Tianyun International | 6836.HK

Rating BUY Initiate A hidden gem in F&B universe Target Price HKD 2.07 Current price HKD 1.22 Upside: 69.7% % FY18 result mixed, lower OEM GM and higher finance cost dragged on Company Updates the bottom line

16 April 2019 Tianyun’s FY18 result was mixed, with sales and EPS grew 26.2%/19.8% to RMB940.5mn/RMB147.5mn respectively. Tianyun’s sales was in-line with our estimates with own brand revenue came in 7.9% higher than our forecast, while Hayman Chiu OEM was ~11% below our estimates which we believe Tianyun continued to [email protected] place more focus on own brand development in FY18. Tianyun’s net profit (852) 2235 7677 attributable to shareholders was 7.8% below our estimates, we attributed the miss to lower OEM GM (due to RMB appreciation in 1H18 which affected their Trading data pricing, but GM improved in 2H18), and higher finance cost due to increased interest expense on bank borrowings (+221% to RMb6.8mn) and interest 52-Week Range (HK$) 1.48/1.03 expense on CB amounted to ~RMB5mn. Tianyun’s blended GM picked 60 bps 3 Mth Avg Daily Vol (m) 3.31 Yoy to 28.0%. No of Shares (m) 977.46 Market Cap (HK$m) 1,192.50 High margin own brand continues to drive growth, OEM maintain a Major Shareholders (%) Sichuan Dev. (27.0%) stable pace Yang Ziyuan (19.2%) Auditors PWC Tianyun’s own brand revenue soared 49.7% Yoy to RMB 482.3mn (51.3% of Result Due 1H19: Aug 2019 total revenue, vs 47.7% in 1H18) driven by partial ASP hike and lower material costs, hence driving GM up 220 bps to 30.8% which was in-line with our Company description estimates. Meanwhile, online sales grew 9.4% to RMB71.8mn (14.9% of own Established in January 2003 and listed in HKEx in July brand sales) as the Company’s investment in e-commerce platforms such as 2015, Tianyun sells their products (processed fruit in WeChat Business and TMall continue to play a part in own brand’s revenue China and to overseas on an OEM basis, current growth. Meanwhile, Tianyun has launched more new products (such as trans fat clients include renowned international brands such as free fruit snack) in 2H18 and target to further diversify product SKUs in FY19E Del Monte and Tesco (TSCO.LN) etc. Tianyun has been promoting its own brand products under including functional drinks. Tianyun currently has 210 distributors (vs. 204 in “Tiantong Food” (天同食品), “Bingo -My Times-”(繽果 1H18) and management would expect number of distributors w 時代) and “Guo Xiao Lan”(果小懶), in the PRC and overseas countries. Tianyun commenced sales of Tianyun’s OEM revenue maintained a stable growth in FY18 (+4.9% Yoy to Tiantong Food products in Hong Kong's supermarket RMB362.3, 39% of total revenue), while GM picked up 100bps HoH in 2H18 chains in 2015. By December 2018, Tianyun currently thanks to weakened RMB which allowed Tianyun to have a better pricing vs. has 210 distributors 1H18. As Tianyun’s overseas sales only accounted for ~8% of total revenue in FY18 (vs. 10% in 1H18), together with their diverse clientele worldwide including Price chart Europe, Canada, Australia and New Zealand, we believe the current client HK$ 1.6 portfolio would support Tianyun’s OEM sales grow at a stable pace in 1.4 FY19-FY21W, while we continue to believe the US-China trade dispute would 1.2 have minimal impact on Tianyun’s sales. 1.0 0.8 0.6 Set up JV with Sichuan Development to explore new business 0.4 0.2

opportunities, continue to seek for M&As 0.0

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Apr Apr Apr Jan Jan Jan Apr After SDIH becoming Tianyun’s single largest shareholder (27%) in end 2018, Tianyun announced in Feb 2019 that Tianyun and SDIH will set up a JV with Sources: Bloomberg, CIRL initial investment at RMB 200mn (70/30 spilt) in Sichuan Province to collaborate in developing a supply chain for processed agricultural and food products, and a base for supply of raw materials that complies with international standards. The JV would focus on business such as fruit and vegetable international trade, grading, canning and processing. The JV would also involve in the production of fruit and vegetable ice-cream, functional beverage.

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According to the circular released in mid-March, the RMB200mn would be allocated to i) ~RMB35mn for land acquisition, ii) RMB51.6mn for the purchase of production machineries, iii) RMB109mn for the construction of production plant and the remaining would be for general working capital.

Meanwhile, Tianyun would continue to identify M&A and investment opportunities including placing their eye sights both tropical and sub-tropical fruit processing companies, and renowned brands in Asia etc.

Hubei plant to further ramp up in FY19E

Tianyun completed the acquisition of Yichang Tiantong (YT, a processed fruit company in Hubei) on Jan 30, 2018 and it is still in ramping up stage (FY18: estimated to be ~16k tons/year). Tianyun aims to introduce more fruit types from subtropical region and develop new fruit products for both its OEM customers and own brand.

