Deutsche Bank Markets Research
Asia Periodical Date China 21 October 2013 Consumer Asia Consumer & Media Daily
Anne Ling Lydia Ling Research Analyst Research Analyst Consumer & Media Daily (+852) 2203 6177 (+852) 2203 6181 [email protected] [email protected]
Winnie Mak Company news Research Analyst China/HK (+852) 2203 6178 [email protected] Hutchison – Strategic review of Parknshop
Phoenix Satellite Television – Equity transfer by Star Entertainment to TPG China Green – Disposal of wholly-owned subsidiary Next Media – Shutting down Sharp Daily in Hong Kong Indonesia Gudang Garam – Government is starting to enforce closure of excise loophole (Reggy Susanto) Thailand CP All – Total bond yield below 5% highly likely (Chalinee Congmuang) India Asian Paints – Gross margin expansion for Akzo is a positive read- through for APNT (Manoj Menon) Godrej Consumer – Revenue growth visibility deserves a premium (Manoj Menon) Global Coach, Inc – 1Q earnings not a game changer, out-year plan remains the key catalyst (Dave Weiner)
Sector news China/HK China Luxury – DFS to be renamed T-Galleria, focus on e-marketing strategy Global Consumer – Shiseido may sell two sub-brands to L’oreal China Catering – Subway targets to open 440 stores in China in two years China Retail – Walmart to close 25 stores in 2014 China Retail – Cross-border e-commerce platform to be unveiled in Shanghai Free Trade Zone China F&B – Beijing Yanjing Brewery 3Q results China F&B – MIIT to support Beijing dairy industry China media – SARFT further restricts entertainment programmes HK Media – Protest against HKTV license refusal China F&B – CCTV’s accusation of Starbucks on grabbing high profit in China Global Global F&B – Fire destroys world's largest sugar trader's warehouse
______Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.
Asia Consumer and Media team Lydia Ling +852 2203 6181 (HK/China Consumer/Media) Gaurav Bhatia +91-22-6658 4055 (Indian Consumer/Media) Manoj Menon +91-22-7158 4358 (Indian Consumer/Media) Jihyun Song +82 2 316 8906 (Korea Retail/consumer) Reggy Susanto+62-21-3189-527 (Indonesia Consumer) Michelle Foong +60-3-2053 6769 (Malaysia Consumer) Derek Ivan Bloomfield +66-2-633 6468 (Thailand consumer) Chalinee Congmuang +66-2-633 6482 (Thailand Consumer) Michael Bengson +63-2-894 6636 (Philippine Consumer/Media) Anne Ling +852 2203 6177 (HK/China Consumer/Media, Team Leader) (Office) +852 91221099 (Mobile) Winnie Mak +852 2203 6178 (HK/China Consumer/Media) Joelian Tseng +886-2-2192 2841 (Taiwan Consumer)
21 October 2013 Asia Consumer & Media Daily
Company news
Hutchison – Strategic review of Parknshop
(0013.HK, HKD96.8, NR)
Hutchison announced that following the completion of its initial strategic review of Parknshop’s supermarket retail business, it has come to the conclusion that the sale of Parknshop business through a private market transaction at this time will not deliver maximum value to the shareholders of the company. Hutchison said it has decided to continue to implement an accelerated growth strategy for Parknshop business with particular focus to mainland China instead of pursuing a private sale of the business.
The company has also decided to expand its strategic review process to include all options to maximize the value and future growth potential of A.S. Watson & Company retail business in the future, including the possibility of public offerings of all or some of those businesses. However, the company said that it is not considering giving up control of any of the businesses.
