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China/Hong Kong Consumer Discretionary

Peak Sport Products (1968 HK)


Solid achievements
Solid earnings. Peak posted FY10 earnings with a 31% rise in EPS. The reported net profit is 3% higher than our estimate due mainly to better-than-expected international sales. Healthy gross margin. Gross margin of 38.3% was achieved in 2H10 compared with 37.0% in 2H09, outweighing the slight margin dip in 1H10 to support full-year gross margin expansion to 38.0% from 37.5% in FY09. Results were higher than forecast of 37.8%. The company continues to target gross margin growth in FY11F. Plan to cut wholesale discount. Beyond FY11F, the company might reduce wholesale discounts offered to its distributors from 62% to 60%. Such a change would demonstrate company pricing power and underpin ASP growth without sacrificing its competitiveness at the retail level, in our view. We note that Peak is among the very few operators that are in a position to consider cutting wholesale discount and we view this positively. A/R improvement. We are delighted to note company A/R turnover improved to 63 days as of end-2010, compared to 74 days in end-June 2010 and 70 days in end-2009. Deeply undervalued. We leave our FY11F estimate broadly intact while raising FY12F EPS by 4%. FY13F forecasts are introduced. We continue to regard Peak as one of the most undervalued counters in Chinas consumer space noting its solid growth profile of 18% forecast EPS CAGR through FY13F and attractive FY11F PE valuation of only 9x. Our target price is based on 13x FY11F PE.

15 March 2011
Company Rating: Outperform
(maintained)

Sector Rating:

Overweight
(maintained)

Price: Target:

HK$5.04 HK$7.00
(maintained)

Trading data
52-week range Market capitalization (m) Shares outstanding (m) Free float (%) 3M average daily T/O (m share) 3M average daily T/O (US$ m) Expected return (%) 1 year Closing price on 15 March 2011 HK$4.61 6.95 HK$10,573/US$1,365 2,098 31 4.8 3.1 43.1

Stock price and HSCEI


HK$ 7.0

6.5

6.0

5.5

5.0

4.5 15-Mar-10

15-May-10

15-Jul-10

15-Sep-10 15-Nov-10 Peak HSCEI

15-Jan-11

15-Mar-11

Source: Bloomberg

Forecasts and valuation


Year to 31 Dec 2009 2010 4,249 822 0.392 31 11.4 3.3 10.5 25.4 2011F 5,252 5.5 994 (0.1) 0.474 21 9.3 4.3 8.7 26.1 2012F 6,161 5.9 1,140 4.2 0.543 15 8.1 4.9 9.3 25.3 2013F 7,050 1,314 0.0 0.626 15 7.0 5.7 21.9 24.9 Revenue (RMB m) 3,095 Revenue forecast change (%) Net profit (RMB m) 628 Net profit forecast change (%) EPS (RMB) 0.299 EPS (YoY, %) 67 PER (x) 15.1 Yield (%) 2.3 FCF yield (%) 1.7 ROAE (%) 33.3 Source: Company data, CCBIS estimates

Forrest Chan, CFA


(852) 2532 6743 forrestchan@ccbintl.com

Sze Pan Pan


(852) 2532 2559 szepanpan@ccbintl.com

Timothy Sun
(852) 2532 6746 timothysun@ccbintl.com

Please read the analyst certification and other important disclosures on last page

Peak Sport Products (1968 HK)

