2018 Consumer Discretionary Sector Outlook · 11/15/2017 · towards the consumption of better quality products, the retail sales value of maternity and baby care products is expected

2018 Consumer Discretionary Sector Outlook

Nov 15, 2017 Equity Research | Consumer Discretionary

Two-child policy to drive juvenile industry; education sector boosted by strong demand and industry consolidation

Albert Yip, CFA SFC CE No. ADT599 [email protected] +852 3719 1010 GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong

Sector view Positive

Juvenile products: Since the enforcement of the two-child policy, the number of newborns

increased by 12% YoY in 2016 and 8% YoY in 5M17. The birth-control regime remaining a fundamental state policy was not mentioned in the report from the 19th CPC National Congress, which could suggest a further easing in China’s child policy.

Education: We expect private schools to continue to gain market share given rising income

among China’s middle-class, which is expected to be spent on quality education as middle-class parents increasingly prefer the more well-rounded education offered by private schools. The market is fragmented and there are opportunities for consolidation.

Valuation analysis

Juvenile products: Goodbaby International is trading at 13.8x 1-year forward P/E, below its

3-year historical average of 17.2x. We think the stock’s valuation is attractive.

Education: Maple Leaf (1317 HK, Buy) is trading at 20.9x 1-year forward P/E, above its

historical average of 15.0x but below its historical high of 28x. Wisdom Education is trading at 23.0x 1-year forward P/E, above its historical average of 16.1x but below its historical high of 26x. Both stocks are trading below the sector’s weighted average of 30.8x/22.6x FY18/19E P/E. With market concerns about the “Revisions of the Laws for Promoting Private Education” now alleviated, we expect valuations in the sector to rise.

Investment strategy

Bottom-up approach We prefer companies with re-rating potential driven by accelerating

earnings growth and attractive valuations.

Top picks

Wisdom Education (6068 HK, Buy) The company will focus on expanding its school network

in the Guangdong-Hong Kong-Macau Bay Area to take advantage of the region’s economic growth opportunities and better leverage on the brand equity of its Dongguan Guangming School and Huizhou Gunagzheng School. The company has a track record of replicating Dongguan School’s success at the Huizhou School. We expect the stock to be included in the Shenzhen-HK Stock Connect list in the next review. Goodbaby International (1086 HK, Buy) The acquisition of non-durable maternity, baby and

children’s (MBC) product branded businesses and sales platforms from Goodbaby China has increased the company’s exposure to the China market. It has also provided the company with greater growth potential as China’s non-durable MBC products market is around ten times that for durable MBC products. The stock trades at 12.8x FY18 P/E, below its historical average 1-year forward P/E of 17.2x, which we see as undervalued. We expect the stock to be included in the Shenzhen-HK Stock Connect list at the next review.

Risks

Upside risks: Better-than-expected student enrollment numbers, and better-than-expected

revenue growth. Downside risks: Teacher cost pressure, policy risks and fierce competition.

mailto:[email protected]

Nov 15, 2017

2

2018 Sector Outlook

Juvenile product sector

Number of newborns to grow in 2017 After the enforcement of the two-child policy in Oct 2015,

the number of newborns in China surged 12% YoY to 18.46m in 2016 and further increased by 8%

YoY to 7.4m in 5M17. The proportion of newborns from a couple having their second child or more

increased to 45% in 2016 and then 58% in 5M17, according to the National Health and Family

Planning Commission of the PRC. According to a forecast by an official from the authority, the

number of newborns will reach 17m-20m/year when the impact of the two-child policy fully

materializes, higher than around 16m/year between 2010-2015.

Figure 1: Rising number of newborns in China

Sources: National Health and Family Planning Commission, NBS, GF Securities (Hong Kong)

The birth-control regime remaining a fundamental state policy was not mentioned in the

report from the 19th CPC National Congress In the “Carrying out the Healthy China initiative”

section of the report, it mentioned that child birth policy should mesh with related economic and

social policies and that the government will proactively respond to population ageing. The wording

related to child birth policy was changed, compared to the report from the previous CPC National

Congress, which mentioned that the birth-control regime would remain a fundamental state policy.

