Bossini (592 HK) Buy (Maintained) Consumer Cyclical - Apparel Target Price: HKD1.01 Market Cap: Usd158m Price: HKD0.75

Results Review, 26 February 2015

Bossini (592 HK) Buy (Maintained) Consumer Cyclical - Apparel Target Price: HKD1.01 Market Cap: USD158m Price: HKD0.75

Macro   Risks   2 Discipline Pays Dividends Growth  . 2 0 Value  .

. 03 0 1HFY15 results (NP +17.9% YoY) are on track to meet our original full . Bossini (592 HK) 0 Price Close Relative to Hang Seng Index (RHS) year estimate. Reiterate BUY, keeping estimates and TP (34% upside) 0 0.90 118 unchanged. Despite Occupy Central affecting the key Hong Kong 0

0.85 113 market, both group revenue and same-store sales recorded 4% growth. We expect 2H NP to grow 15% YoY. We forecast an attractive FY15 0.80 108 dividend yield of 8.5%, assuming 70% ordinary dividend payout. 0.75 103  Results on track. 1HFY15 (Jun) net profit growth grew 17%, in line with 0.70 98 our full-year forecast. While 1HFY15 sales revenue slightly decelerated to 3.7% mainly due to slower sales in the Hong Kong market, stronger 0.65 93 mainland Chinese sales (thanks to three net openings of self-operated 0.60 88 stores, vs. our initial expectation of five net closures), 2HFY15 sales

0.55 83 contribution from the Macau flagship store, and stronger export sales into UAE and India should compensate to meet our original estimates 0.50 78 90 80 70  Regional breakeven on track. Mainland China, Taiwan and Singapore 60 regions are all trimming losses on the EBIT level, and management 50 40 conveys that all regions are profitable on the store-level. 30 20

10  Earnings unchanged; dividends raised. We raise sales and SG&A Volm

forecasts slightly to reflect the above reasons, and adjust tax rate lower

14 14

- -

Apr Oct Jun

Feb to reflect earnings contribution primarily from the Hong Kong market. We

Aug Dec also raise our projected FY15-17 dividend payout to 70% (from 50%). Source: Bloomberg The payout represents the ordinary dividends paid in FY14, which we think is sustainable given its disciplined expansion plans. For prudence Avg Turnover (HKD/USD) 1.14m/0.15m sake, we have not assumed a special dividend in 2HFY15 (2HFY14: 1.6 Cons. Upside (%) 60.0 HK cents) Upside (%) 34.4 52-wk Price low/high (HKD) 0.59 - 0.85  Reiterate BUY with unchanged TP of HKD1.01. Bossini is our key Free float (%) 33 BUY call in the HK consumer space. We arrive at the same target price of HKD1.01 by applying 10x forward P/E multiple, based on a 10% Share outstanding (m) 1,629 premium to sector peer’s FY15 P/E on the calendarized blend of FY15 Shareholders (%) and FY16 EPS of HKD0.10. We view that Bossini deserves to trade at a Tsin Man Kuen, Bess 67.2 premium to peers because of its superior dividend yield of 8.5%, above its HK-listed apparel sector’s c.7%. Given its discipline in store expansion, we believe its profitability and yield are likely to be maintained. Share Performance (%) Forecasts and Valuations Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F YTD 1m 3m 6m 12m Total turnover (HKDm) 2,517 2,548 2,694 3,001 3,308 Absolute 19.0 15.4 5.6 8.7 4.2 Reported net profit (HKDm) 22 127 148 185 214 Relative 14.1 15.8 1.8 10.4 (6.7) Recurring net profit (HKDm) 22 127 148 185 214 Recurring net profit growth (%) 38.8 472.3 16.4 25.3 15.5 Shariah compliant Recurring EPS (HKD) 0.01 0.08 0.09 0.11 0.13 DPS (HKD) 0.03 0.07 0.06 0.08 0.09 Robin Yuen, CFA +852 2103 9202 Recurring P/E (x) 54.7 9.6 8.2 6.6 5.7 [email protected] P/B (x) 1.67 1.52 1.44 1.35 1.26 P/CF (x) 8.60 5.44 7.25 5.86 4.92 Dividend Yield (%) 3.8 9.4 8.5 10.7 12.3 EV/EBITDA (x) 6.99 3.32 3.50 2.71 2.25 Return on average equity (%) 3.1 16.6 17.9 21.2 22.9 Net debt to equity (%) net cash net cash net cash net cash net cash Our vs consensus EPS (adjusted) (%) (4.9) (0.5) 1.6

