Bicycle Shifting trends in the bicycle market
The sustainable growth trajectory of the bicycle market Overweight (Initiate) Total bicycle sales in Korea reached roughly 1.93mn units in 2014, growing at a CAGR of Industry Report 2.1% over the previous five years (since 2009). By revenue, the market expanded 7.3% CAGR to around W513bn during the same period. This underscores that market growth June 30, 2015 has been driven more by price than by volume. We believe Korea’s bicycle market remains underpenetrated at 29%, far lower than the 60-80% penetration rates seen in Daewoo Securities Co., Ltd. Europe and Japan. Hence, we see potential for long-term sustainable growth, backed by increasing domestic penetration and entry into export markets. [IT Mid-Small Cap] Major changes in market trends Will Lee +822-768-4168 1) The primary users of bicycles are shifting from teenagers to more financially capable [email protected] people in their thirties or older. Consequently, the main product group is moving from Chuljoong Kim low-end bikes to higher-end ones. The resulting rise in prices has become the key driver +822-768-4162 of overall market growth. [email protected] 2) Domestic bicycle manufacturers are diversifying their product portfolios beyond standard bicycles to tricycle strollers, electric bikes, and equipment and accessories.
3) In line with market growth and shifting trends, the government is expected to continue introducing supportive policies, including the development of related infrastructure.
Initiate with Overweight; Top pick is Samchuly Bicycle We initiate coverage on the bicycle industry with an Overweight recommendation. We present market leader Samchuly Bicycle as our top pick, given its trend-setting leadership and dominant market position. We recommend watching no. 2 industry player Alton Sports, which has its own manufacturing plant and is seeking growth through exports. We also highlight Very Good Leisure, which is likely to see earnings improvements on the back of the leisure business’s growth.
Combined operating profit and market cap of the three major domestic bicycle companies (Samchuly Bicycle, Alton Sports, and Very Good Leisure)
Source: Company data, WiseFn, KDB Daewoo Securities Research
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
June 30, 2015 Bicycle
I. Domestic bicycle industry
Market characteristics
The bicycle industry is largely divided into finished products and parts production. A bicycle comprises around 300 parts and components, which bike producers assemble to make finished products. As parts and components are the major determinant of bike quality, core components makers hold a high status within the industry’s value chain relative to other manufacturing industries.
Among the key components, transmissions, handles, gears, and frames are mostly standardized, and thus mass production makes good economic sense. As such, specialized producers exist in each of these components. For finished bike producers, the ability to procure quality parts and ensure stable production is a key determinant of competitiveness.
Broadly, finished bike producers are classified as either manufacturers or distributors. Manufacturers have their own distribution channels, and some even design/produce components. Their product lineups include bikes designed for various purposes, including recreation/leisure, mountain biking, and city riding. Distributors, meanwhile, assemble imported components into finished bikes or import/distribute finished bikes. They tend to be smaller in size than manufacturers, and mostly handle low/mid-priced city bikes.
In Korea, finished bike producers consist mostly of wholesalers, i.e., distributors. Parts are manufactured in countries like China where labor and production costs are low, and then assembled in Korea (OEM system).
The bicycle industry displays a strong seasonal pattern. The period from March to October is traditionally the peak season, as good weather lends itself to outdoor activity. In Korea, the best time for outdoor activity is between April and June (2Q), with bicycle sales surging around the Children’s Day holiday.
Bicycles are widely viewed as an eco-friendly alternative mode of transportation, and governments around the world are promoting their use to help ease air pollution and traffic congestion. As such, bicycle demand is likely to trend up over the long run.
Figure 1. Bicycle components
Source: JimLangley.net, KDB Daewoo Securities Research
KDB Daewoo Securities Research 2 June 30, 2015 Bicycle
Domestic bicycle market continues to grow
According to the Korea Customs Service, total bicycle sales in Korea reached roughly 1.93mn units in 2014, growing at a CAGR of 2.1% over the previous five years (since 2009). Meanwhile, revenue expanded at a healthier pace over the same period (at a CAGR of 7.3%), hitting roughly W513bn in 2014.
Bicycle unit sales are increasing at a modest pace of around 2-5% per year, but revenue growth has averaged around 7%, indicating that market growth has been driven more by price than by volume.
In 2015, we expect the domestic bicycle market to expand to 2mn units, up 4% YoY. In terms of revenue, the market is projected to grow 7% YoY to roughly W550bn, with price still driving market expansion.
In 2014, bicycle sales worldwide stood at 120mn units, including 28mn in Europe, 24mn in China, 14mn in North America, 11mn in Southeast Asia, and 9mn in Japan.
We believe Korea’s bicycle market remains underpenetrated at 29%, far lower than the penetration rates in the Netherlands (98%), Germany (87%), and Japan (67%). And Korea’s share in the global bicycle market is a meager 2%. This means there is ample room for sustainable growth over the long term, backed by increasing domestic penetration and entry into export markets.
Figure 2. Domestic bicycle market size (based on volume) Figure 3. Domestic bicycle market size (based on revenue)
('000 units) (%) (Wbn) 2009 - 2014 CAGR: 7.3% (%) 2,500 15 600 20 Domestic market size (L) Domestic market size (L) 550.0 YoY (R) YoY (R) 512.7 13 2,000 472.9 2,000 1,929 458.1 1,733 1,749 1,777 1,747 10 15 1,704 396.1 400 1,500 8 335.4 339.2 5 10
1,000 3 200 0 5 500 -3
0 -5 0 0 09 10 11 12 13 14 15F 09 10 11 12 13 14 15F
Source: Korea Customs Service, KDB Daewoo Securities Research Source: Samchuly, KDB Daewoo Securities Research
Figure 4. Bicycle penetration rate in Korea vs. overseas Figure 5. Bicycle penetration rate trend in Korea
('000 units) (%) 20,000 35 Netherlands 98% Units (L) Penetration rate (R) 29.3 27.4 30 25.7 15,000 24.0 22.5 25 Germany 87% 21.2 19.9 18.6 20 10,000 Japan 67% 15
10 5,000
Korea 29% 5
0 0 0% 20% 40% 60% 80% 100% 07 08 09 10 11 12 13 14
Source: Shimano, Samchuly, KDB Daewoo Securities Research Source: Korea Customs Service, KDB Daewoo Securities Research
KDB Daewoo Securities Research 3 June 30, 2015 Bicycle
With the number of bicycle riders estimated to have exceeded 10mn in Korea, there has been a notable pickup in bicycle imports, which posted the strongest YoY growth in the recreation/leisure goods category from January to May. Indeed, imports of camping gear, trekking shoes, and leisure/hunting gear plunged 31%, 24%, and 9% YoY, respectively, while imports of fishing goods and supplies expanded 15%. In contrast, bicycle imports surged more than 35% YoY. From January to May, bicycles’ share in total recreation/leisure goods imports approached 60%.
More than 70% of imported bicycles came from China in 2014, as most finished bike manufacturers in Korea operate production lines in China or import components from Chinese OEMs. The second highest proportion of imports came from Taiwan, at 23%, followed by Europe (4%) and the US (1%).
The growth in imports seems attributable to the mostly wholesale nature of Korea’s bicycle industry and the steady rise in bicycle demand.
Figure 6. YoY growth in imports of recreation/leisure goods: Figure 7. YoY growth in imports of recreation/leisure goods:
Jan. to May 2015 vs. Jan. to May 2014 2014 vs. 2013
(%) (%) 50 40 34.5 24.7
25 20 14.7 9.7
0 0
-8.8 -6.5 -25 -20 -16.1 -23.6 -30.6 -24.6
-50 -40 Bicycles Fishing goods Leisure/hunting Trekking shoes Camping gear Fishing goods Bicycles Camping gear Trekking shoes Leisure/hunting gear gear
Source: MCST, KCISA, KDB Daewoo Securities Research Source: MCST, KCISA, KDB Daewoo Securities Research
Figure 8. Imports breakdown (Jan. to May 2015) Figure 9. Imports breakdown (2014)
Fishing goods Camping gear Fishing goods 15% 19% Trekking shoes Camping gear 17% 7% 28% Trekking shoes 9%
Bicycles Bicycles 59% 46%
Source: MCST, KCISA, KDB Daewoo Securities Research Source: MCST, KCISA, KDB Daewoo Securities Research
KDB Daewoo Securities Research 4 June 30, 2015 Bicycle
Market competition
Korea’s bicycle market is dominated by three domestic players, Samchuly Bicycle, Alton Sports, and Very Good Leisure. Collectively, they commanded over half of the market in 2014, with respective market shares of 31%, 11%, and 11%. Foreign makers Giant Bicycles (Taiwan), Merida Bikes (Taiwan), and Specialized Bicycle Components (US) each held 4-5% of the market.
The bicycle market can be divided into low/mid-end (city bikes) and high-end segments. The city bike category is an oligopolistic market, with Samchuly and its subsidiary Very Good Leisure estimated to have a 60% market share, and Alton Sports 25%.
Besides the ability to secure quality components, having stable distribution channels is also key to boosting bike producers’ competitiveness. As of 2014, there were around 2,400 bike shops nationwide (estimate), with roughly 60% mainly selling products of Samchuly and its affiliates, and 20% mainly selling products of Alton Sports.
The domestic market is showing several new trends. First, market growth has been driven by price more than volume. Second, domestic bicycle manufacturers are diversifying their product portfolios beyond standard bicycles to stroller tricycles, electric bikes, and equipment and accessories. Third, in line with market growth and shifting trends, the government is expected to continue introducing supportive policies, including the development of related infrastructure.
Figure 10. Companies’ market shares in domestic bicycle Figure 11. Domestic bicycle shop breakdown by main brands market (2014) sold (2014)
Other: 250, 10% Other Overseas 28% brands: Samchuly 160, 31% 7%
Samchuly: 1,290, Alton Sports: 2014: Trek 500, 2,400 shops 54% 2% 21% Merida 4% Specialized Very Good 4% Giant Leisure 5% Elfama Alton Sports 11% Cello Plus: 5% 10% 200, 8%
Source: Respective companies’ data, KDB Daewoo Securities Research Source: Respective companies’ data, KDB Daewoo Securities Research
Figure 12. Size of global bicycle market (2013) Figure 13. Market breakdown by region (2013)
North America Europe (mn units) China India/Africa/Middle East Oceania Korea Taiwan Southeast Asia South America 1% Japan 1% 1% North America Japan Korea 8% 120 Oceania Taiwan 12%
100 South America 10% 80 Europe 60 25% Southeast Asia 10% 40
20 India/Africa/ Middle East 0 11% China Global market size 21%
Source: Shimano, KDB Daewoo Securities Research Source: Shimano, KDB Daewoo Securities Research
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Table 1. Bicycle market trends Country Market trends
· Bicycle commuting is widespread Europe · Multiple finished product makers; Region with world’s strongest demand
· Strong demand for mountain bikes and children’s bikes North America
· High penetration (due to poor car infrastructure and low income levels) Southeast Asia · Many famous cyclists are from Southeast Asian countries
Middle East · Cycling is less popular than in other regions
South America · Cycling for leisure and as an alternative mode of transport is growing
· Demand is shifting from high-end to lower-end (i.e., commuting-use) Australia bicycles
· Size of market has been on the decline since reaching a high of over Japan 10mn units (five times bigger than the Korean market) a couple years ago · Mostly low-priced bicycles; Lack of bicycle roads
· 40mn units sold China · Sales of cars, motorbikes, and electric bikes are all growing
Taiwan · A mature market
· Cycling for leisure and as an alternative mode of transport is growing Korea · High-end model sales are expanding
Source: Samchuly Bicycle, KDB Daewoo Securities Research
KDB Daewoo Securities Research 6 June 30, 2015 Bicycle
SWOT analysis
1) Strengths
With government support, Korea has built among the world’s best bicycle path networks. Recognizing bikes as an eco-friendly alternative mode of transportation, the government is continuing to invest in bike facilities (e.g., expanding bicycle parking lots near subway stations and bus stops in an effort to connect cycling and public transportation). In addition, legislators are pushing to ease regulations on electric bikes to encourage cycling.
