4 Feb 2020

CMB International Securities | Equity Research

JS Global Lifestyle (1691 HK) BUY (Initiation) Cross -selling with world-class tech and style Target Price HK$7.65 Up/Downside +48.0% Current Price HK$5.17  JS Global is the 3rd/ 2nd largest in China/ US with 8.8%/ 8.1% small appliance market share. JS global has three major brands (Joyoung, Shark

and Ninja) which focus on cleaning, food preparation and cooking appliances, and generated a sales of USD 2.7bn and net profit of USD 112mn in FY18. China Home Appliance Sector  Emphasis on R&D to solve consumers’ pain points. JS Global is dedicated on R&D and innovation as solving consumer pain point is a proven growth Walter Woo driver. In FY18, it spent ~USD 119mn on R&D, ~4.4% of sales (peers’ avg. is (852) 3761 8776 4.9%), and had a team of ~800, ~20% of total (peers’ avg. is 12%). We believe [email protected] recent launches: revolutionary products - 1) Multifunctional steamer S5 (2019), 2) Ninja Foodi series (2018) and evolutionary products - 3) Premium soymilk Stock Data maker K-series, 4) High-performance multifunctional blender Y88 (2019), 5) Mkt Cap (HK$ mn) 17,615 Robot vacuum Shark ION (2017) can boost growth in FY18-21E. Avg 3 mths t/o (HK$ mn) 6.80 52w High/Low (HK$) 5.95/4.69  Cross-selling in product, region, price point. Acquisition of SharkNinja in Total Issued Shares (mn) 3,407.2 2017, in our view, can unlock huge potential by leveraging existing products Source: Bloomberg and sales network, like: 1) expanding Shark & Ninja into rest of the world (e.g. EU, Japan, Australia) and China, 2) selling Foodi series in EU, vacuum & robot Shareholding Structure cleaners in China, 3) penetrating into high-end segment in China with Shark. Mr. Wang Xuning (Chairman) 57.88% & concert party  Ample room for efficiency boost and cost synergies. These can be Mr. Mark Adam Barrocas 2.14% derived from: 1) sharing of supply chain between Joyoung and SharkNinja and CDH Fund 10.61% 2) sharing of R&D resources (patents, functions and expertise), etc.., driving RSU Holding entity 4.16% SharkNinja’s segment EBIT margin to 8.8% in FY21E (vs 5.4% in FY18). Mr. Mark Rosenzweig 8.06% Other SN investors 0.29%  Ways to tackle pressure from China-US trade disputes. In our view, Free Float 16.87% SharkNinja’s GP margin will be suppressed in FY19E-20E due to US’ import Source: HKEx tariff. However, it will be partly offset by positive factors like 1) CNY depreciation and counter measures such as 2) value reengineering by using Share Performance cheaper components, 3) raising retail ASP and 4) diversifying from China Absolute Relative (boosting overseas sales and supplies), etc. 1-mth -10.7% -3.2% 3-mth n/a n/a  We forecast a 13%/ 29% sales/ adj. net profit CAGR in FY18-21E. Drivers 6-mth n/a n/a are: more SharkNinja, more cleaning appliances and more contribution from 12-mth n/a n/a EU and China. We forecast stable GP margin in FY19E-20E, then a jump in Source: Bloomberg FY21E due to better product mix and brand mix, while net profit margin to improve more in FY20E-21E, thanks to lower A&P, D&A and finance costs. 12-mth Price Performance (HK$) Stock HSI  Initiate BUY with TP of HK$ 7.65. Our TP for JS Global is based on 16.0x 6.1 FY20E adj. P/E, 14%/ 13% discounts to China/ Int’l small appliances peers’ average of 18.7x/ 18.4x, despite its: 1) global leadership in small appliance, 2) 5.7 superior R&D capability and 3) strong turnaround ahead for SharkNinja driven 5.3 by synergies and robust product pipeline. The TP also implied a 0.77x 3 years adj. PEG, comparing to China/ Int’l peers’ median of 2.0x/ 1.4x. The stock is 4.9

trading at 10.8x FY20E adj. P/E or 0.52x PEG, which we think is attractive. 4.5 17/12/19 27/12/19 6/1/20 16/1/20 26/1/20 Earnings Summary Source: Bloomberg (YE 31 Dec) FY16A FY17A FY18A FY19E FY20E FY21E Revenue (USD mn) 1,103 1,563 2,682 2,996 3,411 3,853 Auditor: Ernst & Young YoY growth (%) n.a. 41.7 71.5 11.7 13.8 13.0

Adj. NP att. (USD mn) 44 54 60 155 213 260 Operating profit = Revenue - Costs of Adj. EPS (USD) 0.013 0.016 0.018 0.045 0.061 0.075 sales + Other income and gains - Selling YoY growth (%) n.a. 22.5 12.3 152.4 37.6 21.8 and distribution expenses - Adj. P/E (x) n.a. n.a. n.a. 14.9 10.8 8.9 Administrative expenses. P/B (x) n.a. n.a. n.a. 2.2 2.0 1.6 Yield (%) n.a. n.a. n.a. 0.7 1.7 3.4 ROE (%) 8.0 8.1 7.5 5.4 9.9 14.3 Net gearing (%)* Net cash 166.6 213.6 37.0 17.6 Net cash Source: Company data, CMBIS estimates, *net debt (cash) / equity

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4 Feb 2020

Contents

Investment Thesis ...... 3 Focus Charts and Tables ...... 4 Company Background ...... 5 A global, high-quality, innovative small household appliance leader...... 5 Shark on cleaning, Joyoung & Ninja on food prepration & cooking...... 5 Company’s key positives and growth drivers ...... 7 1) Emphasis on R&D to solve consumers’ pain points ...... 7 2) Cross-selling in region, product, price point to fuel growth ...... 21 3) Substantial room for efficiency boost and cost synergies ...... 30 4) Ways to tackle pressure from China-US trade disputes ...... 33 Industry Analysis ...... 36 1) Small appliances is still under developed (vs large appliances) ...... 36 2) Various sub-segments are still enjoying rapid growth ...... 38 3) Ample room for e-commerce to grow, in both China and US ...... 40 Peers Comparison ...... 41 Assumptions ...... 42 Financial Analysis ...... 43 We forecast sales growth of 12%/ 14%/ 13% YoY in FY19E/ 20E/ 21E ...... 43 We expect adj. NP att. growth of 34%/ 32%/ 21% YoY in FY19E/ 20E/ 21E...... 46 Balance sheet and Cash flow ...... 53 Valuation ...... 55 Peers Valuation ...... 55 Initiate BUY on JS Global with TP of HK$ 7.65 (~16.0x FY20E adj. P/E) ...... 56 Sharehoding Structure ...... 59 Management Profile ...... 59 Awards and Recognitions ...... 60 Key Risks ...... 61 Financial Summary ...... 62 Apprendix ...... 63

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Investment Thesis  A global, high-quality, innovative small household appliance leader. JS Global Lifestyle is a leader in the small appliance space, according to Frost & Sullivan, it has ranked the 6th/ 3rd/ 2nd largest in the world/ China/ US with market shares of 4.5%/ 8.8%/ 8.1% in FY18. It has sales of USD 2.68bn and net profit/ net profit att. of USD 112mn/ 35mn in FY18. It mainly owns 3 brands, namely Joyoung, Ninja which focus on food preparation and cooking appliances while Shark focuses on cleaning appliances. In particular, it has dominant positions in various products: High-performance Multifunctional blenders (#1) and Food processors (#1) in China, as well as Vacuums (#1), Robotic vacuums (#2), Steam mops (#2) and Multifunctional cookers (#2) in US, in FY18.

 Emphasis on R&D to solve consumers’ pain points. Solving consumer pain points is a proven growth driver and JS Global did invest a lot in R&D to achieve that. Successes of revolutionary products like Joyoung’s filter-free soy milk maker (2014) and Ninja’s Foodi (2018), evolutionary products like Shark’s Duo Clean vacuums (2016) are great examples. It spent ~USD 119mn on R&D, ~4.4% of sales in FY18 (peers’ avg. is 3.1%), while its R&D team consists of ~800 employees, ~20% of total (peers’ avg. is 12%). Recent launches: revolutionary products - 1) Multifunctional steamer S5 (2019), 2) Ninja Foodi series (2018) and evolutionary products - 3) Premium soymilk maker K-series, 4) High-performance multifunctional blender Y88 (2019), 5) Robot vacuum Shark ION (2017), in our view, should spark a new round of growth in FY18-21E.

 Cross-selling in product, region, price point to fuel growth. In our view, growth can be driven by just leveraging Joyoung, Shark and Ninja’s existing products and sales network, such as: 1) expanding Shark & Ninja into rest of the world (e.g. EU, Japan, Australia) and China, 2) selling Foodi series in EU, vacuum & robot cleaners in China, 3) penetrating into high-end segment in China with Shark.

 Substantial room for efficiency boost and cost synergies. Synergies, in our view, can be derived from: 1) sharing of supply chain between Joyoung and SharkNinja, especially leveraging Joyoung’s current flexible, agile production and its abundant resources in procurement in China and 2) sharing of R&D resources (patents, functions and expertise), etc., thus driving SharkNinja’s segment EBIT margin to 8.7% in FY21E (vs 5.4% in FY18). Also, finance costs surged due to M&A, that would provide room for JS Global’s pre-tax margin improvements, at 5% in FY18 (vs peers’ avg. of 10%).

 Ways to tackle pressure from China-US trade disputes. In our view, SharkNinja’s GP margin will be suppressed in FY19E-20E due to US’ import tariff. However, it will be partly offset by the positive factor like 1) CNY depreciation and counter measures such as 2) value reengineering by using cheaper components, 3) raising retail ASP and 4) further diversification from China (boosting overseas sales and supplies).

 Prefer small appliances, due to low penetration, innovation and E-commerce. Forecasted by Frost & Sullivan, China small appliances will deliver a ~12% sales CAGR in FY18-21E (vs ~8%/ ~5% for Global/ US), thanks to: 1) lower penetration in China (by Euromonitor), 2) rising affordability in China as wages growth outpace small appliances ASP, and 3) rapid online growth. Among various sub-segments, food blender & multifunctional cooker, vacuum cleaner and water purifier are, in our view, growing faster.

 Initiate BUY with TP of HK$ 7.65. Our TP for JS Global is based on 16.0x FY20E adj. P/E, 14%/ 13% discounts to China/ Int’l small appliances peers’ average of 18.7.1x/ 18.4x, despite its: 1) global leadership in small appliance, 2) superior R&D capability and 3) strong turnaround ahead for SharkNinja driven by synergies and robust product pipeline. The TP also implied a 0.77x 3 years adj. PEG, comparing to China/ Int’l peers’ median of 2.0x/ 1.4x. The stock is trading at 10.8x FY20E adj. P/E or 0.52x PEG, attractive. Cross checking with DCF analysis, our TP may also imply a 9.4% WACC and 2.5% terminal growth.

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Focus Charts and Tables

Figure 1: JS Global’s sales & CAGR by product Figure 2: GP/ OP/ NP/ NP att. margin trend

4,000 (USD mn) 3,853 40.0% 37.3% 37.2% 37.4% 38.0% Sales CAGR 3,411 149 31.9% 33.2% Cleaning 12% 2,996 146 1,133 30.0% 3,000 Food pre. 10% 2,682 141 Cooking 19% 150 1,018 868 Total 13% 677 20.0% 2,000 1,057 13.7% 1,563 942 9.6% 1,103 123 785 849 9.1% 9.3% 8.6% 8.3% 539 10.0% 11.1% 1,000 99 9.0% 6.8% 548 1,513 4.7% 4.2% 4.9% 581 1,138 1,304 3.1% 3.4% 5.2% 1,070 1.3% 1.8% 3.3% 456 321 0.0% 0 0 FY16A FY17A FY18A FY19E FY20E FY21E FY16A FY17A FY18A FY19E FY20E FY21E GP margin OP margin Cleaning Food preparation Cooking Others NP margin NP att. margin

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates, OP as defined on page 1

Figure 3: R&D expenses, as % of sales, last reported Figure 4: Joyoung’s growth surged after innovative fiscal year product launches in late 2018 and early 2019

12.0 (%) Average : 4.9% 35% 9.7 9.0 25% 6.1 19% 6.0 4.4 4.2 4.0 3.7 15% 3.6 3.6 3.3 12% 13% 2.3 15% 3.0 1.3 16% 14% 4% - 5% 10% 7% -1% 2% -5% 2014 2015 2016 2017 2018 1H19 Midea (X robot & auto.) Supor

Joyoung China small app. Source: Company data extracted from annual reports, CMBIS Source: Midea (000333 CH), Supor (002032 CH), Joyoung (002242 estimates CH)’s annual reports, All View Cloud, CMBIS estimates

Figure 5: JS’s retail sales & market share potential in Figure 6: Industry sales CAGR by product segment rest of the world (e.g. EU, Japan) is huge, FY18 in China (Small appliances (Small 5,000 (USD mn) 10% 70% 61% 4,424 sub sector) appliances 8.8% 55% products) 4,000 8.1% 8% 40% 30% 31% 3,000 6% 24% 25% 25% 16% 16% 20% 2,086 2,028 14% 16% 12% 4.5% 10% 2,000 4% 10% 6%5%8% 10%

1,000 2% -5% 310 0.6% - 0% China US Rest of Global the World JS sales market shares 14-18 CAGR 18-23E CAGR

Source: Frost & Sullivan, Company data, CMBIS estimates Source: Frost & Sullivan, CMBIS estimates

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Company Background A global, high-quality, innovative small household appliance leader. JS Global Lifestyle is a global leader in the small household appliance space. According to Frost & Sullivan, it is the 6th/ 3rd/ 2nd largest in the world/ China / US in FY18, with small household appliance market share of 4.5%/ 8.8%/ 8.1%. It has generated a sales of USD 2.68bn and net profit/ net profit att. of USD 112mn/ 35mn in FY18. It is the owner of three brands (Joyoung, Shark and Ninja), which engaged in various sub-sectors such as cleaning appliances, food preparation appliances, and cooking appliances, etc. In particular, it has dominant positions in various products: High-performance Multifunctional blenders (#1) and Food processors (#1) in China, as well as Vacuums (#1), Robotic vacuums (#2), Steam mops (#2) and Multifunctional cookers (#2) in US, in FY18. Figure 7: JS Global Lifestyle’s ranking and market shares, small appliance industry sales and projected CAGR 2018 JS's 2018 JS's Market size in Market size in 2018-23 Region / Product Ranking Market share 2018 (USD mn) 2023 (USD mn) Projected CAGR Global 6th 4.5% 98,307 144,550 8.0% China 3rd 8.8% 23,700 40,939 11.6% High-performance Multifunctional Blenders 1st in China 36.6% 1,707 4,980 23.9% Food Processors 1st in China 36.8% 446 672 8.5% US 2nd 8.1% 25,040 32,348 5.3% Vacuums 1st in US 36.4% 3,192 3,712 3.1% Robotic Vacuums 2nd in US 19.0% 936 2,312 19.8% Steam Mops 2nd in US 28.5% 308 370 3.7% Multifunctional Cookers 2nd in US 14.4% 598 1,196 14.8% Source: Frost & Sullivan, Company data, CMBIS estimates

Shark on cleaning, Joyoung & Ninja on food prepration & cooking. Joyoung was founded by Mr. Wang Xuning in 1994 in Hangzhou and was famous for introduction of fully automatic soymilk maker. Later in 2008, Joyoung (002242 CH) was listed on the Shenzhen Stock Exchange. Since then, the Company becomes more active at entering new categories (e.g. rice cooker, pressure cooker, food blender & processor, water purifier, etc.). SharkNinja was founded by the Rosenzweig family in 1995, but was acquired by Joyoung’s parent company Shanghai Lihong and CDH Fund V, L.P.’s wholly- owned subsidiary Easy Home in 2017. Shark and Ninja were the leading brands in cleaning and kitchen appliances in US, with key products like vacuum, steam mop, robot vacuum and food blender and multifunctional cooker, etc.

Figure 8: JS Global’s sales by region, FY18 Figure 9: JS Global’s sales by product, FY18 Other Others, Europe, markets, 5.6% 4.9% 1.8% Cooking appliances Cleaning , 25.2% appliances, 39.9%

China, North 44.4% America, 48.9% Food preparation appliances, 29.3%

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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Figure 10: Examples of Joyoung’s product series

Revenue segment Food preparation appliances Product series Soy milk maker Food blender Kitchen small appliances Water purifier Kitchen tools Product type Soy milk maker Food blender Juicer machine Noodle maker Water purifier Fryinbg pan Key functions Auto clean Auto clean

Product Image

Price (CNY) 2,799 3,599 1,499 999 8,999 499 Revenue segment Cooking appliances Product series Cooker Kitchen small appliances Kitchen appliances Product type Rice cooker Rice cooker Pressure cooker Smart cooker Oven Range hood Key functions Steam Induction Heating Water cooling Auto stir fry Steam Wall mount

Product Image

Price (CNY) 2,699 2,999 2,499 1,999 2,499 9,999 Source: Joyoung.com, Company data, CMBIS estimates

Figure 11: Examples of Shark and Ninja’s product series

Revenue segment Cleaning appliances Product series Vacuum cleaners Steam mops Product type Upright vacuum Cordless vacuum Handheld vacuum Robot vacuum Corded stick vacuum Steam mops Key functions Lift-Away Multi-FLEX WANDVAC WIFI & Voice Lift-Away Touch-free

Product Image

Price (USD) 259.99 299.40 139.99 299.99 199.80 159.99

Revenue segment Food preparation appliances Cooking appliances Product series Blenders & food processors Coffee & tea makers Cookers Product type Kitchen System Blender Brewed System Foodi Cooker Foodi Foodi indoor grill New functions Intelli-Sense Chef Hot & Cold Brew Air fry Air fry & Pressure Smoke-frree

Product Image

Price (USD) 269.00 179.99 229.99 139.99 279.00 299.75 Source: Sharkclean.com, Ninjakitchen.com, Company data, CMBIS estimates

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Company’s key positives and growth drivers 1) Emphasis on R&D to solve consumers’ pain points Solving consumers’ pain points is a proven way to drive better sales, in order to achieve that, JS Global invests a lot in R&D to develop better technology and product. In fact, it was a critical part of Joyoung and SharkNinja’s growth in the past. According to its annual reports, Joyoung (002242 CH)’s successes was not only about its innovation in soymilk maker in the 1990s, but also a lot of achievements in recent years. For example, according to Joyoung (002242 CH)’s annual reports, its adoption of Induction Heating (IH) technology in 2012 and introduction of Filter-free technology in 2014, in our view, has meaningfully contributed to the rapid sales growth during FY13/ 14/ 15 (8%/ 12%/ 19% YoY), while the launch of high-performance multifunctional blender in 2016 and the adoption of 3D-heating and wash free technology in 2017, has led to the impressive growth in FY18 (13% YoY).

