Deutsche Bank Markets Research
Asia Industry Date China 15 August 2017 Consumer Pou Sheng & Yue Results Yuen
John Chou Anne Ling Research Analyst Research Analyst 2Q17 review: PS margin stabilization (+852) 2203 6196 (+852 ) 2203 6177 [email protected] [email protected] and YY steady improvements
PS and YY hosted its 2Q17 earnings call; we remain positive Top picks PS (Pou Sheng) management continued to highlight its target to stabilize Pou Sheng (3813.HK),HKD1.51 Buy profitability in 2H17 (after non-recurring adjustments in 1H17). We have Yue Yuen (0551.HK),HKD33.85 Buy
growing confidence in 2H17 margin stabilization thanks to cleaner channel Source: Deutsche Bank inventory, a new franchisee policy by Nike, and the revamp of outlet stores. For YY (Yue Yuen), we believe investors will be encouraged by its commitment to Companies Featured unlocking value. We believe YY may have land assets previously used as production plants in China. We reiterate Buy on both names. Pou Sheng (3813.HK),HKD1.51 Buy 2016A 2017E 2018E Pou Sheng: why are we bullish on 2H17 operating margin? P/E (x) 16.2 10.8 8.2 Clean channel inventory: We believe PS not only cleared obsolete EV/EBITDA (x) 8.8 5.7 4.8 Price/book (x) 1.6 1.0 0.9 inventory on its book (retail stores) but also helped its franchisee clear inventory during 1H17. Optimized inventory conditions, plus controlled Yue Yuen (0551.HK),HKD33.85 Buy procurement from brands, should give PS significant flexibility to optimize 2016A 2017E 2018E its retail discount in 2H17, in our view. P/E (x) 11.4 12.2 11.2 EV/EBITDA (x) 6.5 7.1 7.2 Recruiting franchisee for Nike: We believe Nike has gradually allowed the Price/book (x) 1.3 1.4 1.6
use of franchisees by its key wholesalers in China (PS being one). This Source: Deutsche Bank should boost PS’s wholesale revenue (which carries a higher EBIT margin than retail, in our view).
Revamping outlets: Nike and Adidas will likely allow PS to redecorate its outlets in 2H17. This should not only help increase the turnover of off- season products but also enhance a lucrative earnings stream for PS. Nike and Adidas may even launch products specifically designed for outlets. This should further boost PS’s gross margin, in our view.
Yue Yuen: unlocking value In addition to a solid recovery in production efficiency, management’s commitment to creating shareholder value should encourage long-term investors. We believe YY likely holds land assets (old factories that have shut down production) in China. How YY management is going to unlock the value of its land may drive more share price upside.
For more details of our positive thesis, please refer to the preview report below: Yue Yuen on page 39 and Pou Sheng on page 43.
http://pull.db-gmresearch.com/p/734-0E82/293491433/0900b8c08d480762.pdf
Industry valuation and downside risks (details below) We value the sporting goods sector using DCF, as we expect investors to focus on the sector’s long-term value creation. For our WACC, we follow DB’s view on RFR and ERP while applying a beta of between 0.9 and 1.3 and terminal growth of 1-2%. Downside risks: weaker cyclical recovery, weaker innovation, sports segmentation and e-commerce failing to drive sector growth. See pages 4-5 for more details on valuation & risks.
______Deutsche Bank AG/Hong Kong Distributed on: 14/08/2017 17:12:29 GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. 0bed7b6cf11c 15 August 2017
Consumer Pou Sheng & Yue Yuen
Notes from 2Q17 analyst meeting
Special dividend Special dividend: record day of 19 September and distribution day of 10 October.
Management expects a healthy gearing ratio after the dividend.
The HKD3.5 per share special dividend is determined by targeted financial leverage: YY wishes to lever its balance sheet, benchmarking Hong Kong conglomerates such as Cheung Kong, Sun Hung Kai, etc. Note that YY is still less leveraged than the aforementioned conglomerates after the special dividend. Group capex Its 2017 capex target remains at USD300-400mn (albeit font-loaded in 1H17).
