JPM Chinese Consumer Foc 2014-06-17 1420423

Asia Pacific Equity Research
17 June 2014
Chinese consumer focusing on

health, newness & convenience
Key takeaways from China Summit 2014
Consumer
Ebru Sener Kurumlu
AC
(852) 2800-8521
ebru.sener@jpmorgan.com
Bloomberg JPMA KURUMLU <GO>
Shen Li, CFA
AC
(852) 2800 8523

shen.w.li@jpmorgan.com
Bloomberg JPMA SHLI <GO>
Henry Tan
(852) 2800-8559
henry.wd.tan@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Figure 1: China Retail Sales % y/y

20%
18.3% 17.1%
15%
14.3% 13.1%
12.1%
10%
5%
0%
2010 2011 2012 2013 May-14
YTD
Source: NBS
Figure 2: China Consumer Confidence

Index
110
105
100
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
95
Jan-12
Apr-12
Jul-12
Oct-12
Consumer preferences in the beverage market moving towards

healthy. Our channel checks in Beijing suggest a trend that consumers
are more focused on health and wellness and that is driving bottled water
sales in place of flavored beverages. Coca Cola (who partners with China
Foods in China) highlighted that the Chinese consumer is increasingly
looking for functional benefits (every Chinese teenage knows wolfberries
are good for their eyes). Beverage companies are also adding more
varieties to their product portfolio. This is a focus for China Huiyuan Juice
as it adds more chilled products, sports drinks and plant based beverages.
Dairy companies focus on milk beverages; discussion on imported UHT
milk. Mengniu notes milk beverages sales continue to be at decent levels
which we think is likely to add pressure to Want Want. On competition
posed by imported milk Mengniu notes the base is low for imported UHT
milk (< 1% of total demand). They agree that current online prices are lower
than milk deluxe but believe this is not sustainable.
Food retail traffic remains lackluster. Hypermarket operators have been
negatively impacted by weak macro environment as well as increasing
competition. Wumart noted that current trading remains challenging.
Wumart is looking to reduce prices to attract customer traffic as they believe
that a third of their products are priced higher than competitors. We believe
lackluster SSSG trends for the industry is negative for Sun Art (UW).
Merchandising capability a differentiator for department stores. One
consistent message from panel discussions was that consumers are evolving
rapidly and looking for newness. Lane Crawford is able to respond faster to
changes in consumer preferences through its buyers model. We believe
building strong merchandising capability requires experience and it will take
time for Chinese department stores to catch up though a few players such as
Golden Eagle are working in the right direction.
E-commerce redefining distribution. Yihaodian, a relatively newcomer to
Chinese e-commerce space has now 4m SKUs (v 3k SKUs 6 years ago) and
recorded US$2bn in sales in FY13. It notes that penetration of e-commerce
is now going deeper into lower tier cities. Kimberly Clarke had previously
commented that the e-commerce platform in China is an efficient way for
the company to grow given dense population in the cities, the lower cost of
delivery, high internet and smart phone penetration. Lane Crawford noted
that when you have customers who are engaged both online and offline, you
then see the real magic of retail occurring, with increased spending,
engagement and loyalty.
Top picks: With lackluster demand and continuing pressure from ecommerce we do not yet see sales recovering for discretionary names. We
continue to be OW on CTF which is relatively immune from structural
problems. On staples front our top picks are Mengniu and Hengan. We are
UW on Sun Art and we are cautious on Want Want given that competitive
pressure is building up.
Source: NBS
See page 28 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan 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.
www.jpmorganmarkets.com
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17 June 2014
Table of Contents
Section 1: Key Takeaways.......................................................3
Consumer preferences in the beverage market moving towards healthy.................3
Dairy companies continue to focus on milk beverages; discussion on imported UHT
milk. .......................................................................................................................3
Food retail traffic remains lackluster (-ve for Sun Art) .............................................3
Unique merchandising core as Chinese consumer looks for newness; Opportunity
for department store in M&A...................................................................................5
E-commerce redefining distribution.........................................................................5
ML Chinese travel spending growth potential substantial but is tourist flow
sustainable?.............................................................................................................7
Section 2: Industry Panel Discussion Takeaways.................9

CEO Dialogue Luxury Brands: China Still Holds the Key.....................................9
Consumer Connections: Retail Trends in China .....................................................11
E-Commerce: Global Retail Revolutionized...........................................................12
Meeting Chinas Food Demand .............................................................................13
The China Factor in Global Brands Success...........................................................14
China Travel Spending..........................................................................................16
Section 3: Company Meeting Takeaways.............................18

China Huiyuan (1886 HK, Not Covered) ...............................................................18
China Mengniu (2319 HK, OW)............................................................................19
Gome (493 HK, Not Covered)...............................................................................20
Trinity (891 HK, Neutral)......................................................................................21
Vipshop (VIP US, OW).........................................................................................22
Wumart (1025 HK, Not Covered)..........................................................................23

17 June 2014
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Section 1: Key Takeaways

Consumer preferences in the beverage market moving
towards healthy
Our channel checks in Beijing suggest a trend that consumers are more focused on
health and wellness and that is driving bottled water sales in place of flavored
beverages. Interestingly, Coca Cola (which partners with China Foods in China) does
highlight that the Chinese consumer is increasingly looking for functional benefits
(every Chinese teenage knows wolfberries are good for their eyes). Beverage
companies are also increasingly adding more varieties to their product portfolio to
compete. This is a focus for China Huiyuan Juice in FY14 as the company adds more
chilled products, sports/ functional drinks and plant based beverages.
Figure 3: Evolution of the beverage market
Bottled Water
Pure Water
Mineral Water
Natural Spring
Water
Natural Mineral
Water
CSD
Gasey
Coke
Fruity Flavor
Low Carbo
Fruit Juice
10% orange
Fruit Bits
Traditional
Chinese Fruit
100% orange
RTD Tea
Low sugar
High sugar
content
Fruit tea
No sugar
Milk Beverage
Fruity milk
Milk tea
Yogurt drink
Flavored milk
Asian Taste
Source: J.P. Morgan.
Dairy companies continue to focus on milk beverages;

discussion on imported UHT milk.
Mengniu management notes that milk beverages sales continue to be at decent levels
which we think is likely to add pressure to Want Want.
In response to competition posed by imported milk Mengniu management notes that
the base is very low for imported UHT milk, less than 1% of total demand. Growth
for imported milk last year was 90% y/y, which could be due to raw milk crunch in
China and growth this year has slowed down to 40%. Management does not believe
imported UHT milk is taking share from Deluxe given the lack of investment in
brands (vs. Deluxe which has brand recognition). They agree that current online
prices are lower than milk deluxe but believe this is not sustainable.
Table 1: UHT Imported milk base still small
Total dairy consumption volumes (in tons)
Imported UHT milk (in tons)
As % of total
2012
23,275,300
80,000
0.3%
2013
24,866,000
200,000
0.8%
Source: Euromonitor, Beijing Shennong Kexin Argibusiness Consulting, JPM calculations
Food retail traffic remains lackluster (-ve for Sun Art)

Wumart notes current trading remains challenging. SSSG has slowed over recent
quarters although the company has experienced some slight improvement in 2Q14.
Wumart will look to reduce prices to attract customer traffic. The company believes
that one third of Wumart's products are currently higher than competitors. The
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17 June 2014
company is implementing a low price project. After the implementation of this

project ~20% of product prices will be higher than competitors. Company will look
to continuously reduce prices going forward.
We believe lackluster SSSG trends for the industry is negative for Sun Art (UW). In
the medium term, we also note the following:
We worry about sales productivity. We see the following threats to store sales
productivity: (1) Threat posed by the growth of e-commerce; (2) Emerging threat
posed by growth of alternative formats. In turn, this creates risk for operating deleverage and margins over the longer term. We note many hypermarket operators
in more developed markets are faced with this issue.
Downside risk to rental income growth over longer term. Rental income
represents a material proportion of Sun Art's earnings and has been growing
strongly over recent years. Retail gallery space within an average Sun Art
complex is ~4,000-6,000 sqm (v total shopping space ~15,000sqm). We see
downside risk to rental revenue growth for the following reasons: (1)
Hypermarkets generally have seen a consistent reduction in traffic over recent
years as consumers are making fewer daily shopping trips; (2) Ongoing threats to
hypermarket foot traffic posed by the growth of e-commerce.
Figure 4: China Hypermarket Operators - SSSG
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
2009
2010
Carrefour
2011
CRE
Sun Art
2012
2013
Tesco
Wal Mart
Source: Company reports.
Figure 5: Sun Art - Trend in SSSG

14%
12%
10%
8%
6%
4%
2%
0%
-2%
1H11
2H11
Source: Company reports. December year end.
1H12
2H12
1H13
2H13
1Q14
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17 June 2014
Unique merchandising core as Chinese consumer looks for

newness; Opportunity for department stores in M&A.
One consistent message from consumer track panel discussions was that Chinese
consumers are evolving quickly and constantly looking for newness. We note Lane
Crawford (a buyers model department store player which owns the entire inventory
within its store) has been able to respond to the demand for newness as 50% of their
products are unique to the market. Drawing from years of merchandising experience
in HK, they see strong sales at both their psychical and online stores in China. We
believe building strong merchandising capability requires experience and it will take
time for Chinese department stores to catch up though a few players such as Golden
Eagle are working in the right direction.
On M&A, panelists noted that over the past 10 years, department stores in China
have performed relatively strongly. Hence, shareholders did not have a strong urge to
engage in M&A discussions. However, with business becoming increasingly difficult
over the past couple of years, this may be a catalyst in leading department
E-commerce redefining distribution

Yihaodian, a relatively newcomer to Chinese e-commerce space has now 4m SKUs
(v 3k SKUs 6 years ago) and recorded US$2bn in sales in FY13. It notes three key
trends in e-commerce: (1) E-commerce is moving towards mobile. By end of last
year, mobile users reached 500m with PC users 590m; (2) Penetration of ecommerce in China is going deeper into lower tier cities. This is due to convenience
of online payment, improvement of logistics and mobile penetration. (3) Platform
strategy large e-commerce players are launching marketplace and leverages their
traffic and leverages their e-commerce solutions. Yihaodian doesnt see a ceiling for
e-commerce penetration and think the future will be one where the boundary of
online and offline will be blurred.
Lane Crawford noted that when you have customers who are engaged both online
and offline, you then see the real magic of retail occurring, with increased
spending, engagement and loyalty.
At the Sanford C. Bernstein Strategic Decisions Conference, Kimberly-Clark
(covered by J.P. Morgan Analyst John Faucher) management noted that the ecommerce platform in China is an efficient way for the company to grow given dense
population in the cities, the lower cost of delivery, high internet and smart phone
penetration. The company believes they are probably ahead in their online share
versus their offline share because of the complexity of the China retail market.
JPM Views
We have written a report detailing our views about the longer term threats posed by
the growth of e-commerce for Chinese retailers in September 2013 (see Reviewing
Longer Term Threats Posed by the Growth of E-Commerce dated 24 September
2013).
As we noted in that report, e-commerce has gained significant market share over
recent years in China. By our calculations, e-commerce penetration has reached
~10% of total retail sales in China in 4Q13.
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Figure 6: China E-Commerce Sales as % Corresponding Retail Sales

