china / hong kong industry focus consumer discretionary sector electronics, midea and qingdao haier....

ASIAN INSIGHTS VICKERS SECURITIESsa- AL

Better positioned for technology disruptions

There is little doubt for China’s rising purchasing

power. But technological disruptions such as e-commerce threat complicate stock picking.

We believe travel goods, jewelleries, and smart

appliances are relatively immune to technological disruptions based on three criteria.

Our top consumer discretionary plays are Samsonite,

Chow Tai Fook, Chow Sang Sang, Luk Fook, Haier Electronics, Midea and Qingdao Haier.

Technology disruption has been a key threat. Technology has disrupted traditional industries such as print journalism, book stores, cable TVs, and landlines. Technology evolution also complicates stock picking in the China consumer space. The rise of e-commerce threatens profitability for some conventional retailers despite healthy China income growth of 9% CAGR during 2016-2020. But technology advancements can also help bigger players consolidate market share. Three criteria to select better positioned plays. We expect technology adjustments will accelerate since computing power doubles every 12-18 months. In this report, we highlight consumer discretionary plays that are better positioned for this environment. We believe segments with 3 characteristics are more immune or better positioned against technological disruptions: low market penetration; more discretionary in nature; and good entry barriers. We like three areas within discretionaries. We conclude that (1) top travel goods operators, (2) leading local jewellery retailers, and (3) major smart home appliance plays have ample growth potential as they are in the emerging or growth phases of their life cycles. These segments also suit the younger Chinese generation’s style of living and preference for differentiation. We also expect large operators in these industries to hasten market consolidation given their resource advantage in R&D, digital marketing, automation, and bargaining power. We like Samsonite (1910.HK), Chow Tai Fook (1929.HK), Chow Sang Sang (116.HK), Luk Fook (590.HK), Haier Electronics (1169.HK), Media (000333.CH), and Qingdao Haier (600690.CH), and reiterate our positive view on their medium-term outlooks.

HSI : 24,034 ANALYST Mavis HUI +852 2863 8879 [email protected] Eric YEE, CFA +8621 6888 3360 [email protected] Recommendation & valuation

Target 17F MktP rice P rice Recom PE Yield Cap

Company Name HK$ HK$ x % US$mTravel goodsSamsoniteInternational (1910HK)

23.45 28.93 BUY 16.3 2.9 4,267

Jewellerie sChow Tai Fook#(1929 HK)

6.97 n.a. NR 20.1 3.0 8,985

Chow Sang Sang(116 HK)

16.76 19.79 BUY 12.1 3.3 1,463

Luk Fook Hdg #(590 HK)

22.8 25.79 BUY 13.8 4.3 1,727

Home appliancesHaie r E lectronics(1169 HK)

14.4 16.02 BUY 12.1 0.8 5,183

Qingdao Haier ##(600690 CH)

10.23 13.42 BUY 10.9 2.8 9,102

Midea Group##(000333 CH)

32.25 35.35 BUY 11.6 3.5 30,236

Price as of 17 Feb 2017 # FY16: FY17; FY17: FY18 Source: Thomson Reuters, *DBS Vickers Human Intuitive Perspective of Technological Advancement in 10 years

Computers / electronic devices double in capabilities every 12-18 months, and could increase by hundreds of times over the course of 10 years. Source: The Emerging Future, LLC. 2012

1 2 4 8 16 32 46128

256

512

1024

0

200

400

600

800

1000

1200

1 2 3 4 5 6 7 8 9 10 11

Increase in our Current Technological Ability

Number of Years in the Future

DBS Group Research . Equity

China / Hong Kong Industry Focus

Consumer Discretionary Sector

21 Feb 2017

Refer to important disclosures at the end of this report

Industry Focus


Table of Contents

Technology – the game changer 3

In search of business sustainability 4

Rise of China middle class continues to fuel consumption 6

A) Travel goods & related businesses 7

B) Jewellery retailers 12

C) Smart home appliances 18

Appendix 26

Industry Focus


Technology – the game changer

Technological advancement has substantially changed our daily lives in recent years, as well as wiped out some industries or modified business patterns in the process. For instance, e-commerce & social networks have altered retail business models, and is expected to continuously produce strong global online sales CAGR of +21% in 2015-2019, vs. a mere +6% for offline sales (source: eMarketer). Digitalization also caused some traditional industries to shut down, such as the printing of newspapers, books, photos; music records; video players; etc. Advanced automation also expedites industry consolidation and favours leading operators that can afford to invest and grow faster.

Top-3 countries with the highest e-commerce penetration rates worldwide (2015)

“

Source: China Bureau of Statistics, Office for National Statistics UK, KOSIS

Some major businesses / industries that were strongly hit by rapid technological revolution

I n d u s t r i e s Im p a c t e d T ra d i t i o n e l p l a y e r s R e p la c e d b y ?

D ata rec o v ery serv ic es K ro ll O n t rack , Seag ateClo u d sto rag e o p erat o rs eg .R ac k sp ace, G o o g le, B aid u

Ph o t o f in ish in g East man K o d ak

D V D , g ame & v id eoren tals

H o lly w o o d V id eo ,B lo c k b u ster, Play st at io n

O n lin e en t ert ain men t p lat fo rmsu c h as Y o u tu b e, N et f lix , an dmo b ile g ames

Prin t in g serv ic es V ario u s

W iredt elec o mmu n icat io nc arriers

Ch in a T elec o mW ireless t eleco mmu n icat io nso lu t io sn (mo b ile p h o n es, V O IP)

T rav el ag en t s

V ario u s(e.g . 1 3 ,0 0 0 t rav elag en t s in U S in 2 0 1 3 ,d o w n f ro m p eak o f3 4 ,0 0 0 in mid - 9 0 s;so u rce: CN N )

O n lin e b o o k in g p lat f o rm su c h asCt rip , b o o k in g .co m

W iredt elec o mmu n icat io nc arriers

Ch in a T elec o mW ireless t eleco mmu n icat io nso lu t io sn (mo b ile p h o n es, V O IP)

R eco rd ab le med iaman u fac tu rin g

SO N Y W alk manM u sic st reamin g serv ic es su c h asSp o t if y , Pan d o ra, Q Q M u sic ,X iami et c .

D ig it al c amerap h o n es, o n lin ep h o to - sh arin g

O n lin e med ia

Source:appealingstudio.com, dailydot.com, DBS Vickers

Industry Focus


In search of business sustainability

On the back of swift technological advancement, we currently believe that the more viable industries & businesses should possess 3 main characteristics: (1) low market penetration, (2) more discretionary product nature, and (3) higher entry barrier.

(1) Low market penetration:

Consumer segments with a low penetration in China offer higher growth potential. In turn, this offers a larger buffer against threats of technological disruptions. We compared China’s per capita spending on different industries against other countries to gauge growth potential. We also looked at medium-term expansion capacity on a global scale for the emerging segments.

(2) More discretionary product nature:

Increasingly, younger consumers (e.g. millennials aged 15-34) seek more unique merchandises and experiences that display their characters & personalities. They are also more willing to spend, especially for one-child policy offsprings who receive the full attention of their parents and

grandparents. We also expect China’s household affluence to improve and drive demand for more distinguished and discretionary consumption.

(3) Higher entry barrier:

We favor consumer segments with a relatively higher entry barrier which can shield profitability. The entry barrier may come from already entrenched players with efficient costs and dominant market shares; long brand heritage that offer strong customer confidence; or huge price gaps for similar products that make substitution difficult.

Across retailers & brands that operate in China / HK, we have identified the more viable segments to include (A) travel goods & related businesses, (B) jewelleries, and (C) smart home appliances.

Industry Focus


Industry / business life cycle (China)

Source: DBS Vickers

Profit

Growth PhaseEmerging Phase Mature Phase Declining Phase

Time

Smart homeappliances

Travel-related

Traditional dept stores

Watches(non-brand

owners)

Jewelleries (gold,

gem-sets)

Cosmetics (non-brand

owners)

Casualwear

Localsports wear

Ladies footwear

Global luxuries

Modern dept stores

/ malls

Industry Focus


Rise of China middle class continues to fuel consumption

As the backbone, continuing urbanization in China (2015: 55.6%) could drive consumption upgrade and create new batches of discretionary consumers. An expected income growth of 9.2% CAGR in 2016-2020 should also unlock more spending ahead to support growth of selective discretionary segments and businesses.

World Nominal GDP per capita (selected countries)

9% 10% 4% 4% 11% 4% 2% 4% 3% 4% 3%

0

20,000

40,000

60,000

80,000

100,000

120,000

Chi

na

Mal

aysia

Wor

ld

Saud

i Ara

bia

Brun

ei D

arus

sala

m

Japa

n

Uni

ted

Kin

gdom

Hon

g K

ong

SAR

Sing

apor

e

Uni

ted

Stat

es

Luxe

mbo

urg

USD

CAGR:

Source: IMF, DBS Vickers . (CAGR for the 4 years of 2016-2020)

Urbanization in China

0

10

20

30

40

50

60

70

80

90

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

% rural population % urban population

Source: CEIC, DBS Vickers

Disposable income per capita: Urban & rural

24,56526,467

28,84431,195

33,616

0%

2%

4%

6%

8%

10%

12%

14%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2012 2013 2014 2015 2016

Urban Rural

Growth (Urban) Growth (Rural)

RMB


Industry Focus


A) Travel goods & related businesses

Luggages: new demand + consumption upgrade

Globally, luggage consumption per capita has been relatively lower in most Asian countries, particularly in China and India (< US$3 in 2015) and highlights the low market penetration in these regions. As such, there should be ample room for growth

in this area, especially driven by high household income CAGR (2016-2020) in most Asian regions including China (+9%), Malaysia (+10%) and Brunei (+11%), as travelling can be a very unique experience that most people look for when disposable income and affordability ascends. Going-forward, huge groups of new customers will need travel bags and luggages for their trips, perhaps even when technology is advanced enough for some of us to do teleportation one day! (Well, unless teleporting home on a daily basis is possible for everyone in the long run.)

Per capita expenditure on luggage in 2015 (by country)

32.3

24.8

14.6

3.5

10.1

3.5 2.9 2

0

5

10

15

20

25

30

35

Japan N. America Europe Latin America S. Korea Asia (ex-Japan)

China India

US$

-2% 6%CAGR: -3% 4% 31% 42%23%9%

Source: Global industry Analysts, Inc. (CAGR for the 4 years of 2012-2015)

Industry Focus


In China, in particular, the number of domestic tourists has tripled in the past 10 years, from 1.2bn in 2005 to c.4bn in 2015. Their per capita expenditure also almost doubled from RMB 436 in 2005 to RMB 857 in 2015.

Number of domestic tourists

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

m person CAGR: 11.7%

CAGR: 13.7%


Per capita expenditure of domestic tourism

0

100

200

300

400

500

600

700

800

900

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

RMB CAGR: 6.5%

CAGR: 7.5%


Domestic tourists at Great Wall, Beijing in golden week

Source: Internet

Outbound tourist numbers grew even faster, at 15.9% CAGR for 2011-2015 as compared to 13.7% CAGR for domestic tourists during the sames period. Chinese tourists’ spending during their outbound travel also grew at whopping 29% 2011-15 CAGR vs. 20% 2005-10 CAGR. Riding on sound income growth, PRC travel numbers, particularly for outbound travelling should see ample room for sound growth in the coming years, providing new demand for the luggage market.

Outbound tourism: Number of departures

0

20

40

60

80

100

120

140

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

CAGR: 13.1%

CAGR: 15.9%

m person

Source: World Bank, DBS Vickers

Industry Focus


Outbound Tourism: Expenditures

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

CAGR: 20.3% CAGR: 28.5%USD (mn)

Source: World Bank, DBS Vickers

A Chinese Tourist group’s 2017 Reunion Dinner bill in SG

Source: Internet

2015 Outbound tourist number as a % of total population

8.9%

22.8%

58.1%

0%

10%

20%

30%

40%

50%

60%

70%

China US Eurozone

Source: PRC National Bureau of Statistics, Travel China Guide, USCensus Bureau, Statista.com, www.etc-corporate.org

Additionally, developed regions like the US and Europe still experience moderate increase in their luggage sales along with consumption upgrade. This is especially the case when travellers increasingly prefer more reliable and high quality luggages, so that they can be rest assured that their travel bags will not break so easily during their journeys.