Source: Company data, RHB

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Bossini (592 HK) 26 February 2015

Resilient Outperformer Revenue growth & GP margin. Management notes that same-store sales growth primarily came from volume growth, rather than effective ASP increase. While we believe some of their new products may have led to a product mix upgrade, they explain that the prevalence of discounting from peers (e.g. Uniqlo, Giordano) has pressured Bossini to follow suit. We note that Bossini’s recent partnership with Disney and Snoopy to produce co- branded and licensed products would have helped with product differentiation and therefore mitigate the level of discounting. The increase in 1H15 GP margin of about 1% comes from a combination of: i) cheaper garment procurement prices (from cheaper cotton) and ii) selling more in- season merchandise in mainland China than discounted out-of season merchandise. Expansion strategy. Management explains future store growth will be slow and steady, aiming to open new stores after reviewing them on a case-by-case basis for individual store profitability. They stress the importance of avoiding opening stores just for market share and to meet analyst expectations (thus they didn’t give guidance on net store openings). We applaud their philosophy as we also believe discipline is instrumental for sustainable profitability for any retailer, and is especially relevant for a stable dividend stock like Bossini. Update on China. For their mainland China business, future self-operated stores will be opened in southern China as they have regional expertise there, while penetration into northern China will rely on franchise partners. Currently, Bossini boasts that over 90% of their China stores are profitable on the store-level; thus guiding EBIT breakeven in the China segment by FY16. Jan-Feb 2015 sales environment. When asked about reports on the reduction in mainland tourist arrivals in Hong Kong, management comments that YTD sales have met expectations. From our past conversations with management, we believe that number would likely mean +c.10% YoY growth, and if such as the case, and Apr-Jun sales figures are comparable, we are more than confident that Bossini can meet our FY15 estimates. Inventory turnover. We note 1HFY15 inventory levels slightly improved to 92 days from 1HFY14’s 99 days.

Tweaking forecasts  Sales revenue. We increase our FY15-17 forecasts slightly by 1/4/4% to incorporate: i) stronger China sales; ii) the two Macau flagships to come online in 4Q15; iii) faster export sales growth with distributors in six different countries to accelerate opening of Bossini shops, including India and the Middle East.  SG&A. We increase SG&A as % of sales slightly to: i) reflect the initial ramp-up required for the flagship Macau store; ii) be less aggressive on our cost savings from economies of scale.  Tax rate. We re-adjust the rate to 18% (from 25%) as: i) most of Bossini’s profit comes from Hong Kong and export markets; China, Taiwan, and Singapore are merely breakeven in terms of individual store profitability.  Net profit for FY15-17, from the combined factors above, therefore remain unchanged (Figure 5).

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Bossini (592 HK) 26 February 2015

Figure 1: Bossini’s semiannual P&L (HKDm) 1H13 2H13 1H14 2H14 1H15 2H15E Revenue 1,334 1,183 1,273 1,275 1,319 1,374 COGS (698) (620) (645) (602) (655) (651) Gross Profit 636 563 628 673 665 723

Other income 8.2 7.7 7.8 9.8 9.3 9.6 Other operating exp. (26) (24) (28) (32) (14) (49) SG&A (570) (553) (519) (591) (560) (608) Selling & distribution (440) (410) (389) (454) (429) (460) Admin expenses (130) (143) (130) (137) (131) (148) EBIT 49 (6) 88 61 100 76

Finance costs (net) 1 2 2 4 5 0 PBT 50 (4) 90 65 104 76 Taxation (16.3) (7.5) (15.8) (12.1) (16.9) (15.6) Net Profit 34.1 (11.9) 74.5 52.6 87.5 60.5 Net Profit (Recurring) 34.1 (11.9) 74.5 52.6 87.5 60.5 EPS-basic (HKD) $0.021 -$0.007 $0.046 $0.032 $0.054 $0.038 EPS-diluted (HKD) $0.021 -$0.007 $0.046 $0.032 $0.054 $0.038