Source: 18 October 2013, company announcement
Figure 1: Parknshop sales milestones 20-Jul-13 Hutchison announced the intention of sale of Parknshop 16-Aug-13 Market information: Eight letters of intent obtained by Hutchison for Parknshop 17-Sep-13 Mr. Li Ka Shing clarified to media that the group has no intention of withdrawing investment 02-Oct-13 Local press reported that Hutchison plans to spinoff Watsons in the future 1 or 1.5 years to finance HKD78bn 09-Oct-13 Market information: CRE stepped out of the bid for Parknshop 17-Oct-13 Australia press reported that Woolworths provided the price of USD3bn (HKD23.4bn) to participate in the bid 18-Oct-13 Hutchison announced to cease the plan of private sale of Parknshop Source: Deutsche Bank, company announcement
Phoenix Satellite Television – Equity transfer by Star Entertainment to TPG
(2008.HK, HKD2.8, NR)
Phoenix Satellite Television announced that Star Entertainment has entered into an agreement to sell its 607m shares (or 12.5% stake) at HKD2.73 to TPG. Upon the completion of the share transfer, Star Entertainment will no longer be the shareholder of the company and TPG will become a substantial shareholder of the company.
Source: 18 October 2013, company announcement
China Green – Disposal of wholly-owned subsidiary
(0904.HK, HKD0.86, NR)
Deutsche Bank AG/Hong Kong Page 3
21 October 2013
Asia Consumer & Media Daily
China Green announced that Dragon Choice Enterprise, Shanghai Kang Mei Pharmaceutical Consulting Ltd, Zhonglu (Shanghai) Industry Investment Limited and China Green Foods have entered into an equity transfer contract wherein Dragon Choice has agreed to sell the sale interest (100% equity interest in Zhonglu (Shanghai)) to Shanghai Kang Mei for a consideration of RMB104m in cash.
Zhonglu (Shanghai) was incorporated on 21 August 2006 in the PRC and has a registered capital of USD10m all of which is owned by Dragon Choice. The company registered a net profit of RMB0.4m in 2011 and a net loss of RMB2.2m in 2012. Its net assets stood at RMB73.4m as at 31 December 2012.
Source: 20 October 2013, company announcement
Next Media – Shutting down Sharp Daily in Hong Kong
(0282.HK, HKD0.88, NR)
Next Media announced that it will cease the publication of Sharp Daily, a free daily newspaper in Hong Kong, with effect from 21 October. The company said the move is in a bid to consolidate its print operations in Hong Kong and enable it to focus resources on its profit making operations.
Source: 18 October 2013, company announcement
Indonesia
Gudang Garam – Government is starting to enforce closure of excise loophole
(GGRM.JK, IDR33,950, Buy)
Two of Sampoerna’s subsidiaries will see excise hike of 45% this month After almost a year of delay, the government has finally started to enforce the regulation closing a loophole that allows GGRM’s major competitors to pay c.30% lower excise by setting up subsidiaries/affiliates. Market leader HM Sampoerna (HMSP IJ, NR, CP:Rp66,350) has received notification from the government that two of its subsidiaries Harapan Maju Sentosa (producing the Vegas Mild brand) and Persada Makmur Indonesia (Trend Mild brand), which account for c. 4% of Sampoerna’s volumes, will have to pay higher excise of Rp355/stick effective this month. Previously these two companies were classified as small scale producers allowing them to pay an excise of Rp245/stick. We estimate that to offset the excise increase prices for these two brands will have to be increased by c. 25%, which would put them at similar prices to GGRM’s Surya Pro Mild.
GGRM to be main beneficiary of closure of excise loophole We expect GGRM to be the major beneficiary from the closure of this loophole as it doesn’t have any cigarette subsidiaries. Other major cigarette companies, such as Djarum, Sampoerna and Bentoel have production subsidiaries, which allow them to sell cheaper priced cigarettes than GGRM. We estimate that excise could increase by 25-58% for certain brands that account for c. 10% of industry volumes if the government fully enforces the closure of the excise loophole. This will allow GGRM to tag along on any price increase and boost profitability, especially on its low-priced Surya Pro Mild brand. It will also create a more level playing field for GGRM and hasten industry consolidation.
