Tianyun International | 6836.HK

Rating BUY Maintain Solid FY19 result and more to come Target Price HKD 1.45 From: HK$2.07 Current price HKD 0.83 Upside: 75.0% % Solid FY19 result, GM flattish Company Update

Tianyun has delivered another set of solid result in FY19, with both sales and net 8 June 2020 profit grew 13.0%/14.4% to RMB1,036mn/RMB169mn respectively with GM stayed flattish Yoy at 27.9%. During the period, OEM sales dropped 6.6 Yoy to RMB339mn due to US-Sino trade tension and hence lower their exposure to US Hayman Chiu clients, while own brand grew another 31.0% to RMB632mn driven by continued [email protected] sales channel expansion (net add 96 distributors in FY19). We believe Tianyun (852) 2235 7677 continue to focus on own brand business, while OEM business acts as a stable source of cashflow to support own brand development. Trading data

Own brand continues to drive sales growth, OEM to lower US exposure 52-Week Range (HK$) 1.27/0.68 3 Mth Avg Daily Vol (m) 3.0 Tianyun’s own brand revenue was up 31.0% Yoy to RMB 632mn (61.0% of total No of Shares (m) 977.46 revenue), Tianyun currently has 210 distributors (vs. 204 in 1H18) and Market Cap (HK$m) 811.3 management would expect number of distributors w but GM dropped 3.7ppts to Major Shareholders (%) Dev. (27.0%) 27.1% due to change in processed fruit product mix while ASP remained stable. Ziyuan (19.6%) Meanwhile, online sales grew 2.6% to RMB73.7mn (11.7% of own brand sales) Auditors PWC as the Company’s investment in e-commerce platforms such as WeChat Result Due 1H20E: Aug 2020 Business and TMall continue to play a part in own brand’s revenue growth. Tianyun has launched more new products (such as trans fat free fruit snack) in Company description and target to further diversify product SKUs in FY20E including sports beverage. Established in January 2003 and listed in HKEx in July 2015, Tianyun sells their products (processed fruit in Tianyun’s OEM revenue came in at RMB339mn (-6.6% Yoy and took up 32.7% and to overseas on an OEM basis, current of total revenue), while GM picked up 350bps to 32.2% due to higher ASP. clients include renowned international brands such as Though Tianyun’s overseas sales contribution further lowered to 4% in FY19, Del Monte and Tesco (TSCO.LN) etc. Tianyun has been promoting its own brand products under with their diverse clientele worldwide including Europe, Canada, Australia and “Tiantong Food” (天同食品), “Bingo -My Times-”(繽果 New Zealand, we continue to believe the current client portfolio would support 時代) and “Guo Xiao Lan”(果小懶), in the PRC and Tianyun’s OEM sales grow at a stable pace in FY20E-FY22E, while we continue overseas countries. Tianyun commenced sales of to believe the US-China trade dispute would have minimal impact on Tianyun’s Tiantong Food products in Hong Kong's supermarket sales. chains in 2015. By December 2019, Tianyun currently has 306 exclusive regional distributors covering supermarket chains including Auchan, RT-Mart, CR Deepen strategic co-operation with SDIC and international partners Vanguard and AEON etc

As mentioned in our initiation report in Apr 2019, since SDIH becoming Tianyun’s Price chart single largest shareholder (27%) in end 2018, Tianyun announced in Feb 2019 HK$ that Tianyun and SDIH will set up a JV with initial investment at RMB 200mn 1.6 (70/30 spilt) in Sichuan Province to collaborate in developing a supply chain for 1.4 1.2 processed agricultural and food products, and a base for supply of raw materials 1.0 that complies with international standards. The JV would focus on business such 0.8 as fruit and vegetable international trade, grading, canning and processing. The 0.6 0.4

JV would also involve in the production of fruit and vegetable ice-cream, 0.2

functional beverage. 0.0

Jul-18 Jul-19 Jul-17

Oct-17 Oct-19 Oct-18

Jan-18 Apr-19 Jan-20 Apr-20 Apr-18 Jan-19

Feb-18 Mar-18 Feb-19 Mar-19 Jun-19 Mar-20 Jun-17 Jun-18 Feb-20

Sep-17 Dec-17 Sep-19 Dec-19 Sep-18 Dec-18

Nov-17 Nov-19 Nov-18

Aug-17 May-18 May-19 Aug-19 May-20 Aug-18 In addition, Tianyun announced in June 2019 that they have signed a strategic Sources: Bloomberg, CIRL co-operation memorandum with SDIH and JC Food, which is a Japanese food enterprise under Sumitomo group, SC Food. Tianyun would be selling OEM products and would develop new products to fulfill Japanese market demand.