With current production capacity at ~100k tons/ year and expects to increase to ~140k tons/year in FY19E through production optimization in Shandong plant (target designed capacity at ~110k tons/ year) and further ramp up of Hubei plant (target designed capacity at ~30k tons/year). Tianyun expects total designed capacity would reach ~205k tons by FY21E, driven by full operation of production workshop No. 5 and No. 6, as well as the initial contribution from Sichuan plant’s operation from FY20E. We still believe Tianyun’s ability to take new orders from both existing and new clients.

Undemanding FY19E 5.3x PE, increased own brand contribution continue to favour re-rating

We fine-tuned Tianyun’s FY19E/20E EPS by -4.7%/-2.0% to reflect lower GM forecasts with new product sales not taken into account, we also introduce FY21E estimates. We expect Tianyun’s revenue and adjusted EPS to grow at 17.8%/23.0% CAGR in FY18-FY21E driven by increasing contribution from current own brand and stable OEM business, and the counter is trading at FY19E/20E 5.3x/4.3x PE (~73%/55% discount to weighted average of HK, A-share listed and international peers) still looks attractive to us. As own brand already took up 51.3%/56.4% of FY18 sales and GM, that further affirms our view that Tianyun’s own brand business is growing on the right track and continues to deserve a re-rating.

With solid track record since listing and healthy financial position, we initiate BUY on Tianyun and value its TP at HK$2.07 based on 9.0x weighted average FY19E PE (~55% discount to peers’ 20.1x weighted average PE). We identify the following upside catalysts for Tianyun: i) Successful ramp up of Hubei plant, ii) Well-received market response of new own-brand product, iii) Better than expected sales from functional drinks and iv) News flow on SIDH and Tianyun JV

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Exhibit 1: We fine-tuned Tianyun’s FY19E-20E/ EPS and introduce FY21E forecasts Exhibit 1:FY19 (old) FY19 (new) Diff FY20 (old) FY20(new) Diff FY21E Yoy(%)

RevenuePork 1,140 1,139 -0.1% 1,352 1,342 -0.8% 1,540 14.7%

products GP 335 327 -2.5% 398 396 -0.5% 459 16.0%

sold in GM 29.4% 28.7% -70bps 29.4% 29.5% 10bps 29.8% 10bps supermarke t counters Net Profit 205 195 -4.7% 244 239 -2.1% 276 15.6%

-4.7% -2.0% 15.6% EPS 0.209 0.199 0.248 0.244 0.281

Year to Dec (RMB mn) FY16A FY17A FY18A FY19E FY20E FY21E Segment Revene

OEM 382 345 362 380 399 419 Own Brand 188 322 482 658 838 1,010 Trading of fresh fruit & others 83 78 96 101 105 111

Group 654 746 941 1,139 1,342 1,540

Segment Revenue Growth

OEM 2.8% -9.7% 5.0% 5.0% 5.0% 5.0% Own Brand 87.3% 71.4% 49.7% 36.5% 27.3% 20.5% Trading of fresh fruit & others 2.5% -6.0% 22.6% 4.9% 4.3% 5.6% Group 18.0% 14.1% 26.2% 21.1% 17.8% 14.7%

GM 30.5% 27.4% 28.0% 28.7% 29.5% 29.8%

Source: Company data, CIRL estimates

Exhibit 2: Tianyun’s GM improved in 2H18 RevenueExhibit Breakdown 1: (By Segment) Year to Dec (RMB mn) 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18

OEMPork 141 174 158 214 171 212 156 189 181.4 181 Yoy(%) - - 12.7% 23.1% 7.7% -0.9% -8.4% -10.8% 16.1% -4.2% products % of revenue 69.4% 70.8% 62.4% 71.3% 55.5% 61.2% 45.5% 47.0% 41.3% 36.1%

Own Brand 17 33.1 49.8 50.5 90.1 97.8 138.7 183.4 209.5 272.8 sold in Yoy(%) - - 189.5% 52.6% 80.9% 93.7% 53.9% 87.5% 51.0% 48.7% % of revenue 8.5% 13.5% 19.6% 16.8% 29.3% 28.3% 40.4% 45.6% 47.7% 54.4% supermarket Trading of fresh fruit & others 45 39 46 36 47 36 48 30 48.4 48 counters Yoy(%) - - 1.8% -7.5% 3.1% 1.7% 3.0% -17.6% 0.2% 58.9% % of revenue 22.1% 15.7% 17.9% 11.9% 15.2% 10.5% 14.1% 7.4% 11.0% 9.5% Total 202 245 254 300 308 346 343 402 439 501 Yoy(%) - - 25.3% 22.3% 21.2% 15.3% 11.6% 16.3% 28.0% 24.6%

Gross Margin Breakdown (By Segment) Year to Dec (RMB mn) 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18

