield (%) 2.1 2.5 4.2 5.7 6.0 6.8 Dividend Yield (%) 3.4 4.2 2.8 3.3 3.7 4.2

EV/Sales (x) 1.4 1.6 1.7 1.5 1.3 1.1 EV/EBITDA (x) 10.6 11.7 12.4 10.6 9.2 8.0 EV/EBIT (x) 15.2 16.3 17.4 14.6 12.5 10.8

Income Statement (HKDm)

Sales revenue 5,956 6,394 6,990 7,727 8,572 9,520 Gross profit 3,967 4,304 4,717 5,225 5,809 6,462 EBITDA 803 902 953 1,074 1,193 1,326 Depreciation 244 257 274 296 316 345 Amortisation 0 0 0 0 0 0 EBIT 559 645 680 778 877 980 Net interest income(expense) 9 11 13 14 17 22 Associates/affiliates 0 -10 -4 0 0 0 Exceptionals/extraordinaries 0 0 0 0 0 0 Other pre-tax income/(expense) 0 0 0 0 0 0 Profit before tax 568 646 689 792 895 1,002 Income tax expense 91 100 107 127 143 160 Minorities 0 1 1 0 0 0 Other post-tax income/(expense) 0 0 0 0 0 0 Net profit 477 545 581 665 752 842

DB adjustments (including dilution) 0 0 0 0 0 0 DB Net profit 477 545 581 665 752 842

Cash Flow (HKDm)

Cash flow from operations 801 752 910 1,105 1,139 1,266 Net Capex -580 -444 -319 -303 -288 -302 Free cash flow 221 309 591 802 851 964 Equity raised/(bought back) 1 1 0 0 0 0 Dividends paid -491 -354 -518 -505 -493 -555 Net inc/(dec) in borrowings 12 13 -18 0 0 0 Other investing/financing cash flows 0 0 0 0 0 0 Net cash flow -258 -32 55 297 358 409 Change in working capital 73 -70 62 48 55 61

Balance Sheet (HKDm)

Cash and other liquid assets 885 804 1,035 1,333 1,691 2,100 Tangible fixed assets 1,580 1,767 1,812 1,818 1,790 1,747 Goodwill/intangible assets 0 0 0 0 0 0 Associates/investments 1,190 1,286 1,288 1,288 1,288 1,288 Other assets 418 558 433 464 499 538 Total assets 4,074 4,414 4,568 4,903 5,268 5,673 Interest bearing debt 12 26 7 7 7 7 Other liabilities 1,039 1,256 1,123 1,258 1,398 1,551 Total liabilities 1,052 1,282 1,130 1,266 1,405 1,558 Shareholders' equity 3,021 3,130 3,434 3,634 3,859 4,112 Minorities 1 2 3 3 3 3 Total shareholders' equity 3,022 3,132 3,437 3,637 3,862 4,115 Net debt -873 -778 -1,028 -1,325 -1,683 -2,092

Key Company Metrics

Sales growth (%) 11.7 7.3 9.3 10.5 10.9 11.1 DB EPS growth (%) -7.9 13.1 6.5 11.6 13.0 12.0 EBITDA Margin (%) 13.5 14.1 13.6 13.9 13.9 13.9 EBIT Margin (%) 9.4 10.1 9.7 10.1 10.2 10.3 Payout ratio (%) 74.2 96.1 68.6 70.0 70.0 70.0 ROE (%) 16.8 17.7 17.7 18.8 20.1 21.1 Capex/sales (%) 9.7 6.9 4.6 3.9 3.4 3.2 Capex/depreciation (x) 2.4 1.7 1.2 1.0 0.9 0.9 Net debt/equity (%) -28.9 -24.8 -29.9 -36.4 -43.6 -50.8 Net interest cover (x) nm nm nm nm nm nm