Luggage market: Retail sales CAGR by region (2010-15)

19.2%

15.4%

11.5%

6.2% 5.9%4.0% 3.7%

0%

5%

10%

15%

20%

25%

Ch

ina

Ind

ia

Asi

a (e

x-Ja

pan

)

S. K

ore

a

Lati

n

Am

eric

a

Euro

pe

N. A

mer

ica

Source: Statista.com

Industry Focus


Large gets larger: market dominance set some entry barriers

Samsonite is the No.1 luggage player worldwide. The successful acquisition of Tumi in Aug 2016 reinforced its overall market share and product portfolio, given that Tumi is a perfect complement to Samsonite’s product portfoliio.

Samsonite is currently amongst our top picks. Its acquisition of Tumi last August could provide full-year contributions in FY17, lifting sales and earnings by an estimate of c.20% and c.23%, respectively. Tumi’s good brand awareness in Asia & Europe could also ride on Samsonite’s sound network to speed expansion. Other potential synergies include back-end cost savings, rising economies of scale, better bargaining power with landlords, and more effective and efficient R&D. Additionally, Samsonite’s technology in light-weight luggage could help to enhance Tumi’s popularity, particularly for the Asian and European markets. The group’s e-commerce sales have also sustained doubled-digit growth (1H16: +18.4%), contributing to >8% of group revenue with decent profitability, and continue to see a lot of room to drive overall revenue ahead.

Top-10 global market share by company (2015)

Samsonite17.3%

LVMH5.0%

Delsey2.0%

Rimowa1.8%VF Corp

1.3% Tumi1.3%

VIP Industries

1.2%Kering1.0%Hermes 0.9%

Shanghai Taifeng Cases0.6%

(Samsonite completed acquisition of Tumi in Aug 2016. LVMH boughtout Rimowa in Jan 2017.)

Source: Euromonitor

Samsonite’s brand profile

Source: DBS Vickers

Va lue

Mid-Market

P remium

Luxury

Gucci Coach

Rimowa

Private Label Briggs & Riley

Randa Luggage

Olivet

Mandarina Duck

Private Label

HermésLouis Vuitton

Tod's

ZeroVictorinox

Bric's

Wenger

Ricardo

Travelpro USA

Delsey Crown

Halliburton

Industry Focus


Historic sales breakdown of Samsonite + Tumi

Samsonite Tumi

Store Formats

Product Categories

Geographic Footprint

Source: Company , DBS Vickers

Wholesale80%

Retail20%

Wholesale46%

Retail54%

Accessories7%

Other2%Travel

68%

Business12% Casual

11%

Accessories14%

Travel41%

Business45%

Latin America

5%

Asia39%

North America

34%

Europe22%

Latin America

1%

Asia17%North

America68%

Europe14%

Industry Focus


Travel-related stocks

T arget M k t 17F 18F

Currenc y Pric e Price Rec Cap F iscal PE P/Sales Y ield P/Bk ROE PE P/Sales Y ield P/Bk ROE

Company Name Code Local$ Loc al$ US$m Y r x x % x % x x % x %

Samsonite International* 1910 HK HKD 23.45 28.93 BUY 4,267 Dec 16.3 1.4 2.9 2.6 16.7 14.8 1.3 3.2 2.4 16.8

Ctrip.Com CTRP US USD 45.51 n.a. NR 22,647 Dec 90.6 5.9 0.0 3.0 5.6 41.3 4.5 0.0 2.7 9.7

China Intl.Trv l.Ser.'A' 601888 CH CNY 45.05 n.a. NR 6,354 Dec 21.9 1.8 1.4 3.1 15.0 19.1 1.7 1.6 2.8 15.1

Shenzhen Tempus Glb.Bus. Se 300178 CH CNY 16.2 n.a. NR 1,302 Dec 39.5 6.8 0.7 5.1 12.7 33.5 6.0 0.7 4.4 13.1

China Cy ts Tours Hldg. 'A' 600138 CH CNY 20.71 n.a. NR 2,166 Dec 27.5 1.3 0.9 2.7 10.4 22.4 1.2 1.0 2.5 11.5

Non HK-listed stocks av erage 44.9 3.9 0.6 3.5 8.7 29.1 3.3 0.7 3.1 9.9

# FY17: FY18; FY18: FY19

^ Core EPS

Source: Thomson Reuters, *DBS Vickers

B) Jewellery retailers

Chinese weddings to fuel rising demand

In 2015, millennials consumed 45% (US$26bn) of the new diamond jewellery sales across top 4 jewellery markets: US, China, India, and Japan. Their consumption was equivalent to 33% of global diamond jewellery sales.

More importantly, the millennials’ share of diamond jewellery purchases in China was the highest, at 68%, largely driven by weddings and a relatively higher propensity to spend than the older generation. As younger Mainland Chinese continues to uphold a strong sense for family traditions and marriage celebrations, their overall wedding jewellery demand has been more resilient.

Top-4 markets: Diamond jewellery acquired by millennials (2015)

Source: De Beers (Millennials: aged 15-34)

US62%

China26%

Japan6%

India6%

Industry Focus


Top-4 markets: Millennials’ diamond consumption as % of the total (2015)


Attitudes to marriage among millennials in China


Huge room to grow wedding jewellery spend

While China’s total no. of marriages may remain stable at 12-13m couples a year, we see ample room for brides & glooms to lift their average spending on wedding jewelleries along with rising household affluence. Major developed regions are seeing married couples spending an average of c.4 times more on jewelleries as compared to Mainland Chinese, suggesting a lot of capacity to see much higher consumption ahead.

Leading jewellery retailers based in China / HK have captured 40-50% of their sales from wedding demand over the years. Another sparkle for diamond demand is that most couples who

will get married in the medium-term will mainly be single childs. We expect more will be spent on engagement diamond rings, bridal jewelleries, wedding bands and gifts from relatives (e.g. traditional gold bangles).

Estimated wedding jewellery sales per married couple (2015)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

S. K

ore

a

HK

UK

US

Sin

gap

ore

Jap

an

Ch

ina

USD

Source: The China Wedding Industry Development Report 2016, CEIC,The Wedding Report 2015, SCMP, Koreaherald.com, Bridesmagazine,Yano Research Institute Ltd.

Estimated total no. of marriages (2015)

0 5,000,000 10,000,000 15,000,000

China

US

Japan

S. Korea

UK

HK

Singapore

No. of marriages per year

Source: The China Wedding Industry Development Report 2016, CEIC,The Wedding Report 2015, SCMP, Koreaherald.com, Bridesmagazine,Yano Research Institute Ltd.

68%

47%

41%

29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

China India US Japan

77%

91%

90%

88%

70% 75% 80% 85% 90% 95%

I'm in no rush to get married

It's important I hold on to my family traditions

Marriage should be celebrated; it is still an important societal

institution

I'm proud of my national traditions and customs

% who agreed with these statements

Industry Focus


“Value-for-money” remains the key in China

HK/China jewellery plays (Chow Tai Fook (CTF), Chow Sang Sang (CSS), Luk Fook (LF)) might also do better than global luxury groups (e.g. Cartier, Tiffany) given their price positioning. International brands often carry a price premium of several fold over local brands for similar products. We expect the mass to mid market jewelleries to post better sales growth than premium international brands, especially given that China’s average jewellery spending is still relatively low. Euromonitor also projects mainstream products (e.g. offered by CTF, CSS and LF) to have much better sales growth than luxury / premium jewelleries (e.g. offered by Cartier, Tiffany, etc.), given the former’s more suitable price positioning.

PRC retail sales CAGR – Jewellery

Source: Euromonitor

Examples: Comparison of average selling prices

Source: Companies

Entry barrier: brand heritage, value-for-money & good network

Long-established jewellery retailers with strong brand awareness and extensive sales network provide good customer confidence. HK-based jewellery retailers that also operate in China, in particular, also stand in a more favourable position, as most Mainland Chinese consumers still believe that products sold in HK are guaranteed genuine merchandises (vs. some parts of China or selected regions overseas). As HK is tax free, PRC consumers are also very willing to take a trip to HK to buy larger ticket-size items, especially for wedding jewelleries that could save them 20-30%+ and more than compensate for travel costs. The more mass to mid-range price positioning and value-for-money strategies of these local jewellery retailers should all be crucial to fit into spending patterns of Mainlanders, as compared to global luxury groups.

0.9%

7.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2015-2018F CAGR

Luxury jewellery only Overall jewellery

(HKD) HK/Macau China HK/Macau ChinaChow Tai Fook 5,700 3,200 12,100 6,300 Chow Sang Sang 3,900 2,352 13,000 10,752 Luk Fook n.a. n.a. 11,600 (HK);

13,100 (Macau) 7,056

Tiffany

Forex rates used: USD to HKD = 7.8; RMB to HKD = 1.12

Gold ( inc. silv er,etc.)

Diamond / gemstone/ jadeite / pearl

Global basis:HKD2,769 for

fashion jewelry

Global basis: HKD44,460for statement, fine &

solitaire jewelry ;HKD25,740 for

engagement jewellery &wedding bands

Period studied : Chow Tai Fook & Luk Fook: FY3/16; Chow SangSang: 1H16; all based on self-operated stores. Tiffany: FY1/16.

Industry Focus


Jewellery – market share in China (2015)

0

1

2

3

4

5

6

Ch

ow

Tai

Fo

ok

Lao

Fen

g X

ian

g

Shan

gh

ai L

ao M

iao

Ch

ow

San

g S

ang

Zhej

ian

g M

ing

Je

wel

ry

Luk

Foo

k

Ch

ow

Tai

Sen

g

Car

tier

CH

J

Swar

ovs

ki

%

Source: Euromonitor

Luxury / global jewellery – market share in China (2015)

0

5

10

15

20

25

Car

tier

Swar

ovs

ki

Tiff

any

& C

o

Bvl

gar

i

Gra

ff

Gu

cci

Lou

is V

uit

ton

Bo

uch

ero

n

De

Bee

rs

Her

mès

%

Source: Euromonitor

A low base supports near-term performance

HK/China jewellery plays should ride on a very low base in the coming 6-9 months given their sluggish SSSG during 4Q15-3Q16. Squential improvements have already been seen in 4Q16. Stabilizing diamond prices could also favour gross margins. Coupled with the downtrend in rental costs to support operating margins, we expect CTF, CSS and LF to have bottom-out in their operations.

1) Same-store sales growth in HK/Macau

Source: DBS Vickers (estimated numbers for Chow Sang Sang in 3Q16and 4Q16)

2) Same-store sales growth in China

Source: DBS Vickers (estimated numbers for Chow Sang Sang in 3Q16and 4Q16)

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

Chow Sang Sang Chow Tai Fook Luk Fook

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

Chow Sang Sang Chow Tai Fook Luk Fook

Industry Focus


Cumulative rental fall in HK

Source: Collier, DBS Vickers (street-level stores in prime districts of HK)

Leading local jewellery retailers are riding on a better near-term sales momentum and on-going cost adjustments. We also see huge room for rising (wedding) jewellery demand along with better household affluence in China and strengthening consumption from the younger generation in medium-term, as well as unique price strategies and long-established branding of CTF, CSS and LF. Despite a volatile market, we believe operations of these jewellery plays should bottom-out by now and potentially re-rate to benchmark their average PB, in the least. Accordingly, we revise up our target price of CSS to HK$19.79 (on 1.41x FYDec17 PB), and our target price of LF to HK$25.79 (on 1.64x FYMar18 PB).