Management has an aspirational target to maintain group capex at below USD300-400mn in the next three years. Pou Sheng: income statement components Stabilizing profitability in 2H17 is one of management’s main targets. It wishes to: (1) Enhance daily and monthly monitoring of inventory at retail stores. (2) Improve store level operations: intentionally slow down network expansion to maintain good workforce quality.
2017 financial guidance: (1) Revenue: up low-teens ppt YoY (maintained) >>> Equally driven by (a) net add of 600-800 stores and (b) SSSg. (2) Operating margin of 5-6% (cut from 6-7%). >>> Note that this operating margin includes non-recurring losses like inventory provision in 1H17.
Inventory provision: (1) 60-70% of the RMB87mn loss was recorded in 1Q17 and the rest in 2Q17. (2) Inventory provision will return to normal from 2H17.
(3) The provision was a result of changing consumer appetite, according to PS: PS’s in-season products were moving fast while it was difficult to move its off-season products. PS has reported this to its branded customers, with new initiatives to be implemented.
PP&E depreciation: It saw additional depreciation in 1H17, especially in 1Q17 due to heavier store closure.
Intangible asset amortization: In 2017, Pou Sheng is starting to write- down two brand names that it holds (not the “YY” brand). This additional amortization will last at least for the full-year 2017, according to management. This is on top of other intangible assets that follow amortization schedules of 5-20 years.
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Disposal of JV (1) Yunan AuLong (雲南奧龍): PS sold its stake in this JV to the JV partner in 1H17. PS feels this JV is not suitable for PS’s next stage retail. (2) There will be NO additional JV disposal in 2H17, according to management.
PCG Bros (1) Management is building its YY Sports Platform using PCG Bros. (2) Management will change this platform from a cost center to a profit center in 2017.
(3) PCG Bros incurred a RMB20mn net loss in 1H17; management forecasts a total net loss of RMB30-35mn in 2017.
Pilot stores (1) YY Sports City store in Shen Yang: This has third-party fitness trainers and a gym. The store is under the YY brand and has been profitable at the store level. (2) Adidas WKS Mega Store (opened in July 2017): Management plans store level breakeven in six months. (3) PS is in talks with other brands to trial new store concepts. It may start to roll these out in 2H17 or 1H18. (4) For PS, it is important to identify store formats with better traffic, conversion rate and profitability. Pou Sheng: balance sheet Accounts payable days fell to 10 days in 1H17 vs. 22 days in 2016. PS management indicated: (1) It wishes to enjoy cash discounts (annualized of 12-18%) on early settlement with branded customers. (2) Rebate payments by branded customers to PS were faster, leading to PS’s faster rebate payment to franchisees, as estimated by DB.
Increase in borrowing and finance costs: PS wishes to improve its financial standing through (1) better working capital management, especially inventory, and (2) improved profitability.
ODM Apparel business consolidation: (1) YY finished consolidating an apparel manufacturing business in April 2017. (2) Excluding the additional business, ODM gross margin would have been 20.8% in 2Q17, up 0.3ppt YoY (vs. reported ODM gross margin up 1.1ppt YoY to 21.6% in 2Q17). (3) Under normal circumstances, operating margin from apparel is higher than that of YY’s ODM business. But the apparel business incurred a one-time M&A expense of less than USD10mn in 2Q17.
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(4) Excluding the apparel business, YY’s ODM opex-to-revenue ratio was flat YoY in 2Q17 (partly dragged by the Indonesian New Year falling in June in 2017). (5) The apparel business used to be a 50:50 JV between YY and its partner. But the partner decided to sell its stake to YY and left the business.
Management guides for continued gross margin expansion YoY in 2017.
