Company Report: Chow Sang Sang (00116 HK) Andrew Song 宋涛

股

票

研 [Table_Title] Company Report: Chow Sang Sang (00116 HK) Andrew Song 宋涛

究 (852) 2509 5313 EquityResearch 公司报告：周生生 (00116 HK) [email protected]

1 April 2019 [Table_Summary] Positive 1Q19 SSSG, Maintain "Accumulate" 2019年1季度同店销售正增长，维持“收集”

 Shareholders’ profit increased 15.5% YoY to HK$1,012 million in 2018, in [Table_Rank] 公 line with market consensus. Total revenue rose by 13.1% YoY to Rating: Accumulate Maintained HK$17,130 million, of which jewellery retail went up 18.0% YoY while other 司 business decreased 21.2% YoY. SSS was up 18% in Hong Kong and Macau 评级：收集 (维持) 报 and up 3% in mainland China. Gross profit margin improved 0.6 ppts to 告 24.6% and operating margin was up 0.9 ppts thanks to operating leverage and rental expenses reduction in Hong Kong. 6[Table_Price-18m TP 目标价] : HK$15.20 CompanyReport Revised from 原目标价: HK$15.20  Cautiously positive on the Company’s 2019 performance. The management suggested positive SSSG in both mainland China and Hong Share price 股价: HK$12.200

Kong in 1Q19 despite disappointing 4Q18. The Company launched a new

brand in 2018, MINTYGREEN, which offers affordable daily wear jewellery targeting the young generation and plans to extend its sales channel in 2019. Stock performance We expect continued challenging macro environment in 2019 but the 股价表现 Company may achieve stable growth leveraging on its expansion strategy [Table_QuotePic30.0 % of return ] and diversified brands. 20.0

 We maintain investment rating as "Accumulate" with TP of HK$15.20. 10.0

证 We slightly revise up EPS forecasts in 2019 and 2020 to HK$1.583 and 0.0

券告 HK$1.695, respectively. The TP represents 9.6x and 9.0x 2019 and 2020

PER, respectively, which is attractive compared with its history valuation. (10.0)

研报

Downside risks include slower-than-expected SSSG and narrowing profit (20.0)

究究 margin.

(30.0) 报  2018 年股东净利同比上升 15.5%至 1,012 百万港元，符合市场预期。总收入同比上升

研 (40.0)

告 13.1%至 17,130 百万港元，其中珠宝零售同比增长 18.0%，其他业务同比减少 21.2%。 Aug-17 Nov-17 Feb-18 May-18 Aug-18

券港澳市场同店销售上升 18%，中国大陆同店销售增长 3%。毛利率同比提升 0.6 个百分点 HSI Index Chow Sang sang

EquityResearch Report

至 24.6%，经营利润率同比提升 0.9 个百分点，受益于经营杠杆和香港的租金削减。证 Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y  对 2019 年表现保持谨慎乐观。根据管理层，尽管 2018 年 4 季度表现令人失望，但是 2019

[Ta 年 1 季度在中国内地和香港的同店销售都录得正增长。公司在 2018 年推出了新品牌股价变动 1 个月 3 个月 1 年

MINTYGRREN，主打向年轻群体提供价格实惠的日常穿戴珠宝，并计划在 2019 年拓展销 Abs. % (0.2) 5.0 (26.1) ble 绝对变动 % 售渠道。我们预期 2019 年整体宏观环境依然充满挑战，但公司依靠其扩张策略和多元品 _In Rel. % to HS Index (1.0) (7.4) (22.6) 牌能取得稳定的增长。相对恒指变动 %

消 Retailing fo1 - Avg. Share price(HK$) 12.1 11.7 13.8 费  我们维持投资评级为“收集”以及目标价 15.20 港元。我们分别轻微上调 2019 年和 2020 平均股价（港元）行 ] 年每股盈利至 1.583 港元及 1.695 港元。目标价相当于 9.6 倍和 9.0 倍 2019 年和 2020 年 Source: Bloomberg, Guotai Junan International.