Future consumers’ pain points may lie on: 1) busier lifestyle and growing demand for better functions, 2) greater appetite for style and quality, and 3) rising health awareness, etc. We believe the importance of R&D would be even greater, due to industry consolidation (top 10 small appliance brands combined market share in China had gone up from 67.3% in 2014 to 86.4% in 2018), therefore, staying competitive should be more essential than ever. JS Global, in our view, has industry leading dedication in R&D, and with better tech and product rollouts in 2019, we are confident on its growth trajectory.

 1.1 JS has an industry leading capital and personnel investments in R&D. JS Global highly values the importance of R&D, and has put in huge amount of investments in both capital and personnel. The Company has opened Research and Development centres in five cities in China, US and UK (Hangzhou, Shenzhen, Suzhou, Boston and London), which focus on 1) revolutionary product development, 2) evolutionary product development and 3) upgrade and enhancement of current models.

In FY18, the global R&D team consisted of ~800 employees and accounted for ~20% of total employees, by fairly high amongst the leading home appliance brands in China, and far higher than peers’ average of 11.4%. In terms of expenses, JS Global spent ~USD 119mn on R&D, ~4.4% of total sales in FY18, close to peers’ average of 4.9%, and in general, higher than domestic companies’ average (at 3.1%, excluding Philips, Panasonic and SEB). We estimate R&D expenses ratio to be ~3%/ ~5% for Joyoung/ SharkNinja.

Figure 12: R&D expenses, as % of sales, last reported Figure 13: R&D employees, as % of total, last fiscal year reported fiscal year

12.0 (%) Average : 4.9% 25.0 (%) Average : 11.4% 20.0 19.5 9.7 20.0 9.0 13.6 6.1 12.4 15.0 12.2 6.0 4.4 4.2 4.0 10.7 10.4 10.2 3.7 3.6 3.6 3.3 10.0 8.3 2.3 4.3 3.0 1.3 5.0 3.5 - -

Source: Company data extracted from annual reports, CMBIS Source: Company data extracted from annual reports, CMBIS estimates estimates

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Figure 14: Three types of R&D directions for JS Figure 15: Number of patents by brand, China Global

60,000 49,489 50,000 40,205 40,000 30,000 20,000 7,343 6,663 10,000 5,687 3,509 1,041 537 0

2015 2016 2017 2018

Source: Company data, CMBIS Source: Wind, CMBIS estimates

 1.2 JS also fully utilizes consumers’ reviews and feedback. During the technology and product development process, JS Global will intake vast amount of external data, including customers preference, feedbacks and consultancy.

For examples: 1) during the product planning phase, it has watchlists to monitor market trends and targets to be predictive, in order to develop a consumer relevant product road map for the next 1 to 5 years, 2) during the product development phase, where product launches should be in the next 6 months to 3 years, numerous customer feedback will be integrated into the process, ranging from external consultants’ independent advises, to significant amount of online and offline reviews regarding consumer experience, user- testing, retail staffs’ comments, etc., in order to perfect the final end product. Moreover, before the commercial production, the Company will take around 1 to 3 months to build prototypes for various product trail to, again, obtain more feedbacks.

All in all, the Company will be agile and try their best, to pulse consumers, to ensure that the products deliver as close to 5-star rating through online consumer reviews as possible.

 1.3 We believe R&D capability will surge, thanks to tech transfer and sharing. After the acquisition of SharkNinja, we believe there exists huge room for synergies regarding the product and technology R&D. For instance: 1) there will be costs savings and economies of scale, as the existing products can now be sold to more places in the world (China, US, EU, etc.); 2) there could be sharing of patents and tech know-how, hence enabling launches of more advanced products with shortened development time; 3) there exists sharing of expertise on supply chains as well as local customers’ taste and preferences. All of the above, in our view, should provide certain leverage, as those should involves limited and minimal additional costs.

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 1.4 Joyoung’s past success was built on innovative product upgrades. In the course of Joyoung’s development, there were many examples of technology or product breakthrough leading to explosion of demand and rocket sale growth. We believe there exists meaningful correlation between R&D investments and subsequent growth.

For examples, Joyoung’s current success and dominant position in soymilk maker, in our view, was highly related to its dedication of product innovation and its introduction of the first fully automatic soymilk maker back in 1994.

Also, from the numbers of Joyoung (002242 CH) ’s annual reports, Joyoung, since its IPO in A-shares in 2008, has slowly increased its R&D expenses, as % of total sales, from 2.0% in 2010 to 3.2% in 2013. We believe this has at least partly contributed to its rapid sales growth of 8%/ 12%/ 19% YoY during 2013-2015. According to Joyoung (002242 CH)’s annual reports, in 2012, Joyoung adapted really quick to the key technology of Induction Heating (IH) and started applying it to various types of appliances. Soon after the launch of the high-performance T-series IH rice cooker in 2014, the entire rice cooker product line actually became the second largest product line (after the soymilk maker) in 2016, indicating a great success.

We believe there are some meaningful similarities here, between 2010 to 2013 and 2016 to 2018, where Joyoung had raised its R&D expenses from 3.0% of sales in 2016 to 3.6% in 2018. With the current positive receptions of the new products launches (e.g. K-series Soymilk maker, equipped with 3-D Heating, Low-noise and Wash-free technology, plus S5 Multifunctional steamer and Y88 of High-performance Multifunctional food blender in Mar 2019), the sales growth in 1H19 reached 15% YoY, faster than its major competitors Supor/ Midea’s 11%/ 9%, and way better than the industry growth of 2%, according to their annual reports and data from All Cloud View.

Figure 16: Joyoung (002242 CH) historical sales growth and R&D expenses

Technology: Start to use Induction Soy mlilk Introduction of 3D Heating (IH) technology maker's Filter- Heating, Low-noise on many other product free technology and wash-free categories in 2012 released in 2014 technology in 2017 Shark Launch of steamer Entering Launch of Launch of Launch of products S5, K-series water purifier noodle T-series IH HPM start selling soymilk maker and Product: business in maker in rice cooker blender in in China in HPM blender Y88 in 2011 2013 in 2014 2016 2018 2019 20% 19% 4.0% 3.7% 15% 3.6% 3.6% 15% 3.6% 14% 12% 13% 3.2% 10% 3.2% 3.0% 7% 8% 2.9% 2.9%

5% 2.7% 4% 2.8%

2.4% 0% 2.2% 2.4% -1% 2.0% -3% -5% -5% 2.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E

JY - Sales growth (%) R&D, as % of sales

Source: Joyoung (002242 CH)’s annual reports, Bloomberg, CMBIS estimates

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Thanks to Joyoung’s dedication in product quality and technology innovations, it has gained significant market shares in various product segments, such as: food processors, blenders, juice extractors, kettles, fryers, etc. We believe the increase or best use of R&D expenses should drive greater momentum of product releases and future sales growth.

Figure 17: Joyoung has gained massive market Figure 18: JS Global’s sales to climb along with R&D shares in past 10 years in China expenses

45% 43% (market shares in China) 4,500 (USD mn) 6.5% 3,853 30% 29% 3,411 30% 2,996 5.5% 25% 24% 23% 3,000 2,682 14% 16% 15% 15% 11% 4.5% 9% 11% 1,563 4.7% 4.8% 4.4% 4.5% 0% 0% 1,500 1,103 0% 3.5% 3.6% 3.0% 0 2.5% FY16A FY17A FY18A FY19E FY20E FY21E

2009 2018 Sales R&D expenses

Source: Euromonitor, CMBIS estimates Source: Company data, CMBIS estimates

Figure 19: IH technology by Joyoung - since 2014 Figure 20: IH technology by Joyoung - since 2014

Source: Joyoung’s advertisement on Tmall, CMBIS estimates Source: Joyoung’s advertisement on Tmall, CMBIS estimates

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Figure 21: Wash-free and Low-noise technology - Figure 22: Continuous high-temperature steam- since 2017 powered heating technology - since 2019

Source: Joyoung’s advertisement on Tmall, CMBIS estimates Source: Joyoung’s advertisement on Tmall, CMBIS estimates

Figure 23: List of tech breakthrough – Joyoung Year Technology name Technology explained Traditionally, soybean has to be soaked first, placed under water for at least 8 hours at room temperature before cooking. However, Joyoung had developed a ultra-fine grinding 2009 Soak-free technology to ensure instant and adequate grinding for better tastes and nutrition absorptions Unlike a standard electric heating which cooks from bottom up, the induction heating 2012 Induction Heating (IH) provides heat all round and the high pressure allows the temperature to get much hotter and penetrates the food into its centre, give the food better texture and taste Filter-free is achieved by promoting blending technology through combing our original filter 2014 Filter-free grid and tri-serrated blade propeller with a high-speed motor. This will give a more delicious, smooth and fine taste High-performance A new type of machine equiped with extra fast and strong blending, heating, and nutrient 2015 multifunctional extraction capability. Blending power has been trending up from 500W to over 1,500W, blender while revolution per mintue (RPM) going up from 10,000 to 30,000 or above Extra Merge & Best preserves the flavor and nutrients of ingredients by ensuring that cell walls are broken 2016 Vacuum Seal down at the optimum 97 Degrees Celsius, and keeps juice fresh for up to 12 hours Can achieve a 360-degree efficient heating effect and heat can be spread more evenly to 3D Heating & Low- 2017 aviod over-cooking. Apart from using low-noise DC motor, Joyoung's patened noise noise reduction technolgy involves an automatic leveling suspension system Wash-free and Enables soymilk makers to achieve 360-degree automatic self-cleaning through high- 2017 automated pressure spray washing, high-temperature steam washing and high-speed stirring washing

Cold-water pressure- Can safely release cooker's pressure within 2 to 4 minutes after cooking, as compared to 2018 release 20 to 40 minutes release time of more conventional alternatives Continous high Continuous, stable and controllable high-temperature steam can be circulated in the 2019 temperature steam- ingredients, thus able to deliver cooking results with better texture and no excess water powered Heating Source: Joyoung’s advertisement on Tmall, Company data, CMBIS estimates

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4 Feb 2020

 1.5 Strong product offerings have driven outperformance since 1H19. Thanks to massive upgrades on product functionality and product appearances, Joyoung sales started to outperform the industry again in 1H19.

Figure 24: Joyoung (002242 CH) sales growth picked Figure 25: Joyoung segment & others sales growth up in 1H19 to accelerate

35% 1,800 (USD mn) 1,634 30%

1,500 1,425 25% 1,279 19% 1,204 20% 1,200 1,103 1,087 15% 15% 12% 13% 15% 11% 11% 16% 900 10% 14% 4% 6% 5% 10% 600 7% -1% 0% -1% 300 2% -5% 2014 2015 2016 2017 2018 1H19 0 -10% FY16A FY17A FY18A FY19E FY20E FY21E Midea (X robot & auto.) Supor Joyoung China small app. Cleaning Food preparation Cooking Others

Source: Midea, Supor, Joyoung’s annual reports, All View Cloud, Source: Company data, CMBIS estimates CMBIS estimates

From the point of view of JS Global, we believe the recent launches (according to Joyoung, Shark and Ninja’s official websites, Amazon and Tmall, etc.): 1) Revolutionary product - Multifunctional steamer S5 (2019) , Ninja Foodi (2018) and its subsequence product series Ninja Foodi grill & oven (2019), 2) Evolutionary products - Robot vacuum Shark ION (2017) and its upgraded products Shark IQ robot (2019), and 3) Upgraded products - Premium soymilk maker K-series & High-performance Multifunctional blender Y88 (2019), could spark new round of growth in FY18-21E.

We expect Multifunctional steamer and High-performance Multifunctional blender to be further developed into S-series and K-series in the future, so offering more models with different price points and designs.

Figure 26: JS Global historical and recent products pipeline 2013 or before 2014 - 2016 2017 - 2019

Joyoung - Automatic soymilk maker (1994) Revolutionary Joyoung - Automatic stirfryer (2016) Joyoung - multifunctional steamer S-series (2019) products Shark - No-Loss-of-Suction (2008) & Lift-Away (2010) (Original or & Rocket Ultra-Light corded stick vacuum (2013) Shark - ION Flex cordless stick vacuum (2017) Market first) Ninja - Kitchen System (2010) Ninja - Foodi air fry/ pressure cook multifunctional cooker (2018)

Joyoung - noodle maker (2013) Joyoung - Filter-Free soymilk maker Joyoung - 3D Heating, Noiseless and Wash-Free Evolutionary (2014) soymilk maker (2017) products Shark - Steam mop with Pocket Pad (2010) Shark - DuoClean Upright vacuum Shark - Shark ION robot vacuum (2017) & ZeroM (Market- (2016) vacuum (2018) disruptive) Ninja - Smart Screen Kitchen with Fresh-Vac Tech Ninja - Nutri Ninja Auto-IQ (2015) (2018) & Hot and Cold Brew System (2018) Joyoung - Induction Heating rice Joyoung - cold water pressure cooker (2017) & soymilk Upgraded Joyoung - water purifier (2011) cooker T-series (2014) maker K-series & food blender Y-series (2019) products (enhanced Shark - Powered Lift-Away vacuum functionalities (2014) Shark - Wandvac vacuum (2018) and designs) Ninja - Coffee Bar System (2016) Ninja - Foodi Grill (2019) Source: Joyoung (002242 CH)’s annual reports, Joyoung.com, Sharkclean.com, Ninjakitchen.com, Company data, Amazon, Tmall, CMBIS est.

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4 Feb 2020

As part of Joyoung’s new branding strategy “悦享健康/ happily enjoy the healthy lifestyle”, the Company introduced its new brand ambassador “邓伦/Denglun”, three revolutionary new products/ series and numerous other new products in Mar 2019. These three key products/ series presented during its 2019 product launch event (according to press releases on Joyoung’s website), are: 1) Premium automatic and wash-free soymilk maker K-series (K1S, K mini and Ksolo), 2) Automatic and wash-free multifunctional blender Y88 and 3) Multifunctional Steamer S5. While many other products were also released at the briefing, including: Water purifier JR5001, Pressure cooker 50K7, 50Q7, drinking water machine K20-S1, Automatic fryer J7s, J1, as well as Dish washer XT601.

According to a survey done by iResearch, Appearance/ designs has become a more and more critical feature when buying home appliances for the customer groups which were born in the 70/85 and 86/90.

We believe those newly introduced products have a more trendy or cool appearance vs the older versions, due to the Company’s strategy of appearance upgrade, in order to capture the demand from the 80-90s consumer group better. We also expect a more exciting product pipeline for 2H19E, where the premium steamer S5 and high-performance multifunctional blender Y88 are likely to be further developed into a Series. Thus we forecast sales growth of the entire Joyoung brand to accelerate to 7%/ 12%/ 15% YoY in FY19E/ 20E/ 21E.

Figure 27: Joyoung’s new brand ambassador “邓伦/Denglun” & products S5, Y88 and K1S - since 2019

Source: Joyoung.com, CMBIS

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4 Feb 2020

 1.6 Shark’s growth picked up after launch of robot vacuum and tech upgrades. According to Frost & Sullivan, the vacuum industry sales CAGR from 2014 to 2018 was only 2.4%. However, Shark’s cleaning segment’s sales growth rocketed by 21% in FY18. Apart from its expansion to overseas region (e.g. UK and Canada), the major drivers for this growth were: 1) launch of new products (e.g. Cordless handheld vacuum) equipped with new technology (e.g. Wandvac) , light weight with improved suction power, thanks to the more powerful motor installed, and 2) greater sales from the new segment, as Shark entered into the robot vacuum space by launching Shark ION in 2017.

Noted that the cordless handheld vacuum - Shark Wandvac was actually rather successful as it became fairly popular in China in 2018.

Figure 28: Shark WANDVAC handheld vacuum - Figure 29: Shark ION robot vacuum - since 2017, since 2018 latest version is wifi - connected

Source: Amazon.com, CMBIS Source: Amazon.com, CMBIS

According to our research on Amazon.com, Shark ION has an ASP of ~USD 250, which is about 40-60% discount to iRobot’s average price of ~USD 500. Therefore, thanks to: 1) Shark’s strong brand equity (No.1 vacuum brand in US) plus its reputation of value for money and 2) Shark and Ninja’s long and solid relationship with their existing retailers (e.g. Walmart, Target, Costco, Amazon, Kohl’s, Bed Bath & Beyond and Sam’s Club, etc.), it managed to have a quick ramp up and achieve ~20% of market shares in FY18, from 0% in FY16. However, we need to beware that related marketing fees would also be substantial and hence short term margins may be affected, when entering a band new category.

Figure 30: Vacuum’s range and average of retail Figure 31: Robot vacuum’s range and average of selling prices, by brand in US retail selling prices, by brand in US (USD) (USD) 600 1,500

450 1,200 315 300 238 220 900 145 140 135 101 600 489 482 444 150 72 377 289 277 273 243 300 - -

Source: Average price of top 20 hot selling items from Amazon.com, Source: Average price of top 20 hot selling items from Amazon.com, CMBIS estimates, as at Sep 2019 CMBIS estimates, as at Sep 2019

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4 Feb 2020

We believe sales growth in FY19E could remain fast, at 17% YoY, thanks to better product offerings ahead. According to Shark’s website/ Amazon.com, an upgraded version of Shark robot vacuum (e.g. Shark IQ Robot) will be released soon in 2H19E with better functions, such as 1) WIFI & Home Mapping and 2) Self-Empty intelligently. Home mapping function enables the robot to map your home (able to see on APP) and will allow you to give orders to it, while saving more energy by reducing double cleaning. Self-Empty function is also be available, thanks to a bagless base that can hold up to 30 days’ worth of dirt and debris.

Figure 32: SN’s cleaning growth resumed in FY18 Figure 33: Robot with home mapping to be out soon

1,500 (USD mn) 21% 1,381 25% 1,300 1,244 20% 1,121 1,067 11% 11% 15% 1,100 902 881 5% 10% 900 0% 5% 700 -2% 0% 500 -5%

Cleaning Growth (%)

Source: Company data, CMBIS estimates Source: Sharkclean.com, CMBIS

Figure 34: Sales mix of products with Home mapping Figure 35: New features of Shark IQ Robot - product function increased quick in China in 2018 to be release soon in 2H19E

80% 72%

60% 54% 55%

40% 25% 20%

0% Online Offline 2017 2018

Source: China Market Monitor, CMBIS estimates Source: Sharkclean.com, CMBIS

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4 Feb 2020

Figure 36: DuoClean and ZeroM technology invented by Shark - since 2016 and 2018 respectively

Source: sharkclean.com, CMBIS

Figure 37: List of tech breakthrough – Shark Year Technology name Technology explained

Guaranteeing constant suction power even when the dirt canister is full and minimized the 2008 No-Loss-of-Suction chance of clogged hose and roller

Changed the way customers clean above floor areas with their upright vacuums by enabling 2010 Lift-Away them to lift away the canister for easy cleaning of stairs, furniture and other areas above the floor Rocket Ultra Light Stick vacuums provide ultra light deep cleaning and Upright vacuums are for whole-home 2013 stick deep cleaning

Provided all benefits of Lift-Away and in addition allowed the consumers to deep clean hard- 2014 Powered Lift-Away to-reach areas above the floor, under furniture and on surfaces such as furniture surfaces, while still delivering power to keep the brush roll spinning Two distinct brush rolls to take on carpets and floors with ease: One bristle brush to deep 2016 Duo Clean powerhead clean carpets and an additional soft brush to pull in larger particles and directly engage floors to remove stuck on dust leaving behind a polished look High-performance cordless stick vacuums are for lightweight quick cleaning both on the 2017 ION Flex floor and above floor

2018 ZeroM A self-cleaning brush roll technology that eliminates hair wrap

2018 Wandvac High-performance cordless handheld vacuums that provide on-the-spot cleaning

Source: Shark’s advertisement on Amazon, Company data, CMBIS estimates

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4 Feb 2020

 1.7 Ninja brand growth shall rebound significantly, thanks to launch of Foodi. According to Frost & Sullivan, the Ninja brand was ranked second with ~14.4% market share in US in terms of multifunctional cooker sales in FY18. Thanks to launch of a highly revolutionary product – Foodi, a pressure cooker that can crisp and fry in FY18, we believe the brand’s sales growth could surge in FY19E.