Source: Company data, Deutsche Bank estimates

26 June 2014

Food & Beverage

Cafe de Coral

Deutsche Bank AG/Hong Kong Page 3

Company update

Valuation – raising target price from HKD24 to HKD25.5; maintaining Hold

Café De Coral is one of the few multi-brand players in the China/HK catering space. It initiated multi-brand strategy as early as 1991 and now has more than 10 brands across the mass catering and casual dining segments. In the next five years, the company will further implement such a strategy in both HK and China. Core CDC continues to be its mainstream but non-core brands will become the growth engine. Casual dining is the segment management aims to develop further; therefore, partnerships with overseas operators and franchisors are under consideration. Within the catering sector, we prefer a player with a multi-brand portfolio which helps it diversify into different consumer segments and maintain growth momentum. We believe CDC is the one, and it is therefore trading at a premium to its peers. We believe the stock is fairly priced, and maintain our Hold recommendation.

The FY14 results came out broadly in line with our forecast. The 4% discrepancy in earnings vs. our estimate mainly lies in the lower other gains. We are therefore cutting our FY15-16E EPS by 4% as we accordingly lower our estimate for other gains. We also introduce our estimate for the year of FY2017 and use a new cost of equity of 7.5% (old: 7.1%) for HK. As a result, we raise our target price by 6% to HKD25.5. This translates into a P/E of 23.0x CY14E and 20.4x CY15E.

We derive our target price using Deutsche Bank’s new COE of 7.5% (2.7% risk-free rate and 4.9% ERP for the HK market), and terminal growth of 2% (in line with our forecasts for other Hong Kong consumer stocks). We use the Hong Kong COE as most of the company’s business is in Hong Kong, and we continue to use a beta of 1.

Figure 1: Change in DB forecasts YE Mar HKDm New forecast Old forecast New vs. old forecast Market consensus vs. consensus

FY2014 FY2015 FY2016 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Sales 6,990 7,727 8,572 7,010 7,834 8,766 -0.3% -1.4% -2.2% 6,995 7,680 8,436 -0.1% 0.6% 1.6%

YoY growth 9.3% 10.5% 10.9% 9.6% 11.7% 11.9%

Gross profit 4,717 5,225 5,809 4,746 5,321 5,968 -0.6% -1.8% -2.7%

YoY growth 9.6% 10.8% 11.2% 10.3% 12.1% 12.1%

GPM 67.5% 67.6% 67.8% 67.7% 67.9% 68.1%

EBIT 680 778 877 713 817 921 -4.7% -4.8% -4.7% 725 815 939 -6.3% -4.6% -6.6%

YoY growth 5.3% 14.5% 12.8% 10.5% 14.6% 12.7%

EBITM 9.7% 10.1% 10.2% 10.2% 10.4% 10.5%

Net profit 582 665 752 607 696 786 -4.2% -4.5% -4.4% 605 692 789 -3.8% -3.9% -4.7%

YoY growth 6.6% 14.3% 13.0% 11.3% 14.6% 12.9%

Net margin 8.3% 8.6% 8.8% 8.7% 8.9% 9.0% Source: Deutsche Bank estimate, Bloomberg Finance LP

26 June 2014

Food & Beverage

Cafe de Coral

Page 4 Deutsche Bank AG/Hong Kong

Risks. Key downside risks: 1) SSSG slowdown; 2) the central kitchens failing to deliver a profit margin improvement; 3) a macro slowdown that could cause consumers to trade down; and 4) a new round of minimum wage increases in HK. Potential upside catalysts: 1) non-core brands picking up growth momentum; 2) China expansion, 3) ASP increase, and 4) a drop in raw material prices.

Figure 2: One-year forward P/E band Figure 3: One-year forward P/E vs. historical average

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Café de Coral - 1-year forward PER band chartHK$

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Café de Coral - 1-year forward PER vs historical avg

1 yr foreward PE 3yr avg 5yr avg 10yr avg

3yr avg: 22.2x

5yr avg: 21.4x

10yr avg: 19.2x

Source: Deutsche Bank, Datastream Source: Deutsche Bank, Datastream

New Five-Year Plan: “Expansion”, “Succession” and “Sustainability”.