OEM 39 59 51 72 55 68 47 56 51 53 Yoy(%) - 51.8% 30.2% 21.5% 9.7% -4.8% -14.4% -17.8% 8.0% -5.5% GM 27.6% 33.9% 31.9% 33.5% 32.5% 32.2% 30.3% 29.6% 28.2% 29.2% % of total GM 72.0% 72.5% 66.2% 74.7% 58.8% 64.7% 51.1% 33.4% 41.9% 37.5% Own Brand 5 11 15 17 28 30 38 110 65 84 Yoy(%) - 132.8% 214.9% 58.1% 89.2% 71.6% 36.4% 271.2% 69.6% -24.1% GM 27.3% 33.1% 29.7% 34.2% 31.1% 30.4% 27.5% 60.1% 30.9% 30.6% % of total GM 8.7% 13.5% 19.4% 18.0% 29.7% 28.2% 41.2% 65.7% 53.1% 59.2%

Trading of fresh fruit & others 10 11 11 7 11 7 7 2 6 5 Yoy(%) - 9.9% 5.8% -38.8% -1.8% 6.1% -33.3% -78.4% -15.3% 193.8% GM 23.3% 29.6% 24.2% 19.6% 23.0% 20.4% 14.9% 5.4% 12.6% 9.9% % of total GM 19.3% 14.1% 14.4% 7.3% 11.5% 7.1% 7.8% 1.0% 5.0% 3.3% Total 54 81 76 96 94 105 93 168 122 141

Yoy(%) - - 41.6% 18.0% 23.5% 9.8% -1.5% 59.5% 31.6% -15.9% Blended GM 26.6% 33.1% 30.1% 32.0% 30.6% 30.4% 27.0% 41.7% 27.8% 28.2%

Source: Company data, CIRL Page 3 of 10

Exhibit 3: Tianyun’s blended GM picked up, while high margin own brand business contributed ~56% of GP (vs.45% in FY17) 40.0%Exhibit 1: 100% 8.8 10.8 35.0% 18.0 18.2 Pork 90% 18.4 21.8 21.8 30.0% 30.2% 30.2% 30.2% 31.1% 80% 15.6 32.1 30.5% 28.0% 7.6 57.7 products 27.4% 70% 18.3 92.1 25.0% 148.4 sold in 60% 20.0% 50% supermark 40% 15.0% 64.5 97.7 122.0 30% 72.7 123.5 10.0%et counters 103.4 20% 104.1 5.0% 10% 0% 0.0% FY12A FY13A FY14A FY15A FY16A FY17A FY18A FY12A FY13A FY14A FY15A FY16A FY17A FY18A OEM Own Brand Trading of fresh fruit & others Overall GPM OEM Own Brand Trading of fresh fruit & others

Source: Company data, CIRL

Exhibit 4: Tianyun sales mix by segment (left) and by region (right)

Exhibit 1: 100% 100% 29.2 43.1 34.4 60.4 56.8 75.4 76.4 Pork 81.2 83.2 78.2 95.9 90% 90% 67.5 77.4 83.3 80% 80% products 50.3 100.3 24.7 59.3 187.9 70% 70% 322.1 482.3 sold60% in 60%

50% 50% 271.2 327.4 413.2 493.2 596.7 670.1 864.1 supermarket40% 40% 314.1 208.1 233.9 372.1 counters 30% 382.4 30% 345.2 20% 362.3 20% 10% 10% 0% 0% FY12A FY13A FY14A FY15A FY16A FY17A FY18A FY12A FY13A FY14A FY15A FY16A FY17A FY18A

OEM Own Brand Trading of fresh fruit & others PRC Overseas

Source: Company data, CIRL

Exhibit 5: Tianyun’s designed capacity would grow at 27% in FY18-FY21E

Exhibit250,000 1:

Pork 205,000 FY18-FY21E CAGR :27% products200,000 180,000 sold in supermarket150,000 140,000 counters 100,000 100,000 84,000 84,000

64,000 53,000 50,000 31,758 32,489

0 FY12A FY13A FY14A FY15A FY16A FY17A FY18A FY19E FY20E FY21E

Total Designed capacity (tons) Source: Company data, CIRL

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Exhibit 6: Tianyun’s pure fruit snack received "Certificate of Invention Patent" from the State Intellectual Property Office of China Exhibit 1:

Pork

products

sold in

supermark et counters

Source: Company data

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Exhibit 7: Tianyun’s pure fruit snack selling on Tmall Exhibit 1: Pork products sold in supermark et counters