Figure 38: Ninja Foodi and Shark ION become popular in 2018 and 2017, in terms of google search counts

Source: Google.com, CMBIS

Figure 39: Ninja Foodi, equipped with both Pressure cooking & Air Fryer functions - since 2018

Source: Amazon.com, CMBIS

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4 Feb 2020

Figure 40: SN’s cooking & food preparation sales and Figure 41: Overall SharkNinja sales and growth growth to speed up in FY19E

1,000 (USD mn) 170% 200% 2,500 (USD mn) 2,219 30% 821 1,986 2,000 800 723 150% 1,717 20% 1,438 1,477 16% 52% 576 1,500 1,355 16% 600 506 100% 12% 447 9% 10% 388 45% 1,000 400 20% 50% 4% 0% 0% 500 200 0% -6% 1% 5% 4% 0 -10% -22% -19% 0 -50% FY16AFY17AFY18A FY19E FY20E FY21E Cooking Food preparation Food prep. growth Cooking growth Cleaning Food preparation Cooking Others

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

The Company already has plans to expand this Foodi into a product series. According to Ninja’s website/ Amazon.com, products such as Ninja Foodi indoor grill and Ninja Foodi digital air fry oven are now all available in Sep 2019, thus we expect brand’s sales growth to remain fast in FY20E/ 21E.

Figure 42: Ninja Foodi grill - since 2019 Figure 43: Ninja Foodi digital airfry oven - since 2019

Source: Ninjakitchen.com, CMBIS Source: Amazon.com, CMBIS

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4 Feb 2020

Figure 44: Auto-IQ technology by Ninja - since 2015

Source: Amazon.com, CMBIS

Figure 45: Fresh Vac technology - since 2018

Source: Amazon.com, CMBIS

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4 Feb 2020

Figure 46: List of tech breakthrough – Ninja Year Technology name Technology explained

2009 Ninja Master Prep The ability to turn ice into snow for at-home frozen drinks combined with precision chopping

Combined professional blending and food processing capabilities by utilizing one blender 2010 Ninja Kitchen base with multiple attrachments

2015 Auto-IQ Enables intelligent control to breakdown fruits and vegetables for nutrient extraction

Thermal Flavor A brewing technology that enables coffee lovers to make a variety of coffee sizes from a full 2015 Extraction carafe to a single cup and styles from hot to iced to specialty brew for lattes, cappuccinos Not only can deliver the same variety of coffee sizes and styles as a regular coffee car but Advanced Thermal 2016 also unlocks the ability to create perfect teas from hot to iced specialty tea drinks using any Flavour Extraction type of tea varieties Removs oxygen from either a single-serve cup or full-size pitcher to maintain the color, 2018 Fresh Vac flavor and texture of blended fruits and vegetables for a longer time This innovative product is a pressure cooker that crisps the food, allowing consumers to get Ninja foodi - Tender 2018 the speed and tenderness provided by pressure cooking along with the crispness offered by Crisp air frying all in one pot Ninja Hot and Cold Making the termperature of the drinks more precise and adjustable, in order to better control 2018 Brew System and enhance the drink quality, according to different drink types Source: Ninja’s advertisement on Amazon, Company data, CMBIS estimates

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4 Feb 2020

2) Cross-selling in region, product, price point to fuel growth Following the acquisition of SharkNinja, we believe the potential for cross-selling is both massive and manifold, due to the difference in 1) region (SharkNinja in US vs Joyoung in China), 2) product line (Shark on Cleaning vs Ninja and Joyoung on food preparation and cooking) and 3) in price point (SharkNinja is high-end to premium vs Joyoung is mid to high end). With the Company’s sophisticated management and operation team, we are confident that the potential can be unlocked and translate into decent growth in near future.

Figure 47: List of cross-selling opportunities Regions Products Price points Vacuum & Robot vacuum in Robot vacuum penetrate into "Shark" & "Ninja" expanding US, China & rest of the mass market with superior into EU & rest of the world world cleaning ability Cleaning & Cooking Cleaning & Cooking appliances under "Shark" "Shark" expanding into China appliances into China into high-end/ premium segment in China Source: Company data, CMBIS estimates

 2.1 Small appliance market size in the rest of the world (including Europe) is much larger than China or US. According to Frost & Sullivan, annual sales of small appliance in the World in 2018 was USD 98.3bn, where China and US contributed USD 23.7bn and USD 25.0bn respectively. However, sales size in the rest of the world is much larger at USD 49.6bn. In fact, JS Global’s market shares in the rest of the world is very low at 0.6% only, vs 8.8% and 8.1% in China and US. Given such low market share and huge market size for the rest of the world, we believe JS Global has ample room for further expansion.

Figure 48: JY’s and world’s small appliance sales mix Figure 49: JS’s market share in EU is still low

100% 5,000 (USD mn) 10% 7% 12% 4,424 8.8% 80% 4,000 8.1% 8% 50% 49% 48% 60% 3,000 6% 2,086 2,028 4.5% 2,000 4% 40% 25%

20% 44% 40% 1,000 2% 25% 310 0.6% 0% - 0% JS - FY18 JS - FY21E Global - FY18 China US Rest of Global the World China US Rest of the World JS sales market shares

Source: Frost & Sullivan, Company data, CMBIS estimates Source: Frost & Sullivan, Company data, CMBIS estimates

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4 Feb 2020

 2.2 Foundation in EU was laid (esp. in UK) and expansion may accelerate. The Company has already entered the UK market in 2013, and even achieved the positions of No.6 in the UK small appliance market and became the No.3 in UK vacuum market in 2018. Actually, strong sales performance was registered in FY18, thanks to 1) continual marketing efforts in recent years, 2) increased retailer penetration as well as 3) rising contribution from the Company’s self-owned e-commerce website.

Going forward, we expect robust growth in UK during FY19E-21E, driven by further expansion of Shark (esp. robot vacuum segment) and Ninja brand. Joyoung also held a product launch for its multifunctional steamer in London in May 2019, which received positive comments from mainstream media in Europe. Also, the Company has already extended its footprint to Germany, France and Japan and should further expand in FY19E.

From our perspective, in order to penetrate into new regions or new categories, certain initial investments may be needed, namely: 1) R&D and product localization and development, 2) staff costs as new sales and supporting teams setting up, 3) subsequent marketing fees and 4) additional commissions for channel expansion. In our view, since most of these costs were upfront and some like the R&D expenses may have spent in the past already, the actual investment of selling existing products to a new area could be rather costs effective and hence may enjoy a higher profit margin (e.g. SharkNinja’s expansion into EU).

Figure 50: JS’s sales mix by region Figure 51: Sales CAGR by region, FY18-21E

4,000 (USD mn) 50% 373 41% 287 40% 3,000 205 132 30% 2,000 36 20% 17% 5 12% 13% 1,000 9% 10%

0 0% FY16A FY17A FY18A FY19E FY20E FY21E China North Europe Other Total China North America Europe Other markets America markets

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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4 Feb 2020

 2.3 Penetrating into fast growing categories - Shark vacuum & robot in China. We are very optimistic on Shark brand’s expansion in China, due to positives from both industry and company specific aspect. In terms of industry, vacuum is still a very much underpenetrated industry in China, where out of 100 households, only 12 families would have owned one, much lower than US’ 150 and Japan’s 95. Also, according to Frost & Sullivan, sales CAGR for vacuum and robot vacuum in China would be 25% and 31% respectively during FY18-23E.

Figure 52: Industry sales CAGR, by category in China Figure 53: Penetration, by category, by region, 2018 (Small appliances (Small 70% 61% (Number per 100 households) sub sector) appliances 150 55% products) 160

40% 30% 31% 24% 25% 120 105 16% 16% 20% 95 25% 14% 16% 12% 90 10% 10% 6%5%8% 10% 80 50 45 -5% 40 35 40 7 12 0 China US UK Japan S. Korea 14-18 CAGR 18-23E CAGR High-performance multifunctional blender Vaccums

Source: Frost & Sullivan, CMBIS estimates Source: Frost & Sullivan, CMBIS estimates

 2.4 JS Global can penetrate into high-end segment via Shark brand in China. We forecast revenue of the Shark brand to be USD 17mn/ 60mn/ 133mn in FY19E/ 20E/ 21E, registering a CAGR of ~260% in FY18-21E. We are fairly confident, because: 1) Shark is the No.1 brand in cleaning appliance in US, its superior brand equity and technology should be easily leveraged, 2) Joyoung’s team could provide a lot of valuable data about Chinese consumers and advises concerning the expansion in China, and 3) Shark’s current ASP is only at around ~RMB 1,400 (according to our research on Tmall), which is still way below domestic brand Lexy’s ASP of ~RMB 2,500 (same as last one), thus with better product quality, ASP could climb gradually. Also, the launch of Shark robot vacuum in China can drive meaningful sales growth and boost overall margin. We expect products like 1) Steam mop and 2) Cordless handheld vacuum to the key products to penetrate into China.

Figure 54: Vacuum’s range and average of retail Figure 55: Shark’s China sales and growth selling prices, by brand in China

7,000 (RMB) 160 (USD mn) 500% 500% 133 5,500 400% 3,849 120 4,000 2,509 2,314 250% 300% 80 2,500 1,379 1,296 60 976 714 536 513 200% 1,000 120% 40 100% (500) 17 0 0 3 0 0% FY16A FY17A FY18A FY19E FY20E FY21E

Shark's China sales Growth (%)

Source: Average price of top 25 hot selling items from Tmall, Source: Joyoung (002242 CH)’s annual reports, CMBIS estimates Company data, CMBIS estimates, as at Sep 2019

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4 Feb 2020

 2.5 There exists many other products for cross-selling, e.g. leveraging Joyoung’s technology on Ninja brand Joyoung has many star products: 1) 3D Heating, low-noise, wash-free soymilk maker and food blender, 2) High-performance steamer, automatic fryer, etc. These can all either be sold in other regions through Shark Ninja’s global network. Or, Joyoung may make a tech transfer to Ninja, and begin to sell products with these functions under the Ninja brand in US, Canada or Europe. Vice versa, products like: 1) Ninja Kitchen, 2) Ninja Foodi (pressure cooker + air fryer) and 3) Ninja Hot & Cold Brew System, can all be sold in China, similarly.

Figure 56: JS’s sales mix by segment Figure 57: Sales CAGR by segment, FY18-21E

4,000 (USD mn) 20% 19%

15% 13% 3,000 1,133 12% 1,018 10% 868 10% 677 2,000 5% 539 0% 1,000 0% 548 -5% 0 FY16A FY17A FY18A FY19E FY20E FY21E Cleaning Food preparation Cooking Others

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

 2.6 Expanding category - A major strategy adopted by Joyoung long ago. Joyoung’s sales has reached RMB 8.7bn in FY18, about 90% higher than that in FY08, the year which IPO-ed in Shenzhen Stock Exchange. According to Joyoung (002242 CH)’s annual reports, throughout these past years, the popularity, importance and sales contribution of soymilk maker has been falling gradually (it stopped falling in FY18, in fact, thanks to launch of premium K-series soymilk makers), therefore, the extra sales growth was from other product categories. We can tell that the sales mix from nutrition pot and western-style appliance already reached 34% and 8% in FY18. Joyoung, inline with its branding concept reform, from “Joyoung=Soymilk maker/ 九阳= 豆浆机” to “Joyoung=quality lifestyle small appliances/ 九阳=品质生活小家电”, has actively expanding its business into other product categories (e.g. water purifier since 2011, IH rice cooker since 2012, noodle maker since 2013, High-performance multifunctional food blender since 2016). We believe JS Global is capable of further category expansion. Figure 58: Joyoung (A-share)’s major product lines Figure 59: Joyoung (A-share)’s sales % by segment Name of Examples of major Chinese 80% categories product 60% Soy milk maker, Food 42% Food 食品加工 processor, Food blender, 40% 34% processor 机系列 Noodle maker, Juicer 13% machine, Smart fryer 20% 8% 营养煲系 Rice cooker, Pressure Nutrition pot 0% 3% 列 cooker, Kettle Western-style 西式电器 Water purifier, Microwave appliance 系列 oven, Oven, Dish washer Food processor Nutrition pot Induction 电磁炉系 Induction stove Western-style appliance Induction stove Others stove 列 Source: Joyoung (002242 CH)’s annual reports, CMBIS estimates Source: Joyoung (002242 CH)’s annual reports, CMBIS estimates

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4 Feb 2020

 2.7 ASP should continue to climb, in the long run, driven by consumption upgrades, for better functionality and design Historically speaking, home appliances are enjoying ASP increases from 2015 to 2018, from the data of All View Cloud. And among different types of small appliances, those had experienced more increases in ASP during 2016 to 2018, are: 1) Blenders & food processor, 2) Clothes dryer, Drinking water purifier, 3) Oven, 4) Vacuum cleaner, etc. We believe these are mostly driven by significant innovation in functionalities.

Figure 60: Small appliances ASP and growth Figure 61: Products experienced more innovation did enjoy greater ASP increases

550 (RMB) 9.4% 10% 900 (RMB) 5.7% 4.5% 495 700 500 5% 1.1% 473 500 450 433 440 0% 405 409 300 400 -7.6% -5% 100

350 -10% (100) 2014 2015 2016 2017 2018 1H19 2014 2015 2016 2017 2018 1H19 Microwave oven Food blenders Oven Juicer Small appliances ASP Induction stove Kettle Rice cooker pressure cooker Small appliances ASP growth (%) Soymilk maker vacuum cleaner

Source: All View Cloud, CMBIS estimates Source: All View Cloud, CMBIS estimates

And according to China Market Monitor, higher priced home appliances contributed more in 2018, compared to that in 2016. This is also an evidence supporting the trend of gradual increase in home appliances ASP during 2016 to 2018.

Figure 62: high-end products accounted for more sales in 2018, vs 2016

Source: China Market Monitor, CMBIS estimates

We have noticed that, in the short run, ASP for small appliances in China may have dropped by 8% YoY to RMB 440 in 1H19, from data provided by All View Cloud (AVC). The reasons behind, in our view, are: 1) economic and industry downturn amid softening of the China property market and 2) stepped up efforts to penetrate deeper into lower tier cities in China by various E-commerce platforms. This trend, in our view, may last until FY20E.

But in the longer run, we believe the ASP will resume growth in FY20E and beyond, thanks to 1) rising income per capita in China, and 2) consumption upgrades or greater demand for products with better functions or designs.

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According to a survey done by iResearch in 2017, factors such as: 1) better living quality and 2) greater convenience, are the most important factors when purchasing home appliances for most of the consumers (except the group of 00 and beyond). We believe JS Global expansion strategy is totally concur with these values, and by rolling out more models with better looking, better designs, more innovative and functional, ASP can also be raised gradually.

Figure 63: Key factors when purchasing home appliances for different age groups – in 2017

Source: iResearch Inc., CMBIS estimates, sample size – 157 for 50/60, 1301 for 70/85, 1035 for 86/90 and 390 for 00 and beyond

According to our research, Joyoung’s ASP on Tmall was at ~ RMB 560, which is slightly higher than Supor and Midea’s ~ RMB 500 and RMB 460, thanks to its better brand equality. However, we believe there exists more room for Joyoung’s ASP to grow, and the gap between Philips, Panasonic could gradually narrow in the future.

Figure 64: Strategy to capture consumer demand Figure 65: Home appliances’ range and average of retail selling prices, by brand in China Consumer (RMB) Solutions Benefits demand 6,000 5,000 Better looking 4,000 Driving up traffic 2,536 1. More trendy store formats 3,000 lifestyle 2,000 Better design of 836 646 Driving up ASP 565 537 492 465 413 344 products 1,000 - More shopping Driving up sales 2. Easier mall stores access/ reach More social Driving up A&P media marketing efficiency

Source: CMBIS estimates Source: Average price of top 25 hot selling items from Tmall, Company data, CMBIS estimates, as at Sep 2019

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4 Feb 2020

According to iResearch, the groups which born in 70/85 and 86/90 are the major purchasers of home environment, food preparation and cooking appliances, therefore JS Global has to understand their preference and be already to cater for their needs. Figure 66: Purchasing ratio and TGI of new type of appliances for different age groups – in 2017

Source: iResearch Inc., CMBIS estimates, purchasing ratio is the number of purchases per 100 customers, TGI was calculated by purchasing ratio of certain age group/ purchasing ratio of all age groups.

Figure 67: Purchasing ratio & TGI of kitchen appliances for different age groups – in 2017

Source: iResearch Inc., CMBIS estimates, purchasing ratio is the number of purchases per 100 customers, TGI was calculated by purchasing ratio of certain age group/ purchasing ratio of all age group.

Appearance/ designs has become a more and more critical feature when buying home appliances for the customer groups which were born in the 70/85 and 86/90.

Figure 68: Key features when purchasing home appliances for different age groups – in 2017

Source: iResearch Inc., CMBIS estimates, sample size – 157 for 50/60, 1301 for 70/85, 1035 for 86/90 and 390 for 00 plus

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In order to provide a better consumer experience or living quality as well as better appearance, both Joyoung and Shark brand are opening more new shopping mall stores (there are ~1,000/ ~200 Joyoung/ Shark branded stores, as at 19 Jun 2019), and rolled out more products with more appealing designs, in our view. Introducing more crossovers is effective in catching eyeballs of 80-90s, driving up ASP and also GP margins.

Figure 69: Better store images (e.g. shopping mall) Figure 70: Better looking products with higher ASP

Source: CMBIS Source: Tmall, CMBIS

Figure 71: Crossover - line friends Tmall club store Figure 72: Crossover - line friends series

Source: Joyoung’s official weibo account, CMBIS estimates Source: Joyoung’s official weibo account, CMBIS estimates

Online marketing is a better way to reach the 80-90s consumers. SharkNinja has conducted a 52-week-a-year “always on” strategy, which consists of both long and short-form of TV and social media advertising. This has successfully driven up sales growth in FY18, in US, Canada and UK. Joyoung also engaged more deeply in online marketing, by partnering with KOLs and influencers to promote products through live steaming shows on platforms like Tmall. For examples, 34 live steaming shows were organized on Tmall in Nov 2018 before the Double 11 event, which has registered over 200k audiences and generated sales of over RMB 7mn. Moreover, Joyoung was awarded the “Best Business Operator through Taobao Live Streaming in 2018”.