业- 市盈率，相对其历史估值吸引。下行风险包括低于预期的同店销售增长以及收窄的利润率。零

售

ConsumerSector

Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE Profit] [Ta 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%)

ble 2017A 16,633 876 1.295 18.2 9.4 14.958 0.8 0.510 4.2 9.1

_In 2018A 18,806 1,012 1.494 15.4 8.2 15.381 0.8 0.590 4.8 9.9 2019F 19,636 1,071 1.583 6.0 7.7 16.357 0.7 0.617 5.1 10.0 中fo2 2020F 21,256 1,147 1.695 7.1 7.2 17.391 0.7 0.661 5.4 10.0 外] 2021F 22,676 1,260 1.862 9.9 6.6 18.527 0.7 0.726 6.0 10.4 周运 Shares in issue (m) 总股数 (m) 677.4 Major shareholder 大股东 Everwin 17.7% 生 [Table_BaseData] Market cap. (HK$ m) 市值 (HK$ m) 8,264.3 Free float (%) 自由流通比率 (%) 49.7

生输 3 month average vol. 3 个月平均成交股数 (‘000) 506.5 FY19 Net gearing (%) FY19 净负债/股东资金 (%) 2.4 52 Weeks high/low (HK$) 52 周高/低 (HK$) 17.520 / 10.640 FY19 Est. NAV (HK$) FY19 每股估值（港元） 18.5

Source: the Company, Guotai Junan International. Chow Sang Sang (00116 HK) Sang Chow (00116 Sang

See the last page for disclaimer Page 1 of 8

[Table_PageHeader]Chow Sang Sang (00116 HK)

2018 Results Review

] 1 r a M t h g i R _ e l b a T [

Chow Sang Sang’s ("CSS" or the "Company") total revenue increased 13.1% to HK$17,130 million, largely in line with

market consensus and our expectation. Jewellery retail rose 18.0% YoY to HK$17,130 million while non-retail business dropped 20.8% YoY to HK$1,676 million, of which wholesale business declined 21.2% YoY, broking business went up 0.5% YoY and other business dropped 22.1%. During the period, retail sales in mainland China was up 16.1% YoY and accounted for

54.4% of total retail sales. SSSG was 3%, of which gold SSSG was strong at 8% while gem-set jewellery SSSG was -7%. 1 April1 2019 E-commerce sales kept increasing and accounted for around 15% of total retail sales in China. In the Hong Kong and Macau market, revenue increased 20.4% YoY and SSSG reached 18.0%. Retail sales growth in mainland China and Hong Kong and Macau slowed to 9.3% YoY and 17.4% YoY in 2H18, respectively, missing our expectations, mainly due to weak consumption sentiment in 4Q18.

Shareholders’ profit rose 15.5% YoY to HK$1,012 million. Gross profit increased 16.0% YoY with gross margin was up 0.6 ppts to 24.6%, mainly due to higher revenue contribution from fixed-price gold which enjoys higher gross margin and sharp decline in low margin wholesales (revenue contribution 8.5% in 2018 vs. 12.2% in 2017). Selling and distribution expenses increased by 8.0% YoY and S&D to sales ratio contracted by 0.7 ppts yoy to 14.8%, thanks to higher operating leverage and rental expenses cut in lease-renewed stores in Hong Kong amounting to HK$87 million. During the period, rental adjustment

ranged from -40% to 12%. Operating profit rose 28.2% YoY with operating margin up 0.9 ppts] 2 YoYr a toM t 7.2h %g .Ti heR Company_ e l b a T [

recorded gain of HK$27 million on disposal of an associate in 2018 and one-off gain of disposal part of holding shares amounting HK$114 million in 2017. Core shareholders’ profit would rise 29% YoY excluding these gains. CSS proposed total dividend of HK$0.59 per share, representing payout ratio of 39% unchanged.

Figure-1: CSS Revenue Growth Figure-2: CSS Revenue Breakdown

HK$ mn 2017 (inner ring) 2018 (outer ring)

25,000 20.0% 8.5%0.2% 0.2% 20,000 10.0% 0.2% 0.3%

12.2% Retail (00116 HK)

15,000 0.0% Wholesale

10,000 -10.0% Broking 周生生 Others 5,000 -20.0% 87.3%

0 -30.0% 91.1% 2014 2015 2016 2017 2018 Retail Wholesale Broking

Others YoY Growth Chow Sang Sang Source: the Company. Source: the Company.