Source: Tmall

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Exhibit 8: Tianyun’s profitability vs. peers in FY18 Exhibit 1: bloomberg ROE (%) ROA (%) Net Gearing (%) FY18 code FY18 FY18 FY18 GM (%) OM (%) PM (%) Pork products HK listed cosumer staples CHANGSHOUHUAsold in FOO 1006 HK 12.0 9.9 (59.4) 23% 11% 10% MENGNIU DAIRY 2319 HK 12.9 4.9 (14.4) 37% 6% 4% HEALTH AND HAPPI 1112 HK 20.0 6.1 83.6 67% 22% 8% AUSNUTRIAsupermarket 1717 HK 25.4 10.2 (23.6) 49% 15% 12% YASHILI INT'L 1230 HK 0.2 0.2 (41.0) 40% -4% 2% YUANSHENGTAIcounters DAI 1431 HK 0.2 0.2 (23.9) 23% -23% -51% CHINA SHENGMU OR 1432 HK 3.1 1.1 76.2 32% -42% -103% CHINA MODERN DAI 1117 HK (10.9) (4.5) 97.1 31% -2% -10% HUISHAN DAIRY 6863 HK N/A N/A #N/A N/A N/A N/A N/A CHINA RESOURCES 291 HK 8.7 4.1 (6.1) 35% 5% 3% TINGYI 322 HK 14.2 5.0 (12.6) 31% 7% 4% UNI-PRESIDENT CH 220 HK 8.3 5.2 (20.0) 33% 6% 5% WANT WANT CHINA 151 HK N/A N/A (41.5) 43% 20% 15% DALI FOODS GROUP 3799 HK 25.5 21.5 (65.4) 39% 21% 18% CHINA HUIYUAN 1886 HK N/A N/A #N/A N/A N/A N/A N/A SUMMI GROUP HOLD 756 HK 0.7 0.4 23.4 34% 9% 2% YANTAI NORTH-H 2218 HK 7.7 6.8 (18.5) 26% 11% 13% CHINA HAISHENG 359 HK 2.4 0.5 162.6 14% 14% 5% CHINA GREENFRESH 6183 HK 7.2 6.9 (47.7) 10% 13% 14% TENWOW INTERNATI 1219 HK N/A N/A #N/A N/A N/A N/A N/A JIASHILI GROUP L 1285 HK 12.8 6.8 (1.3) 32% 10% 6% LABIXIAOXIN 1262 HK (22.6) (9.3) 102.3 25% -30% -36% CHRISTINE INTERN 1210 HK (44.9) (19.9) (61.0) 45% -36% -35% TENFU HLDGS CO 6868 HK 13.0 9.7 (18.3) 60% 23% 16% HONWORLD 2226 HK 9.5 5.7 31.1 52% 33% 23% CHINA YURUN FOOD 1068 HK (90.0) (29.1) 245.5 8% -34% -38% WH GROUP LTD 288 HK 12.4 6.2 27.3 21% 7% 4% COFCO MEAT HOLDI 1610 HK (12.0) (6.0) 61.4 0% -6% -9% SHENGUAN HOLDING 829 HK 4.1 3.6 (15.0) 35% 10% 9% CHINA PUTIAN FOO 1699 HK (5.0) (2.8) 76.6 11% 4% -6% HUISHENG INTL 1340 HK (13.2) (11.8) (2.5) -2% -92% -90% CHINA KANGDA FD 834 HK 2.3 0.9 22.0 9% 2% 0% TSINGTAO BREW-H 168 HK 8.8 4.8 (70.6) 32% 8% 6% CHINA FOODS LTD 506 HK 8.0 2.4 13.8 35% 5% 2% Average 9.6 5.4 78.7 31% 12% 8%

TIANYUN INTERNAT 6836 HK 20.2 16.1 1.2 27% 22% 17%

China listed consumer staples INNER MONG YIL-A 600887 CH 24.5 13.4 (44.2) 38% 9% 8% BRIGHT DAIRY-A 600597 CH 8.4 2.6 11.4 33% 5% 2% XINJIANG GUANN-A 600251 CH N/A N/A #N/A N/A N/A N/A 4% GUANGZHOU ZHUJ-A 002461 CH 4.0 2.7 (57.4) 34% 6% 10% BEIJING YAN-A 000729 CH N/A N/A #N/A N/A N/A N/A N/A V V FOOD BVRG-A 600300 CH N/A N/A #N/A N/A N/A N/A N/A JUEWEI FOOD CO-A 603517 CH N/A N/A #N/A N/A N/A N/A N/A JIANGXI HUANGS-A 002695 CH 9.6 7.6 (43.3) 34% 11% 9% FOSHAN HAITIAN-A 603288 CH 32.4 22.8 (100.7) 46% 28% 26% IAJIA FOOD GRO-A 002650 CH N/A N/A #N/A N/A N/A N/A N/A JIANGSU HENGSH-A 600305 CH 15.9 11.2 0.6 41% 18% 18% COFCO TUNHE CO-A 600737 CH 5.7 2.5 #N/A N/A 14% 7% 3% HENAN SHUAN-A 000895 CH 35.3 21.4 8.4 21% 13% 10% Average 20.5 12.0 6.8 17.6% 10.2% 6.5%

TIANYUN INTERNAT 6836 HK 20.2 16.1 1.2 27% 22% 17%

Global & PRC players BONDUELLE SCA BON FP 12.2 3.7 96.7 N/A 4% 3% DEL MONTE PAC LT DELM SP 13.4 2.6 236.9 20% 1% -2% LA DORIA SPA LD IM N/A N/A #N/A N/A N/A N/A 4% MALEE GROUP PCL MALEE TB (19.9) (6.1) 190.5 22% -6% -5% AMCL PRAN AMCL BD 9.4 3.8 107.6 19% 8% 2% SINO GRANDNESS SFGI SP 11.7 8.3 13.0 28% 14% 10% CHINA HUIYUAN 1886 HK N/A N/A #N/A N/A N/A N/A N/A SUMMI GROUP HOLD 756 HK 0.7 0.4 23.4 34% 9% 2% YANTAI NORTH-H 2218 HK 7.7 6.8 (18.5) 26% 11% 13% CHINA HAISHENG 359 HK 2.4 0.5 162.6 14% 14% 5% KAGOME 2811 JP 8.6 4.5 6.4 45% 6% 5% COFCO TUNHE CO-A 600737 CH 5.7 2.5 #N/A N/A 14% 7% 3% FOODS & INNS LTD FI IN 7.6 1.3 286.8 N/A 5% 1% FOOD & DRINKS FND TB N/A N/A #N/A N/A N/A N/A -1% Average 6.7 3.5 124.9 25.9% 9.2% 5.1%

