Tianyun International | 6836.HK

Rating BUY Maintain Prepare for a new milestone Target Price HKD 1.66 From HK$1.99 Current price HKD 1.25 Upside: 32.8% % Controlling shareholder selling 27% stake to Sichuan SOE

Tianyun announced on Sept 28 morning that the controlling shareholder, Company Updates Wealthy Active, has entered into a conditional share transfer agreement with Sichuan Development International Holdings Company Limited (SDIH). SDIH 15 October 2018 agrees to purchase Tianyun’s 27% stake at HK$1.58 (total consideration at ~HK$417mn), which represents a 35%/23.4% premium vs. closing price on Sept Hayman Chiu 27 and Tianyun’s IPO price at HK$1.28. The completion of the deal is subject to [email protected] conditions including SASAC’s approval. (852) 2235 7677 Upon completion of the deal (expected to close in end Oct 2018), SDIH would become Tianyun’s single largest shareholder, while Wealth Active and Chairman Trading data Yang Ziyuan’s stake in Tianyun would be lowered to 19.2%. Yang will continue to 52-Week Range (HK$) 1.50/1.01 be the executive director and CEO. Tianyun will appoint two new directors (who 3 Mth Avg Daily Vol (m) 3.16 would become the Chairman of the board and thee chairman of the nomination No of Shares (m) 977.46 committee) and CFO. Market Cap (HK$m) 1,221.83 Major Shareholders (%) Yang Ziyuan (46.2%) SDIH’s parent co, SDH (Sichuan Development Holdings Co. Ltd), was Auditors PWC established by the Sichuan’s Provincial People’s Government in Jan 2009 with a Result Due FY18: Mar 2019 registered capital of RMB 80bn. By end-2017, SDH’s income came in at RMB 170bn with the total assets of RMB906bn. SDH’s current business include transportation, energy, finance, mining, infrastructure and real estate, modern Company description service industry (such as tourism, education, healthcare) etc. Tianyun’s share Established in January 2003 and listed in HKEx in July price rose as much as ~14% after the deal was announced, which primarily 2015, Tianyun sells their products (processed fruit in reflects market’s positive response on this deal. We are expecting more in-depth China and to overseas on an OEM basis, current clients include renowned international brands such as colours from the management on the future development with SDIH after the Del Monte and Tesco (TSCO.LN) etc. Tianyun has deal completed. been promoting its own brand products under “Tiantong Food” (天同食品), “Bingo -My Times-”(繽果 1H18 result in-line, high margin own brand to drive growth and OEM 時代) and “Guo Xiao Lan”(果小懶), in the PRC and picked up overseas countries. Tianyun commenced sales of Tiantong Food products in Hong Kong's supermarket chains in 2015. By June 2018, Tianyun currently has Tianyun’s 1H18 result was generally in-line with our estimates, with sales and 204 distributors EPS grew 28%/29% to RMB439.3mn/RMB67.5mn respectively (accounted for 48.5%/43.5% of our FY18E estimates) thanks to higher margin own brand Price chart business (1H18 GM:30.9%, +340bps Yoy), and stabilizing raw material cost which drove blended GM up by 80bps to 27.8% (vs. 27.0% in 1H17).

Tianyun’s own brand revenue soared 51% Yoy to RMB 209.5mn (47.7% of total revenue) driven by both increased in the number of distributors (added 20 distributors vs. FY 17) and partial ASP hike. Meanwhile, online sales arrived at RMB35.2mn (16.8% of own brand sales) as the Company’s investment in e-commerce platforms such as WeChat Business and TMall began to bear fruit. Tianyun aims to launch more new products (such as trans fat free fruit snack and fruit pudding) in 2H18E to further diversify product SKUs. Sources: Bloomberg, CIRL

Tianyun’s OEM revenue grew 16.1% to RMB181.4mn (41.9% of total revenue) thanks to overseas clients’ product demand. As Tianyun’s overseas sales FLASH NOTE represent short-term accounted for ~10% of total revenue in 1H18, together with their diverse clientele trading ideas by Cinda International worldwide including Europe, Canada, Australia and New Zealand, we believe the Research which are distinguished from our normal coverage. The escalating US-China trade dispute would have minimal impact on Tianyun’s recommended stocks may not sales. be continually followed.