Expansion for growth in HK and mainland with new concepts and brands Multi-brand strategy; new brands take time to contribute to growth. The company’s core brand CDC now has 156 stores in HK, and we therefore believe this has already well penetrated the market. We expect it will maintain a stable but limited growth under this single brand. Therefore, we like Café De Coral’s multi-brand strategy, which encourages it to diversify into different customer segments and maintain a growth engine. Meanwhile, this helps it attain favorable lease terms from landlords given a wide brand portfolio for them to choose from. In HK, it already has more than 10 brands, with new brands such as Mixian Sense, PizzaStage, 85 Degree C, Shanghai Lao Lao, Noodle Lane, and Ichigyo Sushi. Should the new brands work out, CDC will also bring them into the mainland market. However, it takes time for new brands to build up scale and contribute to growth. In the short term, core brand CDC remains its key revenue contributor (>70% of sales).

Focus on mass catering and casual dining segment. Management thinks HK is not a saturated market to them as they can gain market share from its peers. CDC has been the leader in the fast food segment but not yet in the casual dining segment for both Chinese and non-Chinese food. The company will further develop this segment with new concepts and brands through its internal capacity and through cooperation with renowned overseas brand owners and franchisors such as from Korea and Japan.

Southern China remains the focus of development in mainland. This is due to the similarity of the dining culture between Southern China and Hong Kong. In the short term, the company aims to build up CDC and Spaghetti House as the leading brands in Southern China. Then, the company may consider

26 June 2014

Food & Beverage

Cafe de Coral

Deutsche Bank AG/Hong Kong Page 5

introducing its other leading HK brands into the mainland. Meanwhile, it is still reviewing its Eastern China business to work out the right business model (menu price/dining environment).

Store profitability remains hard core. The company has a stringent measure for new openings, to make sure each store is profitable. It will choose to close new stores if they have been loss making for two to three years. At the store level, it wants to provide a “Value For Money” option to its customers therefore the Value Meal strategy will continue. The ASP will be maintained at HKD30-30.5. It will make price adjustments on selective items to factor in CPI inflation. Meanwhile, it will carry out more direct purchasing in order to lower costs.

Succession Plan and Sustainability Programs: to develop a professional management team These two initiatives are more interactive with the aim of developing a professional management team for sustainable growth in the long term. While the operating system should be optimized for efficiency improvements, management also highlighted the importance of social responsibility and corporate governance, more concretely, i.e., energy saving, food safety, transparent internal control. Management believes that a good social image will also help drive growth. These efforts aim to help the company evolve from a family business into a professionally-managed one. Many key management members are now approaching retirement age, therefore developing the next generation of leaders is a top priority either through internal mentorship and knowledge transfer or by bringing in new people from outside.

FY2015 outlook

Accelerating new openings with a total of 50 stores (30 in HK and 20 in China). Last year, the company failed to achieve its annual target of 50 new stores (20 in HK and 30 in China). The actual opening was 23 stores with a miss on the mainland, as it focused on store profitability rather than store growth. This year, it will accelerate opening in both HK and China (mainly Southern region).

Staff costs remain the key challenge. The next round of a new minimum wage in HK will be implemented in May 2015. The recent talks on the new minimum wage level have seen it proposed at HKD32/hour (from current HKD30), a c.7% increase. The company hopes its better sssg and efficiency improvements could help offset the rising labor costs.

No plan to dispose of the Machu Kok business in the short term. This is because: 1) the company has made full impairment provision of goodwill therefore there will be no further impact on P&L; 2) this business is profitable at the EBITDA level; 3) there is no need for investment given it is a franchised model. Management might consider selling the business when the US market turns better and there is the potential for a good pricing to be offered.

Dividend payout: still targeted at 70%. Management commented that the lower payout in FY14 is because the company wants to save more cash for the next five-year development including M&A and new openings. However, the company is still targeting a 70% payout for FY15.