TIANYUN INTERNAT 6836 HK 20.2 16.1 1.2 27% 22% 17%

Source: Bloomberg, CIRL

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Exhibit 9: Peers comparison Exhibit 1: bloomberg Mkt Cap Price Share Price Movement (%) PER (x) Yield (%) code (HKD mn) (HKD) 1M 3M YTD FY16 FY17 FY18 FY19E FY20E FY16 FY17 FY18 FY19E FY20E

HKPork listed cosumer products staples CHANGSHOUHUA FOO 1006 HK 1,973 3.44 (2.3) 5.8 13.2 6.4 5.8 4.8 - - 2.8% 3.4% 0.0% 0.0% 0.0% MENGNIUsold DAIRY in 2319 HK 111,577 28.40 14.1 11.8 16.4 -125.9 46.8 30.7 24.3 20.0 0.4% 0.5% 0.8% 1.0% 1.2% HEALTH AND HAPPI 1112 HK 29,907 46.70 (4.3) 7.7 4.5 26.3 27.3 29.8 17.5 14.4 0.0% 0.0% 1.2% 1.2% 1.6% AUSNUTRIAsupermarket 1717 HK 16,913 10.60 2.5 33.3 20.5 53.2 37.3 18.9 16.7 12.5 0.5% 0.9% 1.7% 2.0% 2.7% YASHILI INT'L 1230 HK 5,457 1.15 1.8 (12.9) (17.9) -14.7 -26.2 88.2 38.3 33.8 0.0% 0.0% 0.0% 0.3% 0.7% YUANSHENGTAI DAI 1431 HK 868 0.19 (9.3) 12.1 10.8 -7.0 -11.0 -1.3 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINAcounters SHENGMU OR 1432 HK 2,351 0.37 (11.9) 8.8 4.2 3.0 -2.1 -0.9 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA MODERN DAI 1117 HK 7,358 1.20 12.1 64.4 53.8 -7.3 -6.4 -12.4 11.8 9.0 0.0% 0.0% 0.0% 0.0% 0.2% HUISHAN DAIRY 6863 HK 5,660 0.42 0.0 0.0 0.0 6.9 - - - - 3.6% 0.0% 0.0% 0.0% 0.0% CHINA RESOURCES 291 HK 113,871 35.10 12.5 28.6 28.3 136.5 84.5 98.7 49.4 34.7 0.3% 0.5% 0.4% 0.8% 1.2% TINGYI 322 HK 71,163 12.66 10.7 23.9 21.0 51.6 33.8 24.3 22.4 20.8 1.0% 1.5% 2.1% 2.8% 3.2% UNI-PRESIDENT CH 220 HK 29,674 6.87 (6.5) 7.2 1.0 41.8 29.3 24.3 21.5 19.2 0.5% 2.4% 4.1% 3.7% 4.1% WANT WANT CHINA 151 HK 78,306 6.29 1.1 0.3 14.8 19.4 20.7 21.4 19.7 18.6 2.3% 0.0% 0.0% 2.7% 2.9% DALI FOODS GROUP 3799 HK 75,455 5.51 (6.6) 0.0 (4.8) 20.5 19.1 17.2 15.8 14.3 3.4% 3.4% 3.0% 3.3% 3.3% CHINA HUIYUAN 1886 HK 5,397 2.02 0.0 0.0 0.0 345.6 - - - - 0.0% 0.0% 0.0% 0.0% 0.0% SUMMI GROUP HOLD 756 HK 256 0.19 (4.0) (4.0) (4.0) 3.4 3.3 18.1 - - 8.2% 9.0% 0.0% 0.0% 0.0% YANTAI NORTH-H 2218 HK 1,786 4.99 (7.4) (8.8) (12.8) 13.1 18.2 11.0 - - 1.2% 1.2% 2.4% 0.0% 0.0% CHINA HAISHENG 359 HK 252 0.20 (14.8) 2.6 (7.1) 7.9 1.5 2.7 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA GREENFRESH 6183 HK 1,048 0.88 (7.4) (10.2) (16.2) 6.9 4.4 5.8 - - 5.7% 0.0% 0.0% 0.0% 0.0% TENWOW INTERNATI 1219 HK 838 0.38 0.0 0.0 0.0 3.3 4.5 - 3.7 - 8.7% 11.1% 0.0% 0.0% 0.0% JIASHILI GROUP L 1285 HK 614 1.48 (18.2) (16.9) (17.8) 5.9 5.0 6.0 - - 11.8% 11.7% 10.0% 0.0% 0.0% LABIXIAOXIN 1262 HK 571 0.43 (3.4) (13.1) (15.7) -0.8 -1.7 -2.6 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHRISTINE INTERN 1210 HK 374 0.37 (12.9) (28.8) (28.8) -2.6 -2.5 -1.4 - - 0.0% 0.0% 0.0% 0.0% 0.0% TENFU HLDGS CO 6868 HK 6,324 5.27 3.3 (5.0) (5.2) 34.7 22.8 20.2 - - 2.1% 3.4% 3.9% 0.0% 0.0% HONWORLD 2226 HK 2,755 4.76 50.2 48.8 55.0 10.6 12.8 11.5 - - 1.8% 1.6% 1.7% 0.0% 0.0% CHINA YURUN FOOD 1068 HK 3,099 1.70 (16.7) 132.9 165.6 -1.3 -1.6 -0.7 - - 0.0% 0.0% 0.0% 0.0% 0.0% WH GROUP LTD 288 HK 128,353 8.74 12.1 30.1 44.9 14.9 14.4 17.3 13.9 12.6 3.0% 3.1% 2.3% 3.1% 3.6% COFCO MEAT HOLDI 1610 HK 12,994 3.33 17.7 125.0 129.7 10.3 24.9 -17.5 16.7 7.3 0.0% 0.0% 0.0% 0.0% 0.0% SHENGUAN HOLDING 829 HK 1,389 0.43 (5.5) (7.5) (4.4) 7.8 17.7 14.5 - - 4.8% 4.3% 4.7% 0.0% 0.0% CHINA PUTIAN FOO 1699 HK 737 0.39 (7.1) (7.1) (1.3) 29.3 68.9 -17.0 - - 0.0% 0.0% 0.0% 0.0% 0.0% HUISHENG INTL 1340 HK 151 0.17 (15.3) 35.7 29.5 1.1 -493.7 -0.4 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA KANGDA FD 834 HK 325 0.75 (6.3) 59.6 59.6 44.2 -17.8 48.7 - - 0.0% 0.0% 0.0% 0.0% 0.0% TSINGTAO BREW-H 168 HK 68,742 46.35 43.3 33.2 46.7 51.4 42.9 37.1 32.8 29.6 0.9% 1.0% 1.2% 1.4% 1.6% CHINA FOODS LTD 506 HK 9,119 3.26 6.2 10.5 14.0 18.2 5.1 28.4 19.2 15.5 0.7% 0.7% 1.2% 1.6% 2.3% Average 23,402 0.8 16.7 17.6 36.1 24.0 26.3 21.6 18.7 3.2% 3.5% 2.7% 2.0% 2.2%