12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1Q10
4Q10
3Q11
2Q12
1Q13
4Q13
Source: J.P. Morgan estimates, iResearch, National Bureau of Statistics. Numerator = total e-commerce sales as estimated by
iResearch. Denominator = Total China retail sales less automobile and petroleum sales for designated entities as estimated by
National Bureau of Statistics. The NBS data only disclose sales by category for designated entities. Designated entities are defined
as those entities with annual sales over RMB5m or with over 60 employees.
As a comparison, e-commerce penetration in the US is estimated to be ~10-11%

(after excluding categories where a majority of product sold is done offline such as
food, petrol, motor vehicles). However, it has taken China ~4 years to move from
~2% e-commerce penetration to ~10% e-commerce penetration, something that took
the US over 10 years to achieve.
Figure 7: US E-Commerce Sales as % Corresponding Retail Sales
13.0%
11.0%
9.0%
7.0%
5.0%
3.0%
1.0%
2000
2002
2004
2006
2008
2010
2012
Source: US Census Bureau. E-commerce sales as a proportion of total retail sales excluding sales for the following categories: Motor
Vehicle & Parts Dealers, Food & Beverage Stores, Gasoline Stores, Food Services & Drinking Places and Fuel Dealers.
From a sales perspective, we believe e-commerce growth is having a negative impact

on offline retail in two ways:
Reducing sales by taking volumes away from physical retail.
Reducing sales by placing pricing pressure on physical retail given online prices
are generally lower than offline prices.
E-commerce penetration has grown significantly in certain categories such as apparel
& footwear and consumer electronics. We estimate that e-commerce penetration is
~25-30% for both categories.
Moreover, we note that e-commerce penetration in some food and household goods
categories has also increased dramatically over recent years. For example, industry
sources indicate that e-commerce penetration for infant baby formula and diapers has
6

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reached ~20%. We believe international brands will utilize this channel to grow their
presence in China given the complexities of the traditional distribution market.
ML Chinese travel spending growth potential substantial

but is tourist flow sustainable?
In 2013, the Mainland Chinese traveller spent US$130.6bn globally (+28% yoy).
Currently there are c40mn of valid passports in China which represents c5%
penetration vs. 37% in the US and 75% in Japan.
Tourists curbs are harmful for HK which has a heavy dependence on the ML Chinese
in its retail sector. Instead of discouraging demand, the panel believes focus should
be on making sure the supply side infrastructure keeps up with the traffic volume
growth. Countries that are pro-active in solving supply side infrastructure issues will
be able to capture a disproportionate share of traveler spending.
Figure 8: Summary Statistics of HK Tourists Arrivals
6,000
80%
70%
5,000
60%
4,000
50%
3,000
40%
30%
2,000
20%
1,000
10%
0%
Jan-96
May-96
Sep-96
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Other visitors
Chinese visitors
% of Chinese travellers under Individual Visitor scheme
Source: Hong Kong Tourism Board
Table 2: HK Retail Sensitivities Potential Impact from decline in ML Chinese tourist arrivals
CTF
Lifestyle
Giordano
I.T
Sa Sa
Trinity
HK sales exposure
to ML tourists
Group sales
exposure to ML
tourists
1% reduction in HK
sales impact on group
EBIT
1% reduction in HK
sales impact on
group NPAT
59.7%
25.0%*
35.0%*
40.0%*
70.0%
40.0%*
29.0%
18.0%
7.0%
20.0%
56.0%
15.0%
-0.5%
-0.9%
-0.7%
-4.8%
-2.5%
-2.5%
-0.5%
-0.7%
-0.7%
-5.8%
-2.5%
-2.3%
Assuming 15% decline in

ML tourist arrivals and
similar impact on
revenue generated from
ML tourists impact on
group EBIT
-4.5%
-3.4%
-4.2%
-28.8%
-26.3%
-16.9%
Assuming 15% decline

in ML tourist arrivals
and similar impact on
revenue generated from
ML tourists impact on
group NPAT
-4.5%
-2.6%
-4.2%
-34.8%
-26.3%
-15.5%
Source: J.P. Morgan estimates, Company data. * Estimates only

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Table 3: HK Retail Sensitivities Potential impact from reduction in rentals
CTF
Lifestyle
Giordano
I.T
Sa Sa
Trinity
Group rental as %
group sales (LFY)
HK rental as % HK sales
(LFY where available)
5.4%
2.0%
20.9%
21.2%
10.1%
22.8%
3.20%
No rental cost in HK
Over 30%
Assume over group ave
10.30%
Assume similar to group ave
Source: J.P. Morgan estimates, Company data.
1% reduction in
HK rental
expenses impact
on group EBIT
0.1%
No impact
0.5%
2.0%
0.7%
0.8%
1% reduction in HK
rental expenses
impact on group
NPAT
0.1%
No impact
0.5%
2.4%
0.7%
0.7%
Assuming 10%
reduction in HK rentals
impact on group EBIT
1.0%
No impact
5.0%
20.0%
7.0%
8.0%
Assuming 10%
reduction in HK
rentals impact on
group NPAT
1.0%
No impact
5.0%
24.0%
7.0%
7.0%
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17 June 2014
Section 2: Industry Panel Discussion

Takeaways
CEO Dialogue Luxury Brands: China Still Holds the Key
We attended a panel discussion on China luxury trends in China during the J.P.
Morgan China Summit 2014. Panelists included: Victor Luis, Coach CEO and
Michele Norsa, Salvatore Ferragamo CEO. Our key takeaways are as follows.
Chinese consumers changing rapidly but luxury companies still see China as
the most important market globally. China is the fastest changing environment
for Ferragamo and there are challenges in keeping pace with this fast changing
market. Ferragamo believes it is important to keep consistent with its roots and
believes heritage is important in Asian more than anything else. In this regard,
there are very few home-grown luxury brands from Asia which can go global
given the difficulties of building a brand from scratch and competition from
existing brands which have that heritage legacy. Coach is also seeking to
transform itself towards more a lifestyle brand and providing that retail
experience. For Coach, China represents the largest single most important
geographic opportunity over the long term. It estimates the China luxury handbag
accessories market now at US$4.6bn (13% of global markets), and expects this to
grow to US$10bn in five years (20% of global market). Ferragamo has been
growing in excess of 20% for four years except last year. Still growing double
digit in retail business recently.
Price gap is too high now in China. For first time, people are travelling to Japan
to shop. There is some expectation that the Chinese government will try to take
steps to reduce the price premium of luxury goods in China (c40-50% premium
vs. HK/ Europe) to retain consumption in-country.
Rents are unsustainable. Leases have become unreasonable in China. The
time of the lease is the first thing that Ferragamo wants to change (needs longer
lease). However, cost is also too high.
Capturing the Chinese traveler consumer at the airports. The ML Chinese
traveler remains the largest driver of luxury sales worldwide. Hence the airport
becomes an important branding and marketing channel. Ferragamo is marketing
its brand with 17 billboard locations at airport in China (80+ airports globally as
the ML Chinese increasingly travel to other parts of the world other than just
Hong Kong). It is using famous celebrities / models to market the brand and note
that Chinese people are passionate over celebrities in a way you do not see in
other parts of the world. The Korean market is also seeing larger inbound flows
from China in recent markets.
E-commerce is a big opportunity. Coach is incredibly excited in the digital
space and within the mobile space. For now, e-commerce is still at its infancy for
luxury brands in China. Coach launched its e-commerce website in Nov 2012 and
has delivered in over 280 cities. Nevertheless, Coach thinks it will be difficult to
have just internet only luxury brand. Luxury is very retail orientated business and
need solid retail experience that is both seamless online and offline
Tier 2 or 3 cities are becoming credible opportunities for luxury companies.
While the vast majority of the wallet spend has been in tier 1/2 cities to date,
9
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companies are now looking beyond to tier 3 cities. Coach is still opening 30+
stores in China and looking at tier 3 and 4 opportunities. For now, exclusive
luxury malls/ bridge fashion malls (i.e. department stores, shopping malls) are the
core channels and e-commerce is still in its infancy. Coach was one of the first to
be online, with its ecommerce site launched in Nov-12. It is already delivering to
286 cities while they only have a presence in 52 cities. Ferragamo believes there
are 38 Tier 2 and 3 cities which now present credible opportunities for luxury
players.
Impact of gifting. Ferragamo notes that menswear has comprised 46% of total
sales in China (vs. 40% globally). With the clampdown on gifting, the women
mix has increased by 1ppt every other month recently, and become more
important in China (and increasingly more aligned with other parts of the world).
Gifting remains an Asian/ Chinese culture and will not disappear in its entirety in
China where it is legal to do so.
Exclusivity vs. accessibility. Coach takes a modern view of luxury and believes
that its not only about the logo, but about product and value. Coach consumers
are looking at "more intrinsic" value in brands and Coachs DNA will be to focus
on approachable or accessible luxury". They hence view the expanding middle
class as the core opportunity target group for them.
10
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Consumer Connections: Retail Trends in China

We attended a panel discussion on retail trends in China during the J.P. Morgan
China Summit 2014. Panelists included: Andrew Keith, President of Lane
Crawford Joyce, Mark Israel, CEO of Value Retail China and Francis Belin,
Senior Vice President of Swarovski Asia-Pacific. Our key takeaways are as
follows.
Chinese consumers are evolving quickly and constantly looking for newness.
Lane Crawford runs a buyers model, unlike many department store peers in
China. The company has 85 buyers and owns all of the inventory within its store.
This model has allowed the company to be closer to the consumer and provides
the company flexibility and speed to be able to tailor to changing consumer
preferences. Lane Crawford has noticed the speed with which Chinese consumers
are evolving. Moreover, Chinese consumers are very responsive to newness and
freshness within Lane Crawford stores. To this end, newness is not simply about
bringing new products to the Chinese market but also includes the need to bring
relevant products into the Chinese market, as well as newness from the
perspective of a holistic shopping experience (e.g. concierge services, spa
treatment, European travel for VIP customers, 360 degree beauty service).
Some companies are beginning to think about e-commerce and digital
holistically. Value Retail believes the internet and digital space can help retailers
to understand their customers better. Value Retail is trying to understand its
guests better and continuing to tailor its shopping villages to those needs. Lane
Crawford believes that its digital/e-commerce site allows it to be able to have a
singular view of the customer. It allows Lane Crawford to have a personal
relationship with its customers and builds customer engagement. Lane Crawford
noted that when you have customers who are engaged both online and offline,
you then see the real magic of retail occurring, with increased spending,
engagement and loyalty.
Opportunity for department store M&A. Panelists noted that over the past 10
years, department stores in China have performed relatively strongly. Hence,
shareholders did not have a strong urge to engage in M&A discussions. However,
with business becoming increasingly difficult over the past couple of years, this
may be a catalyst in leading department store shareholders to be more willing to
engage in M&A discussions.
Key trends that will define retail over the coming years. Panelists highlighted
a number of trends that they thought would define retail over the coming years: 1)
The move towards individuality and individual expression, away from mass
broad fashion; 2) The tailoring of individual experiences, connectivity across
various channels to the customer (online and offline) and its complexity; and 3)
The growth and proliferation of the internet and its impact on marketing and how
retailers will advertise and promote to consumers.
11
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E-Commerce: Global Retail Revolutionized