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Tianyun also built up strategic partnership with a renowned beverage enterprise in November 2019, they will develop special and sport beverage products and set up relevant production facilities. The operation will kick off in 2H20E with designed capacity at 40k ton/year.

Hubei plant to further ramp up in FY20E

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

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

Undemanding FY20E 4.1x PE, increased own brand contribution continue to favour re-rating

We lower Tianyun’s FY20E/21E EPS by 24.2%/23.3% to reflect lower sales and GM forecasts, with sports beverage sales not taken into account. We expect Tianyun’s revenue and adjusted EPS to grow at 12.8%/13.6% CAGR in FY18-FY21E driven by increasing contribution from current own brand and stable OEM business, and the counter is trading at FY20E/21E 4.1x/3.5x PE (~77%/74% discount to weighted average of HK, A-share listed and international peers) still looks attractive to us. As own brand already took up 59%/58% of FY19 sales and GM, these re-affirms our view that Tianyun’s own brand business is growing on the right track and continues to deserve a re-rating in the long run.

With solid track record since listing and healthy financial position, we maintain Tianyun’s rating at BUY and value its TP at HK$1.45 based on 7.1x weighted average FY19E PE (60% discount to peers’ 17.8x weighted average PE vs. 55% discount in our last update due to weakened market sentiment and lower investors’ risk appetite for small caps). We still identify the following upside catalysts for Tianyun: i) Successful ramp up of Hubei plant, ii) Well-received market response of new own-brand product, iii) Better than expected sales/ market response from sports beverage and iv) News flow on SIDH and Tianyun JV

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Exhibit 1: We lower Tianyun’s FY20E/21E sales and earnings forecasts Exhibit 1: Earnings Forecasts Revision PorkFY20 (old) FY20(new) Diff FY21 (old) FY21(new) Diff

products1,342 1,154 -14.0% 1,540 1,351 -12.3%

sold in 396 317 -19.9% 459 374 -18.6% supermarke t counters 29.5% 27.5% -200bps 29.8% 27.7% -210bps

239 182 -23.9% 276 213 -23.0%

0.244 0.185 -24.2% 0.282 0.216 -23.3%

Source: Company data, CIRL estimates

Exhibit 2: Tianyun’s GM stayed flattish in 2H19 Gross Margin Breakdown (By Segment) Exhibit 1: Year to Dec (RMB mn) 1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19 Pork

OEMproducts 55 68 47 56 51 53 50 59 Yoy(%) 9.7% -4.8% -14.4% -17.8% 8.0% -5.5% -2.1% 11.3% sold in GM 32.5% 32.2% 30.3% 29.6% 28.2% 29.2% 30.1% 34.2% supermarket % of total GM 58.8% 64.7% 51.1% 33.4% 41.9% 37.5% 39.2% 35.0% Owncounters Brand 28 30 38 110 65 84 74 97 Yoy(%) 89.2% 71.6% 36.4% 271.2% 69.6% -24.1% 14.4% 16.4% GM 31.1% 30.4% 27.5% 60.1% 30.9% 30.6% 28.7% 26.0% % of total GM 29.7% 28.2% 41.2% 65.7% 53.1% 59.2% 57.9% 57.9%

Trading of fresh fruit & others 11 7 7 2 6 5 4 12 Yoy(%) -1.8% 6.1% -33.3% -78.4% -15.3% 193.8% -39.3% 153.2% GM 23.0% 20.4% 14.9% 5.4% 12.6% 9.9% 11.2% 20.0% % of total GM 11.5% 7.1% 7.8% 1.0% 5.0% 3.3% 2.9% 7.1% Total 94 105 93 168 122 141 128 168

Yoy(%) 23.5% 9.8% -1.5% 59.5% 31.6% -15.9% 4.8% 19.1% Blended GM 30.6% 30.4% 27.0% 41.7% 27.8% 28.2% 28.0% 27.8%

Source: Company data, CIRL

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Exhibit 3: Tianyun sales mix by segment (left) and by region (right)

100% Exhibit 1: 8.8 10.8 15.6 18.0 18.2 100% 21.8 8.8 10.8 90% 18.4 21.8 18.0 18.2 Pork 90% 18.4 21.8 21.8 80% 32.1 15.6 7.6 57.7 80% 15.6 32.1 18.3 92.1 7.6 57.7 products70% 70% 18.3 92.1 148.4 171.4 148.4 sold60% in 60% 50% 50% supermarket 40% 40% 64.5 97.7 122.0 64.5 97.7 122.0 30% 72.7 123.5 counters30% 72.7 123.5 103.4 103.4 20% 104.1 20% 104.1 109.0 10% 10% 0% 0% FY12A FY13A FY14A FY15A FY16A FY17A FY18A FY12A FY13A FY14A FY15A FY16A FY17A FY18A FY19A OEM Own Brand Trading of fresh fruit & others OEM Own Brand Trading of fresh fruit & others