TIANYUN INTERNAT 6836 HK 1,193 1.22 (7.6) 4.3 8.9 8.2 8.3 7.0 5.3 4.7 2.1% 2.0% 2.2% 2.9% 3.5%

China listed consumer staples INNER MONG YIL-A 600887 CH 213,145 35.07 12.8 24.5 31.1 32.3 30.7 27.9 26.3 22.9 2.0% 2.3% 2.4% 2.4% 2.8% BRIGHT DAIRY-A 600597 CH 15,759 12.87 12.5 29.4 31.7 23.9 22.0 38.8 22.9 21.0 1.4% 1.4% 0.9% 1.3% 1.4% XINJIANG GUANN-A 600251 CH 5,771 7.35 7.5 22.9 27.3 186.6 58.7 51.2 - - 0.2% 0.5% 0.0% 0.0% 0.0% GUANGZHOU ZHUJ-A 002461 CH 18,938 8.56 29.6 49.4 66.4 86.1 82.3 42.4 - - 0.4% 0.7% 1.4% 0.0% 0.0% BEIJING YAN-A 000729 CH 23,886 8.47 14.7 24.1 28.5 65.3 128.8 - 57.3 49.6 0.5% 0.3% 0.0% 0.5% 0.5% V V FOOD BVRG-A 600300 CH 6,938 4.15 6.3 18.7 25.9 84.7 65.7 - - - 0.6% 0.8% 0.0% 0.0% 0.0% JUEWEI FOOD CO-A 603517 CH 21,677 52.87 2.4 33.4 36.6 42.7 36.3 28.6 24.3 20.5 0.7% 1.0% 0.0% 1.4% 1.6% JIANGXI HUANGS-A 002695 CH 7,695 14.97 (1.0) 24.7 28.9 71.2 46.0 37.1 29.1 19.7 0.3% 0.5% 0.0% 0.0% 0.0% FOSHAN HAITIAN-A 603288 CH 265,146 98.19 11.7 17.8 22.1 80.0 64.9 51.1 43.5 36.5 0.8% 1.0% 1.2% 1.3% 1.6% IAJIA FOOD GRO-A 002650 CH 5,804 5.04 8.8 18.7 19.7 33.2 31.2 - - - 0.9% 0.0% 0.0% 0.0% 0.0% JIANGSU HENGSH-A 600305 CH 12,063 15.39 9.8 17.5 26.6 60.6 37.2 33.4 29.9 26.1 0.5% 0.8% 0.0% 1.1% 1.2% COFCO TUNHE CO-A 600737 CH 28,827 13.48 27.3 58.2 56.7 45.9 32.4 46.3 - - 1.1% 1.5% 0.0% 0.0% 0.0% HENAN SHUAN-A 000895 CH 102,362 31.02 4.8 6.3 12.5 19.9 20.5 17.6 16.8 15.8 7.9% 4.1% 5.5% 5.4% 5.6% Average 65,594 11.3 26.6 31.8 64.0 50.5 37.4 31.3 26.5 4.5% 2.8% 5.5% 5.4% 5.6%