Based on this strong infrastructure, Korean bike producers (low/mid-priced brands) have expanded their distribution channels nationwide, securing oligopolistic market shares in city bikes. As market penetration is still low (29%), the growing perception of bicycling as a leisure activity/sport should lead to steady demand growth.
2) Weaknesses
As Korean bike producers mostly sell low/mid-end products, their brand image in the high-end segment is weak relative to that of foreign brands. And with the domestic low/mid-end bike market maturing, volume growth should be limited going forward. Electric bikes, which have the potential to become a mid- to long-term growth driver, are subject to tighter regulations than regular bikes.
3) Opportunities
While Korea’s bicycle industry remains confined to the domestic market, domestic bike makers will make another leap forward if they find ways to export their products. We believe they have a better chance of wooing foreign customers with stroller tricycles and electric bikes than with city bikes. As Korea has a strong competitive edge in IT components such as lithium-ion batteries (LIB) and motors, electric bikes should open new growth opportunities for Korean bike manufacturers once the segment is deregulated.
4) Threats
As most Korean bike sellers are wholesalers that import components (from China, Taiwan, etc.) and sell assembled products, they are vulnerable to import disruptions and F/X rate changes (e.g., sudden weakness in the value of the won). Furthermore, the possible entry of foreign brands to the domestic city bike market could pose a threat.
Figure 14. SWOT analysis of domestic bicycle market
Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 7 June 30, 2015 Bicycle
II. Changing market trends
1. Price increase across all categories
1) Primary users shifting from teenagers to people in their thirties or older
The perception of bicycles is changing. While they used to be associated with teenagers cycling to school, a growing number of people in their 30s and older are enjoying cycling as a leisure activity. Being more financially capable, these age groups tend to focus more on functions, quality, design, and after-sales services than on price. In Korea, the introduction of the five-day workweek system in July 2011 has encouraged the working population to engage in more leisure activities on the weekends, which is also positive for the bike industry.
Bike riding has become more organized and professional, with participation in riding clubs growing. Such dedicated bicyclists tend to show strong brand loyalty, and thus have relatively high repurchase rates. The use of smartphone applications related to bike trips is also growing. Functions vary by application, but typically allow users to map their bike routes and see their average speed, calories consumed, and heart rate. Furthermore, bicyclists are increasingly sharing their riding experiences on social media.
2) Demand shifting from low/mid-end to high-end models
With people in their 30s and older emerging as the primary buyer group, mid/high-end product sales have increased. Bicycle demand from seniors is also on the rise.
Hardware is also improving. Mountain bikes are heavy, due to their thick wheels and steel frames. Now, hybrid and road bike demand is increasing, as they are lighter and sleeker thanks to the adoption of aluminum or carbon body frames.
The demographic shift in bike riding and the resulting growth in high-end model demand are pushing ASP higher.
Figure 15. Rate of bicycle usage by age (Korea)
(%) 5 2000 2010 4
3
2
1
0 9 and younger 10s 20s 30s 40s 50s 60s 70 and older
Source: Korea Expressway Corporation Research Institute, KDB Daewoo Securities Research
KDB Daewoo Securities Research 8 June 30, 2015 Bicycle
Figure 16. Preferences of bicycle consumers are changing (mountain bikes hybrids road bikes)
Source: Samchuly, KDB Daewoo Securities Research
Figure 17. Rate of bicycle usage for transportation in Seoul (by age) Figure 18. Rate of bicycle usage for fitness in Seoul (by age)
(%) (%) 20 30
25 15 20
10 15
10 5 5
0 0 10s 20s 30s 40s 50s 60 and older 10s 20s 30s 40s 50s 60 and older
Source: Seoul city (2012), KDB Daewoo Securities Research Source: Seoul city (2012), KDB Daewoo Securities Research
Figure 20. Three major domestic bicycle makers’ ASP growth Figure 19. ASP of domestic bicycles from 2010 to 2014
(W'000) (%) 300 Domestic bicycle ASP 70 62.2 271 275 60 250 266 258 50
226 40 197 35.7 200 196 30 23.4 161 20 150
10
100 0 08 09 10 11 12 13 14 15F Samchuly Alton Sports Very Good Leisure
Source: Korea Customs Service, Samchuly Bicycles, KDB Daewoo Securities Source: Company data, KDB Daewoo Securities Research Research
KDB Daewoo Securities Research 9 June 30, 2015 Bicycle
2. Business diversification: Electric bikes, children’s tricycles, and accessories
Domestic bicycle makers are diversifying their businesses into electric bikes, children’s tricycles, and accessories. As the domestic market matures, prices are driving the market’s expansion amid a slowdown in sales volume growth. Companies appear to recognize the limited upside of price- driven growth, and we believe domestic players’ business diversification should provide new- found growth momentum.
1) Electric bikes are a future growth engine
As of 2014, the domestic electric bike market was estimated at 15,000-20,000 units, less than 0.1% of the global market (about 37mn). The Korean market blossomed from the late 2000s until early 2010, and has been supported by B2B demand (for use by government agencies and as a means of transportation at large manufacturing sites).
Currently, electric bike users are required to obtain motorcycle licenses and cannot use bike paths. The bikes’ high prices (W1.5-3mn) are also depressing growth in B2C demand. While some companies have turned their eyes to the overseas markets, exports remain meager.
However, we are positive about the future of the electric bike market, as calls for the lifting of discriminatory regulations against electric bikes are growing. There is growing agreement among policy makers that regulations on electric bikes should be eased to facilitate environmentally friendly transportation.
Furthermore, given domestic IT companies’ competitiveness in batteries and electric motors (key components of electric bikes), electric bike makers should be able to take advantage of advanced technology. Electric bike makers are also actively trying to reduce production costs and preparing to introduce bikes priced at less than W1mn.
Most importantly, the domestic electric bike market is only in the nascent stage of growth. In our view, electric bikes are likely to serve as a long-term growth driver for the domestic bike market given the anticipated easing of regulations and the segment’s huge upside potential. Korea’s bike penetration rate is still low compared to the levels in advanced economies. If demand for leisure- or commuting-use electric bikes picks up, bike penetration in Korea should expand sharply.
Figure 21. Size of global electric bicycle market Figure 22. Size of domestic electric bicycle market
(US$mn) ('000 units) 11,500 40 Domestic electric bicycle market size 11,000 11,000 10,850 10,900 10,700 30 30 10,500 10,000 10,000 20 9,600 20 17 9,500 9,000 9,000 10 10 8 8,500 8,400
8,000 0 2013 2015F 2017F 2019F 11 12 13 14 15F
Source: Navigant Research, KDB Daewoo Securities Research Source: Samchuly, KDB Daewoo Securities Research
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Table 2. Major electric bicycle models in Korea Samchuly: Phantom Alton Sports: E. Mammoth Mando: Footloose IM
Product
Driving PAS / Throttle - - System Max speed 24km/h 25km/h 25km/h Mileage Throttle 40km / Power assist first gear 90km - - Motor 36V 250W BLDC motor 36V 250W BLDC motor Dual winding motor, 250W Battery LIB 36V 9.6Ah LIB 36V 9.6Ah LIB 36V 8.2Ah Display LCD LCD Removable color LCD Auto electronic transmission (manual Gearshift Shimano’s 7-gear gearshift Shimano’s 7-gear gearshift transmission mode available) Brake V brake Disk brake - Weight 18.9~21.8kg 24.7kg 21.7kg Price W1,350,000 W1,600,000 W2,860,000 Source: Company data, KDB Daewoo Securities Research
Figure 23. Growth road map of electric bicycles industry
Source: Korea Expressway Corporation Research Institute, KDB Daewoo Securities Research
KDB Daewoo Securities Research 11 June 30, 2015 Bicycle
2) Children’s tricycles hold solid growth potential
Tricycles for children have typically been supplied by toy makers or specialized tricycle producers/distributors, with most companies importing and distributing finished products.
However, domestic bicycle makers have rapidly expanded their market shares in the tricycle segment over the past two to three years. In particular, tricycle strollers that can be reclined and folded (upgrades over previous models with only sun shades) appear to be popular with consumers. In our view, the biggest merit of tricycle strollers is that they can be used first as strollers and then as independent tricycles (by easily removing the push bar, foot rest, etc.) as the child grows.
The children’s tricycle market began to pick up three to four years ago. According to the Korea International Trade Association, the domestic tricycle market is estimated at less than W50bn. Given that the domestic stroller market is three to four times that amount, the tricycle stroller market holds great growth potential.
The growth of the children’s tricycle market should boost revenue at domestic bike producers. Amid Korea’s low birth rate, the children’s tricycle business (part of Korea’s child-focused “angel industry”) is expected to maintain steady growth through a focus on high-end segments and differentiated products. In addition, for domestic players, children’s tricycles should serve as an export driver along with electric bikes.
Table 3. Major tricycle stroller models Samchuly: MODI ZOKO: ZOKO TRIKE SmarTrike: Recliner Ginaworld: Comfotriker
Product
∙ Price: W300,000 ∙ Price: W100,000 ∙ Price: W100,000 400,000 200,000 ∙ Price: W100,000-200,000 300,000 ∙ Aluminum frame ∙ Danger prevention ∙ Stroller-type canopy Features ∙ Stroller-type canopy ∙ Stroller-type canopy system on front wheel ∙ Safe lock pedal ∙ Stroller foot brake ∙ Backrest with adjustable ∙ Bicycle for adult frame ∙ Safe guard ∙ Slip prevent pedal angle ∙ Ergonomic handle Source: Company data, KDB Daewoo Securities Research
Figure 25. Companies’ market shares in domestic tricycle Figure 24. Size of domestic tricycle market (based on volume) market
('000 units) 300 253 250 239 Other Samchuly 29% 213 36% 200
150
100 IDES Cargo 2% SmarTrike 50 7%
Ginaworld ZOKO 0 12% 14% 2012 2013 2014
Source: KITA, KDB Daewoo Securities Research Source: KITA, KDB Daewoo Securities Research
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Figure 26. Korean birth rate trend
(%) 5 Birth rate
4
3
2
1
0 1970 1980 1990 2000 2010
Source: KOSTAT, KDB Daewoo Securities Research
Figure 27. Korea population breakdown by age
80 and older
70-79
60-69
50-59
40-49
30-39
20-29
10-19
0-9
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Source: UN, KDB Daewoo Securities Research
Figure 28. Breakdown of Chinese population by age (as of Figure 29. Comparison of population by country (as of 2013) 2013)
China 0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80 and older 80 and older
70-79 Japan
60-69 Korea 50-59
40-49 China 30-39
20-29 Vietnam
10-19 Laos 0-9
0% 5% 10% 15% 20% 0% 20% 40% 60% 80% 100%
Source: UN, KDB Daewoo Securities Research Source: UN, KDB Daewoo Securities Research
KDB Daewoo Securities Research 13 June 30, 2015 Bicycle
3) Surging demand for bike equipment and accessories
The domestic bicycle market is growing, as is the perception of bicycling as a leisure activity. As such, demand for equipment and accessories as well as higher-end bicycles is growing rapidly.
Under the Road Traffic Act, children under 13 must wear helmets when riding bicycles, and adult bike riders are increasingly wearing proper protective gear, as well. Sales are expanding markedly for helmets, locks, bicycling lighting, and knee/elbow protectors, as well as water bottles, cycling shoes/clothing, and smartphone holders.
The surge in bicycle clubs in Korea has helped give rise to the culture of wearing protective gear when riding. However, according to a survey conducted by the Ministry of Culture, Sports and Tourism in the “Sposumer Report” (published by the Korea Institute of Sport Science and the Korea Sports Promotion Foundation), three out of four bike riders do not use proper protective gear. This suggests the safety equipment market still has ample upside.