26 June 2014

Food & Beverage

Cafe de Coral

Page 6 Deutsche Bank AG/Hong Kong

Capex this year will be HKD420m vs. HKD320m for FY14. This will be mainly used for new store openings.

Production facilities. The company has moved the key production units in HK to its new central food processing plant in Tai Po (with completion in April 2013). With the new centralized production facility, the company has seen an improvement in efficiency, production capacity and energy saving. The Guangzhou facility is still underutilized, with a utilization rate of c.30%. The Dongguan facility has made full use of its production capacity and also evolved in supplying food products including ham and sausages to external parties as well as to catering businesses.

FY14 results review

The FY14 results came out broadly in line with our expectations although the bottom line was c.4% below our estimate due to the absence of gains from the disposal of PP&E (a loss of HKD9.8bn in FY14 vs. a gain of HKD41.8bn in FY13). Net profit rose by 8% to HKD581m on 9% growth in sales to HKD6.99bn. In 2HFY14, its net profit rose by 9% and sales grew by 10%. No special dividend was proposed for FY14. The company declared a final DPS of HKD0.51, bringing the full-year DPS to HKD0.68 (vs. HKD0.9 in FY13). This represents a 67.7% payout ratio (vs. 94.9% in FY13). It has net cash of HKD1.0bn as of end FY14 vs. HKD772m as of end FY13. As of end March 2014, the company has 331 stores in HK, 123 in China and 140 in North America.

Hong Kong: sssg accelerated in 2HFY14; margin remains under pressure Hong Kong operations recorded turnover growth of 10% to HKD5.589bn, accounting for 80% of group sales. SSSG was 9% for core brand CDC (7% in 1HFY14) and 10% for Super Super Congee & Noodles (11% in 1HFY14), mainly driven by traffic growth. During the year, it net added two stores for core CDC, four for Super Super Congee & Noodles and net closed one for Oliver’s Super Sandwiches, making a total of 153, 32 and 20 for each.

Segment profit remained flat at HKD694m, with the margin narrowing 1.3ppt to 12.4% due to the absence of a disposal gain from a property (vs. HKD60m in FY13). Excluding such impact, the margin has improved, according to management.

When asked about any impact on the HK operation from the slowdown in mainland tourists, management noted a limited impact at CDC’s stores in Mong Kok, TST, and CWB, but stressed that local consumers are the company’s focus.

China: on a recovery path with improved profitability PRC sales grew by 10% to HKD1.237bn, contributing 18% of group sales. SSSG was 4% (3% in 1HFY14).

Segment profit surged by 157% to HKD50m, with the margin improving by 2.3ppt to 4%. This was mainly attributed to its Value Meal strategy which effectively drove its store traffic. In 2HFY14, its segment profit rose by 208% but the top line grew by only 6%.

26 June 2014

Food & Beverage

Cafe de Coral

Deutsche Bank AG/Hong Kong Page 7

North America: full impairment provision of goodwill North America sales declined by 15% to HKD164, due to the economic slowdown and unfavorable weather. The company made a full impairment provision of goodwill (HKD46m) in FY14. Segment loss was HKD15.5m, vs. a segment loss of HKD6.2m in FY13.

Other financial highlights GPM improved by 0.2ppt to 67.5%. This is attributed to: 1) menu price adjustments; and 2) more direct purchasing.

The staff cost ratio increased slightly by 0.2ppt to 26.6%. The rental cost ratio remained flat at 11%. The utilities expense ratio dropped by 0.2ppt to 5.7%. The D&A ratio declined by 0.1ppt to 3.9%. The A&P ratio also remained stable at 1.2%.