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Hubei plant still ramping up;Homemade Harvey deal broke up

Tianyun completed the acquisition of Yichang Tiantong (YT, a processed fruit company in Hubei) on Jan 30, 2018 and it is still in ramping up stage. With production capacity expected to increase 15% CAGR in FY16-20E to ~104k tonnes, we still believe Tianyun’s ability to take extra orders from both existing and new clients. Currently with 12 production lines (with designed capacity ~25k-30k tones per annum), Tianyun aims to introduce more fruit types from subtropical region and develop new fruit products for both its OEM customers and own brand and targets YT to ramp up to ~15k tonnes in FY18E.

Meanwhile, Tianyun was unable to reach a purchase agreement with Homemade Harvey but still looking for other M&As including their intention to acquire a company focused in processing tropical fruits

Functional beverage to launch in 4Q18

Management shared with us that partnership with the Tai Wei is still generally on track and the functional beverage drink was well-received by distributors during pre-marketing stage, they targets to launch the product in 4Q18. However, we still have not yet factored in the contribution in our earnings estimates, and continue to wait for more colours in FY18 results (expected due in March 2019). Given the low consumption per capita, we believe China’s functional drinks market will continue to benefit from rising disposable income and improving consumers’ health awareness.

Undemanding FY18E 6.6x PE, attractive to ride on new business growth potential

We lifted Tianyun’s FY18E/19E EPS by 3.1%/7.6% to reflect higher than expected sales with new product sales not taken into account. The counter is trading at FY18E/19E 6.6x/5.2x PE (~66%/63% discount to weighted average of HK, A-share listed and international peers) still looks attractive to us and continues to deserve a re-rating. We value Tianyun’s new TP at HK$1.66 based on 9.8x weighted average FY18E PE under current unfavourable market sentiment for small caps (vs. 10.1x in our last update in Apr 2018, ~55% discount to peers’ weighted average).

We expect Tianyun’s revenue and adjusted EPS to grow at 21.9%/24.6% CAGR in FY17-FY20E driven by increasing contribution from current own brand and stable OEM business. We identify the following upside catalysts for Tianyun: i) More colours on future development with SDH should the deal completed ii) Successful ramp up of Hubei plant, iii) Well-received market response of new own-brand product, and iv) Better than expected sales from functional beverage

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Exhibit 1: We lifted Tianyun’s FY18E/19E EPS on higher sales assumption (excl. new business segment) Exhibit 1: FY18 (old) FY18 (new) Diff FY19 (old) FY19 (new) Diff Pork Revenue 906 935 3.2% 1,080 1,140 5.6% products

sold in GP 260 265 1.9% 317 335 5.8% supermarke t counters GPM 28.7% 28.4% -30bps 29.3% 29.4% 10bps

Net Profit 155 160 3.1% 190 205 7.6%

3.1% 7.6% EPS 0.159 0.164 0.195 0.209

Year to Dec (RMB mn) FY16A FY17A FY18E FY19E FY20E

Segment Revene OEM 382 345 410 462 521

Own Brand 188 322 447 600 753 Trading of fresh fruit & others 83 78 79 79 78 Group 654 746 935 1,140 1,352

Segment Revenue Growth OEM 2.8% -9.7% 18.6% 12.8% 12.8% Own Brand 87.3% 71.4% 38.7% 34.2% 25.6% Trading of fresh fruit & others 2.5% -6.0% 0.4% 0.4% -1.1% Group 18.0% 14.1% 25.4% 22.0% 18.6%

GM 30.5% 27.4% 28.4% 29.4% 29.4%

Source: Company data, CIRL estimates

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Exhibit 2: Tianyun’s GM improved in 1H18 on year-on-year basis YearExhibit to Dec (RMB 1: mn) 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 OEM 141 174 158 214 171 212 156 189 181.4 Pork Yoy(%) - - 12.7% 23.1% 7.7% -0.9% -8.4% -10.8% 16.1% % of revenue 69.4% 70.8% 62.4% 71.3% 55.5% 61.2% 45.5% 47.0% 41.3%