Source: Company data, CIRL

Exhibit 4: Tianyun’s designed capacity would grow at 27% in FY18-FY21E

Exhibit200,000 1: 179,000 Pork180,000 FY18-FY21E CAGR :21.4% products160,000

140,000 134,000 sold in 124,000 supermarket120,000 100,000 100,000 counters 84,000 84,000

80,000 64,000

60,000 53,000

40,000 31,758 32,489

20,000

0 FY12A FY13A FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E

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

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Exhibit 5: Tianyun’s profitability vs. peers in FY19 Exhibit 1: bloomberg ROE (%) ROA (%) Net Gearing (%) FY19 code FY19 FY19 FY19 GM (%) OM (%) PM (%) Pork products HK listed cosumer staples CHANGSHOUHUAsold in FOO 1006 HK 9.9 8.5 (54.8) 24% 11% 11% MENGNIU DAIRY 2319 HK 16.6 6.2 (6.4) 38% 6% 5% CHINA FEIHE LTD 6186 HK 41.6 22.5 (17.3) 70% 42% 29% HEALTHsupermarket AND HAPPI 1112 HK 22.2 7.0 68.3 66% 17% 9% AUSNUTRIA 1717 HK 24.3 11.6 (21.3) 52% 17% 13% YASHILIcounters INT'L 1230 HK 1.7 1.3 (26.4) 37% 1% 3% YUANSHENGTAI DAI 1431 HK 7.4 6.4 (23.4) 27% 23% 16% CHINA SHENGMU OR 1432 HK 15.0 4.4 86.4 37% 19% 1% CHINA MODERN DAI 1117 HK 7.9 3.4 81.0 38% 14% 6% CHINA RESOURCES 291 HK 8.9 4.2 (8.2) 37% 7% 4% TINGYI 322 HK 14.1 5.0 (19.7) 32% 8% 5% UNI-PRESIDENT CH 220 HK 10.1 6.2 (20.1) 36% 8% 6% NISSIN FOODS CO 1475 HK 6.9 5.4 (58.3) 33% 11% 8% WANT WANT CHINA 151 HK 22.9 12.1 (49.4) 45% 22% 17% DALI FOODS GROUP 3799 HK 24.2 20.1 (68.0) 40% 22% 18% CHINA HUIYUAN 1886 HK N/A N/A #N/A N/A N/A N/A N/A SUMMI GROUP HOLD 756 HK N/A (19.1) #N/A N/A -35% -774% -4174% YANTAI NORTH-H 2218 HK 8.8 8.2 (14.3) 31% 19% 20% CHINA HAISHENG 359 HK (4.5) (0.7) 240.0 6% 12% -5% CHINA GREENFRESH 6183 HK 5.6 5.1 (49.7) 4% 11% 11% TENWOW INTERNATI 1219 HK N/A N/A #N/A N/A N/A N/A N/A JIASHILI GROUP L 1285 HK 14.5 6.8 (6.1) 34% 9% 7% LABIXIAOXIN 1262 HK (20.6) (7.5) 147.3 30% -24% -36% CHRISTINE INTERN 1210 HK (115.8) (28.6) 115.8 44% -38% -41% TENFU HLDGS CO 6868 HK 14.6 9.5 20.6 59% 25% 15% HONWORLD 2226 HK 8.6 5.1 26.0 49% 31% 21% CHINA YURUN FOOD 1068 HK N/A (12.2) #N/A N/A 7% -22% -26% WH GROUP LTD 288 HK 17.3 8.7 27.1 22% 9% 6% COFCO MEAT HOLDI 1610 HK 29.4 12.0 119.7 1% -3% 14% SHENGUAN HOLDING 829 HK 2.8 2.5 (18.7) 23% 6% 8% CHINA PUTIAN FOO 1699 HK 0.0 0.0 67.7 16% 12% 9% HUISHENG INTL 1340 HK 0.5 0.4 (0.7) 2% -445% -8% CHINA KANGDA FD 834 HK (1.9) (0.7) 41.6 8% 2% 0% TSINGTAO BREW-H 168 HK 10.3 5.3 (81.5) 39% 8% 7% CHINA FOODS LTD 506 HK 9.0 2.9 (2.0) 37% 6% 2% Average 13.2 7.1 86.8 32% 14% 10%

