China Consumer Sector：Prepare for further Renminbi appreciation

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT. Global Equity Research Industry Report 22 April 2010 (No. of pages: 36) China Consumer Sector Consumer durables & apparel: China PositivePeter Chu, CFA(852) 2848 4430peter.chu@hk.daiwacm.comNicolas Wang, CFA(852) 2848 4963nicolas.wang@hk.daiwacm.comPrepare for further Renminbi appreciation Summary ƒ China’s high-end product retailers, such as Ports Design and Hengdeli, recorded double-digit-percentage year-on-year same-store sales (SSS) growth for 1Q10, due primarily to the low comparable base and robust macroeconomic environment in China. Meanwhile, we believe SSS-growth rates also improved year-on-year for the China department stores in 1Q10. ƒ Potential further Renminbi appreciation over the next three years is a key sector theme now, in our view. In Japan, the appreciation of the Yen against the US dollar in 1985, following the signing of the Plaza Accord in September 1985, boosted high-end consumer demand in the country from 1986-88. ƒ We maintain our Positive rating for the China consumer sector. We have upgraded our ratings for the China department stores (Golden Eagle Retail [Golden Eagle], Parkson Retail [Parkson], and New World Department Store [NWDS]) due to the improved business fundamentals and recent share-price underperformance. Meanwhile, we have upgraded our rating for Ports Design due to its attractive valuation relative to its listed apparel-industry peers. Our top picks in the sector are Ports Design, Golden Eagle and Trinity. Please refer to page four for our target-price changes. China Consumer Sector: valuation summary PER (x) EV/EBITDA (x) Dividend yield (%) Company name Bloomberg code Share price 19-Apr-10 (HK$) Rating Target price (HK$) +/- (%) Year end 2009 2010E 2011E 2012E 2009 2010E 2011E 2012E 2009 2010E 2011E 2012E Belle International 1880 HK 10.60 2 11.92 12.5 Dec 31.0 25.5 21.6 19.3 21.0 17.5 14.4 12.3 0.8 1.0 1.2 1.4 China Dongxiang Group 3818 HK 5.01 1 → 2 6.15 22.8 Dec 17.0 14.8 11.5 9.8 10.8 8.1 5.6 4.0 4.1 4.1 5.2 6.1 Golden Eagle Retail Group 3308 HK 14.90 2 → 1 18.70 25.5 Dec 95.7 27.4 21.2 16.7 20.8 18.2 13.8 10.5 0.8 1.1 1.4 1.8 Hengdeli 3389 HK 3.30 2 3.91 18.5 Dec 31.0 19.9 15.5 13.2 18.1 13.6 10.8 9.3 0.9 1.5 1.9 2.3 Intime Department Store Group 1833 HK 7.34 2 9.00 22.6 Dec 24.7 22.6 19.3 16.3 14.2 11.6 9.8 8.2 2.0 1.3 1.6 1.8 Li Ning 2331 HK 27.70 2 30.60 10.5 Dec 26.8 22.6 19.0 15.6 16.2 14.1 11.5 9.2 1.5 1.8 2.6 3.2 New World Department Store China 825 HK 6.76 4 → 3 6.70 (0.9) Jun 20.7 19.2 18.2 16.1 11.7 9.8 9.3 7.3 2.2 2.3 2.5 2.8 Parkson Retail Group 3368 HK 12.56 3 → 2 14.90 18.6 Dec 33.9 26.9 20.9 17.0 21.0 15.9 12.1 10.2 1.4 1.7 2.1 2.7 Ports Design 589 HK 19.34 3 → 1 24.80 28.2 Dec 20.4 16.7 13.8 11.6 15.7 12.2 9.3 7.2 4.4 3.6 4.4 5.2 Trinity 891 HK 6.41 1 7.38 15.1 Dec 43.1 34.2 23.0 17.2 28.8 21.3 14.6 10.7 1.1 1.5 2.2 2.9 Source: Company, Daiwa forecasts Peter Chu, CFA (852) 2848 4430 China Consumer Sector 2 Contents The three most important charts in this report ... ..............................................................3 Executive summary...........................................................................................................4 Review of the 2009 results................................................................................................5 Respectable 1Q10 sales performances ..............................................................................7 Segment theme – the era of Renminbi appreciation .........................................................8 Sector outlook and stock recommendations ...................................................................10 Company section Belle International ...................................................................................................13 China Dongxiang Group..........................................................................................15 Golden Eagle Retail Group......................................................................................17 Hengdeli..............................................................................