Ownproducts Brand 17 33.1 49.8 50.5 90.1 97.8 138.7 183.4 209.5 Yoy(%) - - 189.5% 52.6% 80.9% 93.7% 53.9% 87.5% 51.0% sold in % of revenue 8.5% 13.5% 19.6% 16.8% 29.3% 28.3% 40.4% 45.6% 47.7%

Tradingsupermarket of fresh fruit & others 45 39 46 36 47 36 48 30 48.4 Yoy(%) - - 1.8% -7.5% 3.1% 1.7% 3.0% -17.6% 0.2% % of revenue 22.1% 15.7% 17.9% 11.9% 15.2% 10.5% 14.1% 7.4% 11.0% Totalcounters 202 245 254 300 308 346 343 402 439 Yoy(%) - - 25.3% 22.3% 21.2% 15.3% 11.6% 16.3% 28.0%

Gross Margin Breakdown (By Segment) Year to Dec (RMB mn) 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 OEM 39 59 51 72 55 68 47 56 51 Yoy(%) - 51.8% 30.2% 21.5% 9.7% -4.8% -14.4% -17.8% 8.0% GM 27.6% 33.9% 31.9% 33.5% 32.5% 32.2% 30.3% 29.6% 28.2% % of total GM 72.0% 72.5% 66.2% 74.7% 58.8% 64.7% 51.1% 34.1% 41.9%

Own Brand 5 11 15 17 28 30 38 107 65 Yoy(%) - 132.8% 214.9% 58.1% 89.2% 71.6% 36.4% 259.4% 69.6% GM 27.3% 33.1% 29.7% 34.2% 31.1% 30.4% 27.5% 58.2% 30.9% % of total GM 8.7% 13.5% 19.4% 18.0% 29.7% 28.2% 41.2% 64.9% 53.1%

Trading of fresh fruit & others 10 11 11 7 11 7 7 2 6 Yoy(%) - 9.9% 5.8% -38.8% -1.8% 6.1% -33.3% -78.4% -15.3% GM 23.3% 29.6% 24.2% 19.6% 23.0% 20.4% 14.9% 5.4% 12.6% % of total GM 19.3% 14.1% 14.4% 7.3% 11.5% 7.1% 7.8% 1.0% 5.0% Total 54 81 76 96 94 105 93 164 122

Yoy(%) - - 41.6% 18.0% 23.5% 9.8% -1.5% 56.1% 31.6% Blended GM 26.6% 33.1% 30.1% 32.0% 30.6% 30.4% 27.0% 40.8% 27.8% Source: Company data, CIRL

Exhibit 3: Tianyun’s GPM would stabilize, while own brand business contributes ~45% of GP (vs.28% in FY16)

Exhibit40.0% 1: 100% 18.2 8.8 21.8 18.0 Pork35.0% 90% 18.4 21.8 80% 32.1 30.0% 30.2% 30.2% 30.2% 15.6 57.7 31.1% 7.6 92.1 products 30.5% 27.4% 70% 18.3 25.0% sold in 60% 20.0% 50% supermark 40% 15.0% 64.5 97.7 122.0 30% 72.7 123.5 et10.0% counters 103.4 20% 5.0% 10% 0.0% 0% FY12A FY13A FY14A FY15A FY16A FY17A FY12A FY13A FY14A FY15A FY16A FY17A

OEM Own Brand Trading of fresh fruit & others Overall GPM OEM Own Brand Trading of fresh fruit & others

Source: Company data, CIRL

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Exhibit 4: Tianyun sales mix by segment (left) and by region (right)

Exhibit100% 1: 100% 34.4 56.8 81.2 83.2 78.2 29.2 43.1 60.4 75.4 Pork90% 67.5 77.4 83.3 90% 80% 80% 50.3 100.3 24.7 59.3 187.9 70% products70% 322.1 60% sold60% in 50% 50% 271.2 327.4 413.2 493.2 596.7 670.1 supermarket40% 40% 314.1 208.1 233.9 372.1 30% counters30% 382.4 20% 345.2 20% 10% 10% 0% 0% FY12A FY13A FY14A FY15A FY16A FY17A FY12A FY13A FY14A FY15A FY16A FY17A