Figure-3: CSS Revenue Breakdown by Geography Figure-4: CSS Revenue Breakdown by Product

2017 (inner ring) 2018 (outer ring) 2017 (inner ring) 2018 (outer ring)

0.6% 5% HK/Macau 0.6% 22.8% 5% 21.6% HK/Macau (PRC 31% Gold Customers) 33% Non-gold jewellery 48.3% 49.6% Mainland China 62% 16.8% 64% Watches 18.1%

Others

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Source: the Company. Source: the Company.

Company

See the last page for disclaimer Page 2 of 8 [Table_PageHeader]Chow Sang Sang (00116 HK)

Table-1: CSS 1H18 Interim Results Review

HK$ mn 2017 2018 YoY ] 1 r 2H17a M t h g 2H18i R _ e YoYl b a T [

Revenue 16,633 18,806 13.1% 8,621 9,248 7.3%

-Jewellery retail 14,516 17,130 18.0% 7,511 8,484 13.0% -Other businesses 2,117 1,676 -20.8% 1,110 764 -31.1% Cost of sales -12,643 -14,175 12.1% -6,588 -6,977 5.9%

Gross profit 3,991 4,631 16.0% 2,033 2,271 11.7% April1 2019 Other income 174 110 -36.5% 99 44 -55.2% Selling and distribution costs -2,570 -2,775 8.0% -1,334 -1,401 5.0% Administrative expenses -544 -614 12.7% -291 -314 8.1% Operating Profit 1,055 1,353 28.2% 511 600 17.4% Other gains 113 -20 -117.7% -7 -64 852.1% Finance costs -31 -37 19.2% -17 -18 10.9% Profit before tax 1,137 1,323 16.3% 602 491 -18.4% Income tax -261 -310 18.9% -118 -111 -5.7% Minority 0 0 - 0 0 -

Shareholders' Profit 876 1,012 15.5% 484 ] 2 r a 380M t h g i R -21.5%_ e l b a T [

EPS (HK$) 1.295 1.494 15.4% 0.716 0.561 -21.6% DPS (HK$) 0.510 0.590 15.6% 0.420 0.440 4.7%

Gross margin 24.0% 24.6% 0.6 ppts 23.6% 24.6% 1.0 ppt Operating margin 6.3% 7.2% 0.9 ppts 5.9% 6.5% 0.6 ppts Net margin 5.3% 5.4% 0.1 ppts 5.6% 4.1% -1.5 ppts

Source: the Company, Guotai Junan International.

SSSG improved in 1Q19 in both mainland China and Hong Kong according to the management. In 3Q18, gold price

experienced a moderate hike but gold products SSS recorded double-digit growth. However, the momentum soon faded in (00116 HK) 4Q18 in the context of weaker stock market performance and consumption sentiment. SSSG fell to low to negative growth in

the festive season. In 1Q19, the management suggested more positive SSSG performance, with overall mid-single digit SSSG 周生生 in mainland China, driven by high-single digit gold SSSG but dragged by negative high single-digit gem-set jewellery SSSG. SSSG in Hong Kong also delivered mid-single-digit SSSG, of which gold and gem-set recorded similar performance.

Table-2: Quarterly Performance Peers Comparison 4Q18

Calendar Year 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Chow Sang Sang SSSG

Chow Tai Fook (01929 HK) -26%

Mainland China -25% -17% -22% 4% 12% 11% 9% 5% 7% 4% 6% -7% Hong Kong & Macau -27% -20% -30% -2% 4% 5% 13% 5% 17% 26% 23% -6%

Chow Sang Sang (00116 HK)

Gold:+SD Gold:+SD Mainland China -5% -5% 8% +SD Gem: -SD Gem: -SD 2% Gold:+LT Gold:-LT Hong Kong & Macau -26% -26% -3% +DD Gem: -SD Gem: +MT 22%

