Haier

21 January 2014
Asia Pacific/China
Equity Research
Consumer Electronics
Haier Electronics
(1169.HK / 1169 HK)
Rating
OUTPERFORM*
Price (20 Jan 14, HK$)
22.85
Target price (HK$)
30.00
Upside/downside (%)
31.3
Mkt cap (HK$ mn)
58,893 (US$ 7,594)
Enterprise value (Rmb mn)
39,189
Number of shares (mn)
2,577.38
Free float (%)
34.5
52-week price range
24.4 - 10.9
ADTO - 6M (US$ mn)
14.7
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
Target price is for 12 months.
Research Analysts
Eva Wang
852 2101 7365
eva.wang@credit-suisse.com
INITIATION
ICS: The future growth engine

Collaboration with Alibaba may result in 5-10% earnings upside. We
initiate coverage on Haier Electronics with an OUTPERFORM and a HK$30
target price. Haier Electronics has a large exposure to Integrated Channel
Services (ICS) including logistics which we believe will be strengthened with
the strategic alliance with Alibaba. We estimate that third-party large-item
logistics from Tmall will result in 4.7% earnings upside in 2015 in our base
case (factored into our estimate), or up to 9.6% under the bull case scenario.
There may be even more upside if the Tmall alliance is applied to other
large-item sales networks in China (e.g., furniture and sanitary wares).
An outstanding integrated channel services provider. We expect Haier
Electronics' ICS business to witness top-line growth and margin expansion
with increasing value-added services and contribution from third-party brands
distribution. We expect the latter to achieve a 39% three-year CAGR in 201315 and account for 18% of total revenue by 2015 (vs. 13% now).
A leading white goods player. We believe the company will benefit from
increasing penetration of white goods products in Tier 3/4 cities and rural
markets. We expect it to benefit from its focus on innovative new products,
especially those that facilitate energy saving and environmental protection.
Target price HK$30.0, implying 31% potential upside. We expect Haier
Electronics to achieve a 23.2% three-year EPS CAGR over 2013-15. Our
target price of HK$30.0 is based on a SOTP-implied 18.9x target 2015E P/E
with reference to comparable companies in each business segment. It
implies 15.8x 2015E ex-cash P/E. Key investment risks include economic
factors, changes in government policy, and cost and working capital controls.
Share price performance

Price (LHS)
Rebased Rel (RHS)
40
30
20
10
0
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
400
300
200
100
0
The price relative chart measures performance against the

HANG SENG INDEX which closed at 22928.95 on 17/01/14
On 17/01/14 the spot exchange rate was HK$7.76/US$1
Performance Over
Absolute (%)
Relative (%)
1M
12.6
14.8
3M
42.3
45.8
12M
93.3
101.2
Financial and valuation metrics

Year
Revenue (Rmb mn)
EBITDA (Rmb mn)
EBIT (Rmb mn)
Net profit (Rmb mn)
EPS (CS adj.) (Rmb)
Change from previous EPS (%)
Consensus EPS (Rmb)
EPS growth (%)
P/E (x)
Dividend yield (%)
EV/EBITDA (x)
P/B (x)
ROE (%)
Net debt/equity (%)
12/12A
55,615.0
2,490.4
2,379.0
1,695.1
0.66
n.a.
n.a.
19.1
26.9
0.36
16.6
8.1
36.6
net cash
12/13E
63,117.1
2,838.0
2,717.3
1,997.0
0.78
12/14E
73,074.0
3,594.1
3,461.9
2,529.7
0.99
12/15E
86,821.9
4,532.5
4,375.6
3,230.2
1.24
0.80
18.0
22.8
0.43
13.8
5.7
29.6
net cash
0.97
27.0
18.0
0.55
10.4
4.4
27.1
net cash
1.19
24.8
14.4
0.70
7.8
3.4
26.6
net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, 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.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
BEYOND INFORMATION
Client-Driven Solutions, Insights, and Access
21 January 2014
Focus charts and tables

Figure 1: Gross revenue breakdown (1H13)
Figure 2: ICS +TmallKey growth driver

90,000
Washing
machines
16.2%
80,000
17% CAGR
in 2013-15E
70,000
60,000
Water heaters
5.8%
31% CAGR
in 2010-12
50,000
40,000
30,000
20,000
10,000
Integrated
channel
services
78.0%
2009
2010
2011
2012
2013E
Source: Company data, Credit Suisse estimates
Figure 3: White goods penetration lower than black goods
Figure 4: Revenue and margin forecasts
140
136.1
126.8
116.9
120
98.5
91.0
67.3
67.2
18
90,000
16
80,000
14
70,000
Rmb mn
98.0
100,000
12
60,000
10
50,000
40,000
60
30,000
40
25.4
20
20,000
10,000
0
Washing
machines
Water heaters Air conditioners Refrigerators

Urban
2010
TV
2011
Washing machines
Gross margin (%)
Rural
Source: CEIC, NBS
160
80
2015E
Revenue (Rmb mn)
Source: Company data
100
2014E
2012
2013E
2014E
Water heaters
Operating margin (%)
2015E
ICS + Tmall
Net margin (%)
Figure 5: Scenario analysis on potential upside from more Tmall third-party logistics
Scenario
Bear
Base
Bull
Upside vs. 2015E estimate

Revenue
Net profit
1.7%
3.2%
6.6%
2.5%
4.7%
9.6%
Key assumption
Annual large items sales
Allocation to Goodaymart
growth rate in 2014-15E
logistics
50%
50%
75%
70%
125%
90%
Note: Please refer to Figure 19 for full base case assumption. Source: Credit Suisse estimates
Figure 6: SOTP valuation method (2015E valuation base)
Washing machines
Water heaters
ICS + Tmall
SOTP valuation
Segment profit
share
30.1%
14.6%
55.3%
100.0%
Target 2015E
P/E (x)
11.5
14.5
24.0
18.9
Valuation basis
Washing machine comps
Water heater comps
Logistics companies FedEx and UPS in 2000-2004
Sum of the parts
Source: Credit Suisse estimates
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
ICS: The future growth engine

Haier Electronics is a leading white goods player in China with a No. 1 market share in washing
machines and water heaters. More importantly, we believe its integrated channel services (ICS)
network, which has strong competitive advantages in distribution, logistics, services and ecommerce, should be a significant growth driver in the next few years. The strategic alliance with
Alibaba should further strengthen the development of independent third-party logistics.
No.1 white goods brand in

China with strong integrated
channel services
An outstanding ICS provider

We believe Haier Electronics will benefit from both top-line growth and margin upside in its
ICS business which will further strengthen its leading distribution platform in Tier 3/4
markets in China, extensive logistics network, strong aftersales service capabilities and ecommerce development. We believe third-party brands will be the key revenue growth
driver in the next few years, with a 39% three-year CAGR over 2013-15E, and account for
18% of total revenue by 2015E (vs. 13% now). The collaboration with Alibaba on logistics
should bring more business opportunities for Goodaymart logistics. We estimate that the
third-party large-item logistics from Tmall will result in 4.7% earnings upside in 2015 in our
base case (factored into our estimate), or up to 9.6% in the bull case. There may be even
greater upside if the Tmall alliance is applied to other large item-sales networks in China
(e.g., furniture and sanitary wares).
Revenue from third-party

brands and the strategic
alliance with Alibaba should
be key growth drivers
A leading white goods player

Haier Electronics is a leading manufacturer of washing machines (27.7% market share) and
water heaters (18.7% market share) in China. It has consistently ranked No. 1 in terms of sales
volume over the past few years. We believe the company will continue to benefit from
increasing penetration of white goods in China, especially in Tier 3/4 cities and rural markets,
given rural penetration of white goods is far less than that of black goods. We believe it will
continue to benefit from its focus on innovative new products, especially those that facilitate
energy savings and environmental protection, and maintain its leadership position.
No.1 market share in

washing machine and water
heater markets in China
Earnings forecasts and valuation

We expect Haier Electronics to achieve a 16.0% three-year revenue CAGR and a 23.2%
three-year EPS CAGR over 2013-15 mainly driven by growth in its ICS business,
especially from third-party brands. We believe the increasing earnings contribution from
the ICS business will continue to create opportunities for a re-rating. By 2016, we forecast
the profit contribution will increase to 55% (from 32% in 2013E).
We forecast a 16.0%
revenue CAGR and a 23.2%
EPS CAGR in 2013-15
Haier Electronics is trading at 18.0x 2014E or 14.4x 2015E P/E. We use a sum-of-theparts valuation11.5x target P/E for the washing machine business, 14.5x for the water
heater business, and 24.0x for the ICS business, with reference to comps companies in
each sector, and weighted by segment profit contribution. Our target price of HK$30.0 is
based on the SOTP-implied 18.9x target 2015E P/E, implying 31% potential upside. Our
target price implies 0.8x target PEG. If we exclude expected net cash on hand, our target
price implies only 15.8x 2015E ex-cash P/E. We initiate coverage on Haier Electronics
with an OUTPERFORM rating. We believe the potential upside may come from faster
growth and higher earnings contribution from the ICS business, especially with greater
business opportunities from the alliance with Alibaba.
Our SOTP-based target

price of HK$30.0 is based
on blended 18.9x target
2015 P/E
Investment risks
Key investment risks for Haier Electronics include weakness in economic growth and an
end-market demand slowdown, regulatory and stimulative policy changes, difficulty in
increasing third-party brand sales, possible raw material and/or labour cost hikes, a failure
in working capital control, and corporate governance factors such as connected party
transactions.
Risk factors: economy, enddemand, policy, cost and

working capital, etc.
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
Haier Electronics Group Co.
1169.HK / 1169 HK
Price (20 Jan 14): HK$22.85, Rating:: OUTPERFORM, Target Price: HK$30.00, Analyst: Eva Wang
Target price scenario
Scenario
TP
Upside
35.20
Central Case
30.00
Downside
22.00
Income statement (Rmb mn)

Sales revenue
Cost of goods sold
SG&A
Other operating exp./(inc.)
EBITDA
Depreciation & amortisation
EBIT
Net interest expense/(inc.)
Non-operating inc./(exp.)
Associates/JV
Recurring PBT
Exceptionals/extraordinaries
Taxes
Profit after tax
Other after tax income
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Net profit (Credit Suisse)
Cash flow (Rmb mn)
EBIT
Net interest
Tax paid
Working capital
Other cash & non-cash items
Operating cash flow
Capex
Free cash flow to the firm
Disposals of fixed assets
Acquisitions
Divestments
Associate investments
Other investment/(outflows)
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Other financing cash flow
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Balance sheet (Rmb mn)
Cash & cash equivalents
Current receivables
Inventories
Other current assets
Current assets
Property, plant & equip.
Investments
Intangibles
Other non-current assets
Total assets
Accounts payable
Short-term debt
Current provisions
Other current liabilities
Current liabilities
Long-term debt
Non-current provisions
Other non-current liab.
Total liabilities
Shareholders' equity
Minority interests
Total liabilities & equity
%Up/Dwn Assumptions
30.0x ICS segment target PE and 22.2x
54.00
total target PE
31.29
total target PE
(3.75)
total target PE
12/12A
12/13E
12/14E
12/15E
55,615
63,117
73,074
86,822
46,674
53,309
61,635
73,215
6,616
7,203
8,156
9,511
(165.2)
(232.2)
(311.4)
(436.5)
2,490
2,838
3,594
4,532
111.4
120.7
132.1
156.9
2,379
2,717
3,462
4,376
28.6
71.2
110.2
95.6
2,350
2,646
3,352
4,280
(106.1)
537
635
804
1,027
1,707
2,011
2,547
3,253
11.9
14.0
17.7
22.6
1,695
1,997
2,530
3,230
1,695
1,997
2,530
3,230
12/12A
12/13E
12/14E
12/15E
2,379
2,717
3,462
4,376
(392)
(764)
(930)
(1,082)
(465.2)
(662.9)
(230.4)
(791.5)
218.5
235.0
272.3
318.2
1,740
1,525
2,574
2,820
(476.6)
(513.5)
(507.4)
(557.4)
1,264
1,012
2,067
2,263
4.5
540.6
5.0
5.0
(177.0)
(649.1)
27.1
(502.4)
(552.4)
82.9
12.3
1.6
1.6
(157.5)
(220.0)
(273.6)
14.8
17
2,049
(27)
(27)
115
1,904
(245)
(299)
1,206
3,456
1,827
1,969
225.5
234.0
234.0
234.0
1,432
3,690
2,061
2,203
12/12A
12/13E
12/14E
12/15E
5,368
8,824
10,651
12,620
6,924
7,256
8,761
10,269
2,479
3,363
3,392
4,632
1,269
1,724
1,968
2,300
16,041
21,167
24,772
29,821
1,324
1,175
1,551
1,904
2.9
2.9
2.9
2.9
74.7
80.6
79.8
78.5
771.5
811.9
856.8
956.4
18,213
23,237
27,262
32,762
9,456
10,464
12,011
14,300
39.8
39.8
39.8
39.8
534.3
574.1
617.7
665.7
891.0
807.3
731.9
731.9
10,921
11,885
13,401
15,738
700
2,016
2,016
2,016
266.9
286.8
308.5
332.5
485.2
485.2
485.2
485.2
12,373
14,672
16,210
18,571
5,390
8,101
10,571
13,687
300.5
314.5
332.2
354.8
18,213
23,237
27,262
32,762
Key earnings drivers

Sales from washing
Sales
from water heaters
machines
Sales from integrated
Gross
profit margin (%)
channel
12/12A
5,198
849
49,569
16.1
12/13E
5,550
849
56,719
15.5
12/14E
6,105
916
65,226
15.7
12/15E
6,715
1,008
76,315
15.7
Per share data

Shares (wtd avg.) (mn)
EPS (Credit Suisse)
(Rmb)
DPS
(Rmb)
BVPS (Rmb)
Operating CFPS (Rmb)
Key ratios and
valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)
12/12A
2,655
0.66
0.07
2.20
0.66
12/12A
12/13E
2,714
0.78
0.08
3.15
0.56
12/13E
12/14E
2,733
0.99
0.10
4.07
0.94
12/14E
12/15E
2,756
1.24
0.13
5.23
1.02
12/15E
11.0
28.2
20.4
19.1
13.5
14.2
17.8
18.0
15.8
27.4
26.7
27.0
18.8
26.4
27.7
24.8
4.48
4.28
4.23
3.05
4.50
4.31
4.19
3.16
4.92
4.74
4.59
3.46
5.22
5.04
4.93
3.72
26.9
8.10
0.36
27.2
0.74
16.6
17.4
22.8
5.66
0.43
31.7
0.62
13.8
14.4
18.0
4.38
0.55
18.9
0.51
10.4
10.8
14.4
3.41
0.70
17.4
0.41
7.8
8.1
36.6
163
3.05
0.99
0.76
3.12
29.6
137
2.72
0.97
0.76
2.71
27.1
124
2.68
0.97
0.76
2.47
26.6
109
2.65
0.98
0.76
2.31
(79.3)
(1.86)
83.0
(79.0)
(2.39)
38.1
(77.8)
(2.39)
31.4
(74.4)
(2.33)
45.8
Source: Company data, Thomson Reuters, Credit Suisse estimates.

