29 Mar 2021

CMB International Securities | Equity Research | Company Update

Haidilao (6862 HK) BUY (Maintain) Gradual recovery and store expansion intact Target Price HK$78.40 (Previous TP HK$78.33) Maintain BUY and adjusted TP to HK$ 78.40, based on 2.2x FY19-25E PEG Up/Downside +46.9% (unchanged and implied 61.1x FY22E P/E). We believe HDL’s traffic could gradually Current Price HK$53.35 normalize, thanks to better services and products while new store expansion will remain fast. Hence we now forecast a 31% NP att. CAGR during FY19-23E. China Catering Sector  1H20 results inline. Haidilao’s sales grew by 8% YoY to RMB 28.6bn while net profit declined by 87% YoY to RMB 309mn, in-line with its profit warning. Walter Woo Despite relatively slow recovery rate (~80% vs FY19), FX losses adjusted (852) 3761 8776 NP margin already returned to 8.2% in 2H20, vs 8.8% in FY19. [email protected]

 Heathy SSSG recovery into YTD 2021. Management highlighted that traffic Stock Data still improved in Jan-Feb 2021 vs 4Q20 (CMBI est. 3.6/ 4.1/ 3.9 for Jan/ Feb/ Mkt Cap (HK$ mn) 282,755 4Q20), despite drags from mini COVID-19 outbreaks, and gradual Avg 3 mths t/o (HK$ mn) 832.02 improvement should be expected, driven by: 1) rolling out of more value 52w High/Low (HK$) 85.8/28.0 Total Issued Shares (mn) 5,300.0 added services for members, 2) better services after salary raised in 2H20 Source: Bloomberg and 3) upgrades of product quality (e.g. more plant-based food).  No change in store expansion policy. 807/ 91 new contracts were signed Shareholding Structure Mr. Zhang Yong 44.02% and 322/ 58 were opened in FY20/ Jan-Mar 2021, leaving ~520 outstanding Ms. Shu Ping 13.66% stores. We believe expansions in FY21E will be skewed to tier-3 & below Mr. Shi Yong Hong 13.66% cities and overseas. We expect new openings to be 583/ 631/ 581 and total Ms. Li Hai Yan 13.66% stores will reach 1,881/ 2,512/ 3,093 in FY21E/ 22E/ 23E, implying a 34% CAGR. Other management 7.00% Free Float 8.00%  Input and staff costs inflation should not be a concern. The impact of Source: HKEx raw material cost inflation should not be meaningful for HDL, in our view, thanks to economies of scale and rising bargaining power over suppliers. Share Performance Absolute Relative Also, even though HDL raised the salary and benefits (by RMB 200-1,600 1-mth -16.2% -14.3% since 3Q20) for many of its entry and mid-level staffs, this should in turn 3-mth -11.1% -17.2% improve its overall service quality and customer experience eventually. 6-mth -1.2% -19.0% 12-mth 74.9% 45.0%  Incubation of new businesses continued. Employees are encouraged to Source: Bloomberg initiate new catering business, and 10+ brands had already been launched, across various products (e.g. milk tea, noodles, dumping, etc.). These pilot 12-mth Price Performance (HK$) projects are welcomed to utilize HDL’s technology and management Stock HSI 90.0 philosophy (e.g. mentorship and other effective incentive systems). 80.0 70.0  Maintain BUY and raised TP to HK$ 78.40. We adjusted our FY21E/ 22E 60.0 EPS by +2%/ -1%, to factor in 1) slightly faster store expansion and 2) better 50.0 staff cost control. We fine-tuned TP to HK$ 78.40 and maintain BUY, based 40.0 on 2.2x FY19-25E PEG (unchanged and implied a 61.1x FY22E P/E). Current 30.0 20.0 valuation is not demanding at 41x FY22E P/E (vs Int’l catering/ consumer 3/2020 5/2020 7/2020 9/2020 11/2020 1/2021 staple peers average of 33x/ 25x), given 31% 3 years NP CAGR. Source: Bloomberg Earnings Summary Auditor: Deloitte Touche Tohmatsu (YE 31 Dec) FY19A FY20A FY21E FY22E FY23E Revenue (RMB mn) 26,556 28,614 51,960 68,100 82,310 Related Reports YoY growth (%) 56.5 7.8 81.6 31.1 20.9 1. China catering sector (Outperform) – Net income (RMB mn) 2,345 309 4,229 5,649 6,845 Leaders to benefit even more during EPS (RMB) 0.44 0.06 0.80 1.07 1.29 recovery – 12 Mar 2021 YoY growth (%) 42.4 (86.8) 1,267.4 33.6 21.2 2. Haidilao (6862 HK, BUY) - Growth is Consensus EPS n/a n/a 0.80 1.14 1.44 likely to resume in 2H20E – 27 Mar P/E (x) 108.3 769.6 55.5 41.5 34.3 2020 3. Haidilao (6862 HK, BUY) - Well- P/B (x) 23.9 21.1 14.5 10.1 7.4 positioned to withstand sector Yield (%) 0.1 0.3 0.5 0.7 0.9 downturn – 13 Feb 2020 ROE (%) 22.1 2.7 26.1 24.4 21.6 Net gearing (%) Net cash Net cash Net cash Net cash Net cash Source: Company data, Bloomberg, CMBIS estimates