OEM Own Brand Trading of fresh fruit & others PRC Overseas

Source: Company data, CIRL

Exhibit 5: Tianyun’s pure fruit snack received "Certificate of Invention Patent" from the State Intellectual Property Office of China

Exhibit 1:

Pork

products

sold in supermark

et counters

Source: Company data

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Exhibit 6: Tianyun’s pure fruit snack selling on Tmall Exhibit 1: Pork products sold in supermark et counters

Source: Tmall

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Exhibit 7: China canned energy drinks market still has room to grow, while Chinese Red Bull still dominates the market

E100.0 1.0% 4.0% 2009-2014 CAGR : 30.3% 87.5 90.0 2014-2019E CAGR: 20.8% 6.0% x80.0

70.0 9.0% h Chinese Red Bull 60.0 Dali Hi-Tiger i 50.0 Eastroc Special Drink b40.0 33.9 30.0 Wahaha Qili

i 20.0 Others 9.0 80.0% t 10.0 0.0 2009 2014 2019E Retail sales value of canned energy drinks in China (RMB Bn) 1 Source: Statista, Bexcel Management Consultants :

Exhibit 8: X-Bear is currently one of the top 3 best-selling energy drinks in Taiwan, with high market penetration and brand awareness P Exhibit 1: o Pork r products k sold in

