Growing the premium kitchen appliance brand; initiating with Buy

Deutsche Bank Markets Research Rating Buy Asia China Consumer Discretionary Company Robam Date 2 December 2016 Initiation of Coverage Growing the premium kitchen appliance brand; initiating with Buy Reuters Bloomberg Exchange Ticker 002508.SZ 002508 CS SHZ 002508 Forecasts And Ratios Year End Dec 31 2014A 2015A 2016E 2017E 2018E Sales (CNYm) 3,549.6 4,496.2 5,782.5 7,222.6 8,911.7 Reported NPAT (CNYm) 574.4 830.5 1,127.6 1,474.7 1,890.1 DB EPS growth (%) 49.0 44.6 34.5 30.8 28.2 PER (x) 16.6 20.6 24.8 19.0 14.8 Yield (net) (%) 1.7 1.7 1.6 2.1 2.7 Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close A leading kitchen appliance brand; set to gain 6% market share in 2016-20E ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. Price at 1 Dec 2016 (CNY) 38.30 Price target - 12mth (CNY) 46.00 52-week range (CNY) 41.27 - 24.71 Shenzhen Index 2,204 Richard Rui-Huang, CFA Research Analyst (+852 ) 2203 6202 richard.rui-huang@db.com Anne Ling Research Analyst (+852 ) 2203 6177 anne.ling@db.com Price/price relative 102030405012/146/1512/156/16RobamShenzhen Index (Rebased) Performance (%) 1m 3m 12m Absolute 0.9 0.8 43.7 Shenzhen Index 1.6 4.5 -4.2 Source: Deutsche Bank Robam is the leading premium kitchen appliance brand in China. We forecast its revenue and NP to post 23%/28% CAGR in 2016-20, respectively, and we expect it to increase its market volume share from 10% to 16% in 2016-20E. The strong growth profile is driven by expansion in its specialty store network, riding the e-commerce boom, and growing built-in appliances. The company has higher NP growth than its peers, yet it trades at a discount to its peer group, at 19x 2017E P/E, which is lower than the industry average of 22x. It has strong cash generation capability with net cash of RMB3bn by 9M16. We initiate coverage with Buy and a target price of RMB46, implying 20% upside. The multi-channel strategy to develop both online and offline channels We forecast that Robam will enjoy stellar sales growth (a 23% CAGR in 2016-20E), leveraging its multi-channel strategy. By channel, revenue from specialty stores/online channel should deliver 28/30% CAGR in 2016-20E. The expansion of the specialty retail store network should broaden its geographical coverage and penetration. We expect its specialty store network to increase to 5,900 stores by 2020 from 2,450 stores in 2015. Over the same period, we forecast 28% CAGR in Robam’s online revenue and to account for 39% of total sales by 2020 from 28% in 2015. This is driven by rising online shopping demand and its differentiated product strategy. Premium brand benefited from the fast-growing high-end segment As a premium large kitchen appliance brand, 60% of Robam’s range hood and cooking hood sales focus in the high-end segment vs. an industry average of 20%. Robam’s key competitive advantage lies in its strong R&D capability and consistent focus on the high-end segment to build up premium brand equity. This has effectively captured the high-end segment growth. We expect Robam to grow its high-end range hood and cooking hob sales volume by 20/22% (industry: 15/13%) CAGR in 2016-20E, driven by product upgrade and consumption trading up. DCF-based target price of RMB46 supported by P/E multiple; downside risks Our primary valuation methodology is DCF, employing a COE of 9.5%, beta of 1, and TGR of 1.5%. This produces a fair value estimate of RMB46/share, implying FY17/18E P/E of 23x/18x, in line with industry average. Downside risks: raw material price hikes and weak home sales. Distributed on: 01/12/2016 19:30:00 GMT 2 December 2016 Consumer Discretionary Robam Page 2 Deutsche Bank AG/Hong Kong Model updated:29 November 2016 Running the numbers Asia China Retail / Wholesale Trade Robam Reuters: 002508.SZ Bloomberg: 002508 CS Buy Price (1 Dec 16) CNY 38.30 Target Price CNY 46.00 52 Week range CNY 24.71 - 41.27 Market Cap (m) CNYm 27,961 USDm 4,061 Company Profile Hangzhou Robam Appliances is principally engaged in the research, development, production and