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Results summary

Figure 1: Result review – Half Year

Actual 1H19 2H19 1H20 2H20E 2H20E 1H19 2H19 1H20 2H20 vs YoY YoY YoY YoY CMBIS CMBI

Revenue 11,695 14,861 9,761 18,854 59% 54% -17% 27% 17,460 8%

COGS (4,903) (6,336) (4,348) (7,913) (7,164) Gross profit 6,792 8,524 5,412 10,940 59% 48% -20% 28% 10,297 6%

GP margins 58.1% 57.4% 55.5% 58.0% 59.0%

Other income & gains 119 144 180 180 50 261% Staff costs (3,652) (4,341) (4,074) (5,602) 66% 54% 12% 29% (6,071) -8%

Staff costs / sales -31.2% -29.2% -41.7% -29.7% -34.8% Property rent & related exp. (96) (144) (88) (148) -65% -65% -8% 3% (288) -49%

Property rent & related exp. / sales -0.8% -1.0% -0.9% -0.8% -1.6% Utilities exp. (439) (472) (360) (618) 72% 39% -18% 31% (620) 0%

Utilities exp. / sales -3.8% -3.2% -3.7% -3.3% -3.6% Depreciation & amortization (830) (1,061) (1,297) (1,737) 183% 168% 56% 64% (788) 120%

Depreciation & amortization / sales -7.1% -7.1% -13.3% -9.2% -4.5% Travelling & related exp. (94) (126) (79) (107) 30% 44% -16% -15% (84) 27%

Travelling & related exp. / sales -0.8% -0.8% -0.8% -0.6% -0.5% Other opex (462) (539) (511) (741) 43% 27% 11% 38% (578) 28% Operating profit (EBIT) 1,338 1,986 -816 2,167 51% 46% -161% 9% 1,918 13%

OP margins 11.4% 13.4% -8.4% 11.5% 11.0%

Other items (3) 98 33 (278) (242)

Net finance income (102) (135) (183) (263) (267) -2%

Net finance income / sales -0.9% -0.9% -1.9% -1.4% -1.5%

Profit after financing costs 1,233 1,949 -966 1,627 1,409

Associated coms 18 47 42 33 (35)

Jointly controlled coms 0 0 0 0 0 Pre-tax profit 1,251 1,996 -924 1,660 39% 47% -174% -17% 1,374 21%

Tax (339) (561) (40) (386) (162)

Tax / sales -2.9% -3.8% -0.4% -2.0% -0.9%

Effective tax rate -27.1% -28.1% 4.3% -23.2% -11.8%

Minority interests 1 1 0 0 (0) Net profit att. 911 1,433 (965) 1,274 41% 43% -206% -11% 1,212 5%

NP margins 7.8% 9.6% -9.9% 6.8% 6.9% Source: Company data, CMBIS estimates

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Figure 2: Result review – Full Year