Page 4 Deutsche Bank AG/Hong Kong
21 October 2013 Asia Consumer & Media Daily
Background of regulation Recall that the initial regulation to close the loophole (Ministry of Finance Decree No. 191/PMK.04/2010) was issued in November 2010 and was meant to be enforced starting in November 2012. However, the regulation was revised in April 2013 and again in September 2013. The latest regulation states that cigarette companies that are subsidiaries or affiliates (at least 20% ownership, share the same management, or share procurement of raw material) of other companies will have to pay excise based on the consolidated volumes of the whole group, instead of based on the production level at the individual companies.
Please refer to full report: http://gm.db.com/ger/document/ShowPdf.eqsr?productIDMore=0900b8c0876ae5bb
Reggy Susanto
Thailand
CP All – Total bond yield below 5% highly likely
(CPALL.BK, THB38.50, Buy)
After book building yesterday, CPALL announced the company could issue up to Bt47bn in bonds. Coupon rates and amount on offer for its 3, 5, 7 and 10 year bonds are as follows;
Our take: Note that the subscription period will begin by late October. At the moment we do not know for certain what the exact effective bond rate will be. That being said, we continue to estimate that total yield should remain under 5% given that the guided rates are quite in line with our projection. Maintain Buy with a TP of Bt47
Please refer to full report: http://gm.db.com/ger/document/ShowPdf.eqsr?productIDMore=0900b8c0876b419c
Chalinee Congmuang
India
Asian Paints – Gross margin expansion for Akzo is a positive read-through for APNT
(ASPN.BO, INR486.95, Sell)
Deutsche Bank AG/Hong Kong Page 5
21 October 2013
Asia Consumer & Media Daily
10% sales growth, gross margin expansion of 182bps Akzo Nobel India (no.4 paints player) reported 10% sales growth YoY in 2QFY14 (better than 2% YoY in 1QFY14) with gross margin expansion of 182bps. EBITDA growth was 3.5% due to higher marketing spend. Akzo in its analyst meet in March’ 13 had indicated a Eur1bn sales target in 5 yrs (implying a 26% CAGR). The company has so far been behind target.
Read-through for APNT is positive We expect Asian Paints to deliver 12% domestic sales growth driven by 10% volume growth in 2QFY14. We have also factored in 90bps gross margin expansion and 110bps EBITDA margin expansion. However, we continue to see Street optimism running ahead of fundamentals for Asian Paints and reiterate our Sell. The stock trades close to its all-time-high one-year forward P/E of 31x. Asian Paints reports on Monday, October 21, 2013. Results conference call at 5.30 PM IST – Dial-in number + 91 22 3065 0102.
Please refer to full report: http://gm.db.com/ger/document/ShowPdf.eqsr?productIDMore=0900b8c0876b66a4
Manoj Menon
Godrej Consumer – Revenue growth visibility deserves a premium
(GOCP.BO, INR836.30, Buy)
Is GCPL stock expensive? = Yes, Is it deserved? = Yes, in our view An important investor feedback on our recent GCPL initiation (a non-consensus Buy with 31% upside to our target) has been the expensive stock valuations. Companies with revenue and (hence) earnings visibility will continue to command high multiples in an environment of slowdown in consumer staples, in our view. GCPL's presence in a relatively recession-proof business (household insecticides contribute about half of its
Page 6 Deutsche Bank AG/Hong Kong
21 October 2013 Asia Consumer & Media Daily
profits) and relaunch-driven growth in hair colour forms the bedrock of our revenue and EBITDA CAGR of 18% and 25% in FY13-15e. GCPL, Titan, ITC and United Spirits are top picks.
Please refer to full report: http://gm.db.com/ger/document/ShowPdf.eqsr?productIDMore=0900b8c0876b1152
Manoj Menon
Global
Coach, Inc – 1Q earnings not a game changer, out-year plan remains the key catalyst
(COH.N, USD54.14, Hold}
No change to our model ahead of next week’s earnings report Ahead of Tuesday’s AM release, we maintain our $0.78 EPS est., driven by (1) -2% SSS in NA & +DD in China, (2) GM of 71.6% (-120bp y/y), (3) SG&A of 43.7% (-50bp y/y), and (4) OM of 27.9%, -70bp y/y. We’re modestly above $0.76 FactSet consensus, which assumes -3% NA SSS, 71.9% GM, and 27.3% OM. Though we look to be opportunistic on COH shares, positive catalysts may come more over the mid-/long- term, with possible risks near-term. HOLD balances a need for comfort around product initiatives & mgmt. stability, with div./buyback support, above-avg. margins, and the reality that many of Coach's issues are already known by investors. $60 PT = ~16x our F14E EPS.