% Change y/y Sales Revenue -7.8% -8.8% -4.6% 7.8% 3.7% 7.8% Gross Profit -11.0% -2.8% -1.3% 19.5% 5.9% 7.4% Operating Profit -38% -78% 80% -1063% 13% 25% SG&A -6.1% -7.8% -8.9% 6.8% 7.9% 2.8% Selling & Distribution -7.2% -12.8% -11.6% 10.7% 10.2% 1.3% Admin -2.1% 10.5% 0.3% -4.4% 1.1% 7.8% Net Profit (Recurring) -42% -72% 119% -542% 17.4% 15.1% As % of Sales GP Margin 47.7% 47.6% 49.3% 52.8% 50.4% 52.6% SG&A 42.7% 46.8% 40.8% 46.3% 42.4% 44.2% Selling & Distribution costs 33.0% 34.7% 30.6% 35.6% 32.5% 33.5% Admin costs 9.7% 12.1% 10.2% 10.7% 10.0% 10.7% EBIT Margin 3.7% -0.5% 6.9% 4.7% 7.6% 5.5% NP Margin 2.6% -1.0% 5.9% 4.1% 6.6% 4.4% Effective tax rate 32.4% -172% 17.4% 18.8% 16.2% 20.5% Dividend payout 79.9% -164% 50.0% 146% 50.3% 0% Seasonality (as % of full year) Sales 53.0% 47.0% 49.9% 50.1% 49.0% 51.0% EBIT 114.7% -14.7% 59.4% 40.6% 56.8% 43.2% 153.5% -53.5% 58.6% 41.4% 59.1% 40.9% NP Source: RHB

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Bossini (592 HK) 26 February 2015

Figure 2: Bossini’s sales revenue breakdown Years to 30June (HKD m) 1H13 2H13 2013 1H14 2H14 2014 1H15

Total Revenue 1,334 1,183 2,517 1,273 1,275 2,548 1,319 Hong Kong & Macau 602 543 1,146 634 614 1,247 657 Export 240 240 480 255 255 510 264 Mainland China 223 166 389 154 194 348 175 Taiwan 134 113 246 109 104 212 104 Singapore 135 121 256 122 109 231 119

y/y% change Hong Kong & Macau 5% 5% 13% 9% 4% Export -4% 6% 6% 6% 3% Mainland China -32% -39% -35% -31% 17% -11% 14% Taiwan -15% -19% -17% -19% -8% -14% -4% Singapore -4% 6% 0% -10% -10% -10% -2%

As %proportion Hong Kong & Macau 45% 46% 46% 50% 48% 49% 50% Export 18% 20% 19% 20% 20% 20% 20% Mainland China 17% 14% 15% 12% 15% 14% 13% Taiwan 10% 10% 10% 9% 8% 8% 8% Singapore 10% 10% 10% 10% 9% 9% 9% Source: RHB

Figure 3: EBIT - by geography (HKDm) 1H13 2H13 2013 1H14 2H14 2014 1H15 Group EBIT 49 (6) 43 88 61 149 100 Hong Kong, Macau & Export 120 90 210 106 93 199 110 Mainland China (52) (65) (117) (5) (12) (17) (1) Taiwan (20) (30) (50) (9) (5) (14) (7) Singapore 1 (1) 0 (3) (15) (19) (2) Source: RHB

Figure 4: SSSG % - by geography 1H13 2H13 2013 1H14 2H14 2014 1H15 Hong Kong/Macau Retail 5.0% 3.0% 11.0% 14.0% 12.0% 5.0% China - Self-operated Retail -5.0% -4.0% 12.0% 13.0% 12.0% 2.0% Taiwan - Retail -19.0% -17.0% -6.0% 8.0% 0.0% 8.0% Singapore - Retail 5.0% 5.0% -3.0% -7.0% -5.0% 0.0% Total 0.0% 0.0% 7.0% 11.0% 9.0% 4.0% Source: RHB

Figure 5: Store count by geography Store Count 1H13 2H13 FY13 1H14 2H14 FY14 1H15 Hong Kong/ Macau 41 41 41 41 41 China (self-operating) 231 144 127 124 127 China (franchise) 198 156 126 96 87 Taiwan 96 85 78 72 70 Singapore 29 30 32 30 30 Other regions (franchise & export) 543 561 591 599 594 Total 1,138 1,017 995 962 949 Source: RHB