TIANYUN INTERNAT 6836 HK 20.8 15.3 1.2 28% 22% 16%

China listed consumer staples INNER MONG YIL-A 600887 CH 25.5 12.8 (9.0) 37% 9% 8% BRIGHT DAIRY-A 600597 CH 11.9 3.7 6.2 31% 5% 2% XINJIANG GUANN-A 600251 CH 12.3 4.6 19.1 11% 1% 5% ZHUJ-A 002461 CH 5.0 3.5 (53.1) 47% 9% 12% BEIJING YAN-A 000729 CH 2.2 1.6 (19.7) 39% 3% 2% V V FOOD BVRG-A 600300 CH 4.1 1.2 94.6 24% 6% 1% JUEWEI FOOD CO-A 603517 CH 21.2 17.3 (31.2) 34% 19% 15% JIANGXI HUANGS-A 002695 CH 10.7 8.3 (44.4) 38% 12% 10% FOSHAN HAITIAN-A 603288 CH 34.1 23.1 (107.8) 45% 30% 27% IAJIA FOOD GRO-A 002650 CH 7.4 6.2 (7.1) 27% 6% 8% JIANGSU HENGSH-A 600305 CH 12.1 8.9 (30.0) 45% 21% 18% COFCO TUNHE CO-A 600737 CH 7.1 3.5 21.2 12% 5% 3% HENAN SHUAN-A 000895 CH 36.2 20.7 5.6 19% 11% 9% Average 21.6 12.1 29.3 15.6% 8.0% 6.1%

TIANYUN INTERNAT 6836 HK 20.8 15.3 (6.1) 28% 22% 16%

Global & PRC players BONDUELLE SCA BON FP 11.3 3.7 92.6 N/A 4% 3% DEL MONTE PAC LT DELM SP 8.9 2.0 242.4 20% 4% 1% LA DORIA SPA LD IM 7.9 3.0 58.6 N/A 5% 3% MALEE GROUP PCL MALEE TB (21.9) (4.8) 211.9 17% -4% -4% AMCL PRAN AMCL BD N/A N/A #N/A N/A N/A N/A N/A SINO GRANDNESS SFGI SP 6.6 4.7 14.9 34% 11% 7% CHINA HUIYUAN 1886 HK N/A N/A #N/A N/A N/A N/A N/A SUMMI GROUP HOLD 756 HK N/A (19.1) #N/A N/A -35% -774% -4174% YANTAI NORTH-H 2218 HK 8.8 8.2 (14.3) 31% 19% 20% CHINA HAISHENG 359 HK (4.5) (0.7) 240.0 6% 12% -5% KAGOME 2811 JP 9.0 4.7 7.3 36% 8% 6% COFCO TUNHE CO-A 600737 CH 7.1 3.5 21.2 12% 5% 3% FOODS & INNS LTD FI IN 95.5 30.4 50.0 N/A 4% 32% FOOD & DRINKS FND TB 0.0 0.0 16.6 14% 1% 0% Average 21.2 8.6 95.5 22.2% 8.5% 11.5%

TIANYUN INTERNAT 6836 HK 20.8 15.3 1.2 28% 22% 16%

Source: Bloomberg, CIRL

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Exhibit 6: Peers comparison Exhibit 1: bloomberg Mkt Cap Price Share Price Movement (%) PER (x) Yield (%) code (HKD mn) (HKD) 1M 3M YTD FY17 FY18 FY19 FY20E FY21E FY17 FY18 FY19 FY20E FY21E