supermarket p counters r

u c

sSource: Company data

e r m Page 7 of 10 a r k e

Exhibit 9: Peers comparison bloomberg Mkt Cap Price Share Price Movement (%) PER (x) Yield (%) Exhibit 1: code (HKD mn) (HKD) 1M 3M YTD FY15 FY16 FY17 FY18E FY19E FY15 FY16 FY17 FY18E FY19E HKPork listed cosumer staples CHANGSHOUHUA FOO 1006 HK 1,531 2.67 (17.3) (29.0) (28.4) 5.9 5.0 4.5 - - 3.9% 3.7% 4.3% 0.0% 0.0% MENGNIU DAIRY 2319 HK 88,172 22.45 (1.8) (15.9) (2.9) 29.9 -99.5 37.0 25.2 19.6 0.8% 0.5% 0.6% 1.0% 1.3% HEALTHproducts AND HAPPI 1112 HK 27,112 42.35 (5.9) (24.6) (18.4) 83.7 23.8 24.8 18.9 14.4 0.0% 0.0% 0.0% 0.7% 1.0% AUSNUTRIA 1717 HK 9,419 7.07 (16.5) (19.0) 50.7 116.9 35.5 24.9 16.4 11.9 0.4% 0.7% 1.3% 1.9% 2.6% YASHILI INT'L 1230 HK 6,881 1.45 (4.0) (8.2) (3.3) 45.2 -18.5 -33.1 131.8 46.8 0.6% 0.0% 0.0% 0.1% 0.6% YUANSHENGTAIsold in DAI 1431 HK 849 0.18 2.8 (12.1) (39.7) 8.7 -6.8 -10.7 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA SHENGMU OR 1432 HK 2,097 0.33 32.0 (42.1) (73.8) 2.1 2.6 -1.8 -1.6 4.8 0.0% 0.0% 0.0% 0.0% 0.0% CHINA MODERN DAI 1117 HK 6,009 0.98 (14.0) (25.8) (35.1) 12.5 -6.0 -5.2 6.4 14.8 0.0% 0.0% 0.0% 0.0% 0.0% HUISHANsupermark DAIRY 6863 HK 5,660 0.42 0.0 0.0 0.0 5.6 6.9 - - - 4.6% 3.6% 0.0% 0.0% 0.0% CHINA RESOURCES 291 HK 90,837 28.00 (7.6) (24.3) (0.2) -15.9 108.9 67.4 39.7 30.1 0.0% 0.3% 0.6% 0.9% 1.3% TINGYI 322 HK 69,885 12.44 (9.1) (33.4) (18.2) 35.1 50.7 33.2 24.9 21.1 1.4% 1.0% 1.5% 2.1% 2.5% UNI-PRESIDENTet counters CH 220 HK 32,827 7.60 (3.4) (20.3) 16.2 31.9 46.2 32.4 25.2 21.9 0.6% 0.4% 2.2% 2.5% 2.8% WANT WANT CHINA 151 HK 69,467 5.58 (14.5) (20.3) (13.5) 17.5 17.2 18.3 17.6 17.7 2.9% 2.6% 0.0% 2.7% 3.2% DALI FOODS GROUP 3799 HK 72,716 5.31 (4.5) (21.1) (25.2) 17.9 19.8 18.4 16.7 14.6 2.5% 3.5% 3.6% 3.6% 4.1% CHINA HUIYUAN 1886 HK 5,397 2.02 0.0 0.0 (6.5) -19.0 345.6 - - - 0.0% 0.0% 0.0% 0.0% 0.0% SUMMI GROUP HOLD 756 HK 350 0.26 (24.6) (63.9) (71.1) 3.5 4.6 4.5 - - 0.0% 6.0% 6.6% 0.0% 0.0% YANTAI NORTH-H 2218 HK 1,969 5.50 0.0 10.0 38.9 23.5 14.5 18.0 - - 1.1% 1.1% 2.1% 0.0% 0.0% CHINA HAISHENG 359 HK 348 0.27 (10.0) (8.5) (18.2) -198.9 10.9 2.1 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHINA GREENFRESH 6183 HK 1,211 1.09 (7.6) (6.0) (20.4) 3.6 8.6 5.5 - - 9.6% 4.6% 0.0% 0.0% 0.0% TENWOW INTERNATI 1219 HK 838 0.38 0.0 (19.1) (79.2) 1.8 3.3 4.5 4.0 3.6 16.6% 8.7% 11.1% 12.9% 15.0% JIASHILI GROUP L 1285 HK 739 1.78 (5.3) (10.1) (6.8) 5.7 7.0 6.0 - - 8.8% 9.9% 9.7% 0.0% 0.0% LABIXIAOXIN 1262 HK 758 0.57 (3.4) (3.4) 21.3 -1.5 -1.1 -2.2 - - 0.0% 0.0% 0.0% 0.0% 0.0% CHRISTINE INTERN 1210 HK 505 0.50 (3.8) 1.0 (19.4) -2.8 -3.6 -3.4 - - 0.0% 0.0% 0.0% 0.0% 0.0% TENFU HLDGS CO 6868 HK 6,546 5.35 (1.8) 9.6 43.8 36.1 35.2 23.2 - - 2.1% 2.1% 3.3% 0.0% 0.0% HONWORLD 2226 HK 2,020 3.49 (4.1) (1.4) (14.7) 6.4 7.8 9.4 - - 3.1% 2.4% 2.2% 0.0% 0.0% CHINA YURUN FOOD 1068 HK 1,239 0.68 (15.0) (41.9) (16.0) -0.4 -0.5 -0.6 - - 0.0% 0.0% 0.0% 0.0% 0.0% WH GROUP LTD 288 HK 87,759 5.98 8.5 (5.4) (32.2) 13.4 10.2 9.9 9.6 8.9 2.1% 4.3% 4.5% 4.5% 5.1% COFCO MEAT HOLDI 1610 HK 4,292 1.10 (3.5) (6.8) (30.4) 23.5 3.4 8.2 -137.5 8.9 0.0% 0.0% 0.0% 0.0% 0.0% SHENGUAN HOLDING 829 HK 1,304 0.40 3.9 (4.8) 17.2 3.7 7.2 16.5 - - 8.2% 5.2% 4.7% 0.0% 0.0% CHINA PUTIAN FOO 1699 HK 584 0.37 10.6 82.5 1.4 -43.5 27.4 64.5 - - 0.0% 0.0% 0.0% 0.0% 0.0% HUISHENG INTL 1340 HK 143 0.16 (4.7) (20.2) (50.2) 0.5 1.0 -467.7 - - 11.3% 0.0% 0.0% 0.0% 0.0% CHINA KANGDA FD 834 HK 225 0.52 (11.9) (25.7) (45.3) -6.5 30.7 -12.3 - - 0.0% 0.0% 0.0% 0.0% 0.0% TSINGTAO BREW-H 168 HK 47,070 33.30 (1.8) (21.9) (17.4) 21.3 36.9 30.8 25.2 21.3 1.4% 1.2% 1.5% 1.7% 2.0% CHINA FOODS LTD 506 HK 9,958 3.56 (6.3) (11.4) (22.1) 182.6 19.9 5.6 21.4 17.7 0.3% 0.7% 0.7% 1.4% 1.8% Average 19,315 (4.3) (13.0) (15.3) 28.4 33.0 20.4 27.4 17.4 4.1% 3.1% 3.5% 2.8% 3.3%