Look Fook (00590 HK) -27% -24% -37% -10% 2% 5% 17% 1% 16% 22% 14% -10% Mainland China -19% -24% -23% 5% 11% 23% 11% -4% -2% -2% 4% -14%

Hong Kong & Macau -28% -24% -39% -11% 1% 3% 18% 1% 18% 26% 17% -9%

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Retail Sales Growth

Chow Tai Fook (01929 HK) -26%

Mainland China -25% -13% -17% 7% 16% 17% 15% 12% 13% 11% 15% 1%

Hong Kong & Macau -26% -22% -33% -6% 1% 7% 12% 0% 11% 21% 25% -1% Company

See the last page for disclaimer Page 3 of 8 [Table_PageHeader]Chow Sang Sang (00116 HK)

Chow Sang Sang (00116 HK)

Mainland China -5% -4% 8% 11% 23% 9%

] 1 r a M t h g i R _ e l b a T [

Hong Kong & Macau -26% -26% -5% -2% 24% 17%

Look Fook (00590 HK)

Mainland China 14% 36% 26% 28% 25% Hong Kong & Macau -32% -2% 10% 9% 28%

Source: the Companies, Guotai Junan International. 1 April1 2019

The Company launched a new brand, "MINTYGREEN", in 2018. MINTYGREEN is still in the early stages of its development, which was set up in 2H18. The brand focuses on affordable daily wear jewellery targeting the younger generation. It occupies smaller space areas than normal CSS shops at around 50-55 sq.m. per store, with most opened in shopping malls. The Company operates 23 shops in mainland China so far and has already reached breakeven.

The management maintains fast store opening pace in mainland China in 2019. In 2018, the Company opened 105 stores with 55 in shopping malls and closed 21 stores in mainland China, operating 506 shops by the end of Dec. 2018. During the period, the Company closed 5 watch shops and 1 CSS shop and opened 1 store in Yuen Long in Hong Kong, and opened a new store L’Arc Hotel. In 2019, the management guided to open another 60 stores, including MINTYGREEN in mainland

China, most of them will be in new shopping malls in the major cities. ] 2 r a M t h g i R _ e l b a T [

Earnings Forecasts and Assumptions Revisions

2019 may be challenging but still yields opportunities for CSS. The management guided mid-single-digit SSSG in 1Q19 but remained cautious on the rest of the year due to the volatile macro environment and uncertain China-US trade dispute. In Hong Kong, we saw that visitor arrivals to Hong Kong achieved fast growth with the opening of the High Speed Rail linking Hong Kong and mainland China, as well as operation of the HK-Zhuhai-Macau Bridge. The proportion of same-day tourists increased and lower-priced products have been more preferred. In mainland China, jewellery consumption growth slowed but still increased. Consumption diversification has become a trend, with high-end products and good value products becoming more popular, which

will benefit new brands launched by the Company. (00116 HK)

Figure-6: Retail Sales of Goods of Enterprises above

Figure-5: Retails Sales Growth in Hong Kong 周生生 Designated Size Growth in Mainland China

40% 25%

30% 20%

20% 15% Chow Sang Sang

10% 10%

0% 5% 2016/01 2017/01 2018/01 2019/01 -10% 0% 2016-02 2017-02 2018-02 2019-02 -20% -5%

-30% -10%

-40% -15%

Total Retail Sales Jewellery, watches and clocks Total retail saless growth Gold, Silver and Jewelry growth

Source: the Company, Guotai Junan International. Source: Immigration Department of Hong Kong.