Actual FY19 FY20 FY21E FY20E FY19 FY20 FY21E vs YoY YoY YoY CMBI CMBI

Revenue 26,556 28,614 51,960 56% 8% 82% 27,221 5%

COGS (11,239) (12,261) (21,766) (11,512) Gross profit 15,317 16,353 30,194 53% 7% 85% 15,709 4%

GP margins 57.7% 57.1% 58.1% 57.7%

Other income & gains 263 361 394 230 57% Staff costs (7,993) (9,677) (16,306) 59% 21% 69% (10,145) -5%

Staff costs / sales -30.1% -33.8% -31.4% -37.3% Property rent & related exp. (240) (236) (363) -65% -2% 54% (376) -37% Property rent & related exp. / -0.9% -0.8% -0.7% -1.4% sales Utilities exp. (912) (978) (1,819) 53% 7% 86% (980) 0%

Utilities exp. / sales -3.4% -3.4% -3.5% -3.6% Depreciation & amortization (1,891) (3,034) (3,146) 174% 60% 4% (2,085) 46% Depreciation & amortization / -7.1% -10.6% -6.1% -7.7% sales Travelling & related exp. (220) (186) (416) 38% -15% 123% (163) 14%

Travelling & related exp. / sales -0.8% -0.7% -0.8% -0.6% Other opex (1,000) (1,252) (2,130) 34% 25% 70% (1,089) 15% Operating profit (EBIT) 3,324 1,351 6,408 48% -59% 374% 1,102 23%

OP margins 12.5% 4.7% 12.3% 4.0%

Other items 95 (245) (36) (210)

Net finance income (237) (446) (566) (450) -1%

Net finance income / sales -0.9% -1.6% -1.1% -1.7%

Profit after financing costs 3,182 660 5,806 443

Associated coms 0 0 0 0

Jointly controlled coms 65 75 12 7 Pre-tax profit 3,247 735 5,817 44% -77% 691% 450 64%

Tax (900) (426) (1,571) (202)

Tax / sales -3.4% -1.5% -3.0% -0.7%

Effective tax rate -27.7% -57.9% -27.0% -45.0%

Minority interests 2 0 17 0 Net profit att. 2,345 309 4,229 42% -87% 1267% 247 25%

NP margins 8.8% 1.1% 8.1% 0.9% Source: Company data, CMBIS estimates

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Earnings revision

Figure 3: Earnings revision New Old Diff (%) RMB mn FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E Revenue 51,960 68,100 82,310 51,264 66,847 n/a 1.4% 1.9% n/a Gross profit 30,194 39,777 48,077 29,789 39,045 n/a 1.4% 1.9% n/a EBIT 6,284 8,129 9,638 5,980 7,926 n/a 5.1% 2.6% n/a Net profit att. 4,229 5,649 6,845 4,136 5,700 n/a 2.3% -0.9% n/a Diluted EPS (RMB) 0.798 1.066 1.291 0.780 1.075 n/a 2.3% -0.9% n/a Gross margin 58.1% 58.4% 58.4% 58.1% 58.4% n/a 0ppt 0ppt n/a EBIT margin 12.1% 11.9% 11.7% 11.7% 11.9% n/a 0.4ppt 0.1ppt n/a Net profit att. margin 8.1% 8.3% 8.3% 8.1% 8.5% n/a 0.1ppt -0.2ppt n/a Source: Company data, CMBIS estimates

Figure 4: CMBIS estimates vs consensus CMBIS Consensus Diff (%) RMB mn FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E Revenue 51,960 68,100 82,310 53,667 72,288 91,841 -3.2% -5.8% -10.4% Gross profit 30,194 39,777 48,077 31,250 42,148 53,617 -3.4% -5.6% -10.3% EBIT 6,284 8,129 9,638 5,951 8,476 10,719 5.6% -4.1% -10.1% Net profit att. 4,229 5,649 6,845 4,178 5,695 7,367 1.2% -0.8% -7.1% Diluted EPS (RMB) 0.798 1.066 1.291 0.800 1.137 1.442 -0.3% -6.2% -10.4% Gross margin 58.1% 58.4% 58.4% 58.2% 58.3% 58.4% -0.1ppt 0.1ppt 0ppt EBIT margin 12.1% 11.9% 11.7% 11.1% 11.7% 11.7% 1ppt 0.2ppt 0ppt Net profit att. margin 8.1% 8.3% 8.3% 7.8% 7.9% 8.0% 0.4ppt 0.4ppt 0.3ppt Source: Company data, CMBIS estimates