15 March 2011

Further details and analysis

Peak posted good FY10 earnings with a 31% rise in EPS. The reported net profit is 3% higher than our estimate due mainly to better-than-expected international sales. Solid gross margin of 38.3% was achieved in 2H10, compared with 37.0% in 2H09 despite mounting cost pressure. High 2H10 margins outweighed the slight margin dip in 1H10 to support full-year gross margin expansion to 38.0%, versus forecast of 37.8%. The company continues to target gross margin growth in FY11F and reiterates its long-term gross margin goal of 40%. 4Q11 orders are expected to be resilient following 23-25% growth in 1Q-3Q11 trade fair sales, according to management. Beyond FY11F, the company might reduce wholesale discounts offered to its distributors from 62% to 60%. Such a change, if successfully implemented, would demonstrate company pricing power and underpin ASP growth without sacrificing its competitiveness at the retail level, in our view. We note that Peak is amongst the very few operators that are in a position to consider cutting wholesale discount and we view this positively. 1,022 new stores were opened during FY10 bringing the total store count to 7,224. Pipeline for FY11 includes 800 net new openings. We are delighted to note the companys A/R turnover improved to 63 days as of end-2010, compared to 74 days in end-June 2010 and 70 days in end-2009. Peak A/R balance also decreased to RMB700m from RMB770m during FY10 in spite of increased sales. To support longer-term business growth, Peak plans to add a new production facility in Shangdong. Company estimates a capex rise of RMB400m over three years. We leave our FY11F EPS estimate largely unchanged as we conservatively adopt lower gross margin assumptions in light of sharply rising production costs, offsetting higher revenue projections. We increased FY12F due to reduced tax rate estimate.

Peak Sport Products (1968 HK)

15 March 2011

Key changes in assumptions and earnings drivers


Year to December Revenue growth (%) Old New Footwear gross margin (%) Old New Apparel gross margin (%) Old New Blended gross margin (%) Old New Tax rate (%) Old New Source: CCBIS estimates 21 24 38.5 38.0 38.4 37.3 38.4 37.6 18 18 17 17 39.1 38.6 39.0 38.5 39.0 38.5 25 22 14 2011F 2012F 2013F

39.2

39.6

39.4

25

Key earnings drivers


Year to December Number of outlets at period end China YoY (%) YoY net additions Implied same-store order YoY growth (%) International sales growth (%) Footwear ASP (RMB) YoY (%) Apparel ASP (RMB) YoY (%) Footwear volume (m pairs) YoY (%) Apparel volume (m pieces) YoY (%) Footwear unit cost (RMB) YoY (%) Apparel unit cost (RMB) YoY (%) A&P expense as % of sales Other SG&A as % of sales Effective interest rate on bank deposits (%) Effective interest rate on loans (%) Effective tax rate (%) Source: Company, CCBIS estimates 2006 2,340 78.5 61.8 4.7 4.1 55.9 44.5 6.2 4.6 21.6 2007 3,661 56 1,321 (21) 79.4 1 54.6 (12) 7.2 53 7.1 73 55.2 (1) 38.1 (14) 8.6 4.4 1.4 3.3 5.6 2008 5,179 41 1,518 6 87.9 11 52.6 (4) 11.7 63 18.3 158 59.7 8 35.2 (8) 7.5 5.6 1.2 4.2 8.5 2009 6,206 20 1,027 23 7 84.4 (4) 53.4 2 16.5 41 30.1 64 52.6 (12) 33.5 (5) 11.3 3.5 0.4 11.6 10.6 2010 7,224 16 1,018 20 46 83.6 (1) 56.7 6 21.7 32 40.9 36 51.8 (2) 35.1 5 10.8 4.0 0.4 17.6 2011F 8,024 11 800 10 25 88.6 6 62.4 10 25.4 17 45.9 12 54.9 6 39.1 12 11.0 4.0 0.6 17.7 2012F 8,824 10 800 10 20 93.0 5 67.4 8 28.2 11 50.0 9 57.1 4 41.5 6 11.0 4.3 0.8 22.0 2013F 9,624 9 800 8 17 96.8 4 71.4 6 31.1 10 54.0 8 58.8 3 43.1 4 11.0 4.3 1.0 25.0 1H09 5,667 4 82.2 (5) 42.5 (3) 7.6 49 16.5 90 51.2 (13) 26.2 (10) 13.2 3.0 0.7 5.2 10.2 2H09 6,206 20 1,027 10 86.8 (3) 66.5 10 8.9 35 13.6 42 53.9 (10) 42.4 4 9.8 3.9 0.4 8.9 10.9 1H10 6,796 20 1,129 53 80.5 (2) 43.4 2 10.3 36 21.7 32 50.0 (2) 27.1 3 11.3 3.8 0.4 17.7 2H10 7,224 16 1,018 41 86.4 (0) 71.7 8 11.4 28 19.2 41 53.4 (1) 44.1 4 10.5 4.2 0.5 17.6