HKPork listed cosumer products staples CHANGSHOUHUA FOO 1006 HK 1,399 2.44 (2.4) (11.9) (20.5) 4.1 3.4 3.8 - - 4.7% 4.9% 0.0% 0.0% 0.0% MENGNIUsold DAIRY in 2319 HK 115,711 29.40 6.3 3.3 (6.7) 48.4 31.8 24.7 30.5 21.3 0.5% 0.7% 0.7% 0.7% 1.1% CHINA FEIHE LTD 6186 HK 128,104 14.34 (11.3) 22.4 56.7 - - 26.3 22.5 17.8 0.0% 0.0% 1.4% 1.5% 2.0% HEALTHsupermarket AND HAPPI 1112 HK 22,928 35.60 20.3 5.5 10.2 20.8 22.7 20.0 17.6 14.8 0.0% 1.6% 2.7% 2.7% 3.3% AUSNUTRIA 1717 HK 25,694 15.94 10.4 27.8 41.9 56.1 28.5 25.6 19.2 15.1 0.6% 1.1% 1.6% 1.8% 2.3% YASHILI INT'L 1230 HK 2,136 0.45 1.1 (25.0) (35.7) -10.3 34.5 16.5 21.4 18.0 0.0% 0.0% 0.0% 0.0% 0.0% YUANSHENGTAIcounters DAI 1431 HK 1,829 0.39 21.9 44.4 33.9 -23.1 -2.8 7.2 4.6 3.9 0.0% 0.0% 0.0% 0.0% 0.0% CHINA SHENGMU OR 1432 HK 1,437 0.20 (6.0) (8.9) (18.4) -1.1 -0.5 45.0 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA MODERN DAI 1117 HK 5,703 0.89 8.5 (7.3) (22.6) -4.8 -9.2 14.2 11.7 8.7 0.0% 0.0% 0.0% 0.0% 0.0% CHINA RESOURCES 291 HK 145,826 44.95 21.7 24.0 4.3 108.2 126.4 99.1 56.5 37.8 0.4% 0.3% 0.4% 0.7% 1.1% TINGYI 322 HK 74,574 13.28 (3.2) (5.7) (0.3) 35.4 25.5 19.8 22.4 20.5 1.4% 2.0% 2.5% 4.0% 4.3% UNI-PRESIDENT CH 220 HK 34,641 8.02 2.7 0.0 (2.0) 34.2 28.4 22.4 21.9 20.2 2.0% 3.5% 4.5% 4.5% 4.8% NISSIN FOODS CO 1475 HK 6,951 6.47 1.3 (0.9) 4.5 27.2 33.8 27.7 22.5 19.9 0.0% 0.0% 1.8% 2.1% 2.4% WANT WANT CHINA 151 HK 70,767 5.70 2.5 (6.6) (21.7) 18.7 19.4 17.5 17.6 16.5 2.5% 2.6% 4.2% 4.3% 4.5% DALI FOODS GROUP 3799 HK 64,225 4.69 (0.2) (7.2) (17.5) 16.2 14.6 14.8 15.0 13.7 4.0% 3.5% 3.6% 4.6% 5.0% CHINA HUIYUAN 1886 HK 5,397 2.02 0.0 0.0 0.0 - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% SUMMI GROUP HOLD 756 HK 181 0.13 (13.0) (27.2) (29.5) 2.3 12.8 -0.1 - - 12.8% 0.0% 0.0% 0.0% 0.0% YANTAI NORTH-H 2218 HK 1,897 5.30 6.2 12.3 2.7 19.3 11.6 9.9 - - 1.1% 2.2% 2.1% 0.0% 0.0% CHINA HAISHENG 359 HK 161 0.13 (7.4) (29.8) (29.8) 1.0 1.7 -2.2 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA GREENFRESH 6183 HK 152 0.10 (31.0) (51.9) (62.3) 0.5 0.7 0.9 - - 0.0% 0.0% 0.0% 0.0% 0.0% TENWOW INTERNATI 1219 HK 838 0.38 0.0 0.0 0.0 4.5 -0.2 - - - 11.1% 0.0% 0.0% 0.0% 0.0% JIASHILI GROUP L 1285 HK 639 1.54 (1.3) (1.9) (1.3) 5.2 6.2 5.1 - - 11.2% 3.4% 6.5% 0.0% 0.0% LABIXIAOXIN 1262 HK 478 0.36 0.0 26.3 20.0 -1.4 -2.2 -2.4 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHRISTINE INTERN 1210 HK 288 0.29 95.2 20.3 0.0 -1.9 -1.0 -1.1 - - 0.0% 0.0% 0.0% 0.0% 0.0% TENFU HLDGS CO 6868 HK 5,983 5.40 (1.8) (1.3) (10.3) 23.4 20.7 19.8 - - 3.3% 3.8% 3.8% 0.0% 0.0% HONWORLD 2226 HK 1,343 2.32 (0.4) (16.5) (32.4) 6.2 5.6 6.1 - - 3.2% 3.6% 3.3% 0.0% 0.0% CHINA YURUN FOOD 1068 HK 911 0.50 (16.7) (28.6) (38.3) -0.5 -0.2 -0.2 - - 0.0% 0.0% 0.0% 0.0% 0.0% WH GROUP LTD 288 HK 97,650 6.63 (11.4) (17.6) (17.6) 10.9 13.2 8.5 8.4 8.0 4.0% 3.0% 4.8% 4.9% 5.1% COFCO MEAT HOLDI 1610 HK 8,584 2.20 (20.3) 6.8 (0.5) 16.5 -11.5 4.8 3.7 3.6 0.0% 0.0% 0.0% 1.4% 1.0% SHENGUAN HOLDING 829 HK 905 0.28 (1.8) 8.2 6.4 11.5 9.4 10.7 - - 6.7% 7.2% 7.4% 0.0% 0.0% CHINA PUTIAN FOO 1699 HK 431 0.23 (10.6) (18.6) (25.2) 40.3 -10.0 6.5 - - 0.0% 0.0% 0.0% 0.0% 0.0% HUISHENG INTL 1340 HK 55 0.06 10.5 (32.3) (46.6) -181.9 -0.1 -111.1 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA KANGDA FD 834 HK 178 0.41 12.3 (18.0) (38.8) -9.7 26.6 35.8 - - 0.0% 0.0% 0.0% 0.0% 0.0% TSINGTAO BREW-H 168 HK 83,160 55.40 17.4 37.3 5.7 51.3 44.4 35.6 37.0 29.2 0.9% 1.0% 1.1% 1.1% 1.4% CHINA FOODS LTD 506 HK 7,553 2.70 5.5 (8.2) (10.3) 4.2 19.9 15.9 15.3 12.6 1.0% 1.7% 1.8% 2.3% 2.8% Average 26,249 3.0 (2.5) (8.6) 23.6 23.6 20.2 20.5 16.6 4.0% 2.7% 3.0% 2.6% 3.0%