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Assumptions

Figure 5: Major assumptions Major assumptions FY19A FY20A FY21E FY22E FY23E Number of restaurants China T1 cities 190 255 312 387 442 China T2 cities 332 499 709 939 1,149 China T3 and below 194 451 731 1,021 1,301 Outside PRC 52 93 129 165 201 Total 768 1,298 1,881 2,512 3,093

Number of restaurants growth (YoY %) China T1 cities 79.2% 34.2% 22.4% 24.0% 14.2% China T2 cities 60.4% 50.3% 42.1% 32.4% 22.4% China T3 and below 65.8% 132.5% 62.1% 39.7% 27.4% Outside PRC 44.4% 78.8% 38.7% 27.9% 21.8% Total 64.8% 69.0% 44.9% 33.5% 23.1%

Sales per restaurants (Rmb mn) China T1 cities 34 20 28 27 26 China T2 cities 34 20 27 27 27 China T3 and below 30 18 26 25 25 Outside PRC 44 27 30 30 30 Total 33 21 27 26 26

Sales per restaurants growth (YoY %) China T1 cities -10.4% -40.5% 37.4% -2.5% -2.7% China T2 cities -10.9% -40.4% 36.9% -1.4% -1.5% China T3 and below 3.2% -38.5% 40.0% -1.9% -2.0% Outside PRC 19.0% -39.0% 10.8% 1.1% 0.3% Total -5.8% -36.6% 26.9% -1.8% -1.9%

Average spending per guest (Rmb) China T1 cities 110 116 120 124 129 China T2 cities 99 106 110 115 121 China T3 and below 95 100 103 105 108 Outside PRC 185 193 196 200 204 Overall 105 110 115 119 123

Average spending per guest growth (YoY %) China T1 cities 3.8% 5.5% 3.5% 3.5% 3.5% China T2 cities 4.9% 6.3% 4.5% 4.5% 4.5% China T3 and below 3.0% 5.6% 2.5% 2.5% 2.5% Outside PRC -7.0% 3.9% 2.0% 2.0% 2.0% Overall 4.1% 4.7% 4.9% 3.0% 3.2%

GP margins 57.7% 57.1% 58.1% 58.4% 58.4% Staff costs/ sales -30.1% -33.8% -31.4% -31.8% -31.8% Property rent and related expenses/ sales -0.9% -0.8% -0.7% -0.7% -0.8% Utilities expenses / sales -3.4% -3.4% -3.5% -3.5% -3.5% Depreciation and amortization/ sales -7.1% -10.6% -6.1% -6.1% -6.2% Travelling and related expenses/ sales -0.8% -0.7% -0.8% -0.8% -0.8% Other expenses/ sales -3.8% -4.4% -4.1% -4.0% -4.1% Effective tax rate -27.7% -57.9% -27.0% -26.5% -26.5% Source: Company data, CMBIS estimates