12MF P/E multiple
30
25
20
15
10
5
0
2009
2010
2011
2012
2013
2014
2013
2014
12MF P/B multiple

6
5
4
3
2
1
0
2009
2010
2011
2012
Source: IBES
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
Valuation comps
Figure 7: Valuation comps
Market
cap
Name
Ticker
Haier Elec
1169.HK
US$ mn
Price
(Loc
EPS growth
(%)
P/E
(x)
P/B
(x)
Yield
(%)
Price Performance
1M
3M
1Y
22.85
27.0
24.8
18.0
14.4
4.4
3.4
0.6
12.6
42.3
93.3
8,879 19.75
627 10.58
1,527 10.33
3,202
2.28
2,662
3.49
448
4.51
549
4.87
13,238 47.51
12,311 156.84
14.9
21.6
21.6
23.4
10.0
21.9
n.a.
20.1
21.5
19.4
19.3
30.2
30.2
27.0
n.a.
19.4
n.a.
18.4
15.8
22.9
11.6
7.6
9.4
8.3
31.7
10.8
n.a.
9.1
12.8
12.7
9.8
5.9
7.3
6.6
n.a.
9.1
n.a.
7.7
11.0
8.2
3.1
3.0
3.7
1.3
1.1
1.0
n.a.
2.3
2.2
2.2
2.5
1.9
2.3
1.1
n.a.
0.9
n.a.
1.8
1.8
1.8
2.5
2.8
2.2
3.9
0.9
2.8
n.a.
3.8
1.8
2.6
8.6
-4.9
-8.9
0.0
17.1
-9.4
-5.4
-8.2
1.0
-1.1
19.3
55.1
5.8
-7.7
29.3
11.4
-18.8
0.2
7.3
11.3
39.5
185.9
39.4
-8.1
63.8
5.6
84.5
n.a.
53.3
58.0
7,594
curr) CY14E CY15E CY14E CY15E CY14E CY15E CY14E
Comprehensive
Qingdao Haier
Hisense Kelon H
Hisense Kelon A
TCL Corp.
Changhong
Meiling
Aucma
Midea Group
Whirlpool
Average
600690.SS
0921.HK
000921.SZ
000100.SZ
600839.SS
000521.SZ
600336.SS
000333.SZ
WHR.N
Washing machines
Little Swan
Hefei Sanyo
Average
000418.SZ
600983.SS
632
1,181
8.67
13.41
21.1
23.7
22.4
14.5
19.2
16.8
10.3
14.5
12.4
9.0
12.1
10.5
1.2
2.8
2.0
1.1
2.5
1.8
2.2
1.4
1.8
-7.5
-14.7
-11.1
-1.0
13.9
6.5
-10.3
71.5
30.6
000533.SZ
002035.SZ
002543.SZ
9911.TW
5947.T
5943.T
AOS.N
452
500
760
186
4,132
1,113
4,757
3.96
10.11
11.50
20.30
8,270
2,280
52.15
n.a.
26.6
-1.6
n.a.
4.9
11.5
11.1
10.5
n.a.
15.4
25.8
n.a.
6.3
8.7
12.7
13.8
n.a.
9.7
14.1
n.a.
19.6
15.8
22.9
16.4
n.a.
8.4
11.2
n.a.
18.4
14.6
20.3
14.6
n.a.
2.0
1.1
n.a.
2.0
1.1
3.2
1.9
n.a.
1.7
1.5
n.a.
1.8
1.0
2.8
1.8
n.a.
2.9
4.0
n.a.
0.8
1.3
1.0
2.0
-5.3
-15.0
-8.6
1.2
6.7
2.7
-3.4
-3.1
-3.6
-15.8
-6.4
6.8
11.5
3.7
1.5
-0.3
-4.1
3.1
143.8
18.4
31.5
46.2
54.4
41.9
0449.HK
000651.SZ
600854.SS
201
14,696
346
0.19
29.57
4.03
120.0
18.0
n.a.
69.0
12.1
17.4
n.a.
14.8
5.6
7.5
n.a.
6.6
5.0
6.4
n.a.
5.7
0.4
2.1
n.a.
1.3
0.4
1.7
n.a.
1.0
4.9
3.5
n.a.
4.2
-1.6
-3.0
-9.0
-4.6
5.7
8.5
-11.4
0.9
-28.8
4.5
0.8
-7.9
0751.HK
1070.HK
600060.SS
000016.SZ
1,476
543
2,348
487
4.08
3.16
10.86
3.69
16.2
42.5
13.1
n.a.
23.9
8.9
25.7
11.6
n.a.
15.4
5.7
6.5
6.8
n.a.
6.3
5.2
5.2
6.1
n.a.
5.5
0.9
0.8
1.3
n.a.
1.0
0.8
0.7
1.2
n.a.
0.9
5.5
4.7
3.8
n.a.
4.6
-3.1
-11.0
-5.6
-2.9
-5.6
8.8
-7.6
-9.8
-1.6
-2.6
-10.1
-37.2
-2.7
8.5
-10.4
0493.HK
002024.SZ
2,742
11,662
1.26
9.56
43.1
15.7
29.4
27.4
64.7
46.0
15.5
71.9
43.7
12.2
43.7
27.9
1.0
2.4
1.7
1.0
2.3
1.6
1.7
0.3
1.0
-6.7
-1.6
-4.2
8.6
-23.0
-7.2
27.3
27.5
27.4
FDX.N
UPS.N
DPWGn.DE
43,871 140.51
92,751 99.91
43,506 26.60
21.6
15.7
9.0
15.4
23.5
13.6
13.6
16.9
17.3
18.4
16.1
17.3
14.0
16.2
14.2
14.8
2.3
28.8
2.8
11.3
2.0
25.7
2.5
10.1
0.5
2.7
3.1
2.1
-1.5
-3.3
0.9
-1.3
8.3
6.5
7.2
7.4
40.8
24.5
54.1
39.8
Water heaters
Macro
Vatti
Vanward
Taiwan Sakura
Rinnai
Noritz
A O Smith
Average
Air-conditioner
Chigo
GREE
Chunlan
Average
TVs
Skyworth Digital
TCL Multimedia
Hisense
Konka
Average
Distributors
GOME
Suning
Average
Logistics
FedEx
UPS
DHL
Average
Source: Company data, Credit Suisse estimates for Haier Electronics, IBES for all other companies' estimates. Prices as of 20 Jan 2014
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
An outstanding ICS provider

Haier Electronics is a leading white goods player in China with a No.1 market share in
washing machines and water heaters. More importantly, its Integrated Channel Services
(ICS) network, which includes the leading distribution platform in Tier 3/4 markets in China,
an extensive logistics network, strong after-sales service capabilities and the e-commerce
platforms, should be a significant growth driver in the coming years, in our view, especially
with strong growth potential from third-party revenue and the strategic alliance with
Alibaba.
Figure 8: Net revenue breakdown (1H13)
No.1 white goods brand with

strong integrated channel
services
Figure 9: Gross revenue breakdown (1H13)
Washing
machines
6.6% Water heaters
1.5%
Washing
machines
16.2%
Water heaters
5.8%
Integrated
channel
services
91.9%
Integrated
channel
services
78.0%
Company background
Haier Electronics has No.1 market shares in the washing machine (27.7% in 1H13
according to China Market Monitor Report) and water heater markets (18.7% in 1H13
according to China Market Monitor Report) in China. Its parent, Haier Group, was founded
in 1984 and is currently the No.1 white goods brand globally, according to Euromonitor.
Parentco Haier Group is

No.1 white goods brand
globally, according to
Euromonitor
The parent Haier Group, as shown in Figure 10, is composed of Haier Investment and
Development Ltd. and Haier Group Corp., with two listed companies, Haier Electronics
and Qingdao Haier, under them. While Haier Electronics is in charge of white goods
products such as washing machines and water heaters, Qingdao Haier controls
refrigerators (No. 1 market share in China, 23.8% in 1H13, according to China Market
Monitor Report), and air conditioning products (No. 3 market share in China, 12.9% in
1H13, according to China Market Monitor Report, following Gree and Midea). Meanwhile,
the black goods business (TVs) is under Haier Group Corp.
Haier Electronics focuses on

washing machines and
water heaters; Qingdao
Haier focuses on air
conditioners and
refrigerators
Figure 10: Haier Group and Haier Electronics
Figure 11: Group product/business chart

Haier Group
Haier Group
White goods
Haier Investment and

Development Ltd.
Haier Group Corp.
Integrated
kitchen
Residential
property
development
Other home
appliance
products
43.4%
13.2%
Haier Elec (1169.HK)
46.7%
Digital and
personal
products
Qingdao Haier
(600690.SH)
Haier Elec
(1169.HK)
Washing machines
Water heaters
Qingdao Haier
(600690.SH)
Air conditioners
Refrigerators
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
Haier Electronics (1169.HK) started its white goods manufacturing business in 2005-06
with an asset injection from the parent company. In 2009-10, the company started to
develop the ICS segment, which is a strategic focus of Haier Group to develop a
consolidated platform from sales distribution to services. ICS has become the fastest
growing segment for Haier Electronics in the past few years.
Haier Electronics started

integrated channel services
in 2009-10
Figure 12: Company history

Time
Event
Dec-1997
Initial public offering of CCT Multimedia (1169.HK) in HK
Dec-2001
May-2006
The listco acquired the mobile phone operation jointly operated by CCT Telecom and Haier Group, and changed the company
name to "Haier-CCT Holdings Ltd."
The company completed the acquisition of top loading washing machine business from Haier Group with second public equity
offering. It changed its name from "Haier-CCT Holdings Ltd." to "Haier Electronics Group Co., Ltd."
The company sold mobile and handset business to Haier Group
Sep-2006
Haier Group injected its front loading washing machines and water heaters into the company
Dec-2007
Haier Group started to participate in the pilot program of "home appliances to the countryside"
Jun-2008
Qingdao announced the acquisition of a 20.1% stake in the company from Deutsche Bank
Sep-2009
Mar-2010
The company announced the establishment of a wholly owned subsidiary in Shanghai to expand the sales, logistics and services
networks for Tier 3/4 cities
Haier Group injected Goodaymart into the company and started to develop the ICS business
Aug-2010
Haier Group injected its logistics business into the company
Jun-2011
Haier Group injected its after-sales services business and online sales platform (eHaier.com) into the company
Aug-2011
Nov-2011
Carlyle Group became a strategic investor. The company issued CBs convertible to 100mn shares and 40mn warrants to Carlyle
Group
The company was included in the MSCI China Index
1H 2012
Set up the external online sales platform Haier.tmall.com
Dec-2013
Alibaba Group became a strategic investor in the logistics business of the company under the brand "Goodaymart" with HK$1,857
mn investment
Jan-2005
ICS: Should be the key growth driver in the future

We believe Haier Electronics will benefit from both top-line growth and margin upside in its
ICS business, which will further strengthen its advantages in distribution, logistics, services
and e-commerce. The third-party brands will be the key revenue growth driver in the next
few years, while the strategic investment by Alibaba will strengthen its logistics business,
in our view.
Figure 13: ICSstrong revenue growth
ICS: Driven by third-party

revenue and the Alibaba tieup
Figure 14: Gross margin on the upward trend (ICS only)

12.0%
90,000
80,000
15% CAGR
in 2013-15E
70,000
10.0%
8.0%
60,000
31% CAGR
in 2010-12
50,000
6.0%
40,000
4.0%
30,000
20,000
2.0%
10,000
0.0%
0
2009
2010
2011
2012
2013E
Revenue (Rmb mn)
2014E
2015E
2009
2010
2011
2012
2013E
2014E
2015E
Gross profit margin
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
Large item logistics: Strategic collaboration with Alibaba