TIANYUN INTERNAT 6836 HK 802 0.82 1.2 (3.5) (18.0) 5.9 5.0 4.4 4.1 3.5 4.9% 5.1% 5.7% 6.3% 7.6%

China listed consumer staples INNER MONG YIL-A 600887 CH 190,419 31.39 (1.5) (3.5) (6.9) 27.5 25.0 24.1 29.0 22.1 2.6% 2.6% 2.9% 2.4% 2.9% BRIGHT DAIRY-A 600597 CH 21,101 17.23 28.3 44.3 24.6 29.5 51.9 37.1 36.5 30.9 1.1% 0.7% 0.9% 0.9% 1.0% XINJIANG GUANN-A 600251 CH 5,732 7.30 8.8 2.9 22.7 58.4 51.8 29.6 - - 0.6% 0.2% 0.0% 0.0% 0.0% GUANGZHOU ZHUJ-A 002461 CH 20,892 9.44 18.1 32.0 21.3 90.8 46.8 37.8 36.3 31.5 0.6% 1.3% 1.2% 2.5% 2.7% BEIJING YAN-A 000729 CH 19,631 6.97 7.2 5.6 (2.0) 105.8 91.8 74.9 91.6 58.0 0.3% 0.4% 0.4% 0.5% 0.6% V V FOOD BVRG-A 600300 CH 5,577 3.34 (2.5) 1.3 3.7 52.8 78.6 66.8 - - 1.0% 0.0% 0.0% 0.0% 0.0% JUEWEI FOOD CO-A 603517 CH 42,418 69.70 20.7 57.1 37.7 67.1 52.7 44.5 43.4 35.4 0.6% 0.7% 0.9% 0.9% 0.9% JIANGXI HUANGS-A 002695 CH 13,430 26.16 18.1 38.2 46.3 80.4 63.8 53.8 42.2 32.9 0.3% 0.4% 0.4% 0.4% 0.6% FOSHAN HAITIAN-A 603288 CH 403,821 124.62 11.6 32.2 27.6 98.9 77.8 66.6 59.0 49.6 0.7% 0.8% 0.8% 0.9% 1.2% IAJIA FOOD GRO-A 002650 CH 6,655 5.78 28.0 47.6 48.0 35.7 48.7 36.4 - - 0.8% 0.0% 0.7% 0.0% 0.0% JIANGSU HENGSH-A 600305 CH 18,773 23.96 15.1 18.9 44.1 57.9 51.6 51.0 47.8 41.5 0.5% 0.6% 1.0% 0.8% 0.9% COFCO TUNHE CO-A 600737 CH 18,557 8.68 (2.3) (8.0) (5.9) 20.8 29.8 27.9 - - 2.3% 0.0% 1.6% 2.4% 3.3% HENAN SHUAN-A 000895 CH 141,283 42.56 (3.4) 14.5 34.5 28.2 24.3 22.9 21.6 19.3 3.0% 4.0% 2.7% 3.5% 3.8% Average 79,920 11.3 21.8 22.8 58.0 53.4 44.1 45.3 35.7 1.1% 1.2% 1.2% 1.5% 1.8%