Chow Sang Sang – PB Band

Source: Thomson Reuters, DBS Vickers

Luk Fook – PB Band


-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

2014 2015 2016F 1H17F

St reet - lev elshop rentals

2016F(%y -o-y )

Central -8%

Causeway Bay -8%Tsim Sha Tsui -10%

Mongkok -17%

Avg: 1.41x

+1sd: 1.79x

+2sd: 2.16x

‐1sd: 1.03x

‐2sd: 0.65x0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

Feb-13 Feb-14 Feb-15 Feb-16

(x)

Avg: 1.64x

+1sd: 2.02x

+2sd: 2.4x

‐1sd: 1.27x

‐2sd: 0.89x0.7

1.2

1.7

2.2

2.7

Feb-13 Feb-14 Feb-15 Feb-16

(x)

Industry Focus


Peers table – hard luxuries

Target Mkt 16F 17F

Price Price Recom Cap Fiscal PE P/Sales Yield P/Bk ROE PE P/Sales Yield P/Bk ROECompany Name Code HK$ HK$ HK$m Yr x x % x % x x % x %Jewelleries

Chow Tai Fook# 1929 HK 6.97 n.a. NR 69,700 Mar 23.3 1.4 3.8 2.0 9.0 20.1 1.4 3.0 2.0 9.8

Chow Sang Sang* 116 HK 16.76 19.79 BUY 11,345 Dec 16.1 0.7 2.5 1.2 7.6 12.1 0.6 3.3 1.1 9.6

Luk Fook Hdg*# 590 HK 22.8 25.79 BUY 13,400 Mar 16.5 1.1 3.9 1.5 9.3 13.8 1.1 4.3 1.5 10.9

Lao Feng Xiang 'A'*@ 600612 CH 40.21 42.21 HOLD 21,035 Dec 17.1 0.5 2.9 4.1 25.6 14.8 0.4 3.4 3.6 26.0

Average 18.3 0.9 3.3 2.2 12.9 15.2 0.9 3.5 2.1 14.1

Watches

Emperor Watch 887 HK 0.295 n.a. NR 2,030 Dec n.a. 0.6 0.0 0.5 (2.1) 98.3 0.6 0.7 0.5 0.4

Hengdeli Holdings 3389 HK 1.19 n.a. NR 5,688 Dec n.a. 0.4 0.8 0.9 2.2 n.a. 0.4 1.5 0.8 3.2

Oriental Watch# 398 HK 1.58 n.a. NR 902 Mar 35.1 0.3 0.3 0.4 1.2 14.2 0.3 1.7 0.4 2.9

Average 35.1 0.4 0.4 0.6 0.4 56.3 0.4 1.3 0.6 2.1

^ Core EPS

# FY16: FY17; FY17: FY18

@ RMB


Industry Focus


C) Smart home appliances

Smart home appliance adoption at the “chasm” stage

While we have been living in a modern world with common usage of home appliances such as TV, air conditioner, washing machine and refrigerator, the adoption of those with “smart” feature is still at the “chasm” stage after an early-adopter phase. This is a crucial stage where manufacturers need to prove a need for their devices, before products successfully progress towards the mass-market phase.

According to IHS Technology’s Home Appliance Intelligence Service, global smart home appliance market is forecasted to grow from an estimated less than 1 million units shipped in 2014 to over 230 million units in 2020, which represents a whopping CAGR of 148%

Global market for smart home appliances – unit shipments (mn) by share and region ( 2014 & 2020)

Air conditioner

37%

Refrigerator28%

Washing machine

27%

Clothes Dryer2%

Dishwasher4% Large

cooking appliances

2%2020Total market230mn units

Source: IHS, DBS Vickers

Exponential growth of smart home appliance is anticipated as (1) consumers quickly adapt to new technology (similar to rapid smart-phone adoption a few years ago) (2) governments push to develop energy-efficiency products (3) broadband penetration increases and facilitates smart device inter-connectivity.

Air conditioner

37%

Refrigerator27%

Washing machine

29%

Clothes Dryer3%

Dishwasher4%

Large cooking

appliances0%2014

Total market1mn unit

Industry Focus


Smart home adoption curve

Source: BI Intelligence， DBS Vickers

China projected to become the leading market

Global penetration of smart home appliance is projected by IHS to grow from 0.2% in 2014 to 31.3% in 2020. China is anticipated to be the leading market, following by United States. By 2020, 8 key markets namely China, United States, India, Japan, Germany, France, UK and South Korea will represent over 80% of total worldwide shipments, with China accounting for nearly 50%. Global share of smart home appliances forecast - 2020

Source: BI Intelligence， DBS Vickers

Structural growth for new products with low penetration

Before leapfrogging to smart home appliance, China as a nation is embracing the use of more advanced home appliances, which were deemed unaffordable in the past, one of which is dishwasher. Dishwasher has low penetration in China (1-2% vs. washing machine’s 80-90% and air conditioner’s c.70%) and is growing fast as product constraints are gradually lifted. Availability of countertop dishwashers addressed small kitchen space issue; Prices are also lowered dramatically – Haier’s “Xiaobei” countertop dishwasher is priced at c.RMB3,000 and Midea’s smart built-in dishwasher is priced at c.RMB 4,000. According to China Market Monitor, dishwasher's industry volume and sales jumped respectively by 70.3% to 210k units, and by 74% to RMB 1 billion in 2015. Moving into 1H16, we saw the growth accelerated to 115% for industry volume (to hit 195k units) and 104% for industry sales (to hit RMB 850m). Haier's "Xiaobei" Countertop Dishwasher

Source: Internet, DBS Vickers

0%

10%

20%

30%

40%

50%

60%

Chi

na

USA

Indi

a

Japa

n

Ger

man

y

Fran

ce

UK

Sout

h K

orea

% of total market

Industry Focus


Washing demonstration by Midea dishwasher

Source: Internet, DBS Vickers

Rising wealth underpins consumption upgrade As the nation grows more affluent, it reflects on the consumers’ choice of more sophisticated home appliances, in seeking for better quality of life. As a result, increase in sales proportion of mid-high end products across the 3 product segments (air conditioner, washing machine and refrigerator) was observed, driven by consumers’ on-going consumption upgrade. In 2016, shares of front-loading washing machine sales saw 6.1ppt jump to 43.2% (vs. top-loading washing machine’s 56.8%); Inverter-standing air conditioner sales grew by 1.7ppt to 12.6% (vs. inverter wall air conditioner’s 51.8%); Sales of refrigerator with multiple doors (3-7) also experienced 6.3ppt increase to 20% (vs. double-door refrigerator’s 30.2%).

Sales breakdown of air conditioner (by price range)

Source: China Market Monitor, DBS Vickers Sales breakdown of washing machine (by price range)

Source: China Market Monitor, DBS Vickers

31.7%

44.7%

16.7%

6.9%

29.7%

44.8%

17.9%

7.7%

0%5%

10%15%20%25%30%35%40%45%50%

1500-2699 2700-4999 5000-8999 9000+

2015 2016

41.0%

31.6%

17.4%

9.9%

39.0%

31.7%

18.8%

10.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

600-1999 2000-3499 3500-5499 5500+

2015 2016

Industry Focus


Sales breakdown of refrigerator (by price range)

Source: China Market Monitor, DBS Vickers Higher barrier of entry set by global brands In tandem with rising wealth and consumers’ demands for better-quality products and life, global brands stands a better chance to win as a result of their scale, brand equity and capacity to invest in R&D of new products. Among Chinese home appliance players, industry leaders such as Midea, Haier and Gree have sizeable balance sheets, enabling them to pursue organic growth (through investments in R&D) and inorganic growth (through merger & acquisitions), and subsequently set high barrier of entry. In 2016, Qingdao Haier completed the acquisition of GE home appliance unit for USD 5.4bn; Midea acquired 80.1% controlling stake of Toshiba’s home appliance unit for JPY 53.7bn (c.USD 473m) in the same year; Acquisition of KUKA AG was recently completed in January 2017. All these multi-millions deals are set to propel both Haier and Midea into real global brands by clinching core product technologies and expanding their reach in the global market.

Home appliance market share in China (volume %) - 2015

Source: Euromonitor, DBS Vickers Comparison of R&D and CAPEX - 2015

Source: Bloomberg L.P., Company, DBS Vickers Strategic partnerships in smart home development

Apart from undergoing M&A path, strategic collaborations between global brands have also been formed to accelerate smart home appliances development. In China, Haier announced its partnership with Microsoft in the Shanghai Appliance World Expo(AWE) 2016; Midea has also recently announced its partnership with Intel, and its smart refrigerator is poised to connect with Tmall supermarket for “smart replenishment “ feature. In United States, GE’s wifi-connected appliances can be controlled by Amazon’s smart device, Echo.

47.6%

27.3%

17.1%

8.0%

43.5%

30.1%

18.4%

8.0%

0%

10%

20%

30%

40%

50%

60%

1200-2699 2700-4999 5000-8999 9000+

2015 2016

Midea 18%

Haier 8%

Gree6%

Joyoung 6%

Philips 5%

Others 57%

CompanyCAP E X

(R MB m)R &D amount

(R MB m)

Midea 3,131 5,263Qingdao Haier 2,972 2,344

Gree 2,885 4,000

Haier E lectronics 1,282 593

Hisense Kelon 450 508

Chigo Holdings 125 100

Industry Focus


Midea’s smart refrigerator which is connectable to Tmall online supermarket - 2016

Source: Internet, Company, DBS Vickers Smart home collaboration between Haier and Microsoft in AWE 2016

Source: Internet, Company, DBS Vickers GE’s Wifi Connect partnership with Amazon - 2015

Source: Internet, Company, DBS Vickers

Recent updates: encouraging industry rebound in 2H16

Significant sales rebound was observed in 2H16, especially for air conditioner segment, given lower base in 2H15 due to inventory de-stocking and weakness in domestic consumption. Industry sales for the air conditioner, washing machine and refrigerator segments in 4Q16 rebounded by 27.6% y-o-y (29.7% in 3Q16), 7.2% y-o-y (5.1% y-o-y in 3Q16) and 6.7% y-o-y (3.7% in 3Q16) respectively. We expect this uptrend to sustain until 1H17 in the least, given the robust property sales growth of 22.5% in 2016 and better-than-expected sales performance in Jan-Feb 2017. Air conditioner sales growth (y-o-y)

Source: China Market Monitor, DBS Vickers Washing machine sales growth (y-o-y)

Source: China Market Monitor, DBS Vickers

-4.4% -6.6% -4.3%

29.7%27.6%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1H15 2H15 1H16 3Q 16 4Q 16

6.0%

3.4%

-2.4%

5.1%

7.2%

-4%

-2%

0%

2%

4%

6%

8%

1H15 2H15 1H16 3Q 16 4Q 16

Industry Focus


Refrigerator sales growth (y-o-y)

Source: China Market Monitor, DBS Vickers Price hike to mitigate rising raw material costs

Home appliance players in China had been enjoying tailwinds from low commodities prices until recent turn in 2H16. As a result, industry leaders such as Midea and Gree have taken pre-emptive measure and led price hike on their air conditioner products. We believe that the pre-emptive price hike could help industry players to safeguard margins and earnings performance. Gree and Midea had announced price increase on their air conditioner products by RMB 50-100 (ie. 1.3%-2.6% on ASP of c. RMB 4,000) and RMB 50-200 (ie. 1.4%-5.6% on ASP of c. RMB 3,600) respectively, in responding to the rising costs of raw materials such as copper, aluminium and plastics. Other peers such as Chigo and Hitachi also implemented the same measure. Chigo has raised air conditioner product prices by 2% in December 2016, with another 2% to follow in January 2017; Hitachi is lifting the price of its household air conditioner products by 10% from 1st Jan 2017 onwards.

China Changjiang Copper spot price trend

Source: Bloomberg Finance L.P, Company, DBS Vickers China Changjiang copper spot price has seen accelerating rebound at 0.4%/3%/12.5% q-o-q for 2Q/3Q/4Q16 after a 3-year downtrend since 2013. Crude oil price trend

Source: Bloomberg Finance L.P, Company, DBS Vickers Oil price also rebounded from the trough of USD 34/bbl in 1Q16 to current USD 53/bbl.

1.2%1.9%

-7.0%

3.7%

6.7%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1H15 2H15 1H16 3Q 16 4Q 16

sales decline would've been narrower if bulk and online sales are counted

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

RMB/MT

0

20

40

60

80

100

120

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

USD/barrel

Industry Focus


Air conditioner price hike in Dec16/ Jan17

Source: News, China Market Monitor, DBS Vickers We prefer Haier Group and Midea

Within the Chinese home appliance space, we prefer Haier Group and Midea, given their industry leader status, ability to weather through headwinds and the successful acquisitions of GE home appliance unit, Toshiba unit and KUKA AG respectively. Besides that, Midea and Qingdao Haier have strong valuation appeals, trading at FY17 PE of 11.5x and 10.9x respectively, more than 40% discount against the A-share industry average of 19.4x. Dividend yields of c. 3%-3.5% are also deemed attractive among A-share names. Especially for Midea, it has been one of the top 10 stocks for northbound trading since the inception of Shenzhen-HK stock connect on 5th Dec 2016. As for Haier Electronics, we believe successful integration of the GE unit and the potential capital injection and growth plans on Goodaymart Logistics could also prompt further re-rating. We reiterate our BUY recommendation on Midea (000333.CH), QD Haier (600690.CH) and Haier Electronics (1169.HK).