In December 2013, Haier announced the strategic investment by Alibaba Group in its
wholly owned logistics business under Qingdao Haier Logistics Co. Ltd. (QHL). The
investment includes: (1) HK$1.86 bn capital injection into the acquisition target for the
9.9% stake to be held by Alibaba HK (equivalent of HK$0.54 bn) and the 24.1% stake to
be held by Haier Electronics SPV II which is subject to PRC approvals (equivalent of
HK$1.32 bn); (2) HK$965 mn for subscription of 2% enlarged share capital of Haier
Electronics (i.e., 52.4 mn shares) at HK$18.413/share, or a 1% discount to the previous
closing price.
Alibaba to become a
strategic shareholder in the
logistics segment
The acquisition price implied a valuation of HK$5.46 bn or 5.1x historical P/B given QHL's
net asset value at the 2013 interim, which does not look expensive against Haier's
comparable historical P/B of 6.1x at the time.
Acquisition price implies a

5.1x historical P/B
Alibaba will hold 9.9% of QHL after the subscription and has an option to increase its stake
to 24.1% after one year (but before the three-year maturity) with the issue of Convertible &
Exchangeable Bonds (CEB) by Haier Electronics to Alibaba SPV at the principal amount
of HK$1.32 bn. This CEB can be either exchanged for the 24.1% stake in QHL held by
Haier Electronics SPV II, or for 71.1 mn shares of Haier Electronics at an initial conversion
price of HK$19.334/share, with it being Alibaba decision. If the CEB is exchanged for
Haier Electronics' ordinary shares, then Alibaba will become a 4.6% stakeholder of the
enlarged share capital or 4.4% if assuming all CBs and warrants issued to Carlyle are also
exercised.
Alibaba has an option to

either take 2% of Haier
Electronics and 34% of QHL
or 4.6% of Haier Electronics
and 9.9% of QHL with the
issue of CEB
Figure 15: Qingdao Haier Logistics' shareholding structure

Haier Elec
Alibaba SPV
Convertible &
Exchangeable
Bond
Haier Electronics SPV I
100%
100%
Haier Electronics PRC
Haier Electronics SPV II
Alibaba HK
24.1%
66%
9.9%
Qingdao Haier Logistics

(under Goodaymart brand)
Figure 16: Shareholding structure change with the introduction of Alibaba

Before completion
Haier Group
Alibaba SPV
Other Public
Total
Upon completion of share subscription
Exercise of conversion rights
No. of shares
% stake
No. of shares
% stake
No. of shares
% stake
1,570.80
0.00
996.31
2,567.11
61.2
0.0
38.8
100.0
1,570.80
52.39
996.31
2,619.50
60.0
2.0
38.0
100.0
1,570.80
123.52
996.31
2,690.63
58.4
4.6
37.0
100.0
Note: The above outstanding shares excluded the conversion of CBs and warrants.
Recall that QHL has been operating under Goodaymart brand for over a decade. It was
100% acquired by Haier Electronics' wholly owned subsidiary Qingdao New Goodaymart
in July 2011 from Haier Corp for Rmb763 mn. It now aims to become an end-to-end
integrated logistics solutions provider for large items in China. We expect it to be
reorganised with a focus on: (1) warehousing and inventory management; (2) customised
QHL will become an end-toend integrated logics

solution provider for large
items in China
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
end-to-end logistics service for home appliances, furniture and sanitary ware; (3) last mile
services including delivery and installation; (4) value added services, such as repair and
maintenance; and (5) sales of extended warranties.
The introduction of Alibaba should bring more business opportunities, including more
orders from Tmall.com. Management has said it expects 20%+ annual logistics revenue
growth, with third-party brands likely to grow from ~20% of its logistics revenue to 40-50%
in the next few years. We believe this revenue growth target is reasonable given that the
logistics business revenue and net profit grew faster in 1H13. It accounted for 9.1% of
Haier Electronics' total net profit in 1H13, with a net margin of 4.5%, much higher than the
company's total net margin of 2.8%.
Logistics revenue is
expected to grow 20%+
annually
Figure 17: The revenue and net profit of QHL increased rapidly in 1H13
10%
9.1%
9%
8.1%
7.5%
8%
7%
6%
5.7%
5.2%
5.2%
5%
4%
3%
2%
1%
0%
2011
% of total revenue
2012
% of total net profit
Logistics net margin
1H13
Company net margin
Scenario and sensitivity analysis on the impact from Tmall third-party logistics
We have conducted a scenario analysis for the potential revenue and earnings
contribution from a higher allocation of Tmall large item logistics. In our base case, we
expect a 3.2% total revenue contribution and 4.7% earnings contribution in 2015 from
additional third-party logistics business done for Tmall which we have factored in our
financial forecasts. We assume a 75% annual large items sales growth rate in 2014-15E
and 70% allocation of total Tmall large item sales to Goodaymart logistics under QHL by
2015E. Our bull case scenario has even greater upside with 6.6% revenue and 9.6%
earnings contributions in 2015 estimates, assuming 125% annual large items sales growth
in 2014-15E and 90% allocation to Goodaymart logistics by 2015E.
Upside from Tmall thirdparty logistics business:

Base case 3.2% on
revenue and 4.7% on
earnings
Figure 18: Scenario analysis on potential upside from more Tmall third-party logistics
Bull case 6.6% on

revenue and 9.6% on
earnings
Scenario
Upside vs. 2015E estimate

Revenue
Net profit
Bear
Base
Bull
1.7%
3.2%
6.6%
2.5%
4.7%
9.6%
Key assumption
Annual large items sales
Allocation to Goodaymart
growth rate in 2014-15E
logistics
50%
50%
75%
70%
125%
90%
Note: Please refer to Figure 19 for base case full assumption. Source: Credit Suisse estimates
The key assumptions of our base case analysis are shown below. We're confident that the
allocation of total Tmall large item sales to Goodaymart logistics may reach 70% in 2015E,
because according to local media reports, on 11 November 2013, around 0.5 mn large
items' logistics on Tmall were done by Goodaymart logistics, which accounted for 49% of
our total estimated large-item sales volume on Tmall.
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
Figure 19: Base case scenario on the impact from Tmall third-party logistics
Base case assumptions regarding Tmall third-party logistics
Note
Selective large items sales units on 11 Nov 2013 (mn)

- TVs
- Air conditioners
- Refrigerators
- Washing machines
- Water heaters
- Cooking & ventilation appliance
Subtotal
0.165
0.025
0.074
0.102
0.095
0.056
0.517
% of total large item sales (incl. furniture and sanitary wares)

Total 11 Nov 2013E sales volume of large items on Tmall (mn)
% of full year 2013 sales units
Annualised 2013 large item sales volume on Tmall (mn)
50%
1.03
6.37% Using Tmall GMV on 11 Nov 2012 as % of 2012
16.23
- assuming annual growth from 2013 volume

Expected 2015 large item sales volume on Tmall (mn)
75% vs. Tmall 2012 GMV growth rate of 125%

49.71
Average delivery cost (Rmb per unit in 2015E)

% allocated to Goodaymart logistics
Revenue (Rmb mn) to Goodaymart logistics
80 vs. Current sector average at Rmb 60-70

70%
2,784
Net margin
Net profit (Rmb mn) to Goodaymart logistics
5.50% Assume 1pp improvement from 1H13's 4.5%

153.1
% of total Haier Electronics (2015E)

Revenue share
Net profit share
3.2%
4.7%
We have conducted a full sensitivity analysis on the impact on 2015E revenue and
earnings.
Figure 20: Sensitivity analysis on the revenue of 2015E from Tmall third-party logistics
Allocation to
Goodaymart
logistics
50%
60%
70%
80%
90%
100%
Annual large items sales growth rate in 2014-15E

50%
75%
100%
125%
150%
1.7%
2.3%
3.0%
3.8%
4.6%
2.0%
2.8%
3.6%
4.5%
5.5%
2.4%
3.2%
4.1%
5.2%
6.3%
2.7%
3.6%
4.7%
5.9%
7.2%
3.0%
4.1%
5.3%
6.6%
8.0%
3.4%
4.5%
5.8%
7.3%
8.8%
200%
6.5%
7.7%
8.9%
10.0%
11.1%
12.2%
Figure 21: Sensitivity analysis on the earnings of 2015E from Tmall third-party logistics
Allocation to
Goodaymart
logistics
50%
60%
70%
80%
90%
100%
Annual large items sales growth rate in 2014-15E

50%
75%
100%
125%
150%
2.5%
3.4%
4.4%
5.5%
6.8%
3.0%
4.1%
5.3%
6.6%
8.0%
3.5%
4.7%
6.1%
7.6%
9.2%
4.0%
5.4%
6.9%
8.6%
10.4%
4.5%
6.0%
7.7%
9.6%
11.5%
5.0%
6.6%
8.5%
10.5%
12.7%
200%
9.5%
11.1%
12.8%
14.3%
15.8%
17.3%
We believe the independent third-party logistics may have more upside if the Tmall model
proves to be successful. The Goodaymart logistics can also tie up with other large-item
sales networks besides Tmall, which we believe will be a fast growing market in the future.
Given that the logistics business has an annual revenue of only around Rmb3 bn
compared with that of other large item logistics companies, for example, China Deppon
More upside if the Tmall

model is successful and
copied to other large-item
sales network
Haier Electronics
(1169.HK / 1169 HK)
10
21 January 2014
Logistics (), which posted over Rmb10 bn of revenue in 2013 and an over 60% CAGR
in recent years, we believe Goodaymart logistics has plenty of room to grow.
Leading network on distribution, logistics and after-sales service of large items
Haier Electronics has a leading distribution platform in China, especially in Tier 3/4
markets, while the home appliance distribution is highly fragmented with lots of small scale
players and a multi-layered hierarchy. We believe Haier Electronics will benefit from the
distribution industry consolidation and a flattening management structure by providing
standardised services, detailed operational manuals and training for its franchisees and
monitoring inventory turnover efficiency. Most of the stores under Haier Electronics are
franchise stores, with only a few flagship stores operated by the company itself. The assetlight business model helps minimise the inventory risks for the company.
Leading distribution platform

in Tier 3/4 markets should
benefit from industry
consolidation
Figure 22: Leading distribution platform with asset-light franchise model

No. of
stores
Focus Features
Haier community stores

- Nationwide
~3,000 T1/2 market Delivery and installation services
Haier exclusive stores

- Nationwide
incl. county level
30,000+ T3/4 market All Haier products, incl. white & black goods, small home appliances, 3C products, etc.
~8,000
E-store system at county-level stores with 85% coverage
Goodaymart stores
- Nationwide
incl. county level
~2,800 Rural market International brands (GE, HP, Samsung, etc.) and domestic brands (Skyworth, etc.)
~1,000
Develop "Turn-Key" services for third-party brands
Source: Company data, Credit Suisse
The strong distribution platform was supported by Haier Electronics' extensive logistics
network. The company has upgraded its delivery scheduling capability including better
inventory management, effective back-end IT support system, and optimised delivery routes.
Extensive nation-wide
logistics network
Figure 23: Haier's logistics network chart as of end 2012
Haier Electronics
(1169.HK / 1169 HK)
11
21 January 2014
By mid-2013, it had 86 logistics centres including around 10+ Tier 1 logistics centres
covering provinces in some large capital cities, owned by the company. The Tier 2
logistics centres cover different regions, while the Tier 3 ones are used for distribution in
counties and towns. Both are on a rented basis. Haier Electronics plans to increase its Tier
1 centres to 20 in total in five years.
We believe Haier Electronics' logistics network under the Goodaymart brand is difficult to
replicate, as Haier Group started investing in this logistics system in 1996 and built up an
extensive network which competitors can't replicate quickly, especially in Tier 3/4 markets
and rural areas. According to local media reports, the accumulated investment in
Goodaymart logistics has been about Rmb30-40 bn since 1996.
Difficult to replicate
Goodaymart logistics in
which Haier Group started
investing since 1996
Figure 24: Extensive logistics network and differentiated services

Differentiated services
Features
Depth
Direct delivery to towns in Shandong, Shijiazhuang, Chengdu, Nanjing and Guangzhou, with 30%+ town level
markets covered
86 TC to cover 98% of counties nationwide, including 10+ in capital cities on self-owned land and property
24-hour on-time delivery & simultaneous "delivery & installation in 400 cities and 1,500+ counties
Real-time tracking system to cover the whole process
Coverage
Speed
Real-time visibility
Haier Electronics has strong after-sales service capabilities, and is recognised as one of
the most extensive and well-known home appliance after-sales service providers in China.
It has over 15,000 service providers nationwide, and over 40,000 well-trained technical
engineers. It has been ranked No.1 in the Customer Satisfaction Measurement Index
(consumer durables) in China for eight years.
Strong after-sales service

capabilities
It is capable of providing comprehensive service to 13 external home appliance brands.