What we’re listening for on the Coach call An update on NA comps: While 1Q’s -3% consensus provides some downside cushion relative to last quarter’s -1.7%, the compare is now ~380bp more difficult, and importantly, since we last heard from mgmt., the overall consumer environment in the U.S. has slowed. NA comps are a key investor catalyst, including discussions around reviving full-price traffic.
Early reads from Coach’s move in to apparel: From what we’ve seen during our store & on-line checks, Coach has introduced a nice assortment of tops, pants, dresses, and outerwear. While product breath is limited, the early read looks positive. We note that mgmt. will host an analyst event on 11/4, at which time we’ll get an early look in to Spring 2014 product.
Mgmt. turnover likely behind us, but now, out-year plan needs definition: Given a near-full rotation of top company leadership over the past several quarters, the market wants comfort that those transitions are now behind us. For the most part, we believe this the case. More importantly, mgmt. should work to provide a detailed product, geographic, and channel operating strategy for the next several years, which will help investors understand strategic expenses and returns. While we likely won’t get this next week, first steps in outlining a plan will be well received by the market. Maintain Hold and $60 price target. Risks $60 PT, which is based on DCF WACC 10%(RFR and MRP of 4.5%+, Beta of 1.1 and perpetuity growth of 2.5%), implies a FY14E P/E of ~16x and reflects the potential for COH to re-ramp its global profile. Upside risk if NA comps accelerate, downside if product repositioning not soon apparent.
Dave Weiner
Deutsche Bank AG/Hong Kong Page 7
21 October 2013
Asia Consumer & Media Daily
Please refer to full report: http://pull.db-gmresearch.com/p/397-766B/90305253/0900b8c0876a880a.pdf
Page 8 Deutsche Bank AG/Hong Kong
21 October 2013 Asia Consumer & Media Daily
Sector news
China/HK
China Luxury – DFS to be renamed T-Galleria, focus on e- marketing strategy
According to Consumer Marketing and Branding President Sibylle Scherer, DFS will be renamed T-Galleria and launch a series of e-marketing initiatives to grab customer attention in mainland China.
As part of the online initiative, DFS had asked Mr. Ruan Jingtian to make a mini-movie under the background of Hong Kong, Singapore and Hawaii. The movie has generated an online traffic of 2.38m. DFS will also launch a new website to provide travellers with information on food, accommodation and cultural activities. The company said it will focus on localised e-marketing and hence will set up marketing representative offices in Hong Kong, Beijing, Shanghai, Japan, Korea, Indonesia, etc., to strength local marketing activities. The name change process will take 18 months for airport stores and 14 months downtown stores. Its stores in Hong Kong and Macau will complete the name change process within a year. Furthermore, DFS will reinforce the localization strategy. For example, local artists will decorate the Hawaii stores and art activities will be held in Hong Kong stores. The company says it is stepping up efforts to grab the attention of the rising number of Chinese tourists with high purchasing power.
Source: 21 October 2013, Hong Kong Economic Times
Global Consumer – Shiseido may sell two sub-brands to L’oreal
Shiseido announced that it has entered exclusive talks with L’oreal to sell its two Paris- based cosmetics businesses, Carita International and Laboratoires Decleor. L’oreal has offered EUR230m for the two sub-brands that specialize in skin care, body care and hair care.
Shiseido said this is part of its strategy to concentrate on growth fields with sustainable high profits. The company aims to make a net profit of JPY20bn in FY14 ending March from a loss of JPY14.69bn in FY13. The FY13 loss was attributed to weak domestic sales and political tension in China.