Revisions, valuation and risks
Figure 1: Pou Sheng earnings revisions: largely maintained 2017 2018 2019 (CNYmn) New Old diff. New Old diff. New Old diff. Revenue 18,586 18,713 -1% 20,914 21,322 -2% 23,691 24,114 -2% Gross Profit 6,494 6,520 0% 7,295 7,411 -2% 8,243 8,363 -1% Op.Income 1,002 1,011 -1% 1,274 1,261 1% 1,487 1,547 -4% Reported Profit 622 620 0% 819 797 3% 972 999 -3% Reported EPS (HKD) 0.13 0.13 0% 0.18 0.17 3% 0.21 0.22 -3%
Gross Margin (%) 34.9% 34.8% 0.1% 34.9% 34.8% 0.1% 34.8% 34.7% 0.1% Op. Margin (%) 5.4% 5.4% 0.0% 6.1% 5.9% 0.2% 6.3% 6.4% -0.1% Net Margin (%) 3.3% 3.3% 0.0% 3.9% 3.7% 0.2% 4.1% 4.1% 0.0% Source: Deutsche Bank estimates, company data
Figure 2: Yue Yuen earnings revisions: largely maintained 2017 2018 2019 (USDmn) New Old diff. New Old diff. New Old diff. Revenue 8,877 8,875 0% 9,240 9,316 -1% 9,702 9,779 -1% Gross Profit 2,297 2,284 1% 2,429 2,446 -1% 2,593 2,610 -1% Op.Income 660 660 0% 735 734 0% 763 763 0% Recur. Profit 583 583 0% 635 635 0% 654 654 0% Recur. EPS (USD) 0.35 0.35 0% 0.39 0.39 0% 0.40 0.40 0%
Gross Margin (%) 25.9% 25.7% 0.1% 26.3% 26.3% 0.0% 26.7% 26.7% 0.0% Op. Margin (%) 6.0% 6.1% -0.1% 6.5% 6.5% 0.0% 6.4% 6.5% 0.0% Recur. Net Margin (%) 6.6% 6.6% 0.0% 6.9% 6.8% 0.1% 6.7% 6.7% 0.1% Source: Deutsche Bank estimates, company data
Yue Yuen - valuation We use discounted cash flow (DCF) as our primary approach to value YY’s shares. Our DCF methodology reflects our expectation that investors will focus more on YY’s long-term value creation. In our DCF model, we derive a WACC of 7.94% based on a cost of equity of 8.66% (risk-free rate = 3.9%, beta = 0.85, market risk premium = 5.6%) and a cost of debt of 3.87%. We assume a long- term growth rate of 1%, which is in line with Deutsche Bank’s Hong Kong and China consumer discretionary coverage.
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Yue Yuen - downside risks (1) Weaker-than-expected performance at PS, potentially driven by a decline in sportswear demand, heavier competition from DTC (direct to consumer), more severe inventory shortages and so on; these could erode Yue Yuen’s profit and dampen its profit growth. (2) Greater-than-expected order losses could lead to reduced revenue and operating deleverage. (3) More labor strikes could lead to further order loss and reduce Yue Yuen's ODM operating leverage.
Pou Sheng - valuation We use discounted cash flow (DCF) as our primary approach to value PS’s shares. We adopt DCF methodology as we expect investors to focus more on PS’s long-term value creation. In our DCF model, we derive a WACC of 10.18% from a cost of equity of 10.34% (risk-free rate = 3.9%, beta = 1.15, market risk premium = 5.6%) and a cost of debt of 7.2%. We assume a long-term growth rate of 2%, which is in line with Deutsche Bank’s Hong Kong and China consumer discretionary coverage.
Pou Sheng - downside risks Heavier-than-expected retail discounts would erode profitability and dampen revenue growth.
A significant decline in sportswear demand in China would lead to a decline in sales per store for PS and consequent operating deleverage.
Heavier DTC efforts by Nike and Adidas to compete with distributors could lead to a decline in sales per store at PS and consequent operating deleverage.