QD Haier’s revenue and net profit forecast - FY17

Source: Company, DBS Vickers, Bloomberg Finance L.P. Full-year consolidation of GE Appliances would contribute to significant revenue jump for Qingdao Haier (600690.CH) in FY17; and moderate increment in net profit given GE Appliances’ lower net margin. Midea’s revenue and net profit forecast - FY17

Source: Company, DBS Vickers, Bloomberg Finance L.P. KUKA AG is expected to expand Midea’s revenue and earnings base by 15% and 6% respectively in FY17. Net earnings accretion would be c.3% after considering one-off transaction cost and interest costs. We are positive on KUKA AG’s potential to accelerate Midea’s earnings growth in mid-long term; Toshiba home appliance unit’s turnaround by FY17 is also anticipated.

B rands Original AS P P rice increas e

Gree R MB 4000 R MB 50-100 ( 1.3%-2.6%)

MideaR MB 3600 R MB 50-200 ( 1.4%-5.6%)

Chigo HoldingsR MB 2600 4%

HitachiR MB 4800 10%

Industry Focus


Peers table - Home Appliance Sector

Target Mkt 17F 18F

Currency Price Price Recom Cap Fisca l PE P/Sa les Yie ld P/Bk ROE PE P/Sa les Yie ld P/Bk ROE

Company Name Code Loca l$ Loca l$ US$m Yr x x % x % x x % x %Chigo Holding 449 HK HKD 0.118 n.a. NR 128 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Haier Electronics* 1169 HK HKD 14.4 16.02 BUY 5,174 Dec 12.1 0.5 0.8 1.8 15.6 11.3 0.5 0.9 1.5 14.5

Hisense Kelon 921 HK HKD 9.11 n.a. NR 1,600 Dec 8.0 0.4 4.8 1.7 33.5 8.4 0.4 4.5 1.5 23.7

Skyworth Digital# 751 HK HKD 4.99 n.a. NR 1,952 Mar 6.4 0.3 5.0 0.8 13.1 5.6 0.3 5.5 0.7 13.1

TCL Multimedia^ 1070 HK HKD 3.66 n.a. NR 819 Dec n.a. 0.2 1.5 1.0 6.2 n.a. 0.2 1.2 1.0 7.0

Welling Holding 382 HK HKD 1.76 n.a. NR 650 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

HK-listed stocks average 8.8 0.4 3.0 1.3 17.1 8.5 0.3 3.0 1.2 14.6

Midea Group* 000333 CH CNY 32.25 35.35 BUY 30,236 Dec 11.6 1.1 3.5 2.5 23.0 10.4 1.1 3.8 1.7 19.4

GREE Electrical 000651 CH CNY 27.41 n.a. NR 24,061 Dec 10.1 1.4 5.8 2.7 26.7 9.2 1.3 6.5 2.4 25.8

Hisense Elec. 600060 CH CNY 17.86 n.a. NR 3,410 Dec 11.6 0.7 2.5 1.6 14.0 10.4 0.7 2.7 1.4 13.9

Konka Group 000016 CH CNY 4.56 n.a. NR 1,602 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Qingdao Haier* 600690 CH CNY 10.23 13.42 BUY 9,102 Dec 10.9 0.5 2.8 1.8 16.9 9.2 0.4 3.3 1.5 18.2

Wuxi Little Swan 000418 CH CNY 34.65 n.a. NR 3,198 Dec 14.7 1.1 1.4 3.0 21.0 12.1 1.0 1.4 2.5 21.4

Hisense Kelon 000921 CH CNY 11.57 n.a. NR 2,301 Dec 10.6 0.6 3.4 2.8 27.7 10.7 0.2 3.9 2.3 21.0

Sichuan Changhong 'A' 600839 CH CNY 4.42 n.a. NR 2,977 Dec 32.7 0.3 0.7 1.5 4.7 29.5 n.a. 0.7 1.5 5.0

Hangzhou Robam 'A' 002508 CH CNY 41.51 n.a. NR 4,422 Dec 20.0 4.2 1.7 5.7 32.4 15.7 1.1 2.5 4.6 32.2

Joyoung 'A' 002242 CH CNY 17.52 n.a. NR 1,962 Dec 17.1 1.6 3.6 3.5 21.2 15.3 0.2 4.3 3.3 21.9

SH Flyco Elect. Appc.'A' 603868 CH CNY 44.5 n.a. NR 2,829 Dec 24.8 4.6 1.5 7.4 32.2 20.3 17.5 2.2 6.2 32.4

Zhejiang Supor 'A' 002032 CH CNY 36.65 n.a. NR 3,379 Dec 18.0 1.8 2.0 3.8 21.6 15.5 2.6 2.5 3.2 21.3

A share stocks average 19.4 2.2 2.3 3.6 20.1 16.2 2.0 3.1 3.1 20.3

# FY17: FY18; FY18: FY19

^ Core EPS


Industry Focus


Appendix

Examples of companies being strongly hit by rapid technological revolution

Company / Business St art Y ear Ex it Y ear Remark s

Borders Group 1971 2011

International book & musicretailer based in Ann ArborMichigan. The company has19,500 employees in its finalyear.

KODAK 1888 2012 ( digital camera div ision)

In February 2012, Kodakannounced that it would stopmaking digital cameras, pocketv ideo cameras and digital pictureframes and focus on thecorporate digital imagingmarket.

Radioshack 1921 N/A

The company almost exited inFebruary 2015, hav ing filed forChapter 11 protection underUnited States bankruptcy lawafter 11 consecutive quarterlylosses.

The Independent 1986 N/A

Established in 1986 as anindependent national morningnewspaper published in London,and no longer printed sinceMarch 2016, replaced by onlineedition.

Tower Records 1960 2006

Tower Records was a retailmusic chain based inSacramento, California. It filedfor bankruptcy and liquidationin 2006. The brand surv ivedpost $160m offer by GeneralWireless

Sony Walkman 1979 2010Sony announced that it wouldcease production of walkman inOct 2010.

Encyclopedia Brittanica 1768 2012

Encyclopedia Brittanica stoppedpublishing afters 244 years ofinforming everyone aboutevery thing

Source:Wikipedia, Internet, DBS Vickers

Industry Focus


Travel goods PE & PB band charts

Samsonite (1910 HK) PE band Samsonite (1910 HK) PB band


5

10

15

20

25

30

35

40

45

50

Jun

-11

May

-12

Ap

r-1

3

Ap

r-1

4

Mar

-15

Feb

-16

Jan

-17

Dec

-17

Share Price (HK$)

28x

24x

20x16x

12x

5

10

15

20

25

30

35

40

Jun

-11

May

-12

Ap

r-1

3

Ap

r-1

4

Mar

-15

Feb

-16

Jan

-17

Dec

-17

Share Price (HK$)

3.8x

3.3x

2.7x

2.1x

1.6x

Industry Focus


PE band charts

Chow Sang Sang (116 HK) PE band Chow Sang Sang (116 HK) PB band

Chow Tai Fook (1929 HK) PE band Chow Tai Fook (1929 HK) PB band

Luk Fook (590 HK) PE band Luk Fook (590 HK) PB band

Source: Thomson Reuters, DBS Vickers PE band charts

0

10

20

30

40

50

60

70

Jan

-99

Mar

-02

May

-05

Jun

-08

Au

g-1

1

Oct

-14

Dec

-17

Share Price (HK$)

3x

11x

19x

27x

35x

0

10

20

30

40

50

60

Jan

-99

Mar

-02

May

-05

Jun

-08

Au

g-1

1

Oct

-14

Dec

-17

Share Price (HK$)

0.3x

1.0x

1.7x

2.4x

3.1x

0

5

10

15

20

25

Dec

-11

Jun

-12

No

v-1

2

May

-13

No

v-1

3

Ap

r-1

4

Oct

-14

Ap

r-1

5

Sep

-15

Mar

-16

Au

g-1

6

Feb

-17

Share Price (HK$)

11x16x20x24x29x

0

5

10

15

20

25

Dec

-11

Jun

-12

No

v-1

2

May

-13

No

v-1

3

Ap

r-1

4

Oct

-14

Ap

r-1

5

Sep

-15

Mar

-16

Au

g-1

6

Feb

-17

Share Price (HK$)

1.0x

2.0x

2.9x

3.8x

4.7x

0

10

20

30

40

50

60

70

19

99

20

02

20

05

20

08

20

11

20

14

20

17

Share Price (HK$)

19x

15x

10x

6x

2x0

10

20

30

40

50

60

70

80

19

99

20

02

20

05

20

08

20

11

20

14

20

17

Share Price (HK$)

4.5x

3.4x

2.4x

1.4x

0.3x

Industry Focus


Haier Electronics (1169 HK) PE band Haier Electronics (1169 HK) PB band

Qingdao Haier (600690 CH) PE band Qingdao Haier (600690 CH) PB band

Midea Group (000333 CH) PE band Midea Group (000333 CH) PB band


0

5

10

15

20

25

30

35

40

45

50

Jan

-06

Feb

-07

Mar

-08

Ap

r-0

9

May

-10

Jun

-11

Jul-

12

Au

g-1

3

Sep

-14

Oct

-15

No

v-1

6

Dec

-17

Share Price (HK$)

37x

28x

20x

11x

2x0

5

10

15

20

25

30

Jan

-06

Feb

-07

Mar

-08

Ap

r-0

9

May

-10

Jun

-11

Jul-

12

Au

g-1

3

Sep

-14

Oct

-15

No

v-1

6

Dec

-17

Share Price (HK$) 8.8x 6.8x 4.7x

2.7x

0.6x

0

5

10

15

20

25

30

Feb

-11

Au

g-1

1

Feb

-12

Sep

-12

Mar

-13

Sep

-13

Ap

r-1

4

Oct

-14

May

-15

No

v-1

5

May

-16

Dec

-16

Jun

-17

Dec

-17

Share Price (RMB)

21x

18x

14x

10x

7x

0

5

10

15

20

25

30

35

Feb

-11

Au

g-1

1

Feb

-12

Sep

-12

Mar

-13

Sep

-13

Ap

r-1

4

Oct

-14

May

-15

No

v-1

5

May

-16

Dec

-16

Jun

-17

Dec

-17

Share Price (RMB)

4.7x

3.9x

3.0x

2.2x

1.4x

0

5

10

15

20

25

30

35

40

45

Sep

-13

Feb

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Au

g-1

5

Jan

-16

Jun

-16

Oct

-16

Mar

-17

Au

g-1

7

Dec

-17

Share Price (RMB)

11x

9x

8x

6x

4x

0

10

20

30

40

50

60

Sep

-13

Feb

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Au

g-1

5

Jan

-16

Jun

-16

Oct

-16

Mar

-17

Au

g-1

7

Dec

-17

Share Price (RMB)

2.7x

2.3x

1.9x

1.5x

1.1x

Industry Focus


Market share of consumer appliances in China - 2016

Market share of air conditioners in China

Midea and Haier are the two largest consumer appliances players in China

Midea and Haier are the second and third largest players in air conditioner segment, after Gree. Midea’s market share rose by 2.2ppt from 19.9% in 2011 to 22.1% in 2016.