TIANYUN INTERNAT 6836 HK 1,193 1.22 (7.6) 4.3 8.9 8.2 8.3 7.0 5.3 4.7 2.1% 2.0% 2.2% 2.9% 3.5%

Global & PRC players BONDUELLE SCA BON FP 8,151 250.51 0.4 (9.3) (0.5) 16.5 15.6 11.8 11.4 10.4 1.5% 1.5% 1.9% 1.8% 2.0% DEL MONTE PAC LT DELM SP 1,566 0.81 0.7 6.1 11.2 3.5 8.6 -3.8 - - 0.0% 5.9% 0.0% 0.0% 0.0% LA DORIA SPA LD IM 2,183 70.41 (3.1) (10.3) 0.3 7.5 8.2 8.6 9.5 8.0 2.2% 2.9% 0.0% 2.4% 3.0% MALEE GROUP PCL MALEE TB 504 1.83 (14.0) (10.3) (7.5) 4.4 3.9 -7.6 -22.8 57.1 11.4% 18.2% 3.3% 0.7% 1.9% AMCL PRAN AMCL BD 186 23.24 (2.1) (4.4) 3.9 35.4 35.4 34.5 35.4 - 1.4% 1.4% 1.3% 0.0% 0.0% SINO GRANDNESS SFGI SP 324 0.33 26.7 (51.3) (53.7) 0.4 0.4 0.8 0.8 - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA HUIYUAN 1886 HK 5,397 2.02 0.0 0.0 0.0 345.6 - - - - 0.0% 0.0% 0.0% 0.0% 0.0% SUMMI GROUP HOLD 756 HK 256 0.19 (4.0) (4.0) (4.0) 3.4 3.3 18.1 - - 8.2% 9.0% 0.0% 0.0% 0.0% YANTAI NORTH-H 2218 HK 1,786 4.99 (7.4) (8.8) (12.8) 13.1 18.2 11.0 - - 1.2% 1.2% 2.4% 0.0% 0.0% CHINA HAISHENG 359 HK 252 0.20 (14.8) 2.6 (7.1) 7.9 1.5 2.7 - - 0.0% 0.0% 0.0% 0.0% 0.0% KAGOME 2811 JP 21,134 212.15 (1.1) 5.8 5.2 43.4 26.8 26.8 23.0 23.0 0.8% 1.0% 1.3% 1.2% 1.3% COFCO TUNHE CO-A 600737 CH 28,827 13.48 27.3 58.2 56.7 45.9 32.4 32.4 46.3 28.8 1.1% 1.5% 0.0% 0.0% 0.0% FOODS & INNS LTD FI IN 488 29.09 52.6 67.9 52.1 640.3 -267.6 83.3 - - 0.0% 0.0% 0.0% 0.0% 0.0% FOOD & DRINKS FND TB 80 4.54 2.8 2.2 8.9 -4.9 -4.9 -7.6 -30.7 - 0.0% 0.0% 0.0% 0.0% 0.0% Average 5,081 4.6 3.2 3.8 89.8 14.0 23.0 21.1 25.4 3.5% 4.7% 2.0% 1.5% 2.0%

TIANYUN INTERNAT 6836 HK 1,193 1.22 (7.6) 4.3 8.9 8.2 8.3 7.0 5.3 4.7 2.1% 2.0% 2.2% 2.9% 3.5%

Source: Bloomberg, CIRL

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Exhibit 10: Tianyun’s 12 month Forward P/E Ratio Exhibit 1: 10 Pork 12 mths Forward P/E Ratio avg. 9 -1std. products8 +1std. sold7 in

6 supermark a et counters5 -1std. - 4

3

2

1

0 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18

Source: Bloomberg, CIRL

Exhibit 11: Financial statement

Income statement Cash flow Year to Dec (RMB Mn) FY17A FY18A FY19E FY20E FY21E Year to Dec (RMB Mn) FY17A FY18A FY19E FY20E FY21E Revenue 746 941 1,139 1,342 1,540 Pre-tax profit 161 200 265 324 375 Gross profit (reported) 204 263 327 396 459 Taxes paid (36) (59) (72) (85) (97) EBITDA 179 231 291 352 405 Depreciation & amortization 15 20 21 22 23 Depreciation 15 20 21 22 23 Associates & Others 36 67 74 88 101 EBIT 164 211 270 330 383 CFO bef. WC change 175 227 287 348 401