We attended a panel discussion on e-commerce trends in China during the J.P.
Morgan China Summit 2014. Panelists included: Ming Mei, Co-Founder and
CEO of Global Logistics Properties, Yu Gang, Co-Founder and Chairman of
Yihaodian, Diane Wang, Founder and CEO of DHgate, Peggy YU, Co-Founder
and Executive Chairwoman of E-Commerce China Dangdang Inc, Josh Perlman,
Managing Director, Branded Retail, Tristate Holdings. Our key takeaways are as
follows.
E-commerce is growing fast and re-defining distribution. Yihaodian, a
relatively newcomer to Chinese e-commerce space has now 4m SKUs (v 3k
SKUs 6 years ago) and recorded US$2bn in sales in FY13. Global Logistics
Propertiess (GLP) business has grown from 0% e-commerce exposure to 25% to
e-commerce companies directly while another 5-10% dedicated to logistics
companies services e-commerce. For Tristate, current online sales account for
12.5% of total and they expect to grow this to over 20%.
Yihaodian founder notes three key trends in e-commerce: (1) E-commerce is
moving towards mobile. By end of last year, mobile users reached 500m with PC
users 590m; (2) Penetration of e-commerce in China is going deeper into lower
tier cities. This is due to convenience of online payment, improvement of
logistics and mobile penetration. (3) Platform strategy large e-commerce
players are launching marketplace and leverages their traffic and leverages their
e-commerce solutions. Yihaodian doesnt see ceiling for e-commerce and think in
future that boundary will be blurred.
Innovation happening on many fronts:
(1) GLP: GLP is focusing on how to reduce costs for customers. Total logistics
costs transportation makes up ~50% of cost. GLPs infrastructure network now
covers most cities within China and looking to help truck drivers to match return
routes. In any given time, 40% of trucks are empty b/c 70% of trucks are owned
by individuals. GLP recently invested in platform for truck hubs. Right now ecommerce is cheap, fast but not making money. One way to do that is that
efficiency GLP working on how to be cost efficient.
(2) DHgate: DHgate is using cross-border transactional data to help SMEs access
micro-financing. It is also helping SMEs to build global brands.
(3) Yihaodian: The Company has an innovation platform called
idea.yihaodian.com.. It incubates 30 projects a year. One example of is a price
system that grabs prices from ~70 different websites (+ traffic information
etc). The system then sets the real time online prices for Yihaodian. Yihaodian is
also innovating in the supply chain area. Only few years ago, Yihaodians
inventory turnover days was ~50 days. It started to manage by many different
models (e.g self owned, consignment, drop ship etc) and has reduced inventory
This year goal the goal is to get down to ~15 days. Yihaodian receives lots of
pallets from different suppliers every day. It is now working with suppliers to
create a common pool of pallets, and returns common pallets within the pool.
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17 June 2014
Meeting Chinas Food Demand

We attended a panel discussion on food demand trends in China during the J.P.
Morgan China Summit 2014. Panelists included: Paul Fribourg, Chairman and
CEO, Continental Grain Company, Sunny Verghese, CEO of Olam, Pedro Faria,
CEO of BRF, Scott Sindelar, Agricultural Minister Counselor of USDA Beijing,
and Bryan Lohmar, China Director of U.S Grains Council. Our key takeaways
are as follows.
China is at an inflection point, moving from self-sufficiency to being an
importer of food. China consumption has grown very quickly in the last decade
but various challenges (food safety, water scarcity/ security, climate change etc)
means China is now faced with the issue of securing food supplies overseas. For
instance, the panel noted that China needs to produce 15m more tons of grain in
the next 6 years, and to do that, will need to increase arable land, which is already
in short supply in China. Given low expectations of yield gains, increasing supply
in huge volumes in a sustainable way (with lower costs to the environment) will
be a challenge. For instance, a large percentage of dairy farms in China are still
small scale farms (<1000 cows). While there is a notion that the Chinese can
increase efficiency, this is not going to grow overnight. To build large scale
farms, you need land and you cant grow land.
China as the worlds largest consumer represents opportunities for US/
Brazil as the worlds food/ protein producers. 32% of China CPI basket relates
to the food basket and 95% of CPI inflation in last three years has been driven by
food. There is a big arbitrage opportunity for exporters to China (given large
price gaps between China prices and international given a variety of reasons). In
China, there is a general lack of trust on the safety and quality of locally made
food and Chinese consumers have more confidence in imported products. BRF
notes that meat consumption in China is still under-penetrated, providing
opportunities for meat producing countries such as US and Brazil. China will
move up the value chain to import higher end processed food and this will
reshape global trade patterns in food. There is no global food player that exists in
a major way currently (perhaps with the exception of WH group) and a key
reason for this is that taste remains a local factor, and the food business is a
highly complicated business to manage effectively on a global perspective (with
varying business and commodity risks).
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17 June 2014
The China Factor in Global Brands Success

We attended a panel discussion on how global brands have managed to succeed
in China during the J.P. Morgan China Summit 2014. Panelists included: Tom
Doctoroff APAC CEO, JWT Asia Pacific, Karsten Engel, President and CEO,
BMW Group China, David Brooks, Chairman, Coca Coca Greater China and
Korea, and Alain Li, Regional Chief Executive, Regional Chief Executive,
Richemont Asia Pacific. Our key takeaways are as follows.
Companies are spending more time communicating their brand story to an
increasingly well-informed and inquisitive Chinese consumer. Richemont
believes the thirst for authenticity is increasing for the Chinese consumer. In
China, there is a more open community where people discuss brands and
products in great depth. As a result, Richemont has to tell the heritage story very
clearly, and there's much more communication with Chinese consumers relative
to other markets (even in the pre-purchase stage of the transaction life cycle).
Coca Cola agrees that the Chinese consumer is very knowledgeable and looking
for functional benefits more than ever (every Chinese teenage knows wolfberries
are good for their eyes) and now even a Coca Cola has to prove that as Chinese
consumers are not going to just accept what is presented to them. BMW notes
that consumers come to the showroom excellently informed, sometimes better
informed than the sales rep. They are informed by chat groups/ forums in social
media. As a result, people do not come to showrooms as frequently as in the
past. China customers are more demanding than consumers in other markets that
BMW operate in. Chinese consumers demand the best quality and when served
well, could be a powerful word of mouth for the market. Conversely, if they are
unsatisfied with the service/ product, negative press could spread very quickly
through social media.
There is operational diversity across regions but companies look to ensure a
cohesive branding effort across the nation.
(1) Coca Cola sells 140m drinks a day and produces drinks in 43 factories
currently (+30% CAGR for past 25 years; vs 1 factory in 1981 which produced
for the whole of China). China is their 3rd largest business globally by volume.
While there are regional taste differences and operational diversity across China,
the company notes that they do not develop local brands in every region given the
importance of economies of scale in a beverage production business. Having said
that, they do operate an R&D technical centre in Shanghai which produces
localized flavors for certain markets.
(2) For BMW (which sells 400k cars per annum in China vs. 20k in 2003), there
was a need to set up a dealer network that is of the same quality and consistent
throughout the country hence they invest heavily in training (270k man hours of
training a year). They do have to adapt to some important consumer differences
across regions nevertheless. For instance, in Western China, experimental driving
is important (getting customers in the car) but relatively less important in others
parts.
(3) Richemont notes that for a luxury brand, it was more about bringing their own
brand DNA into the market and educating the Chinese consumer about their
heritage. However to preserve that brand equity, picking the right locations and
understanding the consumer preferences in varying city clusters in China is
important. When malls were once very bullish on China, they presented
Richemont with floor plans that looked very similar with similar brands" that
they planned to onboard - that would have been excessive if Richemont were to
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17 June 2014
participate in every proposal. The brand had to put a lot of investment into the
front line and it has also put watch making schools in Shanghai and Hong Kong.
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17 June 2014
China Travel Spending

We attended a panel discussion on China travel spending in China during the J.P.
Morgan China Summit 2014. Panelists included: Tan Hee Teck, COO and President
of Genting Singapore, Simon Cooper, President Asia Pacific of Marriott
International, Matthew Driver, President, Southeast Asia, MasterCard Worldwide,
and Andrew Wu, Group President, Greater China of LVMH. Our key takeaways are
as follows.
Growth potential remains substantial. In 2013, the Mainland Chinese traveller
spent US$130.6bn (+28% yoy vs. +40% in 2012). There is more potential for this
to grow as families continue to accumulate wealth. From 1949-1978, only 2,10l
passports were issued in China. Currently there are now c40mn valid passports
which represents only 5% penetration vs. 37% in the US and 75% in Japan. US,
France, Italy is top of the aspirational list outside travel within Asia. In Asia,
Macau, HK and the rest of SE Asia are key destinations.
Is the flow of tourist sustainable? The panel discussed potential curbs in Hong
Kong and Singapore to some extent. Overall, they believe such curbs are harmful
for the economy particularly in HK which has a heavy dependence on the ML
Chinese in its retail sector. Instead of discouraging demand, the panel believes
focus should be on improving supply side infrastructure. Countries that are proactive in solving supply side infrastructure issues will be able to capture a
disproportionate share of traveler spending.
The tourist profile is transiting: from government-led to individual-led. 30
years ago, the government was the only customer for hotels. The government
was a sizable chunk of spend through gifting (and self-gifting) and also training
for conferences etc. While government sponsored travel consumption remains a
significant proportion, it is now retreating and the individual consumer which is
a more sustainable source of growth has evolved quickly. We are now into a
new era where gifting has gone forever. The individual traveler is young (92%
of Chinese travelers are under the age of 42) and growing significantly. Of this
group, 60% of Gen Y travelers have more in common with their peers around the
world than they do with their parents at home. The ML China tourist also travels
more with families/ in groups compared with peers.
The internet and social media have a disproportionate impact on Chinese
travelers (or consumers) and have a credibility that you cannot find in
traditional media. c43% of the Chinese population was born after 1980 (this is
the year after economic reforms where prior to this you had 3 decades of
revolution). This group is engaged in social media - they share pictures through
social media of the places they visit and seek out aspirational pictures of places
they want to visit through the internet they want to go. Designing a unique travel
experience hence becomes important as you want to make sure that the tourist
gets to capture a unique sight to post and share on social media social media
then becomes a natural showcasing mechanism (e.g. Resorts World Singapore
designed the worlds largest aquarium in Sentosa with this in mind). Chinese
traveller are increasingly seeking uniqueness (beyond scenery and shopping to
adventure e.g bungee jumping). Total travel bookings from internet now forms
c30% of total bookings (vs. nil three years ago). Bookings are made not only
through CTRIP but also non-traditional portals. WeChat is frequently used as a
source to find good deals or opinions on destinations or attractions.
Spending patterns dissected. Based on a Singapore Tourism Board study, the
travelers book their low cost carrier flight, book at cheap hotels because they
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17 June 2014
dont want to spend on flight or accommodations and rather spend in stores,