TIANYUN INTERNAT 6836 HK 802 0.82 1.2 (3.5) (18.0) 5.3 4.3 4.4 4.3 3.6 4.9% 5.1% 5.7% 6.3% 7.6%

Global & PRC players BONDUELLE SCA BON FP 6,388 196.33 13.0 5.1 (3.0) 12.2 9.3 9.7 11.1 10.2 1.9% 2.4% 2.3% 2.1% 2.2% DEL MONTE PAC LT DELM SP 1,133 0.58 (1.9) (12.5) (23.4) 6.2 -2.8 247.7 - - 8.1% 0.0% 7.0% 0.0% 0.0% LA DORIA SPA LD IM 3,027 97.64 16.2 38.9 20.5 11.3 11.9 17.1 10.3 11.0 2.1% 2.2% 1.6% 2.2% 2.1% MALEE GROUP PCL MALEE TB 488 1.77 25.2 42.6 10.8 3.8 -7.1 -9.2 - - 18.8% 3.4% 0.0% 0.0% 0.0% AMCL PRAN AMCL BD 130 16.26 0.2 (3.3) 4.7 24.8 24.1 24.8 - - 1.9% 1.9% 0.0% 0.0% 0.0% SINO GRANDNESS SFGI SP 108 0.09 (5.6) (22.7) (57.5) 0.1 0.2 0.5 0.4 - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA HUIYUAN 1886 HK 5,397 2.02 0.0 0.0 0.0 - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% SUMMI GROUP HOLD 756 HK 181 0.13 (13.0) (27.2) (29.5) 2.3 12.8 -0.1 - - 12.8% 0.0% 0.0% 0.0% 0.0% YANTAI NORTH-H 2218 HK 1,897 5.30 6.2 12.3 2.7 19.3 11.6 9.9 - - 1.1% 2.2% 2.1% 0.0% 0.0% CHINA HAISHENG 359 HK 161 0.13 (7.4) (29.8) (29.8) 1.0 1.7 -2.2 - - 0.0% 0.0% 0.0% 0.0% 0.0% KAGOME 2811 JP 20,311 215.23 11.3 29.1 15.2 27.2 27.2 29.9 26.1 166.0 1.0% 1.3% 1.2% 1.2% 1.2% COFCO TUNHE CO-A 600737 CH 18,557 8.68 (2.3) (8.0) (5.9) 20.8 20.8 29.8 27.9 27.2 2.3% 0.0% 1.6% 2.4% 3.3% FOODS & INNS LTD FI IN 252 5.00 4.2 (6.9) 0.7 -138.1 57.4 2.0 - - 0.0% 0.0% 0.0% 0.0% 0.0% FOOD & DRINKS FND TB 82 4.64 5.0 (5.0) 5.0 -5.0 -7.8 -31.4 229.9 - 0.0% 0.0% 0.0% 0.0% 0.0% Average 4,151 3.7 0.9 (6.4) 11.7 17.7 41.3 50.9 53.6 5.6% 2.2% 2.6% 2.0% 2.2%

TIANYUN INTERNAT 6836 HK 802 0.82 1.2 (3.5) (18.0) 5.3 4.3 4.4 4.3 3.6 4.9% 5.1% 5.7% 6.3% 7.6%

Source: Bloomberg, CIRL

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Exhibit 7: Tianyun’s 12 month Forward P/E Ratio Exhibit 1: 10 12 mths Forward P/E Ratio

Pork9 avg.