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Bossini (592 HK) 26 February 2015

Figure 6: Bossini’s P&L estimates - changes New Estimates Old Estimates Difference FY June-end 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E

Revenue 2,694 3,001 3,308 2,662 2,881 3,175 1.2% 4.2% 4.2% COGS (1,306) (1,455) (1,604) (1,291) (1,397) (1,540) Gross Profit 1,388 1,546 1,704 1,372 1,484 1,636 1.2% 4.2% 4.2%

Other income 19 20 22 19 20 22 Other operating exp. (63) (71) (78) (63) (68) (75) SG&A (1,168) (1,275) (1,393) (1,135) (1,195) (1,304) 2.9% 6.7% 6.8% Selling & distribution (889) (978) (1,075) (868) (920) (1,013) Admin expenses (279) (297) (318) (267) (275) (291) EBIT 176 220 256 193 241 279 -8.9% -8.8% -8.5%

Finance costs (net) 5 6 5 5 6 5 Finance income 5 6 5 5 6 5 Finance costs 0 0 0 0 0 0 PBT 180 226 261 198 247 285 -8.7% -8.5% -8.3% Taxation (32) (41) (47) (49) (62) (71) Minority interest 0 0 0 0 0 0

Net Profit 148.0 185.4 214.1 148.2 185.4 213.6 Net Profit (Recurring) 148.0 185.4 214.1 148.2 185.4 213.6 -0.2% 0.0% 0.2% EPS-basic (HKD) $0.091 $0.114 $0.132 $0.091 $0.114 $0.132 -0.2% 0.0% 0.2% Source: RHB

Figure 7: Post-5-year forward P/E band

5.00

4.00 +2SD @41.4x

3.00 +1SD @28.4x 2.00 Mean @15.5x 1.00

0.00 -1SD @2.6x

Share Price Share (HKD)

11 12 15 10 13 14

11 12 10 13 14

10 11 12 13 13 14 10 11 12 14

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- - - - -

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-1.00 -2SD @-10.3x

Feb Feb Feb Feb Feb Feb

Nov Nov Nov Nov Nov

Aug Aug Aug Aug Aug

May May May May May

-2.00

Source: Bloomberg, RHB estimates

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Bossini (592 HK) 26 February 2015

Figure 8: Valuation Table 1: Consumer Apparel Company Ticker Price Mkt cap 3-mth PER PER PER EPS FY1 EPS FY2 3-Yr EPS PEG Div yld P/B (USDm) avg t/o Hist FY1 FY2 YoY% YoY% Cagr (%) (x) Hist (%) Hist (USDm) (x) (x) (x) (x)