entertainment or restaurants. 40% of spend is spent on retail for the Chinese
travelers. This is similar to the Taiwanese traveler trends in the 80s where they
would buy luxury handbags and staying in cheap hotels and eating instant
noodles in Paris. Having said that, there remain segments that are more affluent
and are more willing to pay to have a high touch experience. Genting
Singapore is one such company that caters to this they own private jets that
serve high spenders. The company is also about to open its first casino in Jeju in
South Korea, a visa free destination for China and are targeting the Northern
Chinese travelers for resort travel to Jeju (believes Macau mainly sees Southern
Chinese travelers).
Forms of tourism now include educational, medical etc. Prior to 2013, in the
last 20 years, 400k ML Chinese studied overseas (a lot of them on one way visa).
This figure is increasing at a very fast pace as younger students apply for
scholarship to go abroad. More family travel now to do school inspection tours
now. There is now also medical tourism where the affluent are travelling for.
There are also more ML Chinese travelling domestically, with 350m people who
travel twice a year domestically (and are wearing out the steps of the Great Wall).
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17 June 2014
Section 3: Company Meeting Takeaways

China Huiyuan (1886 HK, Not Covered)
Focusing on products. One key focus for 2014 will be new product launches,
according to management. The company is introducing more natural/ less
concentrated fruit juice products, more chilled products and looking to launch
more sports/ functional drinks. A new batch of products will be out in late June
(originally planned for May-14, but delayed due to coordination issues in
production and supply chain according to management). Longer term, it is also
looking at the potential of plant based beverages (e.g. walnut, almond, coconut.
Huiyuan already have some products in this space) and is studying differences in
consumer preferences across region. For instance, Southern China provinces are
more receptive to acceptable to plant based soy beverage which is sold at room
temperature. Certain beverages such as Bing tang hu lu (traditional Chinese
candied fruits and a food embedded in north China culture) flavored drinks do
well in North China but are relatively less popular in South China.
Looking to address low capacity utilization. Management noted that capacity
utilization is low at 30%. To raise utilization rates, they are looking to 1) dispose
of 9 factories in FY14; 2) Explore potential opportunities to do OEM business for
international partners (selling raw materials etc).
Pricing changes in FY14. Huiyuan has raised ASPs by 5% in FY14 and note
their overall ASPs remain lower than industry (The company counts Huiquan and
Nongfu as main competitors in 100% concentrated juice segment).
Vertical integration strategy to drive margin expansion. GPM expanded in
FY13from favorable product mix and the company expects further expansion as
it is now consolidating packaging plants upstream and will be doing more
packaging internally. The company expects most of the GPM improvement to
carry forward to the EBIT margin level as it is not seeing significant increases in
selling and G&A expenses.
Channel, marketing and branding strategy. F&B channel traditionally formed
7% to 8% of total sales. This channel has never been a focus hence sales have
slipped here according to management; hence, it is trying to do more here by
improving packaging and introducing dedicated products for F&B. The sales
force is now organized by channel categories compared to product previously.
Management believes that marketing and branding has been a key area where
Huiyuan was lagging in the past. An executive from Lee Kum Kee has been
brought in to lead and boost marketing efforts. It is also changing the channels
through which they advertise. In the past, advertising was focused on TV (CCTV)
and it is now switching efforts to advertise in social media and also trade fair
sales marketing
Suntory acquisition should be completed Oct-14. Going forward, Suntory
products will be produced and sold by Huiyuan. i.e. Suntory will not have any
more production in China. As part of the deal, Suntory will get equity in Huiyuan
and also investments in convertible bonds.
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17 June 2014
China Mengniu (2319 HK, OW)

Targets for FY14 and long term: Looking for close to mid teens top line growth
in FY14 for core business. Expecting some GPM expansion as well. In the long
run target GPM in the range of 28%-30% largely driven by product mix shift.
There is potential to lift up yogurt business margins and contribution of infant
formula will help margin profile as well.
Competition posed by imported UHT milk: Management notes that the base is
very low for imported UHT, less than 1% of total demand. Growth last year was
90% y/y, which could be due to the raw milk crunch in China, which this year has
slowed down to 40% growth. Management does not believe imported UHT milk
is taking share from Deluxe as they have no investment in brand. Deluxe has
brand recognition. They agree that currently online prices are lower than milk
deluxe but noted that these are not sustainable.
Expect strong growth to continue in milk beverages: Banana milk and
probiotics milk beverage is growing very well for Mengniu. Expect teens growth
in the next 3 to 5 years. Mengniu is probably gaining market share but not that
fast.
Raw milk price trends: Raw milk prices increased 18% y/y last year. Prices
have peaked in Jan and started trending down this year. Mengniu has negotiated
some downward revision in its raw milk sourcing price for the rest of this year.
On average expect to see c12% y/y increase in raw milk price this year. Do not
expect any shortage of volume this year. In addition due to raw milk price hike, a
lot of capital went into upstream recently so in about 2 years expect to see pick up
in supply. Management notes that c25% of raw milk comes from upstream farms
where they have financial interest (such as Modern Dairy). From these farms they
tend to get favourable volumes but not necessarily favourable pricing.
Thoughts on JVs: On White wave, they see big potential in plant based
beverages given a lactose intolerant population in China. First product will be soy
milk, also planning almond milk. They do not expect meaningful contribution in
the next two years. On Danone JV, no contribution for this year. The current
market share of Mengniu plus Danone yogurt product is 19%. Expect to reach
c30% market share in 5 years with this JV.
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17 June 2014
Gome (493 HK, Not Covered)

Aiming to double both sales and profit from 2013 to 2017. The company
believes this will come from: (1) SSSG, with the company reporting 8.1% SSSG
in 1Q14. (2) New stores, with the company planning to open ~50-100 stores p.a.
in tier 2 markets while closing ~30-50 stores p.a. in tier 2 markets (leaving store
space roughly in line). (3) E-commerce growth. (4) Third-party business, With
Gome having opportunity to now consolidate market share by co-operating with
third parties.
Third-party business represents interesting opportunity. With the rise of ecommerce, Gome believes there is a significant opportunity to consolidate market
share in home appliances and consumer electronics by co-operating with third
parties. For example, Gome recently took over Wumarts home appliances
business. As part of this deal, Gome pays Wumart ~3-4% of total revenues to
operate the consumer electronics section within Wumarts stores.
E-commerce GMV forecast could triple by 2017. Gome forecasts total GMV
for its e-commerce business to be ~RMB5-6bn in FY14 and expects this number
to increase to ~10-15bn by 2017. Gross margins for e-commerce were 2.7% in
FY14. In 1Q14, this number increased to 7.2%. The company has been able to
increase gross margins through the integration of online/offline procurement as
well as the introduction of higher margin products online.
Differentiated product currently represents ~30% of sales, with company
forecasting this will increase to ~50% over time. Gome does not take
inventory risk for the regular products that its sells (~70% of sales currently) but
does take inventory risk for differentiated product. Differentiated products
currently consist of high margin products (~20% of total sales with gross margins
~23-25%) and regular products (~10% of total sales with gross margins ~1314%). The company believes differentiated products will eventually be ~50% of
total sales.
Looking to build omni-channel retailer. Following a very tough 2012, Gome
has wanted to transform its business away from being a property manager to
being a supply chain specialty/retailer. The company terms this as being an
omni-channel retailer. We note that in more developed markets such as the US,
the term omni-channel retailer refers to a retailer that integrates both the online
and offline shopping experience. Gome is trailing online/offline integration in
some stores but have not yet implemented this initiative across its own network.
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17 June 2014
Trinity (891 HK, Neutral)

We hosted Trinity during our China Summit. Trinity also hosted a lunch with the
CEO later in the week. Our takeaways of the CEO lunch are summarized as follows
(see here for our earlier note):
We attended a lunch event hosted by Trinity. Richard Cohen, Trinity's new CEO,
was in attendance. Cohen provided some initial remarks following ~4 weeks in
the job. Overall, we believe Cohen will instill a disciplined approach at Trinity,
with the company seeing significant growth opportunities in international
markets.
Initial focus on reducing inventory. Cohen emphasised the need to be
disciplined and do more with less throughout his presentation. In the short term,
the company plans to reduce inventory turnover days to ~300 days. Cohen has
started to introduce some US retail management practices in the business. We
expect the reduction of inventory would also entail: (1) inventory clearance in the
short term; (2) ongoing change with respect to the companys supply chain; (3)
focus on reducing SKUs; (4) different way to running outlet stores.
Trinity will solidify China and expand internationally. Unlike international
menswear brands that initially started with developing an international presence
before turning to China, Trinity's brand portfolio managed to develop a presence
in China first and is now looking to expand globally. Cohen sees significant
opportunity to move Europe to profitability as well as expand Trinitys brands
into North America.
Focus on improving story-telling for each brand. From a brand marketing
perspective, Cohen will focus on telling the Trinity brand portfolio story in a
more effective, precise and disciplined way. From a brand segmentation
perspective, Cohen's initial impression is that Kent & Curwen is a
sportswear/casual story, Cerruti has a similar brand position to Hugo Boss and
Gieves & Hawkes is a sartorial story. Cohen also believes DUrban could be an
entry price point for young men.
We expect ongoing weakness in the short term. Our channel checks indicate
ongoing weakness for high-end menswear. For Trinity, we expect weakness in
sales to cause operating de-leverage. Furthermore, efforts to reduce inventory
could also have a negative impact on margins. We reduce our earnings forecasts
significant to reflect continued weakness in the sales environment.
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17 June 2014
Vipshop (VIP US, OW)