TIANYUN INTERNAT 6836 HK 1,261 1.29 8.4 8.4 0.8 9.8 8.4 8.5 6.7 5.2 2.4% 2.0% 2.0% 2.4% 3.1%

China listed consumer staples INNER MONG YIL-A 600887 CH 173,045 28.47 8.2 (11.8) (21.9) 30.2 26.2 24.9 22.8 19.2 2.0% 2.5% 2.8% 0.0% 0.0% BRIGHT DAIRY-A 600597 CH 10,954 8.95 (14.2) (20.0) (47.9) 21.3 16.6 15.5 14.9 13.7 1.7% 2.0% 2.1% 0.0% 0.0% XINJIANG GUANN-A 600251 CH 4,364 5.56 (14.6) (12.0) (37.0) 27.0 141.1 44.4 - - 1.8% 0.3% 0.7% 0.0% 0.0% GUANGZHOU ZHUJ-A 002461 CH 10,577 4.78 (6.0) (16.8) (28.5) 64.6 48.1 46.0 32.1 26.1 0.6% 0.7% 1.2% 0.0% 0.0% BEIJING YAN-A 000729 CH 18,448 6.54 (6.8) (14.4) (14.2) 25.4 50.4 99.5 44.2 37.8 1.3% 0.6% 0.4% 0.0% 0.0% V V FOOD BVRG-A 600300 CH 5,453 3.26 (9.4) (11.1) (34.1) 44.1 66.6 51.6 36.2 29.6 1.1% 0.7% 1.1% 0.0% 0.0% JUEWEI FOOD CO-A 603517 CH 18,232 44.47 4.1 (8.7) (0.4) 42.9 35.9 30.6 25.1 20.6 0.0% 0.9% 1.2% 0.0% 0.0% JIANGXI HUANGS-A 002695 CH 6,098 11.87 (11.3) (18.9) (38.3) 80.2 56.4 36.4 - - 0.3% 0.4% 0.7% 0.0% 0.0% FOSHAN HAITIAN-A 603288 CH 219,685 81.32 3.6 (6.2) 33.5 70.9 66.3 53.8 45.0 37.5 0.9% 1.0% 1.2% 0.0% 0.0% IAJIA FOOD GRO-A 002650 CH 6,340 5.50 0.0 0.0 (31.2) 34.3 36.2 34.0 22.6 23.2 0.9% 0.8% 0.0% 0.0% 0.0% JIANGSU HENGSH-A 600305 CH 8,766 11.19 4.1 (0.8) 8.9 29.6 44.0 27.0 26.5 24.6 1.0% 0.7% 1.1% 0.0% 0.0% COFCO TUNHE CO-A 600737 CH 15,242 7.43 (9.8) (11.7) (17.5) 162.3 25.3 17.8 - - 0.6% 2.0% 2.6% 0.0% 0.0% HENAN SHUAN-A 000895 CH 86,834 26.32 (3.8) (13.2) (12.3) 16.5 16.9 17.4 15.3 14.0 5.9% 9.3% 4.8% 0.0% 0.0% Average 51,038 (4.3) (11.2) (18.5) 49.9 48.5 38.4 28.5 24.6 3.2% 5.7% 3.7% N/A N/A