HSI 24,750 10.6 11.6 10.4 (8.3) 11.4 5.7 1.8 3.6 1.4 CSI300 3,522 15.5 12.8 11.1 21.1 15.6 N/A 1.6 2.3 Sector avg 41.6 33.9 29.1 29.2 14.0 18.5 2.1 2.1 7.8 HK listed Apparel Bossini Intl 592 HK 0.77 162 0.1 8.7 7.4 5.9 16.8 25.1 18.9 0.3 9.1 1.6 Giordano Intl 709 HK 4.10 830 0.7 9.6 16.0 14.7 (39.7) 8.6 (10.2) (1.4) 8.4 2.2 I.T Ltd 999 HK 2.24 355 0.2 10.1 8.5 6.6 20.0 27.9 24.3 0.3 4.9 1.0 China Lilang Ltd 1234 HK 5.43 843 0.5 12.0 11.5 10.0 4.1 14.9 10.7 0.9 7.0 2.1 Trinity Ltd 891 HK 1.50 338 0.6 9.1 17.2 12.1 (47.3) 42.4 (0.9) (13.8) 7.3 0.8 Cabbeen Fashion 2030 HK 3.16 290 0.4 7.7 7.1 6.2 8.7 13.9 N/A N/A 7.1 2.5 Hosa Intl Ltd 2200 HK 3.55 758 0.6 12.4 11.5 10.2 8.7 12.0 6.8 1.5 3.4 3.1 Bauhaus Intl Hld 483 HK 2.88 136 0.1 8.3 N/A N/A N/A N/A N/A N/A 5.4 1.6 Bosideng Intl 3998 HK 0.87 898 0.7 8.0 9.9 8.4 (18.7) 18.3 0.3 31.3 3.7 0.8 China Outfitters 1146 HK 0.82 364 0.0 5.9 7.5 6.0 (21.0) 25.0 N/A N/A 0.0 1.2 Average 9.2 10.7 8.9 (7.6) 20.9 7.1 2.7 6.3 1.7 A-Share Apparel Fujian Septwol-A 002029 CH 10.93 1,320 30.7 21.9 29.3 26.3 (25.4) 11.5 (3.7) (7.0) 0.9 1.7 Joeone Co Ltd-A 601566 CH 14.40 1,322 11.7 15.5 19.1 17.1 (18.9) 11.4 (0.2) (79.5) 4.9 1.8 Average 18.7 24.2 21.7 (22.2) 11.5 (2.0) (43.3) 2.9 1.8 International Apparel Fast Retailing 9983 JT 45,300 40,204 226.1 61.9 38.8 36.1 59.5 7.4 24.6 1.5 0.7 6.1 Hennes & Mauri-B HMB SS 364.80 71,896 99.8 30.2 27.0 24.2 11.8 11.4 11.3 2.1 2.6 11.7 Inditex ITX SM 28.11 99,182 138.7 36.8 35.1 30.8 4.9 14.1 10.3 3.0 1.7 9.2 Gap Inc/The GPS US 40.30 17,070 154.8 14.5 14.4 13.3 0.6 8.3 6.5 2.0 2.2 6.0 Abercrombie & Fi ANF US 25.69 1,781 68.1 36.2 16.3 14.6 121.4 11.8 43.4 0.3 3.1 1.3 Under Armour-A UA US 75.87 16,230 157.5 77.4 69.0 53.0 12.1 30.3 24.4 2.2 N/A 12.0 Lululemon Ath LULU US 66.08 9,383 164.4 34.2 36.3 31.8 (5.8) 14.3 8.7 3.7 N/A 8.1 Average 41.6 33.9 29.1 29.2 14.0 18.5 2.1 2.1 7.8 Source: Bloomberg, RHB estimates Figure 9: Valuation Table 2: Consumer Apparel Company Ticker Rev Rev NP Hist NP FY1 Net Net Beta Gross Net Net ROE ROE Sh px Sh px Hist FY1 (USDm) (USDm) gearing gearing margin margin margin Hist (%) FY1 (%) 1-mth 3-mth (USDm) (USDm) Hist (%) FY1 (%) Hist (%) Hist (%) FY1 (%) % %