And it has expanded its after-sales service to furniture and targets to build the largest
third-party service system for furniture installation in China. We believe Haier will continue
to increase its commitment to after-sales service, especially for large household items, as
this part generated the highest gross margin (~50%) among all ICS businesses.
Target to develop third-party

logistics and service system
Third-party brands should be future sales growth drivers

Currently under ICS, around 85% of the revenue comes from Haier branded products, and
the rest from third-party brands (which grew rapidly from only 12% of ICS revenue in 2012).
For Haier Electronics, ICS accounted for over 60% of washing machine sales and over
80% of water heater sales. The company is still in the process of developing into a
professional platform for third-party brands. It also provides one-stop logistics, distribution
and after-sales services to online dealers such as JD.com, T-mall and Dang Dang.
ICS revenue comprises 85%

from Haier brands and15%
from third-party brands
We believe there is good growth potential for Haier Electronics' ICS business, given that
its current main products, Haier-branded products, are still a small portion of China's home
appliance market, though it has leading market shares in many white goods categories.
Third-party brands should

be the future growth drivers
Figure 25: Still lot of room for growth in third-party brand sales
Mkt shr
1
2
3
4
5
Washing machines
Haier
Little Swan
Sanyo
Panasonic
Siemens
27.7%
14.5%
10.1%
7.0%
6.6%
Water heaters
Haier
A.O.Smith
Midea
Macro
Vanward
Air conditioners
18.7%
15.1%
11.0%
9.4%
9.0%
Gree
Midea
Haier
Chigo
Aux
Refrigerators
23.9%
20.9%
12.9%
5.5%
5.5%
Haier
Hisense-Kelon
Meiling
Midea
Siemens
23.8%
19.6%
10.8%
9.8%
6.0%
Source: Company data, China Market Monitor Report
Based on our estimates, the revenue contribution from third-party brands will increase
from 12% of ICS revenue to 21% of ICS revenue in three years, therefore achieving a
strong three-year CAGR of 39.1% compared with only 11.0% for Haier-branded products.
We expect third-party
brands revenue to account
for 21% of ICS revenue in
2015E
Haier Electronics
(1169.HK / 1169 HK)
12
21 January 2014
Figure 26: We expect third-party brands' revenue contribution to increase

2012
2013E
2014E
2015E
12%
5,948
15%
8,508
43.0
18%
11,741
38.0
21%
16,026
36.5
49,667
54,609
10.0
60,507
10.8
68,012
12.4
Third party brands

Revenue as % of ICS net revenue
Revenue (Rmb mn)
YoY%
Haier brands
Implied net revenue
YoY%
Haier Electronics has plans to increase its ICS business by: (1) increasing penetration in
Tier 3/4 and rural markets; (2) more introductions of third-party brands in its stores such as
Goodaymart stores; (3) providing more value-added services such as logistics and aftersales service which have higher margins than pure product sales; (4) expanding its
logistics network and capacity; and (5) new product category development, to strengthen
end-to-end delivery capability in large items, such as home appliances, furniture and
bathroom accessories.
Strategic initiatives to
develop ICS business
E-commerce platform is expected to grow rapidly

E-commerce accounted for only 2% of Haier Electronics' revenue in 1H13, but due to its
small base, the growth rate was very rapid, e.g., its revenue grew ~500% YoY in 1H13.
We believe Haier's e-commerce platform will grow significantly in the coming few years
due to a lack of integrated online-to-offline service providers for existing online large-item
sales and a lack of penetration in Tier 3/4 markets by many existing service providers.
Figure 27: Self-developed eHaier
Figure 28: Haier on Tmall
Source: www.ehaier.com
Source: haier.tmall.com
E-commerce: new but with

significant growth potential
Haier Electronics
(1169.HK / 1169 HK)
13
21 January 2014
A leading white goods player

Haier Electronics is a leading manufacturer of washing machines (27.7% market share)
and water heaters (18.7% market share) in China. It has been consistently ranked No. 1 in
terms of sales volume over the past few years. We believe it will benefit from increasing
penetration of white goods products in China, especially in Tier 3/4 cities and rural markets,
which is far less than black goods' penetration in those areas. We believe the company
will continue to benefit from its focus on innovative new products, especially those that
facilitate energy savings and environmental protection, and maintain its leadership position.
Haier Electronics has a

27.7% washing machine
market share and a 18.7%
water heater market share
in China
Figure 29: Haier washing machines ranked No.1 globally
Figure 30: Haier's water heater market share in China has
for four years
increased steadily
30%
14%
11.8%
12%
10%
28.5%
27.1%
10.9%
8.4%
25%
20.3%
9.1%
20%
8%
15%
6%
10%
4%
7.9%
7.6%
6.0%
5%
2%
0%
0%
2009
2010
2011
2012
2010
Global market share - single brand washing machine
Source: Company data, Euromonitor
2011
Electric water heaters
2012
Gas water heaters
No. 1 market share in washing machines and water heaters in China

Haier washing machine is regarded as both the top brand and top manufacturer in China
as well as globally. According to Euromonitor's global home appliance market survey,
"Haier" brand washing machines ranked No.1 in the world globally in 2012 (and four years
consecutively) with a global market share of 11.8% in terms of single-brand sales volume.
11.8% global market share

for Haier brand washing
machines
Figure 31: Haier holds No. 1 market share in China's
Figure 32: China's washing machine market size in terms
washing machine sector (1H13)
of sales volume
Hisense
Samsung 1.9%
2.5%
Electrolux
3.5%
Whirlpool
3.1%
Midea
4.8%
Siemens
6.6%
Others
18.4%
Haier
27.7%
Little Swan
14.5%
Sanyo
10.1%
Panasonic
7.0%
Sales volume ('000)
Market share in China (in terms of sales volume)
70,000
30%
60,000
25%
50,000
20%
40,000
15%
30,000
10%
20,000
5%
10,000
0%
-5%
2000
2002
2004
2006
2008
Washing machine sales volume in China
2010
2012
YoY%
Source: CEIC, NBS
Haier Electronics
(1169.HK / 1169 HK)
14
21 January 2014
In order to satisfy different market segments, the company developed two more sub-brands in
China, Casarte and Leader, which have grown rapidly from a smaller base. Casarte targets the
high-end market in Tier 1/2 markets to meet upgrade demand, while Leader provides modular
customisation with high performance-to-price (good-value-for-money) products in Tier 3/4
markets, which is popular among young customers. We believe the multi-brand strategy will
help strengthen Haier Electronics' product attraction among customers.
Multi-brand strategy to cover

both high-end and low-end
(value for money) customers
Figure 33: Haier holds No. 1 market share in China water
Figure 34: Market size of electric water heater in China in
heater sector (1H13)
terms of sales volume

30,000
Market share in China (in terms of sales volume)
80%
70%
25,000
Others
19.3%
Rinnai
2.9%
Sales volume ('000)
Haier
18.7%
Noritz
2.9%
A.O.Smith
15.1%
Vatti
3.3%
Ariston
3.5%
Vanward
Macro
9.0%
9.4%
Whirlpool
4.8%
60%
20,000
50%
40%
15,000
30%
10,000
20%
10%
5,000
Midea
11.0%
0%
-10%
2005
2006
2007
2008
2009
2010
2011
Water heater sales volume - Electric
2012
YoY%
Note: The gas water heater sales volume was NA, but its production
volume was 46% of electric ones in 2012; Source: CEIC, NBS
Haier water heaters include three product categorieselectric, gas and solar water
heaters. The company has a dominant market share in electric water heaters, is growing
fast in gas ones (e.g., 30%+ sales volume growth in 2012), and is broadening its product
categories with solar and heat pump water heaters. We expect steady growth in Haier's
water heaters business in the coming years.
Dominant market share in

electric water heaters;
developing fast in gas, solar
and other new products
Potential beneficiary of rural penetration rate increase

We believe penetration of Haier Electronics' products in rural China still has room to grow.
Rural penetration rate
Source: CEIC, NBS
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
10
2000
20
10
2012
20
2011
30
2010
40
30
2009
40
2008
50
2007
60
50
2006
60
2005
70
2004
80
70
2003
90
80
2002
90
2001
100
2000
100
2002
(per 100 households)
2001
Figure 36: The penetration rate of water heaters in China
China (per 100 households)
Figure 35: The penetration rate of washing machines in
Urban penetration rate
Urban penetration rate
Source: Company data, NBS
Haier Electronics
(1169.HK / 1169 HK)
15
21 January 2014
As shown in Figure 35, the rural penetration rate of washing machines still has plenty of
room to grow although it had increased from 28.6 per 100 households in 2000 to 67.2 per
100 households in 2012. It's still far below the 98.0 per 100 households urban penetration
rate in China in 2012. As for the water heaters business, urban penetration has rapidly
grown over the past ten years to 91.0% in 2012. Although rural penetration data are
unavailable, we believe it should be much lower than the urban one, therefore the growth
potential is still positive for Haier Electronics, especially as it focuses on Tier 3/4 and rural
areas.
Rural penetration of
washing machines and
water heaters still has plenty
of room to grow
Overall, white goods penetration in rural China is still far below that of black goods (TVs)
as shown in Figure 37, which we believe is partly due to a weak distribution network and
logistics services in those areas, not to mention the lack of after-sales service providers.
We believe the growing penetration trend in rural areas will benefit Haier Electronics in
coming years, especially for its ICS business and the development of independent thirdparty brands' distribution and logistics.
The ICS business will

probably be driven by lower
penetration of white goods
than black goods
Figure 37: White goods penetration in rural areas is much lower than that of black goods
160
136.1
140
126.8
116.9
120
100
98.0
80
98.5
91.0
67.3
67.2
60
40
25.4
20
0
Washing machines
Water heaters
Air conditioners
Urban
Refrigerators
TV
Rural
Source: CEIC, NBS
Strategic focus on trendy and innovative new products

Haier Electronics has been developing new products leveraging on its open interactive
product development platform. The company has made a strong commitment and
progress in energy-saving and green technology, e.g., the technology of filtering washing
and rinse water with ultrafiltration membranes, which raises the sterilisation rate to over
99% and reduces water consumption by over 40% at the same time. In water heater
products, its X1 gas water heater series carries the third-generation thermostatic
technology which limits the thermostatic deviation to less than 0.5C and the advanced
condensing technology which improves the thermal efficiency to 103.4%, significantly
increasing energy saving and environmental protection. We believe Haier Electronics will
benefit from the market trend and potential government requirements on products with
more focus on energy saving and environmental protection.
Product innovation focuses

on energy-saving and green
technology
The company also focuses on the development of smart appliances under the smart home
concept. For example, the newly developed Haier U-Home washing machines support WiFi connection and real-time monitoring of washing progress with remote control via mobile
phones, computers, etc.
Smart appliance is also an

important future direction
Haier Electronics
(1169.HK / 1169 HK)
16
21 January 2014
Earnings forecasts and valuation

We expect Haier Electronics to achieve a 16.0% three-year revenue CAGR and a 23.2%
three-year EPS CAGR over 2013-15 driven by strong growth in integrated channel
services with top-line growth amid market consolidation and margin expansion. The thirdparty brands should be the main growth driver, together with higher contributions from
logistics, services and e-commerce. We believe that the Haier-branded products will grow
steadily in future and maintain their leading market share.
We forecast a 16.0%
revenue CAGR and a 23.2%
EPS CAGR in 2013-15E
Haier Electronics is trading at 18.8x 2014E or 14.4x 2015E P/E. Excluding its net cash on
hand, the stock is trading at 14.8x 2014E or 11.3x 2015E ex-cash P/E. We believe the
increasing earnings contribution from the ICS business will continue to create
opportunities for a re-rating. By 2016, we forecast the profit contribution will increase to
55% (from 32% in 2013E).
Re-rating on higher ICS

profit contribution
We have used sum-of-the-parts valuation11.5x target P/E for the washing machine
business, 14.5x for the water heater business, and 24.0x for the ICS business, with
reference to comps companies in each sector, and weighted by segment profit contribution.
Our target price of HK$30.0 is based on an average 18.9x target 2015E P/E weighted by
sector profit share, implying 31% potential upside. Our target price implies 0.8x target PEG.
If we exclude the expected net cash on hand, our target price implies only15.8x 2015E excash P/E. We initiate coverage on Haier Electronics with an OUTPERFORM rating. We
believe the potential upside may come from faster growth and higher earnings contribution
from the ICS business, especially with greater business opportunities from the alliance
with Alibaba.
Our target price of HK$30.0

is based on an 18.9x SOTP
target 2015E P/E
Earnings forecasts
We forecast 13.5%/15.8%/18.8% net revenue growth in 2013 through 2015, respectively,
(or a 16.0% three-year CAGR), driven by the increasing contribution from integrated
channel services (ICS), which we expect to achieve a 15.5% three-year CAGR, as well as
the new independent third-party logistics business with the tie-up of Alibaba.
Revenue growth mainly

driven by ICS and the
independent Tmall thirdparty logistics
Figure 38: Revenue forecasts

2010
2011
2012
2013E
2014E
2015E
6,676
1,408
28,710
0
36,794
4,887
549
44,654
0
50,090
5,198
849
49,569
0
55,615
5,550
849
56,719
0
63,117
6,105
916
65,226
826
73,074
6,715
1,008
76,315
2,784
86,822
11,519
3,126
29,264
0
43,909
12,215
3,828
45,377
0
61,421
13,277
4,489
50,769
0
68,535
14,605
4,714
57,876
0
77,195
16,066
5,091
66,558
826
88,540
17,672
5,600
77,872
2,784
103,928
25.4
33.3
1,603.9
n.m.
231.4
6.0
22.5
55.1
n.m.
39.9
8.7
17.3
11.9
n.m.
11.6
10.0
5.0
14.0
n.m.
12.6
10.0
8.0
15.0
n.m.
14.7
10.0
10.0
17.0
236.9
17.4
Net revenue
Washing machines
Water heaters
Integrated channel services
Tmall logistics contribution
Total
Gross revenue
Washing machines
Water heaters
Total
Gross revenue YoY%
Washing machines
Water heaters
Total
For 2013E alone, we expect 14.8% YoY revenue growth in 4Q13E or 13.5% for the full
year. We believe the negative impact of the termination of the energy saving subsidy
programme has already been fully digested in 2Q13.
We forecast 14.8% gross

revenue growth in 4Q13
Haier Electronics
(1169.HK / 1169 HK)
17
21 January 2014
Figure 39: 2013 quarterly revenue
Figure 40: 2013 quarterly revenue YoY change

