霸王集团 汇丰研究报告 英文

霸王集团 汇丰研究报告 英文

Flashnote

Consumer & Retail Personal Products

Equity – China

Neutral (V)

Target price (HKD) 3.10 Share price (HKD) 3.15 Potential return (%)

Performance 1M 3M 12M

Absolute (%) -4.8 -21.8 -0.9 Relative^ (%) -1.9

-29.7

8.8

^Index

SSE Composite Index

RIC 1338.K Bloomberg 1338 K

Market cap (USDm) 1,256

Market cap (HKDm) 9,741

Enterprise value (CNYm) 6,858

Free float (%)

H

H35 Note: (V) = volatile (please see disclosure appendix)

23 November 2010

Herald van der Linde* Analyst

The Hongkong and Shanghai Banking Corporation Limited (HK) +852 2996 6575

heraldvanderlinde@ Robby Gu* Analyst

The Hongkong and Shanghai Banking Corporation Limited (HK) +852 2822 4337

robbygu@

View HSBC Global Research at: *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Issuer of report: The Hongkong and

Shanghai Banking Corporation Limited

Disclaimer & Disclosures

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

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Global Research

Bawang International (1338)

N(V): Still some way to recovery

Sales down following Dioxane incident in July, profits impacted by negative operating leverage Bawang is not out of the woods (yet); risks to 2011 earnings are rising

Remain Neutral (V) with new TP of HKD3.1 (was HKD4.1) using average PE of 15.5x (was 20.7x)

Profit warning. Bawang stated that group sales in the July-October period were down 31% and that profits for the full year would be down substantially. Based on this, we estimate that sales for Bawang products alone could be down as much as 43%. Increasing risk to 2011 outlook. On 12 November we already lowered our 2H profit

forecast to reflect weaker sales and rising advertising costs. At that time, we maintained our EPS forecast for 2011, which implied a return to normality next calendar year, on two key assumptions:

1

Monthly run rate for Bawang shampoo would recover from RMB90m in October 2010 to the 2009 normal level of RMB120m by April 2011.

2

Herbal tea sales would reach RMB306m in FY11 from RMB84m in FY10. It is the largest sales growth driver in 2011, contributing 35% to overall sales growth.

There is now risk that weak sales performance might extend into 2011. We are being shown how fragile new brands can be in China. We will consider turning more bearish on the stock if actual sales track below either of the above two assumptions.

Lower TP to HKD3.1. Given continued uncertainty over operating performance, we have decided to lower our target multiple to value Bawang. Using a multiple of 15.5x forward earnings, which represents the average PE between July and November 2009, we set our new TP at HKD3.1. Note that, if we used the lowest-ever PE that Bawang shares have traded on (12.7x in September 2009), our TP would fall to HKD2.5.

Risks: A slower-than-expected monthly sales recovery, especially in lower-tier cities; and intensified competition. Catalysts: Sell-through of herbal tea; new product launches.

霸王集团 汇丰研究报告 英文

Bawang International (1338) Personal Products 23 November 2010

Financials & valuation

Financial statements Year to

12/2009a

12/2010e

12/2011e

12/2012e

Profit & loss summary (CNYm)

Revenue 1,756 1,750 2,383 2,897EBITDA 459 202 612 744Depreciation & amortisation -7 -23 -38 -51Operating profit/EBIT 453 180 574 692Net interest -2 3 6 7PBT 450 183 580 700SBC PBT 450 183 580 700Taxation -86 -35 -87 -105Net profit 364 148 493 595HSBC net profit 364 148 493 595Cash flow summary (CNYm)

Cash flow from operations 106 146 389 527Capex

-19 -150 -150 -150Cash flow from investment -16 -140 -140 -140Dividends -250 -102 -148 -178Change in net debt

-1,286 95 -101 -209FCF equity

63 1 249 387

Balance sheet summary (CNYm) Intangible fixed assets

0 0 0 0

Tangible fixed assets 45 167 279 377Current assets 2,499 2,381 2,636 2,948Cash & others 1,743 1,618 1,688 1,867Total assets 2,544 2,548 2,915 3,326Operating liabilities 332 319 370 395Gross debt 158 128 98 68Net debt

-1,584 -1,489 -1,590 -1,799Shareholders funds 2,034 2,081 2,426 2,842Invested capital