26 June 2014

Food & Beverage

Cafe de Coral

Page 8 Deutsche Bank AG/Hong Kong

Figure 4: P&L assumptions

YE Mar HK$m 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017FSales 4,290 4,674 4,883 5,333 5,956 6,394 6,990 7,727 8,572 9,520 HK 3,598 3,932 4,068 4,352 4,784 5,074 5,589 6,218 6,918 7,697 China 371 494 614 766 969 1,126 1,237 1,361 1,511 1,684 North America 321 248 200 215 204 194 164 148 143 139 Growth %Sales 10% 9% 4% 9% 12% 7% 9% 11% 11% 11%HK 9% 9% 3% 7% 10% 6.06% 10.16% 11.26% 11.25% 11.26%China 44% 33% 24% 25% 26% 16.26% 9.86% 10.00% 11.01% 11.49%North America 0% -23% -19% 8% -5% -5% -15% -10% -4% -3%Mix%Sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%HK 84% 84% 83% 82% 80% 79% 80% 80% 81% 81%China 9% 11% 13% 14% 16% 18% 18% 18% 18% 18%North America 7% 5% 4% 4% 3% 3% 2% 2% 2% 1%Segment results 481 522 607 610 559 645 680 778 877 980 HK 462 501 550 508 530 693 694 720 799 884 China 43 39 57 63 30 19 50 68 83 101 North America (24) (18) (0) (2) (1) (6) (16) (10) (5) (5) Growth %Segment results 13.8% 8.5% 16.3% 0.5% -8.4% 15.5% 5.3% 14.5% 12.8% 11.7%HK 12.9% 8.5% 9.7% -7.6% 4.3% 30.9% 0.1% 3.7% 11.1% 10.6%China 17.0% -9.6% 46.7% 10.8% -51.8% -36.2% 157.4% 35.9% 22.1% 21.6%North America 2.2% -24.2% -98.1% 370.0% -11.2% 329.1% 149.7% -35.6% -50.0% 0.0%Margin %Segment results 11.2% 11.2% 12.4% 11.4% 9.4% 10.1% 9.7% 10.1% 10.2% 10.3%HK 12.8% 12.7% 13.5% 11.7% 11.07% 13.67% 12.41% 11.57% 11.55% 11.49%China 11.6% 7.9% 9.3% 8.3% 3.1% 1.7% 4.0% 5.0% 5.5% 6.0%North America -7.5% -7.4% -0.2% -0.8% -0.7% -3.2% -9.5% -6.7% -3.5% -3.6%

Other Gains, net 16.9 21.9 49.4 89.5 62.9 61.3 19.1 30.0 30.0 30.0

Total cost (3,826) (4,174) (4,326) (4,813) (5,461) (5,810) (6,330) (6,980) (7,724) (8,569) COGS (3,585) (3,917) (4,051) (4,529) (5,143) (5,484) (5,971) (6,594) (7,308) (8,120) Adminstrative expenses (241) (257) (275) (284) (318) (326) (359) (386) (416) (450) ORCOGS & Adminstrative Expense (3,826) (4,174) (4,326) (4,813) (5,461) (5,810) (6,330) (6,980) (7,724) (8,569) Cost of Raw materials and consumables used (1,342) (1,509) (1,520) (1,718) (1,990) (2,090) (2,274) (2,502) (2,763) (3,057) Depreciation & Amortisation (171) (171) (189) (225) (244) (257) (274) (296) (316) (345) Operating lease rentals (479) (511) (546) (599) (668) (709) (760) (840) (931) (1,034) Employee benefit expense (1,063) (1,143) (1,186) (1,316) (1,513) (1,688) (1,862) (2,077) (2,325) (2,601)

% growthCOGS & Adminstrative Expense 10.2% 9.1% 3.6% 11.3% 13.5% 6.4% 9.0% 10.3% 10.7% 10.9%Cost of Raw materials and consumables used 12.7% 12.4% 0.7% 13.1% 15.8% 5.1% 8.8% 10.0% 10.4% 10.7%Depreciation & Amortisation 1.1% -0.5% 10.7% 19.1% 8.5% 5.2% 6.7% 8.1% 6.7% 9.3%Operating lease rentals 11.7% 6.6% 6.9% 9.8% 11.5% 6.2% 7.1% 10.5% 10.9% 11.1%Employee benefit expense 9.1% 7.5% 3.8% 10.9% 15.0% 11.6% 10.3% 11.5% 11.9% 11.9%