Source: Euromonitor (by retail sales volume) Source: Euromonitor (by retail sales volume)

Market share of washing machines in China

Market share of refrigerators in China

Haier continues to dominate as the largest play in the washing machine segment, while Little Swan has sustained rising market share since 2012 to reach 19.2% in 2016

Haier's leading position in refrigerator segment remains unchallenged over the years, with market share of 39.2% in 2016

Source: Euromonitor (by retail sales volume) Source: Euromonitor (by retail sales volume)

Industry Focus


Market share of small kitchen appliances in China (by retail volume)

Market size of consumer appliance industry in China

Midea, Supor and Joyoung are the 3 largest small kitchen appliance makers in China

Euromonitor expects home appliances industry to grow by 5-year CAGR of 3.4% to RMB 740bn by 2020

Source: Euromonitor (by retail sales volume) Source: Euromonitor (by retail sales value)

Market size of small appliances in China Market size of dishwasher segment in China

Euromonitor expects the small appliances segment to grow by 5-year CAGR of 4.3% to RMB 413bn by 2020

Dishwasher is forecasted to grow robustly by 5-year CAGR of 15% to RMB 1.8bn given its low penetration

Source: Euromonitor (by retail sales value) Source: Euromonitor (by retail sales value)

Industry Focus


China retail sales (monthly)

China retail sales (annual)

0

5

10

15

20

25

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-

Feb

11

Jul-1

1

Dec

-11

Jun-

12

Nov

-12

May

-13

Oct

-13

Apr

-14

Sep-

14

Mar

-15

Aug

-15

Jan-

Feb

16

Jul-1

6

Dec

-16

China Retail Sales (LHS) YoY growth (RHS)

RMB bn %

13,305

15,801

18,721

21,443

24,284

27,190

30,093

33,232

15.9%

18.8%18.5%

14.5%13.2%12.0%

10.7%

10.4%

0%2%4%6%8%10%12%14%16%18%20%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2009 2010 2011 2012 2013 2014 2015 2016

China Retail Sales (LHS) YoY growth (RHS)

RMB bn

Source: CEIC Source: CEIC

China retail sales breakdown

Ret ail sa les g row t h (Y o Y , % )

Cat ego ries 1 H1 0 2 H10 1H11 2 H1 1 1 H12 2H12 1H1 3 2 H1 3 1 H14 2 H1 4 1 H15 2 H1 5 1H16 2 H1 6F urniture 60.5 65.4 70.2 65.8 31.7 38.9 29.0 17.2 16.0 16.2 9.4 6.2 15.9 12.1Gold, Silv er and J ewelry 49.5 62.4 54.6 37.8 19.5 21.0 43.4 24.6 (5.1) 6.8 3.3 3.1 (4.6) (0.2)Construction & Decoration Material 60.2 78.6 83.3 84.9 45.9 38.1 25.9 27.1 15.6 10.2 7.6 9.5 12.9 8.3Automobile 46.1 43.3 28.7 22.0 14.8 13.7 20.5 22.1 18.9 12.8 6.7 8.8 9.1 14.7Petroleum & Related Product 39.0 28.9 42.9 35.4 17.4 13.6 10.2 12.5 9.9 5.6 (7.7) (7.5) (0.9) 3.4Daily Use Goods 25.2 29.8 36.2 36.1 21.9 21.3 19.1 16.6 8.7 12.6 11.6 9.2 11.0 14.6Clothing 24.9 29.0 35.4 35.5 21.7 23.9 19.3 14.5 8.7 11.3 8.3 6.5 6.9 7.2Cosmetics 21.4 19.1 25.4 22.8 19.5 23.3 24.4 18.4 12.3 12.3 10.6 13.9 9.5 7.4F ood & Bev erage 19.6 34.1 42.3 40.0 18.4 21.8 20.4 18.9 14.8 15.8 12.8 14.6 11.0 10.2Household Electric & V ideo Appliance 27.5 29.6 32.7 32.3 7.2 13.4 20.4 14.1 8.2 10.6 8.0 9.4 6.7 10.8Communication Appliance 20.2 27.0 32.8 36.9 45.6 42.6 34.9 30.1 19.3 42.8 38.9 22.1 15.8 9.3

Industry Focus


China retail sales breakdown (monthly)

Ret ail sales grow t h (Y oY , % )

Cat egories J an-F eb 16

M ar- 16 A pr- 16 M ay - 16 J un- 16 J u l- 16 A ug- 16 Sep- 16 O c t - 16 Nov - 16 Dec - 16

Furniture 16.4 13.5 19.4 12.2 17.3 13.0 11.4 11.4 13.5 18.0 6.5

Gold, Silv er and J ewelry (1.5) (14.8) 3.1 (9.0) 2.8 (3.6) (7.6) 9.8 (1.6) 0.4 1.3

Construction & DecorationMaterial

14.9 10.9 19.6 14.9 8.4 14.2 12.4 9.2 6.4 9.6 1.6

Automobile 5.4 14.2 8.7 10.6 11.5 12.3 14.5 17.8 9.4 17.5 16.1

Petroleum & Related Product 0.5 0.3 (3.5) (4.5) 2.8 (2.0) 3.2 1.5 5.8 5.0 6.5

Daily Use Goods 10.3 8.7 12.7 15.8 13.4 10.4 11.2 13.9 7.0 22.1 21.1

Clothing 8.4 6.0 11.2 5.4 9.0 10.5 3.6 7.6 4.7 7.7 8.6

Cosmetics 11.4 9.4 14.1 8.7 4.4 8.6 2.8 7.9 1.9 11.2 11.1

Food & Beverage 10.6 9.9 14.6 10.5 10.5 10.3 8.8 9.7 7.8 24.0 3.5

Household Electric & V ideoAppliance

7.9 9.1 12.2 (3.9) 12.2 9.6 6.1 9.1 7.6 22.2 9.2

Communication Appliance 20.1 18.0 16.2 10.1 14.6 13.4 10.4 1.5 (9.6) 4.4 45.9

Noted: Above designated size enterprises

Source: CEIC

Industry Focus


Hong Kong retail sales (monthly)

Hong Kong retail sales (annual)

(20)(15)(10)(5)0 5 10 15 20 25 30 35

0

20,000

40,000

60,000

80,000

100,000

Jan-

Feb

11

Jul-1

1

Dec

-11

Jun-

12

Nov

-12

May

-13

Oct

-13

Apr

-14

Sep-

14

Mar

-15

Aug

-15

Jan-

Feb

16

Jul-1

6

Dec

-16

Hong Kong Retail Sales (LHS) YoY growth (RHS)

HKD bn %

275325

406445

494 493 475437

0.6%

18.3%

24.9%

9.8%11.0%

-0.2%

-3.7%

-8.1%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015 2016

Hong Kong Retail Sales (LHS) YoY growth (RHS)

HKD bn

Source: CEIC Source: CEIC

Hong Kong retail sales breakdown

Ret ail sa les g row t h (Y oY , % )

Cat ego ries 1H1 0 2 H10 1 H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16

J ewellery , Watches, Clocks &V aluable Gift

37.4 34.9 50.4 43.3 11.8 3.9 32.6 13.5 (16.7) (10.2) (15.9) (15.2) (21.1) (13.2)

Clothing, F ootwear & A llied Products 16.1 18.4 27.8 28.2 11.5 4.1 9.8 6.8 8.1 0.1 (3.6) (10.1) (7.8) (0.9)Consumer Durable Goods 27.3 26.5 26.7 30.2 27.7 12.7 10.9 (3.8) (3.5) 8.6 12.3 (0.1) (24.1) (17.3)Department Stores 18.1 15.0 20.3 22.8 10.8 8.7 19.9 15.9 3.0 (0.2) (1.0) (7.0) (9.0) (3.5)Other Consumer Goods 11.6 14.2 17.1 18.0 10.6 7.4 10.4 8.2 6.6 6.1 (0.8) (5.0) (2.1) 1.5F uels 10.8 9.0 15.1 14.4 6.0 0.9 1.5 (1.2) (0.9) (1.9) (12.5) (8.5) (1.6) 0.7Supermarkets 2.9 8.2 10.9 13.9 12.6 8.1 7.2 6.4 6.0 3.2 1.1 1.5 1.0 0.6F ood, A lcoholic Drinks & Tobacco 11.5 7.8 5.8 8.6 3.1 2.6 2.4 4.5 7.1 6.1 7.9 4.0 1.2 2.2Medicines & Cosmetics 15.4 20.6 22.3 20.8 17.0 13.1 13.2 10.6 8.4 10.2 0.9 (4.9) (1.6) 1.7

Ret ail Sales V alue 17 .9 1 8 .7 2 4 .4 25 .3 13 .1 6 .8 15 .0 7 .1 (1 .3 ) 0 .8 (1 .6 ) (5 .8 ) (10 .5 ) (5 .5 )

Industry Focus


Hong Kong retail sales breakdown (monthly)

R et ail sa les g row t h (Y o Y , % )

Cat ego ries

J an -F eb 16

M ar- 16 A p r- 1 6 M ay - 1 6 J u n - 16 J u l- 16 A ug - 1 6 Sep - 1 6 O c t - 16 Nov - 1 6 Dec - 1 6

J ewellery , Watches,Clocks & V aluable Gift

(24.2) (20.4) (16.5) (18.6) (20.4) (26.2) (26.5) (12.3) 0.0 (14.5) 2.3

Clothing, F ootwear &A llied Products

(10.7) (10.3) (5.9) (5.8) (0.8) 1.4 (4.5) 1.7 (3.5) 3.8 (3.7)

Consumer Durable Goods (26.1) (22.7) (20.9) (22.0) (26.1) (19.1) (23.8) (9.2) (14.1) (18.0) (20.0)Department Stores (12.3) (5.4) (6.9) (5.9) (10.5) (6.9) (10.8) (2.4) (0.8) 1.7 (3.2)Other Consumer Goods (6.5) 0.4 0.2 (1.2) 2.8 4.8 0.2 1.2 (0.5) (1.1) 3.6F uels 0.1 (2.0) (1.1) (2.1) (3.9) (1.9) (6.1) 1.3 5.6 2.4 3.6Supermarkets 0.2 0.0 2.3 1.5 1.9 1.9 (1.0) (0.4) 3.5 (1.1) 0.7F ood, A lcoholic Drinks &Tobacco

(1.9) 2.4 4.9 3.0 2.9 1.3 8.8 (3.1) 1.2 0.9 5.0

Medicines & Cosmetics (7.6) 1.5 1.7 0.2 5.0 9.1 (0.9) 1.2 (1.8) (3.0) 4.8

Ret ail Sales V alu e (13 .6 ) (9 .8 ) (7 .5 ) (8 .3 ) (8 .9 ) (7 .7 ) (1 0 .5 ) (4 .0 ) (2 .9 ) (5 .4 ) (2 .9 )

Source: CEIC

Industry Focus


Chow Sang Sang (116 HK EQUITY, HK$16.76, BUY, Target Price 12-mth HK$ 19.79) Forecast & Valuation General Data

FY Dec (HK$ m) 2015A 2016F 2017F 2018F At A Glance Issued Capital (m shrs) 677 Mkt. Cap (HK$m/US$m) 11,345 / 1,462

Major Shareholders Chow family (%) 58.1 The Capital Group Companies, Inc. (%) 12.0 Schroders Plc (%) 7.0

Free Float (%) 22.9 3m Avg. Daily Val. (US$m) 0.9

Turnover 19,069 16,410 17,575 19,470 EBITDA 1,242 1,221 1,371 1,528 Pre-tax Profit 1,368 979 1,221 1,375 Net Profit 1,130 705 940 1,127 Net Pft (Pre Ex) (core profit) 826 799 940 1,127 Net Profit Gth (Pre-ex) (%) (23.1) (3.3) 17.7 19.9 EPS (HK$) 1.67 1.04 1.39 1.67 Core EPS (HK$) 1.22 1.18 1.39 1.67 EPS Gth (%) 4.4 (37.6) 33.4 19.9 Core EPS Gth (%) (23.1) (3.3) 17.7 19.9 Diluted EPS (HK$) 1.67 1.04 1.39 1.67 DPS (HK$) 0.62 0.42 0.56 0.67 BV Per Share (HK$) 13.41 14.04 14.87 15.87 PE (X) 10.0 16.1 12.1 10.1 Core PE (X) 13.7 14.2 12.1 10.1 P/Cash Flow (X) 8.1 5.4 15.0 16.2 P/Free CF (X) 9.2 5.9 18.9 21.0 EV/EBITDA (X) 9.2 8.1 7.1 6.3 Net Div Yield (%) 3.7 2.5 3.3 4.0 P/Book Value (X) 1.2 1.2 1.1 1.1 Net Debt/Equity (X) 0.0 CASH CASH CASH ROAE (%) 12.8 7.6 9.6 10.8 Earnings Rev (%): Nil Nil Nil Consensus EPS (HK$) 1.20 1.39 1.63 Other Broker Recs: B: 5 S: 0 H: 3 Income Statement (HK$ m) Balance Sheet (HK$ m)