25
25,000
20
15
10
15,000
YoY%
Rmb mn
20,000
10,000
0
-5
5,000
-10
-15
0
1Q13
Washing machines
2Q13
3Q13
Water heaters
1Q13
4Q13E
Washing machines
2Q13
3Q13
Water heaters
4Q13E
As for margins, we expect both gross and operating margins for washing machines and
water heaters to remain stable, as these are mature businesses for the company and
further margin upside may be limited as it is important for the company to maintain a
leading market share. The change in gross margin for water heaters in 1H13 (-7.5 pp YoY),
was mainly due to the accounting adjustment by taking out the installation revenue and
margin from water heaters and putting them under ICS now. We believe this accounting
change won't affect the company's profitability, just the segment breakdown.
We expect margin
expansion mainly from the
ICS business
We expect ICS' business margin to improve gradually with: (1) improving efficiency in the
distribution and logistics network; (2) increasing contribution from higher-margin service
businesses; and (3) economies of scale for the growing logistics and e-commerce
operations. The termination of the Argos JV (with Home Retail Group) in 2H12 has been
fully accounted for with one-off losses (Rmb106 mn), therefore it won't be a drag on
profitability any more.
ICS margin may benefit

from improving efficiency
and higher contribution from
service business
Figure 41: Margin forecasts

2010
2011
2012
2013E
2014E
2015E
28.1
42.5
3.1
27.8
41.9
7.3
27.8
43.0
8.2
27.0
34.5
9.0
12.5
13.1
13.5
15.0
14.3
16.1
14.0
15.5
27.0
34.5
9.6
10.5
14.2
15.7
27.0
34.5
10.2
11.0
14.4
15.7
7.6
10.2
1.6
7.3
10.0
1.6
8.3
11.1
1.4
8.1
12.0
1.5
3.8
3.9
3.3
3.7
3.4
4.3
3.4
4.3
8.1
12.0
2.0
6.5
3.7
4.7
8.1
12.0
2.4
7.0
4.0
5.0
Gross margin on gross revenue (%)

Washing machines
Water heaters
Total gross margin
Reported gross margin
Operating margin on gross revenue (%)

Washing machines
Water heaters
Total operating margin
Reported operating margin
We forecast 17.8/26.7/27.7% net profit growth in 2013 through 2015, respectively (a

24.0% three-year CAGR). Due to the potential dilution from the issue of CBs and warrants,
diluted EPS growth is slightly lower, at a 23.2% three-year CAGR in 2013-15E. For 4Q13E
specifically, we forecast Rmb608 mn net profit, +16.0% YoY.
We forecast 16.0% net profit

growth in 4Q13E
Haier Electronics
(1169.HK / 1169 HK)
18
21 January 2014
Figure 43: 2013 quarterly net profit
3,500
50.0
45.0
3,000
40.0
25.0
1,500
20.0
Rmb mn
30.0
2,000
15.0
1,000
2011
2012
2013E
Net profit
2014E
20.0
400
15.0
300
10.0
5.0
0.0
2010
25.0
100
5.0
600
200
10.0
500
30.0
500
35.0
Rmb mn
2,500
700
0.0
1Q13
2015E
2Q13
3Q13
Net profit
YoY%
Figure 42: Net profit forecasts
4Q13E
YoY%
We expect Haier to continue its prudent control of working capital with the cash conversion
cycle being below 40 days. We also expect it to maintain a strong cash position. As of
1H13, the company had net cash on hand of Rmb5.1 bn, or an 81% net cash-to-equity
ratio.
Prudent working capital

control; strong cash position
The company's dividend payout ratio is only ~10%, which we believe may be increased,
given that the company has completed a large amount of investment in ICS in the past few
years. There is no promise from management though. Further use of cash may be for
potential M&A opportunities.
Dividend payout ratio may

be increased, but may
depend on M&A
opportunities
Figure 44: Working capital turnover days
Figure 45: Strong net cash on hand
120
12,000
120.0
10,000
100.0
8,000
80.0
6,000
60.0
4,000
40.0
2,000
20.0
80
40
Rmb mn
No. of days
60
20
0
-20
-40
100
-60
-80
0
2007
2008
Inventory
2009
AR
2010
2011
AP
2012 2013E 2014E 2015E

Cash conversion cycle
0.0
2007
Net cash
2009
2011
2013E
2015E
Net cash to shareholders' equity (%)
Haier Electronics
(1169.HK / 1169 HK)
19
21 January 2014
Valuation
Haier Electronics is trading at 18.8x 2014E or 14.4x 2015E P/E. Excluding its net cash on
hand, the stock is trading at 14.8x 2014E or 11.3x 2015E ex-cash P/E. We have put all
comparable companies in Figure 53, including white goods players, distributors and
logistics players, as well as some black goods companies. We found China washing
machine players are trading at an average 10.5x 2015E P/E, water heater players at an
average 14.6x 2015E P/E, and distributors at 27.9x 2015E P/E. The distributors' valuation
may not be a good reference given the business volatility the distributors are experiencing.
Currently trading at 18.8x

2014E or 14.4x 2015E P/E
We believe Haier Electronics has higher potential price upside given its large exposure to
integrated channel services, which should be a much more value added business than
pure white goods manufacturing and sales. The value-adding logistics, service and ecommerce businesses may provide significant upside in the long run as China is still weak
in this aspect on large items. We believe Haier Electronics' share price has partly reflected
the re-rating in recent years with increasing earnings contribution from the ICS business.
Re-rating on increasing
contribution from ICS
Figure 46: Operating profit contribution from ICS is expect to grow from 32% in 2013 to
55% in 2016
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009
2010
2011
2012
2013E
2014E
2015E
2016E
Washing machines & water heaters
We recall that e-commerce in the US had developed rapidly before 2004-05, therefore we
refer to the forward P/E for US-based logistics companies FedEx and UPS during the five
years from 2000 to 2004 as valuation reference for Haier Electronics' ICS business. These
two companies were trading at an average forward P/E of 18.8x and 25.4x, respectively,
during the period. As Haier Electronics' ICS business has specialised on large-item goods,
including not just logistics, but also value-added installation and after-sales services, we
believe the entry barrier is higher than standard-size parcels. As a result, we decide to give
the ICS business a target P/E multiple of 24x, close to the high end of the reference range.
US logistics comps as
reference for ICS valuation
Our valuation base is 2015E. We used 11.5x target P/E for the washing machine business,
14.5x for the water heater business, and 24.0x for the ICS business, with reference to
comps companies in each sector. The sum-of-the-parts valuation is based on the
company's segment profit contribution percentage in 2016E. Our target price of HK$30.0
is based on the SOTP-implied 18.9x target 2015E P/E, implying 31% potential upside. Our
target price implies 0.8x target PEG based on a 23.2% three-year EPS CAGR in 2013-15E.
If we exclude the expected net cash on hand, it implies 15.8x 2015E ex-cash P/E only.
SOTP-based target price of

HK$30.0 is based on the
blended 18.9x target 2015E
PE
We initiate coverage on Haier Electronics with an OUTPERFORM rating. We believe the

potential upside may come from faster growth and higher earnings contribution from the
ICS business, especially with greater business opportunities from the tie-up with Alibaba.
Alibaba tie-up may result in

higher upside
Haier Electronics
(1169.HK / 1169 HK)
20
21 January 2014
Figure 47: SOTP valuation (2015E valuation base)
Washing machines
Water heaters
ICS
SOTP valuation
Segment profit
share
30.1%
14.6%
55.3%
100.0%
Target 2015E
P/E (x)
11.5
14.5
24.0
18.9
Valuation basis
Washing machine comps
Water heater comps
Logistics companies FedEx and UPS in 2000-2004
Sum of the parts
The biggest valuation variation should come from the target P/E given to the ICS business.
We assume different target P/Es for the ICS business and get a scenario analysis on
related SOTP P/Es and target prices as show in Figure 48.
Target PE scenario analysis
Figure 48: Target P/E scenario analysis

Bear
15.0
13.9
22.0
-4%
ICS target P/E

SOTP target P/E
Target price (HK$)
Potential upside
17.0
15.0
23.8
4%
20.0
16.6
26.3
15%
Base case
24.0
18.9
30.0
31%
25.0
19.4
30.8
35%
Bull
30.0
22.2
35.2
54%
27.0
20.5
32.5
42%
Figure 49: Forward P/E band chart
Figure 50: Historical average forward P/E at 12x
(HK$)
20.0x
25
35.0
30.0
16.0x
20
25.0
12.0x
15
20.0
Average 12.0x
15.0
8.0x
10
10.0
4.0x
5.0
Figure 52: Historical average forward P/B at 2.8x
(HK$)
25
4.8x
20
3.8x
Jan-14
Figure 51: Forward P/B band chart
Jan-14
Jul-13
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jan-14
Jul-10
Jan-13
Jan-10
Jan-12
Jul-09
Jan-11
Jan-09
Jan-10
Jul-08
Jan-09
Jan-08
Jan-08
Jul-07
0
Jan-07
Jan-07
0.0
6.0
5.0
4.0
15
2.8x
10
1.8x
Average 2.8x
3.0
2.0
1.0
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jan-14
Jul-10
Jan-13
Jan-10
Jan-12
Jul-09
Jan-11
Jan-09
Jan-10
Jul-08
Jan-09
Jan-08
Jan-08
0.0
Jul-07
0
Jan-07
0.8x
Jan-07
Haier Electronics
(1169.HK / 1169 HK)
21
21 January 2014
Figure 53: Valuation comps

Mkt
cap
Name
Ticker
Haier Electronics
1169.HK
US$ mn
Price
(Loc
EPS growth
(%)
P/E
(x)
P/B
(x)
Yield
(%)
Price Performance
1M
3M
1Y
22.85
27.0
24.8
18.0
14.4
4.4
3.4
0.6
12.6
42.3
93.3
8,879 19.75
627 10.58
1,527 10.33
3,202
2.28
2,662
3.49
448
4.51
549
4.87
13,238 47.51
12,311 156.84
14.9
21.6
21.6
23.4
10.0
21.9
n.a.
20.1
21.5
19.4
19.3
30.2
30.2
27.0
n.a.
19.4
n.a.
18.4
15.8
22.9
11.6
7.6
9.4
8.3
31.7
10.8
n.a.
9.1
12.8
12.7
9.8
5.9
7.3
6.6
n.a.
9.1
n.a.
7.7
11.0
8.2
3.1
3.0
3.7
1.3
1.1
1.0
n.a.
2.3
2.2
2.2
2.5
1.9
2.3
1.1
n.a.
0.9
n.a.
1.8
1.8
1.8
2.5
2.8
2.2
3.9
0.9
2.8
n.a.
3.8
1.8
2.6
8.6
-4.9
-8.9
0.0
17.1
-9.4
-5.4
-8.2
1.0
-1.1
19.3
55.1
5.8
-7.7
29.3
11.4
-18.8
0.2
7.3
11.3
39.5
185.9
39.4
-8.1
63.8
5.6
84.5
n.a.
53.3
58.0
7,594
curr) CY14E CY15E CY14E CY15E CY14E CY15E CY14E
Comprehensive
Qingdao Haier
Hisense Kelon H
Hisense Kelon A
TCL Corp.
Changhong
Meiling
Aucma
Midea Group
Whirlpool
Average
600690.SS
0921.HK
000921.SZ
000100.SZ
600839.SS
000521.SZ
600336.SS
000333.SZ
WHR.N
Washing machines
Little Swan
Hefei Sanyo
Average
000418.SZ
600983.SS
632
1,181
8.67
13.41
21.1
23.7
22.4
14.5
19.2
16.8
10.3
14.5
12.4
9.0
12.1
10.5
1.2
2.8
2.0
1.1
2.5
1.8
2.2
1.4
1.8
-7.5
-14.7
-11.1
-1.0
13.9
6.5
-10.3
71.5
30.6
000533.SZ
002035.SZ
002543.SZ
9911.TW
5947.T
5943.T
AOS.N
452
500
760
186
4,132
1,113
4,757
3.96
10.11
11.50
20.30
8,270
2,280
52.15
n.a.
26.6
-1.6
n.a.
4.9
11.5
11.1
10.5
n.a.
15.4
25.8
n.a.
6.3
8.7
12.7
13.8
n.a.
9.7
14.1
n.a.
19.6
15.8
22.9
16.4
n.a.
8.4
11.2
n.a.
18.4
14.6
20.3
14.6
n.a.
2.0
1.1
n.a.
2.0
1.1
3.2
1.9
n.a.
1.7
1.5
n.a.
1.8
1.0
2.8
1.8
n.a.
2.9
4.0
n.a.
0.8
1.3
1.0
2.0
-5.3
-15.0
-8.6
1.2
6.7
2.7
-3.4
-3.1
-3.6
-15.8
-6.4
6.8
11.5
3.7
1.5
-0.3
-4.1
3.1
143.8
18.4
31.5
46.2
54.4
41.9
0449.HK
000651.SZ
600854.SS
201
14,696
346
0.19
29.57
4.03
120.0
18.0
n.a.
69.0
12.1
17.4
n.a.
14.8
5.6
7.5
n.a.
6.6
5.0
6.4
n.a.
5.7
0.4
2.1
n.a.
1.3
0.4
1.7
n.a.
1.0
4.9
3.5
n.a.
4.2
-1.6
-3.0
-9.0
-4.6
5.7
8.5
-11.4
0.9
-28.8
4.5
0.8
-7.9
0751.HK
1070.HK
600060.SS
000016.SZ
1,476
543
2,348
487
4.08
3.16
10.86
3.69
16.2
42.5
13.1
n.a.
23.9
8.9
25.7
11.6
n.a.
15.4
5.7
6.5
6.8
n.a.
6.3
5.2
5.2
6.1
n.a.
5.5
0.9
0.8
1.3
n.a.
1.0
0.8
0.7
1.2
n.a.
0.9
5.5
4.7
3.8
n.a.
4.6
-3.1
-11.0
-5.6
-2.9
-5.6
8.8
-7.6
-9.8
-1.6
-2.6
-10.1
-37.2
-2.7
8.5
-10.4
0493.HK
002024.SZ
2,742
11,662
1.26
9.56
43.1
15.7
29.4
27.4
64.7
46.0
15.5
71.9
43.7
12.2
43.7
27.9
1.0
2.4
1.7
1.0
2.3
1.6
1.7
0.3
1.0
-6.7
-1.6
-4.2
8.6
-23.0
-7.2
27.3
27.5
27.4
FDX.N
UPS.N
DPWGn.DE
43,871 140.51
92,751 99.91
43,506 26.60
21.6
15.7
9.0
15.4
23.5
13.6
13.6
16.9
17.3
18.4
16.1
17.3
14.0
16.2
14.2
14.8
2.3
28.8
2.8
11.3
2.0
25.7
2.5
10.1
0.5
2.7
3.1
2.1
-1.5
-3.3
0.9
-1.3
8.3
6.5
7.2
7.4
40.8
24.5
54.1
39.8
Water heaters
Macro
Vatti
Vanward
Taiwan Sakura
Rinnai
Noritz
A O Smith
Average
Air-conditioner
Chigo
GREE
Chunlan
Average
TVs
Skyworth Digital
TCL Multimedia
Hisense
Konka
Average
Distributors
GOME
Suning
Average
Logistics
FedEx
UPS
DHL
Average
Source: Company data, Credit Suisse estimates for Haier Electronics, IBES for all other companies' estimates. Prices as of 20 Jan 2014
Haier Electronics
(1169.HK / 1169 HK)
22
21 January 2014
Figure 54: Business comps