Source: 18 October 2013, Market Watch
China Catering – Subway targets to open 440 stores in China in two years
Subway announced that it will officially enter 2nd and 3rd tier cities in China and open another 440 stores in the next two years. Since its first store in 1995, Subway’s expansion in China has been slow. It only opened 400 stores over the past 18 years and concentrated in few cities such as Beijing, Shanghai, Guangzou and Shenzhen. The company said that besides aggressively exploring 2nd and 3rd tier cities it will also continue to add stores in 1st tier cities. It aims to operate 1,000 stores by 2015.
Deutsche Bank AG/Hong Kong Page 9
21 October 2013
Asia Consumer & Media Daily
Source: 21 October 2013, Beijing Daily
China Retail – Walmart to close 25 stores in 2014
Walmart Asia said that it plans to close 25 stores in 2014, mainly the underperforming stores to improve its operating efficiency in China. The company noted that it does not plan to reduce headcount in this round of adjustment, though it may relocate some staff to other cities.
Source: 19 October 2013, Linkshop
China Retail – Cross-border e-commerce platform to be unveiled in Shanghai Free Trade Zone
As one of the first waves of projects initiated in the Shanghai Free Trade Zone (Shanghai FTZ), Shanghai will launch a pilot cross-border e-commerce platform called buyeasi.com (Kua Jing Tong). A trial run of the platform has been completed and it will officially commence operation once approved by China’s General Administration of Customs (GAC).
Since prices for products such as luxury handbags, milk powder and cosmetics can be quite high in mainland China compared to other locations, more and more people in China have turned to online shopping to acquire these types of goods. Many vendors on Taobao are selling these products or acting as purchasing agents for their customers in China. Due to a lack of legitimate online channels, a lot of these products are imported to China through express delivery – therefore evading customs duties – or through smuggling. Furthermore, vendors will often claim to offer imported products that are actually shoddy knock-offs.
To meet the needs of domestic customers for these products and to clean up the currently chaotic scene of the cross-border e-commerce market, China’s National Development and Reform Commission (NDRC) has delegated the GAC to initiate a pilot cross-border e-commerce service in five cities, including Shanghai.
The buyeasi.com project of the Shanghai FTZ was constructed by Orient Electronic Payment, a Shanghai-based company that owns the Easipay electronic payment platform and helped construct China’s electronic customs declaration system.
Wang Peng, General Manager of Easipay, said that Buyeasi.com looks just like any e- commerce website, displaying all kinds of commodities by category. Six categories of popular merchandises will soon be presented on the website, including clothing, accessories, baby products, 3C electronic products, cosmetics, luggage and handbags. The website is positioned to provide mid- to high-end products.
Shanghai Custom will be in charge of the customs declaration system connected to the website. All vendors on this platform have conducted record-filing with the customs authorities; therefore customers can avoid the risk of buying fake products. Since the commodities offered on buyeasi.com are imported through bonded warehouses, which significantly decrease logistic costs, the prices are often much lower (30% discount) than the prices of the same products selling at offline stores in mainland China. Products of several luxury brands, such as Calvin Klein, Coach and Burberry, have been presented on the pilot platform.
Page 10 Deutsche Bank AG/Hong Kong
21 October 2013 Asia Consumer & Media Daily
According to Easipay, the ticket value for a single item imported overseas should be now more than RMB1,000, and not more than RMB800 if imported from Hong Kong and Macau. However, the customs will adjust the restrictions based on the performance of buyeasi.com.
Industry experts say that although introducing buyeasi.com is great news for customers in China, it could strike hard against current vendors engaged in the cross- border purchasing agent business on other electronic platforms. It may also have a negative impact on the sales of luxury stores within China.
Source: 10 October 2013, Xinhua Net
China F&B – Beijing Yanjing Brewery 3Q results
Beijing Yanjing Brewery (000729.SZ) reported a 1.5% yoy and a 10.10% yoy increase in net profit to RMB360.7m and RMB887.8m in 3Q13 and 9M13, respectively. Excluding non-recurring items, net profit declined 8.75% and 3.25% yoy to RMB317.9m and RMB754.4m in 3Q13 and 9M13, respectively. Sales revenue climbed 0.92% and 5.73% yoy to RMB4.49bn and RMB11.9bn in 3Q13 and 9M13, respectively.