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Turnover 19,069 16,410 17,575 19,470 Net Fixed Assets 1,017 1,062 1,060 1,059 Cost of Goods Sold (14,841) (12,263) (13,133) (14,549) Invts in Assocs & JVs 25 25 25 25 Gross Profit 4,228 4,147 4,442 4,921 Other LT Assets 1,088 1,112 1,139 1,168 Other Opg (Exp)/Inc (3,196) (3,137) (3,284) (3,609) Cash & ST Invts 1,663 3,076 3,144 3,101 Operating Profit 1,032 1,011 1,157 1,312 Inventory 6,676 5,483 5,836 6,426 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 1,150 990 1,060 1,175 Associates & JV Inc 0 1 1 1 Other Current Assets 391 391 391 391 Net Interest (Exp)/Inc 9 39 40 40 Total Assets 12,011 12,139 12,655 13,344 Dividend Income 23 23 23 23 Exceptional Gain/(Loss) 304 (94) 0 0 ST Debt 1,372 1,213 1,086 984 Pre-tax Profit 1,368 979 1,221 1,375 Other Current Liab 1,008 855 915 1,008 Tax (238) (274) (281) (247) LT Debt 383 383 383 383 Minority Interest 0 0 0 0 Other LT Liabilities 170 187 206 227 Preference Dividend 0 0 0 0 Shareholder’s Equity 9,078 9,501 10,065 10,741 Net Profit 1,130 705 940 1,127 Minority Interests 0 0 0 0 Net profit before Except. 826 799 940 1,127 Total Cap. & Liab. 12,011 12,139 12,655 13,344 EBITDA 1,242 1,221 1,371 1,528 Sales Gth (%) (0.9) (13.9) 7.1 10.8 Non-Cash Wkg. Cap 7,210 6,009 6,373 6,983 EBITDA Gth (%) (18.5) (1.8) 12.3 11.5 Net Cash/(Debt) (92) 1,480 1,675 1,734 Opg Profit Gth (%) (21.6) (2.1) 14.5 13.3 Effective Tax Rate (%) 17.4 28.0 23.0 18.0 Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Pre-Tax Profit 1,368 979 1,221 1,375 Revenues (HK$ m) Dep. & Amort. 187 187 190 193 Manufacture & retail of 16,723 14,482 15,550 17,344 Tax Paid (147) (274) (281) (247) Wholesale of precious metals 2,244 1,851 1,944 2,041 Assoc. & JV Inc/(loss) 0 (1) (1) (1) Securities & futures broking 51 20 21 22 (Pft)/ Loss on disposal of FAs (387) 0 0 0 Other businesses 52 57 60 63 Chg in Wkg.Cap. 359 1,195 (370) (617) Total 19,069 16,410 17,575 19,470 Other Operating CF 22 (2) (2) (2) Segmental profit (HK$ m) Net Operating CF 1,403 2,084 757 700 Manufacture & retail of 1,007 1,160 1,293 1,494 Capital Exp.(net) (172) (155) (158) (161) Wholesale of precious metals 23 25 26 28 Other Invts.(net) 246 0 0 0 Securities & futures broking 27 10 11 11 Invts in Assoc. & JV 0 0 0 0 Other businesses 43 15 16 17 Div from Assoc & JV 2 23 23 23 Total 1,100 1,211 1,346 1,550 Other Investing CF (4) (24) (26) (29) Segmental profit Margins (%) Net Investing CF 71 (156) (162) (168) Manufacture & retail of 6.0 8.0 8.3 8.6 Div Paid (413) (282) (376) (451) Wholesale of precious metals 1.0 1.4 1.4 1.4 Chg in Gross Debt (264) 0 0 0 Securities & futures broking 52.8 50.4 50.4 50.4 Capital Issues 0 0 0 0 Other businesses 83.7 27.0 27.0 27.0 Other Financing CF (145) (233) (152) (125) Total 5.8 7.4 7.7 8.0 Net Financing CF (821) (515) (528) (575) Key Assumptions Currency Adjustments (40) 0 0 0 Hong Kong and Macau 58.0 73.0 74.0 75.0 Chg in Cash 612 1,413 67 (43) China 335.0 365.0 385.0 405.0 Taiwan 23.0 23.0 24.0 25.0

Source: Company, DBS Vickers

Industry Focus


Haier Electronics (1169 HK Equity, HK$14.40, BUY, Target Price 12-mth HK$ 16.02) Forecast & Valuation General Data

FY Dec (RMB m) 2015A 2016F 2017F 2018F At A Glance Issued Capital (m shrs) 2,792 Mkt. Cap (HK$m/US$m) 40,216 / 5,182 Major Shareholders

Haier Group Corporation (%) 56.0 HCH (HK) Inv. Mgmt. Co. Ltd (%) JPMorgan Chase & Co. (%) 5.0


Turnover 62,826 61,285 65,763 70,577 EBITDA 3,398 3,724 4,054 4,560 Pre-tax Profit 3,344 3,454 3,723 3,989 Net Profit 2,703 2,713 2,906 3,093 Net Pft (Pre Ex) (core profit) 2,703 2,713 2,906 3,093 Net Profit Gth (Pre-ex) (%) 10.5 0.4 7.1 6.4 EPS (RMB) 0.98 0.98 1.05 1.12 EPS (HK$) 1.11 1.11 1.19 1.27 EPS Gth (%) 6.4 0.4 7.1 6.4 Diluted EPS (HK$) 1.08 1.06 1.14 1.21 DPS (HK$) 0.12 0.11 0.12 0.13 BV Per Share (HK$) 6.09 7.10 8.18 9.33 PE (X) 13.0 12.9 12.1 11.4 P/Cash Flow (X) 13.9 17.7 10.7 10.5 P/Free CF (X) 22.8 44.5 16.7 16.4 EV/EBITDA (X) 7.9 7.0 6.1 5.0 Net Div Yield (%) 0.8 0.8 0.8 0.9 P/Book Value (X) 2.4 2.0 1.8 1.5 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 20.5 16.9 15.6 14.5 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 0.97 1.07 1.20 Other Broker Recs: B: 8 S: 0 H: 3 Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Turnover 62,826 61,285 65,763 70,577 Net Fixed Assets 3,119 3,946 4,682 5,459 Cost of Goods Sold (52,833) (51,173) (54,880) (58,790) Invts in Assocs & JVs 0 0 0 0 Gross Profit 9,993 10,112 10,884 11,786 Other LT Assets 3,891 3,450 3,766 4,083 Other Opg (Exp)/Inc (6,841) (6,804) (7,321) (7,798) Cash & ST Invts 10,244 11,268 13,035 14,940 Operating Profit 3,151 3,308 3,563 3,989 Inventory 4,399 3,084 3,157 3,544 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 8,335 10,248 10,841 11,581 Associates & JV Inc 0 0 0 0 Other Current Assets 1,238 1,210 1,211 990 Net Interest (Exp)/Inc 193 146 161 0 Total Assets 31,226 33,207 36,692 40,597 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 123 136 263 265 Pre-tax Profit 3,344 3,454 3,723 3,989 Other Current Liab 12,879 12,205 12,680 13,488 Tax (609) (707) (777) (848) LT Debt 928 928 928 928 Minority Interest (32) (35) (41) (48) Other LT Liabilities 1,573 1,568 1,606 1,644 Preference Dividend 0 0 0 0 Shareholder’s Equity 14,843 17,315 19,949 22,752 Net Profit 2,703 2,713 2,906 3,093 Minority Interests 879 1,055 1,266 1,519 Net profit before Except. 2,703 2,713 2,906 3,093 Total Cap. & Liab. 31,226 33,208 36,692 40,597 EBITDA 3,398 3,724 4,054 4,560 Sales Gth (%) (6.4) (2.5) 7.3 7.3 Non-Cash Wkg. Cap 1,093 2,337 2,530 2,627 EBITDA Gth (%) 7.4 9.6 8.9 12.5 Net Cash/(Debt) 9,193 10,204 11,844 13,746 Opg Profit Gth (%) 4.8 5.0 7.7 12.0 Effective Tax Rate (%) 18.2 20.5 20.9 21.3 Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Pre-Tax Profit 3,344 3,454 3,723 3,989 Revenues (RMB m) Dep. & Amort. 247 416 491 571 Manufacturing of washing 14,952 15,192 16,863 18,717 Tax Paid (582) (707) (777) (848) Manufacturing of water 4,607 4,976 5,225 5,486 Assoc. & JV Inc/(loss) 0 0 0 0 Integrated Channel Services 57,925 56,194 60,127 64,336 (Pft)/ Loss on disposal of FAs 0 0 0 0 Intersegment eliminations (14,659) (15,076) (16,451) (17,963) Chg in Wkg.Cap. (314) (1,220) (191) (319) Total 62,826 61,285 65,763 70,577 Other Operating CF (164) 37 48 (61) Segmental profit (RMB m) Net Operating CF 2,530 1,980 3,295 3,332 Manufacturing of washing 1,363 1,424 1,567 1,739 Capital Exp.(net) (990) (1,190) (1,190) (1,188) Manufacturing of water 564 632 664 697 Other Invts.(net) 27 27 27 28 Integrated Channel Services 1,242 1,180 1,263 1,351 Invts in Assoc. & JV 201 201 201 201 Intersegment eliminations N/A N/A N/A N/A Div from Assoc & JV 0 0 0 0 Total 3,169 3,236 3,493 3,787 Other Investing CF (1,611) (150) (149) (144) Segmental profit Margins (%) Net Investing CF (2,373) (1,112) (1,111) (1,103) Manufacturing of washing 9.1 9.4 9.3 9.3 Div Paid (253) (271) (291) (309) Manufacturing of water 12.2 12.7 12.7 12.7 Chg in Gross Debt (59) 928 928 928 Integrated Channel Services 2.1 2.1 2.1 2.1 Capital Issues 676 0 0 0 Intersegment eliminations 0.0 0.0 0.0 0.0 Other Financing CF (766) (920) (1,055) (944) Total 5.0 5.3 5.3 5.4 Net Financing CF (402) (263) (417) (325) Currency Adjustments (22) 0 0 0 Chg in Cash (267) 605 1,767 1,905 Source: Company, DBS Vickers

Industry Focus


Luk Fook Holdings (590 HK EQUITY, HK$22.80, BUY, Target Price 12-mth HK$ 25.79) Forecast & Valuation General Data

FY Mar (HK$ m) 2015A 2016A 2017F 2018F At A Glance Issued Capital (m shrs) 587 Mkt. Cap (HK$m/US$m) 13,386 / 1,725 Major Shareholders

Wong Wai Sheung (%) 42.0 Silchester International Investors LLP (%) Brandes Investment Partners, L.P. (%) 6.0


Turnover 15,923 14,031 12,301 12,574 EBITDA 2,111 1,268 1,113 1,317 Pre-tax Profit 1,983 1,161 1,000 1,196 Net Profit 1,615 959 810 969 Net Pft (Pre Ex) (core profit) 1,615 959 810 969 Net Profit Gth (Pre-ex) (%) (13.4) (40.6) (15.5) 19.6 EPS (HK$) 2.74 1.63 1.38 1.65 EPS Gth (%) (13.4) (40.6) (15.3) 19.6 Diluted EPS (HK$) 2.74 1.63 1.38 1.65 DPS (HK$) 1.10 1.10 0.90 0.99 BV Per Share (HK$) 14.49 14.74 15.05 15.37 PE (X) 8.3 14.0 16.5 13.8 P/Cash Flow (X) 31.7 6.5 6.5 11.8 P/Free CF (X) 55.0 6.9 6.8 13.0 EV/EBITDA (X) 6.2 9.3 9.4 7.8 Net Div Yield (%) 4.8 4.8 3.9 4.3 P/Book Value (X) 1.6 1.5 1.5 1.5 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 20.0 11.1 9.3 10.9 Earnings Rev (%): Nil Nil Consensus EPS (HK$) 0.97 1.07 Other Broker Recs: B: 7 S: 2 H: 7 Income Statement (HK$ m) Balance Sheet (HK$ m)