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Valuation

Figure 6: Peers’ valuation Up/ ROE 3yrs Yield 12m TP Price Mkt. Cap Year P/E (x) P/B (x) Down- (%) PEG (x) (%) Company Ticker Rating (LC) (LC) side (HK$ mn) End FY1E FY2E FY1E FY2E FY1E FY1E FY1E Leading Greater China Restaurants and Food Ingredients Haidilao 6862 HK BUY 78.40 53.35 47% 282,755 Dec-20 55.5 41.5 14.5 10.1 30.8 0.3 0.3 Cafe De Coral 341 HK BUY 20.69 17.08 21% 10,004 Mar-20 26.4 24.0 3.4 3.3 13.7 0.3 2.4 Jiumaojiu 9922 HK BUY 40.07 30.25 32% 43,966 Dec-20 75.1 48.9 11.4 9.4 15.9 0.7 0.2 Xiabuxiabu 520 HK NR n/a 16.20 n/a 17,583 Dec-19 n/a 27.8 6.1 5.1 1.7 13.5 0.1 Yihai 1579 HK BUY 134.68 85.80 57% 89,824 Dec-20 58.7 45.0 16.8 12.8 30.6 1.9 0.5 Yum China YUMC US BUY 566.34 463.00 22% 194,648 Dec-20 30.2 25.9 3.6 3.3 12.8 3.3 0.8 Gourmet Master 2723 TT NR n/a 169.00 n/a 8,263 Dec-20 22.6 19.0 2.5 2.3 11.4 n/a 2.6 Avg. 44.7 33.1 8.3 6.6 16.7 3.3 1.0 Med. 42.8 27.8 6.1 5.1 13.7 1.3 0.5 Other H-shares Restaurants and Food Ingredients Fairwood 52 HK NR n/a 17.38 n/a 2,251 Mar-20 n/a 14.9 3.2 2.8 (1.6) n/a 2.4 Hop Hing 47 HK NR n/a 0.05 n/a 463 Dec-19 n/a n/a n/a n/a n/a n/a n/a Tsui Wah 1314 HK NR n/a 0.34 n/a 473 Mar-20 n/a n/a n/a n/a n/a n/a n/a Ajisen China 538 HK NR n/a 1.18 n/a 1,288 Dec-20 10.9 n/a n/a n/a n/a n/a 5.0 Tao Heung 573 HK NR n/a 0.92 n/a 935 Dec-20 n/a n/a n/a n/a n/a n/a n/a Tang Palace 1181 HK NR n/a 0.88 n/a 947 Dec-20 n/a n/a n/a n/a n/a n/a n/a Avg. 10.9 14.9 3.2 2.8 (1.6) n/a 3.7 Med. 10.9 14.9 3.2 2.8 (1.6) n/a 3.7 Leading Greater China Restaurants and Food Ingredients Yum YUM US NR n/a 108.06 n/a 251,908 Dec-20 27.1 23.7 n/a n/a (16.5) 1.4 1.9 Mcdonald'S MCD US NR n/a 225.21 n/a 1,304,529 Dec-20 26.8 24.5 n/a n/a (122.7) 1.6 2.3 Starbucks SBUX US NR n/a 109.90 n/a 1,005,220 Sep-20 39.6 31.8 n/a n/a (45.4) 0.6 1.8 Rest. Brands QSR US NR n/a 67.92 n/a 248,322 Dec-20 25.6 22.4 11.4 10.8 33.3 0.9 3.1 Wingstop WING US NR n/a 125.13 n/a 28,861 Dec-20 98.5 73.8 n/a n/a (11.4) 2.6 0.5 Shake Shack SHAK US NR n/a 115.00 n/a 37,499 Dec-20 n/a 203.5 12.1 11.4 3.0 (11.4) n/a Chipotle Mexican CMG US NR n/a 1445.5 n/a 316,064 Dec-20 62.8 47.4 17.1 14.6 28.8 1.4 0.0 Darden Rest. DRI US NR n/a 148.98 n/a 150,849 May-20 38.1 21.5 7.2 6.6 19.5 (0.1) 1.2 Domino'S Pizza DPZ US NR n/a 371.84 n/a 112,091 Jan-21 28.8 25.1 n/a n/a (8.0) 2.7 1.0 Dunkin' Brands DNKN US NR n/a n/a n/a n/a Dec-19 n/a n/a n/a n/a (28.6) n/a n/a Wendy'S WEN US NR n/a 20.74 n/a 36,068 Jan-21 30.2 25.6 8.1 9.3 23.3 1.4 1.8 Jollibee Foods JFC PM NR n/a 174.90 n/a 31,068 Dec-20 47.0 30.7 3.1 2.9 7.1 n/a 0.8 Avg. 42.5 48.2 9.8 9.3 (9.8) 0.1 1.4 Med. 34.2 25.6 9.7 10.1 (2.5) 1.4 1.5 H-shares Consumer Staples UPC 220 HK NR n/a 9.62 n/a 41,552 Dec-20 20.4 18.3 2.5 2.5 12.3 1.8 4.9 Tingyi 322 HK NR n/a 14.18 n/a 79,758 Dec-20 17.5 15.9 3.2 3.1 18.3 2.4 5.4 Want Want China 151 HK NR n/a 5.74 n/a 69,435 Mar-20 14.3 13.8 3.7 3.6 27.0 1.4 6.0 China Mengniu 2319 HK NR n/a 45.50 n/a 179,643 Dec-20 29.2 24.5 4.1 3.6 14.5 1.0 0.8 Vitasoy 345 HK NR n/a 30.95 n/a 32,992 Mar-20 47.9 44.9 9.4 8.5 20.6 3.0 1.3 Tsingtao Brewery 168 HK NR n/a 69.85 n/a 114,397 Dec-19 36.0 30.2 3.8 3.5 10.9 1.9 1.1 CR Beer 291 HK NR n/a 60.80 n/a 197,246 Dec-20 46.0 36.2 7.0 6.3 14.8 1.2 0.9 Dali Foods 3799 HK NR n/a 4.50 n/a 61,624 Dec-19 13.5 12.2 3.1 2.8 22.9 1.7 5.0 Avg. 28.1 24.5 4.6 4.2 17.7 1.8 3.2 Med. 24.8 21.4 3.8 3.6 16.6 1.7 3.1 Source: Bloomberg, CMBIS estimates