Vipshop is covered by JP Morgan China Internet Analyst Alex Yao. We provide
below extracts of Alexs notes from the conference regarding Vipshop (see here for
his recently published note).
We met with Vipshop management last week during J.P. Morgans China Summit.
We believe the strong growth outlook of Vipshop remains intact. Key takeaways are
as follows:
Strong growth outlook intact. Management remains confident on the growth
prospect of Vipshop and believes Vipshops value proposition to both brand
partners and consumers remains intact. In addition to liquidating excess
inventories through Vipshop, certain brands started to supply exclusive products
to Vipshop. To meet the strong demand from brands, we expect Vipshop to
continue to expand its merchandising team this year.
Cosmetics is the key focal category this year. Management noted that cosmetics
would be the key focal product category for 2014, post the acquisition of Lefeng.
Combined cosmetic GMV of Vipshop and Lefeng reached USD167m in 1Q14,
with revenue from cosmetics growing at three-digits YoY. Management expects
the momentum to continue into 2Q14. According to management, integration with
Lefeng is progressing well and Vipshop is working on the back-end system
integration of the two platforms, which would enable cross-selling opportunities.
Management expects Vipshop to continue to take market share in the online
cosmetics market.
Mobile remains a strategic focus. Mobile revenue has been ramping up
significantly contributing 36% of total revenue in 1Q and management expects it
to reach 50% by end of 2014. Mobile is suitable for a flash sales model especially
for certain categories such as cosmetics and baby/maternity products. Vipshop is
differentiating SKUs offered on mobile and PC to target different users. One of
the initiatives on mobile is to develop personalized recommendations for targeted
consumers, which will require user data accumulation as well as strong data
mining capability. We believe Vipshop will continue to invest in IT capability to
drive mobile monetization. Management expects to expand R&D personnel from
current ~800 to 1500 by end of 2014.
Expecting steady gross margin improvement. Partially helped by the
marketplace revenue, gross margin already reach 24.9% in 1Q. Management
noted that gross margin of its core business is around 24% and expects it to
improve gradually to reach mid-to-long term target of 25%. However,
management stressed that, as compared to continuing to grab more market share,
margin expansion is less of a focus this year. Currently, gross margin of
cosmetics is slightly lower vs overall gross margin, while management expects
cosmetics to be margin accretive in the mid-to-longer term.
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Wumart (1025 HK, Not Covered)

Current trading remains challenging. Wumart has experienced fierce
competition within the industry since 2011, according to management. SSSG has
slowed over recent quarters although the company has experienced some slight
improvement in 2Q14.
Wumart will look to reduce prices to attract customer traffic. The company
believes that one third of Wumart's products are currently higher than
competitors. The company is implementing a low price project. After the
implementation of this project ~20% of product prices will be higher than
competitors. Company will look to continuously reduce prices going forward.
Operating cost pressures remain. Net profit margins reduced from 3.5% in
FY12 to 2.4% in FY13. One of the key reasons for this was increase in operating
costs. In FY12, rental costs represented 4.3% of sales, while staff costs
represented 5.4% of sales. In FY13, rental costs represented 4.9% of sales while
staff expenses represented 6.2% of sales.
Thoughts on e-commerce. The category currently most immune from ecommerce is fresh food and Wumart plans to focus on improving its fresh
offering. Wumart does currently employ a team investigating e-commerce but
does not believe now is the right time to roll out e-commerce.
23

17 June 2014
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Company
CHINA
Department Stores
Golden Eagle
Parkson Retail
NWDS*^
Maoye International Hldgs^
Average
BBG Ticker RTG
EPS
Price Mkt Cap CAGR
(LC) USD mlns 2013-15E
13
P/E
14E
15E
13
EV/EBITDA
14E
15E
Dividend Yield
13 14E 15E
13
ROE
14E
15E
13
P/BV
14E
15E
21.5%
6.3%
10.0%
12.9%
12.8%
22.4%
5.5%
9.9%
13.0%
12.5%
22.2%
6.0%
10.4%
12.9%
12.6%
2.7x
0.9x
0.8x
0.8x
1.3x
2.4x
0.9x
0.8x
0.8x
1.2x
2.2x
0.8x
0.7x
0.7x
1.1x
-0.5% 4.3% 17.2% 15.5% 14.8%

16.8% 18.2% 16.8% 16.7% 16.8%
0.5% 4.2% 6.4% 7.0% 8.3%
17.4% 1.4% 8.9% 4.8% 5.7%
13.0% 8.7% 21.1% 20.9% 20.8%
9.4% 7.4% 14.1% 13.0% 13.3%
2.1x
0.8x
0.9x
0.9x
1.9x
1.3x
2.1x
0.7x
0.8x
0.9x
1.8x
1.3x
1.9x
0.6x
0.8x
0.9x
1.7x
1.2x
9.3
2.2
3.1
1.2
2,167
778
683
795
5.6%
-0.7%
NA
11.0%
11.4x
13.9x
8.6x
7.1x
10.7x
11.3x
15.6x
7.9x
6.3x
10.5x
10.2x
14.1x
7.3x
5.8x
9.5x
11.5x
8.9x
3.4x
7.8x
8.2x
10.7x
9.6x
3.3x
8.1x
7.9x
9.6x
8.8x
3.1x
7.3x
7.2x
2.5%
3.4%
0.0%
4.8%
2.9%
4.4%
3.0%
0.0%
4.8%
3.2%
Fashionwear/footwear Retail
Belle International
Ports Design
Daphne International
Trinity Limited
China Lilang
Average
1880 HK N
589 HK UW
210 HK UW
891 HK N
1234 HK N
7.0
4.0
2.9
1.9
5.0
8.2
3.5
2.8
1.8
5.0
8,911
248
589
402
778
0.3%
10.0%
20.3%
-20.4%
6.9%
12.1x
4.8x
14.2x
10.3x
9.5x
10.2x
12.3x
4.4x
12.3x
19.1x
9.0x
11.4x
12.0x
4.0x
9.8x
16.2x
8.3x
10.1x
9.9x
3.8x
6.2x
9.7x
7.5x
7.4x
9.9x
3.5x
6.6x
13.9x
6.5x
8.1x
9.9x
2.9x
5.4x
13.2x
5.8x
7.4x
3.1%
9.0%
2.9%
7.1%
7.6%
6.0%
2.6% 2.8% 6.1%

9.4% 10.1% 17.3%
2.5% 3.3% 4.2%
3.8% 4.4% 2.0%
6.6% 6.6% 12.7%
5.0% 5.4% 8.5%
Jewellery & Watch Retail

Xinyu Hengdeli^
Chow Sang Sang^
Luk Fook*^
Chow Tai Fook*
Average
3389 HK
116 HK
590 HK
1929 HK
NC
NC
NC
OW
NA
NA
NA
13.5
1.3
19.4
19.4
11.1
830
1,696
1,474
14,319
-3.1%
10.6%
16.5%
25.9%
7.3x
10.8x
9.6x
19.8x
11.9x
8.8x
10.3x
7.2x
13.8x
10.0x
7.8x
8.8x
7.1x
12.5x
9.0x
4.9x
8.3x
6.5x
14.8x
8.6x
5.8x
8.0x
5.3x
11.6x
7.7x
5.1x
6.8x
5.0x
10.1x
6.7x
2.3%
3.5%
5.7%
1.5%
3.3%
2.3%
3.5%
5.7%
2.9%
3.6%
2.3% -23.8% -23.8%

3.5% 3.7% 3.7%
5.7% 0.8% 0.8%
3.2% 8.4% -5.4%
3.7% -2.7% -6.1%
Sportswear Brands
Anta
China Dongxiang^
Li Ning
Xtep
361 Degrees^
Peak Sports^
Average
2020 HK N
3818 HK NC
2331 HK N
1368 HK N
1361 HK NC
1968 HK NC
11.8
NA
5.4
3.9
NA
NA
11.4
1.4
5.9
3.4
1.9
2.1
3,677
1,021
1,034
949
515
571
10.9%
15.5%
NA
3.0%
19.1%
23.2%
17.1x 15.5x
32.0x 27.4x
-15.7x -302.4x
9.6x
9.7x
12.2x
9.7x
14.9x 11.3x
17.1x 14.7x
13.9x
24.0x
30.4x
9.0x
8.6x
9.8x
13.1x
11.5x
8.9x
-671.1x
7.5x
4.9x
3.8x
7.3x
10.4x
26.9x
26.3x
7.5x
3.1x
9.4x
19.7x
12.1x
6.9x
2.1x
12.0x
9.5x
4.4%
1.0%
0.0%
5.6%
7.1%
3.8%
4.4%
4.9%
1.0%
0.0%
5.7%
7.1%
3.8%
4.5%
20.9x
104.6x
62.8x
13.8x
11.7x
13.8x
11.7x
9.5x
18.2x
13.9x
5.3x
48.6x
26.9x
10.0x
25.2x
19.9x
10.9x
16.5x
10.3x
22.5x
21.7x
12.3x
16.7x
8.8x
19.7x
18.1x
10.8x
14.4x
NA
14.2x
NA
4.2x
9.2x
17.2x
12.7x
11.2x
8.5x
Supermarkets, Hypermarkets,
Convenience Stores
Beijing Jingkelong^
Sun Art
Lianhua^
Wumart Stores^
Average
China Average
814 HK
6808 HK
980 HK
1025 HK
NC
UW
NC
NC
NA
NA
NA
8.6
NA
NA
1.3
7.1
1.9
9.2
4.5
6.4
2,735
8,418
99
11,274
649
1,079
33.9%
NA
6.5%
13.1%
4.9%
-0.7%
Prices as of June 16, 2014, ^ Consensus estimates used for the company. * Values for next FY taken since FY ends in Jan-May period.
24
-3.6%
-7.7%
-6.6%
3.5%
-5.0%
FCF Yield
14E
15E
13.0
1.6
NA
NA
493 HK NC
002024 CH NC
4.9%
3.3%
0.0%
4.8%
3.4%
13
OW
UW
NC
NC
Electrical Appliance
Gome Electrical Appliances^
Suning^
Average
3308 HK
3368 HK
825 HK
848 HK
PT
1.4%
2.3%
-6.6%
3.5%
-2.0%
2.7%
9.6%
-6.6%
3.5%
-0.3%
11.1%
16.4%
19.8%
17.8%
16.3%
9.8%
15.2%
22.5%
22.3%
17.5%
10.0%
15.6%
20.4%
21.7%
16.9%
0.9x
1.7x
1.8x
3.3x
1.9x
0.8x
1.5x
1.5x
2.9x
1.7x
0.8x
1.3x
1.3x
2.5x
1.5x
5.5%
1.0%
1.9%
6.1%
7.1%
3.8%
4.7%
3.6% 4.1% 4.2% 18.4%