FY Mar 2015A 2016A 2017F 2018F FY Mar 2015A 2016A 2017F 2018F Turnover 15,923 14,031 12,301 12,574 Net Fixed Assets 843 819 849 881 Cost of Goods Sold (12,091) (10,777) (9,202) (9,387) Invts in Assocs & JVs 329 241 241 241 Gross Profit 3,832 3,254 3,099 3,188 Other LT Assets 279 239 239 239 Other Opg (Exp)/Inc (1,855) (2,042) (2,064) (1,995) Cash & ST Invts 2,095 2,432 3,872 4,295 Operating Profit 1,976 1,212 1,034 1,193 Inventory 7,395 6,345 5,291 5,269 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 458 456 400 409 Associates & JV Inc (22) (79) (55) (17) Other Current Assets 112 97 97 97 Net Interest (Exp)/Inc 28 28 21 20 Total Assets 11,511 10,629 10,990 11,431 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 1,713 711 853 1,023 Pre-tax Profit 1,983 1,161 1,000 1,196 Other Current Liab 1,078 1,046 1,063 1,082 Tax (362) (200) (179) (215) LT Debt 0 0 0 0 Minority Interest (6) (3) (10) (12) Other LT Liabilities 119 104 94 94 Preference Dividend 0 0 0 0 Shareholder’s Equity 8,536 8,674 8,838 9,022 Net Profit 1,615 959 810 969 Minority Interests 64 95 141 209 Net profit before Except. 1,615 959 810 969 Total Cap. & Liab. 11,511 10,629 10,990 11,431 EBITDA 2,111 1,268 1,113 1,317 Sales Gth (%) (17.1) (11.9) (12.3) 2.2 Non-Cash Wkg. Cap 6,887 5,851 4,724 4,693 EBITDA Gth (%) (13.2) (39.9) (12.3) 18.4 Net Cash/(Debt) 382 1,722 3,019 3,271 Opg Profit Gth (%) (14.4) (38.7) (14.7) 15.4 Effective Tax Rate (%) 18.3 17.2 17.9 17.9 Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions

FY Mar 2015A 2016A 2017F 2018F FY Mar 2015A 2016A 2017F 2018F Pre-Tax Profit 1,983 1,161 1,000 1,196 Revenues (HK$ m) Dep. & Amort. 156 135 134 141 Retailing - HK, Macau & 11,330 9,629 7,892 7,793 Tax Paid (462) (195) (179) (215) Retailing - PRC 1,222 1,312 1,585 1,898 Assoc. & JV Inc/(loss) 22 79 0 0 Wholesaling (incl 2,793 2,563 2,342 2,394 (Pft)/ Loss on disposal of FAs 1 1 0 0 Licensing 578 528 481 489 Net Operating CF 424 2,063 2,060 1,133 Total 15,923 14,031 12,301 12,574 Capital Exp.(net) (180) (104) (100) (100) Segmental profit (HK$ m) Other Invts.(net) 0 0 0 0 Retailing - HK, Macau & 1,175 642 526 520 Invts in Assoc. & JV 0 0 0 0 Retailing - PRC 73 80 96 115 Div from Assoc & JV 1 1 1 1 Wholesaling (incl 384 282 257 263 Other Investing CF (953) 718 1 1 Licensing 361 298 271 276 Chg in Gross Debt 1,171 (977) 142 171 Total 1,994 1,301 1,151 1,174 Capital Issues 0 (29) 0 0 Segmental profit Margins (%) Other Financing CF 695 57 (67) (365) Retailing - HK, Macau & 10.4 6.7 6.7 6.7 Net Financing CF 1,166 (1,597) (451) (776) Retailing - PRC 6.0 6.1 6.1 6.1 Currency Adjustments (14) (23) 0 0 Wholesaling (incl 13.8 11.0 11.0 11.0 Chg in Cash 444 1,057 1,510 259 Licensing 62.6 56.4 56.4 56.4 Total 12.5 9.3 9.4 9.3 Key Assumptions HK & Macau - Self-operated 58.0 57.0 57.0 57.0 HK & Macau - Licensee 0.0 0.0 0.0 0.0 China - Self-operated 79.0 105.0 129.0 143.0 China - Licensee 1,240.0 1,260.0 1,285.0 1,320.0 Overseas 6.0 6.0 7.0 8.0 Source: Company, DBS Vickers

Industry Focus


Midea Group Company Limited (000333 CH Equity, RMB32.25, BUY, Target Price 12-mth RMB 35.35) Forecast & Valuation General Data

FY Dec (RMB m) 2015A 2016F 2017F 2018F At A Glance Issued Capital (m shrs) 6,425 Mkt. Cap (RMBm/US$m) 207,204 / 30,168

Major Shareholders Midea Holding (%) 34.9


Turnover 138,441 148,087 184,388 196,840 EBITDA 15,473 18,906 21,861 23,293 Pre-tax Profit 16,051 19,658 22,505 25,004 Net Profit 12,707 15,562 17,816 19,794 Net Pft (Pre Ex) (core profit) 10,911 14,152 17,816 19,794 Net Profit Gth (Pre-ex) (%) 15.1 29.7 25.9 11.1 EPS (RMB) 1.99 2.43 2.78 3.09 Core EPS (RMB) 1.70 2.21 2.78 3.09 EPS Gth (%) 21.0 22.5 14.5 11.1 Core EPS Gth (%) 15.1 29.7 25.9 11.1 Diluted EPS (RMB) 1.70 2.21 2.78 3.09 DPS (RMB) 1.20 0.97 1.11 1.24 BV Per Share (RMB) 7.69 11.09 13.12 18.77 PE (X) 16.2 13.3 11.6 10.4 Core PE (X) 18.9 14.6 11.6 10.4 P/Cash Flow (X) 7.7 9.6 6.9 10.5 P/Free CF (X) 8.5 11.0 7.7 12.9 EV/EBITDA (X) 10.7 9.0 8.8 7.9 Net Div Yield (%) 3.7 3.0 3.5 3.8 P/Book Value (X) 4.2 2.9 2.5 1.7 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 28.7 25.9 23.0 19.4 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 2.31 2.66 2.99 Other Broker Recs: B: 19 S: 0 H: 1 Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Turnover 138,441 148,087 184,388 196,840 Net Fixed Assets 19,835 21,087 21,925 23,029 Cost of Goods Sold (102,663) (107,074) (133,675) (141,868) Invts in Assocs & JVs 2,888 24,372 42,453 60,650 Gross Profit 35,778 41,013 50,713 54,972 Other LT Assets 12,751 20,850 46,145 54,267 Other Opg (Exp)/Inc (23,158) (25,170) (31,983) (34,847) Cash & ST Invts 50,959 48,436 58,127 62,543 Operating Profit 12,621 15,844 18,730 20,124 Inventory 10,449 12,957 16,264 14,732 Other Non Opg (Exp)/Inc 2,810 2,399 2,476 3,083 Debtors 24,362 28,307 35,253 29,364 Associates & JV Inc 421 484 581 697 Other Current Assets 7,597 7,558 7,511 7,464 Net Interest (Exp)/Inc 200 932 719 1,100 Total Assets 128,842 163,567 227,678 252,049 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 3,921 5,000 5,000 5,000 Pre-tax Profit 16,051 19,658 22,505 25,004 Other Current Liab 68,083 78,870 99,476 90,495 Tax (2,427) (2,972) (3,402) (3,780) LT Debt 90 10 29,280 25,000 Minority Interest (918) (1,124) (1,287) (1,430) Other LT Liabilities 716 716 716 716 Preference Dividend 0 0 0 0 Shareholder’s Equity 49,202 71,017 83,965 120,167 Net Profit 12,707 15,562 17,816 19,794 Minority Interests 6,830 7,954 9,241 10,671 Net profit before Except. 10,911 14,152 17,816 19,794 Total Cap. & Liab. 128,842 163,567 227,678 252,049 EBITDA 15,473 18,906 21,861 23,293 Sales Gth (%) (2.3) 7.0 24.5 6.8 Non-Cash Wkg. Cap (25,674) (30,048) (40,448) (38,934) EBITDA Gth (%) (2.9) 22.2 15.6 6.6 Net Cash/(Debt) 46,948 43,426 23,847 32,543 Opg Profit Gth (%) 0.1 25.5 18.2 7.4 Effective Tax Rate (%) N/A N/A N/A N/A

Industry Focus


Midea Group Company Limited (Cont’d) Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Pre-Tax Profit 16,051 19,658 22,505 25,004 Revenues (RMB m) Dep. & Amort. 2,852 3,063 3,131 3,169 Air conditioner 64,492 61,070 61,870 67,208 Tax Paid (2,427) (2,972) (3,402) (3,780) Refrigerator 11,423 12,252 12,996 13,815 Assoc. & JV Inc/(loss) (421) (484) (581) (697) Washing Machines 12,018 13,784 14,555 15,668 (Pft)/ Loss on disposal of FAs 0 0 0 0 Small household appliances 35,446 37,664 39,588 41,914 Chg in Wkg.Cap. 10,578 4,261 10,261 (1,661) Motor,Logistics,Noncore 15,063 15,570 15,818 15,996 Other Operating CF 130 (1,974) (1,798) (2,461) KUKA AG 0 0 23,295 25,158 Net Operating CF 26,764 21,552 30,116 19,573 Total 138,441 148,087 184,388 196,840 Capital Exp.(net) (2,583) (2,841) (3,165) (3,522) Gross profit (RMB m) Other Invts.(net) 26,313 6,519 4,068 19,188 Air conditioner 18,221 18,626 19,180 20,835 Invts in Assoc. & JV (41,720) (21,000) (37,996) (17,500) Refrigerator 2,648 2,941 3,184 3,564 Div from Assoc & JV 0 0 0 0 Washing Machines 3,377 3,983 4,294 4,779 Other Investing CF 0 0 0 0 Small household appliances 8,871 11,488 12,470 13,413 Net Investing CF (17,989) (17,322) (37,092) (1,834) Motor,Logistics,Noncore 2,661 2,728 2,798 2,811 Div Paid (4,908) (6,225) (7,126) (7,918) KUKA AG N/A N/A 6,103 6,667 Chg in Gross Debt (4,837) (253) 24,280 (5,000) Total 35,778 41,013 50,713 54,972 Capital Issues (1,000) 0 0 0 Gross profit Margins (%) Other Financing CF 1,868 (279) (498) (413) Air conditioner 28.3 30.5 31.0 31.0 Net Financing CF (8,877) (6,757) 16,656 (13,331) Refrigerator 23.2 24.0 24.5 25.8 Currency Adjustments 17 5 11 8 Washing Machines 28.1 28.9 29.5 30.5 Chg in Cash (85) (2,523) 9,690 4,416 Small household appliances 25.0 30.5 31.5 32.0 Motor,Logistics,Noncore 17.7 17.5 17.7 17.6 KUKA AG N/A N/A 26.2 26.5 Total 25.8 27.7 27.5 27.9 Key Assumptions Sales (RMBm) 138,441. 148,087. 184,388. 196,840. Gross Margin (%) 25.8 27.7 27.5 27.9 EBITDA margin (%) 11.2 12.8 11.9 11.8 Operating Cash Flows (RMBm) 26,764.3 21,551.5 30,116.1 19,573.2 Cash (RMBm) 50,959.2 48,436.4 58,126.6 62,542.8 Source: Company, DBS Vickers

Industry Focus


Qingdao Haier Co., Ltd. (600690 CH Equity, RMB10.23, BUY, Target Price 12-mth RMB 13.42) Forecast & Valuation General Data

FY Dec (RMB m) 2015A 2016F 2017F 2018F At A Glance Issued Capital (m shrs) 6,098 Mkt. Cap (RMBm/US$m) 62,379 / 9,082

Major Shareholders Haier Electrical Appliances Intl (%) 20.6 Haier Co Ltd (%) 17.6 Kkr Home Inv S.A R.L. (%) 9.9 HK Securities Clearing Co. (%) 6.1