% of salesCOGS & Adminstrative Expense -89.2% -89.3% -88.6% -90.2% -91.7% -90.9% -90.6% -90.3% -90.1% -90.0%Cost of Raw materials and consumables used -31.3% -32.3% -31.1% -32.2% -33.4% -32.7% -32.5% -32.4% -32.2% -32.1%Depreciation & Amortisation -4.0% -3.6% -3.9% -4.2% -4.1% -4.0% -3.9% -3.8% -3.7% -3.6%Operating lease rentals -11.2% -10.9% -11.2% -11.2% -11.2% -11.1% -10.9% -10.9% -10.9% -10.9%Employee benefit expense -24.8% -24.4% -24.3% -24.7% -25.4% -26.4% -26.6% -26.9% -27.1% -27.3%

EBIT 480.7 521.7 606.6 609.6 558.6 645.5 679.5 777.8 877.4 980.3% growth 14% 9% 16% 0% -8% 16% 5% 14% 13% 12%

Margin 11% 11% 12.4% 11.4% 9.4% 10.1% 9.7% 10.1% 10.2% 10.3%

Finance cost/income 31.3 18.4 8.3 7.3 9.0 11.0 13.0 14.0 17.3 22.0Assoicates 1.7 2.0 2.6 2.6 0.0 -10.2 -3.7 0.0 0.0 0.0Profit bef tax 513.6 542.1 617.5 619.5 567.6 646.2 688.8 791.7 894.7 1002.3Income tax expense (93) (101) (105) (105) (91) (100) (107) (127) (143) (160)

Effective tax rate -18.2% -18.5% -17.0% -17.0% -16.0% -15.5% -15.5% -16.0% -16.0% -16.0%Minority interests 0.0 0.3 0.5 0.0 0.3 -1.0 -0.9 0.0 0.0 0.0Net Profit 420.2 441.9 513.2 514.3 477.3 544.9 581.2 665.1 751.6 841.9

% growth 14% 5% 16% 0% -7% 14% 7% 14% 13% 12%Margin 9.8% 9.5% 10.5% 9.6% 8.0% 8.5% 8.3% 8.6% 8.8% 8.8%

Source: Deutsche Bank estimates, company data

26 June 2014

Food & Beverage

Cafe de Coral

Deutsche Bank AG/Hong Kong Page 9

Appendix 1

Important Disclosures Additional information available upon request Disclosure checklist

Company Ticker Recent price* Disclosure

Cafe de Coral 0341.HK 25.20 (HKD) 25 Jun 14 NA *Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=0341.HK Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Lydia Ling

Historical recommendations and target price: Cafe de Coral (0341.HK) (as of 6/25/2014)

1

23 4

5

0.00

5.00

10.00

15.00

20.00

25.00

30.00

Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14

Sec

uri

ty P

rice

Date

Previous Recommendations

Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating

Current Recommendations

Buy Hold Sell Not Rated Suspended Rating

*New Recommendation Structure as of September 9,2002

1. 28/06/2012: Hold, Target Price Change HKD21.20 4. 28/06/2013: Hold, Target Price Change HKD22.80

2. 27/11/2012: Hold, Target Price Change HKD21.70 5. 02/12/2013: Hold, Target Price Change HKD24.00

3. 17/04/2013: Hold, Target Price Change HKD22.50

26 June 2014

Food & Beverage

Cafe de Coral

Page 10 Deutsche Bank AG/Hong Kong

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes:

1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period

54 %

39 %

7 %22 % 22 %12 %

050

100150200250300350400450

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

26 June 2014

Food & Beverage

Cafe de Coral

Deutsche Bank AG/Hong Kong Page 11

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Group Chief Economist Member of the Group Executive Committee

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