5.2% 5.2% 5.2% 2.8%
-1.0% -1.6% 2.1% -16.6%
6.5% 7.9% 6.2% 13.8%
10.0% 10.0% 10.0% 5.4%
15.1% 15.1% 15.1% 4.8%
8.1% 8.5% 8.1% 9.0%
19.2%
2.7%
-0.7%
12.8%
6.8%
7.1%
9.7%
20.2%
2.9%
7.2%
13.0%
8.2%
8.3%
10.5%
3.1x
0.9x
2.2x
1.3x
0.7x
0.9x
1.4x
2.9x
0.7x
2.2x
1.2x
0.7x
0.8x
1.3x
2.7x
0.7x
2.2x
1.1x
0.6x
0.8x
1.2x
4.0x 1.6% 1.6%

21.3x NA NA
12.7x 1.6% 1.6%
1.6%
NA
1.6%
8.4%
-4.1%
2.2%
8.4%
-4.1%
2.2%
8.4%
-4.1%
2.2%
5.1% 7.6% 8.6% 1.1x

1.8% -2.2% -2.6% 1.8x
3.4% 2.7% 3.0% 1.5x
1.0x
1.8x
1.4x
1.0x
1.8x
1.4x
NA
12.7x
NA
4.1x
8.4x
NA
10.8x
NA
3.2x
7.0x
0.0%
3.8%
NA
4.9%
2.9%
0.0% -13.8% -13.8%

2.7% 0.3% 1.2%
NA 28.5% 28.5%
4.9% 6.1% 6.1%
2.5% 5.3% 5.5%
-13.8%
3.2%
28.5%
6.1%
6.0%
3.7%
15.6%
5.8%
16.5%
10.4%
0.4x
3.7x
1.2x
1.7x
1.7x
0.4x
3.6x
1.2x
1.7x
1.7x
0.4x
3.2x
1.1x
1.5x
1.5x
10.4x
8.1x
3.9% 3.8%
11.7% 11.6% 11.9% 1.5x
1.4x
1.3x
0.0%
2.3%
NA
4.9%
2.4%
4.0%
2.9%
3.3%
-23.8%
3.7%
0.8%
3.3%
-4.0%
3.5%
3.6%
16.2%
5.4%
14.2%
9.8%
4.1%
17.0%
6.8%
14.7%
10.7%

17 June 2014
Ebru Sener Kurumlu

(852) 2800-8521
Company
BBG
Ticker
RTG
PT
EPS
Price Mkt Cap
CAGR
13
P/E
14E
15E
13
EV/EBITDA
14E
15E
Dividend Yield
13
14E
15E
13
FCF Yield
14E
15E
13
ROE
14E
15E
13
P/BV
14E
15E
HONG KONG
Apparel
Esprit Holdings
Giordano
I.T*
330 HK
709 HK
999 HK
UW
N
OW
11.3
4.2
2.8
11.4
4.6
2.8
2,851
934
444
NA
-13.1%
-8.2%
-4.9x 194.4x
10.9x 14.2x
9.2x 12.6x
40.8x
14.5x
10.9x
-4.3x
7.4x
3.5x
12.3x
9.2x
3.1x
8.6x
9.4x
2.5x
0.0%
8.7%
1.1%
0.3%
6.6%
3.6%
1.5% -8.6% 1.0% 1.5% -10.1% 0.7% 3.2%

6.1% 8.0% 5.4% 4.8% 21.8% 16.7% 16.4%
3.9% 6.9% 12.2% 10.3% 15.9% 10.5% 11.1%
1.3x
2.3x
1.3x
1.3x
2.4x
1.2x
1.3x
2.3x
1.2x
Jewelry Retail
Chow Sang Sang^
Luk Fook*^
116 HK
590 HK
NC
NC
NA
NA
19.4
19.4
1,696
1,474
10.6%
16.5%
10.8x 10.3x
9.6x 7.2x
8.8x
7.1x
8.3x
6.5x
8.0x
5.3x
6.8x
5.0x
3.5%
5.7%
3.5%
5.7%
3.5%
5.7%
3.7%
0.8%
3.7%
0.8%
3.7%
0.8%
16.4% 15.2% 15.6%

19.8% 22.5% 20.4%
1.7x
1.8x
1.5x
1.5x
1.3x
1.3x
Department Stores
Lifestyle
1212 HK
OW
19.0
14.9
3,142
-3.6%
10.2x 12.5x
11.0x
11.4x
10.6x
9.2x
5.2%
3.2%
3.7%
8.4%
8.5%
9.2%
19.8% 17.5% 17.1%
2.4x
2.0x
1.7x
Supermarkets, Hypermarkets,
Convenience Stores
Convenience Retail Asia^
Sun Art
Dairy Farm
831 HK
6808 HK
DFI SP
NC
NC
N
NA
NA
9.0
5.2
9.2
10.5
504
11,274
14,170
9.1%
12.8%
6.8%
24.9x 26.1x
25.4x 23.0x
28.3x 27.4x
20.9x
20.1x
24.8x
12.8x
10.8x
15.9x
13.5x
9.5x
14.3x
11.2x
8.2x
13.0x
2.4%
3.0%
2.2%
2.4%
3.0%
2.2%
2.4%
3.0%
2.4%
3.5%
0.6%
2.9%
3.5%
0.6%
5.3%
3.5%
0.6%
5.6%
14.6% 19.5% 21.9%

15.6% 16.0% 16.8%
38.8% 37.3% 35.3%
3.6x
3.7x
11.1x
4.8x
3.5x
9.5x
4.5x
3.2x
8.1x
653 HK
973 HK
178 HK
NC
N
N
NA
18.2
6.8
1.2
17.5
5.2
532
3,342
1,900
15.8%
-5.1%
7.0%
14.8x
19.9x
18.3x
14.8x
11.0x
22.1x
16.0x
17.3x
9.7x
11.3x
18.0x
9.3x
8.3x
12.4x
16.4x
10.2x
7.2x
11.6x
15.5x
9.0x
4.0%
1.8%
3.9%
3.5%
4.0%
1.3%
4.3%
3.3%
4.0%
1.8%
4.5%
3.5%
5.2%
2.6%
4.3%
3.2%
5.2%
2.2%
5.1%
4.5%
5.2%
4.3%
4.9%
4.5%
76.2%
17.8%
45.8%
24.4%
10.1x
3.3x
7.7x
4.2x
6.9x
3.2x
6.8x
3.7x
5.9x
2.9x
6.0x
3.3x
Cosmetics & Healthcare Goods

Bonjour^
L'Occitane International SA*
Sa Sa International*
HK Average
12.1x
27.3x
16.9x
32.0x
69.0%
12.0%
42.7%
23.3%
63.0%
13.8%
39.8%
22.9%
25

17 June 2014
Ebru Sener Kurumlu

(852) 2800-8521
Company
Instant noodles & juices
Tingyi
Uni-president China
Tibet 5100 Water Resources
Average
Snack manufacturers
Labixiaoxin^
Want Want
Average
Personal Care
Hengan International
Vinda^
Bawang^
Average
Breweries
Beijing Yanjing Brewery^
China Resources Enterprise
Tsingtao Brewery
Average
Liquor
Kweichow Moutai^
Luzhou Laojiao^
Shanxi Fen Wine^
Wuliangye Yibin^
Average
Wineries
China Foods
Dynasty Fine Wines^
Yantai Changyu Pioneer Wine^
Average
BBG Ticker RTG
PT
EPS
Price Mkt Cap
CAGR
13
P/E
14E
15E
13
Dividend Yield
13
14E
15E
13
FCF Yield
14E
15E
13
ROE
14E
15E
13
P/BV
14E
15E
322 HK UW
220 HK UW
1115 HK NR
18.5
4.0
0.0
21.3
5.7
2.7
15,347
3,170
891
18.4%
6.3%
13.3%
37.7x
32.7x
11.7x
27.4x
30.7x
31.4x
10.4x
24.2x
26.9x
28.9x
9.1x
21.6x
15.0x
11.6x
7.5x
11.3x
12.1x
14.6x
6.0x
10.9x
10.9x
12.3x
4.7x
9.3x
1.0%
1.1%
0.0%
0.7%
1.3%
0.6%
0.0%
0.7%
1.5% 2.8% 2.5%

0.7% -16.5% -13.6%
0.0% -2.4% 7.4%
0.7% -5.4% -1.3%
3.7% 15.1% 16.4% 16.8%

-8.3% 6.2% 6.1% 6.3%
8.7% 15.7% 15.5% 15.5%
1.4% 12.3% 12.7% 12.9%
5.3x
1.9x
2.2x
3.1x
4.8x
1.9x
1.8x
2.8x
4.3x
1.8x
1.6x
2.5x
1262 HK NC
151 HK N
NA
10.5
3.0
10.4
438
17,760
13.8%
15.6%
8.4x 7.9x
25.9x 22.3x
17.1x 15.1x
6.5x
19.3x
12.9x
4.8x
18.8x
11.8x
4.7x
16.2x
10.5x
3.8x
13.8x
8.8x
2.7%
2.6%
2.6%
2.7%
3.0%
2.8%
2.7%
3.5%
3.1%
4.8%
4.6%
4.7%
17.9% 16.2% 17.7%

38.8% 38.4% 39.0%
28.4% 27.3% 28.3%
1.4x
9.1x
5.3x
1.3x
8.1x
4.7x
1.1x
7.1x
4.1x
1044 HK OW
3331 HK NC
1338 HK NC
91.0
NA
NA
79.0
12.2
0.4
12,517
1,566
139
15.8%
12.3%
NA
26.1x
23.0x
NA
24.6x
22.6x
21.4x
99.2x
47.8x
19.5x
18.3x
29.8x
22.5x
18.4x
14.7x
NA
16.5x
15.9x
13.4x
NA
14.7x
13.6x
11.4x
NA
12.5x
2.3%
1.3%
0.0%
1.2%
2.9%
1.3%
0.0%
1.4%
3.3% 3.7% 2.5% 4.2% 24.3% 24.9% 26.4%