TIANYUN INTERNAT 6836 HK 1,261 1.29 8.4 8.4 0.8 9.8 8.4 8.5 6.7 5.2 2.4% 2.0% 2.0% 2.4% 3.1%

Global & PRC players BONDUELLE SCA BON FP 8,560 265.18 2.1 (7.6) (33.7) 12.5 17.4 16.5 12.3 11.5 1.5% 1.4% 1.4% 0.0% 0.0% DEL MONTE PAC LT DELM SP 1,925 0.99 1.8 (3.3) (36.7) -4.1 4.4 10.5 - - 0.0% 0.0% 4.8% 0.0% 0.0% LA DORIA SPA LD IM 2,764 89.18 (14.3) (8.2) (40.1) 7.1 9.5 10.3 9.9 8.9 2.7% 1.7% 2.3% 0.0% 0.0% MALEE GROUP PCL MALEE TB 947 3.43 5.1 17.2 (62.6) 12.8 8.2 7.3 21.2 14.5 4.0% 6.1% 9.7% 0.0% 0.0% AMCL PRAN AMCL BD 173 21.64 (5.8) 1.5 4.1 31.2 33.0 33.0 32.1 - 1.5% 1.5% 1.5% 0.0% 0.0% SINO GRANDNESS SFGI SP 1,098 1.12 1.5 (6.2) (1.0) 3.3 1.2 1.2 2.6 - 1.8% 0.0% 0.0% 0.0% 0.0% CHINA HUIYUAN 1886 HK 5,397 2.02 0.0 0.0 (6.5) -19.0 345.6 - - - 0.0% 0.0% 0.0% 0.0% 0.0% SUMMI GROUP HOLD 756 HK 350 0.26 (24.6) (63.9) (71.1) 3.5 4.6 4.5 - - 0.0% 6.0% 6.6% 0.0% 0.0% YANTAI NORTH-H 2218 HK 1,969 5.50 0.0 10.0 38.9 23.5 14.5 18.0 - - 1.1% 1.1% 2.1% 0.0% 0.0% CHINA HAISHENG 359 HK 348 0.27 (10.0) (8.5) (18.2) -198.9 10.9 2.1 - - 0.0% 0.0% 0.0% 0.0% 0.0% KAGOME 2811 JP 20,971 210.51 (4.2) (14.8) (28.3) 94.9 43.1 26.6 26.6 55.7 0.7% 0.8% 1.0% 0.0% 0.0% COFCO TUNHE CO-A 600737 CH 15,242 7.43 (9.8) (11.7) (17.5) 162.3 25.3 17.8 17.8 26.4 0.6% 2.0% 2.6% 0.0% 0.0% FOODS & INNS LTD FI IN 262 15.62 0.5 (10.1) 11.4 14.3 343.8 27.6 - - 0.0% 0.0% 0.0% 0.0% 0.0% FOOD & DRINKS FND TB 72 4.08 0.6 4.3 (27.7) -3.4 -4.4 -4.4 -6.8 - 0.0% 0.0% 0.0% 0.0% 0.0% Average 4,291 (4.1) (7.2) (20.6) 36.5 66.3 14.6 17.5 23.4 1.7% 2.6% 3.6% N/A N/A

TIANYUN INTERNAT 6836 HK 1,261 1.29 8.4 8.4 0.8 9.8 8.4 8.5 6.7 5.2 2.4% 2.0% 2.0% 2.4% 3.1%

Source: Bloomberg, CIRL

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

Pork14 12 mths Forward P/E Ratio avg. -1std.