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Figure 73: HPM Blender’s range and average of retail Figure 74: Robot vacuum’s range and average of selling prices, by brand in China retail selling prices, by brand in China

5,000 (RMB) 8,000 (RMB)

4,000 6,000 2,629 4,423 3,000 2,512 2,149 4,000 2,389 2,139 2,000 1,372 1,346 1,969 1,718 1,112 945 908 1,369 1,289 628 2,000 1,039 824 1,000 - -

Source: Average price of top 25 hot selling items from Tmall, Source: Average price of top 25 hot selling items from Tmall, Company Company data, CMBIS estimates, as at Sep 2019 data, CMBIS estimates, as at Sep 2019

Figure 75: Vacuum’s range and average of retail Figure 76: Air fryer’s range and average of retail selling prices, by brand in China selling prices, by brand in China, 1H19

7,000 (RMB) (RMB) 2,000 1,499 5,500 1,600 1,227 3,849 1,200 4,000 610 2,509 2,314 800 529 479 411 376 354 311 2,500 1,379 1,296 976 400 714 536 513 1,000 -

(500)

Source: Average price of top 25 hot selling items from Tmall, Source: Average price of top 25 hot selling items from Tmall, Company Company data, CMBIS estimates, as at Sep 2019 data, CMBIS estimates, as at Sep 2019

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3) Substantial room for efficiency boost and cost synergies Following the acquisition of SharkNinja, we believe potential for synergies is both huge and manifold. The Company can achieve synergies within the global business operation in various areas, including: 1) supply chain, 2) research and development, 3) product and sales network, etc. These synergies, in our view, not only can generate efficiency improvements and cost savings, but also allow the Company to spend only minimal additional expenses or investments for many of these actions.

 3.1 Synergies regarding the supply chain. In terms of improvements on the supply chain, Joyoung and SharkNinja, on an aggregated basis, can leverage on their large procurement scale and each other’s experience in supply chain of both raw material and electronic parts. Given Joyoung’s current abundant resources in procurement, flexible and agile production in China, we believe this will enable the Company to source supplies at more favorable prices, to produce products in a quicker and more responsive manner, which in turn should boost efficiency and profitability.

SharkNinja segment’s GP margin increased from 35.5% in FY17 to 41.2% in FY18, while its segment EBIT margin rose from 1.1% in FY17 to 5.4% in FY18. These meaningful improvements, in our view, could have been benefited by the upgrades in supply chain. We forecast more positives should continue to be yielded in the coming 2-3 years, and this may involve integration of Joyoung and SharkNinja’s supply chain or even more in-house productions.

In the longer run, we believe there are further room for the GP margin to rise, due to: 1) faster sales growth from the Shark and Ninja brand, 2) more sales contribution from higher priced items (with better looking and functions), 3) more sales generated from the self- owned stores (mainly e-commerce) and even 4) increases in in-house production capacity.

Figure 77: GP margin by brand, last reported fiscal Figure 78: Segment EBIT margin can improve a lot year

(%) Average : 33.6% 18.0% 55 47 15.0% 12.0% 45 39 38 37 10.4% 32 12.0% 35 31 7.7% 28 27 26 25 9.0% 25 21 5.6% 6.0% 15 3.0%

0.0% Joyoung SharkNinja Others Total

FY16A FY17A FY18A FY19E FY20E FY21E

Source: Company data extracted from annual reports, CMBIS Source: Company data, CMBIS estimates, segment EBIT margin was estimates calculated by segment results / segment sales,

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 3.2 Synergies regarding the Research and Development (R&D). In terms of more effective utilization of R&D resources, we believe JS Global would carry out the following measures:

1) sharing of patents, letting teams from Joyoung, Shark and Ninja to have access to more functions and tech in their jointed patent library, this would speed up the R&D process and also lead more functional and advanced products,

2) sharing of local consumer data base between the 5 R&D centres spread around the world (Hangzhou, Suzhou, Shenzhen, London and Boston), including peers and users review of the prototypes or new functions,

3) sharing of expertise on technology know-how, product knowledge and applications of different functions, etc.

Thanks to the acquisition, overall R&D expenses, by JS Global now reached ~RMB 819mn, much higher than Joyoung’s ~RMB 300mn. Despite that there is still a sizable gap comparing to SEB’s ~RMB 2,100mn, the size now is way larger than other domestics peers (average at ~RMB 250mn).

One important note we want to highlight is that, SEB has been transferring both R&D know- how and tech support, as well as transferring manufacturing orders to Supor, which has proven to be successful given Supor’s stable growth and industry leading valuation, but in our view, this is just one way benefit.

For JS Global, we see great potential and synergies, which is a truly two ways benefit, which both sides can leverage on R&D know-how as well as sales network, therefore growth may be even more meaningful.

Figure 79: Global R&D after the M&A Figure 80: R&D expenses by brand, last reported fiscal year

10,000 9,811 (RMB mn) 8,000 6,000 4,000 2,121 2,000 819 403 298 275 245 205 53 0

Source: Company data, CMBIS Source: Company data extracted from annual reports, CMBIS estimates

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 3.3 Pre-tax margin can still increase, if net finance costs further improve. We have noticed that the net debt to equity ratio for JS Global is fairly high at 214%, much higher than its peers’ average of 18%, leading to a super high net finance costs (~2.8% of sales). If the cash flow improves in the future, we believe it could meaningfully help its pre- tax margin to normalize to 10-15%, from the current 5% in FY18.

Figure 81: Net finance costs, as % of sales, last Figure 82: Pre-tax margin by brand, last reported reported fiscal year fiscal year

(%) 3.0 2.8 Average : 0.1% 30 28 (%) Average : 10.2%

2.0 1.2 20 1.0 0.1 11 11 0.0 10 10 9 8 8 10 7 0.0 -0.1 5 5 -1.0 -0.3-0.4-0.4-0.5 -0.7-1.0 -2.0 -

Source: Company data extracted from annual reports, CMBIS Source: Company data extracted from annual reports, CMBIS estimates estimates

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4) Ways to tackle pressure from China-US trade disputes Ever since the beginning of 2018, tensions between China and US on international trades intensified, where each side imposed series of custom duties (import tariffs) on the others. JS Global, because of its US operation under the Shark and Ninja brands and its related supply chain in China, was inevitably being impacted. For example, US Trade Representative Office put a 10% tariffs on ~USD 200bn worth of Chinese imports in Sep 2018, which actually covered most of the cleaning and cooking appliances that JS Global is selling in the US market. The Company did pay tariffs for around three months in FY18.

Figure 83: Series of tariffs imposed on Chinese import by US Government US Tariffs on Chinese import Tranche 1st 2nd 3rd 4th A 4th B Size USD 34bn USD 16bn USD 200bn USD 110bn USD 190bn 24 Sep 2018 & 15 6 Jul 2018 & 15 23 Aug 2018 & 15 1 Sep 2019 & 14 Imposed date Jun 2019 & 15 Oct 15 Dec 2019 Oct 2019 Oct 2019 Feb 2020 2019 0% => 10% => 25% 0 => 25% => 30% 0 => 25% => 30% 0% => 15% => 0% => 15% Tariff rate => 30% (suspended) (suspended) 7.5% (suspended) (suspended) Furniture, Mobile phones, Industrial electronics, autos, Agricultural product, computers, toys, machinery, Electrical Major types of natural raw Apparel, footwear, TVs/monitors, electrical equipments, capital goods materials, plasitics, electronics, apparel, footwear, equipments, capital goods chemicals, metals, kitchenwares basically all the goods leather goods, reminding Source: United States International Trade Commission (USITC), United States Trade Representative (USTR), CMBIS estimates

 4.1 Impact in FY19E and FY20E could actually be rather meaningful. According to the Company, about USD 12mn was charged due to the 3rd Tranche of tariffs (10% custom duties on ~USD 200bn goods) in FY18, which is only 0.7% of total COGS in FY18. However, under our analysis, since such tariff will be paid for 12 months a year and additional tariff will likely be imposed, overall impact in FY19E-21E could be much worse.

Figure 84: Net profit impact analysis after the imposition of US tariff on import from China FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E Group sales 2,682 2,996 3,439 3,962 % of goods incl.in Tranche 3rd &4th B 50% 50% 50% 50% Months affected 3.7 12.0 12.0 12.0 Sales from SharkNinja 1,477 1,717 2,012 2,322 Import tariff rate assumption 10% 10% 15% 15% Sales from Joyoung & Others 1,204 1,279 1,427 1,640 Additional COGS as tariffs (12) (41) (67) (71)

Sales to US 1,310 1,455 1,658 1,874 % of goods incl.in Tranche 4th A 20% 20% 20% 20% Sales to rest of the world 1,371 1,541 1,781 2,088 Months affected 0.0 4.0 12.0 12.0 Import tariff rate assumption 0% 15% 15% 15% Sales to US, as % of total 49% 49% 48% 47% Additional COGS as tariffs 0 (8) (27) (28)

Group GP margin 37.3% 37.2% 37.5% 38.1% % of goods incl. in Tranche 5th 15% 15% 15% 15% Months affected 0.0 2.5 12.0 12.0 SharkNinja GP margin 41.2% 40.2% 40.3% 40.7% Import tariff rate assumption 0% 15% 15% 15% Additional COGS as tariffs 0 (4) (20) (21) Assuming US sales GP margin is the same as SN's GP margin Gross profit for sales to US 540 585 668 763 Total extra COGS as tariffs (12) (53) (114) (120) COGS for sales to US (770) (870) (990) (1,111) As % of group's COGS 0.7% 2.8% 5.3% 4.9% After tariff US sales GP margin 40.3% 36.5% 33.4% 34.3% % of COGS to US from China 100% 95% 90% 85% COGS to US from China (770) (826) (891) (945) US tax rate 20% 20% 20% 20% After tax net profit impact (9) (43) (91) (96) Group net profit 112 104 173 282 As % of group's net profit -8.5% -41.2% -52.6% -34.1% Source: Company data, numbers in cells highlighted in green are all CMBIS estimates

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Charts below are the sensitivity test on COGS and US sales GP margin in FY20E.

Figure 85: sensitivity test on FY20E COGS, without Figure 86: sensitivity test on FY20E US sales GPM, counter measures without counter measures % of goods included % of goods included #### 70% 75% 80% 85% 90% 95% 100% ##### 70% 75% 80% 85% 90% 95% 100% 0% ------0% 40.3% 40.3% 40.3% 40.3% 40.3% 40.3% 40.3% 5% (31) (33) (36) (38) (40) (42) (45) 5% 38.4% 38.3% 38.2% 38.0% 37.9% 37.7% 37.6% 10% (62) (67) (71) (76) (80) (85) (89) 10% 36.5% 36.3% 36.0% 35.7% 35.5% 35.2% 34.9% 15% (94) (100) (107) (114) (120) (127) (134) 15% 34.7% 34.3% 33.9% 33.4% 33.0% 32.6% 32.2%

tariff tariff 20% (125) (134) (143) (151) (160) (169) (178) 20% 32.8% 32.2% 31.7% 31.2% 30.6% 30.1% 29.6%

Level of avg. avg. of Level Level of avg. avg. of Level 25% (156) (167) (178) (189) (200) (212) (223) 25% 30.9% 30.2% 29.6% 28.9% 28.2% 27.5% 26.9% 30% (187) (200) (214) (227) (241) (254) (267) 30% 29.0% 28.2% 27.4% 26.6% 25.8% 25.0% 24.2% Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

 4.2: Fortunately, RMB has been depreciating, since late 2018. Since the early 2018, import tariffs had gone up from 0% to 10% in late 2018 and likely to be 15% in 2019. Referring to data from Bloomberg, average CNYUSD actually appreciated by 1.6% in 2018 and depreciated by 5.0% in Sep 2019 (spot rate dropped by 3% YoY in Sep). If this depreciation trend continues in FY19E - 20E, it will certainly help partially, in terms of offsetting the rising costs.

Figure 87: USDCNY spot rate Figure 88: CNYUSD spot rate YoY change

7.2 Sep-19, 10% 7.1 7.0 (weaker CNY) 6% 6.8 2% 6.6 Sep-18, -2% 6.4 6.9 6.2 -6% Sep-19, -3%

6.0 -10%

Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

Oct-16 Oct-15 Oct-17 Oct-18

Apr-15 Apr-19 Jan-15 Jan-16 Apr-16 Jan-17 Apr-17 Jan-18 Apr-18 Jan-19

Oct-15 Oct-16 Oct-17 Oct-18

Apr-15 Apr-16 Apr-17 Apr-18 Apr-19

Jan-17 Jan-15 Jan-16 Jan-18 Jan-19

USDCNY FX rate CNYUSD FX YoY change

Source: Bloomberg, CMBIS estimates Source: Bloomberg, CMBIS estimates

 4.3 Value engineering, raising retail prices, ramping up overseas sales and shifting production out of china, are effective ways to offset the costs We believe the Company will try its best to cope with the rising costs due to increased tariffs, and the likely solutions are:

1) re-engineer the product and make use of less expensive components or designs, this could be achieved together with SharkNinja and Joyoung’s supply chain integration in China,

2) raise the retail selling prices (already did in late 2018 and early 2019) for the Shark and Ninja brand in US, to pass on the increased costs to the customers,

3) ramp up overseas sales and supplies, the Company is actively looking for alternative manufacturing resources outside of China, we may see products selling to US and sourcing from China to lower from 100% in FY18 to 85% in FY21E (CMBI est.).

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According to CMBI estimates, the drags by tariffs (~USD 114mn, ~5.3% of total COGS) in FY20E would be offset by benefits from: 1) ~1% CNY depreciation (~USD 8mn, ~0.4% of total COGS), 2) 7% drop in component costs from value-engineering (~USD 9mn, ~3.2% of total COGS), and 3) 5.5% increase in retail ASP (~USD 37mn, ~1.7% of total COGS).

Noted that, thanks to the substantial bargaining power over suppliers, since Joyoung is the top 3 largest small appliance brand in China, we believe it could effectively passing on extra costs burden from tariffs to its manufacturing suppliers.

Also, for SharkNinja’s competitors, since they do not have the support of a sister brand in China, we think they may not be able to pass on costs as effective, hence may experience greater pressure on profit margins. This may help quicken the industry consolidation in US.

Figure 89: Net profit impact analysis after the imposition of counter measures FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E Sales to US 1,310 1,455 1,658 1,874 Group's COGS 1,683 1,882 2,151 2,453

Factoring in potential CNY depreciation CNYUSD 6.88 7.00 7.00 7.00 Total extra COGS as tariffs (12) (53) (114) (120) Average CNYUSD 6.69 6.94 7.00 7.00 As % of group's COGS -0.7% -2.8% -5.3% -4.9% Changes in avg. CNY 0.5% -3.6% -0.9% 0.0% COGS benefits from CNY depre. (4) 29 8 0 GP for sales to US from China 537 658 775 929 As % of group's COGS -0.2% 1.6% 0.4% 0.0% COGS to US from China (774) (797) (883) (945) COGS benefits from value re-engin. 8 9 69 78 Factoring in positives from value re-engineering As % of group's COGS 0.5% 0.5% 3.2% 3.2% Chg. in avg. component costs -1.0% -1.0% -7.0% -7.0% COGS benefits from rise in retail ASP 8 15 37 43 GP for sales to US 548 593 738 840 As % of group's COGS 0.5% 0.8% 1.7% 1.7% COGS for sales to US (762) (861) (921) (1,033) Total change in COGS 0 0 0 0 US sales gross profit 540 585 668 763 Factoring in raising retail ASP After tariff US sales GP margin 41.2% 40.2% 40.3% 40.7% Chg. in retail avg. selling prices 1.5% 2.6% 5.5% 5.6% US tax rate 20% 20% 20% 20% Gross profit for sales to US 548 600 705 805 After tax net profit impact 0 0 0 0 COGS for sales to US (762) (855) (953) (1,069) As % of group's net profit 0.0% 0.0% 0.0% 0.0% Source: Company data, numbers in cells highlighted in green are all CMBIS estimates

Charts below are the sensitivity tests on COGS and US sales GP margin in FY20E.

Figure 90: sensitivity test on FY20E COGS, with Figure 91: sensitivity test on FY20E US sales GPM, counter measures with counter measures Change in avg. component costs Change in avg. component costs 0.02 -4% -5% -6% -7% -8% -9% -10% ##### -4% -5% -6% -7% -8% -9% -10% 2.5% (40) (32) (24) (16) (8) (0) 8 2.5% 37.3% 37.9% 38.5% 39.1% 39.7% 40.3% 40.9% 3.5% (34) (27) (19) (11) (3) 5 13 3.5% 37.7% 38.3% 38.9% 39.5% 40.1% 40.7% 41.3% 4.5% (29) (21) (13) (5) 3 11 18 4.5% 38.1% 38.7% 39.3% 39.9% 40.5% 41.1% 41.7% 5.5% (24) (16) (8) 0 8 16 24 5.5% 38.5% 39.1% 39.7% 40.3% 40.9% 41.5% 42.1% 6.5% (18) (10) (3) 5 13 21 29 6.5% 38.9% 39.5% 40.1% 40.7% 41.3% 41.9% 42.5% 7.5% (13) (5) 3 11 19 27 34 7.5% 39.3% 39.9% 40.5% 41.1% 41.7% 42.3% 42.9%

Change in ASP in Change

Change in ASP in Change 8.5% (8) 0 8 16 24 32 40 8.5% 39.7% 40.3% 40.9% 41.5% 42.1% 42.7% 43.3% Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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Industry Analysis 1) Small appliances is still under developed (vs large appliances) We believe demand on small appliances is more related to rising income per capita and consumer trade-up, thus is more preferred over large appliances, as those are more related to new home sales (softened recently). We believe small appliance is still in the developing stage, because penetration (ownership per household) is still low, according to Euromonitor.

 1.1 Penetration is still low in China (vs other developed regions) Small appliance is still under penetrated in China, as it only accounted for 19% of total home appliance sales in 2018, vs 30%/ 37% in US/ South Korea, according to Euromonitor.

Figure 92: Small appliances, as % of total home Figure 93: Small appliances have much shorter appliance sales, is still low in China in 2018 lifecycle vs other white or black goods

100% 16 (Small appliances) (Large appliances) 19% 30% 29% 10 - 14 80% 37% 12 10 - 12 14% 8 - 10 8 - 10 12% 10% 60% 8% 8 2 - 5 40% 4 2 - 3 66% 1 - 2 58% 61% 54% 20% 0 0% China US Japan South Korea Small appliances Large kitchen appliances Large white appliances

Source: Euromonitor, CMBIS estimates Source: All View Cloud, CMBIS estimates

 1.2 Low correlation with property sales while replacement cycle is much faster Since 2017, Chinese property market has been softening, where growth of property area sales and home appliance sales slowed down even more. By data from All Cloud View and NBS, even though small appliance industry experienced certain slowdown in 2015 to 1H19, it still outperformed consistently, we think this is attributed to its low correlation with the property market. Also, thanks to shorter product lifespan of small appliances ranging from 1 to 5 years, vs large appliances’ 8 to 14 years (est. by Euromonitor), replacement demand are greater and more frequent, which should continue to drive outperformance in the future.