HSI 13.1 11.1 (0.4) 3.6 CSI300 14.5 14.7 (3.1) 38.6 Sector avg 0.0 1.9 0.9 52.9 9.5 9.3 24.4 24.8 2.7 11.2 HK listed Apparel BOSSINI INTL 592 HK 327 341 16 19 (56.6) (54.2) 0.1 51.1 5.0 5.6 20.2 23.5 18.5 10.0 GIORDANO INTL 709 HK 754 719 85 52 0.0 0.0 0.7 60.7 11.3 7.2 17.0 13.4 11.1 9.9 I.T LTD 999 HK 865 954 36 43 (11.6) (19.1) 0.2 59.9 4.2 4.5 10.5 14.7 6.2 (1.8) CHINA LILANG LTD 1234 HK 371 382 83 87 (65.4) (59.8) 0.3 42.6 (17.7) 4.1 21.1 19.9 8.4 (4.9) TRINITY LTD 891 HK 346 339 37 19 2.2 3.1 0.7 75.5 11.4 6.4 7.4 4.2 (3.8) (10.2) CABBEEN FASHION 2030 HK 176 200 38 41 0.0 N/A N.A 42.1 21.4 20.6 35.7 32.4 (4.2) 3.3 HOSA INTL LTD 2200 HK 163 191 59 65 0.0 N/A 0.2 57.8 36.3 34.1 31.4 25.4 12.0 10.2 BAUHAUS INTL HLD 483 HK 184 N/A 16 N/A 0.0 N/A 0.6 63.7 8.8 N/A 20.9 N/A 2.9 (0.7) BOSIDENG INTL 3998 HK 1,317 1,227 111 92 0.0 N/A 0.2 50.0 8.4 7.5 8.7 6.4 (14.7) (31.5) CHINA OUTFITTERS 1146 HK 199 N/A 61 N/A 0.0 N/A (0.0) 74.3 30.8 N/A 15.1 15.1 (10.9) (15.5) Average 470 544 54 52 (13.1) (26.0) 0.3 57.8 12.0 11.3 18.8 17.2 2.5 (3.1) A-Share Apparel FUJIAN SEPTWOL-A 002029 CH 439 382 61 47 0.0 0.0 1.4 46.5 13.8 12.3 5.0 6.6 15.9 4.0 JOEONE CO LTD-A 601566 CH 395 362 86 75 0.0 0.0 0.8 56.3 21.7 20.7 12.1 9.7 4.0 10.6 Average 417 372 73 61 0.0 0.0 1.1 51.4 17.8 16.5 8.5 8.1 10.0 7.3 International Apparel FAST RETAILING 9983 JT 11,571 13,689 624 1,020 0.0 0.0 1.2 48.6 5.4 7.5 15.3 18.2 6.2 5.1 HENNES & MAURI-B HMB SS 18,036 21,059 2,379 2,673 0.0 0.0 0.7 58.8 13.2 12.7 41.3 40.9 7.3 16.6 INDITEX ITX SM 14,770 15,889 2,099 2,204 0.0 0.0 0.8 59.3 14.2 13.9 26.4 25.3 5.7 20.4 GAP INC/THE GPS US 16,148 16,442 1,280 1,226 0.0 13.5 1.1 39.0 7.9 7.5 43.0 41.5 (4.5) 0.2 ABERCROMBIE & FI ANF US 4,117 3,802 55 114 0.0 0.0 1.3 62.6 1.3 3.0 4.8 8.1 (4.4) (12.9) UNDER ARMOUR-A UA US 3,084 3,806 208 241 0.0 0.0 0.6 49.0 6.7 6.3 17.3 17.6 8.7 8.4 LULULEMON ATH LULU US 1,591 1,793 280 261 0.0 0.0 0.8 52.8 17.6 14.5 22.4 22.1 (0.2) 40.8 Average 9,902 10,926 989 1,106 0.0 1.9 0.9 52.9 9.5 9.3 24.4 24.8 2.7 11.2 Source: Bloomberg, RHB estimates

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Bossini (592 HK) 26 February 2015

Financial Exhibits

Profit & Loss (HKDm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total turnover 2,517 2,548 2,694 3,001 3,308 Cost of sales (1,318) (1,247) (1,306) (1,455) (1,604) Gross profit 1,199 1,301 1,388 1,546 1,704 Gen & admin expenses (273) (267) (279) (297) (318) Selling expenses (850) (843) (889) (978) (1,075) Other operating costs (34) (42) (44) (50) (56) Operating profit 43 149 176 220 256 Operating EBITDA 118 217 209 270 316 Depreciation of fixed assets (71) (64) (34) (50) (60) Amortisation of intangible assets (5) (5) - - - Operating EBIT 43 149 176 220 256 Interest income 3 6 5 6 5 Interest expense (0) - - - - Pre-tax profit 46 155 180 226 261 Taxation (24) (28) (32) (41) (47) Profit after tax & minorities 22 127 148 185 214 Reported net profit 22 127 148 185 214 Recurring net profit 22 127 148 185 214 Source: Company data, RHB

Cash flow (HKDm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Operating profit 43 149 176 220 256 Depreciation & amortisation 76 68 34 50 60 Change in working capital 44 67 (9) (22) (22) Other operating cash flow 21 (21) - - - Operating cash flow 183 263 200 248 294 Interest paid (0) - - - - Tax paid (42) (39) (32) (41) (47) Cash flow from operations 141 224 168 207 247 Capex (60) (53) (80) (80) (80) Other investing cash flow 20 5 5 6 5 Cash flow from investing activities (39) (48) (75) (74) (75) Dividends paid (27) (57) (104) (130) (150) Increase in debt (25) - - - - Cash flow from financing activities (53) (57) (104) (130) (150) Cash at beginning of period 273 338 452 441 445 Total cash generated 49 119 (11) 3 22 Forex effects 2 (1) - - - Implied cash at end of period 324 456 441 445 467

