Initiate with Buy: Let the sunshine in

Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Securities (Taiwan) Corporation Limited View HSBC Global Research at: https://www.research.hsbc.com   A compelling market share and margin expansion story with sustainable high ROE  Trend towards cordless blinds, Cambodia expansion and new market expansions to aid growth  Initiate coverage with a Buy rating and target price of TWD446; 27.2% upside with 3% FCF yield A market share gain and margin expansion story with sustainable high ROE. Nien Made is one of the leading window covering product (blinds, shades and shutters) OEM/OBMs (original equipment manufacturer/original brand manufacturer) globally, with a 35% and 30% share in the US ready-made blinds and shutter markets, respectively. On the back of a healthy outlook for the US housing market, we look for Nien Made to deliver 12.6% sales CAGR over 2017-19e, thanks to market share gain, new product development (custom-made blind/shades and cordless blinds), and expansion into new markets (Europe and Japan). We expect earnings CAGR of 15.6% through 2017-19e as we foresee GPM expanding from 2016’s 48.7% to 2017/18’s 50.2%/50.6%, respectively, driven by greater economies of scale, a highly efficient vertical integration model and mix improvement. Cordless blinds replacement cycle to bring more growth. Due to rising safety awareness, US retailers Home Depot and Lowe’s have announced that they will stop selling corded blinds in their stores by the end of 2018. The trend towards the higher ASP (+10-30%) and margin (+2-3ppt) of cordless blinds should be favourable for Nien Made. We expect cordless blinds to account for 25% of ready-made blinds sales by 2019e, up from 10% in 2017e, providing a tailwind to Nien Made’s margin uptrend. Cambodia expansion to provide capacity to support growth. Blinds and shades production is labour intensive. We expect the ongoing expansion at its Cambodia site to boost Nien Made’s capacity by ~10% p.a. and keep overall labour cost competitive. Relocating lower-margin ready-made blinds production to Cambodia also frees up capacity at its China plant to focus on producing higher value-adding shutters and custom-made blinds/shades products. Initiate with Buy and TP of TWD446, based on DCF methodology. Our price target implies a PE of 26.1x 2018e EPS, which is in line with the 25-32x range for other high-ROE consumer names in Taiwan. We believe the stock could be further re-rated on any breakthrough in the Japan market or penetration into commercial markets. With 27.2% implied share price upside, we rate the stock Buy. Key downside risks: 1) a weaker-than-expected US housing market, 2) significant raw material price hike; 3) higher-than-expected wage increase in China and Cambodia. 7 August 2017 INITIATE AT BUY TARGET PRICE (TWD) PREVIOUS TARGET (TWD) 446.00 - SHARE PRICE (TWD) UPSIDE/DOWNSIDE 350.50 +27.2% (as of 03 Aug 2017) MARKET DATA Market cap (TWDm) 102,704 Free float 41% Market cap (USDm) 3,396 BBG 8464 TT 3m ADTV (USDm) 7 RIC 8464.TWO FINANCIALS AND RATIOS (TWD) Year to 12/2016a 12/2017e 12/2018e 12/2019e HSBC EPS 12.59 14.47 17.09 19.38 HSBC EPS (prev) - - - - Change (%) - - - - Consensus EPS 12.45 14.08 16.86 19.25 PE (x) 27.8 24.2 20.5 18.1 Dividend yield (%) 2.9 3.5 4.0 4.5 EV/EBITDA (x) 18.6 15.5 13.3 11.6 ROE (%) 32.5 34.3 36.4 37.1 52-WEEK PRICE (TWD) Source: Thomson Reuters IBES, HSBC estimates Jeremy Chen* Non-tech Analyst HSBC Securities (Taiwan) Corporation Limited jeremy.cm.chen@hsbc.com.tw +8862 6631 2866 Eddie Huang* Associate HSBC Securities (Taiwan) Corporation Limited eddie.cy.huang@hsbc.com.tw +8862 6631 2870 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Nien Made (8464 TT) EQUITIES CONSUMER DISCRETIONARY Taiwan 230.00350.00470.0008/1602/1708/17Target price: 446.00High: 410.00 Low: 254.00 Current: 350.50Initiate with Buy: Let the sunshine in Votingstarts6thJulyIf youvalueourserviceandinsight,voteforHSBCClickheretovote ✔VoteinAsiamoneyBrokersPoll2017  EQUITIES ● CONSUMER DISCRETIONARY 7 August 2017 2 Financial statements Year to 12/2016a 12/2017e 12/2018e 12/2019e Profit & loss summary (TWDm) Revenue 18,864 20,854 23,894 26,426 EBITDA 5,290 6,310 7,349 8,275 Depreciation & amortisation -630 -694 -769 -844 Operating profit/EBIT 4,660 5,617 6,581 7,430 Net interest 19 27 26 26 PBT 4,888 5,501 6,552 7,414 HSBC PBT 4,888 5,501 6,552 7,414 Taxation -1,155 -1,240 -1,524 -1,717 Net profit 3,689 4,240 5,007 5,677 HSBC net profit 3,689 4,240 5,007 5,677 Cash flow summary (TWDm) Cash flow from operations 4,178 4,581 4,893 6,391 Capex -702 -640 -749 -756 Cash flow from investment -947 -922 -1,057 -982 Dividends -2,379 -2,930 -3,546 -4,089 Change in net debt -577 -727 -287 -1,317 FCF equity 2,339 2,727 2