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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
40
30
20
10
0
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
400
300
200
100
0
Performance Over
Absolute (%)
Relative (%)
1M
12.6
14.8
3M
42.3
45.8
12M
93.3
101.2
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
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.
BEYOND INFORMATION
Client-Driven Solutions, Insights, and Access
21 January 2014
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
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
2010
TV
2011
Washing machines
Gross margin (%)
Rural
160
80
2015E
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
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
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
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
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.
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.
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
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
%Up/Dwn Assumptions
30.0x ICS segment target PE and 22.2x
54.00
total target PE
24.0x ICS segment target PE and 18.9x
31.29
total target PE
15.0x ICS segment target PE and 13.9x
(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
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
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
2010
2011
2012
2013
2014
2013
2014
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
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
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.
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 Group
White goods
Integrated
kitchen
Residential
property
development
Other home
appliance
products
43.4%
13.2%
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.
Event
Dec-1997
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
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
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
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
2014E
2015E
2009
2010
2011
2012
2013E
2014E
2015E
Haier Electronics
(1169.HK / 1169 HK)
21 January 2014
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.
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 SPV
Convertible &
Exchangeable
Bond
Haier Electronics SPV I
100%
100%
Haier Electronics PRC
Alibaba HK
24.1%
66%
9.9%
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.
Source: Company data
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
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
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.
Figure 18: Scenario analysis on potential upside from more Tmall third-party logistics
Scenario
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
0.165
0.025
0.074
0.102
0.095
0.056
0.517
50%
1.03
6.37% Using Tmall GMV on 11 Nov 2012 as % of 2012
16.23
Net margin
Net profit (Rmb mn) to Goodaymart logistics
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%
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%
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
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.
Focus Features
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
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
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
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.
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.
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%
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
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
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
Source: www.ehaier.com
Source: haier.tmall.com
Haier Electronics
(1169.HK / 1169 HK)
13
21 January 2014
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
2011
2012
Gas water heaters
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%
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
2010
2012
YoY%
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.
80%
70%
25,000
Others
19.3%
Rinnai
2.9%
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
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.
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
2001
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.
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
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.
Haier Electronics
(1169.HK / 1169 HK)
16
21 January 2014
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).
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.
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.
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
Integrated channel services
Tmall logistics contribution
Total
Gross revenue YoY%
Washing machines
Water heaters
Integrated channel services
Tmall logistics contribution
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.
Haier Electronics
(1169.HK / 1169 HK)
17
21 January 2014
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.
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
Haier Electronics
(1169.HK / 1169 HK)
18
21 January 2014
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%
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.
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.
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
0.0
2007
Net cash
2009
2011
2013E
2015E
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.
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
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$30.0
is based on the SOTP-implied 18.9x target 2015E P/E, implying 31% potential upside. Our
target price implies 0.8x target PEG based on a 23.2% three-year EPS CAGR in 2013-15E.
If we exclude the expected net cash on hand, it implies 15.8x 2015E ex-cash P/E only.
Haier Electronics
(1169.HK / 1169 HK)
20
21 January 2014
Washing machines
Water heaters
ICS
SOTP valuation
Segment profit
share
30.1%
14.6%
55.3%
100.0%
Target 2015E
P/E (x)
11.5
14.5
24.0
18.9
Valuation basis
Washing machine comps
Water heater comps
Logistics companies FedEx and UPS in 2000-2004
Sum of the parts
The biggest valuation variation should come from the target P/E given to the ICS business.
We assume different target P/Es for the ICS business and get a scenario analysis on
related SOTP P/Es and target prices as show in Figure 48.
17.0
15.0
23.8
4%
20.0
16.6
26.3
15%
Base case
24.0
18.9
30.0
31%
25.0
19.4
30.8
35%
Bull
30.0
22.2
35.2
54%
27.0
20.5
32.5
42%
(HK$)
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
(HK$)
25
4.8x
20
3.8x
Jan-14
Jan-14
Jul-13
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jan-14
Jul-10
Jan-13
Jan-10
Jan-12
Jul-09
Jan-11
Jan-09
Jan-10
Jul-08
Jan-09
Jan-08
Jan-08
Jul-07
0
Jan-07
Jan-07
0.0
6.0
5.0
4.0
15
2.8x
10
1.8x
Average 2.8x
3.0
2.0
1.0
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jan-14
Jul-10
Jan-13
Jan-10
Jan-12
Jul-09
Jan-11
Jan-09
Jan-10
Jul-08
Jan-09
Jan-08
Jan-08
0.0
Jul-07
0
Jan-07
0.8x
Jan-07
Haier Electronics
(1169.HK / 1169 HK)
21
21 January 2014
Ticker
Haier Electronics
1169.HK
US$ 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
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
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
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
Air-conditioner
Chigo
GREE
Chunlan
0449.HK
000651.SZ
600854.SS
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
Note: All data as of reported in the last full year financial report, except for Midea Group with last data as of Year 2011.
Source: Company data, Credit Suisse estimates
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.
Start date
End date
Content
Pilot
November 2007;
Formal implementation
- December 2008;
Fully expansion February 2009
May 2009
December 2011
June 2012
May 2013
Source: China Ministry of Finance, China Ministry of Commerce, China's State Council
Haier Electronics
(1169.HK / 1169 HK)
24
21 January 2014
Haier Electronics
(1169.HK / 1169 HK)
25
21 January 2014
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
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
2010
2011
2012
2013E
2014E
2015E
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
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
9,971.1
14,355.6
18,213.3
23,237.2
27,262.3
32,762.4
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
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
-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
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
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
Haier Investment
and Development
13.2%
Carlyle Asia
Partners III AIV
Cayman, L.P.
Alibaba
SPV
2.0%
Other public
shareholders
34.2%
3.8%
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
12.2%
43.1%
Carlyle Asia
Partners III AIV
Cayman, L.P.
Alibaba
SPV
4.3%
Other public
shareholders
35.4%
4.9%
Distribution
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.
Source: Company data
Haier Electronics
(1169.HK / 1169 HK)
29
21 January 2014
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
(1169.HK / 1169 HK)
30
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)
31
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
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
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.
Rating
Outperform/Buy*
42%
(53% banking clients)
Neutral/Hold*
41%
(49% banking clients)
Underperform/Sell*
15%
(43% banking clients)
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.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and
analytics/disclaimer/managing_conflicts_disclaimer.html
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
Haier Electronics
(1169.HK / 1169 HK)
36
21 January 2014
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can
be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS
as a seller, you will be requested to pay the purchase price only.
Haier Electronics
(1169.HK / 1169 HK)
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