The survey found that while the majority of bikers selected helmets as the most important safety gear, only a quarter of respondents reported actually wearing them. Thus, Korean bicyclists appear to lack safety awareness, and improving their awareness should lead to growth in bike equipment sales. Notably, bicycle equipment and accessories boast strong margins. Hence, growth in the market should also contribute to profitability growth at manufacturers.
Figure 30. Bicycle accessories
Source: Shutterstock, KDB Daewoo Securities Research
KDB Daewoo Securities Research 14 June 30, 2015 Bicycle
3. Favorable policy direction and excellent infrastructure
We believe the government’s policy stance with respect to the bicycle industry will remain favorable, in view of the fact that bicycles are environmentally friendly and emit no carbon.
The central and local governments are making active efforts to facilitate bicycle riding to ease urban traffic congestion, reduce energy consumption, and promote public health. In 2010, the Ministry of Government Administration and Home Affairs began to support the domestic bicycle industry by announcing the National Bicycle Policy Master Plan.
1) National Bicycle Policy Master Plan
Drawn up in 2009 and announced in 2010, the National Bicycle Policy Master Plan includes measures to 1) expand bicycle-only roads, 2) increase the share of bicycles in public transportation, 3) improve access to other public transportation and ease traffic congestion, 4) reduce environmental pollution and promote public health, 5) rejuvenate the local economy through tourism, and 6) designate 10 “foothold” cities for bicycle riding.
The government is believed to have spent a total of W100bn (allocating W10bn to each foothold city over three years, from 2010 to 2012) for the creation of bicycle-only roads and parking lots, the distribution of public bicycles, and the promotion of safety awareness. Among those measures, the creation of bicycle-only roads is still underway. The government also announced plans to invest about W1tr over 10 years (from 2010 to 2019) to establish a nationwide network of bicycle paths.
Figure 31. Government efforts to facilitate bicycle riding and National Bicycle Policy Master Plan
1997: Standards and models for bicycle facilities installation and maintenance National Basic plans for land National bicycle policy 1998-2004: Government projects to facilitate bicycle riding development development
2001: Revision to Industry Development Act – Support for bicycle and motor boat businesses Plans for metropolitan cities Transportation plans 2005: Enactment of Act on the Support and Promotion of Utilization of Mass Transit System 2006: Implementation of Road Traffic Act; Children required to Urban plans Comprehensive bicycle plans wear safety helmets Basic plans 2008: Comprehensive measures to facilitate bicycle riding
2009: Nationwide bicycle road network plan selected as a Park/ a low-carbon green growth strategy Environment Landscape greenspace 2010: National bicycle policy master plans
th 2011: 19 revision to Promotion of the Use of Bicycles Act Long-term Local governmentsÊ long-term Bicycle plans development plans master plans 2010-2012: Support for 10 foothold cities for bicycle riding - Budget of W100bn (Gangneung, Gumi, Gunsan, Seogwipo, Suncheon, Asan, etc. ) 2013: Construction of bicycle roads along east coast Urban management plans Bicycle foothold cities - Expansion of nationwide bicycle path network
2014: Improvement in infrastructure in accident-prone areas Urban Individual projects Pilot cities - Bicycle priority roads development
2014-2015: Construction of new bicycle roads Urban Transportation Infrastructure construction
Source: Ministry of Government Administration and Home Affairs, KDB Daewoo Securities Research
KDB Daewoo Securities Research 15 June 30, 2015 Bicycle
A nationwide bicycle path project that began in 2010 and is expected to be completed this year will result in a 1,742km network of paths allowing bicycle trips throughout the country. In addition, the number of bicycle users in Korea has increased to approximately 12mn.
2) National promotion of non-motorized, carbon-free transport
At the end of 2011, the Korean government released the first round of comprehensive plans to promote non-motorized, carbon-free modes of transport. The plans called for W1tr in investments over five years to establish biking and walking lanes connected to public transportation, with the aim of easing traffic congestion, saving energy, reducing greenhouse gas emissions, and facilitating the bike culture.
In detail, the government’s bike promotion measures (which were begun in 2012 and are still in progress) are as follows:
① Establishing walking and biking infrastructure: Build bicycle lanes nationwide, supply more than 8,000 public bicycles, and establish more than 700 bicycle parking lots in public transportation facilities.
② Connecting bicycles with public transportation: Build biking-friendly transportation systems, and expand bicycle parking at subway stations.
③ Encouraging the use of bicycles for commuting to school and work: Designate 60 schools to participate in a pilot biking promotion program, and provide incentives for bicycle-friendly workplaces.
④ Encouraging the biking culture: Employ people to monitor walking and biking lanes, set up biking-related events (e.g., Day of Biking), and expand bicycle parking for biking events.
⑤ Establishing non-motorized/carbon-free transportation: Expand mobile app services for eco- friendly bicycle tour guides, and build mobile app services for related information (e.g., nearby accommodations).
We believe such bike-friendly policies should benefit bicycle producers. In addition, the fact that foreigners are visiting Korea for bicycle tours is evidence of the strong competitiveness of Korea’s bicycle infrastructure. For these reasons, we expect the domestic bicycle market to show growth.
Table 4. Ten base cities for biking promotion programs Base cities Details Gyeonggi Ansan Industrial city; Provide incentives for bike users Province Kangwon Gangneung Low-carbon green city; Link biking to tourism Province North Jeungpyeong Chungcheong Green growth city; Link biking to conventional markets County Province South Chungcheong Asan Establish bike lanes and connection to public transportation Province North Jeolla City with advanced transportation system; Operate a bike lane alongside Gunsan Province Saemangeum Seawall South Jeolla Eco city where an international garden exhibition was held; Encourage bikers to Suncheon Province commute from residential to industrial areas North Eco-industrial complex; Encourage bikers to commute from residential to industrial Gyeongsang Gumi areas Province South Changwon Establish/operate the nation’s largest public bike system Gyeongsang Education-focused city; Introduce bike insurance, and establish a bike lane alongside Jinju Province Nam River Jeju Province Seogwipo Establish a public biking system alongside Olleh walking courses Source: Ministry of Public Administration and Security, KDB Daewoo Securities Research
KDB Daewoo Securities Research 16 June 30, 2015 Bicycle
Table 5. “Four Rivers Bicycle Paths” project Path Course Distance Cycling time Hangang Paldang bridge - Chungju Dam 136km 9 hours Geumgang Geumgang Estuary Bank - Daecheong Dam 146km 9 hours 40 minutes Yeongsangang Yeongsan river estuary dam - Damyang Dam 133km 8 hours 50 minutes Nakdonggang Nakdonggang Estuary Bank - Andong Dam 389km 25 hours 55 minutes Ara bike path Ara west floodgate - Ara Hangang floodgate 21km 1hours 26 minutes Hangang bike path(Seoul) Ara Hangang floodgate - Paldang bridge 56km 3 hours 40 minutes Saejae bike path Tangeumdae Terrace - Sangpunggyo Bridge 100km 6 hours 40 minutes Bukhangang bike path Bright square - Sinmae Bridge 70km 4 hours 40minutes Seomjingang bike path Seomjingan Dam - Baealdo waterside park 155km 9 hours 55 minutes Ocheon bike path Hyeongchon intersection - Hapkkang park 105km 7 hours Source: 4Rivers Guide, KDB Daewoo Securities Research
Figure 32. Government’s master plan related to bicycle paths
Source: Ministry of Government Administration and Home Affairs, KDB Daewoo Securities Research
KDB Daewoo Securities Research 17 June 30, 2015 Bicycle
Figure 33. Map of bicycle path plan
Source: Ministry of Government Administration and Home Affairs, KDB Daewoo Securities Research
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III. Major issues: Electric bikes
What is an electric bike?
An electric bike is a bicycle with an electric motor, battery, and controller. By stepping on the pedal or pulling a switch, an electric signal is transmitted to a controller, which operates the motor and thus the wheels.
There are two ways to operate an electric bike: PAS mode (pedal assist or power assist) and throttle mode. The PAS mode relies on pedaling, while the throttle mode is operated in the same manner as a motorcycle.
In the PAS mode, a small amount of pedaling is needed to operate the bike. This mode does not consume significant battery power, and even when batteries are drained, the bike can be operated by pedaling. On the other hand, the throttle mode relies on the handle grip to operate the bike. Although it takes less effort, this mode consumes significant battery power. And if batteries run out of power, pedaling is not an option for some electric bikes.
PAS-based bikes are widespread in Europe and Japan, with their popularity stemming from their close similarity to regular bikes. The throttle mode, meanwhile, is proliferating in China and Taiwan. In Korea, three types (PAS, throttle, and a hybrid version) co-exist, with none dominating the market.
Electric bikes have faced design limitations due to batteries. Initially, electric bikes were heavy and unattractive due to their large lead-acid batteries. Recently, however, electric bikes have become slimmer and more attractive as lithium-ion batteries—which are slimmer and have three times the battery life—have been replacing the environmentally harmful lead-acid batteries. And the trend is likely to continue as the transition to lithium-ion batteries picks up speed.
Table 6. Types of electric bikes Mode Details Picture
- Pedaling to power a motor PAS - Widespread in Europe and Japan
- No need for pedaling; Throttle signal Throttle activates motor - More common in China and Taiwan
- Either throttle or PAS mode can be used at Hybrid any given time - China, Taiwan, and Korea Source: Korea Expressway Corporation Research Institute, KDB Daewoo Securities Research
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Similarities to regular bikes outweigh differences
1) Need to ease discriminatory regulations on electric bikes
Under current laws, electric bikes are regarded as motorcycles. Motorcycles have an engine displacement of less than 125cc or are fitted with a less than 50cc motor (Clause 19, Article 2 of the Road Traffic Act). The bicycle law (Clause 1, Article 2) defines a bicycle as a two-or-more wheeled vehicle with a pedal (or hand-pedal) operating system that uses human strength, a steering system, and a controller.
Because the bicycle law stipulates that bicycles must rely on human strength, electric bikes are categorized as motorcycles. In addition, under Article 80 of the Road Traffic Act, electric bike users are required to obtain a license and are banned from using bike-only lanes.
Indeed, most middle and high school students are not qualified to use electric bikes to commute to school, mainly due to the license requirement. Since August 2012, legislators have held talks about revising the law, and the issue is still pending in the National Assembly. Despite their similarity to regular bikes, electric bikes are subject to tighter regulations due to safety concerns (electric bikes are faster and heavier than regular bikes).
As noted earlier, however, the accelerating transition to lithium-ion batteries is causing electric bikes to become lighter and slimmer. Concerns over speed and weight could dissipate if these factors are clarified in the law’s revision (if, for example, strict regulations apply only to heavier electric bikes). But there are still differing opinions, dragging down the move to deregulate.
Furthermore, most consumers are unaware that electric bikes are subject to motorcycle restrictions, causing confusion and non-licensed use.
Although the Korean electric bike market remains stagnant, the global market expanded to 36mn units in 2013. The Korean market accounts for only 0.1% of the global market. Considering Korea’s strong biking infrastructure and superior IT technologies, combined with electric bikes’ environmental friendly features and strong growth potential, we believe the easing of regulations is urgent for Korea.
Figure 34. Electric bicycle agenda
2010 [Regulatory push to promote e-bike usage] Calls for e-bikes to be categorized separately
2012 [Proposed revision to bicycle law] Proposal that e-bikes with maximum power output of 330W, max. speed of less than 25km/h, and max. weight of less than 40kg be categorized as bicycles
2015 [Proposed revision to bicycle law] Proposal that e-bikes with maximum power output of less than 330W, max. speed of 30km/h, and max. voltage of 48V be categorized as bicycles
Source: National Assembly Research Service, KDB Daewoo Securities Research
KDB Daewoo Securities Research 20 June 30, 2015 Bicycle
2) Domestic electric bike market accounts for less than 0.1% of the global market
The domestic electric bike market is estimated at 15,000-20,000 units (as of 2014), far smaller than the Japanese market (400,000 units) and accounting for less than 0.1% of the global market (37mn units).