Figure 94: Property sales growth is under pressure Figure 95: Small appliances consistently outpaced

40% 20% 16% 30% 14% 22% 15% 11% 20% 17% 12% 10% 12% 10% 7% 7% 8% 6% 10% 6% 4% 1% 1% 1% 5% 2% 0% 1%0% 1% 0% -10% -8% -3% -1% -3% 2014 2015 2016 2017 2018 1H19 -5% -4% 2015 2016 2017 2018 1H19 China commodity housing sales (1 year ago) China commodity housing area sales (1 year ago) Home appliances sales Large appliances Home appliances sales China small appliances

Source: Wind, All View Cloud, CMBIS estimates Source: All View Cloud, CMBIS estimates

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 1.3 Rising affordability of small appliances in China According to All View Cloud, ASP for small appliance was ~RMB 495 in 2018, increasing by 22.2% from ~RMB 405 in 2014 and registering a 5.2% CAGR during the period (2014- 18). We believe the overall affordability of small appliance is increasing since the urban/ rural income per capita (Data from NBS) is growing faster than that at 8.0%/ 8.7% during the same period.

Figure 96: Small appliances ASP is climbing slowly Figure 97: Affordability for small appliances is rising 9.4% 550 (RMB) 10% 25% 21.1% 5.7% 4.5% 495 20% 16.1% 500 5% 1.1% 473 15% 433 440 7.7% 450 0% 10% 6.0% 405 409 3.9% 3.4% 5% 1.4% 1.3% 400 -7.6% -5% 0% Large small Large small 350 -10% appliance appliance appliance appliance 2014 2015 2016 2017 2018 1H19 ASP/ rural ASP/ rural ASP/ urban ASP/ urban income income income income Small appliances ASP Small appliances ASP growth (%) 2014 2018

Source: All View Cloud, CMBIS estimates Source: All View Cloud, NBS, CMBIS estimates

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2) Various sub-segments are still enjoying rapid growth According to Frost & Sullivan, global home appliance market sales was USD 355bn in 2018, and will grow to USD 452bn by 2023E, implying a 4.9% sales CAGR during the period. Of which, small home appliance and selected kitchen appliance accounted for 28% and 16% in 2018, which would experience a relatively faster CAGR of 7.3%/ 8.0% during 2018-23E.

Figure 98: Global home appliance sales and CAGR Figure 99: China small appliance sales and CAGR (USD bn) 14-18 18-23E (USD bn) 14-18 18-23E 500 451.6 CAGR CAGR 50 CAGR CAGR 40.9 400 355.0 82.5 6.5% 7.3% 40 4.0 14.1% 10.4% 294.6 58.1 300 144.6 6.0% 8.0% 30 23.7 16.0% 16.4% 45.1 18.4 98.3 16.2 2.5 200 77.9 20 1.4 8.6 3.7% 2.5% 4.8 12.4 5.7% 5.0% 224.5 10 100 171.6 198.6 7.8 9.7 6.1 0 2.2 2.9 7.5% 15.9% 0 2014 2018 2023E 2014 2018 2023E Food preparation Cooking Major home app. Small home app. Selected kitchen app. Home enviroment Personal Care

Source: Frost & Sullivan, CMBIS estimates Source: Frost & Sullivan, CMBIS estimates

 2.1 Water purifier, Food blender, Vacuum, Robot vacuum are the fast growing ones in China In 2018, referencing to data from All View Cloud, water purifier, vacuum cleaner, rice cooker, blenders & food processors and air purifier are the largest five sub-segments in terms of sales in the small appliance space in China. And in terms of growth rate, clothes dryer (+68%), electric heater (+44%), blenders & food processors (+42%), vacuum cleaner (+32%), water purifier (+17%) are the top 5 fastest growing sub-segments. We also believe the robot vacuum growth would be quick as well (likely to be faster than traditional vacuum).

Figure 100: Industry sales growth by category, 2018 35 (RMB bn) 68% 80%

30 60% 42% 44% 25 32% 40% 20 17% 12% 12% 10% 10% 4% 7% 20% 15 1% 1% -2% 3% 0% 10 -16% -28% -30% 5 -20% - -40%

Industry sales Industry sales growth (%)

Source: All View Cloud, CMBIS estimates

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 2.2 Multifunctional cooker, Robot vacuum are the fast growing ones in US According to Frost & Sullivan, US’ small appliance sales was USD 25bn in 2018, growing from USD 21.3bn in 2014 and registering a 4.2% CAGR during the period. Going forward, during 2018 to 2023E, sales may go up to USD 32.3bn, projecting a 5.3% sales CAGR.

Growth of each segment are rather similar, but it would be slightly faster for Home Environment. We believe that is the result of ramp up of more automated vacuums, such as robot vacuum, which can help the 80-90s consumers to save more time amid their busier lifestyle nowadays.

Despite the relatively slow industry growth in US, there are still some star products which enjoy much better growth. We believe, multifunctional cookers as well as robot vacuum are likely to enjoy 15%/ 20% sales CAGR in FY18-23E, thanks to innovation of key functions.

Figure 101: US small appliance sales and CAGR Figure 102: US sales CAGR by product segment (Small appliances (Small (USD bn) 14-18 18-23E 25% 21% CAGR CAGR sub sector) appliances 20% 40 20% products) 32.3 15% 6.0% 7.2% 15% 10% 30 25.0 9% 8% 11.2 10% 7% 21.3 5% 5% 5% 6% 3% 4% 3% 20 7.9 5% 3% 3% 4% 2% 2% 6.3 5.9 2.7% 4.9% 2% 4.6 0% 4.1 4.9 3.1% 3.2% 10 3.7 4.2 3.9% 4.6% 7.2 8.3 10.4 0 2014 2018 2023E Personal Care Food preparation

Cooking Home enviroment 14-18 CAGR 18-23E CAGR

Source: Frost & Sullivan, CMBIS estimates Source: Frost & Sullivan, CMBIS estimates

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3) Ample room for e-commerce to grow, in both China and US Internet or mobile is now the major channel for the 80-90s consumers to receive information, to search for data, and make purchases, therefore e-commerce channel sales is still growing faster than the physical store sales.

 3.1 More online sales, still ample room for growth in both China and US Although e-commerce has already been the primary channel to shop, accounting for 54% of total small appliances sales in China, there is still more room for it to grow. Frost & Sullivan is forecasting a market share of 71% to be contributed by online channel in China in 2023E, implying an 18.1% sales CAGR during 2018-23E.

The penetration of online shopping in US is not low, already reaching 17.7% of total sales in 2018. However, when we compare it to China’s 53.5%, it is fairly underdeveloped. But thanks to 1) rising reliance of smart mobile phones, 2) easier access by digitalization and 3) greater demand for personalization, the e-commerce sales CAGR would be 10.6% during the next five years (2018-23E), estimated by Frost & Sullivan.

Figure 103: Small appliance online sales mix Figure 104: Small appliance sales CAGR, 2018-23E

80% 71.2% 20% 18.1%

16% 60% 53.5% 11.6% 12% 10.6% 40% 22.8% 8% 17.7% 5.3% 20% 4%

0% 0% 2018 2023E US China

China US Small appliance industry E-commerce

Source: Frost & Sullivan, CMBIS estimates Source: Frost & Sullivan, CMBIS estimates

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Peers Comparison

Figure 105: Peers comparison Name (Eng) JS Global Lifestyle Joyoung Supor Midea Kingclean Ecovacs Robotics Guangdong Xinbao Philips Panasonic Group SEB Name (Chi) JS全环球生活 九阳 苏泊尔 美的 莱克电气 科沃斯 广东新宝 飞利浦 松下电器 SEB Ticker n/a 002242 CH 002032 CH 000333 CH 603355 CH 603486 CH 002705 CH PHIA EU 6752 JP SK EU Fiscal Year FY18 FY18 FY18 FY18 FY18 FY18 FY18 FY18 FY19 FY18 Year End Dec Dec Dec Dec Dec Dec Dec Dec Mar Dec Year found 1994 1994 1994 1968 1994 1998 1995 1891 1918 1857 1H19 Market Cap (HK$ mn) 18,050 70,812 406,127 9,816 19,274 10,484 305,736 157,719 70,374 Primary Market North America PRC China PRC China PRC China PRC China PRC China PRC China Netherlands Japan Western Europe Headquarters Hangzhou, Zhejiang Hangzhou, Zhejiang Hangzhou, Zhejiang Foshan, Guangdong Suzhou, Jiangsu Suzhou, Jiangsu Foshan, GuangdongAmsterdam, Netherlands Kadoma, Osaka Ecully, France

Main brand (s)

Food processing Large & Small Heating, Ventilation Cleaning appliances appliances (42%) Environmental Cooking kitchen Diagnosis & appliances (34%) and Air- (40%) Nutrition pot series cleaning appliance appliances (52%) treatment (40%) Lighting & Conditioning (42%) Food preparation (34%) Cookware (33%) (69%) Robots (68%) Food preparation Connected Care & Household (25%) Cookware (32%) Consumer Sales mix appliances (29%) Induction cooker Electric appliances Garden tools (12%) Small appliance kitchen appliances health informatics avionics, media & Small electrical electronics (40%) breakdown Cooking appliances series (8%) (66%) Electric motor (11%) (30%) (25%) (17%) Mobile (14%) appliances (59%) Robot and (25%) Western-style Other (1%) Kitchen appliances Others (2%) Household Personal health auto, energy, Professional (9%) automation system Other (6%) electric appliance (2%) appliances (14%) (40%) Industrial (37%) (10%) (13%) Other (5%) Other (10%) Other (3%) other & elimination Other (8%) Other (3%) (-11%) China retail price 50 - 2,299 50 - 1,599 89 - 1,499 79 - 5,999 499 - 6,499 799 - 3,199 40 - 2,799 69 - 1,999 99 - 3,099 89 - 1,499 range (Rmb) 565 (Joyoung) 465 (Midea) China retail ASP 565 492 2,509 (Lexy) 1,969 537 646 836 492 (Supor) 1379 (Shark) 2,536 (Toshiba) Number of employees 3,996 2,665 12,793 114,765 7,762 6,346 19,537 77,400 273,858 32,690 Currency USD RMB RMB RMB RMB RMB RMB EUR JPY EUR Units mn mn mn mn mn mn mn mn bn mn FY18 Sales 2,682 8,169 17,851 261,820 5,864 5,694 8,444 18,121 8,003 6,812 Gross profit 999 2,624 5,509 71,500 1,469 2,155 1,736 8,554 2,267 2,690 Operating profit 248 627 1,982 24,336 452 546 587 1,719 412 695 Pre-tax profit 140 871 1,982 25,773 484 562 585 1,503 417 594 Net profit att. 35 754 1,670 20,231 423 485 503 1,090 284 419

Profitability GP margin 37.3% 32.1% 30.9% 27.3% 25.0% 37.8% 20.6% 47.2% 28.3% 39.5% OP margin 9.3% 7.7% 11.1% 9.3% 7.7% 9.6% 7.0% 9.5% 5.1% 10.2% Pre-tax margin 5.2% 10.7% 11.1% 9.8% 8.3% 9.9% 6.9% 8.3% 5.2% 8.7% NP att. margin 1.3% 9.2% 9.4% 7.7% 7.2% 8.5% 6.0% 6.0% 3.6% 6.2% 6,835 Growth Sales growth 71.6% 12.7% 22.8% 8.2% 2.7% 25.1% 2.7% 1.9% 0.3% 5.0% Net profit att. growth -27.6% 9.5% 25.9% 8.7% 15.7% 28.1% 23.2% -34.2% 20.4% 11.7%

Costs, as % of sales

Staff costs/ sales 7.4% 7.7% 8.7% 9.3% 13.7% 14.1% 20.4% 6.0% n/a 18.3% R&D/ sales 4.4% 3.6% 2.3% 3.7% 4.2% 3.6% 3.3% 9.7% 6.1% 4.0% A&P/ sales 7.7% 9.9% 9.8% 7.5% 4.3% 8.8% 0.9% 5.2% 1.6% 1.8% D&A/ sales 3.3% 1.9% 0.4% 1.8% 0.4% 2.8% 0.3% 6.0% 2.8% 2.6% Net fin. costs/ sales 2.8% 0.1% 0.0% -0.7% -1.0% -0.5% -0.4% 1.2% -0.1% -0.3%

R&D employees 800 520 1,332 12,321 641 788 2,374 10,528 28,000 1,400 As % of employees 20.0% 19.5% 10.4% 10.7% 8.3% 12.4% 12.2% 13.6% 10.2% 4.3% Revenue mix by domestic/ overseas China 1,190 7,883 13,109 151,412 3,939 2,799 7,245 2,380 934 1,567 Overseas 1,492 286 4,742 110,408 1,925 2,895 1,199 15,741 7,069 5,245 Total 2,682 8,169 17,851 261,820 5,864 5,694 8,444 18,121 8,003 6,812

Growth (%) China 11.6% 10.9% 28.3% 9.7% 2.1% 81.5% 1.9% 2.5% -4.9% 24.3% Overseas 200.2% 102.2% 9.7% 6.2% 4.0% -3.8% 8.0% 1.8% 1.0% 0.4%

As % of total China 44.4% 96.5% 73.4% 57.8% 67.2% 49.2% 85.8% 13.1% 11.7% 23.0% Overseas 55.6% 3.5% 26.6% 42.2% 32.8% 50.8% 14.2% 86.9% 88.3% 77.0% Net debt to equity 214% -16% -63% 27% -29% -38% 3% 20% 67% 68% ROA 4% 13% 17% 8% 9% 26% 7% 4% 3% 22% ROE 24% 20% 30% 22% 14% 14% 13% 9% 10% 6%

Inventory days 76 42 67 57 59 93 60 96 26 68 Receivable days 105 99 47 42 77 49 45 75 40 56 Payable days 89 75 78 70 76 91 44 81 67 57 Cash Conversion Cycle 92 66 37 30 61 51 60 90 (0) 68 Source: Company data extracted from annual reports, CMBIS estimates

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Assumptions

Figure 106: CMBI’s assumptions USD mn FY16A FY17A FY18A FY19E FY20E FY21E

Sales by brand (USD mn) Joyoung 1,080 1,054 1,179 1,264 1,414 1,626 SharkNinja - 477 1,477 1,717 1,986 2,219 Others 23 33 25 15 10 8 Total 1,103 1,563 2,682 2,996 3,411 3,853

Sales growth by brand (%) Joyoung - -2.5% 11.9% 7.2% 11.9% 15.0% SharkNinja - - 210.0% 16.2% 15.7% 11.7% Others - 46.7% -23.5% -41.3% -31.7% -24.7% Total - 41.7% 71.5% 11.7% 13.8% 13.0%

Sales by segment growth (%) Cleaning - - 233.2% 6.3% 14.6% 16.0% Food preparation - 27.3% 35.2% 8.1% 11.0% 12.2% Cooking - -1.6% 25.6% 28.3% 17.3% 11.3% Others - 23.4% 22.3% -5.7% 3.6% 2.0%

Sales by region growth (%) China - -1.4% 11.6% 7.3% 10.5% 10.5% North America - 5880.5% 192.9% 11.0% 13.0% 12.0% Europe - 651.9% 263.2% 55.0% 40.0% 30.0% Other markets - 42.7% 258.6% 20.0% 17.0% 15.0%

GP margins by segment Joyoung 31.9% 32.2% 32.1% 33.2% 33.5% 34.4% SharkNinja - 37.0% 42.2% 40.8% 40.8% 41.0% Others - 32.2% 39.4% 38.7% 38.8% 39.1% Total 31.9% 33.2% 37.3% 37.2% 37.4% 38.0%

Opex breakdown D & A -0.5% -0.8% -1.7% -1.5% -1.3% -1.1% Admin exp. (ex D & A) -6.8% -7.9% -10.2% -10.9% -11.2% -10.9% A & P -1.8% -6.2% -7.7% -7.4% -7.8% -7.7% S & D costs (ex. A & P) -12.8% -10.6% -10.1% -9.6% -9.7% -9.4%

Selling & distribution costs / sales -14.6% -16.9% -17.8% -17.0% -17.5% -17.1% Admin expenses / sales -7.3% -8.7% -11.8% -12.3% -12.5% -12.0%

OP margins 13.7% 9.1% 9.3% 8.6% 8.3% 9.6% Effective tax rate 13.7% -39.6% 21.0% 28.0% 23.0% 18.0%

NP att. margins 4.7% 3.1% 1.3% 1.8% 3.3% 5.2% NP att. growth (%) - -7.0% -27.7% 58.0% 105.7% 75.5% Adjusted NP growth (%) - 36.9% 8.9% 33.6% 32.0% 21.1% Source: Company data, CMBIS estimates, OP as defined on page 1

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Financial Analysis We forecast sales growth of 12%/ 14%/ 13% YoY in FY19E/ 20E/ 21E

 We believe sales growth to be 12% in FY19E, driven by new and innovative product launches by SharkNinja in late 2018 and Joyoung in early 2019.

We project JS Global’s sales to reach USD 2,996mn in FY19E, driven by:

1) 7% growth for Joyoung (500%/ 12%/ 1% for Cleaning/ Food preparation/ Cooking) and 16% growth for SharkNinja (5%/ 1%/ 170% for Cleaning/ Food preparation/ Cooking appliances), OR 2) 6%/ 8%/ 28% growth for Cleaning/ Food preparation/ Cooking appliances, OR 3) 7%/ 11%/ 55%/ 20% growth for China/ North America/ Europe/ Rest of the world.

We project JS Global’s sales to grow at 14% CAGR in FY18-21E, assuming:

1) 11% CAGR for Joyoung (259%/ 14%/ 3% for Cleaning/ Food preparation/ Cooking appliances), 15% CAGR for SharkNinja (9%/ 3%/ 67% for Cleaning/ Food preparation/ Cooking appliances), OR 2) 12%/ 10%/ 19% CAGR for Cleaning/ Food predation/ Cooking appliances, OR 3) 9%/ 12%/ 41%/ 17% CAGR for China/ North America/ Europe/ Rest of the world.