Source: Company data, RHB

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Bossini (592 HK) 26 February 2015

Financial Exhibits

Balance Sheet (HKDm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total cash and equivalents 339 454 443 447 469 Inventories 305 287 293 327 360 Accounts receivable 108 111 118 132 145 Other current assets 114 89 98 109 121 Total current assets 865 941 953 1,014 1,095 Total investments 29 27 27 27 27 Tangible fixed assets 182 178 224 254 274 Intangible assets 1 1 1 1 1 Total other assets 7 7 7 7 7 Total non-current assets 219 213 260 290 309 Total assets 1,084 1,154 1,213 1,304 1,404 Accounts payable 290 301 315 351 387 Other current liabilities 63 47 47 47 47 Total current liabilities 354 348 362 398 434 Other liabilities 2 4 4 4 4 Total non-current liabilities 2 4 4 4 4 Total liabilities 356 352 366 402 438 Share capital 162 163 163 163 163 Other reserves 567 640 684 740 804 Shareholders' equity 729 802 847 902 966 Total equity 729 802 847 902 966 Total liabilities & equity 1,084 1,154 1,213 1,304 1,404 Source: Company data, RHB

Key Ratios (HKD) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Revenue growth (%) (8.3) 1.2 5.7 11.4 10.2 Operating profit growth (%) (15.1) 248.7 17.9 25.5 16.0 Net profit growth (%) 38.8 472.3 16.4 25.3 15.5 EPS growth (%) 38.8 471.4 16.6 25.3 15.5 Bv per share growth (%) 0.3 10.1 5.5 6.6 7.1 Operating margin (%) 1.7 5.8 6.5 7.3 7.7 Net profit margin (%) 0.9 5.0 5.5 6.2 6.5 Return on average assets (%) 2.0 11.4 12.5 14.7 15.8 Return on average equity (%) 3.1 16.6 17.9 21.2 22.9 Net debt to equity (%) (46.5) (56.6) (52.4) (49.5) (48.5) DPS 0.03 0.07 0.06 0.08 0.09 Recurrent cash flow per share 0.09 0.14 0.10 0.13 0.15

Source: Company data, RHB

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Bossini (592 HK) 26 February 2015

SWOT Analysis

 Leading mass-market apparel retailer  Increasing competition  Competitive advantage on larger style/design from selections and lower ASP than direct competitors i.e. UNIQLO international apparel retailers  Strong growth from children wear.  Continual weakness in HK/China retail consumption  Strong potential to expand children wear business in China  Operations turnaround in China

 Besides HK/Macau and export business, all other operating regions remain loss making  Weaker branding power than some international competitors entering into HK/China

P/E (x) vs EPS growth P/BV (x) vs ROAE

70 500% 1.8 25% 1.6 22% 60 414% 1.4 19% 50 329% 1.2 17% 40 243% 1.0 14%

30 157% 0.8 11% 0.6 8% 20 71% 0.4 6% 10 -14% 0.2 3%

0 -100% 0.0 0%

13 15 17 15 16 17 14 16 13 14

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Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, RHB Source: Company data, RHB

Company Profile Bossini (listed in HKex in 1993) is a leading mass-market apparel retailer in HK/Macau, China, Taiwan and Singapore. Since its first retail outlet in 1987, the group currently has over 900 POS world-wide in over 30 countries through self-operated stores and franchisees under the brand names Bossini and Yb.

See important disclosures at the end of this report 9

Bossini (592 HK) 26 February 2015

Recommendation Chart

Price Close

1.21 Recommendations & Target Price

01 01 na 01

. . 1 1.11 1 1.01 0.91 0.81 0.71 0.61 0.51 0.41 0.31 Buy Neutral Sell Trading Buy Take Profit Not Rated Feb-10 Jun-11 Sep-12 Dec-13

Source: RHB, Bloomberg

Date RecommendationTarget Price Price 2015-02-26 Buy 1.01 0.75 2014-09-18 Buy 1.01 0.85 2014-04-27 Buy 1.01 0.70

Source : RHB, Bloomberg

See important disclosures at the end of this report 10

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

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