Navigant Research projects the global electric bike market will grow at a CAGR of around 6% from 2013 (US$8.4bn) to 2020. The Korea Expressway Corporation Research Institute reported that China has the largest share of electric bikes, at 90% (34mn units), followed by Europe at 5% (2mn units), Japan at 1% (400,000 units), and the US at 0.6% (250,000 units).
The CAGRs of the Chinese and Japanese electric bike markets from 2012 through this year are estimated at 9% and 4%, respectively, while those of the European and US markets are estimated at 19% and 100%, respectively. By 2020, the European and US markets combined are likely to reach more than 20% of the global market.
In Europe, we expect to see a sharp increase in demand for electric bikes as a replacement for cars. Interest in and awareness of environmentally friendly modes of transport is high in the region. In addition, governments in Europe have been supporting projects to further the development of electric bike technology, while also loosening restrictions on their use and introducing them in the public sector, including for postal delivery services.
Chinese-made electric bikes are mostly equipped with lead–acid batteries. These batteries have raised environmental concerns, leading to the introduction of regulations on their use. As such, we believe electric bikes with lead–acid batteries will gradually be replaced with those with lithium-ion batteries.
Indeed, the transition to lithium-ion batteries is currently a much-discussed issue in the electric bike market. Since 1Q13, Samsung SDI has ranked first in the electric bike-use lithium-ion battery market, claiming a market share of 25% in 4Q14.
Korean makers boast a competitive edge in core components, including electric motors and controllers, as well as batteries. Therefore, the growth of the electric bike market will likely promote the expansion of Korean IT firms as well as bicycle makers. And considering that electric bikes can serve not only for leisure but also as an alternate mode of transport, allowing users to travel longer distances than standard bicycles, we think the market will serve as a new growth driver for Korea in the future.
Figure 35. Size of global electric bicycle market Figure 36. Size of domestic electric bicycle market
(US$mn) ('000 units) 11,500 40 Size of domestic electric bicycle market 11,000 11,000 10,850 10,900 10,700 30 30 10,500 10,000 10,000 20 9,600 20 17 9,500 9,000 9,000 10 10 8 8,500 8,400
8,000 0 2013 2015F 2017F 2019F 11 12 13 14 15F
Source: Navigant Research, KDB Daewoo Securities Research Source: Samchuly Bicycle, KDB Daewoo Securities Research
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Table 7. Comparison of technology requirements by country Technology requirements Country Operating system Motor power Max speed EU PAS 250W 25km/h Japan PAS - 24km/h China PAS/Throttle 240W 25km/h India - 250W 25km/h US PAS/Throttle 750W 32km/h Korea PAS/Throttle 330W 30km/h Source: Korea Expressway Corporation Research Institute, KDB Daewoo Securities Research
Table 8. Lead-acid battery and LIB comparison Lead-acid battery LIB Notes Energy (Wh/kg) ○ ◎ LIB: Twice as high density Weight (kg) △ (10kg) ◎ (About 3kg) LIB: Three times higher Battery life (year) △ (Less than one year) ◎ (About 3 years) LIB: Three times higher Range (Wh/km) ○ ○ Similar Notes: ◎ = excellent; ○ = satisfactory; △ = poor Source: Korea Expressway Corporation Research Institute, KDB Daewoo Securities Research
Table 9. Electric bicycle sales volume in Europe (as of 2013) Germany Netherlands Switzerland Italy France Sales volume 410,000 171,000 52,900 48,200 46,100 (units) Source: Korea Expressway Corporation Research Institute, KDB Daewoo Securities Research
Figure 37. Electric bike penetration rates (2013)
Source: Shimano, KDB Daewoo Securities Research
Figure 38. Electric bicycle market: Market share and CAGR by Figure 39. Market share by country (2013) country
Share CAGR (2012-2015) 90% 100% (34mn unnits) Other 3.9% India 0.6% China Japan 89.3% 1.3%
EU 19% 4.9% 5% 9% 1% 0.6% (2mn units) 4% (0.4mn units) (0.25mn units)
EU China Japan US
Source: Navigant Research, KDB Daewoo Securities Research Source: Navigant Research, KDB Daewoo Securities Research
KDB Daewoo Securities Research 22 June 30, 2015 Bicycle
IV. Domestic bicycle industry investment strategy
Investment strategy and top pick
We initiate coverage on the bicycle industry with an Overweight recommendation. We present market leader Samchuly Bicycle as our top pick, given its trend-setting leadership and dominant market position. We recommend watching no. 2 industry player Alton Sports, which has its own manufacturing plant and is seeking growth through exports. We also highlight Very Good Leisure, which is likely to see earnings improvements on the back of the expansion of the premium bicycle market and growth of the leisure business.
As noted earlier, the domestic bicycle market displays notable seasonality, with revenue and operating profit tending to be highest in 2Q, followed by 3Q, 1Q, and 4Q. Share performance also tends to be the most robust in 2Q and 3Q.
As such, short-term investors may adopt a trading strategy based on quarterly earnings. However, we believe bicycle shares are also appropriate for long-term investors, as they have been on an uptrend from a medium- to long-term standpoint.
Figure 40. Combined operating profit and market cap of the three major domestic bicycle companies (Samchuly Bicycle, Alton Sports, and Very Good Leisure)
Source: Company data, WiseFn, KDB Daewoo Securities Research
Figure 41. Samchuly’s operating profit and share price Figure 42. Alton Sports’ operating profit and share price
(Wbn) (W) (Wbn) (W) 10 Operating profit 30,000 6 Operating profit 18,000 Share price 5 Share price 16,000 8 25,000 4 14,000 6 20,000 3 12,000
4 2 10,000 15,000 2 1 8,000 10,000 0 6,000 0 -1 4,000 -2 5,000 -2 2,000
-4 0 -3 0 1/10 10/10 7/11 4/12 1/13 10/13 7/14 4/15 1/12 7/12 1/13 7/13 1/14 7/14 1/15
Source: WiseFn, Samchuly, KDB Daewoo Securities Research Source: WiseFn, Alton sports, KDB Daewoo Securities Research
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Global peer earnings and valuations
Table 10. Earnings comparison (Wbn, %) Revenue OP OP margin Net profit Company Mkt. cap 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F Samchuly 332 122 138 157 14 16 18 11.5 11.6 11.5 10 15 18 Very Good Leisure 183 76 81 90 6 10 12 7.9 - - 3 8 9 Alton Sports 117 68 71 78 9 9 10 13.2 12.7 - 6 6 7 Avg. of domestic companies 10.9 12.1 11.5 Shimano 14,074 3,320 3,321 3,498 656 718 780 19.8 21.6 22.3 511 542 577 Giant 3,466 2,086 2,298 2,482 171 197 217 8.2 8.6 8.7 143 155 172 Merida 2,167 946 1,067 1,168 92 115 130 9.8 10.8 11.1 116 130 145 Fox Factory 685 323 387 421 36 48 64 11.3 12.4 15.3 29 31 42 KMC Kuei Meng 538 97 137 185 19 29 38 19.3 20.9 20.6 16 24 31 Avg. of overseas companies 13.7 14.9 15.6 Global average 12.6 14.1 14.9 Source: Bloomberg, KDB Daewoo Securities Research
Table 10. Valuation comparison (Wbn, %) ROE P/E P/B EV/EBITDA Company Mkt. cap 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F Samchuly 332 11.6 15.8 16.6 25.1 21.6 17.9 2.7 3.1 2.7 16.9 19.5 16.3 Very Good Leisure 183 6.2 13.6 14.4 35.6 23.0 19.4 2.2 3.0 2.6 18.9 17.9 14.7 Alton Sports 117 12.4 10.7 11.1 18.3 19.0 16.7 2.0 1.9 1.7 10.9 10.7 9.4 Avg. of domestic companies 10.1 13.4 14.0 26.3 21.2 18.0 2.3 2.7 2.3 15.6 16.0 13.5 Shimano 14,074 17.1 17.5 16.9 28.3 25.8 24.2 4.4 4.3 3.8 16.5 15.3 14.1 Giant 3,466 22.4 21.0 21.7 25.6 22.0 19.8 5.4 4.6 4.2 18.1 14.8 13.5 Merida 2,167 30.3 27.4 27.2 19.2 16.7 15.0 5.3 4.4 3.9 21.3 16.4 14.6 Fox Factory 685 25.0 24.2 25.3 20.8 17.5 14.8 4.7 4.9 3.7 14.6 10.7 9.2 KMC Kuei Meng 538 24.6 25.5 23.6 28.8 22.5 17.4 6.0 5.2 4.0 20.4 15.1 14.6 Avg. of overseas companies 23.9 23.1 22.9 24.5 20.9 18.2 5.2 4.7 3.9 18.2 14.4 13.2 Global average 18.7 19.5 19.6 25.2 21.0 18.2 4.1 3.9 3.3 17.2 15.0 13.3 Source: Bloomberg, KDB Daewoo Securities Research
Figure 43. Relative share performances of domestic bicycle Figure 44. Relative share performance of overseas bicycle companies companies
(1/7/2014=100) (-6M=100) Samchuly Shimano 400 Samchuly 440 Giant Merida Zhonglu Jinshan Alton Sports Accell Shenzhen China Very Good Leisure Ideal Bike 360 300
280 200 200
100 120
0 40 9/14 11/14 1/15 3/15 5/15 6/14 8/14 10/14 12/14 2/15 4/15 6/15
Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 24 June 30, 2015 Bicycle
Samchuly Bicycle (024950 KQ) On the leading edge of industry trends
Initiate coverage with Buy and TP of W31,300 We initiate our coverage on Samchuly Bicycle with a Buy rating and target price of (Initiate) Buy W31,300, based on a P/E of 24.6x our 12-month forward EPS of W1,274. Samchuly is the largest bicycle company in the country, accounting for 42% of the domestic market and controlling 62% of domestic distribution channels. Because of the lack of Target Price (12M, W) 31,300 comparable peers, we applied the company’s average P/E since 2013, when sales of electric bikes and tricycle strollers began to take off. We could see further upside to Share Price (06/29/15, W) 25,000 earnings depending on the pace of growth of the company’s new products. Staying on the leading edge of industry trends Expected Return 25% 1) Rise in prices: As consumer preferences shift from mountain bikes to hybrid and road OP (15F, Wbn) 16 bikes, sales of Samchuly’s mid/high-end models, such as Appalanchia, have been gaining Consensus OP (15F, Wbn) 17 traction. We expect rising prices resulting from product mix improvements to drive revenue growth of finished bicycles. EPS Growth (15F, %) 52.0 Market EPS Growth (15F, %) 37.3 2) An “angel industry” play: Since its launch in 2013, Samchuly has quickly gained share P/E (15F, x) 21.6 in the tricycle stroller market. Sales of tricycle strollers soared 74% in 2014 and are Market P/E (15F, x) 10.9 forecast to grow more than 30% in 2015. Given their high profitability, the growth of KOSDAQ 733.04 tricycle strollers should significantly contribute to overall margin improvement. The company is also looking to make inroads into export markets and has recently begun Market Cap (Wbn) 332 selling its tricycle strollers on China’s largest online shopping site, Tmall.com. Shares Outstanding (mn) 13 Free Float (%) 64.7 3) Growing equipment sales: Amid the growth in popularity of cycling as a leisure Foreign Ownership (%) 35.2 activity, many cyclists are eager to spend money on the appropriate gear. As such, Beta (12M) 0.61 Samchuly’s bicycle equipment (helmets, locks, protective gear, etc.) and accessories have 52-Week Low 17,350 been selling briskly, a trend we believe will continue for some time. 52-Week High 28,300 4) Electric bikes to drive long-term growth: The company began selling electric bikes five (%) 1M 6M 12M years ago and mostly supplies to businesses, which use the bikes as a means of Absolute 5.9 31.6 27.6 transportation at manufacturing sites. However, the company is expected to release a Relative 2.8 -3.2 -7.5 budget model called the Phantom Eco in the near future. Looking forward, we expect electric bike sales to individual customers to gain pace, especially once discriminatory
150 SAMCHULY KOSDAQ regulations against electric bikes are lifted. 130 Higher prices and new products to support long-term sustainable growth 110 We forecast Samchuly Bicycle to deliver record-breaking earnings in 2015, with revenue 90 of W138.2bn (+13.3% YoY), operating profit of W15.7bn (+12.6% YoY), and net profit of
70 W15.4bn (+52% YoY). ASP should rise on the back of an increasing mix of high-end 6.14 10.14 2.15 6.15 bikes, driving top-line growth of finished products. The company’s long-term growth should be supported by new growth engines like electric bikes, tricycle strollers, and cycling equipment. We also see earnings improvements at the company’s subsidiary boosting equity-method gains.
FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 109 111 122 138 157 177 OP (Wbn) 8 9 14 16 18 22 OP margin (%) 7.3 8.1 11.5 11.6 11.5 12.4 NP (Wbn) 8 9 10 15 18 21 EPS (W) 577 661 761 1,157 1,394 1,613 ROE (%) 10.3 11.0 11.6 15.8 16.6 16.7 P/E (x) 17.3 29.3 25.1 21.6 17.9 15.5 P/B (x) 1.7 3.0 2.7 3.1 2.7 2.4 Note: All figures are based on non-consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 25 June 30, 2015 Bicycle
Corporate overview
In 1979, Samchuly was spun off from Kia Industries, which itself began as Kyungsung Precision Industry in 1944 (renamed Kia in 1952). The company is currently the leading domestic bicycle manufacturer and retailer.
Samchuly Bicycle, which was listed on the KOSDAQ in 1995, launched the high-end brand Cello in 1996 and the mid/high-end model Appalanchia in 2006. In an effort to take a more aggressive position in the high-end market, the company spun off its Cello unit in 2007, creating subsidiary Very Good Leisure.
The domestic bicycle market is dominated by Samchuly Bicycle, Very Good Leisure, and Alton Sports. As of 2014, Samchuly Bicycle and its subsidiary Very Good Leisure controlled 42% of the total domestic bicycle market, followed by Alton Sports with 11%. Foreign makers Giant Bicycles (Taiwan), Merida Bikes (Taiwan), and Specialized Bicycle Components (US) each held 4-5% of the market. In the domestic general-use city bike market, Samchuly Bicycle and Very Good Leisure controlled 60% (68% when also including affiliate Smart Bike), while Alton Sports took up 25%.
In 2014, the number of domestic bicycle sales channels stood at around 2,400 (1,290 for Samchuly Bicycle, 500 for Alton Sports, 190 for Very Good Leisure, 160 for foreign brands, and 250 others). As such, Samchuly Bicycle and its subsidiary have dominated the domestic sales network with a share of around 62%.
Figure 45. Samchuly’s general bicycle lineup Figure 46. Samchuly’s electric bicycle lineup
Phantom Mini Appalanchia
Lespo
PhantomXC
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Figure 47. Samchuly Bicycle’s shareholders (as of end-1Q15) Figure 48. Very Good Leisure’s shareholders (as of end-1Q15)
CEO and Minority related parties shareholders 28% 26% Other 33% Samchuly 38%
Treasury stock 7% Young-ok Foreigners Truston Asset Park 39% 5% 14% Treasury stock Cruisepa 1% 9%
Source: DART, KDB Daewoo Securities Research Source: DART, KDB Daewoo Securities Research
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In 2014, city bikes accounted for 80% of Samchuly Bicycle’s revenue, with children’s models, electric bikes, and equipment/accessories contributing 7%, 6%, and 9% respectively. As for city bikes, Appalanchia, Lespo, Next, and Hound accounted for 14%, 53%, 5%, and 4%, respectively.
Major brands are as follows:
1) Lespo: Serving as a cash cow for Samchuly Bicycle, Lespo is the company’s best-selling low/mid-end brand, offering 80 products ranging in price from W300,000 to W700,000. It is targeted at young consumers.
2) Appalanchia: A mid/high-end brand, Appalanchia targets middle-aged and older consumers, with a price range between W500,000 and W2mn. Its revenue contribution has been rising the most sharply thanks to the company’s premium strategy.
3) Hound: This low/mid-end city bike brand is priced between W300,000 and W600,000 and is mostly available on online shopping malls.
4) Samtrike/Modi: Samtrike is a low-end tricycle stroller brand for children, while Modi is a mid-end tricycle stroller. The tricycle stroller model is unique in that it can be used either as a stroller (for young children) or as an independent tricycle.
Table 11. Samchuly Bicycle’s major brands Appalanchia Lespo Hound Samtrike/Modi
Brand
Premium brand targeting Brand name combines “leisure” and Low/mid-end city bike brand, Used either as a stroller (for young Description middle-aged and older “sports”; Best-selling low/mid-end mostly available on online shopping children) or as an independent consumers brand malls tricycle Price W500,000-W2mn W300,000-W700,000 W300,000-W600,000 W130,000-400,000 Source: Company data, KDB Daewoo Securities Research
Figure 49. Sales breakdown by brand (2014) Figure 50. Sales breakdown by materials used (2014)
Goods for riders Carbon Appalanchia 8.5% 0.8% 17.3% Children's tricycles 6.2% Goods for riders 10.6% Elecrical bicycles Aluminium Samtirke 5.6% 36.0% 7.7%
Customized products 0.8% Brand Lespo 5.0% 73.1% Hound 5.2% Next Steel 5.8% 42.9%
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 27 June 30, 2015 Bicycle
Four investment points
1) Higher prices
As consumer preferences shift from mountain bikes to hybrid and road bikes, sales of Samchuly’s mid/high-end brand Appalanchia have been gaining traction. The brand has a price tag of W500,000-W2mn vs. W300,000-W700,000 for Lespo and Hound. Hence, increasing sales of Appalanchia should positively contribute to ASP.
Another positive driver will be electric bikes. Sales of electric bikes should take off once regulatory hurdles are cleared, which would be positive to ASP given their much higher price point (W1mn-W2mn). As the sales mix of Appalanchia and electric bikes steadily grows, prices should increase, driving the growth of finished bicycles.
For finished bicycles, we forecast sales volume to grow 3.5% YoY to 848,598 units and ASP to climb 8% YoY to W141,317 in 2015. As such, we estimate revenue from finished bicycles to expand 11.9% YoY to W119.9bn in the year. In other words, we believe top- line growth will be more driven by price than by volume, a trend that is likely to continue for some time.
Figure 51. ASP of finished bicycles
('000 W) (%) ASP rising due to changing product mix 160 ASP (L) (from mid/low-end to→mid/high-end) 40 YoY (R) 140 30 120
100 20 80
60 10
40 0 20
0 -10 10 11 12 13 14 15F 16F 17F Source: Company data, KDB Daewoo Securities Research
Figure 52. Sales volume of finished bicycles
('000 units) Sales volume (L) (%) 1,000 YoY (R) 10
5 800
0 600 -5 400 -10
200 -15
0 -20 10 11 12 13 14 15F 16F 17F
Source: Company data, KDB Daewoo Securities Research
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2) Beneficiary of “angel industry” growth
In 2013, Samchuly launched its tricycle stroller brand Samtrike. Sales of the brand soared 74% in 2014 and are expected to grow more than 30% in 2015. Currently, there is not much competition in the tricycle stroller market.
The biggest advantage of Samchuly’s tricycle strollers is that they can be converted based on the child’s developmental stage. Toddlers who are not yet able to pedal can place their feet on the foot rest and use them as strollers. As the child grows, the bikes can be adjusted so that the child can learn how to pedal with the parents’ help. Lastly, the tricycle stroller can transform into a tricycle by removing the push bar and sun canopy, allowing the child to start riding independently.
With a price tag of W130,000-W350,000, Samchuly’s bike strollers are much more affordable than ordinary strollers. Given their affordability and convertibility, we expect demand to continue to grow going forward. In addition to the low-end models Samtrike 300 and 500, the company also released a mid-tier model called the 700 Series and in 2014 launched the premium brand Modi.
In May 2015, the company rolled out Samtrike F, a foldable tricycle that can be stored in small spaces. In 2016, the company plans to release a follow-up to its Modi model, which will feature an electric motor that makes it easier to go up steeper slopes. Backed by its diversified product lineup, Samchuly has been aggressively expanding its market share in the tricycle stroller market.
We estimate Samchuly held 30% of the domestic market in 2013 and 37% in 2014. This year, we expect the company’s market share to increase to over 40%. In a market previously dominated by major toy makers, the company should rapidly increase its presence by leveraging its expertise and extensive distribution network.
ASP has been trending higher, as the company continues to churn out higher-end models and new products with updated features. And given their higher profitability, we expect the growth of tricycle strollers to significantly contribute to overall margin improvements.
Figure 53. Tricycle stroller revenue Figure 54. Market shares of domestic tricycle makers
(Wbn) 20 18.3
Other, 29.2 15 13.6 Samchuly, 36.4
10.3 10 7.7 Company "I", 2.0 5 4.5 Company "S", 7.1 Company "Z", 0 Company "G", 13.4 13 14 15F 16F 17F 11.9
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 29 June 30, 2015 Bicycle
The export environment has been challenging because of the industry’s orientation towards domestic demand and cut-throat competition overseas. However, we believe Samchuly will make inroads into overseas markets with tricycle strollers, rather than electric bikes (which are still subject to unfavorable regulations). In fact, the company has begun selling its premium Modi units in April through China’s largest e-commerce platform, Tmall.com, and second-largest online retailer, JD.com.
In China, we believe Modi units are distributed and sold by Little Tiger, a local OEM of tricycles and toys that licenses the brand.
China’s one-child policy has given rise to a generation of “little emperors” (born after 1980), who tend to be more self-indulgent than previous generations. The so-called little emperors are arguably the biggest force driving China’s private consumption. Now that they are grown and have children of their own, they are eager to provide their children with even more benefits than they themselves received. The growth of the “angel industry,” which targets infants and children up to 14 years old, has become one of the most notable trends in China’s consumer market.
We see immense potential in the angel industry given the money parents are willing to lavish on their children. In our view, Samchuly is well-positioned to benefit from this trend.
Figure 55. Samchuly’s tricycle stroller lineup
Source: Company data, KDB Daewoo Securities Research
Figure 56. Company is selling Modi units through Tmall.com, Figure 57. Modi also being sold through JD.com, China’s
China’s largest online shopping mall second largest online retailer
Source: Tmall.com Source: JD.com
KDB Daewoo Securities Research 30 June 30, 2015 Bicycle
3) Growing sales of accessories and gear
With more and more people cycling as a leisure/sport activity, protective gear demand has increased. (Children aged 13 and younger are required by law to wear helmets when riding a bicycle.) Sales of bike equipment/gear (helmets, lights, locks, bike clothing and shoes, etc.) and accessories (smartphone racks, water bottles, etc.) are rising quickly. Indeed, most bike purchasers have also bought accessories and equipment.
Still, three out of four city bike riders do not wear safety gear properly, according to the “Sposumer Report” sponsored by the Ministry of Culture, Sports and Tourism, the Korea Sports Promotion Foundation, and the Korea Institute of Sport Science. This suggests bike equipment and accessories have ample room for growth.
Samchuly’s bike equipment revenue expanded at a CAGR of around 20% from 2013 (W8.8bn) to 2014 (W10.6bn), and is expected to continue expanding at that rate from 2015 (W12.5bn) to 2016 (W15.4bn). As accessories and equipment are high-margin products (though not as high as the tricycle stroller margin), their revenue growth should bolster the firm’s overall bottom line.
Figure 58. Samchuly’s lineup of bicycle goods and accessories
Source: Company data, KDB Daewoo Securities Research
Figure 59. Sales forecast for Samchuly’s bicycle goods
(Wbn) 20 19.1
15.4 15 12.5 10.6 10 8.8
5
0 13 14 15F 16F 17F Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 31 June 30, 2015 Bicycle
4) Electric bikes to become a mid- to long-term growth driver
Electric bikes have been commercially available in Korea since 2010, but demand has been limited to government agencies and corporations (B2B). We believe that the categorization of electric bikes as motorcycles—which leads to various legal restrictions—is weighing on demand growth.