products12 sold in 10 supermark a +1std. 8 et counters - 6

-1std. 2

0 Dec-14 Dec-15 Dec-16 Dec-17

Source: Bloomberg, CIRL

Exhibit 11: Financial statement

Income statement Cash flow Year to Dec (RMB Mn) FY16A FY17A FY18E FY19E FY20E Year to Dec (RMB Mn) FY16A FY17A FY18E FY19E FY20E Revenue 654 746 935 1,140 1,352 Pre-tax profit 166 161 213 273 325 Gross profit (reported) 199 204 265 335 398 Taxes paid (41) (47) (59) (72) (85) EBITDA 179 179 237 299 355 Depreciation & amortization 11 15 19 21 23 Depreciation 11 15 19 21 23 Associates & Others 45 52 64 78 92 EBIT 168 164 218 278 332 CFO bef. WC change 181 180 237 299 355 Net interest income (exp.) (2) (4) (5) (6) (7) Change in working cap (15) (22) (34) (38) (38) Associates 0 0 0 0 0 Cashflow from operation 166 158 203 261 318 Exceptionals/others 0 0 0 0 0 CAPEX (101) (49) (39) (39) (39) Profit before tax 166 161 213 273 325 Free cash flow 65 108 164 222 279 Tax expenses (38) (37) (53) (68) (81) Dividends 25 22 20 26 33 Minority interest 0 0 0 0 0 Balance sheet adj. (108) (29) (101) (140) (162) Net profit 129 123 160 205 244 Sharse issued (14) 0 0 0 0 Adjusted Net Profit 115 126 160 205 244 Others 0 0 0 0 0 Dividends 25 22 20 26 33 Net cash flow (32) 101 83 108 150 Adjusted diluted EPS (RMB) 0.13 0.13 0.16 0.21 0.25 Net cash (debt) start 159 127 227 311 419 Net cash (debt) at year-end 127 227 311 419 569 Balance sheet Year to Dec (RMB Mn) FY16A FY17A FY18E FY19E FY20E Ratios Cash & equiv 224 309 392 501 651 Year to Dec (RMB Mn) FY16A FY17A FY18E FY19E FY20E Trade receivables 85 108 135 165 195 Growth rate (%) Other receivables 0 0 0 0 0 Revenue 18.0% 14.1% 25.4% 22.0% 18.6% Inventories 65 76 94 113 134 EBITDA 31.4% -0.2% 32.3% 26.3% 18.8% Other current assets 0 0 0 0 0 EBIT 29.0% -2.5% 32.8% 27.7% 19.3% Fixed assets 279 257 278 298 315 Adjusted Net profit -1.7% 9.3% 26.9% 27.8% 19.3% Intangible assets 0 0 0 0 0 Fully diluted EPS 15.9% 0.2% 26.9% 27.8% 19.3% Investment, associates etc 42 89 82 86 84 Margins (%) Total assets 696 838 982 1,162 1,379 Gross margin (reported) 30.5% 27.4% 28.4% 29.4% 29.4% EBITDA 27.4% 24.0% 25.3% 26.2% 26.3% Account payables 32 41 51 59 72 EBIT 25.8% 22.0% 23.3% 24.4% 24.6% Other payables 0 0 0 0 0 Net margin 17.7% 16.9% 17.1% 17.9% 18.0% Short-term debt 84 82 82 82 82 Other ratios Other current liabs 1 61 61 61 61 ROE (%) 24.4% 20.2% 22.2% 23.4% 23.0% Long-term debts 14 0 0 0 0 ROA (%) 20.1% 16.1% 17.6% 19.1% 19.2% Deferred tax and others 0 0 0 0 0 Net gearing (%) -22.4% -34.8% -39.4% -43.7% -48.9% Other long-term liabs 0 0 0 0 0 Interest coverage (x) -83.3 -45.1 -47.8 -50.0 -50.3 Total liabilities 130 184 194 203 215 Receivables days 43.6 47.2 47.4 48.0 48.6 Payables days 25.3 27.7 27.7 26.9 27.5 Share capital 236 232 232 232 232 Inventory days 52.3 51.1 51.1 51.1 51.1 Reserves 330 421 556 727 932 Effective tax rate (%) -22.6% -23.2% -25.0% -25.0% -25.0% Shareholders' equity 566 654 788 960 1,164 Minorities 0 0 0 0 0 Total equity 566 654 788 960 1,164 Net cash (debt) 127 227 311 419 569 Source: Company data, CIRL estimates

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Risk Factors

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

Rating Policy

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

Analysts List

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

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

Analyst Certification

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

Disclaimer

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

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