Name
Ticker
Haier Electronics
1169.HK
Revenue
(US$mn) Business description (revenue breakdown)
9,189 Washing machine 9%, water heater 2%, integrated channel services 89%
Comprehensive
Qingdao Haier
Hisense Kelon
TCL Corp.
Changhong
Meiling
Aucma
Midea Group *
Whirlpool
600690.SS
0921.HK
000100.SZ
600839.SS
000521.SZ
600336.SS
000333.SZ
WHR.N
13,124
3,133
11,437
8,586
1,523
658
11,248
18,143
Refrigerator 32%, air conditioner 19%, washing machine 17%, logistic services 16%, others 16%
Refrigerator 45%, air conditioner 35%, other household appliances 20%
Multimedia 47%, IT distribution 19%, mobile phone 14%, others 20%
Multimedia 33%, IT products 23%, household appliances 18%, others 26%
Refrigerator 68%, air conditioner 26%, others 6%
Refrigerator 64%, other white goods 12%, electric bicycle 17%, others 7%
Major appliance (air conditioner, washing machine, refrigerator and compressor) 93%, others 7%
Washing machine 30%, refrigerator 30%, home cooking appliances 17%, others 23%
Washing machines
Little Swan
Hefei Sanyo
000418.SZ
600983.SS
1,135 Washing machine 90%, others 10%

660 Washing machine 85%, refrigerator 6%, others 9%
000533.SZ
002035.SZ
002543.SZ
9911.TW
5947.T
5943.T
AOS.N
324
409
500
132
2,418
1,796
1,939
Water heaters
Macro
Vatti
Vanward
Taiwan Sakura
Rinnai
Noritz
A O Smith
Water heater 94%, others 6%

Water heater 23%, smoke exhaust 34%, cooking appliances 30%, others 13%
Water heater 50%, peripheral accessories 43%, others 7%
Water heater 41%, kitchen appliances 53%, others 6%
Water heater 51%, kitchen appliances 31%, air conditioner 6%, others 12%
Water heater and air conditioner 100%
Water heaters products 100%
Air-conditioner
Chigo
GREE
Chunlan
0449.HK
000651.SZ
600854.SS
1,454 Air conditioner 97%, others 3%

16,444 Air conditioner 89%, others 11%
122 Air conditioner 69%, others 31%
GOME
0493.HK
Suning
002024.SZ
7,909 Black goods 23%, refrigerator & washing machine 18%, communication products 16%, air
conditioner 14%, small appliances 12%, others 17%
16,200 Black goods 22%, IT products 19%, communication products 17%, white goods 16%, small
appliances 13%, air conditioner 11%, others 4%
Distributors
TVs
Skyworth Digital
TCL Multimedia
Hisense
Konka
0751.HK
1070.HK
600060.SS
000016.SZ
4,878
5,118
4,161
3,018
TV 80%, set-top box 10%, others 10%

TV 88%, others 12%
TV 89%, others 11%
TV 79%, mobile phone 8%, others 15%
Note: All data as of reported in the last full year financial report, except for Midea Group with last data as of Year 2011.
Haier Electronics
(1169.HK / 1169 HK)
23
21 January 2014
Investment risks
Key investment risks for Haier Electronics include weakness in economic growth and an
end-market demand slowdown, regulatory and stimulative policy changes, difficulty in
growing third-party brand sales, possible raw materials and/or labour cost hikes, the failure
of working capital and franchisee controls, as well as corporate governance risks such as
those from connected party transactions.
Risk factors: economy, enddemand, policy, cost and

working capital, etc.
Risks of economic growth and end-market demand

We believe certain macroeconomic factors and the potential risk of an economic growth
slowdown are some of the key investment risks to Haier Electronics. As a consumer
durable products distributor and channel services provider, we believe overall economic
growth, stability in the residential property market, and disposable income growth would
affect end-market demand for Haier Electronics' products and services. Should there be a
slowdown in domestic economic activities or a sudden contraction in property transaction
volumes, some of Haier Electronics' business segments would likely be adversely affected.
Economic risks: disposable

income growth, residential
property market, economic
growth, etc.
Policy risks regarding energy saving, environmental protection, subsidy, etc.

China has experienced several rounds of multi-year household appliance supportive
policies in recent times, mainly including home appliances in the countryside, swapping
old for new, and the energy-saving subsidy programme. Overall, these policies are
favourable to the China household appliance industry and market players, as they
stimulate end-demand, safeguarding manufacturers from the export order tumbles post
the global financial crisis, and encouraging upgrades to high technological and
environmentally friendly models. However, the side effects of these policies also include
pre-exhausting market demand, intervening in the industry cycle and hindering market
consolidation. We believe any likely new policies focused on energy saving and
environmental protection (e.g. the widely talked about "Energy-saving Leader Plan") are
the swing risks for Haier Electronics, since such programmes may affect market demand
for certain products.
Policy risks may affect

market demand for certain
products
Figure 55: China's household appliance subsidy programmes

Policy
Start date
End date
Content
Home Appliances to the

Countryside
Pilot
November 2007;
Formal implementation
- December 2008;
Fully expansion February 2009
Four years according

to the start date.
Last batch expired in
January 2013
Swapping old for new
May 2009
December 2011
Energy saving subsidy

program
June 2012
May 2013
China Ministry of Finance and Ministry of Commerce launched

the subsidy programme. The rural consumers received 13% of
subsidy from the central (80%) and local (20%) governments
when they purchased the eligible household appliance products.
Eligible categories included colour TVs, refrigerators, handsets,
washing machines, air conditioners, water heaters, computers,
microwave ovens, and induction cookers. Each category had a
price cap.
Chinas State Council launched the Rmb2 bn old for new
subsidy programme to encourage the replacement of old home
appliances in urban areas. Buyers who sell five kinds of old
home appliances (TVs, refrigerators, washing machines, airconditioners and personal computers) to governmentdesignated dealers and purchase new ones received a subsidy
equal to 10% of the sales price of the new appliances. Each
category had a subsidy cap.
China State Council launched the energy-saving consumption
subsidy programme. Consumers who bought eligible energysaving products within five types of home appliancesTVs, air
conditioners, washing machines, water heaters and refrigerators
(aggregate subsidy amount ~Rmb26.5 bn), and energy-saving
vehicles, LED lighting and electric motors (aggregate subsidy
amount ~Rmb9.8 bn) were subsidized.
Source: China Ministry of Finance, China Ministry of Commerce, China's State Council
Haier Electronics
(1169.HK / 1169 HK)
24
21 January 2014
Risks of growing sales of third-party brands

Revenue from third-party brands is one of our key assumptions for the future growth of
Haier Electronics, which we expect to grow from the current 15% of ICS revenue to 21% in
2015. The difficulty in growing the third-party brands is the potential cannibalisation of
Haier brand sales or concerns by third-party brand owners in terms of competition. We
believe it's crucial for the company to develop an independent platform for distribution,
logistics and services provided by third-party brands. The failure to grow the revenue from
third-party brands may affect the company's revenue growth and earnings.
We believe it's crucial to

develop an independent
platform for ICS for thirdparty brands to reduce the
risks
Risks from costs, such as raw materials and labour

Cost control is an essential risk factor given that the traditional household appliance
retailing and marketing model is facing greater challenges from the booming e-commerce
market and low price competition. For Haier Electronics' manufacturing business, raw
materials accounted for ~60% of COGS. Therefore, the volatility in raw material prices,
such as copper, is a potential risk to profitability. Labour cost is another key area to
monitor, especially regarding the company's sales team, logistics and service providers.
For example, the Goodaymart business has over 3,000 sales workers who are important
assets to the company's distribution network. Labour cost increases should be monitored
closely.
Raw material volatility and

sales staff salary hikes may
affect the company's
profitability
Risks of working capital control and franchisee control

Given the companys large retail network, we believe working capital management is of
essential importance for its sustainable development, especially the account receivable
turnover and inventory turnover, not just for the company but also including the retail-end
management by its franchisees. Haier Electronics' inventory turnover days increased from
11 days in 2010 to 18 days in 2012 with fast distribution network expansion. Its cash
conversion cycle was 37 days in 2012 which we expect the company to maintain. A failure
in working capital control may jeopardise its cash flow and profitability
Working capital control is

crucial for Haier Electronics'
franchisee management and
cash flows
Corporate governance risks from connected party transactions

Historically, Haier Electronics has worked closely with its parent Haier Group and Haier
Group's other subsidiaries. Haier Group injected the washing machine and water heater
businesses into the company in 2006, and Goodaymart which started the development of
the integrated service business in 2010. Such connected party transactions shaped the
business profile of Haier Electronics. At the same time, the company's ICS business sells
Haier-branded products made by other subsidiaries of the Group, including Qingdao Haier.
We believe these connected party transactions should be monitored closely to minimise
any potential unjustified and detrimental impact on minority investors' interests.
The connected party

transactions include M&A
opportunities and crossselling of Haier Group's
products, and therefore
should be monitored closely
Haier Electronics
(1169.HK / 1169 HK)
25
21 January 2014
Appendix I: Financial statements

Figure 56: Haier Electronicsincome statement
Rmb mn
2010
2011
2012
2013E
2014E
2015E
36,794.5
50,089.9
55,615.0
63,117.1
73,074.0
86,821.9
-31,966.7
4,827.8
-42,582.6
7,507.3
-46,673.9
8,941.2
-53,308.6
9,808.5
-61,635.0
11,439.1
-73,215.0
13,606.9
63.1
-2,538.1
-917.9
-1.1
1,433.8
78.2
-4,157.3
-1,573.0
-0.1
1,855.1
70.4
-4,569.5
-2,046.4
-16.7
2,379.0
94.7
-5,031.3
-2,171.4
16.9
2,717.3
109.6
-5,689.5
-2,466.9
69.6
3,461.9
130.2
-6,510.0
-3,000.9
149.3
4,375.6
D&A
EBITDA
81.3
1,515.1
95.2
1,950.3
111.4
2,490.4
120.7
2,838.0
132.1
3,594.1
156.9
4,532.5
Finance income
Finance costs
Share of profit of a JV
Extraordinary
Profit before taxation
11.0
-5.2
5.3
0.0
1,444.9
21.2
-22.5
0.0
0.0
1,853.9
35.9
-64.5
0.0
-106.1
2,244.3
54.5
-125.8
0.0
0.0
2,646.0
74.8
-185.0
0.0
0.0
3,351.8
89.4
-185.0
0.0
0.0
4,280.0
Taxation
Profit for the period
Minority interests
Profit to equity shareholders
-429.1
1,015.7
-41.5
974.2
-386.9
1,466.9
-59.5
1,407.5
-537.3
1,707.0
-11.9
1,695.1
-635.1
2,011.0
-14.0
1,997.0
-804.4
2,547.4
-17.7
2,529.7
-1,027.2
3,252.8
-22.6
3,230.2
Basic EPS (Rmb)

Diluted EPS (Rmb)
0.473
0.411
0.612
0.556
0.707
0.662
0.793
0.781
0.979
0.992
1.239
1.238
DPS (Rmb)
Dividend payout ratio
0.00
0.0
0.00
0.0
0.07
9.3
0.08
10.0
0.10
10.0
0.12
10.0
13.1
3.9
6.9
2.5
4.1
3.9
2.6
29.7
15.0
3.7
8.3
3.1
3.9
3.7
2.8
20.9
16.1
4.3
8.2
3.7
4.5
4.0
3.0
23.9
15.5
4.3
8.0
3.4
4.5
4.2
3.2
24.0
15.7
4.7
7.8
3.4
4.9
4.6
3.5
24.0
15.7
5.0
7.5
3.5
5.2
4.9
3.7
24.0
185.7
49.8
107.5
124.7
124.1
103.4
117.1
99.4
36.1
55.5
28.7
29.4
28.3
44.4
44.5
35.2
11.0
19.1
27.7
28.2
21.1
16.4
20.4
19.1
13.5
9.7
14.0
14.2
17.9
17.8
17.8
18.0
15.8
16.6
26.6
27.4
26.7
26.7
26.7
27.0
18.8
19.0
26.1
26.4
27.7
27.7
27.7
24.8
45.8
12.4
42.4
12.1
35.4
10.5
29.0
9.7
26.7
10.1
26.3
10.8
Turnover
Cost of sales
Gross profit
Other revenue
Selling & distribution expenses
Admin expenses
Other expenses and losses
Operating profit
Margins (%)
Gross margin
Operating margin
S&D / Sales
Admin / Sales
EBITDA margin
PBT margin
Net margin
Effective tax rate
YoY (%)
Revenue
Gross profit
EBITDA
Operating profit
PBT
PAT
Net profit
Diluted EPS
ROE (%)
ROA (%)
Haier Electronics
(1169.HK / 1169 HK)
26
21 January 2014
Figure 57: Haier Electronicsbalance sheet