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Financial Summary

Income statement Cash flow summary YE 31 Dec (RMB mn) FY19A FY20A FY21E FY22E FY23E YE 31 Dec (RMB mn) FY19A FY20A FY21E FY22E FY23E Revenue 26,556 28,614 51,960 68,100 82,310 EBIT 3,180 1,310 6,284 8,129 9,638 China & loyalty program 23,336 25,228 46,694 61,333 74,049 D & A 1,891 3,034 3,146 4,168 5,144 Overseas 2,274 2,226 3,812 4,927 6,018 Change in working capital 368 (136) 19 13 14 Delivery business 449 718 902 1,204 1,512 Income tax paid (874) (426) (1,571) (2,045) (2,478) Condiment & food 498 442 553 636 731 Others 15 (182) 1,531 2,714 3,687 Costingredients of goods sold (11,239) (12,261) (21,766) (28,323) (34,233) Net cash from operating 4,580 3,600 9,410 12,979 16,005 Gross profit 15,317 16,353 30,194 39,777 48,077 Other income 119 320 270 354 428 Capex & investments (4,881) (8,012) (6,755) (8,172) (6,585) Associated companies - - - - - Operating expenses (12,256 (15,363 (24,180 (32,001 (38,867 Interest received 70 - - - - D & A (1,891)) (3,034)) (3,146)) (4,167)) (5,144)) Others (215) - - - - Staff costs (7,993) (9,677) (16,306 (21,680 (26,169 Net cash from investing (5,026) (8,012) (6,755) (8,172) (6,585) S & D costs (ex-staff, D&A) (240) (236) (363)) (502)) (640)) Admin exp. (ex-staff, D&A) (912) (978) (1,819) (2,383) (2,881) Equity raised - - - - - Other operating expenses (1,220) (1,438) (2,546) (3,269) (4,033) Net change in bank loans (291) 1,000 - - - EBIT 3,180 1,310 6,284 8,129 9,638 Dividend paid (473) (349) (703) (1,269) (1,695) Others (726) 4,154 (566) (555) (544) Finance costs, net (93) (404) (442) (379) (246) Net cash from financing (1,490) 4,806 (1,270) (1,824) (2,239) JVs & associates 65 75 12 14 16 Exceptional 95 (245) (36) (48) (58) Net change in cash (1,936) 393 1,385 2,983 7,182 Pre-tax profit 3,247 735 5,817 7,717 9,351 Beginning cash balance 4,119 2,222 2,615 4,001 6,984 Exchange difference 39 - - - - Income tax (900) (426) (1,571) (2,045) (2,478) Cash at the end of the year 2,222 2,615 4,001 6,984 14,165 Less: Minority interests 2 0 17 23 28 Net profit 2,345 309 4,229 5,649 6,845