Peak Sport Products (1968 HK)

15 March 2011

Profit and loss projections (RMB m)


Year to December Total revenue Footwear Apparel Accessories Revenue growth YoY (%) Footwear Apparel Accessories Revenue mix (%) Footwear Apparel Accessories COGS Gross profit YoY (%) Gross margin (%) Gross margin by products (%) Footwear Apparel Accessories Other income Advertising and promotion expense YoY (%) As % of sales Other SG&A expense YoY (%) As % of sales Total SG&A expense YoY (%) As % of sales EBIT YoY (%) EBIT margin (%) D&A included in COGS and SG&A YoY (%) D&A as % of sales EBITDA YoY (%) EBITDA margin (%) Interest income Interest expense Profit before tax Tax Effective tax rate (%) Net profit YoY (%) Net margin (%) EPS based on post-IPO share capital YoY (%) Source: Company, CCBIS estimates 2006 624 366 255 2 58.7 40.9 0.3 (447) 177 28.4 28.3 28.5 26.5 0 (38) 6.2 (29) 4.6 (67) 10.8 110 17.6 (2) 0.4 112 18.0 0 (1) 110 (24) 21.6 86 13.8 0.041 2007 1,015 571 386 58 63 56 51 2,724 56.2 38.1 5.7 (709) 306 73 30.2 30.3 30.0 30.0 1 (87) 126 8.6 (44) 52 4.4 (131) 94 12.9 176 60 17.4 (3) 35 0.3 179 60 17.7 1 (2) 176 (10) 5.6 166 93 16.4 0.079 93 2008 2,042 1,029 961 52 101 80 149 (10) 50.4 47.1 2.5 (1,374) 668 118 32.7 32.1 33.0 38.3 12 (152) 75 7.5 (113) 157 5.6 (266) 103 13.0 415 135 20.3 (9) 200 0.4 424 136 20.7 3 (7) 411 (35) 8.5 376 126 18.4 0.179 126 2009 3,095 1,397 1,606 92 52 36 67 77 45.1 51.9 3.0 (1,935) 1,160 74 37.5 37.8 37.2 36.6 11 (349) 130 11.3 (108) (4) 3.5 (458) 72 14.8 713 72 23.0 (15) 67 0.5 728 72 23.5 5 (15) 703 (75) 10.6 628 67 20.3 0.299 67 2010 4,249 1,814 2,318 118 37 30 44 29 42.7 54.5 2.8 (2,633) 1,616 39 38.0 38.0 38.1 36.3 3 (460) 32 10.8 (171) 58 4.0 (632) 38 14.9 988 39 23.3 (18) 19 0.4 1,006 38 23.7 10 0 998 (176) 17.6 822 31 19.4 0.392 31 2011F 5,252 2,249 2,862 142 24 24 23 20 42.8 54.5 2.7 (3,278) 1,973 22 37.6 38.0 37.3 36.3 5 (578) 26 11.0 (210) 23 4.0 (788) 25 15.0 1,191 20 22.7 (29) 64 0.6 1,220 21 23.2 17 0 1,208 (214) 17.7 994 21 18.9 0.474 21 2012F 6,161 2,627 3,370 165 17 17 18 16 42.6 54.7 2.7 (3,791) 2,370 20 38.5 38.6 38.5 36.7 7 (678) 17 11.0 (265) 26 4.3 (943) 20 15.3 1,435 20 23.3 (36) 23 0.6 1,471 21 23.9 26 0 1,461 (321) 22.0 1,140 15 18.5 0.543 15 2013F 7,050 3,007 3,858 185 14 14 14 12 42.7 54.7 2.6 (4,275) 2,776 17 39.4 39.2 39.6 37.0 12 (776) 14 11.0 (303) 14 4.3 (1,079) 14 15.3 1,709 19 24.2 (43) 18 0.6 1,752 19 24.8 43 0 1,752 (438) 25.0 1,314 15 18.6 0.626 15 1H09 1,357 625 701 31 60 42 84 20 46.0 51.7 2.3 (841) 517 88 38.1 37.7 38.4 37.0 7 (179) 147 13.2 (41) 20 3.0 (220) 106 16.2 303 71 22.3 (7) 101 0.5 310 72 22.8 2 (8) 298 (30) 10.2 267 63 19.7 2H09 1,738 773 905 60 45 31 56 136 44.5 52.1 3.5 (1,095) 643 64 37.0 38.0 36.2 36.5 4 (170) 114 9.8 (67) (15) 3.9 (237) 50 13.7 410 73 23.6 (8) 47 0.5 418 72 24.1 2 (7) 405 (44) 10.9 361 71 20.8 1H10 1,809 829 942 38 33 33 34 23 45.8 52.1 2.1 (1,127) 681 32 37.7 37.8 37.6 36.5 8 (204) 14 11.3 (68) 67 3.8 (273) 24 15.1 417 37 23.0 (10) 52 0.6 427 38 23.6 4 0 421 (74) 17.7 347 30 19.2 2H10 2,441 985 1,376 80 40 27 52 32 40.4 56.4 3.3 (1,506) 935 45 38.3 38.2 38.4 36.2 (5) (256) 43 10.5 (103) 53 4.2 (359) 51 14.7 572 39 23.4 (8) (7) 0.3 579 38 23.7 6 0 577 (101) 17.6 476 32 19.5