In Korea, electric bike users must obtain a motorcycle license or a type-1 driver’s license. Due to the age limit on such licenses (16 for the motorcycle license), students younger than 16 cannot ride such bikes to school. Furthermore, electric bikes are banned from bike-only lanes.
Fortunately, we have recently noted a move among legislators to deregulate the electric bike segment. If the Promotion of the Use of Bicycles Act is amended in the manner legislators have suggested, electric bikes that fall under certain categories (in terms of speed and weight limits) will be classified as bikes, not motorbikes. We are upbeat on electric bike deregulation, as such bikes can help ease air pollution and traffic congestion and be a useful mode of transport for seniors and students.
Samchuly will launch cheaper models next year, with a price tag of less than W1mn. Although increased affordability should allow general consumers greater access (B2C), it should take quite some time before electric bikes actually go mainstream. The domestic electric bike market contributes less than 0.1% to the global market. As such, we see strong growth potential both at home and abroad over the medium to long term.
Figure 60. Samchuly bicycles’ E-bike revenue
(Wbn) 15 Electric bike revenue
11.2
10 9.4 7.9 6.7 7.0
5
0.3 0 12 13 14 15F 16F 17F
Source: Company data, KDB Daewoo Securities Research
Figure 61. Samchuly Bicycle’s electric bike lineup
Phantom XC Phantom CITY Phantom MINI
Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 32 June 30, 2015 Bicycle
Earnings forecast
For 2Q, we expect Samchuly Bicycle to post record-high quarterly earnings, with revenue of W53.4bn (+15% YoY, +84% QoQ), operating profit of W8.9bn (+8% YoY, +246% QoQ), and net profit of W8.3bn (+11% YoY, +178% QoQ), aided by 1) high-demand season, 2) higher ASP of finished bicycles, and 3) revenue growth across all business units.
We forecast Samchuly Bicycle to deliver record-breaking earnings in 2015, with revenue of W138.2bn (+13.3% YoY), operating profit of W15.7bn (+12.6% YoY), and net profit of W15.4bn (+52% YoY). By unit, we forecast revenue of W112.1bn (+12% YoY) for city bikes, W7.9bn (+12% YoY) for electric bikes, W10.3bn (+33% YoY) for children’s tricycles, and W12.5bn (+18% YoY) for equipment/accessories.
We believe the finished bicycle business (city bikes and electric bikes) will continue to serve as a cash cow for the company this year, accounting for 84% (78.5% and 5.5% for city bikes and electric bikes, respectively) of total revenue. Meanwhile, revenue at the children’ tricycle and equipment/accessories units will likely expand by 32% and 23% YoY, respectively, contributing significantly to overall revenue growth. Given their high margins, these units are also likely to boost the company’s overall profitability.
As for subsidiary Very Good Leisure (stake: 38.02%), earnings will likely improve sharply on rapid revenue growth at the high-margin travel business unit. We forecast record- breaking earnings for 2015, with revenue of W80.8bn (+7% YoY), operating profit of W9.7bn (+59% YoY), and net profit of W8.0bn (+137% YoY). By unit, we expect the bicycle and travel units to record revenue of W42bn (-7% YoY) and W38.8bn (+28% YoY), respectively. As such, equity-method gains arising from Very Good Leisure will likely increase. In addition, robust earnings at Very Good Leisure are likely to reduce the seasonality of Samchuly Bicycle’s earnings, given that the bicycle and travel sectors’ high-demand seasons are in 2Q-3Q and 1Q and 3Q, respectively.
Table 12. Samchuly’s earnings forecast (Wbn, %) 2014 2015F 2013 2014 2015F 2016F 1Q 2Q 3Q 4Q 1Q 2QF 3QF 4QF Revenue 26.3 46.6 35.5 13.6 29.1 53.4 40.7 14.9 110.8 122.0 138.2 156.8 General bicycles 21.9 37.4 29.9 11.0 25.2 42.0 32.7 12.1 93.4 100.2 112.1 122.7 Electric bicycles 1.1 3.6 1.9 0.5 0.3 4.1 2.8 0.6 6.7 7.0 7.9 9.4 Children’s tricycles 1.5 3.7 1.8 0.8 1.3 5.0 3.0 1.0 4.5 7.7 10.3 13.6 Goods for riders 2.4 3.6 3.0 1.6 3.2 4.3 3.4 1.6 8.8 10.6 12.5 15.4 (Sales discounts) (0.7) (1.6) (1.2) (0.2) (1.0) (2.0) (1.2) (0.4) (2.6) (3.6) (4.6) (4.3) Operating profit 2.1 8.3 5.4 -1.9 2.6 8.9 5.8 -1.5 8.6 14.0 15.7 18.5 OP margin 8.1 17.8 15.3 -13.9 8.9 16.7 14.2 -10.4 7.7 11.5 11.4 11.8 Net profit 2.3 7.4 5.3 -4.9 3.0 8.3 5.8 -1.7 8.8 10.1 15.4 18.5 Net margin 8.7 15.9 14.9 -36.1 10.2 15.5 14.2 -11.4 7.9 8.3 11.1 11.8 Growth (YoY) Revenue 3.3 9.2 13.6 18.610.6 14.7 14.9 9.5 1.7 10.1 13.313.5 General bicycles 1.0 3.1 18.4 7.7 14.9 12.4 9.6 10.3 -9.4 7.2 11.9 9.5 Electric bicycles 40.8 4.0 -3.4 -12.0 -70.9 15.3 46.4 41.9 2079.1 5.0 11.7 19.9 Children’s tricycles 244.4 102.5 11.2 32.2 -10.1 36.7 63.3 30.6 - 73.5 33.4 31.6 Goods for riders -0.8 21.9 26.9 49.0 31.9 20.0 13.0 1.1 2.2 20.2 18.0 23.1 Operating profit 15.1 54.4 39.1 -26.5 20.6 7.6 6.3 -18.1 6.6 63.3 12.6 17.3 Net profit 24.3 97.6 -0.6 130.5 29.6 11.4 10.1 -65.5 14.6 15.0 52.0 20.5 Sales breakdown (%) General bicycles 83.5 80.2 84.2 80.8 86.7 78.6 80.3 81.4 82.4 79.8 78.5 76.1 Electric bicycles 4.3 7.7 5.3 3.3 1.1 7.7 6.8 4.3 5.9 5.6 5.5 5.8 Children’s tricycles 5.7 7.8 5.2 5.6 4.6 9.4 7.4 6.6 3.9 6.2 7.2 8.4 Goods for riders 9.3 7.7 8.6 11.5 11.1 8.0 8.4 10.6 7.8 8.5 8.8 9.6 Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 33 June 30, 2015 Bicycle
Table 13. Samchuly’s earnings forecasts and key variables (Wbn, units, %) 2010 2011 2012 2013 2014 2015F 2016F 2017F Revenue 73.3 89.8 109.0 110.8 122.0 138.2 156.8 177.0 Completed set 68.7 84.2 103.4 100.1 107.2 119.9 132.1 144.2 General bicycle 68.1 82.8 103.1 93.4 100.2 112.1 122.7 133.0 Electric bicycle 0.6 1.4 0.3 6.7 7.0 7.9 9.4 11.2 Bicycle for children - - - 4.5 7.7 10.3 13.6 18.3 Goods for riders 4.0 5.8 8.7 8.8 10.6 12.5 15.4 19.1 (Sales discount) 0.6 (0.2) (3.1) (2.6) (3.6) (4.6) (4.3) (4.6) Growth (YoY) Revenue -12.0 22.4 21.4 1.7 10.1 13.3 13.512.9 Finished bicycles -13.2 22.6 22.8 -3.2 7.1 11.9 10.1 9.2 General bicycles -13.3 21.6 24.5 -9.4 7.2 11.9 9.5 8.4 Electric bicycles 5.9 136.5 -78.3 2079.1 5.0 11.7 19.9 18.9 Children’s tricycles----73.5 33.4 31.634.5 Goods for riders 11.9 43.1 49.6 2.2 20.2 18.0 23.1 24.0 Sales breakdown
(%) Finished bicycles 94.4 93.6 92.3 88.3 85.4 84.0 82.0 79.4 General bicycles 93.6 92.0 92.0 82.4 79.8 78.5 76.1 73.2 Electric bicycles 0.8 1.6 0.3 5.9 5.6 5.5 5.8 6.2 Children’s tricycles - - - 3.9 6.2 7.2 8.4 10.1 Goods for riders 5.6 6.4 7.7 7.8 8.5 8.8 9.6 10.5 Shipments of 712,545 759,033 816,316 770,602 819,580 848,598 881,075 914,169 finished bicycles %, YoY -5.5 6.5 7.5 -5.6 6.4 3.5 3.8 3.8 ASP of finished 96,405 110,975 126,664 129,899 130,801 141,317 149,904 157,738 bicycles %, YoY -8.2 15.1 14.1 2.6 0.7 8.0 6.1 5.2 US$/W rate 1135 1152 1071 1055 1099 1100 1080 1090 (end of term) US$/W rate 1156 1108 1126 1095 1053 1087 1088 1089 (avg.) Source: Company data, KDB Daewoo Securities Research
Table 14. Very Good Leisure’s annual earnings (Wbn, units, %) 2014 2015F 2014 2015F 2016F 1Q 2Q 3Q 4Q 1Q 2QF 3QF 4QF Revenue 18.9 25.1 19.7 11.9 20.7 25.1 21.5 13.5 75.5 80.8 90.2 Bicycle 12.8 17.3 9.4 5.8 12.1 15.2 9.1 5.6 45.3 42.0 42.4 Tourism 6.1 7.7 10.3 6.1 8.6 9.8 12.4 7.8 30.2 38.8 47.8 Operating profit 1.8 1.8 4.1 -1.6 3.1 3.5 4.3 -1.2 6.1 9.7 11.6 Op margin 9.3 7.3 20.6 -13.1 15.0 14.0 19.9 -8.8 8.1 12.0 12.8 Net profit 1.4 -0.4 4.3 -1.9 2.5 2.9 3.4 -0.8 3.4 8.0 9.5 NP margin 7.5 -1.5 21.7 -16.2 12.3 11.4 15.9 -6.3 4.5 9.9 10.5 Growth rate (YoY) Revenue 5.8 17.1 -11.1 20.0 9.5 0.1 9.3 13.3 5.9 7.0 11.7 Bicycle -6.4 1.7 -32.0 8.1 -5.5 -12.0 -3.5 -3.0 -9.2 -7.3 1.0 Tourism 45.0 77.2 23.6 34.0 40.9 27.3 21.1 28.9 40.9 28.3 23.2 Operating profit -1.7 4.6 14.0 24.0 76.1 91.4 5.4 -23.7 4.3 59.1 19.4 Net profit 12.8 -128.6 33.0 137.0 80.1 -855.1 -20.0 -56.2 -32.3 136.8 18.6 Sales breakdown Bicycle 67.5 69.1 47.9 48.7 58.3 60.8 42.2 41.7 60.0 52.0 47.0 Tourism 32.5 30.9 52.1 51.3 41.8 39.2 57.8 58.3 40.0 48.0 53.0 Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 34 June 30, 2015 Bicycle
Figure 62. Sales breakdown of Very Good Leisure (2014) Figure 63.Quarterly revenue of Very Good Leisure
(Wbn) 30 Bicycles Tourism
25
Bicycles 20 40% 15 Tourism 60% 10
5
0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15F 3Q15F 4Q15F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Figure 65. Annual revenue and OP margin of Very Good Figure 64. ASP of Very Good Leisure Leisure
(W'000) (Wbn) (%) 1,000 ASP 100 Revenue (L) 15 910 874 OP margin (R)
800 745 75 10 708
600 561 50 5
400 25 0
200 0 -5 10 11 12 13 14 07 08 09 10 11 12 13 14 15F 16F
Source: Very Good Leisure, KDB Daewoo Securities Research Source: Very Good Leisure, KDB Daewoo Securities Research
Figure 66. Bicycle line-up
Silverado 90 Chrono Team Elliot Team Cayin Force
Source: Very Good Leisure, KDB Daewoo Securities Research
KDB Daewoo Securities Research 35 June 30, 2015 Bicycle
Initiate coverage with Buy and TP of W31,300
We initiate our coverage with a Buy rating and target price of W31,300, based on a P/E of 24.6x our 12-month forward EPS of W1,274.