We have fine-tuned our 2019-2020 earnings forecasts. We roll forward the base year to 2019 and we now expect low- to

mid-single digit SSSG in mainland China and Hong Kong. Therefore, we slightly revise up revenue forecasts by 2.1% and 3.4% to HK$19,636 million and HK$21,256 million in 2019 and 2020, respectively. In recent quarters, the trend that gold sales with

relatively lower gross margin was stronger than gem-set jewellery continued and contributed higher revenue proportion. We are a

Report bit concerned that the product mix changes will lead to a lower retail gross margin but a reduction in wholesales business may

help improve the overall margin. Operating margin improved during 2017 and 2018 benefiting from rental expenses reduction in

Hong Kong and operating leverage. However, we see little room for further rental cuts and largely maintain the forecasts. Overall, Company

See the last page for disclaimer Page 4 of 8 [Table_PageHeader]Chow Sang Sang (00116 HK)

we slightly cut shareholders’ profit to HK$1,071 million in 2019 and HK$1,147 million in 2020, representing YoY growth of 5.9%

and 7.1%, respectively. ] 1 r a M t h g i R _ e l b a T [

Table-3: Key Figure Revisions for Chow Sang Sang

New Old Change HK$ million

2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F 1 April1 2019 Revenue 19,636 21,256 22,676 19,226 20,557 n.a. 2.1% 3.4% n.a.

-Retail 17,910 19,479 20,846 17,009 18,288 n.a. 5.3% 6.5% n.a.

-Non-Retail 1,726 1,777 1,830 2,217 2,270 n.a. -22.2% -21.7% n.a.

Gross Profit 4,818 5,205 5,559 4,700 5,027 n.a. 2.5% 3.5% n.a.

SG&A (3,515) (3,805) (4,014) -3,480 -3,721 n.a. 1.0% 2.3% n.a.

Operating profit 1,418 1,517 1,664 1,405 1,495 n.a. 1.0% 1.5% n.a.

Profit before tax 1,391 1,490 1,637 1,384 1,474 n.a. 0.5% 1.1% n.a.

Taxation (320) (343) (376) -318 -339 n.a. 0.6% 1.1% n.a.

Minority 0 0 0 0 0 n.a. - - n.a.

] 2 r a M t h g i R _ e l b a T [

Net Profit 1,071 1,147 1,260 1,066 1,135 n.a. 0.5% 1.1% n.a.

EPS (HK$) 1.583 1.695 1.862 1.574 1.676 n.a. 0.6% 1.1% n.a.

Gross margin 24.5% 24.5% 24.5% 24.4% 24.5% n.a. 0.1 ppts 0 ppts n.a.

SG&A ratio 17.9% 17.9% 17.7% 18.1% 18.1% n.a. -0.2 ppts -0.2 ppts n.a.

Operating margin 7.2% 7.1% 7.3% 7.3% 7.3% n.a. -0.1 ppts -0.2 ppts n.a.

Net margin 5.5% 5.4% 5.6% 5.5% 5.5% n.a. 0.0 ppt -0.1 ppts n.a.

Source: Guotai Junan International.

(00116 HK) Maintain investment rating as "Accumulate" with TP of HK$15.20. The Company was trading at a historical low boundary

due to the market’s pessimistic view on jewellery sales outlook. However, we remain cautiously positive on the Company based 周生生 on its expansion strategy and brand reputation. We maintain our TP of HK$15.20, representing 9.6x 2019 PER and 9.0x 2020 PER. Downside risks include slower-than-expected SSSG and narrowing profit margin.

Figure-7: Historical Forward PE Band of the Company Figure-8: Historical Forward PB Band of the Company Chow Sang Sang Closing price (HK$) 7x 9x 11x 13x 15x Closing price (HK$) 0.7x 0.9x 1.1x 1.3x 1.5x 30 30

25 25

20 20

15 15

10 10

5 5

0 0

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

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Company

See the last page for disclaimer Page 5 of 8 [Table_PageHeader]Chow Sang Sang (00116 HK)

Table-4: Peers Comparison Market PE (fiscal year) ] 1 r a PB (fiscalM t year) h g i R _ e l b a T [ Company ROE(%) D/Y(%) Cap Stock Code Currency Last price 18A 19F 20F 21F 18A 19F 20F 21F 19F 19F HKD mil HK Listed

Chow Tai Fook Jewellery 1929 HK HKD 7.940 17.8 16.6 15.2 16.9 2.4 2.3 2.2 2.2 14.1 4.5 79,400

Luk Fook Holdings 590 HK HKD 26.450 10.5 10.2 9.6 n.a. 1.4 1.3 1.2 n.a. 13.6 4.3 15,529