Figure 107: Sales, NP and NP att. growth Figure 108: GP/ OP/ NP/ NP att. margin

158% 40.0% 37.3% 37.2% 37.4% 38.0% 150% 31.9% 33.2% 120% 30.0% 90% 72% 42% 63% 57% 20.0% 60% 13.7% 37% 34% 38% 12% 32% 22% 23% 21% 9.1% 9.3% 8.6% 8.3% 9.6% 30% 15% 9% 12% 14% 13% 11.1% 10.0% 9.0% 6.8% 0% 4.7% 4.2% 4.9% 3.1% 3.4% 5.2% -30% -20% -8% 0.0% 1.3% 1.8% 3.3% FY17A FY18A FY19E FY20E FY21E FY16A FY17A FY18A FY19E FY20E FY21E Sales growth (%) NP growth (%) GP margin OP margin Adj. NP growth (%) Adj. NP att. growth (%) NP margin NP att. margin

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates, OP as defined on page 1

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Figure 109: Sales by brand segment Figure 110: Sales CAGR by brand segment, FY18- 21E

4,000 (USD mn) 20% 15% 11% 13% 10% 3,000 2,219 1,986 0% 1,717 2,000 1,477 -10% 477 0 1,000 -20%

0 -30% FY16A FY17A FY18A FY19E FY20E FY21E -33% -40% Joyoung SharkNinja Others Joyoung SharkNinja Others Total

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

Figure 111: Sales by segment Figure 112: Sales CAGR by segment, FY18-21E

4,000 (USD mn) 20% 19%

15% 13% 3,000 1,133 12% 1,018 10% 868 10% 677 2,000 5% 539 0% 1,000 0% 548 -5% 0 FY16A FY17A FY18A FY19E FY20E FY21E Cleaning Food preparation Cooking Others

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

Figure 113: Sales by region Figure 114: Sales CAGR by region, FY18-21E

4,000 (USD mn) 50% 373 41% 287 40% 3,000 205 132 30% 2,000 36 20% 17% 5 12% 13% 1,000 9% 10%

0 0% FY16A FY17A FY18A FY19E FY20E FY21E China North Europe Other Total China North America Europe Other markets America markets

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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Figure 115: Sales by brand Figure 116: Sales CAGR by brand, FY18-21E

4,000 (USD mn) 30% 28% 821 25% 3,000 723 576 388 20% 2,000 15% 150 12% 13% 1,000 0 10% 8%

0 5% FY16A FY17A FY18A FY19E FY20E FY21E 0% Joyoung Shark Ninja Joyoung Shark Ninja Total

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

Figure 117: Sales mix by segment Figure 118: Sales mix by region 1% 1% 2% 2% 2% 2% 100% 6% 5% 4% 4% 100% 0%1% 9% 8% 2% 5% 7% 8% 10% 80% 25% 29% 30% 29% 80% 29% 34% 49% 50% 49% 48% 48% 60% 60% 29% 27% 28% 28% 98% 40% 37% 40% 68% 20% 41% 40% 38% 38% 39% 20% 44% 43% 41% 40% 21% 0% 0% 0% FY16A FY17A FY18A FY19E FY20E FY21E FY16A FY17A FY18A FY19E FY20E FY21E

Cleaning Food preparation Cooking Others China North America Europe Other markets

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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We expect adj. NP att. growth of 34%/ 32%/ 21% YoY in FY19E/ 20E/ 21E.

 GP margin should be stable in FY19E. We expect GP margin to be stable at 37.2% in FY19E (vs 37.3% in FY18). On one hand, we have these positive factors to drive up GP margin:

1) favorable product mix (greater sales from high-end iconic products like the SKY series), 2) better brand mix (Shark and Ninja, with higher GP margins, are growing faster), 3) further integration of supply chain between Joyoung and SharkNinja, where bulk purchasing can help lower input costs, and 4) declining raw material costs (Copper/ cold-strip steel/ stainless steel/ ABS polymer prices had fallen by 3%/ 11%/ 2%/ 20% YoY in Sep 2019),

However, on the other hand, there are negative and offsetting factors, as follows:

1) lack of ASP increases (small appliance’s industry ASP was actually falling in 1H19), due to greater and faster sales of mass market positioned small appliance, led by stepped up efforts to penetrate deeper into lower tier cities in China by various E- commerce platforms, 2) more new products in new categories (e.g. Ninja foodi), where those margins are still at a relatively low level, as it takes time to reach certain level of economies of scale, and 3) newly introduced US tariffs, which may be estimated to be 2-3% of total COGS in FY19E.

Figure 119: GP margin by segment Figure 120: GP margin by segment, FY18

43.0% 45.0% 41.2% 40.0% 38.0% 37.3% 37.2% 37.4% 40.0% 37.0% 37.3% 33.2% 34.0% 31.9% 35.0% 33.9% 31.0% 32.3%

28.0% 30.0% FY16A FY17A FY18A FY19E FY20E FY21E

Joyoung SharkNinja 25.0% Others Total Joyoung SharkNinja Others Total

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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 GP margin should remain stable in FY20E and pick up in FY21E. We expect GP margin to stay fairly stable at 37.4% in FY20E, as the positive and negative factors mentioned above remain. However, we forecast GP margin to jump to 38.0% in FY21E, thanks to

1) negative effects from US tariffs to ease, as YoY rate increase become less, 2) favorable region mix, more oversea (ex- US) sales and ramp up in EU, Japan, etc. 3) better product (more sales from high-end products, which mostly have better functions and looking) and brand mix (more sales from higher margin Shark and Ninja), 4) increased sales contribution from self-owned channels (e.g. Tmall Flagship store).

Also, we expect raw material prices to stay flattish, hence no boost from this factor.

Figure 121: GP margin by brand, FY18 Figure 122: Joyoung’s GP margin by product, FY18

45.0% 50% 42.2% 39.0% 40% 32.4% 32.1% 39.4% 40.0% 30% 26.1% 37.3% 24.0% 20% 35.0% 32.1% 10%

30.0%

25.0% Joyoung Shark Ninja Total

Source: Company data, CMBIS estimates Source: Joyoung (002242 CH)’s annual report, CMBIS estimates

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For JS global, we believe the core raw materials used are: steel (cold-strip & 304 stainless), plastics (ABS Polymer) and copper (large part of the electric motor). These prices trended down in Sep 2019 (Copper -6%/ Cold-strip steel -11%/ Stainless steel -2%/ ABS Polymer -20%), and we expect this trend to sustain into 2H19E but be stable in FY20E and FY21E.

Figure 123: Copper (China) price Figure 124: Cold-strip steel (China) price

60,000 (CNY/metric tonne) Sep-18, 5,500 (CNY/metric tonne) Sep-18, 50,520 Sep-19, 4,858 47,620 4,500 50,000 Sep-19, 3,500 4,317 40,000 2,500

30,000 1,500

Jul-15 Jul-17 Jul-16 Jul-18 Jul-19

Jul-16 Jul-15 Jul-17 Jul-18 Jul-19

Oct-18 Oct-15 Oct-16 Oct-17 Oct-15 Oct-16 Oct-17 Oct-18

Apr-15 Apr-16 Apr-17 Apr-18 Apr-19

Jan-15 Jan-17 Apr-17 Jan-16 Jan-17 Jan-18 Jan-19 Jan-15 Apr-15 Jan-16 Apr-16 Jan-18 Apr-18 Jan-19 Apr-19

China domestic copper price China domestic cold-strip steel price

Source: Wind, CMBIS estimates Source: Wind, CMBIS estimates

Figure 125: Stainless steel (China) price Figure 126: ABS Polymer (China) price

18,000 (CNY/metric tonne) Sep-18, Sep-19, 20,000 (CNY/metric tonne) Sep-18, 16,250 15,950 18,300 18,000 Sep-19, 16,000 14,700 16,000 Sep-18, 14,000 14,000 17,200 12,000 Sep-19, 12,000 13,800 10,000

10,000

Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

Oct-16 Oct-15 Oct-17 Oct-18

Apr-18 Jan-15 Apr-15 Jan-16 Apr-16 Jan-17 Apr-17 Jan-18 Jan-19 Apr-19

Jul-16 Jul-15 Jul-17 Jul-18 Jul-19

Oct-15 Oct-16 Oct-17 Oct-18

Jan-16 Jan-18 Apr-15 Apr-16 Jan-17 Apr-17 Apr-18 Jan-19 Apr-19 Jan-15 China domestic ABS Polymer (IH-130) price China domestic stainless steel price China domestic ABS Polymer (PA-709) price

Source: Wind, CMBIS estimates Source: Wind, CMBIS estimates

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 OP margin may decline slightly in FY19E. In terms of selling and admin expenses (as % of total sales), we believe it would only decline slightly to 29.4% in FY19E (from 29.7% in FY18), however, since other income (as % of total sales) will be reduced by 0.9ppt in FY19E, the overall OP margin in FY19E will fall to 8.6% in FY19E (vs 9.3% in FY18). The drop in opex was the result of: 1) increased staff costs and R&D expenses and 2) meaningful decreases in A&P (as it was high due to Olympics in FY18) and D&A expenses.

Figure 127: Segment EBIT margin Figure 128: Opex breakdown, as % of total sales

18.0% 30% 29.7% 29.4% 29.9% 29.1% 25.6% 15.0% 12.0% 25% 10.4% 21.9% 11.8% 12.3% 12.5% 12.0% 12.0% 8.7% 7.7% 20% 7.3% 9.0% 5.6% 15% 6.0% 16.9% 17.8% 17.0% 17.5% 17.1% 3.0% 10% 14.6%

0.0% 5% Joyoung SharkNinja Others Total FY16A FY17A FY18A FY19E FY20E FY21E

FY16A FY17A FY18A FY19E FY20E FY21E S & D expenses/ sales Adminexpenses /sales

Source: Company data, CMBIS estimates, segment EBIT margin was Source: Company data, CMBIS estimates calculated by segment results / segment sales,

 But OP margin will continue to fall in FY20E but jump in FY21E. We forecast OP margin to decrease to 8.3% in FY20E due to massive increase in A&P expenses to promote the Shark brand in China.

But we also expect OP margin to jump significantly to 9.6% in FY21E, thanks to a similar improvements from GP margin (37.4% in FY19E and 38.0% in FY20E) and some reduction on opex (in terms of % of sales), driven by cost savings in staff and D&A expenses, from improved economies of scales in FY21E.

Figure 129: Major types of costs, as % of total sales Figure 130: Number of labour breakdown, FY18

8% 7.7% 7.9% 7.8% 7.7% Others, Research 447 and 6.2% 7.4% 7.8% 7.7% developm 7.4% Managem 6% 5.1% ent and ent, 800 4.8% 5.6% 4.4% 4.5% 4.7% administr 3.6% ation, 538 4% 3.0%

3.3% 3.0% Product 2% 1.8% 2.5% 2.2% and 1.9% Sales and procurem 1.2% 0% marketing ent, 795 FY16A FY17A FY18A FY19E FY20E FY21E , 679 Quality Manufact control, A&P Staff R&D D&A uring, 55 682 Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

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 Net profit/ NP att will drop by 8%/ increase by 58% in FY19E We believe pre-tax margin will drop from 5.2% in FY18 to 4.8% in FY19E, helped by much lower other income and but partly offset by some decline in other expenses. Also, as effective income tax rate will rise to 28% in FY19E (vs that in FY18), net profit margin will drop to 3.4% in FY19E (vs 4.2% in FY18), thus resulting in ~ 8% decline in net profit.

Noted that, after series of ownership restructuring in FY18 and 1H19, JS Global’s stake in Joyoung/ SharkNinja should increase from 42%/ 41% in FY18 to 59%/ 100% in FY19E, hence, net profit att. will go up by 58% in FY19E.

 Net profit/ NP att. to grow by 33%/ 79% CAGR in FY18-21E We expect net profit growth to speed up to 63% and 57% in FY20E and FY21E respectively, aided by: 1) stable GP margin in FY20E and jump in GP margin in FY21E, 2) falling opex and 3) declining finance costs, therefore NP margin will climb rapidly to 4.9% and 6.8% in FY20E and FY21E.

Thanks to faster sales growth from and raising profit margin of SharkNinja, Net profit att. growth should be 106% and 75% in FY20E and FY21E, with NP att. margin at 3.3% and 5.2% respectively.

Figure 131: Income statement Fiscal Year, Dec YE (USD mn) FY16A FY17A FY18A FY19E FY20E FY21E Sales 1,103 1,563 2,682 2,996 3,411 3,853 Raw material and consumables used (752) (1,044) (1,683) (1,882) (2,133) (2,388) Gross profit 351 519 999 1,114 1,277 1,465 Other income and gains 41 23 44 25 28 27 Selling and distribution expenses (161) (264) (478) (510) (595) (658) Administrative expenses (80) (136) (318) (370) (426) (463) Operating profit 151 142 248 259 285 371 Impairment losses on financial assets (1) (3) (4) (3) (3) (4) Other expenses (3) (23) (31) (27) (3) (4) Finance costs (1) (18) (78) (86) (60) (42) Share of profit from Associate and JV (2) 3 6 0 0 0 Pre-tax profit 142 102 140 143 218 321 Income tax (expenses) credit (20) 39 (28) (40) (50) (58) Net profit 122 141 112 103 168 263 Minority 70 93 77 48 54 64 Net profit att. 52 48 35 55 113 199 Adjusted NP 102 140 152 203 268 324 Adjusted NP Att. 44 54 60 155 213 260

Margin Analysis GP margin 31.9% 33.2% 37.3% 37.2% 37.4% 38.0% OP margin 13.7% 9.1% 9.3% 8.6% 8.3% 9.6% NP margin 11.1% 9.0% 4.2% 3.4% 4.9% 6.8% NP att, margin 4.7% 3.1% 1.3% 1.8% 3.3% 5.2% Adjusted NP margin 9.2% 8.9% 5.7% 6.8% 7.9% 8.4% Adjusted NP att. margin 4.0% 3.4% 2.2% 5.2% 6.3% 6.7%

Growth Analysis (YoY) Sales 42% 72% 12% 14% 13% Gross profit 48% 92% 12% 15% 15% Operating income -6% 74% 4% 10% 30% Net profit 15% -20% -8% 63% 57% Net profit att. -7% -28% 58% 106% 75% Adjusted net profit 37% 9% 34% 32% 21% Adjusted net profit att. 23% 12% 158% 38% 22% Source: Company data, CMBIS estimates

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Figure 132: Ownership on each subsidiaries Figure 133: Net profit breakdown

120% 300.0 (USD mn) 263.4 100% 100% 100% 100% 250.0 64.5 80% 200.0 167.8 59% 59% 59% 140.9 60% 150.0 122.4 112.1 54.5 40% 40%41% 42% 41% 102.9 40% 100.0 198.9 70.5 92.7 77.2 47.8 20% 50.0 113.4 0% 51.9 48.2 34.9 55.1 0% 0.0 FY16A FY17A FY18A FY19E FY20E FY21E FY16A FY17A FY18A FY19E FY20E FY21E

Joyoung SharkNinja Net profit att. Minority Net profit

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates

 Adjusted Net profit/ NP att. to grow by 34%/ 32%/ 21% in FY18-21E Due to the acquisition of SharkNinja back in 2017, various relating expenses arises and many of those should not be financially recurring. Therefore, we believe NP and NP att. shall all be adjusted accordingly. The key items include:

1) Financial liabilities associating with the put option.

This put option was issued to the SN investors (group of previous owner of SharkNinja) which has the right to request Compass to purchase their own equity interest or other financial assets at a pre-agreed price if certain conditions are met. Since the market values of the underlying equity and financial assets will change over time, profit or loss arises from this put option will have to be adjusted accordingly. We expect this expenses to be USD 25mn in FY19E but will disappear in FY20E-21E due to its expiry.

2) Amortization of intangible assets and financing costs from SharkNinja acquisition.

This includes the amortization in relation of SharkNinja’s new office building in the United States and amortization of deferred finance costs, representing amortization of various fees (e.g. upfront arrangement fees and professional parties fees) associated with the bank loans incurred for the acquisition. We expect this expenses to be USD 34mn/ 34mn/ 28mn in FY19E-21E.

3) Stock-based compensation.

This involves the share-award scheme of Joyoung Holdings in 2014 & 2017 and management equity incentive plan of Compass (owner of SharkNinja). On operation of the Scheme 2017, Joyoung repurchased a total of 4,999,960 shares of Joyoung Holdings, and 4,800,000/ 199,960 shares were granted in Jun 2018 and Dec 2018. Eligible participants of this Schemes include 202 directors and employees of Joyoung Holdings. For 4,800,000 shares, 30%/ 30%/ 40% will be vested in 2019/ 2020/ 2021. For 199,960 shares, 50%/ 50% will be vested in 2019/ 2021 if Joyoung’s sales growth can reach 6%/ 11%/ 17% and achieve net profit growth of 2%/ 8%/ 15% in FY18/ FY19E/ FY20E. Also, including the past Compass equity incentive plan and possible RSU plan in the future, we expect this Stock- based compensation expense to be USD 28mn/ 65mn/ 32mn in FY19E-21E.

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Noted that, there exists a Compass equity incentive plan, where 2919 and 162 & 135 PI shares were awarded to 9 and 2 eligible employees in the 1st and 2nd & 3rd round, in Sep 2017 and Mar 2018 & Oct 2018. These shares will be vested in 2018, 2019, 2020 and 2021, based on financial performance conditions, where how many number of shares shall vest depends on this formula (Audited net profit - USD 53 mn) x 16 x 1.875% x applicable percentage. The applicable percentage is % shares granted to an individual/ total shares granted to all entitled employees in the same scheme.

However, according to prospectus and management, such a Compass equity incentive plan could be terminated in Aug 2019 and be replaced by a Restricted Stock Unit (RSU) plan in later 2019. This RUS is to provide incentives and rewards to director, senior management and employees of the Group (including both workers for Joyoung and SharkNinja).

Figure 134: Adjusting for non-recurring items Adjsuted financial numbers FY16A FY17A FY18A FY19E FY20E FY21E Net profit 122 141 112 103 168 263 Changes in financial liabilities associated with put option 0 7 29 25 0 0 Transaction cost and retention bonus from SN acquisition 0 13 1 0 0 0 Amort. of int. assets & deferred financing costs from SN acquisition 0 6 31 34 34 28 Revaluation of inventory from SN acquisition 0 29 0 0 0 0 Revaluation of deferred taxes due to change in US tax rate 0 (56) 0 0 0 0 Reorganization related expenses 0 1 1 2 2 2 Stock-based compensation 1 0 5 28 65 32 Gain on disposal of PPE, investment property and subsidiaries (7) (2) (28) (2) (2) (2) Gain on fair value change from equity investments (14) 0 1 1 1 1 Professional service fees 0 0 0 12 0 0 Adjusted net profit 102 140 152 203 268 324 Adjusted minority 58 86 92 48 54 64 Adjusted net profit att. 44 54 60 155 213 260

EBITDA 156 148 304 308 352 438 Changes in financial liabilities associated with put option 0 7 29 25 0 0 Transaction cost and retention bonus from SN acquisition 0 13 1 0 0 0 Revaluation of inventory from SN acquisition 0 29 0 0 0 0 Reorganization related expenses 0 1 1 2 2 2 Stock-based compensation 1 0 5 28 65 32 Gain on disposal of PPE, investment property and subsidiaries (7) (2) (28) (2) (2) (2) Gain on fair value change from equity investments (14) 0 1 1 1 1 Adjusted EBITDA 135 197 313 362 418 471

Margin Analysis Adjusted NP margin 9.2% 8.9% 5.7% 6.8% 7.9% 8.4% Adjusted NP att. margin 4.0% 3.4% 2.2% 5.2% 6.3% 6.7%

Growth Analysis (YoY) Adjusted net profit 37% 9% 34% 32% 21% Adjusted net profit att. 23% 12% 158% 38% 22% Source: Company data, CMBIS estimates

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Balance sheet and Cash flow

 Cash flow is strong and sustainable for Yoyoung, while high gearing was due to SharkNinja Joyoung (002242 CH) has always been in the net cash position, thanks to its strong and stable sales, operating cash flow and net profit growth (FY17 was relatively weak due to the restructuring of its sales channel and retail distributers).