470 612 856 1,064

Ratio, growth and per share analysis Year to 12/2009a

12/2010e

12/2011e

12/2012e

Y-o-y % change

Revenue 24.4 -0.3 36.2 21.6EBITDA 32.2 -55.9 202.6 21.5Operating profit 32.1 -60.3 219.7 20.6PBT 30.2 -59.3 217.1 20.6HSBC EPS 8.5 -65.0 233.0 20.6Ratios (%)

Revenue/IC (x) 7.1 3.2 3.2 3.0ROIC 148.6 26.9 66.5 61.3ROE 31.0 7.2 21.9 22.6ROA 22.8 5.8 18.1 19.1EBITDA margin 26.2 11.6 25.7 25.7Operating profit margin 25.8 10.3 24.1 23.9EBITDA/net interest (x) 187.5 Net debt/equity -77.9 -71.6 -65.5 -63.3Net debt/EBITDA (x) -3.4 -7.4 -2.6 -2.4Per share data (CNY)

EPS reported (diluted) 0.15 0.05 0.17 0.20HSBC EPS (diluted) 0.15 0.05 0.17 0.20DPS 0.09 0.03 0.05 0.06NAV

0.81 0.72 0.84 0.98

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Valuation data Year to

12/2009a

12/2010e

12/2011e

12/2012e

EV/sales 3.9

3.9 2.8

2.3EV/EBITDA 14.733.9 11.0

8.8EV/IC 14.411.2 7.9

6.2PE* 19.756.3 16.9

14.0P/NAV 3.54.0 3.42.9FCF yield (%) 0.70.0 3.04.6Dividend yield (%) 3.0

1.2 1.8

2.1

*Based on HSBC EPS (diluted)

Note:

Priced at close of 23 November 2010

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霸王集团 汇丰研究报告 英文

Personal Products abc23 November 2010

Update on business

Shampoo

In a conference call, Bawang stated that group sales in the July-October period were down 31% and that profits for the full year would be down substantially. Based on this, we estimate that sales for Bawang products alone could be down as much as 43%.

Below we show the guidance from Bawang on sales performance prior to today’s profit warning.

Bawang-brand shampoo sales updates post Dioxane incident on July 14 2H July Down about 60% y-o-y

1H August Up 25% from 2H July. Down about 50% y-o-y

2H August Up single digit from 1H August. Down about 50% y-o-y September Up single digit m-o-m. Down 40-50% y-o-y October

Up single digit m-o-m. Down about 40% y-o-y

Source: Company data

The company also stated that it has raised advertising activities in recent months and that sales have past a worst level, but further (numerical) details were not provided.

In our note of 12 November, we stated that our channel checks already suggested that sales performance in smaller cities across China were weak. The reason for this was that supermarkets were showing better sales performance than Bawang’s guidance, indicating that areas where we did not check must have performed below guidance.

Other points from management in the call were as follows:

New products. Bawang will continue to launch its new “Dr Gao” series of natural ingredient based

household cleaning products, scheduled for late 2010. We think it might be pushed back to 2011. The price point of this product is low-to-mid end and will initially be sold through smaller shops, not supermarkets. It will also continue the scheduled roll-out of the skin care products in 2010 and 2011. The

contribution of this skin care product is relatively small. Herbal tea: By 31 October, Bawang has coverage in more than 50 cities in South China and >100

distributors. Company sees network coverage roll out as “satisfactory”. Royal Wind sales recovery deteriorated. Sales were down 5% y-o-y initially. Due to the continued

media coverage on the Dioxane incident, sales declined further in recent months. Cash and working capital. Current cash position is over RMB1.5bn (vs RMB1.7bn at end-1H10).

According to management, inventory days have increased by 2 days in 2H10 because of inventory in new products and not an increase in Bawang products. For similar reasons, accounts receivable days have increased. Accounts payable days decreased by a few days, as the company is seeking more favourable terms with suppliers.

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霸王集团 汇丰研究报告 英文

Valuation

Given the high volatility of 2011e earnings and the strength of a potential earnings recovery in 2011, we believe there is a high level of uncertainty to 2011 earnings for Bawang. We have not changed our existing 2011 forecast, which assumes that the monthly run rate for Bawang will revert to 2009 levels.