Source: 18 October 2013, company announcement
China F&B – MIIT to support Beijing dairy industry
During a visit to Beijing Sanyuan Foods (600429, SH), the Chief Engineer of China’s Ministry of Industry and Information Technology (MIIT), Zhu Hongren, said that the ministry will strongly support the development of the dairy industry in Beijing. The ministry hopes Sanyuan can build a brand that will represent the country.
Source: 18 October 2013, Bloomberg Finance LP
China Media – SARFT further restricts entertainment programmes
The local media reported that the State Administration of Radio, Film and Television (SARFT) has issued measures to provincial satellite TV stations to restrict entertainment programmes. The measures are as follows:
1. Optimize programming structure and enrich programme variety. Continue to increase the programme mix of news, economic, culture, science and education, cartoon, documentary and agriculture programmes. The broadcasting of these programmes will account for no less than 30% of the total broadcasting time. The moral appeal programme should be broadcasted during 0600-2400 hours. The domestic produced documentary programme should be broadcasted at least 30 minutes a day from 0600 hours to 0100 hours the next day. Cartoon and children programmes produced by domestic companies should be broadcasted at least 30 minutes a day from 0800 hours to 2130 hours.
2. Reinforce innovation and management of introduced programmes. The number of introduced TV programmes should not exceed one programme each year. This programme should not broadcast from 1930 hours to 2200 hours in the first broadcasting year.
Deutsche Bank AG/Hong Kong Page 11
21 October 2013
Asia Consumer & Media Daily
3. Restrict overwhelm entertainment and limit similar programmes. Each quarter, the SARFT will choose one singing competition programme and broadcast it during the prime time. Other singing competition programmes should not be broadcasted during 1930-2230 hours. The SARFT will monitor the TV entertainment evening party programme and limit the number of the TV entertainment evening party programmes within three programmes each day during the holidays.
4. Fulfil social responsibilities and report annually. From 2013, each provincial satellite TV channel must submit annual report to the SARFT, concerning the fulfilment of social responsibilities and implementation of relevant measures. SARFT will audit the annual reports and reward or punish the channels according to the results.
5. Reinforce administrative management and filing works. The programmes including news, mortal appealing, singing competition, evening party, and introduced copyright from overseas should be filed two month before the broadcasting. The programmes broadcasted during 1930-2200 hours including matching, wedding, talent competition, sentimental story, gaming, general entertainment, talk show, and reality show should be filing according to the procedure.
Local satellite TV stations said that these measures will have a huge impact on the programme arrangement and they would strictly carry out these measures.
Source: 20 October 2013, Dongfang Daily
HK Media – Protest against HKTV license refusal
The development of new FTV licenses have not ended with the granting of two new licenses to i-Cable and PCCW. On 20 October, tens of thousands of people (ranging from the police’s peak estimate of 36,000 to 120,000 claimed by netizens) protested against the HKTV license refusal and gathered outside the government headquarters, according to HK Standard and HKET. Some protesters called on the government and Executive Council to explain the rationale behind the issuing of licences, according to SCMP.
On 19 October, both Ming Pao and i-cable reported that according to an internal government document, when the government decided to open the TV market in 1998, there would be no cap on license numbers and the original plan was to issue three licenses. The government commented that this is not an internal document from Exco.