Peak Sport Products (1968 HK)

15 March 2011

Balance sheet projections (RMB m)


Year to December Current assets Inventory Trade and bills receivables Other receivables Amounts due from related parties Pledged deposits Cash Current assets total Non-current assets Property, plant and equipment Construction in process Lease prepayments Intangible assets Interest in associates Deferred tax assets Non-current assets total Current liabilities Bank loans Trade and bills payables Other payables Amounts due to related parties Current taxation Current liabilities total Non-current liabilities Bank loans Deferred tax liabilities Non-current liabilities total Shareholder equity Total assets Total liabilities and equity Gross debt Net debt (cash) Source: Company, CCBIS estimates 100 106 4 13 29 51 303 158 423 25 0 67 102 775 169 407 100 0 70 418 1,165 210 774 90 0 55 1,933 3,062 335 696 69 0 54 2,609 3,762 312 801 79 0 58 3,075 4,324 374 955 92 0 64 3,511 4,996 (374) 977 106 0 73 5,052 5,834 291 704 103 0 64 2,110 3,272 2006 2007 2008 2009 2010 2011F 2012F 2013F 1H10

9 0 6 0 8 0 23

25 47 20 9 0 0 101

137 95 20 10 0 8 269

244 61 16 10 0 6 338

342 54 16 14 0 12 438

434 24 115 14 0 12 599

500 124 112 14 0 12 762

614 150 110 14 0 12 900

262 78 16 12 0 9 376

15 128 24 0 22 188

11 376 15 68 8 478

132 220 149 53 13 568

0 230 110 0 27 367

0 434 174 0 63 671

0 464 197 0 75 735

0 512 227 0 113 852

0 588 256 0 153 998

0 338 104 0 46 488

0 0 0 137 326 326 15 (37)

0 0 0 398 876 876 11 (24)

70 23 93 774 1,435 1,435 202 (163)

0 31 31 3,002 3,400 3,400 0 (1,933)

0 47 47 3,482 4,200 4,200 0 (2,609)

0 47 47 4,140 4,922 4,922 0 (3,075)

0 47 47 4,859 5,758 5,758 0 (3,511)

0 47 47 5,689 6,734 6,734 0 (5,052)

0 37 37 3,123 3,648 3,648 0 (2,110)

Peak Sport Products (1968 HK)

15 March 2011

Cash flow projections (RMB m)