Less consumer appreciation for PS’s channel brands would lead to worse-than-expected revenue at PS’s channel brand stores and dilute its profitability.
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Model updated:14 August 2017 Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Running the numbers Financial Summary Asia DB EPS (CNY) 0.01 0.08 0.11 0.12 0.16 0.19 Reported EPS (CNY) 0.01 0.07 0.11 0.12 0.16 0.18 Hong Kong DPS (CNY) 0.00 0.00 0.05 0.00 0.06 0.07 BVPS (CNY) 1.0 1.1 1.2 1.3 1.4 1.5 Textiles & Apparel Weighted average shares (m) 5,368 5,326 5,232 5,233 5,233 5,233 Pou Sheng Average market cap (CNYm) 2,351 4,230 9,478 6,926 6,926 6,926 Enterprise value (CNYm) 3,206 4,222 10,332 7,197 7,369 7,556 Reuters: 3813.HK Bloomberg: 3813 HK Valuation Metrics P/E (DB) (x) 31.4 10.2 16.2 10.8 8.2 6.9 Buy P/E (Reported) (x) 84.6 10.7 17.1 10.9 8.3 7.0 Price (14 Aug 17) HKD 1.51 P/BV (x) 0.60 1.40 1.64 1.01 0.95 0.89
Target Price HKD 2.40 FCF Yield (%) 17.5 14.8 nm 7.7 1.4 2.1 Dividend Yield (%) 0.0 0.0 2.6 0.0 4.9 5.8 52 Week range HKD 1.33 - 2.78 EV/Sales (x) 0.3 0.3 0.6 0.4 0.4 0.3 Market Cap (m) HKDm 8,122 EV/EBITDA (x) 8.0 5.2 8.8 5.7 4.8 4.3 EV/EBIT (x) 15.6 7.0 11.2 7.2 5.8 5.1 USDm 1,039 Income Statement (CNYm) Company Profile Sales revenue 12,202 14,466 16,236 18,586 20,914 23,691 Pou Sheng International (Holdings) Limited is one of the Gross profit 3,773 5,029 6,019 6,744 7,563 8,525 largest sportswear retailers in Mainland China under the EBITDA 402 810 1,174 1,252 1,542 1,769 brand of YY Sports. Its brand portfolio of footwear Depreciation 196 211 250 250 268 282 includes Nike, Adidas, Asics, Reebok, PUMA...etc. Amortisation 0 0 0 0 0 0 EBIT 206 599 924 1,002 1,274 1,487 Net interest income(expense) -39 -37 -51 -89 -73 -63 Associates/affiliates 0 0 0 0 0 0 Exceptionals/extraordinaries 0 0 0 0 0 0 Other pre-tax income/(expense) -42 -30 -42 -12 -12 -13 Profit before tax 125 532 832 901 1,188 1,411 Price Performance Income tax expense 86 149 262 280 371 440 Minorities 11 -13 9 -2 -2 -2 2.8 Other post-tax income/(expense) 0 0 0 0 0 0 2.4 Net profit 28 397 561 622 819 972
2.0 DB adjustments (including dilution) 47 22 29 8 9 9 1.6 DB Net profit 75 418 589 631 828 981 1.2 Cash Flow (CNYm) 0.8 Aug 15Nov 15Feb 16May 16Aug 16Nov 16Feb 17May 17 Cash flow from operations 573 915 -11 878 444 484 Net Capex -162 -289 -473 -359 -351 -344 Pou Sheng HANG SENG INDEX (Rebased) Free cash flow 410 626 -484 520 93 140 Equity raised/(bought back) 0 0 0 0 0 0 Margin Trends Dividends paid 0 0 -92 0 -328 -389 Net inc/(dec) in borrowings -438 -794 1,005 -276 200 200 9 Other investing/financing cash flows 36 68 -134 60 60 58 8 Net cash flow 9 -99 295 304 25 9 6 Change in working capital 324 680 -945 -103 -560 -665
5 Balance Sheet (CNYm) 3 Cash and other liquid assets 269 297 483 787 811 821 2 Tangible fixed assets 1,280 1,488 1,700 1,626 1,709 1,771 14 15 16 17E 18E 19E Goodwill/intangible assets 0 0 0 0 0 0 EBITDA Margin EBIT Margin Associates/investments 176 125 69 71 72 74