Turnover 89,748 115,550 138,364 145,951 EBITDA 5,733 7,256 9,147 10,303 Pre-tax Profit 6,975 7,990 9,240 10,961 Net Profit 4,301 4,958 5,734 6,801 Net Pft (Pre Ex) (core profit) 3,675 4,408 5,734 6,801 Net Profit Gth (Pre-ex) (%) (31.1) 20.0 30.1 18.6 EPS (RMB) 0.70 0.81 0.94 1.12 Core EPS (RMB) 0.60 0.72 0.94 1.12 EPS Gth (%) (19.4) 16.0 15.6 18.6 Core EPS Gth (%) (15.0) 20.7 30.1 18.6 Diluted EPS (RMB) 0.60 0.72 0.94 1.12 DPS (RMB) 0.21 0.24 0.28 0.33 BV Per Share (RMB) 3.70 5.52 5.63 6.62 PE (X) 14.6 12.6 10.9 9.2 Core PE (X) 17.1 14.2 10.9 9.2 P/Cash Flow (X) 11.3 6.9 7.4 5.7 P/Free CF (X) 13.6 14.2 18.6 11.8 EV/EBITDA (X) 8.9 10.9 9.3 8.3 Net Div Yield (%) 2.1 2.4 2.8 3.3 P/Book Value (X) 2.8 1.9 1.8 1.5 Net Debt/Equity (X) CASH 0.1 0.2 0.1 ROAE (%) 18.2 17.6 16.9 18.2 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 0.81 0.97 1.08 Other Broker Recs: B: 17 S: 0 H: 1 Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Turnover 89,748 115,550 138,364 145,951 Net Fixed Assets 9,812 13,542 17,284 21,202 Cost of Goods Sold (64,658) (81,634) (97,362) (101,313) Invts in Assocs & JVs 4,959 16,474 18,414 20,306 Gross Profit 25,090 33,916 41,001 44,638 Other LT Assets 6,323 30,878 31,595 32,219 Other Opg (Exp)/Inc (20,366) (27,757) (33,335) (36,215) Cash & ST Invts 24,715 26,357 21,274 18,327 Operating Profit 4,724 6,159 7,666 8,423 Inventory 8,559 9,609 11,538 10,992 Other Non Opg (Exp)/Inc 1,150 449 857 1,569 Debtors 18,815 35,003 27,924 37,654 Associates & JV Inc 696 965 1,062 1,168 Other Current Assets 2,778 2,778 2,778 2,778 Net Interest (Exp)/Inc 405 417 (344) (200) Total Assets 75,961 134,642 130,808 143,478 Dividend Income 0 0 0 1 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 1,873 9,779 7,157 0 Pre-tax Profit 6,975 7,990 9,240 10,961 Other Current Liab 37,910 55,879 49,858 59,128 Tax (1,053) (1,199) (1,386) (1,644) LT Debt 1,405 21,405 23,405 25,405 Minority Interest (1,621) (1,834) (2,121) (2,516) Other LT Liabilities 2,370 2,374 2,374 2,375 Preference Dividend 0 0 0 1 Shareholder’s Equity 22,694 33,663 34,351 40,390 Net Profit 4,301 4,958 5,734 6,801 Minority Interests 9,708 11,542 13,663 16,178 Net profit before Except. 3,675 4,408 5,734 6,801 Total Cap. & Liab. 75,961 134,642 130,808 143,477 EBITDA 5,733 7,256 9,147 10,303 Sales Gth (%) (7.4) 28.7 19.7 5.5 Non-Cash Wkg. Cap (7,758) (8,489) (7,617) (7,704) EBITDA Gth (%) (24.3) 26.6 26.1 12.6 Net Cash/(Debt) 21,437 (4,827) (9,288) (7,078) Opg Profit Gth (%) (29.9) 30.4 24.5 9.9 Effective Tax Rate (%) N/A N/A N/A N/A

Industry Focus


Qingdao Haier Co., Ltd. (Cont’d) Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Pre-Tax Profit 6,975 7,990 9,240 10,961 Revenues (RMB m) Dep. & Amort. 1,009 1,097 1,481 1,880 Refrigerator 27,589 27,829 29,024 30,565 Tax Paid (1,053) (1,199) (1,386) (1,644) Air Conditioner 16,251 16,272 17,128 18,366 Assoc. & JV Inc/(loss) (696) (965) (1,062) (1,168) Kitchen App & Water Heater 6,621 7,150 7,722 8,494 (Pft)/ Loss on disposal of FAs (10) 0 0 0 Washing Machines 17,470 18,153 19,172 20,177 Chg in Wkg.Cap. (320) (606) (941) 12 Integrated Channel Services 19,421 18,838 18,838 19,780 Other Operating CF (371) 2,672 1,116 894 Electrical components & Non- 2,397 2,067 1,912 1,773 Net Operating CF 5,535 8,989 8,448 10,935 Total 89,748 115,550 138,364 145,951 Capital Exp.(net) (929) (4,600) (5,100) (5,651) Gross profit (RMB m) Other Invts.(net) (2,720) (3,890) (147) (23) Refrigerator 8,978 9,044 9,636 10,392 Invts in Assoc. & JV (6,624) (10,550) (1,015) (861) Air Conditioner 4,589 4,589 5,001 5,693 Div from Assoc & JV 0 0 0 1 Kitchen App & Water Heater 2,890 3,118 3,436 3,755 Other Investing CF 0 0 0 1 Washing Machines 5,997 6,226 6,634 7,264 Net Investing CF (10,273) (19,040) (6,262) (6,533) Integrated Channel Services 1,940 1,884 1,884 1,978 Div Paid (1,645) (1,487) (1,720) (2,040) Electrical components & Non- 696 612 595 582 Chg in Gross Debt (337) 13,400 (4,600) (4,599) Total 25,090 33,916 41,001 44,638 Capital Issues 0 0 0 1 Gross profit Margins (%) Other Financing CF 86 (225) (1,029) (753) Refrigerator 32.5 32.5 33.2 34.0 Net Financing CF (1,896) 11,687 (7,349) (7,392) Air Conditioner 28.2 28.2 29.2 31.0 Currency Adjustments 152 7 79 43 Kitchen App & Water Heater 43.6 43.6 44.5 44.2 Chg in Cash (6,482) 1,642 (5,084) (2,947) Washing Machines 34.3 34.3 34.6 36.0 Integrated Channel Services 10.0 10.0 10.0 10.0 Electrical components & Non- 29.0 29.6 31.1 32.8 Total 28.0 29.4 29.6 30.6 Key Assumptions Sales 89,748.3 115,549. 138,363. 145,951. Gross Margin 28.0 29.4 29.6 30.6 EBITDA Margin 6.4 6.3 6.6 7.1 Operating Cash Flows 5,534.9 8,988.6 8,448.5 10,934.9 Cash 24,714.8 26,357.2 21,273.6 18,325.0 Source: Company, DBS Vickers

Industry Focus


Samsonite International (1910 HK EQUITY, HK$23.45, BUY, Target Price 12-mth HK$ 28.93) Forecast & Valuation General Data

FY Dec (US$ m) 2015A 2016F 2017F 2018F At A Glance Issued Capital (m shrs) 1,411 Mkt. Cap (HK$m/US$m) 33,090 / 4,264

Major Shareholders The Capital Group (%) 10.0 JPMorgan Chase & Co. (%) 10.0 T. Rowe Price Associates, Inc. (%) 8.0 FIL Limited (%) 7.0 Morgan Stanley (%) 5.9


Turnover 2,432 2,708 3,124 3,328 EBITDA 387 453 529 576 Pre-tax Profit 291 265 372 405 Net Profit 198 180 261 287 Net Pft (Pre Ex) (core profit) 217 222 261 287 Net Profit Gth (Pre-ex) (%) 5.2 2.1 17.9 9.9 EPS (US$) 0.14 0.13 0.19 0.20 EPS (HK$) 1.09 0.99 1.44 1.58 Core EPS (HK$) 1.19 1.22 1.44 1.58 Core EPS (US$) 0.15 0.16 0.19 0.20 EPS Gth (%) 5.9 (9.1) 45.4 9.9 Core EPS Gth (%) 5.0 2.1 17.9 9.9 Diluted EPS (HK$) 1.09 0.99 1.44 1.58 DPS (HK$) 0.51 0.47 0.68 0.74 BV Per Share (HK$) 7.49 8.24 9.00 9.84 PE (X) 21.5 23.7 16.3 14.8 Core PE (X) 19.6 19.2 16.3 14.8 P/Cash Flow (X) 16.4 19.6 13.8 11.5 P/Free CF (X) 22.3 29.4 18.5 15.0 EV/EBITDA (X) 10.8 13.1 11.1 10.1 Net Div Yield (%) 2.2 2.0 2.9 3.2 P/Book Value (X) 3.1 2.8 2.6 2.4 Net Debt/Equity (X) CASH 1.0 0.9 0.8 ROAE (%) 15.0 12.6 16.7 16.8 Earnings Rev (%): Nil Nil Nil Consensus EPS (US$) 0.14 0.17 0.20 Other Broker Recs: B: 9 S: 1 H: 5 Income Statement (US$ m) Balance Sheet (US$ m)

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Turnover 2,432 2,708 3,124 3,328 Net Fixed Assets 186 642 674 708 Cost of Goods Sold (1,154) (1,271) (1,441) (1,528) Invts in Assocs & JVs 0 0 0 0 Gross Profit 1,279 1,438 1,683 1,800 Other LT Assets 1,136 2,519 2,537 2,559 Other Opg (Exp)/Inc (952) (1,056) (1,243) (1,330) Cash & ST Invts 181 274 146 144 Operating Profit 327 382 440 470 Inventory 349 392 452 488 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 283 316 364 388 Associates & JV Inc 0 0 0 0 Other Current Assets 81 97 107 117 Net Interest (Exp)/Inc (17) (74) (68) (65) Total Assets 2,216 4,239 4,279 4,404 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) (19) (42) 0 0 ST Debt 63 66 69 73 Pre-tax Profit 291 265 372 405 Other Current Liab 549 598 669 708 Tax (74) (65) (90) (96) LT Debt 0 1,824 1,642 1,560 Minority Interest (19) (20) (21) (22) Other LT Liabilities 205 211 217 223 Preference Dividend 0 0 0 0 Shareholder’s Equity 1,360 1,497 1,635 1,787 Net Profit 198 180 261 287 Minority Interests 40 44 48 53 Net profit before Except. 217 222 261 287 Total Cap. & Liab. 2,216 4,239 4,279 4,404 EBITDA 387 453 529 576 Sales Gth (%) 3.5 11.3 15.3 6.5 Non-Cash Wkg. Cap 165 206 254 285 EBITDA Gth (%) 5.5 17.1 16.7 9.0 Net Cash/(Debt) 118 (1,616) (1,565) (1,488) Opg Profit Gth (%) 3.9 16.6 15.3 6.7 Effective Tax Rate (%) 25.4 24.6 24.1 23.6

Industry Focus


Samsonite International (Cont’d) Cash Flow Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions

FY Dec 2015A 2016F 2017F 2018F FY Dec 2015A 2016F 2017F 2018F Pre-Tax Profit 217 265 372 405 Revenues (US$ m) Dep. & Amort. 60 71 89 106 Asia 948 1,009 1,060 1,123 Tax Paid (83) (65) (90) (96) North America 811 961 1,231 1,323 Assoc. & JV Inc/(loss) 0 0 0 0 Europe 545 602 689 731 (Pft)/ Loss on disposal of FAs 0 0 0 0 Latin America 120 127 136 143 Chg in Wkg.Cap. (20) (46) (53) (37) Corporate 8 8 8 8 Other Operating CF 85 (9) (9) (9) Total 2,432 2,708 3,124 3,328 Net Operating CF 259 217 309 370 Operating profit (US$ m) Capital Exp.(net) (68) (72) (79) (87) Asia 115 122 131 141 Other Invts.(net) (36) (1,824) 0 0 North America 56 67 90 101 Invts in Assoc. & JV 0 0 0 0 Europe 52 58 68 74 Div from Assoc & JV 0 0 0 0 Latin America 4 4 5 5 Other Investing CF 0 0 0 0 Corporate 82 88 89 89 Net Investing CF (104) (1,896) (79) (87) Total 309 340 382 409 Div Paid (12) (85) (123) (135) Operating profit Margins (%) Chg in Gross Debt (1) 1,827 (179) (79) Asia 12.1 12.1 12.3 12.5 Capital Issues 0 0 0 0 North America 6.9 7.0 7.3 7.6 Other Financing CF (97) 30 (57) (71) Europe 9.6 9.7 9.9 10.1 Net Financing CF (110) 1,773 (359) (285) Latin America 3.0 3.2 3.4 3.6 Currency Adjustments (4) 0 0 0 Corporate 983.8 1,049.7 1,061.6 1,061.6 Chg in Cash 40 93 (129) (2) Total 12.7 12.5 12.2 12.3 Key Assumptions Number of wholesale POS 49,317.0 50,204.7 51,108.4 52,028.3 Number of retail POS 1,341.3 1,466.8 1,596.5 1,730.7 Total number of POS 50,658.3 51,671.5 52,704.9 53,759.0 Source: Company, DBS Vickers

Industry Focus


DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends Completed Date: 21 Feb 2017 18:01:27 (HKT) Dissemination Date: 21 Feb 2017 22:13:05 (HKT)

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china / hong kong industry focus consumer discretionary sector electronics, midea and qingdao haier....

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