Year to December EBIT D&A EBITDA Adjustments for other non-cash items Operating cashflow before working capital changes due to: Inventory Trade and other payables Trade and other receivables Pledged bank deposit Total changes in working capital Interest received Interest paid Tax paid Operating cashflow Capex Free cashflow after capex Other investing cashflow Other financing cashflow Capital injection Dividend paid Net cashflow Source: Company, CCBIS estimates 2006 110 2 112 (0) 112 (50) 108 (64) (23) (29) 0 (1) (3) 79 (3) 76 (4) 0 0 0 72 2007 176 3 179 (3) 176 (58) 239 (325) (38) (181) 1 (2) (24) (29) (85) (114) (16) 0 46 0 (84) 2008 415 9 424 (6) 417 (11) (36) (72) (3) (122) 3 (5) (14) 279 (144) 135 9 0 0 0 144 2009 713 15 728 (3) 725 (41) (9) (355) 15 (391) 5 (16) (51) 272 (110) 162 6 1,714 0 (113) 1,770 2010F 988 18 1,006 0 1,006 (125) 269 99 1 245 10 0 (130) 1,130 (140) 990 0 0 0 (350) 640 2011F 1,191 29 1,220 0 1,220 23 52 (115) (4) (43) 17 0 (202) 992 (190) 802 0 0 0 (336) 466 2012F 1,435 36 1,471 0 1,471 (62) 79 (168) (6) (156) 26 0 (284) 1,057 (200) 857 0 0 0 (421) 436 2013F 1,709 43 1,752 0 1,752 748 105 (35) (9) 808 43 0 (397) 2,205 (180) 2,025 0 0 0 (484) 1,541

Key financial ratios


Year to December ROAE (%) ROAA (%) ROIC (%) Average inventory days Average receivable days Average payable days Cash conversion cycle (days) Net gearing (%) Gross gearing (%) Source: Company, CCBIS estimates 2006 61 44 63 42 Net cash 11 2007 62.0 27.6 85.8 66 95 130 32 Net cash 20 2008 64.2 32.5 85.9 43 74 79 38 Net cash 33 2009 33.3 26.0 78.1 36 70 42 63 Net cash 0 2010 25.4 21.6 81.9 38 63 46 55 Net cash 0 2011F 26.1 21.8 96.1 36 52 50 38 Net cash 0 2012F 25.3 21.3 87.4 33 52 47 38 Net cash 0 2013F 24.9 21.0 116.5 0 50 47 3 Net cash 0

Peak Sport Products (1968 HK)

15 March 2011

Valuation summary
Company Department stores Golden Eagle Parkson Group Intime Maoye Springland* NWDS China PCD Stores Shirble Store Average Sportswear brands ANTA Sports* Li Ning* China Dongxiang* 361 Degrees* Peak Sport* Xtep* Average Supermarkets CRE Lianhua Wumart Jinkelong Average 3308 HK 3368 HK 1833 HK 848 HK 1700 HK 825 HK 331 HK 312 HK 18.10 10.82 10.64 3.22 5.80 5.60 2.11 1.40 4,513 3,902 2,608 2,124 1,861 1,212 1,144 449 8 10 4 2 NA 1 2 1 30 22 28 18 55 12 31 11 26 28 22 26 38 25 7 30 20 25 24.3 21.6 23.3 20.9 20.2 14.1 18.7 12.0 19.4 18.9 17.6 18.6 15.2 16.2 13.2 14.4 10.0 15.5 0.8 1.0 0.8 1.2 0.4 1.2 0.6 1.1 0.9 1.7 2.1 1.7 1.3 1.5 2.9 1.9 2.5 2.0 7.1 4.9 3.9 3.1 2.8 1.7 2.9 1.7 3.5 32.3 24.6 17.0 15.3 14.6 13.1 16.9 14.9 18.6 6 9 Net debt Net debt Net debt 38 19 6 Net cash Net cash 0 45 118 Net cash Net cash Net cash Stock code Share price Market cap 3M average value traded (local currency) (US$m) (US$m) EPS growth (%)# CY11 CY12 PE (x) CY11 CY12 PE/G (x) CY11 Yield (%) CY11 P/B (x) CY11 ROAE (%) CY11 Net cash/ share (%) Net gearing (%)