Other assets 6,459 6,717 7,792 8,292 9,129 10,135 Growth & Profitability Total assets 8,185 8,627 10,044 10,775 11,721 12,801 Interest bearing debt 1,211 369 1,376 1,100 1,300 1,500 20 14 Other liabilities 1,581 2,470 2,534 2,977 3,296 3,675 12 Total liabilities 2,792 2,839 3,910 4,077 4,596 5,175 15 10 Shareholders' equity 5,303 5,742 6,104 6,670 7,099 7,601 8 10 6 Minorities 90 45 30 28 26 24 5 4 Total shareholders' equity 5,392 5,788 6,134 6,698 7,125 7,625 2 Net debt 941 72 893 313 489 679 0 0 14 15 16 17E 18E 19E Key Company Metrics Sales growth (%) 11.6 18.5 12.2 14.5 12.5 13.3 Sales growth (LHS) ROE (RHS) DB EPS growth (%) -57.7 460.6 42.6 7.0 31.3 18.5 Solvency EBITDA Margin (%) 3.3 5.6 7.2 6.7 7.4 7.5 EBIT Margin (%) 1.7 4.1 5.7 5.4 6.1 6.3 20 25 Payout ratio (%) 0.0 0.0 43.6 0.0 40.0 40.0 ROE (%) 0.5 7.2 9.5 9.7 11.9 13.2 15 20 Capex/sales (%) 1.3 2.1 3.1 1.9 1.7 1.5 15 10 Capex/depreciation (x) 0.8 1.4 2.0 1.4 1.3 1.2 10 Net debt/equity (%) 17.5 1.2 14.6 4.7 6.9 8.9 5 5 Net interest cover (x) 5.2 16.4 18.3 11.2 17.4 23.6
0 0 Source: Company data, Deutsche Bank estimates 14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
John Chou +852 2203 6196 [email protected]
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15 August 2017 Consumer Pou Sheng & Yue Yuen
Model updated:14 August 2017 Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Running the numbers Financial Summary Asia DB EPS (USD) 0.19 0.23 0.33 0.35 0.39 0.40 Reported EPS (USD) 0.19 0.23 0.32 0.35 0.39 0.40 Hong Kong DPS (USD) 0.15 0.15 0.18 0.63 0.22 0.22 BVPS (USD) 2.7 2.7 2.9 3.0 2.7 2.9 Textiles & Apparel Weighted average shares (m) 1,649 1,647 1,646 1,646 1,646 1,646 Yue Yuen Average market cap (USDm) 4,817 5,600 6,124 7,128 7,128 7,128 Enterprise value (USDm) 4,295 4,874 5,536 6,562 7,228 7,217 Reuters: 0551.HK Bloomberg: 551 HK Valuation Metrics P/E (DB) (x) 15.4 14.5 11.4 12.2 11.2 10.9 Buy P/E (Reported) (x) 15.4 14.6 11.5 12.2 11.2 10.9 Price (14 Aug 17) HKD 33.85 P/BV (x) 1.26 1.21 1.26 1.43 1.58 1.50
Target Price HKD 45.00 FCF Yield (%) 6.0 7.1 1.7 3.8 5.3 5.4 Dividend Yield (%) 5.1 4.6 4.8 14.6 5.0 5.1 52 Week range HKD 26.80 - 35.40 EV/Sales (x) 0.5 0.6 0.7 0.7 0.8 0.7 Market Cap (m) HKDm 55,733 EV/EBITDA (x) 7.7 7.2 6.5 7.1 7.2 6.9 EV/EBIT (x) 13.0 11.1 9.2 9.9 9.8 9.5 USDm 7,128 Income Statement (USDm) Company Profile Sales revenue 8,013 8,435 8,481 8,877 9,240 9,702 Yue Yuen Industrial (Holdings) Limited is the world's Gross profit 2,003 2,214 2,384 2,555 2,704 2,879 largest athletic and casual footwear manufacturer, EBITDA 559 680 852 918 1,009 1,049 established by Pou Chen Group. Yue Yuen is not only an Depreciation 229 242 251 258 274 287 original equipment manufacturer and original design Amortisation 0 0 0 0 0 0 manufacturer (OEM/ODM) of athletic footwear, but also an EBIT 330 438 601 660 735 763 operator of a retail network in the Greater China region Net interest income(expense) -7 -10 -15 -10 -9 -9 that sells international brand name footwear and apparel. Associates/affiliates 12 82 67 68 70 71 Exceptionals/extraordinaries 0 0 0 0 0 0 Other pre-tax income/(expense) 45 -26 -1 8 8 7 Profit before tax 380 484 652 727 803 832 Price Performance Income tax expense 37 66 76 93 103 107 Minorities 12 28 42 50 65 72 36 Other post-tax income/(expense) 0 0 0 0 0 0 Net profit 331 390 535 583 635 654 32