However, to reflect the uncertainty regarding Bawang’s outlook, we use lower PE multiples to value the stock. We now value Bawang at its historical-low multiple of 15.5x forward earnings (formerly 20.7x), which is the average PE between July 2009 and November 2009 (see chart below). This translates into a new target price of HKD3.1. Note that, if we used the lowest-ever PE the Bawang shares have traded on, which is 12.7x in September 2009, the target price would fall to HKD2.5.

HSBC considers the average cost of equity to be 10% for China. A volatile China stock with a potential return of 10ppt on either side of this hurdle rate, i.e., 0-20%, merits a Neutral rating. As the potential return on Bawang shares (including dividend yield) is within this range, we maintain our Neutral (V).

Risks and catalysts

Risks to our rating and estimates would include a slower-than-expected monthly sales recovery, especially in lower-tier cities, and intensified competition. Upside investment risks include sell-through of herbal tea and new product launches.

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霸王集团 汇丰研究报告 英文

Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Herald van der Linde and Robby Gu

Important disclosures

Stock ratings and basis for financial analysis

HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor’s existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: (1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month horizon; and (2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at /research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor’s decision to buy or sell a stock should depend on individual circumstances such as the investor’s existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts’ views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings

HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the risk-free rate for that stock’s domestic, or as appropriate, regional market and the relevant equity risk premium established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5ppt over the next 12 months (or 10ppt for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5ppt over the next 12 months (or 10ppt for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any ‘material change’ (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month’s average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5ppt past the 40% benchmark in either direction for a stock’s status to change.

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霸王集团 汇丰研究报告 英文

Rating distribution for long-term investment opportunities

As of 23 November 2010, the distribution of all ratings published is as follows: Overweight (Buy) 47% (22% of these provided with Investment Banking Services) Neutral (Hold) Underweight (Sell)

38% 15%

(18% of these provided with Investment Banking Services) (21% of these provided with Investment Banking Services)

Share price and rating changes for long-term investment opportunities

Recommendation & price target history

From To Date N/A

Neutral (V) Overweight (V) Neutral (V) Overweight (V) Target Price Price 1 Price 2 Price 3 Price 4

Source: HSBC

Neutral (V) Overweight (V)

Neutral (V) Overweight (V)

Neutral (V)

Value

3.60 5.80 6.40 4.10

12 August 2009 08 September 2009 06 January 2010 26 February 2010 11 November 2010

Date 12 August 2009 06 January 2010 18 May 2010 03 September 2010

HSBC & Analyst disclosures

Disclosure checklist Company

BAWANG INTERNATIONAL

Source: HSBC

Ticker1338.HK

Recent price

3.35

Price Date22-Nov-2010

Disclosure

1, 5

1 2

HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months.

HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months.

3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this

company.

4 As of 31 October 2010 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 30 September 2010, this company was a client of HSBC or had during the preceding 12 month period been a client

of and/or paid compensation to HSBC in respect of investment banking services.

6 As of 30 September 2010, this company was a client of HSBC or had during the preceding 12 month period been a client

of and/or paid compensation to HSBC in respect of non-investment banking-securities related services.

7 As of 30 September 2010, this company was a client of HSBC or had during the preceding 12 month period been a client

of and/or paid compensation to HSBC in respect of non-securities services.

8 A covering analyst/s has received compensation from this company in the past 12 months.

9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as

detailed below.

10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this

company, as detailed below.

11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in

securities in respect of this company

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

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霸王集团 汇丰研究报告 英文

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at /research. * HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures

1 This report is dated as at 23 November 2010.

2 All market data included in this report are dated as at close 23 November 2010, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC’s analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC’s Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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霸王集团 汇丰研究报告 英文

Disclaimer

* Legal entities as at 31 January 2010 Issuer of report

‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; ‘CA’ HSBC Corporation Limited Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; ‘DE’ HSBC Trinkaus &

Level 19, 1 Queen’s Road Central Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets

(India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Hong Kong SAR Securities Egypt S.A.E., Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Telephone: +852 2843 9111 Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong Telex: 75100 CAPEL HX and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai

Fax: +852 2596 0200

Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg;

Website: ‘GR’ HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm,

Tel Aviv, ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. – Banco Múltiplo, HSBC Bank Australia Limited, HSBC Bank Argentina S.A., HSBC Saudi Arabia Limited., The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch.

This document has been issued by The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited is regulated by the Securities and Futures Commission. All enquires by recipients in Hong Kong must be directed to your HSBC contact in Hong Kong. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

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