1.3% -4.3% -4.3% -4.3% 12.3% 11.6% 12.7%
0.0% -9.7% -9.7% -9.7% -31.3% 2.5% 9.2%
1.5% -3.4% -3.8% -3.2% 1.8% 13.0% 16.1%
5.9x
2.7x
NA
4.3x
5.4x
2.4x
NA
3.9x
4.9x
2.2x
NA
3.6x
000729 CH NC
291 HK N
168 HK UW
NA
20.0
45.0
6.6
21.4
60.5
2,982
6,637
9,646
8.2%
7.0%
4.8%
22.6x
27.0x
33.0x
27.5x
21.2x
28.5x
32.8x
27.5x
19.3x
23.6x
30.0x
24.3x
NA
8.3x
26.5x
17.4x
NA
7.4x
24.2x
15.8x
NA
5.9x
22.2x
14.1x
NA
1.3%
0.8%
1.0%
NA
1.2%
0.8%
1.0%
NA
5.9%
1.4% -2.8%
0.9% 2.1%
1.2% 1.7%
7.4%
4.2%
13.6%
8.4%
1.8x
1.2x
4.6x
2.5x
1.5x
1.1x
4.2x
2.3x
1.5x
1.1x
3.8x
2.1x
600519 CH
000568 CH
600809 CH
000858 CH
NC
NC
NC
NC
NA
NA
NA
NA
152.5
16.4
13.1
17.1
25,392
3,686
1,823
10,410
9.3%
-10.5%
-13.9%
-6.1%
10.7x 10.1x
6.5x 8.7x
8.5x 11.1x
7.7x 8.8x
8.4x 9.7x
9.0x
8.1x
11.5x
8.8x
9.3x
6.5x
3.0x
3.9x
3.1x
4.1x
5.7x
2.9x
7.6x
3.3x
4.9x
4.8x
2.1x
6.1x
2.6x
3.9x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
28.3%
23.0%
23.0%
16.3%
22.7%
3.7x
2.2x
2.8x
1.8x
2.6x
3.0x
2.0x
2.7x
1.6x
2.3x
2.5x
1.7x
2.5x
1.4x
2.0x
506 HK N
828 HK NC
200869 CH NC
2.7
NA
NA
2.8
1.4
16.9
996
232
2,302
NA
NA
-6.2%
-12.3x
80.0x
7.4x
25.0x
86.2x 19.2x 23.0x

30.0x #N/A N/A NA
8.2x
8.4x
NA
41.5x 13.8x 23.0x
9.4x
NA
NA
9.4x
6.9x
NA
NA
6.9x
0.0%
0.0%
NA
0.0%
0.5%
0.0%
NA
0.3%
2.3%
0.0%
NA
1.2%
7.7% -9.8% 1.4% 6.1%

-25.4% NA
NA
NA
-1.5% 20.5% 17.3% 14.5%
-6.4% 5.3% 9.4% 10.3%
1.3x
NA
1.4x
1.4x
1.2x
NA
1.3x
1.3x
1.1x
NA
1.2x
1.2x
26
EV/EBITDA
14E
15E
4.8%
4.1%
4.4%
4.8%
2.7%
3.8%
5.9% 5.9% 7.8% 6.9%

8.9% 10.6% 4.0% 3.5%
0.5% 0.9% 13.6% 13.8%
5.1% 5.8% 8.5% 8.1%
4.9% 4.9% 4.9%

2.9% 2.9% 2.9%
-4.9% -4.9% -4.9%
1.3% 1.3% 1.3%
1.0% 1.0% 1.0%
-0.8%
-25.4%
-1.5%
-9.2%
-2.0%
-25.4%
-1.5%
-9.6%
35.9%
37.6%
33.5%
24.3%
32.8%
30.8%
24.6%
21.6%
17.5%
23.6%

17 June 2014
Ebru Sener Kurumlu

(852) 2800-8521
Company
Dairies
Bright Dairy^
China Mengniu Dairy
China Modern Dairy^
Biostime^
Beingimate^
Huishan^
Yashili International^
Inner Mongolia Yili Industrial^
Average
Food retailers
Beijing Jingkelong^
Sun Art^
Lianhua^
Wumart Stores^
Average
China Restaurants
Caf de Coral*
Ajisen China Holdings Ltd.
Gourmet Master^
Wowprime
Tenfu
Average
Meat Processors
China Yurun
Henan Shuanghui^
Average
Tobacco and Tobacco Flavour
Huabao International
AMVIG Holdings^
Average
Agri-industrial companies
China Agri-Industries
BBG Ticker RTG
PT
Price Mkt Cap EPS CAGR

13
P/E
14E
15E
13
EV/EBITDA
14E
15E
Dividend Yield
13
14E
15E
13
0.1%
-2.0%
-3.1%
1.8%
-0.8%
NA
-0.7%
3.0%
-0.2%
FCF Yield
14E
15E
13
ROE
14E
15E
P/BV
14E
15E
4.6x
3.4x
2.2x
8.9x
3.3x
3.2x
2.4x
4.3x
4.0x
4.2x
2.7x
1.8x
7.7x
3.1x
1.5x
2.4x
3.6x
3.4x
3.7x
2.3x
1.6x
6.4x
2.7x
1.5x
2.2x
3.0x
2.9x
600597 CH
2319 HK
1117 HK
1112 HK
002570 CH
6863 HK
1230 HK
600887 CH
NC
OW
NC
NC
NC
NC
NC
NC
NA
43.0
NA
NA
NA
NA
NA
NA
16.1
36.0
3.1
47.0
13.8
1.8
2.8
32.9
3,169
9,081
1,949
3,661
2,261
3,383
1,267
10,779
38.9%
34.2%
63.0%
16.8%
13.0%
27.9%
3.4%
23.2%
42.0x
32.5x
28.0x
22.6x
19.2x
19.8x
15.4x
22.3x
25.2x
30.6x
23.5x
13.8x
20.7x
18.2x
15.6x
17.3x
17.9x
19.7x
21.8x
18.0x
10.5x
16.5x
15.0x
12.1x
14.4x
14.7x
15.4x
NA
18.0x
22.6x
15.0x
12.3x
17.6x
8.2x
17.0x
15.8x
NA
11.4x
11.8x
13.5x
11.9x
11.1x
10.6x
11.1x
11.6x
NA
8.8x
9.7x
10.5x
9.5x
10.0x
8.6x
8.7x
9.4x
NA
0.7%
0.0%
NA
NA
1.5%
1.7%
NA
1.0%
NA
0.9%
0.0%
NA
NA
1.5%
1.7%
NA
1.0%
NA
1.1%
0.0%
NA
NA
1.5%
1.7%
NA
1.1%
814 HK
6808 HK
980 HK
1025 HK
NC
NC
NC
NC
NA
NA
NA
NA
1.9
9.2
4.5
6.4
99
11,274
649
1,079
6.5%
12.8%
4.9%
-0.7%
10.0x
25.4x
19.9x
10.9x
16.6x
10.3x
23.0x
21.7x
12.3x
16.8x
8.8x
20.1x
18.1x
10.8x
14.5x
NA
10.8x
NA
4.2x
7.5x
NA
9.5x
NA
4.1x
6.8x
NA
8.2x
NA
3.2x
5.7x
0.0%
3.0%
0.0%
4.9%
2.0%
0.0%
3.0%
0.0%
4.9%
2.0%
0.0% -13.8% -13.8% -13.8%

3.0% 0.6% 0.6% 0.6%
0.0%
NA
NA
NA
4.9% 6.1% 6.1% 6.1%
2.0% -2.4% -2.4% -2.4%
3.7%
15.6%
5.8%
16.5%
10.4%
3.6%
16.0%
5.4%
14.2%
9.8%
4.1%
16.8%
6.8%
14.7%
10.6%
0.4x
3.7x
1.2x
1.7x
1.7x
0.4x
3.5x
1.2x
1.7x
1.7x
0.4x
3.2x
1.1x
1.5x
1.5x
341 HK
538 HK
2723 TT
2727 TT
6868 HK
N
N
NC
NC
NC
23.4
6.5
NA
NA
NA
25.4
6.1
237.0
447.0
3.3
1,893
853
1,115
1,147
522
10.9%
13.6%
50.0%
11.3%
NA
26.5x
23.6x
48.3x
NA
NA
32.8x
24.2x
21.0x
31.5x
NA
NA
25.6x
21.6x
18.3x
21.5x
NA
NA
20.4x
15.6x
11.7x
NA
NA
NA
13.6x
14.0x
10.3x
NA
NA
NA
12.1x
12.3x
8.9x
NA
NA
NA
10.6x
3.6%
2.7%
NA
NA
5.9%
4.0%
3.3%
3.0%
NA
NA
5.9%
4.1%
3.7%
3.5%
NA
NA
5.9%
4.3%
12.8%
8.7%
11.0%
NA
12.5%
11.3%
15.8% 17.2%
9.2% 10.2%
16.0% NA
NA
NA
12.5% NA
13.4% 13.7%
4.1x
2.0x
NA
NA
NA
3.0x
3.9x
1.9x
NA
NA
NA
2.9x
3.8x
1.8x
NA
NA
NA
2.8x
1068 HK NC
000895 CH NC
NA
NA
3.7
35.5
863
12,532
NA
21.8%
NA
20.0x
20.0x
NA
16.1x
16.1x
42.7x
13.5x
28.1x
28.0x
13.0x
20.5x
11.6x
10.4x
11.0x
7.7x
8.2x
8.0x
0.0%
NA
0.0%
0.0%
NA
0.0%
0.0% -22.4% -22.4% -22.4% -1.1% 1.0% 3.2%

NA
2.1% 2.1% 2.1% 31.0% 29.8% 29.4%
0.0% -10.1% -10.1% -10.1% 14.9% 15.4% 16.3%
0.5x
4.1x
2.3x
0.4x
4.7x
2.6x
0.4x
3.8x
2.1x
336 HK NC
2300 HK NC
NA
NA
4.0
3.0
1,612
353
8.6%
4.8%
7.4x
6.8x
7.1x
6.7x
6.5x
6.6x
6.3x
6.1x
6.2x
5.0x
3.9x
4.4x
4.6x
2.9x
3.8x
3.8x
2.4x
3.1x
4.5%
5.7%
5.1%
4.5%
5.7%
5.1%
4.5% 12.3% 12.3% 12.3% 26.4% 24.4% 23.0%

5.7% 23.2% 23.2% 23.2% 10.8% 10.2% 10.3%
5.1% 17.7% 17.7% 17.7% 18.6% 17.3% 16.7%
1.6x
0.7x
1.2x
1.5x
0.6x
1.1x
1.3x
0.6x
0.9x
606 HK N
3.8
2.9
1,971
-13.5%
10.4x
23.2x
14.0x
10.8x
13.3x
11.1x
2.4%
1.1%
1.8% -5.0% -26.4% -14.8% 5.4%
0.5x
0.6x
0.5x
1.7%
3.6%
NA
2.9%
6.7%
3.7%
0.1% 0.1% 10.8% 12.5% 15.7%

3.3% 4.9% 11.5% 13.1% 13.9%
-3.1% -3.1% 8.0% 14.5% 16.1%
1.8% 1.8% 38.4% 40.9% 43.4%
-0.8% -0.8% 19.0% 16.8% 18.3%
NA
NA 29.5% 13.0% 12.9%
-0.7% -0.7% 14.1% 12.5% 14.6%
3.0% 3.0% 21.4% 20.3% 20.7%
0.5% 0.7% 19.1% 18.0% 19.4%
13
3.8%
4.5%
NA
2.9%
6.7%
4.5%
4.4%
5.8%
NA
2.9%
6.7%
5.0%
2.4%
3.9%
27
Ebru Sener Kurumlu