Rmb mn
2010
2011
2012
2013E
2014E
2015E
Cash & cash equivalents

Pledged deposits
Trade & bills receivables
Prepayments and other receivables
Inventories
Total current assets
2,737.4
3.0
3,931.7
653.8
1,358.3
8,684.3
3,961.8
87.4
5,581.4
870.5
2,114.7
12,615.8
5,368.3
61.8
6,924.1
1,207.2
2,479.2
16,040.6
8,824.2
61.8
7,255.6
1,662.2
3,362.8
21,166.8
10,650.8
61.8
8,760.6
1,906.7
3,391.7
24,771.6
12,619.9
61.8
10,268.9
2,238.5
4,631.9
29,821.0
PP&E
Investment properties
Prepaid land lease payments
Intangible assets
Goodwill
Available-for-sale investments
Prepayments for items of PP&E
Deferred tax assets
Total non-current assets
863.9
20.8
171.2
1.0
0.0
8.6
0.0
221.3
1,286.8
990.2
19.1
259.4
79.8
0.0
8.6
0.0
382.6
1,739.8
1,308.8
14.7
254.7
74.7
0.0
2.9
61.2
455.6
2,172.7
1,161.4
13.6
249.5
74.5
6.1
2.9
61.2
501.2
2,070.4
1,538.7
12.5
244.3
73.7
6.1
2.9
61.2
551.3
2,490.8
1,892.2
11.4
288.8
72.4
6.1
2.9
61.2
606.4
2,941.4
Total assets
9,971.1
14,355.6
18,213.3
23,237.2
27,262.3
32,762.4
Trade & bills payables

Other payables and accruals
Bank loans
Provisions
Current taxation
Put option liabilities
Total current liabilities
1,561.4
4,457.7
5.0
292.0
616.3
0.0
6,932.4
2,550.9
5,326.5
25.0
466.5
619.4
0.9
8,989.2
2,961.5
6,494.6
39.8
534.3
837.5
53.6
10,921.3
3,464.7
6,998.8
39.8
574.1
753.7
53.6
11,884.8
3,965.2
8,046.1
39.8
617.7
678.4
53.6
13,400.8
4,860.7
9,439.5
39.8
665.7
678.4
53.6
15,737.6
0.0
0.0
151.6
43.6
9.3
0.0
204.4
669.8
0.0
224.9
42.9
8.8
114.1
1,060.6
699.6
59.5
266.9
42.2
8.8
374.7
1,451.7
2,015.7
59.5
286.8
42.2
8.8
374.7
2,787.7
2,015.7
59.5
308.5
42.2
8.8
374.7
2,809.4
2,015.7
59.5
332.5
42.2
8.8
374.7
2,833.4
Share capital
Equity component of convertible bonds
Reserves
Proposed final dividend
Total shareholders' equity
2,248.8
0.0
357.0
0.0
2,605.8
2,337.9
149.2
1,538.2
0.0
4,025.4
2,501.2
149.2
2,731.8
157.5
5,539.7
2,513.5
149.2
5,587.5
0.0
8,250.3
2,515.1
149.2
8,055.7
0.0
10,720.0
2,516.6
149.2
11,170.8
0.0
13,836.7
Minority interests
Total equity
228.5
2,834.3
280.4
4,305.8
300.5
5,840.2
314.5
8,564.7
332.2
11,052.2
354.8
14,191.4
Total liabilities and equity
9,971.1
14,355.6
18,213.3
23,237.2
27,262.3
32,762.4
Net cash / equity
104.9%
81.2%
83.6%
82.0%
80.2%
76.4%
10.7
36.1
18.3
14.9
34.7
17.6
18.0
41.0
21.6
20.0
41.0
22.0
20.0
40.0
22.0
20.0
40.0
22.0
Convertible bonds
Due to non-controlling shareholders
Provisions
Deferred income
Deferred tax liabilities
Put option liabilities
Total non-current liabilities
Turnover days
Inventory
Trade & other receivables
Trade & other payables
Haier Electronics
(1169.HK / 1169 HK)
27
21 January 2014
Figure 58: Haier Electronicscash flow statement

Rmb mn
2010
2011
2012
2013E
2014E
2015E
Pre-tax profit
Taxes paid
Finance costs
Depreciation & amortisation
Associate
Others
Operating CF b/f wc chg
1,444.9
-135.6
5.2
81.3
-5.3
56.7
1,447.2
1,853.9
-545.2
22.5
95.2
0.0
63.3
1,489.7
2,244.3
-392.2
64.5
111.4
0.0
139.4
2,167.4
2,646.0
-764.4
125.8
120.7
0.0
0.0
2,128.2
3,351.8
-929.9
185.0
132.1
0.0
0.0
2,739.0
4,280.0
-1,082.3
185.0
156.9
0.0
0.0
3,539.6
Net change in working capital

Net change in provisions
Others
Operating cash flow
-19.4
136.5
-301.0
1,263.4
-764.4
247.9
336.9
1,310.0
-465.2
109.8
-71.9
1,740.2
-662.9
59.7
0.0
1,525.0
-230.4
65.4
0.0
2,573.9
-791.5
71.9
0.0
2,820.0
PP&E capex
Prepayment for items of PP&E
Additions to prepaid lease payments
Additions to intangible assets
Disposal gains / losses
Decrease (Incr.) in Investments
Decrease (Incr.) in pledged deposits
Decrease (Incr.) in time deposits
Others
Investing cash flow
-189.9
0.0
-56.1
0.0
7.3
2.6
83.8
-144.9
43.6
-253.5
-210.3
0.0
-93.4
-13.7
3.5
2.0
-84.4
144.9
0.0
-251.3
-406.4
-61.2
-1.6
-7.4
4.5
6.4
25.6
-209.0
0.0
-649.1
-500.0
0.0
0.0
-13.5
540.6
0.0
0.0
0.0
0.0
27.1
-500.0
0.0
0.0
-7.4
5.0
0.0
0.0
0.0
0.0
-502.4
-500.0
0.0
-50.0
-7.4
5.0
0.0
0.0
0.0
0.0
-552.4
Dividends paid
Share capital
Net new borrowings
Issue of convertible bonds
Contribution/distribution from/to others
Others
Financing cash flow
0.0
42.1
-79.0
672.1
-519.6
-4.6
111.1
0.0
81.7
20.0
874.4
-618.8
-1.1
356.2
0.0
82.9
14.8
0.0
53.8
-36.7
114.9
-157.5
12.3
0.0
1,316.0
858.7
-126
1,903.8
-220.0
1.6
0.0
0.0
158.4
-185
-244.9
-273.6
1.6
0.0
0.0
158.4
-185
-298.6
Net change in cash
1,120.9
1,414.9
1,206.0
3,455.9
1,826.6
1,969.1
Cash at Start
Adjust: FX & Reconciliation
Cash at end
1,457.9
-11.3
2,567.5
2,567.5
-45.6
3,936.8
3,936.8
-8.5
5,134.3
5,134.3
0.0
8,590.2
8,590.2
0.0
10,416.8
10,416.8
0.0
12,385.9
Plus: time deposits

Cash and bank balances
169.9
2,737.4
25.0
3,961.8
234.0
5,368.3
234.0
8,824.2
234.0
10,650.8
234.0
12,619.9
Haier Electronics
(1169.HK / 1169 HK)
28
21 January 2014
Appendix II: Corporate structure

Figure 59: Corporate structure upon Alibaba's share subscription on 6 December 2013
Haier Group
Haier Investment
and Development
Haier Group Corp.

43.4%
Qingdao Haier
(600690.SH)
46.7%
13.2%
Carlyle Asia
Partners III AIV
Cayman, L.P.
Alibaba
SPV
2.0%
Other public
shareholders
34.2%
3.8%
Haier Electronics Group Co., Ltd.

(1169.HK)
Washing Machine Business
Integrated Channel Services

Business
Water Heater Business
Distribution
Logistics
After-sales
service
E-commerce
Figure 60: Corporate structure assuming full conversion of CBs and warrants to Alibaba and Carlyle on 17 Jan 2014
Haier Group
Haier Investment
and Development
Haier Group Corp.

43.4%
Qingdao Haier
(600690.SH)
12.2%
43.1%
Carlyle Asia
Partners III AIV
Cayman, L.P.
Alibaba
SPV
4.3%
Other public
shareholders
35.4%
4.9%
Haier Electronics Group Co., Ltd.

(1169.HK)
Washing Machine Business
Water Heater Business
Distribution
Integrated Channel Services

Business
Logistics
After-sales
service
E-commerce
Note: The stake of Carlyle was after it placed 100 mn ordinary shares on hand on 17 January 2014 at HK$22.1/share. Carlyle still holds CBs
convertible to 100 mn shares (at HK$10.67 conversion price) and warrants equivalent to 40 mn shares (at HK$11.20 exercise price).
As of 17 January 2014, the company has 2,577.4 mn issued ordinary shares before including the 52.4 mn share subscription by Alibaba and the
conversion of CBs and warrants issued to Carlyle and Alibaba; or 2,840.9 mn on fully diluted basis.
Haier Electronics
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29
21 January 2014
Appendix III: Management team