DB adjustments (including dilution) 0 1 3 0 0 0 28 DB Net profit 331 391 538 583 635 654 24 Cash Flow (USDm) 20 Aug 15Nov 15Feb 16May 16Aug 16Nov 16Feb 17May 17 Cash flow from operations 571 792 498 670 761 763 Net Capex -281 -392 -396 -400 -380 -380 Yue Yuen HANG SENG INDEX (Rebased) Free cash flow 289 400 102 270 381 383 Equity raised/(bought back) 0 0 0 0 0 0 Margin Trends Dividends paid -234 -255 -255 -297 -1,038 -356 Net inc/(dec) in borrowings 30 -146 157 10 850 0 12 Other investing/financing cash flows -20 61 8 -13 -14 -16 11 Net cash flow 65 60 11 -31 179 12 9 Change in working capital 81 197 -287 -102 -88 0 8 6 Balance Sheet (USDm) 5 Cash and other liquid assets 971 1,031 1,041 1,011 1,190 1,201 3 Tangible fixed assets 1,931 2,045 2,244 2,386 2,492 2,585 14 15 16 17E 18E 19E Goodwill/intangible assets 274 275 267 267 267 267 EBITDA Margin EBIT Margin Associates/investments 882 866 859 928 997 1,068
Other assets 3,113 3,047 3,200 3,352 3,490 3,672 Growth & Profitability Total assets 7,171 7,264 7,612 7,944 8,436 8,793 Interest bearing debt 949 803 960 970 1,820 1,820 6 15 Other liabilities 1,440 1,595 1,558 1,597 1,634 1,686 5 Total liabilities 2,390 2,398 2,518 2,567 3,454 3,506 4 10 Shareholders' equity 4,399 4,499 4,741 4,975 4,514 4,748 3 Minorities 382 368 353 403 468 539 2 5 Total shareholders' equity 4,781 4,866 5,094 5,377 4,981 5,287 1 Net debt -22 -228 -81 -41 630 619 0 0 14 15 16 17E 18E 19E Key Company Metrics Sales growth (%) 5.7 5.3 0.5 4.7 4.1 5.0 Sales growth (LHS) ROE (RHS)
DB EPS growth (%) -25.9 23.3 39.5 8.5 8.9 2.9 Solvency EBITDA Margin (%) 7.0 8.1 10.0 10.3 10.9 10.8 EBIT Margin (%) 4.1 5.2 7.1 7.4 8.0 7.9 15 100 Payout ratio (%) 73.9 65.4 55.5 177.9 56.0 56.0 10 80 ROE (%) 7.6 8.8 11.6 12.0 13.4 14.1 Capex/sales (%) 3.8 4.8 5.3 4.5 4.1 3.9 5 60 Capex/depreciation (x) 1.3 1.7 1.8 1.6 1.4 1.3 0 40 Net debt/equity (%) -0.5 -4.7 -1.6 -0.8 12.6 11.7 -5 20 Net interest cover (x) 48.4 43.4 40.1 65.4 84.4 87.7
-10 0 Source: Company data, Deutsche Bank estimates 14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
John Chou +852 2203 6196 [email protected]
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Appendix 1
Important Disclosures
*Other information available upon request
Disclosure checklist Company Ticker Recent price* Disclosure Pou Sheng 3813.HK 1.51 (HKD) 14 Aug 17 NA Yue Yuen 0551.HK 33.85 (HKD) 14 Aug 17 14,15 Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. John Chou
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15 August 2017 Consumer Pou Sheng & Yue Yuen
Historical recommendations and target price: Pou Sheng (3813.HK) (as of 8/14/2017)
3.00 Previous Recommendations 1 Strong Buy 2.50 Buy Market Perform Underperform Not Rated 2.00 2 3 Suspended Rating 5 4 Current Recommendations 1.50 Buy