(852) 2800-8521

17 June 2014
Companies Discussed in This Report (all prices in this report as of market close on 16 June 2014)
China Mengniu Dairy Co. Ltd. (2319.HK/HK$35.50/Overweight), Hengan International Group Ltd
(1044.HK/HK$79.00/Overweight), Sun Art Retail Group Limited (6808.HK/HK$9.16/Underweight), Want Want China
Holdings Ltd (0151.HK/HK$10.42/Neutral)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.
Important Disclosures
Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: China Mengniu Dairy Co.
Ltd., Hengan International Group Ltd, Want Want China Holdings Ltd.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Hengan International Group Ltd, Want Want China Holdings Ltd.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Want Want China Holdings Ltd.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: Want Want China Holdings Ltd.
Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Hengan
International Group Ltd, Want Want China Holdings Ltd.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Hengan International Group Ltd, Want Want China Holdings Ltd.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Want Want China Holdings Ltd.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan
covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing
research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may
screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail
research.disclosure.inquiries@jpmorgan.com.
28

17 June 2014
Ebru Sener Kurumlu

(852) 2800-8521
Sun Art Retail Group Limited (6808.HK, 6808 HK) Price Chart
24
18
UW HK$8.6
Price(HK$) 12
Date
Rating Share Price Price Target

(HK$)
(HK$)
15-May-14 UW
9.93
8.60
0
Jul
11
Oct
11
Jan
12
Apr
12
Jul
12
Oct
12
Jan
13
Apr
13
Jul
13
Oct
13
Jan
14
Apr
14
Jul
14
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage May 15, 2014.
China Mengniu Dairy Co. Ltd. (2319.HK, 2319 HK) Price Chart
75
OW HK$23
60
UW HK$14.5
OW HK$24
OW HK$25
OW HK$33
OW HK$26
OW HK$38.1
OW HK$36
UW HK$18
UW HK$3.8
UW HK$8.1
OW HK$32
OW HK$30
OW HK$26
OW HK$30
OW HK$35
OW HK$27
OW OW
HK$28
HK$24
OW HK$30.5
OW HK$43
45
Price(HK$)
30
15
0
Oct
06
Apr
08
Oct
09
Apr
11
Initiated coverage Apr 10, 2008.
Oct
12
Apr
14
Date

(HK$)
(HK$)
10-Apr-08
UW
20.35
18.00
21-Sep-08 UW
20.00
3.80
17-Apr-09
UW
13.02
8.10
28-Jun-09
UW
18.60
14.50
09-Sep-09 OW
19.48
23.00
08-Dec-09 OW
28.80
32.00
29-Apr-10
OW
24.25
30.00
01-Sep-10 OW
22.30
26.00
02-May-11 OW
24.25
30.00
31-Aug-11 OW
26.60
35.00
12-Oct-11
OW
25.65
33.00
10-Jan-12
OW
19.74
24.00
10-Feb-12 OW
22.40
27.00
27-Mar-12 OW
20.90
26.00
02-Jul-12
OW
20.35
25.00
28-Aug-12 OW
23.10
28.00
13-Dec-12 OW
20.50
24.00
19-Jun-13
OW
26.85
30.50
29-Aug-13 OW
29.85
36.00
04-Nov-13 OW
33.00
38.10
26-Mar-14 OW
35.55
43.00
29

17 June 2014
Ebru Sener Kurumlu

(852) 2800-8521
Hengan International Group Ltd (1044.HK, 1044 HK) Price Chart
OW HK$33.6
OW HK$70
N HK$73
150
OW HK$32.4
OW HK$31.5
N HK$43
N HK$70 UW HK$51 UW HK$61

N HK$64
OW HK$91
120
N HK$25.9
OW HK$36.4
N HK$19
N HK$30
N HK$39 N HK$60
N HK$65
OW HK$67
N HK$67
UW HK$53
UW HK$62
N HK$66N HK$82
OW HK$90
Price(HK$)
90
60
30
0
Oct
06
Apr
08
Oct
09
Apr
11
Oct
12
Apr
14
Initiated coverage Jun 13, 2007.
Date

(HK$)
(HK$)
13-Jun-07
27.65
25.90
23-Jul-07
OW
27.25
32.40
05-Sep-07 OW
25.15
33.60
30-Jan-08
OW
28.65
36.40
19-Mar-08 OW
25.40
31.50
18-Sep-08 N
20.30
19.00
08-Mar-09 N
27.15
30.00
16-Jun-09
36.50
39.00
03-Sep-09 N
41.70
43.00
26-Mar-10 N
58.00
60.00
30-Aug-10 N
68.55
65.00
22-Nov-10 N
68.75
70.00
25-Jan-11
OW
58.85
70.00
30-Mar-11 OW
59.75
67.00
27-Jul-11
67.45
67.00
12-Oct-11
UW
65.15
51.00
28-Mar-12 UW
70.85
53.00
30-Aug-12 UW
74.20
62.00
15-Sep-12 UW
75.60
61.00
16-Jan-13
73.55
66.00
27-Mar-13 N
76.70
64.00
01-May-13 N
77.80
73.00
27-Aug-13 N
84.80
82.00
28-Jan-14
OW
78.15
90.00
25-Mar-14 OW
81.25
91.00
Want Want China Holdings Ltd (0151.HK, 151 HK) Price Chart
Date
OW HK$8.8
N HK$6
21
N HK$5.4
N HK$5.8
N HK$6.5
N HK$5.2
N HK$5.8
Price(HK$) 14
N HK$8
N HK$8.5
N HK$9.5
N HK$7
N HK$7.6 N HK$9 N HK$10
N HK$10.5
0
Mar
08
Dec
08
Sep
09
Jun
10
Mar
11
Dec
11
Initiated coverage Feb 09, 2010.
Sep
12
Jun
13
Mar
14

(HK$)
(HK$)
09-Feb-10 N
5.08
5.20
10-Mar-10 N
5.86
5.40
28-Jun-10
6.50
5.80
25-Aug-10 N
6.06
5.80
04-Nov-10 OW
7.43
8.80
17-Jul-11
7.07
8.00
24-Aug-11 N
6.56
6.50
12-Oct-11
6.93
6.00
07-Mar-12 N
7.82
7.00
02-Jul-12
9.76
7.60
30-Aug-12 N
10.14
8.50
16-Jan-13
10.38
9.00
05-Mar-13 N
11.48
9.50
27-Aug-13 N
11.42
10.00
12-Mar-14 N
11.36
10.50
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
30
Ebru Sener Kurumlu

(852) 2800-8521

17 June 2014
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: Sener, Kurumlu Ebru: Ajisen China Holdings Ltd (0538.HK), Belle International Holdings Ltd. (1880.HK), Cafe
de Coral Holdings Ltd (0341.HK), China Foods Ltd (0506.HK), China Mengniu Dairy Co. Ltd. (2319.HK), China Resources Enterprise
(0291.HK), Chow Tai Fook Jewellery Company Ltd. (1929.HK), Dairy Farm International Holdings Limited (DAIR.SI), Esprit Holdings
(0330.HK), Golden Eagle Retail Group Ltd (3308.HK), Hengan International Group Ltd (1044.HK), Li & Fung (0494.HK), Lifestyle
International Holdings (1212.HK), New World Department Stores Ltd (0825.HK), Parkson Retail Group Ltd (3368.HK), Prada S.P.A
(1913.HK), Tibet 5100 Water Resources Holdings Ltd (1115.HK), Tingyi (Cayman Islands) Holding Corp (0322.HK), Tsingtao Brewery
- A (600600.SS), Tsingtao Brewery - H (0168.HK), Uni-President China Holdings Ltd (0220.HK), Want Want China Holdings Ltd
(0151.HK)
Li, Shen Wei: Anta Sports Products Ltd. (2020.HK), China Lilang Ltd. (1234.HK), Daphne International (0210.HK), Giordano
(0709.HK), I.T Ltd. (0999.HK), L'Occitane International SA (0973.HK), Li Ning Co Ltd (2331.HK), Ports Design (0589.HK), Sa Sa
International Holdings Limited (0178.HK), Sun Art Retail Group Limited (6808.HK), Trinity Limited (0891.HK), Xtep International
Holdings Limited (1368.HK)
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2014
J.P. Morgan Global Equity Research Coverage

IB clients*
JPMS Equity Research Coverage
IB clients*
Overweight
(buy)
44%
58%
45%
78%
Neutral
(hold)
44%
49%
48%
67%
Underweight
(sell)
11%
40%
7%
60%
*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based
upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,
and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.
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please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf
Legal Entities Disclosures
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31
Ebru Sener Kurumlu

(852) 2800-8521

17 June 2014
request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and
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Asia Pacific Equity Research

Chinese consumer focusing on

Shen Li, CFA

(852) 2800 8523

Figure 1: China Retail Sales % y/y

Figure 2: China Consumer Confidence

Consumer preferences in the beverage market moving towards

Ebru Sener Kurumlu

Asia Pacific Equity Research

Section 2: Industry Panel Discussion Takeaways.................9

Section 3: Company Meeting Takeaways.............................18

Asia Pacific Equity Research

Ebru Sener Kurumlu

Section 1: Key Takeaways

Source: J.P. Morgan.

Dairy companies continue to focus on milk beverages;

Source: Euromonitor, Beijing Shennong Kexin Argibusiness Consulting, JPM calculations

Food retail traffic remains lackluster (-ve for Sun Art)

Ebru Sener Kurumlu

Asia Pacific Equity Research

company is implementing a low price project. After the implementation of this

Source: Company reports.

Figure 5: Sun Art - Trend in SSSG

Source: Company reports. December year end.

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Asia Pacific Equity Research

Unique merchandising core as Chinese consumer looks for

E-commerce redefining distribution

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Asia Pacific Equity Research

Figure 6: China E-Commerce Sales as % Corresponding Retail Sales

As a comparison, e-commerce penetration in the US is estimated to be ~10-11%

From a sales perspective, we believe e-commerce growth is having a negative impact

Asia Pacific Equity Research

Ebru Sener Kurumlu

ML Chinese travel spending growth potential substantial

% of Chinese travellers under Individual Visitor scheme

Source: Hong Kong Tourism Board

Assuming 15% decline in

Assuming 15% decline

Source: J.P. Morgan estimates, Company data. * Estimates only

Asia Pacific Equity Research

Ebru Sener Kurumlu

Table 3: HK Retail Sensitivities Potential impact from reduction in rentals

Source: J.P. Morgan estimates, Company data.

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Asia Pacific Equity Research

Section 2: Industry Panel Discussion

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Asia Pacific Equity Research

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Asia Pacific Equity Research

Consumer Connections: Retail Trends in China

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Asia Pacific Equity Research

E-Commerce: Global Retail Revolutionized

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Asia Pacific Equity Research

Meeting Chinas Food Demand

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Asia Pacific Equity Research

The China Factor in Global Brands Success

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