JS Global’s was at net cash position in FY16, at -20%, but surged to 167%/ 214% in FY17/ 18, while its Net CFO to current liabilities ratio also dropped from 0.5x in FY16 to just 0.1x/ 0.2x in FY17/ 18. Such a high gearing ratio and relatively weak cash flow were mostly due to the SharkNinja segment, because of 1) SharkNinja’s lower profitability, only 3.8%/ 1.9% in FY17/ FY18 (vs 9.5%/ 9.2% for Joyoung) and 2) increased borrowings for the acquisition back in FY17.

However, we expect net cash flow from operating to improve after recent turnaround of SharkNinja (thanks to robust innovative product offerings) and repayment of M&A loans, net gearing should fall to just 37%/ 18% in FY19E/ 20% and become net cash in FY21E.

Figure 135: Closing cash balance Figure 136: Net operating cash flow to current liabilities ratio (x) 800 (Rmb mn) 0.6 696 0.5 700 0.5 574 600 517 0.4 500

400 0.3 0.2 0.2 0.2 300 0.2 211 0.2 181 200 127 0.1 0.1 100 - - FY16A FY17A FY18A FY19E FY20E FY21E FY16A FY17A FY18A FY19E FY20E FY21E Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates, net operating cash flow = operating cash from operations + interest received - tax

Figure 137: Net debt or (cash) to equity – JS Global Figure 138: Net debt or (cash) to equity – Joyoung (%) 214 220 - 167 170 (10)

120 (20) (16) 70 37 (30) (25) 18 20 (40) (30) (4) (20) (42) (41) (41) (50) (45) (80) FY13A FY14A FY15A FY16A FY17A FY18A FY16A FY17A FY18A FY19E FY20E FY21E (%)

Source: Company data, CMBIS estimates, net debt = total interest Source: Joyoung (002242 CH)’s annual reports, Bloomberg, CMBIS bearing liabilities - cash and near cash estimates

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 We expect JS Global’s CCC to be stable at 80 days in FY19E and onwards. In terms of inventory, Joyoung segment’s inventory days rose from 35 in FY16 to 42 in FY18, due to more launches of the Shark brand in China. For SharkNinja, its inventory days also increased from 65 in FY16A to 91 in FY18, due to more stocking of raw materials and finished goods before imposition of US import tariffs. After SharkNinja’s consolidation, overall inventory days surged from 35 in FY16 to 67 in FY18. We expect group’s inventory days to be stable at 70 days in FY19E-21E, because effects of greater self-owned and Shark brand China sales will be offset by normalization of SharkNinja’s inventory (no more additional pre-stock needed).

Figure 139: Working capital (days) Figure 140: Average Inventory days by segment

120 (days) 95 105 99 95 100 100 100 90 90 90 85 85 80 90 79 80 77 80 67 73 70 70 70 80 65 60 58 35 30 50 9 0 35 FY16A FY17A FY18A FY19E FY20E FY21E Avg. INV T/O (days) 20 Avg. AR T/O (days) FY16A FY17A FY18A FY19E FY20E FY21E Avg. AP T/O (days) Cash conversion cycle (days) Joyoung SharkNinja* Group

Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates, *Fiscal year end of FY16A and FY17A for SharkNinja was Mar

In terms of receivable, Joyoung typically requires customers to pay in advance before product delivery and may give credit terms of 30 days to some selected distributors. But receivable days went up from 81 in FY16 to 101 in FY18 due to increased acceptance of use of bills for settlement by the customers/ retailers. For SharkNinja, its receivable days went up from 58 in FY16 to 92 in FY18 was mostly due to seasonality, as numbers close to year-end was typically higher. Going forward, we expect the group’s overall receivable days to be stable at 100 in FY19E and onwards. In terms of payable, Joyoung’s payable days fell from 105 in FY16 to 84 in FY18, while that of SharkNinja rose from 22 in FY16 to 62 in FY18. We expect the group’s overall payable days to be 85/ 90/ 90 days in FY19E/ 20E/ 21E due to wider use of bill payables over cash.

Figure 141: Average receivable days by segment Figure 142: Average payable days by segment

110 130

110 95 90

80 70

50 65 30

50 10 FY16A FY17A FY18A FY19E FY20E FY21E FY16A FY17A FY18A FY19E FY20E FY21E

Joyoung SharkNinja* Group Joyoung SharkNinja* Group

Source: Company data, CMBIS estimates, *Fiscal year end of FY16A Source: Company data, CMBIS estimates, *Fiscal year end of FY16A and FY17A for SharkNinja was Mar and FY17A for SharkNinja was Mar

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Valuation Peers Valuation Figure 143: Peers’ valuation 12m Up/ ROE 3yrs Yield Price Mkt. Cap Year P/E (x) P/B (x) TP Down- (%) PEG (x) (%) Company Ticker Rating (LC) (LC) side (HK$ mn) End FY1E FY2E FY1E FY2E FY1E FY1E FY1E A+ H shares Small Home Appliances JS Global 1691 HK BUY 7.65 5.17 48% 17,615 Dec-18 14.9 10.8 2.2 2.0 10.2 0.5 0.7 Joyoung 002242 CH NR n/a 25.00 n/a 21,213 Dec-18 22.9 19.9 4.8 4.5 22.6 2.0 3.3 Zhejiang Supor 002032 CH NR n/a 63.57 n/a 57,724 Dec-18 27.1 23.2 7.5 6.2 31.0 2.0 2.0 GD Xinbao 002705 CH NR n/a 18.94 n/a 16,787 Dec-18 22.7 19.3 3.5 3.1 16.7 1.1 2.3 Bear Electric 002959 CH NR n/a 54.11 n/a 7,181 Dec-18 26.9 21.9 6.4 5.0 50.6 2.5 0.9 Ecovacs Robotics 603486 CH NR n/a 19.89 n/a 12,416 Dec-18 25.9 19.7 3.8 3.3 12.6 2.8 1.9 Kingclean Electric 603355 CH NR n/a 21.33 n/a 9,459 Dec-18 17.6 16.1 3.1 2.6 14.2 1.8 1.4 Avg. 22.6 18.7 4.5 3.8 22.5 1.8 1.8 Med. 22.9 19.7 3.8 3.3 16.7 2.0 1.9 A + H Home Appliances Midea Group 000333 CH BUY 75.33 50.19 50% 385,131 Dec-18 14.4 12.7 3.5 3.0 26.1 1.3 3.2 Gree Electric 000651 CH NR n/a 58.77 n/a 390,971 Dec-18 12.6 11.4 3.3 2.9 29.0 1.6 4.3 Haier Smart Home 600690 CH NR n/a 17.00 n/a 120,807 Dec-18 12.6 11.8 2.3 2.0 22.4 1.5 2.2 Haier Electronics 1169 HK NR n/a 23.15 n/a 64,947 Dec-18 12.1 12.6 2.1 1.9 16.9 1.3 2.2 Hisense Home 921 HK NR n/a 8.03 n/a 13,858 Dec-18 6.3 5.4 1.2 1.0 20.3 0.6 4.6 Hisense Home - A 000921 CH NR n/a 10.18 n/a 13,858 Dec-18 9.0 7.9 1.6 1.4 20.3 0.8 3.9 Whirlpool China 600983 CH NR n/a 4.14 n/a 3,509 Dec-18 n/a n/a n/a n/a (3.9) n/a n/a Hangzhou Robam 002508 CH NR n/a 29.54 n/a 31,002 Dec-18 17.4 15.5 4.0 3.5 25.9 1.9 2.9 Vatti Corporation 002035 CH NR n/a 10.79 n/a 10,372 Dec-18 12.1 10.4 2.9 2.4 28.6 0.9 3.1 Avg. 12.1 11.0 2.6 2.3 20.6 1.2 3.3 Med. 12.3 11.6 2.6 2.2 22.4 1.3 3.1 International Small Home Appliances Techtronic 669 HK NR n/a 63 n/a 114,833 Dec-18 23.5 20.1 4.3 3.8 19.1 1.5 1.6 Smith (A.O.) Corp AOS US NR n/a 43 n/a 54,083 Dec-19 17.5 16.2 3.9 n/a 21.9 3.1 2.5 Helen Of Troy HELE US NR n/a 189 n/a 36,958 Feb-19 21.8 19.9 n/a n/a 17.6 1.4 n/a De'Longhi Spa DLG IM NR n/a 17 n/a 21,820 Dec-18 16.0 15.4 2.2 2.0 17.0 (3.5) 2.7 Irobot Corp IRBT US NR n/a 47 n/a 10,331 Dec-18 12.7 26.9 2.1 2.0 16.1 (11.0) 0.0 Seb Sa SK FP NR n/a 116 n/a 50,161 Dec-18 13.5 12.5 2.4 2.1 21.9 3.7 1.9 Koninklijke Philips PHIA NA NR n/a 42 n/a 322,849 Dec-19 20.0 17.4 2.9 2.7 9.5 0.7 2.2 Avg. 17.8 18.4 3.0 2.5 17.6 (0.6) 1.8 Med. 17.5 17.4 2.7 2.1 17.6 1.4 2.0 International Home Appliances Whirlpool Corp WHR US NR n/a 146.17 n/a 71,750 Dec-19 8.9 8.1 2.8 2.6 43.2 8.5 3.4 Ingersoll-Rand IR US NR n/a 133.23 n/a 246,606 Dec-19 19.2 17.5 4.1 3.7 19.7 1.8 1.7 Electrolux Ab ELUXB SS NR n/a 225 n/a 56,206 Dec-19 14.8 11.8 2.7 2.4 11.3 0.4 3.9 Daikin Industries 6367 JP NR n/a 15595.0 n/a 327,099 Mar-19 22.7 20.5 2.9 2.6 13.7 2.5 1.0 Panasonic Corp 6752 JP NR n/a 1076 n/a 188,809 Mar-19 13.1 12.8 1.3 1.2 15.2 (1.6) 2.8 Fujitsu General Ltd 6755 JP NR n/a 2451.0 n/a 19,166 Mar-19 21.2 18.2 2.2 2.0 8.8 0.9 1.1 Lg Electronics Inc 066570 KS NR n/a 64900.0 n/a 69,048 Dec-19 9.0 6.7 0.7 0.7 4.5 0.0 1.2 Samsung 005930 KS NR n/a 57200.0 n/a 2,219,988 Dec-19 12.7 9.3 1.4 1.3 8.8 0.4 2.7

Avg. 15.2 13.1 2.3 2.1 15.6 1.6 2.2

Med. 14.0 12.3 2.5 2.2 12.5 0.7 2.2 Source: Bloomberg, CMBIS estimates

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Initiate BUY on JS Global with TP of HK$ 7.65 (~16.0x FY20E adj. P/E) We Initiate on JS Global with a BUY rating and a target price of HK$ 7.65, based on a 16.0x FY20E adjusted P/E, given its 1) global leadership in small appliance, 2) superior R&D capability and 3) strong turnaround ahead for SharkNinja driven by synergies and robust product pipeline.

Figure 144: China/ Int’l appliances P/E Figure 145: China/ Int’l appliances EV/ sales & PEG

23.0 (x) 2.4 (x) 2.0 19.7 1.8 18.7 2.0 20.0 18.4 1.6 17.4 1.6 1.4 17.0 1.3 1.2 13.1 0.9 14.0 12.3 0.8 0.7 11.6 0.8 11.0 11.0 0.4 8.0 0.0 A+ H small A+ H home Int'l small Int'l home A+ H small A+ H home Int'l small Int'l home appliances appliances appliances appliances appliances appliances appliances appliances

Forward 2 years P/E - average Forward 2 years EV/Sales - median Forward 2 years P/E - median Forward 1 year PEG - median

Source: Bloomberg, CMBIS estimates Source: Bloomberg, CMBIS estimates  Our TP has a 14%/ 13% discounts to China/ Int’l small appliances peers’ average of 18.7x/ 18.4x FY20E adj. P/E. Generally speaking, small appliances has a higher P/E over home appliances while P/E of Chinese (A and H shares) brands are also higher than that of international brands’.

Since JS Global is a company with global operation, where its 100% owned Shark & Ninja brands and 59% owned Joyoung brand have revenues generated from US, Europe and China, we believe a global average should be more relevant. Noted that global small appliances brands’ average is at 18.5x FY20E adjusted P/E (while average of China/ International small appliances brand P/E are 18.7x/ 18.4x), therefore we do find the stock highly attractive, given its current valuation of 10.8x FY20E adj. P/E.

Noted that if we use the “Sum of the Parts” methodology, we can apply 18.7x/ 18.4x FY20E adjusted P/E for Joyoung/ SharkNinja’s NP att. (70%/ 30% of total), then the valuation per share could be HK$ 8.89 per share, equal to 18.6x FY20E adjusted P/E.

Figure 146: China small appliances peers - forward 2 Figure 147: International small appliances peers - years P/E forward 2 years P/E

26.0 (x) 23.2 30.0 (x) 26.9 21.9 19.9 26.0 22.0 19.3 19.7 18.7 19.7 20.1 18.0 16.1 22.0 19.9 17.4 18.4 17.4 18.0 16.2 15.4 14.0 10.8 14.0 12.5 10.0 10.0 6.0

Source: Bloomberg, CMBIS estimates Source: Bloomberg, CMBIS estimates

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 Even more undervalued using PEG method, at 0.52x 3 years (FY18-21E) PEG, with 74%/ 63% discounts to China/ int’l peers’ median PEG of 2.0x/ 1.4x. For reference, we may also adopt the PEG valuation methodology (3 years adjusted PEG (forward 1 year adjusted P/E to forward 3 years adjusted NP CAGR), which may better capture the rapid future growth of JS Global in the next 3 years, thanks to its 1) huge potential in EU and rest of the world and 2) lower than peers’ net profit margin base/ level.

The stock is trading at 0.52x adjusted PEG (derived from the 28.8% adjusted net profit CAGR during FY18-21E and 10.8x FY20E adj. P/E), which has a 74%/ 63% discounts to the China/ International small appliances brands’ median PEG of 2.0x/ 1.4x.

Noted that our TP is implying a 0.77x 3 years adj. PEG, which is still at a relatively large discount to Joyoung (002242 CH)’s 2.0x, Supor (002032 CH)’s 2.0x, Bear Appliances (002959 CH)’s 2.5x, Ecovacs (603486 CH)’s 2.8x, SEB (SK FP)’s 3.7x.

Figure 148: China small appliances peers 3 years Figure 149: International small appliances peers 3 PEG years PEG 2.8 3.0 (x) 2.5 8.0 (x) 3.1 3.7 2.0 4.0 1.5 2.0 1.8 2.0 1.4 0.7 1.4 2.0 1.8 - 1.1 (4.0) (0.6) 1.0 0.5 (3.5) (8.0) 0.0 (12.0) (11.0)

Source: Bloomberg, CMBIS estimates Source: Bloomberg, CMBIS estimates

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 Cross checking with DCF analysis (based on adjusted EBITDA), our TP can also be derived by a 9.4% WACC and 2.5% terminal growth. We also crosscheck our valuation estimates using the adjusted DCF method, where our target price of HK$ 7.65 (using a 16x FY20E adjusted P/E) can also be derived from on a 9.4% WACC and 2.5% terminal growth.

Figure 150: Valuation - adjusted DCF method in USD mn DCF FY16A FY17A FY18A FY19E FY20E FY21E FY22E FY23E FY24E Adjusted EBITDA 135 197 313 362 418 471 487 541 603 Chg in w orking cap 38 (83) (48) 5 (28) (58) (51) (50) (51) Adjusted tax (20) 46 (45) (64) (64) (65) (74) (86) (99) Capex & product dev (4) (21) (67) (75) (78) (81) (89) (97) (106) Adjusted Unleveraged FCF 149 140 153 229 248 267 272 307 346 YoY% n.a. (5.9) 9.7 49.0 8.3 7.7 2.0 12.9 12.7

DCF (20E-24E) 1,093 PV (Terminal value) 3,290 EV (End-19E) 4,383 Cash from options/w arrants conv 0 Yer-end net cash/(debts) (374) Fully diluted equity value (End-19E) 4,010 Minority interests (End-19E) 597 Market cap (End-19E) 3,413 Fully diluted no. of shares (m) 3,482

Exchange rate 7.80 Fully diluted equity value/share (HK$) 7.65

Risk-free rate 3.1% Risk premium 8.0% Unleveraged industry beta 0.90 Gearing 0.0% Tax 18.0% Beta 0.90 Cost of equity 10.3% Cost of debt 5.0% Tax rate 18.0% After-tax cost of debt 4.1% Debt to total capital 15.0% WACC 9.4% Terminal grow th 2.5% Terminal value (HK$m) 4,571 FCF multiple (x) - Adjusted 14.9 FY20E EV/EBITDA - Adjusted 9.6 FY20E P/E - Adjusted 16.0 Source: Company data, Bloomberg, CMBIS estimates

Figure 151: Sensitivity test for the target price in HK$ WACC (%) 7.65 8.4% 8.9% 9.4% 9.9% 10.4% 1.5% 7.99 7.27 6.65 6.10 5.62 2.0% 8.63 7.82 7.12 6.50 5.97 2.5% 9.37 8.44 7.65 6.96 6.36

Terminal Terminal 3.0% 10.26 9.18 8.26 7.48 6.81

growth (%) growth 3.5% 11.33 10.05 8.98 8.09 7.32 Source: Company data, CMBIS estimates

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Sharehoding Structure

Figure 152: JS Global’s shareholding structure

Restricted stock unit Ms. Huang Shuling Ms. Han Run Mr. Jiang Public Shareholders SN Aggregator LLC Mr. Neil Shah (RSU) Holding entity (ED) (Group CFO, ED) Guangyong

16.87% 0.05% 0.24% 4.16% 2.78% 1.55% 1.06%

Mr. Mark Adam Mr. Mark CDH Fund V, L.P. Mr. Wang Xuning Ms. Yang Ningning Barrocas (President Mr. Zhu Hongtao Mr. Zhu Zechun Rosenzweig (Sep17 & Apr19) (Chairman) (GM of Joyoung) of SharkNinja)

2.14% 8.06% 10.61% 39.60% 5.64% 3.90% 3.36%

JS Global Lifestyle

58.9% 100%

Joyoung Shark Ninja (002242 CH)

Source: Company data, CMBIS estimates, boxes in rose red colour is a group of individuals who hold collective interest thru JS Holding Limited Partnership, a common investment holding entity which in turn holds 47.06% of the equity in the Company, 10.81% of equity interest in the Company is solely owned by Mr. Wang Xuning thru Sol SPC, boxes in skin colour consists of Easy Home (8.69%) and Comfort Home (1.92%), boxes in grey colour together can be collectively called SN investors, Restricted stock unit (RSU) is set up (upon the Company’s reorganization) in order to provide incentives and rewards to employees of the group and other eligible individuals and entities.