Figure 2: Information on the 2 new FTV players (Fantastic TV and HKTV Ent) and the failed HKTV network Fantastic TV HKTV Ent HKTV Network Owner i-cable (1097.HK, NR) PCCW (0008.HK, suspended coverage) HKTV Network (1037.HK, NR) Status License granted in principle on 16 Oct License granted in principle on 16 Oct Application rejected 2013 2013 Proposed number of 2 integrated channels, Cantonese and 2 integrated channels, Cantonese and 2 self produced channels and 10 acquired channels English, in both analogue and digital English, in digital format only. channels at launch. Up to 30 channels formats. within 6 years of launch Content Cantonese channel with 70% self Entertainment, sports, news, finance and Focus on dramas and has produced 300 produced programs during prime time documentary hours of dramas. Budget Over HKD1bn in first 6 years of operation Over HKD600m in first 3 years of operation About HKD1bn in the first 6 years
Page 12 Deutsche Bank AG/Hong Kong
21 October 2013 Asia Consumer & Media Daily
Launch date Cantonese program to be launched within Cantonese program to be launched within see above 12 months and English program to be 12 months and English program to be launched within 24 months receptively launched within 24 months receptively from the grant of license from the grant of license Coverage To reach 95% of households within 6 At least 90% of households within 12 78% of households to be covered in 3 months months years Source: Deutsche Bank SCMP, Apple Daily, Sing Pao
Source: SCMP, Apple Daily, Proposal from 3 players, HK government (16-17 October 2013), Sing Pao
China F&B – CCTV’s accusation of Starbucks on grabbing high profit in China
According to a CCTV (China Central Television) report, following a survey of the prices of Caffe Late of Starbucks in Beijing, London, New York and Bombay, it is found that its prices in Beijing is the highest among the others which reached RMB27 almost doubling the price in India of RMB14 and also 40% higher than that in London and New York.
CCTV further reported that these high prices bring high profits for Starbucks. According to the financial statistics by Starbucks, NPM in China and Asia Pacific area reached 32% while it was only 21.1% in America and even lower at 1.9% in Europe, East Asia and Africa.
According to the president of Coffee Association of Shanghai, Wang Zhendong, the cost of a cup of tall latte is only RMB5 but the selling price could exceed more than 5 times mainly due to customers’ worship of foreign brands. Besides, the government has frequently accused foreign brands for grabbing high profits, market monopoly, among others. The market estimates that these actions by the government are to spare more space for local brands.
Figure 3: Foreign brands incidents summary Date Event September 2013 CCTV accuse Dumex of giving bribery to the hospitals August 2013 Development and Reform Commission give a total fine of RMB670 to foreign milk powder companies Mead Johnson, Dumex, Abbortt, Friso, Fonterra and Biostime for market monopoly. July 2013 Ministry of Public Security has inspected the management of British Pharmaceutical company GlaxoSmithKline for the suspicion of bribery to the hospital. Later, Novonordisk, Sanofi and Lundbeck were also involved into inspection July 2013 CCTV disclosed the exceeding level of virus in the ice of McDonalds' and KFC's Chongwen stores March 2013 CCTV disclosed the lower after sales service standard provided to Chinese customers by Apple January 2013 Development and Reform Commission give a total fine of RMB353 to foreign LED producers Samsung, LG, Chimei, Youda, China Yingguan and Hanyu Source: Deutsche Bank, HKET
Source: 21 October 2013, Hong Kong Economic Times
Deutsche Bank AG/Hong Kong Page 13
21 October 2013
Asia Consumer & Media Daily
Global
Global F&B – Fire destroys world's largest sugar trader's warehouse
The Independent on 19 October reported that a fire at Brazil’s Santos port destroyed Copersucar's warehouses together with 180,000 tonnes of raw sugar. Copersucar is the world's largest sugar trader controlling c. 20% of world sugar exports. The news sent ICE March raw sugar prices up by more than 6% to a one-year intra-day high, ending 2.5% higher at 19.48 cents/lb. A US trader estimated that Copersucar would take at least six months to resume normal operation.
Deutsche Bank comment: Sugar accounted for 10% of PET non-alcoholic beverage COGS, according to Tingyi (322 HK; Hold). YTD, the average price of Sugar No.11 contract price was 17.49 USc/lb, compared to our forecast of 17.59 USc/lb (refer to Agriculture: supply is still uncertain, but inventories are rebuilding, a report by Christina McGlone dated 25 September 2013). Even without the fire, sugar prices have picked up from their trough since Unica (Brazilian Sugarcane Industry Association) released data showing that the cane harvest in Centre South region of Brazil fell to 34.2m tonnes in the last half of September, down 20% from that in the first half of the month, due to heavy rainfall. The drop in sugar production in the last half of September was even larger than that in cane, falling 23% to 2.29m tonnes, as mills diverted more crops to making ethanol.