2020 HK 2331 HK 3818 HK 1361 HK 1968 HK 1368 HK

12.76 16.12 2.91 5.38 5.04 4.85

4,083 2,178 2,116 1,428 1,357 1,354

12 11 7 4 3 2

15 (13) (6) 18 21 23 10

12 13 4 16 15 4 10

15.3 15.6 9.6 8.2 9.1 9.0 11.1

13.6 13.8 9.2 7.1 8.0 8.7 10.1

1.0 NA NA 0.5 0.4 0.4 0.6

3.9 3.2 9.4 5.6 4.4 6.7 5.5

4.2 3.9 1.8 2.1 2.2 2.4 2.8

29.4 26.6 19.0 28.2 26.1 28.2 26.3

14 2 45 8 21 27

Net cash Net cash Net cash Net cash Net cash Net cash

291 HK 980 HK 8277 HK 814 HK

28.40 33.10 15.48 9.67

8,740 2,642 2,545 512

14 2 2 0

29 19 23 13 21

25 1 18 11 14

25.1 23.8 25.4 16.4 22.7

20.0 23.6 21.6 14.7 20.0

0.9 1.2 1.1 1.3 1.1

1.8 1.5 1.7 2.7 1.9

2.2 5.2 4.8 2.0 3.5

8.8 23.6 20.7 12.9 16.5

Net debt 40 4 Net debt

10 Net cash Net cash 76

(to be continued)

Peak Sport Products (1968 HK)

15 March 2011

Valuation summary (continued)


Company HK retailers Lifestyle Luk Fook Sa Sa Texwinca Holdings I.T* Emperor Watch & Jewellery Bonjour Holdings Average 1212 HK 590 HK 178 HK 321 HK 999 HK 887 HK 653 HK 18.64 21.45 3.87 7.76 4.80 0.88 1.25 4,019 1,493 1,392 1,355 737 668 472 3 8 5 2 4 2 2 6 26 25 15 34 54 NA 27 13 5 5 4 NA 42 NA 14 20.9 12.7 18.6 8.3 13.3 11.4 NA 14.2 18.5 12.0 17.7 8.0 NA 8.1 NA 12.9 3.5 0.5 0.7 0.5 0.4 0.2 NA 1.0 1.9 3.2 4.0 7.7 3.9 4.7 NA 4.2 3.9 3.4 7.3 1.9 3.0 2.1 NA 3.6 19.2 31.0 43.4 24.6 19.9 22.5 NA 26.7 4 Net debt 6 Net debt 9 5 4 Net cash 2 Net cash 19 Net cash Net cash Net cash Stock code Share price Market cap 3M average value traded (US$m) (US$m) (local currency) EPS growth (%)# CY11 CY12 PE(x) CY11 CY12 PE/G (x) CY11 Yield (%) CY11 P/B (x) CY11 ROAE (%) CY11 Net cash/ Net share (%) gearing (%)

China specialty retailers/other brands Belle* 1880 HK Gome* 493 HK Hengdeli* 3389 HK Bosideng 3998 HK Trinity* 891 HK Ports 589 HK China Lilang* 1234 HK Boshiwa 1698 HK Daphne 210 HK Pou Sheng 3813 HK Evergreen 238 HK China Nepstar NPD US Huiyin App 1280 HK Average # Calculated in HK dollar terms * Denotes CCBIS estimates Source: Bloomberg, CCBIS estimate