Management Profile

Figure 153: JS Global’s management profile Joined the Date of Name Age Position Responsibility group since appointment Mr. Wang Xuning Chairman, Executive Founder of the group, formulating the business strategies, making major corporate and operational 50 years old Founder Jul-2018 (王旭寧) Director decisions of the Company and ensuring the broad's effective performance of its functions. Executive Director, Chief Assisting the Chairman in formulating business strategies, making major corporate and operational Ms. Han Run (韓潤) 40 years old Feb-2004 Jun-2019 Financial Officer decisions of the Company and ensuring the broad's effective performance of its functions. Ms. Huang Shuling Assisting the Chairman in formulating business strategies, making major corporate and operational 55 years old Founder Jun-2019 Executive Director (黃淑玲) decisions of the Company and ensuring the broad's effective performance of its functions. Global President, President Mr. Mark Adam Responsible for the overall operation of the Company, assisting in developing and implementing strategies, 47 years old Sep-2017 Sep-2017 of SharkNinja Operating Barrocas as well as making major corporate decisions for SharkNinja. LLC Ms. Yang Ningning General Manager of 40 years old Mar-1997 Mar-2019 Responsible for the overall operation of Joyoung. (楊寧寧) Joyoung Chief Financial Officer of Mr. Qiu Jiandiao (裘劍調) 46 years old Apr-2005 Apr-2014 Responsible for the overall financial management of Joyoung. Joyoung Mr. David William Chief Financial Officer of 41 years old Sep-2017 Apr-2019 Responsible for the overall financial management of SharkNinja. Stevenson SharkNinja Operating LLC Mr. Hui Chi kin Max Responsible for the company oversight and formation. He has served as the Chief Executive Officer and a 46 years old Sep-2017 Jun-2019 Non-Executive Director (許志堅) Managing Director of CDH Investment Advisory Private Limited in Singapore since Jul 2013. He has served as a Senior Consultant in Total Shareholder Return Limited, a private equity-focused Mr. Stassi Anastas 57 years old Jun-2019 Jun-2019 Non-Executive Director advisory firm, since July 2015. He also served as the USA Global President and CEO of Duracell Anastassov Company, a former division of Procter & Gamble ("P&G"), from Nov 2010 to Jan 2015. He has served as Independent Non-Executive Director for Xinjiang Goldwind (2208 HK) from Jun 2011 to Jun 2016, Huarong International (993 HK) since Oct 2015, Shanghai Fosun Pharmaceutical (2196 HK) Dr. Wong Tin yau Kelvin Independent Non-Executive 58 years old Jun-2019 Jun-2019 since Jun 2015, Bank of Qingdao (2948 HK) since Apr 2015, China ZhengTong Auto (1728 HK) since Nov (黃天祐) Director 2010, I.T (999 HK) since Aug 2007. He also served an executive director and deputy managing director of COSCO SHIPPING Ports (1199 HK). He has served as the Chairman of the board of the Tuition Plan Consortium, a national prepaid tuition plan Mr. Timothy Roberts Independent Non-Executive for private colleges and universities in the US, and has served as the Co-President of Board of Trustees of 68 years old Jun-2019 Jun-2019 Warner Director the Western Reserve Academy since 2010. He has been a Vice Provost for budget and auxiliaries management at Stanford University since 1994. He has served as the Vice Chairman of SITC (1308 HK) since Mar 2013, as Chief Executive Officer and Mr. Yang Xianxiang Independent Non-Executive Executive from Apr 2010 to Feb 2013, as Chief Executive Officer from Jan 2008 to Mar 2010. He also 52 years old Jun-2019 Jun-2019 (楊現祥) Director served as the Chief Executive Officer of Shanghai Haifeng Shipping, as well as President of Xin Haifeng Container Transportation from May 2007 to Jan 2008. Source: Company data, CMBIS estimates

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Awards and Recognitions

Figure 154: Awards to Brands under Joyoung, Shark and Ninja.

Source: Company data, CMBIS estimates

Figure 155: Product Design Awards

Source: Company data, CMBIS estimates

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Key Risks

 Failure to remain industry leading in terms of technological changes. The ability to compete successfully depends heavily on the ability to continually introducing innovative new or enhanced products and technology in a timely manner. Even though JS Global (Joyoung, Shark and Ninja)’s dedication on R&D is relatively high vs peers, it still doesn’t guarantee success in rolling out competitive products, it is still subject to certain chances and probabilities.

 Increase in imports tariffs or even trade embargo. As at FY18, majority of the group’s production are inside China, while larger than half revenue are generated from the US market. Therefore it is subject to any trade related policies between US and China. For examples, the recent custom duties/ import tariffs imposed on Chinese imported parts or goods will incur extra costs on COGS and hence affect adversely on sales and profits. Any intensification of tariffs or enforcement of any trade restrictions will be negative.

 Failure to have quality and steady components’ supplies or unpredicted increases in raw material prices As at FY18, costs of finished products and raw materials/ components accounted for 90.8% and 3.9% respectively, while purchases from the five largest suppliers accounted for 40.5% of COGS. We believe there exists risks that the availability of production capacity, quality of products, timeliness of delivery, or even input costs could be changed if the relationship with suppliers deteriorate or even terminate. Additionally, even though the group does not directly purchase a lot of raw materials, in the case of price increase, especially for certain types of raw materials (e.g. copper, steel and plastics), it could cause costs pressure to the suppliers and may translate into costs inflation for the group. If the raw material increases become uncontrollable and cannot be fully passed on by raising retail prices of the products, it would result in squeezing of profit margins.

 Chances of impairment losses on goodwill relating to the acquisition of SharkNinja. About USD 840mn worth of goodwill was recorded upon the acquisition in 2017, which the balance remained the same in Dec 2018. Such goodwill will be tested for impairment every year or more frequent if circumstances changed rapidly. If there are situations that the business performance or expected future performance are going to significantly adverse, due to legal or business climates changes, unanticipated competition or fail to execute certain strategies, then impairments may be needed and could result in drop in profits.

 Economic growth uncertainty or tightening property policy in China If China or US experiences a major economic growth slowdown, then the overall demand on consumer goods may be affected negatively. If there are unfavourable polices imposed on the property sector and driven down demand for housing, then home appliances (large or small) may also be negatively affected.

 Greater-than-expected competition (e.g. price war or surge in marketing budgets) In our view, if JS Global’s competitors roll out more price incentives, promotions or discounts, perhaps during an industry downturn, then the group may experience losses of market share (if it did not raise discounts level to counter) or may experience drop in profit margin (if certain discounts were given to retain market share). Similarly, if marketing budget of JS Global’s competitors increases a lot, then the group may have to respond or face losses in sales.

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Financial Summary

Income statement Cash flow summary YE 31 Dec (USD mn) FY16A FY17A FY18A FY19E FY20E FY21E YE 31 Dec (USD mn) FY16A FY17A FY18A FY19E FY20E FY21E Revenue 1,103 1,563 2,682 2,996 3,411 3,853 EBIT 149 141 246 250 272 359 Joyoung 1,080 1,054 1,179 1,264 1,414 1,626 D & A 19 29 87 89 87 86 SharkNinja - 477 1,477 1,717 1,986 2,219 Change in working capital 38 (83) (48) 5 (28) (58) Others 23 33 25 15 10 8 Income tax paid (22) (9) (16) (40) (50) (58)

Others (31) (27) (36) 9 13 11 Cost of goods sold (752) (1,044) (1,683) (1,882) (2,133) (2,388) Net cash from operating 152 52 234 313 293 341

Gross profit 351 519 999 1,114 1,277 1,465 Other income 39 21 42 15 16 16 Capex & investments (4) (21) (67) (75) (78) (81)

Associated companies (10) (1,309) 29 - - - Operating expenses (242) (400) (795) (880) (1,021) (1,121) Interest received 8 7 7 - - - A & P (20) (98) (208) (222) (266) (297) Others (64) 109 21 - - - S & D costs (ex. A & P) (141) (166) (270) (289) (329) (362) Net cash from investing (69) (1,213) (10) (75) (78) (81)

D & A (6) (13) (45) (44) (43) (43) Admin exp. (ex D & A) (75) (123) (273) (325) (382) (420) Equity raised - - - 380 - - Other opex ------Net change in bank loans (100) 1,176 (59) (100) (350) (200) EBIT 149 141 246 250 272 359 Dividend paid (62) (39) (83) 83 16 39 Others 41 113 (119) (86) (60) (42) Finance costs, net 0 (17) (76) (77) (47) (31) Net cash from financing (121) 1,25 (261) 277 (394) (203)

JVs & associates (2) 3 6 - - - 0 Exceptional (5) (26) (35) (30) (7) (8) Net change in cash (38) 89 (37) 515 (179) 57 Pre-tax profit 142 102 140 143 218 321 Beginning cash balance 175 127 211 181 696 517 Exchange difference (10) (5) 7 - - - Income tax (20) 39 (28) (40) (50) (58) Cash at end of the year 127 211 181 696 517 574 Less: Minority interests 70 93 77 48 54 64 Net profit att. 52 48 35 55 113 199 Adj. Net profit att. 44 54 60 155 213 260

Balance sheet Key ratios YE 31 Dec (USD mn) FY16A FY17A FY18A FY19E FY20E FY21E YE 31 Dec FY16A FY17A FY18A FY19E FY20E FY21E

Non-current assets 280 1,896 1,889 1,876 1,867 1,862 Sales mix (%) Fixed asset 97 180 191 219 252 287 Joyoung 97.9 67.4 44.0 42.2 41.5 42.2 Intangible assets & goodwill 3 1,405 1,398 1,359 1,319 1,280 SharkNinja - 30.5 55.1 57.3 58.2 57.6 Prepaid lease payments 20 22 16 16 16 16 Others 2.1 2.1 1.0 0.5 0.3 0.2 Interest in joint ventures 25 37 36 36 36 36 Other non-current assets 135 252 247 246 244 243 Total 100. 100. 100. 100. 100. 100.

0 0 0 0 0 0 Current assets 681 1,389 1,411 1,993 1,986 2,225 P&L ratios (%) Cash & cash equivalents 127 211 181 696 517 574 Gross margin 31.9 33.2 37.3 37.2 37.4 38.0 Inventories 59 272 350 361 409 458 Operating margin 13.5 9.0 9.2 8.3 8.0 9.3 Trade and other receivables 225 628 773 821 934 1,056 Pre-tax margin 12.9 6.5 5.2 4.8 6.4 8.3 Prepayments 109 220 66 73 83 94 Net margin 4.7 3.1 1.3 1.8 3.3 5.2 Other current assets 161 58 42 42 42 42 Effective tax rate 13.7 -39.6 21.0 28.0 23.0 18.0

Current liabilities 308 661 1,281 1,253 1,297 1,370 Balance sheet ratios Bank loans - 10 486 336 236 186 Current ratio (x) 2.2 2.1 1.1 1.6 1.5 1.6 Trade payables 181 262 409 438 526 589 Quick ratio (x) 2.0 1.7 0.8 1.3 1.2 1.3 Accruals & other payables 119 371 364 407 463 523 Cash ratio (x) 0.4 0.3 0.1 0.6 0.4 0.4 Tax payables 6 7 11 11 11 11 Inventory turnover days 35 58 67 70 70 70 others 2 10 11 61 61 61 Trade receivables days 79 99 95 100 100 100

Trade payables days 105 77 73 85 90 90 Non-current liabilities 7 2,026 1,557 1,557 1,307 1,157 Total debt / total equity ratio (%) 0 203 258 108 65 39 Bank loans - 1,194 700 700 450 300 Net debt / equity ratio Net cash Net cash Net cash Net cash Net cash Net cash Deferred income 4 57 53 53 53 53 (%)Returns (%) Deferred tax 2 132 134 134 134 134 ROE 8.0 8.1 7.5 5.4 9.9 14.3 Others 1 643 671 671 671 671 ROA 5.4 1.5 1.1 1.4 2.9 4.9

Per share Minority Interest - - - 48 102 167 Adj. EPS (USD) n.a n.a n.a 0.04 0.06 0.07 Total net assets 646 598 463 1,011 1,148 1,393 DPS (USD) n.a n.a n.a 0.00 0.01 0.02 Shareholders' equity 646 598 463 1,011 1,148 1,393 BVPS (USD) n.a n.a n.a 0.30 0.34 0.41 Source: Company data, CMBIS estimates

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Apprendix

Figure 156: China Small Household Appliance Market Figure 157: US Small Household Appliance Market Retail Sales Retail Sales Value (US$ Market Value (US$ Market Ranking Company bn) Shares (%) Ranking Company bn) Shares (%) 1 C 8.8 37.0 1 C 2.5 10.0 2 J 2.4 9.9 2 JS Global 2.0 8.1 3 JS Global 2.1 8.8 3 A 1.7 6.6 4 A 1.5 6.2 4 K 1.5 6.1 5 E 1.4 6.0 5 L 1.5 5.9 Sum of top 5 16.2 68.4 Sum of top 5 9.2 36.8 Others 7.5 31.6 Others 15.8 63.2 Total 23.7 Total 25.0 Source: Frost & Sullivan, CMBIS estimates Source: Frost & Sullivan, CMBIS estimates

Figure 158: Global Small Household Appliance Market Retail Sales Value (US$ Market Ranking Company bn) Shares (%) 1 A 10.1 10.3 2 B 8.8 8.9 3 C 8.1 8.2 4 D 6.9 7.0 5 R 6.2 6.3 6 JS Global 4.4 4.5 7 F 4.1 4.1 8 G 4.0 4.1 9 H 3.3 3.3 10 I 3.2 3.3 Sum of top 10 59.1 60.1 Others 39.2 39.9 Total 98.3 Source: Frost & Sullivan, CMBIS estimates

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Figure 159: China small home appliances ASP (In RMB) and growth (YoY %) Types - English Types - Chinese 2014 2015 2016 2017 2018 1H19 Microwave oven 微波炉 608 605 566 542 542 496 Food blenders 料理机 227 253 382 503 514 367 Oven 电烤箱 574 550 567 639 751 714 Juicer 榨汁机 502 552 556 515 515 470 Induction stove 电磁炉 290 278 269 264 274 252 Kettle 电水壶 126 118 119 114 117 114 Rice cooker 电饭煲 296 312 323 327 344 335 pressure cooker 电压力锅 386 395 397 408 424 399 Soymilk maker 豆浆机 407 415 427 422 445 458 vacuum cleaner 吸尘器 719 675 719 732 849 877 Clothes dryer 干衣机 2,577 2,637 3,200 4,065 4,218 4,192 Air purifier 净化器 1,987 2,258 2,187 2,236 2,205 2,059 Water purifier 净水器 2,052 2,385 2,787 2,890 2,954 2,752 Fan 电风扇 245 230 229 236 267 231 Heater 电暖器 346 297 284 287 300 321 Drinking water purifier 净饮机 1,921 1,971 2,739 2,719 2,627 2,430 Drinking water machine 饮水机 308 404 516 475 466 486 Mini water heater 厨宝 458 449 449 429 440 430 Small appliances ASP 小家电 405 409 433 473 495 440

Growth (YoY %) Microwave oven 微波炉 -0.4% -6.6% -4.1% -0.1% -7.4% Blenders & food processors 料理机 11.4% 51.4% 31.5% 2.2% -31.6% Oven 电烤箱 -4.1% 3.1% 12.7% 17.4% -3.3% Juicer 榨汁机 10.0% 0.9% -7.4% -0.1% -6.4% Induction cooker 电磁炉 -4.3% -3.1% -1.8% 3.9% -9.0% Electric kettle 电水壶 -6.6% 0.9% -4.2% 2.7% -5.0% Rice cooker 电饭煲 5.5% 3.4% 1.4% 5.0% -6.3% Electric pressure cooker 电压力锅 2.4% 0.5% 2.6% 4.1% -8.1% Soymilk maker 豆浆机 2.0% 2.9% -1.0% 5.3% 3.5% vacuum cleaner 吸尘器 -6.1% 6.5% 1.9% 16.0% 3.5% Clothes dryer 干衣机 2.3% 21.4% 27.0% 3.8% -7.5% Air purifier 净化器 13.7% -3.2% 2.2% -1.4% -6.7% Water purifier 净水器 16.2% 16.9% 3.7% 2.2% -6.8% Electric fan 电风扇 -5.8% -0.6% 3.2% 13.0% -5.7% Electric heater 电暖器 -14.1% -4.6% 1.3% 4.2% 5.5% Drinking water purifier 净饮机 2.6% 39.0% -0.7% -3.4% -11.7% Drinking water machine 饮水机 31.3% 27.7% -7.9% -2.0% 4.2% Mini water heater 厨宝 -1.9% 0.1% -4.6% 2.6% -5.6% Small appliances ASP growth小家电 (%) 1.1% 5.7% 9.4% 4.5% -7.6% Source: All Cloud View, CMBIS estimates

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Disclosures & Disclaimers Analyst Certification The research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report.

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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Important Disclosures There are risks involved in transacting in any securities. The information contained in this report may not be suitable for the purposes of all investors. CMBIS does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial position or special requirements. Past performance has no indication of future performance, and actual events may differ materially from that which is contained in the report. The value of, and returns from, any investments are uncertain and are not guaranteed and may fluctuate as a result of their dependence on the performance of underlying assets or other variable market factors. CMBIS recommends that investors should independently evaluate particular investments and strategies, and encourages investors to consult with a professional financial advisor in order to make their own investment decisions. This report or any information contained herein, have been prepared by the CMBIS, solely for the purpose of supplying information to the clients of CMBIS or its affiliate(s) to whom it is distributed. This report is not and should not be construed as an offer or solicitation to buy or sell any security or any interest in securities or enter into any transaction. Neither CMBIS nor any of its affiliates, shareholders, agents, consultants, directors, officers or employees shall be liable for any loss, damage or expense whatsoever, whether direct or consequential, incurred in relying on the information contained in this report. Anyone making use of the information contained in this report does so entirely at their own risk. The information and contents contained in this report are based on the analyses and interpretations of information believed to be publicly available and reliable. CMBIS has exerted every effort in its capacity to ensure, but not to guarantee, their accuracy, completeness, timeliness or correctness. CMBIS provides the information, advices and forecasts on an "AS IS" basis. The information and contents are subject to change without notice. CMBIS may issue other publications having information and/ or conclusions different from this report. These publications reflect different assumption, point-of-view and analytical methods when compiling. CMBIS may make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. CMBIS may have a position, make markets or act as principal or engage in transactions in securities of companies referred to in this report for itself and/or on behalf of its clients from time to time. Investors should assume that CMBIS does or seeks to have investment banking or other business relationships with the companies in this report. As a result, recipients should be aware that CMBIS may have a conflict of interest that could affect the objectivity of this report and CMBIS will not assume any responsibility in respect thereof. This report is for the use of intended recipients only and this publication, may not be reproduced, reprinted, sold, redistributed or published in whole or in part for any purpose without prior written consent of CMBIS. Additional information on recommended securities is available upon request.

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Disclosures CMB International Securities Limited and/or its affiliates performed investment banking services to JS Global (1691 HK) over the past 12 months

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