products8 +1std. sold7 in 6 supermark a 5 et counters -1std. 4 -

3

2

1

0 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19

Source: Bloomberg, CIRL

Exhibit 8: Financial statement

Income statement Cash flow Year to Feb (RMB Mn) FY17A FY18A FY19A FY20A FY21E FY22E Year to Feb (RMB Mn) FY17A FY18A FY19A FY20A FY21E Revenue 21,690 26,550 32,564 33,690 36,055 39,772 Pre-tax profit 1,892 2,114 3,045 3,086 3,443 Gross profit (reported) 9,378 11,038 13,607 14,187 15,029 16,709 Taxes paid (572) (946) (528) (806) (756) EBITDA 3,005 3,846 5,308 5,812 6,723 7,779 Depreciation & amortization 1,065 1,594 2,071 2,509 3,048 Depreciation 1,065 1,594 2,071 2,509 3,048 3,594 Associates & Others 1,817 2,597 1,302 1,922 2,033 EBIT 1,940 2,252 3,237 3,303 3,675 4,185 CFO bef. WC change 4,202 5,359 5,890 6,712 7,768 Net interest income (exp.) (48) (138) (192) (217) (232) (256) Change in working cap (953) (1,268) 1,085 (193) (318) Associates 0 0 0 0 0 0 Cashflow from operation 3,249 4,092 6,976 6,519 7,450 Exceptionals/others 0 0 0 0 0 0 CAPEX (763) (918) (712) (777) (856) Profit before tax 1,892 2,114 3,045 3,086 3,443 3,929 Free cash flow 2,486 3,174 6,264 5,742 6,595 Tax expenses (575) (678) (846) (783) (873) (996) Dividends 0 0 0 1,178 1,285 Minority interest 0 0 0 0 0 0 Balance sheet adj. #REF! (3,785) (14,052) (2,252) (7,044) Net profit 1,317 1,436 2,200 2,303 2,570 2,932 Sharse issued 0 0 7,076 0 0 Dividends 0 0 0 1,178 1,285 1,466 Others 0 0 0 0 0 Diluted EPS (RMB) 0.250 0.272 0.417 0.409 0.414 0.473 Net cash flow #REF! (611) (713) 4,668 836 Net cash (debt) start #REF! 674 64 (650) 4,019 Balance sheet Net cash (debt) at year-end 674 64 -650 4,019 4,854 Year to Feb (RMB Mn) FY17A FY18A FY19A FY20A FY21E FY22E Cash & equiv 674 464 651 6,419 6,704 6,377 Ratios Trade receivables 1,859 2,633 2,518 1,487 1,591 1,755 Year to Feb (RMB Mn) FY17A FY18A FY19A FY20A FY21E Other receivables 1,139 1,373 854 822 822 822 Growth rate (%) Inventories 4,154 4,617 6,139 6,649 7,168 7,863 Revenue - 22.4% 22.7% 3.5% 7.0% Other current assets 0 254 0 0 0 0 EBITDA #REF! 28.0% 38.0% 9.5% 15.7% Fixed assets 1,008 980 1,116 1,154 842 482 EBIT #REF! 16.1% 43.7% 2.0% 11.3% Intangible assets 1,112 1,077 1,145 1,103 1,145 1,104 Net profit #REF! 9.0% 53.2% 4.7% 11.6% Investment, associates etc 2,235 2,956 3,795 4,402 4,758 5,029 Fully diluted EPS #REF! 9.0% 53.2% -2.0% 1.3% Total assets 12,182 14,353 16,216 22,035 23,032 23,431 Margins (%) Gross margin (reported) 43.2% 41.6% 41.8% 42.1% 41.7% Account payables 337 391 642 1,106 1,192 1,307 EBITDA 13.9% 14.5% 16.3% 17.3% 18.6% Other payables 4,616 6,676 4,995 1,593 1,593 1,593 EBIT 8.9% 8.5% 9.9% 9.8% 10.2% Short-term debt 0 400 1,300 2,400 1,850 1,488 Net margin 6.1% 5.4% 6.8% 6.8% 7.1% Other current liabs 959 1,299 4,902 3,800 3,935 4,083 Other ratios Long-term debts 0 0 0 0 0 0 ROE (%) #REF! 33.1% 76.8% 36.9% 23.2% Deferred tax and others 1,375 1,805 2,428 2,593 2,845 3,122 ROA (%) #REF! 10.8% 14.4% 12.0% 11.4% Other long-term liabs 0 0 0 0 0 0 Net gearing (%) -13.8% -1.7% 33.3% -38.1% -41.8% Total liabilities 7,287 10,571 14,268 11,492 11,415 11,593 Interest coverage (x) -40.5 -16.3 -16.9 -15.2 -15.8 Receivables days 31.3 30.9 28.9 21.7 15.6 Share capital 0 0 0 0 930 930 Payables days 10.0 9.2 12.4 20.7 20.7 Reserves 4,894 3,781 1,949 10,543 10,686 10,908 Inventory days 123.2 108.6 118.2 124.4 124.4 Shareholders' equity 4,894 3,781 1,949 10,543 11,617 11,838 Effective tax rate (%) -30.4% -32.1% -27.8% -25.4% -25.4% Minorities 0 0 0 0 0 0 Total equity 4,894 3,781 1,949 10,543 11,617 11,838 Net cash (debt) 674 64 (650) 4,019 4,854 4,889 Source: Company data, CIRL estimates

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Risk Factors

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

Rating Policy

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

Analysts List

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

Lewis Pang Associate Director (852) 2235 7847 [email protected] Kenneth Li Associate Director (852) 2235 7619 [email protected] Farica Li Research Analyst (852) 2235 7617 [email protected] Chloe Chan Research Analyst (852) 2235 7170 [email protected] Edith Li Research Analyst (852)2235 7515 [email protected]

Analyst Certification

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

Disclaimer

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

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