13.28 2.55 4.24 2.15 7.53 18.22 10.66 5.00 6.01 1.21 3.81 4.17 1.62

14,373 5,504 2,392 2,144 1,637 1,329 1,642 1,331 1,263 666 480 434 218

21 24 6 13 5 4 4 2 3 0 1 1 1

14 29 17 19 40 18 33 71 29 81 6 270 23 50

18 16 23 4 32 22 20 47 19 6 27 0 (35) 15

24.2 13.8 20.9 9.2 26.1 15.1 20.3 19.1 11.8 12.7 14.9 49.1 5.3 18.6

20.6 11.8 16.9 8.8 19.7 12.4 16.8 13.0 9.9 12.0 11.7 49.1 8.2 16.2

1.8 0.5 1.2 0.5 0.6 0.8 0.6 0.3 0.4 0.2 2.4 0.2 0.2 0.7

1.1 2.2 1.6 8.6 2.3 4.1 1.9 2.2 2.1 NA 2.0 0.8 0.0 2.4

4.8 2.5 3.5 2.0 5.4 4.8 4.9 2.7 3.0 0.8 2.0 2.4 0.9 3.1

0.0 0.0 18.8 20.7 20.1 34.6 26.3 15.1 28.2 6.9 12.9 4.6 12.9 15.5

5 1 0 39 Net debt 8 4 Net debt 11 Net debt Net debt 20 Net debt

Net cash Net cash Net cash Net cash 10 Net cash Net cash 58 Net cash 4 41 Net cash 40

Peak Sport Products (1968 HK)

15 March 2011

Rating definitions
Outperform (O) expected return 10% over the next twelve months Neutral (N) expected return between -10% to 10% over the next twelve months Underperform (U) expected return < -10% over the next twelve months

Analyst Certification:
The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; and (iii) they receive no insider information/non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations made by them. The authors of this report further confirm that (i) neither they nor their respective associate(s) (as defined in the Code of Conduct issued by the Hong Kong Securities and Futures Commission) has dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of the report; (ii) neither they nor their respective associate(s) serves as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neither they nor their respective associate(s) has any financial interests in the securities covered in this report.

Disclaimers:
This report is prepared by CCB International Securities Limited. CCB International Securities Limited is a wholly owned subsidiary of CCB International (Holdings) Limited (CCBIH) and China Construction Bank Corporation (CCB). Information herein has been obtained from sources believed to be reliable but CCB International Securities Limited, its affiliates and/or subsidiaries (collectively CCBIS) do not warrant its completeness or accuracy or appropriateness for any purpose or any person whatsoever. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Investment involves risk and past performance is not indicative of future results. Information in this report is not intended to constitute or be construed as legal, financial, business, tax or any professional advice for any prospective investors and should not be relied upon in that regard. This report is for informational purposes only and should not be treated as an offer or solicitation for the purchase or sale of any products, investments, securities, trading strategies or financial instruments of any kind. Neither CCBIS nor any other persons accept any liability whatsoever for any loss arising from any use of this report or its contents or otherwise arising in connection therewith. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account prospective investors circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to any prospective investors. The recipients of this report shall be solely responsible for making their own independent investigation of the business, financial condition and prospects of companies referred to in this report. Readers are cautioned that actual results may differ materially from those set forth in any forward-looking statements herein. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the forward-looking statements, opinions and expectations contained herein are based on fair and reasonable assumptions, CCBIS has not been able to verify independently such facts or assumptions and CCBIS shall not be liable for the accuracy, completeness or correctness thereof and no representation or warranty is made, express or implied, in this regard. The recipients must make their own assessments of the relevance, accuracy and adequacy of the information contained in this report and make such independent investigation as they may consider necessary or appropriate for such purpose. Recipients should seek independent legal, financial, business and/or tax advice if they have any doubt about the contents of this report and satisfy themselves prior to making any investment decision that such investment is in line with their own investment objectives and horizons. CCBI group has investment banking relationship with Peak Sport Products Co., Limited (1968 HK) within the past 12 months. The recipients should be aware that CCBIS may do business with the issuer(s) of the securities covered in this report or may hold interest in such securities for itself and/or on behalf of its clients from time to time. As a result, investors should be aware that CCBIS may have a conflict of interest that could affect the objectivity of this report and CCBIS will not assume any responsibility in respect thereof. 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