Hold Security PriceSecurity 1.00 Sell Not Rated Suspended Rating
0.50 *New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche 0.00 Bank
Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Date
1. 26/09/2016: Upgrade to Buy, Target Price Change HKD3.40 John 4. 22/05/2017: Buy, Target Price Change HKD2.20 John Chou Chou 2. 12/01/2017: Buy, Target Price Change HKD3.10 John Chou 5. 03/08/2017: Buy, Target Price Change HKD2.40 John Chou 3. 27/03/2017: Buy, Target Price Change HKD2.40 John Chou
Historical recommendations and target price: Yue Yuen (0551.HK) (as of 8/14/2017)
40.00 Previous Recommendations
Strong Buy 35.00 1 3 4 Buy Market Perform 30.00 2 Underperform Not Rated 25.00 Suspended Rating Current Recommendations 20.00 Buy Hold
Security PriceSecurity 15.00 Sell Not Rated 10.00 Suspended Rating
*New Recommendation Structure 5.00 as of September 9,2002
**Analyst is no longer at Deutsche 0.00 Bank
Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Date
1. 26/09/2016: Upgrade to Hold, Target Price Change HKD35.00 John 3. 22/05/2017: Buy, Target Price Change HKD41.00 John Chou Chou 2. 20/02/2017: Upgrade to Buy, Target Price Change HKD38.00 John 4. 03/08/2017: Buy, Target Price Change HKD45.00 John Chou Chou
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15 August 2017 Consumer Pou Sheng & Yue Yuen
Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 500 share-holder return (TSR = percentage change in 450 53 % share price from current price to projected target price 400 350 plus pro-jected dividend yield ) , we recommend that 300 35 % investors buy the stock. 250 200 12 % Sell: Based on a current 12-month view of total share- 150 19 % 100 19 % 13 % holder return, we recommend that investors sell the 50 stock 0 Buy Hold Sell Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not Companies Covered Cos. w/ Banking Relationship recommend either a Buy or Sell. Asia-Pacific Universe Newly issued research recommendations and target
prices supersede previously published research.
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Additional Information
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Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency in which coupons are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to the risks related to rates movements.
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David Folkerts-Landau Group Chief Economist and Global Head of Research
Raj Hindocha Michael Spencer Steve Pollard Global Chief Operating Officer Head of APAC Research Head of Americas Research Research Global Head of Economics Global Head of Equity Research
Anthony Klarman Paul Reynolds Dave Clark Pam Finelli Global Head of Head of EMEA Head of APAC Global Head of Debt Research Equity Research Equity Research Equity Derivatives Research
Andreas Neubauer Spyros Mesomeris Head of Research - Germany Global Head of Quantitative and QIS Research
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