Samchuly is the largest bicycle company in Korea, accounting for 42% of the domestic market and controlling 62% of domestic distribution channels. Because of the lack of comparable peers, we applied the company’s average P/E since 2013, when sales of electric bikes and tricycle strollers began to take off.
Bicycle penetration in Korea is just 29%, vs. more than 60% in advanced nations. Although Korea’s electric bike market accounts for less than 0.1% of the global market, we expect the Korean market to expand on the back of roll-outs of low-end electric bike models and the anticipated easing of regulations. The company is seeing quick growth in revenue related to tricycles and related accessories. Given the high margins of these products, their sales should lead to quick earnings improvement.
The two-year average P/E of overseas peers is around 25x, and the average P/E of domestic demand-related companies exceeds 25x. Given Samchuly’s market leadership and strong growth potential, we believe the current P/E of 19.6x indicates upside potential.
Table 15. Valuation Figure Notes Net profit (Wbn) 16.9 Based on 12-month forward EPS Total number of 13,274 As of end-1Q15 shares (‘000 shares) EPS (W) 1,274 Based on 12-month forward EPS Undisputed domestic leader with a market share of 42%; Due to Target P/E (x) 24.6 lack of comparable peers, we used the company’s recent two- year average P/E Fair price (W) 31,346 Target price (W) 31,300 Price (W) 25,000 June 29th closing price Mkt cap (Wbn) 331.8 Upside (%) 25.2 Source: KDB Daewoo Securities Research
Figure 67. P/E vs. EPS of global peers
(P/B, x) 7.0 KMC (Kuei Meng) International 6.0 Fox Factor Holding 5.0 Shimano (Japan)
4.0 Merida (Taiwan) Giant (Taiwan)
3.0 Accell Group 2.0 (Netherlands) Samchuly Bicycle DOREL INDUSTRIES 1.0 (ROE, %) 0.0 0 102030
Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 36 June 30, 2015 Bicycle
Risk factors
1) Potential demand contraction caused by the spread of MERS-CoV
We believe the recent spread of MERS-CoV might have dampened B2C demand. However, as the outbreak occurred mostly in June (when revenue tends to be less than in April and May), we estimate that the impact on 2Q earnings was only minimal.
In addition, people are unlikely to have perceived bicycling as especially risky in the midst of the outbreak, given that it is an outdoor activity that does not involve being around others in a small space. Thus, we do not believe bicycling demand has decreased significantly. In fact, an increasing number of people see it as an activity that boosts immunity. And biking commuters are growing.
2) F/X effects
Samchuly, which focuses on domestic operations, is significantly exposed to F/X risks (mostly the US dollar) due to considerable imports of raw materials and finished products. Unlike exporting companies, the company’s major risk is a weak won.
KDB Daewoo Securities Research 37 June 30, 2015 Bicycle
Samchuly Bicycle (024950 KQ/Buy/TP: W31,300)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F12/17F (Wbn) 12/14 12/15F 12/16F12/17F Revenue 122 138 157177 Current Assets 41 48 58 68 Cost of Sales 81 91 103 116 Cash and Cash Equivalents 12 15 21 29 Gross Profit 41 47 54 61 AR & Other Receivables 8 10 11 13 SG&A Expenses 27 31 35 40 Inventories 11 13 1414 Operating Profit (Adj) 14 16 18 22 Other Current Assets 10 10 12 12 Operating Profit 14 16 18 22 Non-Current Assets 78 84 90 96 Non-Operating Profit 0 3 5 4 Investments in Associates 30 30 30 31 Net Financial Income 0 0 0 0 Property, Plant and Equipment 42 49 54 59 Net Gain from Inv in Associates 1 3 4 4 Intangible Assets 2 2 2 2 Pretax Profit 14 19 23 26 Total Assets 119 133 148 164 Income Tax 4 3 4 5 Current Liabilities 25 26 26 24 Profit from Continuing Operations 10 15 18 21 AP & Other Payables 3 3 3 3 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 15 15 13 10 Net Profit 10 15 18 21 Other Current Liabilities 7 8 10 11 Controlling Interests 10 15 18 21 Non-Current Liabilities 2 2 3 3 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 1 1 1 1 Total Comprehensive Profit 10 15 18 21 Other Non-Current Liabilities 1 1 2 2 Controlling Interests 10 15 18 21 Total Liabilities 28 29 29 27 Non-Controlling Interests 0 0 0 0 Controlling Interests 91 104 119 137 EBITDA 15 17 1923 Capital Stock 7 7 77 FCF (Free Cash Flow) 2 4 6 8 Capital Surplus 53 53 53 53 EBITDA Margin (%) 12.3 12.3 12.1 13.0 Retained Earnings 34 47 6280 Operating Profit Margin (%) 11.5 11.6 11.5 12.4 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 8.2 10.9 11.5 11.9 Stockholders' Equity 91 104 119 137
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15F 12/16F12/17F 12/14 12/15F 12/16F 12/17F Cash Flows from Op Activities 10 11 12 14 P/E (x) 25.1 21.6 17.9 15.5 Net Profit 10 15 18 21 P/CF (x) 16.1 19.9 17.1 14.8 Non-Cash Income and Expense 6 1 1 1 P/B (x) 2.7 3.1 2.7 2.4 Depreciation 1 1 11 EV/EBITDA (x) 16.9 19.5 16.313.6 Amortization 0 0 00 EPS (W) 761 1,157 1,3941,613 Others 5 0 00 CFPS (W) 1,184 1,255 1,4631,691 Chg in Working Capital -3 -2 -3 -4 BPS (W) 7,064 8,035 9,196 10,529 Chg in AR & Other Receivables 1 -2 -1 -1 DPS (W) 200 250 300 350 Chg in Inventories 0 -1 -1 -1 Payout ratio (%) 24.5 20.1 20.1 20.2 Chg in AP & Other Payables 0 0 0 0 Dividend Yield (%) 1.0 1.0 1.2 1.4 Income Tax Paid -3 -3 -4 -5 Revenue Growth (%) 9.9 13.1 13.8 12.7 Cash Flows from Inv Activities -7 -8 -6 -6 EBITDA Growth (%) 66.7 13.3 11.8 21.1 Chg in PP&E -8 -7 -6 -6 Operating Profit Growth (%) 55.6 14.3 12.5 22.2 Chg in Intangible Assets -1 0 0 0 EPS Growth (%) 15.1 52.0 20.5 15.7 Chg in Financial Assets -1 0 -1 -1 Accounts Receivable Turnover (x) 14.6 16.3 15.5 15.5 Others 3 -1 11 Inventory Turnover (x) 11.0 11.6 12.0 12.7 Cash Flows from Fin Activities 7 -2 -5 -7 Accounts Payable Turnover (x) 82.9 124.3 123.7 122.4 Chg in Financial Liabilities - - - - ROA (%) 9.2 12.2 13.2 13.7 Chg in Equity 0 0 0 0 ROE (%) 11.6 15.8 16.6 16.7 Dividends Paid -2 -2 -3 -4 ROIC (%) 17.5 20.3 21.0 22.6 Others - - -- Liability to Equity Ratio (%) 30.5 27.8 23.9 19.8 Increase (Decrease) in Cash 11 4 6 7 Current Ratio (%) 161.4 183.4 222.7 280.5 Beginning Balance 1 12 15 21 Net Debt to Equity Ratio (%) -1.4 -5.0 -11.5 -17.7 Ending Balance 12 15 21 29 Interest Coverage Ratio (x) 22.4 25.4 29.8 34.8 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 38 June 30, 2015 Bicycle
Alton Sports (123750 KQ) Stability to be the focus this year
Only domestic bicycle maker with its own factory
Established in 1994 as Saeik Trading, the company changed its name to Alton Sports in Not Rated 2001 and was listed on the KOSDAQ in 2011, after merging with Shinyoung Happy Tomorrow No.1 SPAC. The company is the only bicycle maker in Korea with its own Target Price (12M, W) - factory, which is located in Tianjin, China and came online in 2008.
Alton Sports has achieved growth through M&As. In 2008, the company merged with Share Price (06/29/15, W) 10,150 Corex. It began to develop and sell electric bikes after establishing subsidiary E-Alps in 2012 (with which it merged in 2014). In March this year, the company was acquired by Expected Return - Innox, the leading electronic materials and component producer in Korea. Alton Sports is expected to generate synergies with Innox in the materials area over the medium to OP (15F, Wbn) 9 long term. Consensus OP (15F, Wbn) 11 Exports to drive growth EPS Growth (15F, %) -1.6 Market EPS Growth (15F, %) 37.3 Alton Sports’ competitiveness lies in 1) its ability to adjust production volume flexibly in P/E (15F, x) 19.0 line with market conditions thanks to having its own factory, and 2) its focus on exports. Market P/E (15F, x) 10.9 KOSDAQ 733.04 Korea’s bicycle market, which accounts for just 1.6% of the global market, is dominated by three big companies, with most players focused on domestic sales. In particular, the Market Cap (Wbn) 117 company with the largest market share (42%) controls over 60% of distribution Shares Outstanding (mn) 12 channels. Thus, Alton Sports, with its concentration on low/mid-end products, is likely to Free Float (%) 57.5 have limited upside in Korea. Thus, it is positive that the company is focusing more on Foreign Ownership (%) 2.3 exports of products, including electric bikes. Beta (12M) 1.68 52-Week Low 5,840 Despite robust sales of road bikes, namely its flagship model Roadmaster, mountain bike 52-Week High 16,800 and hybrid bike sales are both on the decline. However, the company will likely see a
(%) 1M 6M 12M slight upturn in revenue starting next year on the back of exports of electric bikes to Absolute -7.7 1.7 69.2 North America and city bikes to Japan and Southeast Asia, as well as an improved Relative -10.5 -25.2 22.6 product mix in line with an increasing revenue contribution from road bikes.
330 Alton Sports KOSDAQ Stronger growth expected next year 280 We project Alton Sports’ 2015 revenue and operating profit at W71.3bn (+4.2% YoY) 230 and W8.6bn (+1.3% YoY). Quarterly growth is expected to slow in 2Q compared to last 180 year, with revenue of W27.3bn (+1% YoY, +54% QoQ) and operating profit of W5.1bn 130 (+0.3% YoY, +166% QoQ). It should take time for the acquisition by Innox to generate 80 synergies. As parts and materials determine the quality of finished products, the 6.14 10.14 2.15 6.15 acquisition should be positive for the company over the medium to long term. But in the
short term, the company is expected to focus more on stabilizing the organization.
FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 66 61 68 71 78 85 OP (Wbn) 4 3 9 9 10 11 OP margin (%) 6.1 4.9 13.2 12.7 12.8 12.9 NP (Wbn) 4 3 6 6 7 8 EPS (W) 345 227 544 536 606 672 ROE (%) 9.2 6.0 12.4 10.7 11.1 11.2 P/E (x) 12.4 21.9 18.3 19.0 16.7 15.1 P/B (x) 1.1 1.2 2.0 1.9 1.7 1.6 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 39 June 30, 2015 Bicycle
Although the bicycle market exhibits strong seasonality, with 2Q being the traditional peak season, 2Q earnings are expected to be weaker than last year’s level with revenue of W27.3bn (+1% YoY, +54% QoQ) and an operating profit of W5.1bn (+0.3% YoY, +166% QoQ).
The new management that came along after the acquisition appears to be focusing more on stabilizing the organization this year. They are in the process of fully adopting the parent company’s system, establishing new strategies, and reshuffling staff. Accordingly, the company’s key objective this year will likely be stability rather than growth. We expect growth under the new management to take off starting next year.