Chow Sang Sang 116 HK HKD 12.200 8.2 7.4 6.8 6.4 0.8 0.7 0.7 0.7 10.2 5.3 8,265

Emperor Watch & Jewellery 887 HK HKD 0.275 7.1 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,864 April1 2019

Hengdeli Holdings 3389 HK HKD 0.385 21.6 n.a. n.a. n.a. 0.4 n.a. n.a. n.a. n.a. n.a. 1,795

Oriental Watch Holdings 398 HK HKD 2.350 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,340

Simple Average 13.0 11.4 10.5 11.6 1.2 1.4 1.4 1.4 12.6 4.7

Weighted Average 15.9 14.9 13.7 15.9 2.1 2.0 1.9 2.1 13.7 4.5

PRC Listed

Lao Feng Xiang 600612 CH CNY 44.400 18.7 16.6 14.7 n.a. 3.7 3.3 2.9 n.a. 20.0 3.1 22,122

Tesiro Jewelry 603900 CH CNY 15.100 17.3 15.1 12.4 n.a. 2.1 1.8 1.7 n.a. 10.5 0.5 6,013

Zhejiang Ming Jewelry 002574 CH CNY 6.020 0.3 0.3 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3,717

Fiyta Holding 200026 CH HKD 5.270 10.6 8.6 7.4 7.1 0.8 0.7 0.7 0.7 7.7 n.a. 4,212

Simple Average 11.7 10.2 11.5 7.1 2.2 1.9 1.7 0.7 12.7 1.8 Weighted Average 15.6 13.7 13.3 7.1 3.0 2.7 2.4 0.7 16.6 2.6

] 2 r a M t h g i R _ e l b a T [

Global Listed

Cie Financiere Richemont CFR VX CHF 72.540 29.5 19.8 19.7 17.8 2.4 2.3 2.2 2.1 13.3 2.9 328,380

Swatch Group UHR VX CHF 285.000 17.7 15.8 14.5 13.3 1.3 1.3 1.2 1.2 7.9 3.0 123,179

Tiffany & Co TIF US USD 105.550 35.5 22.1 21.4 19.6 4.1 4.1 3.7 3.5 18.5 2.4 100,632

Simple Average 27.6 19.3 18.5 16.9 2.6 2.6 2.4 2.2 13.2 2.8 Weighted Average 28.0 19.4 18.9 17.1 2.5 2.4 2.3 2.1 13.0 2.8

Source: Bloomberg, Guotai Junan International.

(00116 HK)

周生生 Chow Sang Sang

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Company

See the last page for disclaimer Page 6 of 8 [Table_PageHeader]Chow Sang Sang (00116 HK)

Financial Statements and Ratios

[Table_IncomeStatement] Income Statement [Table_BalanceSheet]] 1 r a M t Balanceh Sheetg i R _ e l b a T [

Year end 31 Dec (HK$ m) 2017A 2018A 2019F 2020F 2021F Year end 31 Dec (HK$ m) 2017A 2018A 2019F 2020F 2021F

Total Revenue 16,633 18,806 19,636 21,256 22,676 Property, plant and equipment 762 854 894 924 947

Cost of sales (12,643) (14,175) (14,818) (16,051) (17,117) Investment properties 322 331 348 365 384

Gross profit 3,991 4,631 4,818 5,205 5,559 Available-for-sale investments 874 844 870 896 923

Deferred tax assets 22 27 28 28 29 April1 2019

Selling and distribution costs (2,570) (2,775) (2,886) (3,125) (3,311) Others 255 219 224 228 233

Administrative expenses (544) (614) (628) (680) (703) Total Non-current Assets 2,236 2,276 2,363 2,442 2,515

Other income 174 110 113 115 117 Share of profits of associates 5 0 3 3 2 Cash & Cash Equivalents 1,200 1,303 1,765 1,431 1,988 Operating Profit 1,055 1,353 1,418 1,517 1,664 Inventories 7,490 7,451 7,976 8,735 9,086