Source: 19 October 2013 Independent
The author of this report wishes to acknowledge the contribution made by Richard Huang and Stella Wang, employees of Accenture, a third-party provider to Deutsche Bank of offshore research support services, and Jean Chen, an employee of Irevna (a division of CRISIL Limited), a third-party provider to Deutsche Bank of offshore research support services.
Page 14 Deutsche Bank AG/Hong Kong
21 October 2013 Asia Consumer & Media Daily
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification This report covers more than one security and was contributed to by more than one analyst. The views expressed in this report accurately reflect the views of each contributor to this compendium report. In addition, each contributor has not and will not receive any compensation for providing a specific recommendation or view in this compendium report.
Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 450 share-holder return (TSR = percentage change in 400 54 % share price from current price to projected target price 350 plus pro-jected dividend yield ) , we recommend that 300 37 % 250 investors buy the stock. 200 Sell: Based on a current 12-month view of total share- 150 25 % 9 % holder return, we recommend that investors sell the 100 22 % 50 13 % stock 0 Hold: We take a neutral view on the stock 12-months Buy Hold Sell out and, based on this time horizon, do not recommend either a Buy or Sell. Companies Covered Cos. w/ Banking Relationship Notes: Asia-Pacific Universe 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends)
of -10% or worse over a 12-month period
Deutsche Bank AG/Hong Kong Page 15
21 October 2013 Asia Consumer & Media Daily
Regulatory Disclosures 1. Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. 2. Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com. 3. Country-Specific Disclosures Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. In cases where at least one Brazil based analyst (identified by a phone number starting with +55 country code) has taken part in the preparation of this research report, the Brazil based analyst whose name appears first assumes primary responsibility for its content from a Brazilian regulatory perspective and for its compliance with CVM Instruction # 483. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://www.globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan, Japan Investment Advisers Association. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless “Japan” or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of Deutsche Securities Inc. (DSI) are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.
Page 16 Deutsche Bank AG/Hong Kong
David Folkerts-Landau Group Chief Economist Member of the Global Executive Committee
Guy Ashton Marcel Cassard Richard Smith and Steve Pollard Global Chief Operating Officer Global Head Co-Global Heads Research FICC Research & Global Macro Economics Equity Research
Michael Spencer Ralf Hoffman Andreas Neubauer Steve Pollard Regional Head Regional Head Regional Head Regional Head Asia Pacific Research Deutsche Bank Research, Germany Equity Research, Germany Americas Research
International locations
Deutsche Bank AG Deutsche Bank AG Deutsche Bank AG Deutsche Securities Inc. Deutsche Bank Place Große Gallusstraße 10-14 Filiale Hongkong 2-11-1 Nagatacho Level 16 60272 Frankfurt am Main International Commerce Centre, Sanno Park Tower Corner of Hunter & Phillip Streets Germany 1 Austin Road West,Kowloon, Chiyoda-ku, Tokyo 100-6171 Sydney, NSW 2000 Tel: (49) 69 910 00 Hong Kong Japan Australia Tel: (852) 2203 8888 Tel: (81) 3 5156 6770 Tel: (61) 2 8258 1234 Deutsche Bank AG London Deutsche Bank Securities Inc. 1 Great Winchester Street 60 Wall Street London EC2N 2EQ New York, NY 10005 United Kingdom United States of America Tel: (44) 20 7545 8000 Tel: (1) 212 250 2500
Global Disclaimer
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information. Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement. As a result of Deutsche Bank’s March 2010 acquisition of BHF-Bank AG, a security may be covered by more than one analyst within the Deutsche Bank group. Each of these analysts may use differing methodologies to value the security; as a result, the recommendations may differ and the price targets and estimates of each may vary widely. In August 2009, Deutsche Bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for "Hold" rated stocks having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at http://gm.db.com to determine the target price of any stock. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright © 2013 Deutsche Bank AG