Executive directors
Mr. Zhou Yun Jie, Chairman and CEO
Mr. Zhou Yun Jie, aged 46, has been serving as an executive director and general
manager since 12 November 2009. He joined the Haier Group in 1988 and has over 20
years of experience in sales management and enterprise management. Mr. Zhou was
appointed as CEO, and resigned as general manager, on 18 March 2013. He is also a
member of the remuneration committee, nomination committee and strategic committee,
and an alternative president and deputy chairman of the board of Haier Group.
Mr. Zhou graduated from the Huazhong University of Science and Technology with a
Bachelors degree in Engineering in 1988. He has a Masters degree in corporate
management from the Ocean University of China, and has completed his Doctoral courses
with a diploma in Management from the Xian Jiaotong University, the PRC.
Mr. Li Hua Gang
Mr. Li Hua Gang, aged 43, has been a chief operation officer since 12 November 2009,
and has been executive director since 19 April 2010. He joined the Haier Group in 1991
and has since held a number of senior positions in sales and marketing functions with his
expertise in sales management in Tier 3/4 markets of the PRC. Mr. Li graduated from the
Huazhong University of Science and Technology in 1991 with a Bachelors degree in
Economics.
Non-executive directors
Mr. Liang Hai Shan
Mr. Liang Hai Shan, aged 46, has been an executive director since December 2001 and
has been re-designated as non-executive director with effect from 12 November 2009. Mr.
Liang was previously responsible for strategic procurement and overall quality control of
products of the Group. He is responsible for identifying market opportunities and white
goods business strategies formulation. He received a Bachelors degree of Industry from
the Xian Jiaotong University, and has 24 years of experience in the manufacture of
household electrical appliances, particularly in the raw material procurement function and
white goods business. He is also an executive vice president of Haier Corp, and general
manager and vice chairman of Qingdao Haier Co., Ltd.
Ms. Feng Junyuan, Janine
Ms. Janine Junyuan Feng, aged 44, was appointed a non-executive director on 24 August
2011. She is also a member of the remuneration committee, nomination committee and
strategic committee. Ms. Feng joined the Carlyle Group in 1998; she is a managing
director of the Carlyle Group. Ms. Feng has been involved in many direct investments by
the Carlyle Group in consumer, financial and industrial companies in the PRC. Prior to
joining the Carlyle Group, Ms. Feng worked for Credit Suisse First Bostons New York
office, engaging in investment banking business.
Dr. Wang Han Hua
Dr. Wang Han Hua, aged 49, was appointed non-executive director on 1 June 2013. Dr.
Wang took over as the CEO of Allyes Information Technology (Shanghai) Co. Ltd., an
Internet company providing full digital marketing solutions of data, technology and product
to its customers in December 2012. Prior to this, Dr. Wang had been the president of
Amazon (China) Holding Company Limited from May 2005 until November 2012 and was
responsible for the sale, marketing, cooperation and construction of B2C e-commerce
ecological chain of Amazon in China. Prior to joining Amazon (China) Holding Company
Haier Electronics
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21 January 2014
Limited, Dr. Wang served a number of positions with Motorola Mobility Technologies
(China) Company Limited's Beijing branch between 1998 and 2005 including as marketing
director, director of strategy and corporate planning, vice president of the Asia Pacific
region and general manager of the mobile business. He obtained his Doctor of Philosophy
degree from the University of Nebraska in the United States in 1994.
Ms. Tan Li Xia
Ms. Tan Lixia, aged 43, was appointed non-executive Director with effect from 18
November 2013. She joined Haier Group in 1992 and had held positions as the Head of
Department of Overseas Market Development of Haier Group and Head of Department of
Financial Management of Haier Group. Currently, she is senior vice-president and chief
financial officer of Haier Group. Ms. Tan graduated from the Central University of Finance
and Economics and has a Master's degree in Business Administration from the China
Europe International Business School upon completion of the EMBA programme. She is a
Fellow of the Chartered Institute of Management Accountants and has been designated as
a Chartered Global Management Accountant (CGMA).
Alternative director
Mr. Gui Zhaoyu (alternate to Ms. Feng Junyuan, Janine)
Mr. Gui Zhaoyu, aged 41, was appointed the alternate director to Ms. Janine Junyuan
Feng on 24 August 2011. Mr. Gui is a director of the Carlyle Group and is focused on Asia
buyout opportunities with a particular focus on opportunities in the PRC. Prior to joining the
Carlyle Group, Mr. Gui was vice-president of the investment banking department at China
International Capital Corporation in Beijing, and vice-president at J.P. Morgan Securities
(Asia Pacific) Limited in Hong Kong. He also has working experience at the Special
Investment Department of CIC and two state-owned companies, and had founded his own
logistics company. Mr. Gui received his MBA degree from the Massachusetts Institute of
Technology's Sloan School of Management.
Senior management
Mr. Xie Ju Zhi
Mr. Xie Ju Zhi, aged 47, graduated from Shandong Economics College in 1989
specialising in Economics and Management. He has held senior positions in the
Electrothermal Product division and East China division of Marketing and Promotion
Division of the Haier Group, and served as the general manager of the Customer Service
Operation Company of the Haier Group since August 2002. He has over ten years of
experience in service management. Currently, he is responsible for the Groups customer
service and channel business expansion of community stores in the first and second tier
markets.
Mr. Diao Yun Feng
Mr. Diao Yun Feng, aged 41, graduated from the Southeast University in 1995. He joined
the Haier Group in 1995 and has held a number of senior positions including the director
of overseas marketing management of the Haier Group and the general manager of Haier
International Business Corporation Limited. He has experience in managing domestic
small home electric appliances business, and particularly has 18 years of experience in
overseas market expansion and overseas corporate management. He is the director of
small home electric appliances division of the Group, and is responsible for the global
small home electric appliances segment of the integrated channel services business.
Mr. Huang Xiao Wu
Mr. Huang Xiao Wu, aged 35, was appointed deputy general manager in November 2009.
Mr. Huang is responsible for assisting general manager in implementing the Groups
corporate development strategy. Mr. Huang has 15 years of extensive experience in
Haier Electronics
(1169.HK / 1169 HK)
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21 January 2014
banking, investment and corporate finance. Prior to joining the Group, he had worked with
a commercial bank and several investment banking firms. Mr. Huang holds a Masters
degree in Business Administration from the University of Hong Kong and a Bachelors
degree in Engineering from the University of Chong Qing.
Mr. Peng Jia Jun
Mr. Peng Jia Jun, aged 35, was the former CFO of the company from 10 February 2009 to
1 March 2013. He joined the Haier Group in 2000 and has since held a number of senior
financial positions in Haier Group finance department, Haier Australia trading company
and the washing machine business of the Group. Mr. Peng has a Masters degree in
Business Administration from the University of International Business and Economics and
a Bachelors degree in Business Administration from Northeastern University. He is
currently a Doctoral Candidate in accounting at the Ocean University of China.
Mr. Tao Jun, CFO
Mr. Tao Jun, aged 48, was appointed CFO on 1 March 2013. Prior to joining the Haier
Group, Mr. Tao was executive director of a household electrical appliance company listed
in Hong Kong, financial director of a joint venture owned by a large state-owned company
and a blue chip Hong Kong property company. Mr. Tao has over 20 years of financial
management experience in the retail, distribution and household electrical appliance
business. Mr. Tao also has extensive experience in the merger and acquisitions business
as he has worked in the investment field for over ten years. Mr. Tao has a Master's degree
in Business Administration from the Murdoch University in Australia and a Bachelor's
degree in Economics from the Zhongnan University of Finance and Law.
Mr. Shu Hai
Mr. Shu Hai, aged 46, has served as general manager of the washing machine product
division since June 2009. He joined the Haier Group in 1995 and has since held a number
of senior positions in the washing machine business. He is responsible for the sales,
research and development and production management of the washing machine business
of the Group. Mr. Shu has a Masters degree in International Trade from the Ocean
University of China.
Mr. Sun Jing Yan
Mr. Sun Jing Yan, aged 42, had served as executive director until August 2011 due to the
reshuffle of management within the Haier Group. He joined the Haier Group in 1993 and
has since held a number of senior positions in the Electrothermal Appliance Department of
the Haier Group. Mr. Sun has over 19 years of extensive experience in water heater
business. He has been the General Manager of the Haier Groups Electrothermal Product
Division since 2005 and is mainly responsible for the operation of the Groups water heater
business. Mr. Sun graduated from the Shandong Institute of Light Industry in 1993 with a
Bachelor's in Engineering in Machine Design and Manufacturing.
Mr. Wang Zheng Gang
Mr. WANG Zheng Gang, aged 40, has served as general manager of Qingdao Haier
Logistics Co., Ltd., since March 2003, and is currently the director of the logistics division
of the Group. He has 17 years of experience in the manufacture of household electrical
appliances, particularly in raw material procurement function and logistics business. He is
currently responsible for developing the logistics business of the company and identifying
related market opportunities. Mr. Wang graduated from Tianjin University in 1995, and
Xian Jiaotong University with a Masters degree in Logistics Engineering in 2007.
Mr. R Xian Cun
Mr. Ren Xian Cun, aged 39, joined the Haier Group in 1997 and has held senior positions
such as general manager of Haier Air-conditioning in the PRC and general manager of
various regional centres of Haier. He has 17 years of experience in market planning and
Haier Electronics
(1169.HK / 1169 HK)
32
21 January 2014
marketing management in the home electric appliances industry, and particularly has
professional experience in the operation and management of the home electric appliances
channels. He is director of Haier products of the Group, and is mainly responsible for Haier
products segment of the integrated channel services business. Mr. Ren graduated from
the Jilin Industrial University in 1997, and obtained his Executive Master of Business
Administration (EMBA) from the University of International Business and Economics in
2005.
Company secretary
Mr. Ng Chi Yin
Mr. Ng Chi Yin, aged 47, joined the company on 18 March 2009 as company secretary.
He is a fellow member of the Association of Chartered Certified Accountants, and a
member of the Hong Kong Institute of Certified Public Accountants and the Institute of
Chartered Accountants in England and Wales. He has over 24 years of experience in
auditing, finance and company secretarial matters. Mr. Ng graduated from the Faculty of
Business Administration of the Chinese University of Hong Kong with a Bachelors degree
in business administration.
Haier Electronics
(1169.HK / 1169 HK)
33
21 January 2014
Companies Mentioned (Price as of 20-Jan-2014)

A O Smith (AOS.N, $52.15)
Aucma (600336.SS, Rmb4.87)
Changhong (600839.SS, Rmb3.49)
Chigo Holding (0449.HK, HK$0.185)
Chunlan (600854.SS, Rmb4.03)
Deutsche Post DHL (DPWGn.DE, 26.6)
FedEx Corporation (FDX.N, $140.51)
GOME Electrical Appliances Holding Limited (0493.HK, HK$1.26)
GREE (000651.SZ, Rmb29.57)
HXDQ (600060.SS, Rmb10.86)
Haier (600690.SS, Rmb19.75)
Haier Electronics Group Co., Ltd. (1169.HK, HK$22.85, OUTPERFORM, TP HK$30.0)
Hefei Sanyo (600983.SS, Rmb13.41)
Hisense Kelon (000921.SZ, Rmb10.33)
Hisense Kelon (0921.HK, HK$10.58)
Home Retail Group (HOME.L, 207.6p)
Konka (000016.SZ, Rmb3.69)
Little Swan (000418.SZ, Rmb8.67)
Macro (000533.SZ, Rmb3.96)
Meiling (000521.SZ, Rmb4.51)
Midea Group (000333.SZ, Rmb47.51)
Noritz (5943.T, 2,280)
Rinnai (5947.T, 8,270)
Skyworth Digital (0751.HK, HK$4.08)
Suning Appliance (002024.SZ, Rmb9.56)
TCL Corp. (000100.SZ, Rmb2.28)
TCL Multimedia (1070.HK, HK$3.16)
Taiwan Sakura (9911.TW, NT$20.3)
The Carlyle Group L.P. (CG.OQ, $35.83)
United Parcel Service Inc. (UPS.N, $99.91)
Vanward (002543.SZ, Rmb11.5)
Vatti (002035.SZ, Rmb10.11)
Whirlpool (WHR.N, $156.84)
Disclosure Appendix
Important Global Disclosures
I, Eva Wang, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities
and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratin gs are based on a stocks total
return relative to the analyst's coverage universe which consists of all companies covered by the a nalyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings
are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are , and prior to 2nd
October 2012 U.S. and Canadian ratings were based on (1) a stocks absolute total return potential to its curren t share price and (2) the relative attractiveness of a
stocks total return potential within an analysts coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total
return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and
7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th De cember 2012, Japanese ratings were
based on a stocks total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or
valuation of the sector* relative to the groups historic fundamentals and/or valuation:
Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
Haier Electronics
(1169.HK / 1169 HK)
34
21 January 2014
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy*
42%
(53% banking clients)
Neutral/Hold*
41%
Underperform/Sell*
15%
Restricted
2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
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to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and
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Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for Haier Electronics Group Co., Ltd. (1169.HK)
Method: Our 12-month target price of HK$30.0 is based on a sum-of-the-parts (SOTP) blended target price-to-earnings (P/E) multiple of 18.9x
2015E earnings per share, which is the weighted average target price-to-earnings (P/E) of the three sub-sectors: 11.5x target 2015E P/E
for the washing machine business as the average of washing machine comparable companies, 14.5x target 2015E P/E for the water
heater business as the average of water heater comparable companies, and 24.0x target 2015E P/E for the integrated channel services
(ICS) business which is set at close to the high-end of logistics companies Fedex and UPS's average forward PE of 18.8x and 25.4x in
2000-2004 (when US E-commerce and related logistics businesses developed fast) because ICS's specialization in large-item goods as
well as the value-added services provided create higher entry barriers than in the standard-size parcel business. The target PE is
weighted by the expected segment profit contributions of 30.1%, 14.6% and 55.3% of the total, respectively, for the three sub-sectors.
Risk:
Risks to our HK$30.0 target price include an economic and/or end market demand slowdown, regulatory policy changes, third-party brand
sales growth, possible raw material and/or labor cost hikes, the failure of working capital controls, as well as corporate governance risks
from connected party transactions.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (1169.HK, CG.OQ, 1070.HK, HOME.L, WHR.N, UPS.N, FDX.N, DPWGn.DE) currently is, or was during the 12-month period
preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (CG.OQ, WHR.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (HOME.L, WHR.N, UPS.N, FDX.N, DPWGn.DE) within the past 12
months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (CG.OQ) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (CG.OQ, WHR.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (1169.HK, CG.OQ, 0751.HK,
1070.HK, WHR.N, 0493.HK, UPS.N, FDX.N, DPWGn.DE) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (HOME.L,
WHR.N, UPS.N, FDX.N, DPWGn.DE) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (CG.OQ, WHR.N, UPS.N, FDX.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (CG.OQ, HOME.L,
DPWGn.DE).
Haier Electronics
(1169.HK / 1169 HK)
35
21 January 2014
Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (1169.HK, 5947.T, CG.OQ,
0751.HK, 1070.HK, WHR.N, 0493.HK, UPS.N, FDX.N) within the past 12 months
An analyst involved in the preparation of this report has visited certain material operations of the subject company (DPWGn.DE) within the past 12
months
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The following disclosed European company/ies have estimates that comply with IFRS: (HOME.L, DPWGn.DE).
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Credit Suisse (Hong Kong) Limited .......................................................................................................................................................... Eva Wang
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.
Haier Electronics
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21 January 2014
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Haier Electronics
(1169.HK / 1169 HK)
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21 January 2014

ICS: The future growth engine

Share price performance

Rebased Rel (RHS)

The price relative chart measures performance against the

Financial and valuation metrics

Source: Company data, Thomson Reuters, Credit Suisse estimates.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

Focus charts and tables

Figure 2: ICS +TmallKey growth driver

Source: Company data, Credit Suisse estimates

Figure 3: White goods penetration lower than black goods

Figure 4: Revenue and margin forecasts

Water heaters Air conditioners Refrigerators

Source: CEIC, NBS

Revenue (Rmb mn)

Source: Company data

Source: Company data, Credit Suisse estimates

Upside vs. 2015E estimate

Figure 6: SOTP valuation method (2015E valuation base)

Source: Credit Suisse estimates

ICS: The future growth engine

No.1 white goods brand in

An outstanding ICS provider

Revenue from third-party

A leading white goods player

No.1 market share in

Earnings forecasts and valuation

Our SOTP-based target

Risk factors: economy, enddemand, policy, cost and

Haier Electronics Group Co.

Income statement (Rmb mn)

Key earnings drivers

Per share data

Source: Company data, Thomson Reuters, Credit Suisse estimates.

12MF P/B multiple

curr) CY14E CY15E CY14E CY15E CY14E CY15E CY14E

An outstanding ICS provider

No.1 white goods brand with

Figure 9: Gross revenue breakdown (1H13)

Source: Company data

Source: Company data

Parentco Haier Group is

Haier Electronics focuses on

Figure 10: Haier Group and Haier Electronics

Figure 11: Group product/business chart

Haier Investment and

Haier Group Corp.

Haier Elec (1169.HK)

Source: Company data

Source: Company data

Haier Electronics started

Figure 12: Company history

Initial public offering of CCT Multimedia (1169.HK) in HK

Haier Group injected its logistics business into the company

Set up the external online sales platform Haier.tmall.com

Source: Company data

ICS: Should be the key growth driver in the future

ICS: Driven by third-party

Figure 14: Gross margin on the upward trend (ICS only)

Revenue (Rmb mn)

Source: Company data, Credit Suisse estimates

Gross profit margin