Net interest income (exp.) (4) (12) (6) (7) (8) Change in working cap (24) (16) (29) (32) (33) Associates 0 0 0 0 0 Cashflow from operation 151 211 258 316 368 Exceptionals/others 0 0 0 0 0 CAPEX (21) (11) (16) (16) (16) Profit before tax 161 200 265 324 375 Free cash flow 130 200 242 300 352 Tax expenses (37) (53) (70) (85) (99) Dividends 22 20 23 30 37 Minority interest 0 0 0 0 0 Balance sheet adj. (108) (141) (126) (157) (182) Net profit 123 147 195 239 276 Sharse issued 57 0 0 0 0 Adjusted Net Profit 126 147 195 239 276 Others 0 0 0 0 0 Dividends 22 20 23 30 37 Net cash flow 101 79 138 173 207 Adjusted diluted EPS (RMB) 0.13 0.15 0.20 0.24 0.28 Net cash (debt) start 127 227 307 445 619 Net cash (debt) at year-end 227 307 445 619 825 Balance sheet Year to Dec (RMB Mn) FY17A FY18A FY19E FY20E FY21E Ratios Cash & equiv 309 465 571 745 951 Year to Dec (RMB Mn) FY17A FY18A FY19E FY20E FY21E Trade receivables 108 115 140 165 189 Growth rate (%) Other receivables 0 0 0 0 0 Revenue 14.1% 26.2% 21.1% 17.8% 14.7% Inventories 76 90 108 126 144 EBITDA -0.2% 29.2% 25.9% 21.0% 15.2% Other current assets 0 0 0 0 0 EBIT -2.5% 28.8% 27.7% 22.3% 15.9% Fixed assets 257 329 325 321 316 Adjusted Net profit 9.3% 16.5% 32.8% 22.4% 15.6% Intangible assets 0 0 0 0 0 Fully diluted EPS 0.2% 16.5% 32.6% 22.4% 15.9% Investment, associates etc 89 91 90 91 91 Margins (%) Total assets 838 1,090 1,235 1,447 1,690 Gross margin (reported) 27.4% 28.0% 28.7% 29.5% 29.8% EBITDA 24.0% 24.6% 25.5% 26.2% 26.3% Account payables 41 46 58 68 76 EBIT 22.0% 22.5% 23.7% 24.6% 24.9% Other payables 0 0 0 0 0 Net margin 16.9% 15.6% 17.1% 17.8% 18.0% Short-term debt 82 130 98 98 98 Other ratios Other current liabs 61 104 104 104 104 ROE (%) 20.2% 20.7% 23.0% 23.1% 22.1% Long-term debts 0 28 28 28 28 ROA (%) 16.1% 15.2% 16.8% 17.8% 17.6% Deferred tax and others 0 16 16 16 17 Net gearing (%) -34.8% -40.1% -47.8% -54.6% -60.3% Other long-term liabs 0 0 0 0 0 Interest coverage (x) -45.1 -17.7 -48.6 -50.4 -50.9 Total liabilities 184 324 304 314 323 Receivables days 47.2 43.3 40.9 41.4 41.9 Payables days 27.7 24.9 26.0 26.2 25.7 Share capital 232 207 207 207 207 Inventory days 51.1 48.6 48.6 48.6 48.6 Reserves 421 559 724 926 1,160 Effective tax rate (%) -23.2% -26.4% -26.4% -26.4% -26.4% Shareholders' equity 654 766 931 1,133 1,367 Minorities 0 0 0 0 0 Total equity 654 766 931 1,133 1,367 Net cash (debt) 227 307 445 619 825 Source: Company data, CIRL estimates

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Risk Factors

Downside risks include: 1) Slower than expected sales from functional beverage and new processed fruit products; 2) loss of OEM orders; 3) high material cost puts pressure on GM; 4) sharp rise in SG&A ratio; 5) Food safety issue and 6) increasing trade tension

Rating Policy

Rating Definition Buy Outperform HSI by 15% Stock Rating Neutral Between -15% ~ 15% of the HSI Sell Underperform HSI by -15% Accumulate Outperform HSI by 10% Sector Rating Neutral Between -10% ~ 10% of the HSI Reduce Underperform HSI by -10%

Analysts List

Hayman Chiu Research Director (852) 2235 7677 [email protected]

Lewis Pang Associate Director (852) 2235 7847 [email protected] Kenneth Li Associate Director (852) 2235 7619 [email protected] Farica Li Research Analyst (852) 2235 7617 [email protected] Leanna Xiao Research Analyst (852)2235 7719 [email protected]

Chloe Chan Research Analyst (852) 2235 7170 [email protected] Edith Li Research Analyst (852)2235 7515 [email protected]

Analyst Certification

I, Hayman Chiu, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is / are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note.

Disclaimer

This report has been prepared by the Cinda International Research Limited. Although the information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. The report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Any opinions expressed in this report are subject to change without notice. The report is published solely for information purposes, it does not constitute any advertisement and should not be construed as an offer to buy or sell securities. Cinda International will not accept any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report. This document is for the use of intended recipients only, the whole or a part of this report should not be reproduced to others.

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