We project Alton Sports’ 2015 revenue and operating profit at W71.3bn (+4.2% YoY) and W8.6bn (+1.3% YoY). Road bikes are anticipated to drive up growth, with revenue improving 157% in 2014 and 73% in 2015. Although the sales volume of hybrid bikes is anticipated to decline for the second straight year, revenue is forecast to climb 10% on the back of ASP growth. Mountain bike sales are trending down due to a slowdown in demand.
The company’s sales volume growth (based on finished products) was -15.5% in 2013 and -4.3% in 2014, and is projected to be +1.9% for 2015 and +2.4% for 2016. ASP growth was 10.3% in 2013 and 16.2% in 2014, and is estimated at 2.5% for 2015 and 7% for 2016. Thus, for the time being, ASP should make a greater contribution to revenue growth than sales volume.
We believe growth will take off starting next year, posting revenue of W78.2bn (+9.7% YoY) and operating profit of W9.5bn (+10.2% YoY) in 2016.
Table 16. Quarterly earnings (Wbn, %) 2014 2015F 2016F 2014 2015F 2016F 1Q 2Q 3Q 4Q 1Q 2QF 3QF 4QF 1QF 2QF 3QF 4QF Revenue 14.6 27.1 19.2 7.5 17.7 27.3 19.0 7.2 18.8 30.1 21.4 7.9 68.4 71.3 78.2 General bicycles 13.6 25.2 18.4 7.0 17.3 25.9 18.0 6.7 18.0 28.4 20.2 7.3 64.2 67.9 73.9 Hybrid 5.4 11.0 7.2 2.3 5.7 12.2 8.2 2.6 6.3 13.3 9.3 2.9 26.0 28.7 31.8 Mountain 7.7 11.6 8.7 3.8 8.4 10.2 6.4 3.2 8.0 9.8 6.1 2.9 31.8 28.1 26.8 Road 0.5 2.6 2.5 0.9 3.2 3.6 3.3 0.9 3.7 5.3 4.8 1.5 6.4 11.0 15.4 Electrical bicycles 0.9 1.9 0.8 0.5 0.5 1.4 1.0 0.5 0.7 1.8 1.2 0.6 4.2 3.4 4.3 Operating profit 1.7 5.0 3.1 -1.3 1.9 5.1 2.8 -1.0 2.0 5.4 3.1 -1.0 8.5 8.6 9.5 OP margin 11.4 18.6 16.1 -16.8 10.7 18.5 14.5 -14.0 10.8 18.0 14.4 -12.9 12.5 12.1 12.2 Net profit 1.3 4.3 2.0 -1.4 1.5 3.8 1.8 -0.9 1.6 4.1 2.2 -0.9 6.3 6.2 7.0 NP margin 9.1 15.7 10.6 -17.9 8.2 13.9 9.6 -11.9 8.3 13.6 10.5 -11.0 9.2 8.7 9.0 Growth (YoY) Revenue 2.0 19.7 23.2 -16.2 21.80.9 -1.4 -3.9 5.9 10.2 12.6 9.6 11.2 4.29.7 General bicycles 0.4 15.6 21.5 -13.3 26.6 3.0 -2.3 -4.2 4.5 9.3 12.2 9.2 9.6 5.7 8.8 Hybrid -13.5 11.9 12.3 -4.5 5.1 11.0 13.2 12.2 10.0 9.0 13.2 12.0 4.0 10.5 10.7 Mountain 13.8 5.0 11.3 -30.0 8.3-12.3 -25.8 -17.5 -3.9 -4.0 -5.8 -8.0 2.4 -11.6-4.8 Road -5.6 181.5 174.5 383.6 593.9 37.4 35.1 10.8 17.0 48.0 44.6 58.4 157.0 72.7 39.0 Electrical bicycles 33.0 124.7 81.7 -42.3 -49.3 -26.3 19.3 -0.8 56.0 27.0 19.0 15.1 43.0 -19.2 26.8 Operating profit 24.8 42.4 4328.6 RR 14.5 0.3 -11.1 RR 6.7 7.4 11.9 RR 153.1 1.3 10.2 Net profit 101.5 70.4 316.3 RR 9.8 -10.7 -10.9 RR 6.2 7.9 23.4 RR 139.2 -1.1 13.2 Sales breakdown
(%) General bicycles 93.6 93.1 95.7 93.0 97.4 95.0 94.8 92.7 96.1 94.2 94.5 92.4 93.9 95.3 94.6 Hybrid 37.4 40.6 37.7 30.9 32.3 44.6 43.2 36.0 33.5 44.1 43.5 36.8 38.0 40.3 40.7 Mountain 53.1 42.9 45.2 50.8 47.2 37.2 34.0 43.6 42.8 32.4 28.4 36.6 46.6 39.5 34.3 Road 3.1 9.6 12.9 11.4 17.9 13.1 17.6 13.1 19.7 17.6 22.6 18.9 9.4 15.5 19.6 Electrical bicycles 6.4 6.9 4.3 7.0 2.7 5.0 5.2 7.3 3.9 5.8 5.5 7.6 6.1 4.7 5.4 Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 40 June 30, 2015 Bicycle
Figure 68. Sales breakdown (2014) Figure 69. Annual revenue and OP margin
Electric (Wbn) (%) 6% 100 Revenue (L) 15 Road OP margin (R) 9%
Hybrid 75 38% 10
50
5 25
Mountain 47% 0 0 10 11 12 13 14 15F 16F 17F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Figure 70. Finished bicycles ASP Figure 71. Finished bicycles sales volume
('000Won) (%) ('000Units) (%) 200 ASP (L) 40 800 Sales volume (L) 10 %YoY (R) %YoY (R) 5 30 150 600 0 20 100 400 -5 10 -10 50 200 0 -15
0 -10 0 -20 12 13 14 15F 16F 17F 12 13 14 15F 16F 17F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Figure 72. Bicycle lineup
R6021 Metis Ultegra Estas-S
Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 41 June 30, 2015 Bicycle
Alton Sports (123750 KQ/Not Rated/TP: W0)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F12/17F (Wbn) 12/14 12/15F 12/16F12/17F Revenue 68 71 7885 Current Assets 46 54 61 65 Cost of Sales 43 45 50 54 Cash and Cash Equivalents 12 15 19 20 Gross Profit 25 26 28 31 AR & Other Receivables 4 6 7 8 SG&A Expenses 16 17 19 21 Inventories 15 16 1718 Operating Profit (Adj) 9 9 10 11 Other Current Assets 15 17 18 19 Operating Profit 9 9 10 11 Non-Current Assets 31 31 31 33 Non-Operating Profit -1 -1 -1 -1 Investments in Associates 0 0 0 0 Net Financial Income 0 0 0 0 Property, Plant and Equipment 19 19 20 21 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 7 7 6 6 Pretax Profit 8 8 9 10 Total Assets 76 84 92 98 Income Tax 2 2 2 2 Current Liabilities 20 23 24 24 Profit from Continuing Operations 6 6 7 8 AP & Other Payables 7 7 8 8 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 12 14 15 14 Net Profit 6 6 7 8 Other Current Liabilities 1 2 1 2 Controlling Interests 6 6 7 8 Non-Current Liabilities 1 1 1 1 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 7 6 7 8 Other Non-Current Liabilities 1 1 1 1 Controlling Interests 7 6 7 8 Total Liabilities 21 24 26 25 Non-Controlling Interests 0 0 0 0 Controlling Interests 55 61 67 73 EBITDA 9 10 1011 Capital Stock 6 6 66 FCF (Free Cash Flow) 5 6 7 5 Capital Surplus 23 23 23 23 EBITDA Margin (%) 13.2 14.1 12.8 12.9 Retained Earnings 28 33 3946 Operating Profit Margin (%) 13.2 12.7 12.8 12.9 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 8.8 8.5 9.0 9.4 Stockholders' Equity 55 61 67 73
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15F 12/16F12/17F 12/14 12/15F 12/16F 12/17F Cash Flows from Op Activities 6 7 8 7 P/E (x) 18.3 19.0 16.7 15.1 Net Profit 6 6 7 8 P/CF (x) 11.3 12.2 11.1 10.1 Non-Cash Income and Expense 4 3 4 4 P/B (x) 2.0 1.9 1.7 1.6 Depreciation 1 1 11 EV/EBITDA (x) 10.9 10.7 9.48.2 Amortization 0 0 00 EPS (W) 544 536 606672 Others 3 2 33 CFPS (W) 881 832 9141,004 Chg in Working Capital -3 0 0 -2 BPS (W) 4,905 5,359 5,867 6,440 Chg in AR & Other Receivables 0 -2 -1 -1 DPS (W) 100 100 100 150 Chg in Inventories -3 0 -1 -1 Payout ratio (%) 14.9 18.3 16.2 21.9 Chg in AP & Other Payables 1 0 0 0 Dividend Yield (%) 1.0 1.0 1.0 1.5 Income Tax Paid -1 -2 -2 -2 Revenue Growth (%) 11.5 4.4 9.9 9.0 Cash Flows from Inv Activities -10 -4 -3 -4 EBITDA Growth (%) 125.0 11.1 0.0 10.0 Chg in PP&E 1 -1 -1 -2 Operating Profit Growth (%) 200.0 0.0 11.1 10.0 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 139.6 -1.5 13.1 10.9 Chg in Financial Assets -11 -2 -2 -2 Accounts Receivable Turnover (x) 16.6 16.7 14.1 14.1 Others 0 -1 00 Inventory Turnover (x) 4.9 4.6 4.8 4.9 Cash Flows from Fin Activities 3 1 0 -2 Accounts Payable Turnover (x) 8.1 8.7 8.8 9.1 Chg in Financial Liabilities - - - - ROA (%) 8.8 7.7 8.0 8.2 Chg in Equity 2 0 0 0 ROE (%) 12.4 10.7 11.1 11.2 Dividends Paid -1 -1 -1 -1 ROIC (%) 16.5 16.3 17.3 18.2 Others - - -- Liability to Equity Ratio (%) 37.8 39.2 38.4 34.4 Increase (Decrease) in Cash -2 3 4 1 Current Ratio (%) 229.3 235.2 248.2 272.6 Beginning Balance 13 12 15 19 Net Debt to Equity Ratio (%) -22.9 -26.0 -30.0 -32.6 Ending Balance 12 15 19 20 Interest Coverage Ratio (x) 20.4 20.6 23.8 26.3 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 42 June 30, 2015 Bicycle
APPENDIX 1
Important Disclosures & Disclaimers 2-Year Rating and Target Price History
Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price SAMCHULY(024950) 06/30/2015 Buy 31,300
(W) SAMCHULY 40,000
30,000
20,000
10,000
0 Jul 13 Jul 14 Jul 15
Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Equity Ratings Distribution Buy Trading Buy Hold Sell 71.9% 13.8% 14.3% 0% * Based on recommendations in the last 12-months (as of March 31, 2015)
Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to
KDB Daewoo Securities Research 43 June 30, 2015 Bicycle
in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
KDB Daewoo Securities International Network
Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 320 Park Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 31st Floor
Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong, China United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000 Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 Six Battery Road #11-01 7th Floor, Yusen Building 25 Old Broad St. Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku London EC2N 1HQ Tokyo 100-0005 United Kingdom Japan Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511 Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers Room 38T31, 38F SWFC Suite 2103, Saigon Trade Center B-12 Jianguomenwai Avenue 100 Century Avenue 37 Ton Duc Thang St,
Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Dist. 1, Ho Chi Minh City, China China Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia 2401B, 24th Floor, East Tower, Twin Towers #406, Blue Sky Tower, Peace Avenue 17 Equity Tower Building Lt.50 B-12 Jianguomenwai Avenue, 1 Khoroo, Sukhbaatar District Sudirman Central Business District Jl.
Chaoyang District, Beijing 100022 Ulaanbaatar 14240 Jendral Sudirman Kav. 52-53, Jakarta Selatan China Mongolia Indonesia 12190 Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140
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