Accounts receivable 1,227 1,328 1,333 1,526 1,512

Other gains, net 113 (20) 0 0 0 Receivables of broking 985 1,018 1,120 1,232 1,355

Finance cost (31) (37) (27) (27) (27) Cash held on behalf of clients 516 443 456 469 484

Profit Before Tax 1,137 1,323 1,391 1,490 1,637 Others 17 19 21 23 25

Income Tax (261) (310) (320) (343) (376) Total Current Assets 11,434 11,562 12,671 13,417 14,451

profit After Tax 876 1,012 1,071 1,147 1,260

Non-controlling Interest 0 0 0 0 0 Total Assets 13,670 13,838 15,034 15,859 16,966

] 2 r a M t h g i R _ e l b a T [ Shareholders' Profit / Loss 876 1,012 1,071 1,147 1,260

1.295 1.494 1.583 1.695 1.862 Basic EPS Accounts payable 696 603 822 766 941 Payables for broking 464 492 516 542 569

[Table_CashFlowStatement] Cash Flow Statement Short-term borrowings 489 508 508 508 508

Bullion loans 1,070 970 1,254 1,364 1,459

Year end 31 Dec (HK$ m) 2017A 2018A 2019F 2020F 2021F Tax payable 94 126 131 142 152

PBT 1,137 1,323 1,391 1,490 1,637 Others 64 212 204 208 212

Income tax (261) (310) (320) (343) (376) Total Current Liabilities 2,877 2,911 3,435 3,530 3,841

Adjust for depre.&amort. 173 187 210 220 227

Change in WC (1,238) (77) (414) (1,108) (273) Interest-bearing bank borrowings 454 258 265 273 282

Others 169 90 110 112 115 Deferred tax liabilities 215 250 261 283 302

Cash from Operating Activities (19) 1,213 977 371 1,330 Total Non-current Liabilities 668 508 527 556 583 (00116 HK)

Capital expenditure (370) (279) (250) (250) (250) Total Liabilities 3,545 3,419 3,962 4,086 4,424

Others 222 (208) (177) (172) (224) Total Shareholders' Equity 10,125 10,419 11,072 11,772 12,541 周生生

Cash from Investing Activities (148) (486) (427) (422) (474) Minority Interest 0 0 0 0 0

Total Equity 10,125 10,419 11,072 11,772 12,541

Net bank borrowings 86 (176) 8 8 8 [Table_FinancialRatio] Net bullion borrowing 313 (100) 284 110 96 Financial Ratios

Dividend paid (285) (311) (352) (374) (374) 2017A 2018A 2019F 2020F 2021F Chow Sang Sang Others (31) (37) (27) (27) (27) Gross margin 24.0% 24.6% 24.5% 24.5% 24.5% Cash from Financing Activities 84 (624) (87) (284) (298) Net margin 5.3% 5.4% 5.5% 5.4% 5.6%

ROE 9.1% 9.9% 10.0% 10.0% 10.4%

Net Changes in Cash (83) 103 463 (335) 557 ROA 6.8% 7.4% 7.4% 7.4% 7.7%

Cash at Beg of Year 1,283 1,200 1,303 1,765 1,431 Net gearing 8.0% 4.2% 2.4% 6.1% 2.1%

Foreign exchange effect 0 0 0 0 0

Cash at End of Year 1,200 1,303 1,765 1,431 1,988

Source: the Company, Guotai Junan International.

Report

Company

See the last page for disclaimer Page 7 of 8 [Table_PageHeader]Chow Sang Sang (00116 HK)

Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition

Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%;

or the fundamental outlook of the company or sector is favorable. 1 April1 2019 Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ] (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report.

(2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BANK OF GANSU (02139 HK),BINHAI INVESTMENT (02886 HK),VALUE A SHARE (03095 HK),CAM SCSMALLCAP (03157 HK),HAITIANTIAN (08227 HK),CSOP MSCI-R (CNY) (83149 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in

this Research Report. (00116 HK) (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research 周生生 Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

Chow Sang Sang DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in

any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject

Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

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Website: www.gtja.com.hk

Company

See the last page for disclaimer Page 8 of 8