Balance sheet Key ratios YE 31 Dec (RMB mn) FY19A FY20A FY21E FY22E FY23E YE 31 Dec FY19A FY20A FY21E FY22E FY23E Non-current assets 13,414 19,388 23,008 27,026 28,483 Sales mix (%) Fixed asset 7,690 13,616 17,251 21,282 22,744 China & loyalty program 87.9 88.2 89.9 90.1 90.0 Intangible assets & goodwill 112 84 58 32 11 Overseas 8.6 7.8 7.3 7.2 7.3 Prepaid lease payments 274 274 274 274 274 Delivery business 1.7 2.5 1.7 1.8 1.8 Interest in joint ventures 226 301 313 326 343 Condiment & food 1.9 1.5 1.1 0.9 0.9 Other non-current assets 5,112 5,112 5,112 5,112 5,112 Totalingredients 100.0 100.0 100.0 100.0 100.0

Current assets 7,200 7,621 11,285 15,842 24,421 P&L ratios (%) Cash and cash equivalents 2,222 2,615 4,001 6,984 14,165 Gross margin 57.7 57.1 58.1 58.4 58.4 Inventories 1,200 1,008 1,789 2,328 2,814 Operating margin 12.0 4.6 12.1 11.9 11.7 Trade receivables 204 314 569 746 902 Pre-tax margin 12.2 2.6 11.2 11.3 11.4 Prepayments 1,412 1,521 2,763 3,621 4,376 Net margin 8.8 1.1 8.1 8.3 8.3 Other current assets 2,163 2,163 2,163 2,163 2,163 Effective tax rate 28.3 64.5 27.0 26.5 26.5

Current liabilities 5,664 6,556 8,853 10,441 11,851 Balance sheet ratios Bank loans 122 1,122 1,122 1,122 1,122 Current ratio (x) 1.3 1.2 1.3 1.5 2.1 Trade payables 1,406 1,176 2,087 2,716 3,283 Quick ratio (x) 1.1 1.0 1.1 1.3 1.8 Accruals & other payables 1,577 1,699 3,086 4,044 4,888 Cash ratio (x) 0.4 0.4 0.5 0.7 1.2 Tax payables 224 224 224 224 224 Inventory turnover days 27 30 30 30 30 Others 2,334 2,334 2,334 2,334 2,334 Trade receivables days 2 4 4 4 4 Trade payables days 35 35 35 35 35 Non-current liabilities 4,324 8,924 8,924 8,924 8,924 Total debt / equity ratio (%) 11 19 14 9 7 Bank loans - - - - - Net debt / equity ratio (%) Net cash Net cash Net cash Net cash Net cash Deferred income - - - - - Returns (%) Deferred tax 47 47 47 47 47 ROE 22.1 2.7 26.1 24.4 21.6 Others 4,277 8,877 8,877 8,877 8,877 ROA 11.4 1.1 12.3 13.2 12.9 Per share Minority Interest 3 248 302 373 459 EPS (RMB) 0.44 0.06 0.80 1.07 1.29 Total net assets 10,623 11,281 16,214 23,131 31,670 DPS (RMB) 0.07 0.13 0.24 0.32 0.39 Shareholders' equity 10,623 11,281 16,214 23,131 31,670 BVPS (RMB) 2.00 2.13 3.06 4.36 5.98 Source: Company data, CMBIS estimates

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Disclosures CMBIS or its affiliate(s) have investment banking relationship with the issuers covered in this report in preceding 12 months.

CMBIS Ratings BUY : Stock with potential return of over 15% over next 12 months HOLD : Stock with potential return of +15% to -10% over next 12 months SELL : Stock with potential loss of over 10% over next 12 months NOT RATED : Stock is not rated by CMBIS

OUTPERFORM : Industry expected to outperform the relevant broad market benchmark over next 12 months MARKET-PERFORM : Industry expected to perform in-line with the relevant broad market benchmark over next 12 months UNDERPERFORM : Industry expected to underperform the relevant broad market benchmark over next 12 months

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