The change may suggest further easing of the child policy in the future.

Maternity, baby and children’s (MBC) product industry to grow at a 15% CAGR Boosted by

the rise in disposable income per capita, the rising number of newborns and the general shift

towards the consumption of better quality products, the retail sales value of maternity and baby care

products is expected to grow at a CAGR of 15.2% during 2016-21, faster than the CAGR of 13.2%

during 2011-16. China will become the largest market in the world for such products by 2021 with

retail sales value of US$112.1bn, according to Frost & Sullivan.

16.0 16.4 16.4 16.9 16.6

18.5

7.4

1%2%

0%

3%

-2%

12%

8%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

0

2

4

6

8

10

12

14

16

18

20

2011 2012 2013 2014 2015 2016 5M2017

(m)

Number of newborns (LHS) Growth (%, RHS)

Nov 15, 2017

3

2018 Sector Outlook

Figure 2: Retail sales value of maternity and baby care products in China (Rmb bn)

Sources: Frost & Sullivan, GF Securities (Hong Kong)

Figure 3: Comparison of retail sales value of the maternity and baby care product market between China and developed economies (US$ bn)


Larger market for non-durable MBC products According to Frost & Sullivan, the retail sales value

of MBC products in China was Rmb367.1bn in 2016. The market is expected to grow at a 15.2%

CAGR during 2016-21, with the non-durable MBC market set to grow faster (15.3% CAGR) than

durable MBC products (14.0% CAGR). In 2016, the market for durable products in China was worth

Rmb32.4bn. This means the size of the non-durable MBC products market was around ten times

that of the durable products market.

0

100

200

300

400

500

600

700

800

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

0

20

40

60

80

100

120

China US Japan UK Europe exceptUK

2016 2021

Nov 15, 2017

4

2018 Sector Outlook

Figure 4: Retail sales value of durable maternity and baby care products in China (Rmb bn)

Figure 5: Retail sales value of non-durable maternity and baby care products in China (Rmb bn)

Sources: Frost & Sullivan, GF Securities (Hong Kong) Sources: Frost & Sullivan, GF Securities (Hong Kong)

Valuation of our top pick in the sector Goodbaby International (1086 HK, Buy) is trading at 13.8x

1-year forward P/E, below its three-year historical average of 17.2x. We see the stock’s valuation

as attractive.

Education sector

Private schools gaining market share Student enrolment in private primary and secondary

education is expected to grow at a CAGR of 4.7% from 2015 to 2020, reaching 18.5m in 2020,

according to Frost & Sullivan. The CAGR of private school students is expected to beat China’s

overall CAGR of 1.0% for its primary and secondary education. The market shares of private

schools among China’s primary, middle and high schools have increased from 6.2%, 9.5% and 9.5%

in 2012, respectively, to 7.4%, 11.7% and 10.8% in 2015, and are forecast to reach 8.9%, 13.8%

and 12.8% in 2020.

Reasons behind the market share gain We think this trend is attributable to: 1) rising income

among the middle class, which is expected to lift education spending as people seek better quality

education; 2) middle-class parents increasingly preferring the more well-rounded education offered

by private schools over the exam-score-focused education at public schools.

Industry consolidation opportunities In 2016, there were 6.3m and 42.8m students enrolled in

private higher education institutions and private K-12 schools, respectively. The private school

industry is therefore very fragmented. With the number of listed companies increasing, these

companies could leverage on their advantages in the capital market to secure funding for M&A.

Also, we believe the government’s policy is to encourage innovative ownership structures and

broaden the fund raising channels for private schools, according to the “Opinions on Encouraging

Social Capital to Promote Healthy Development of Private School Education” issued by the State

Council (国务院关于鼓励社会力量兴办教育促进民办教育健康发展的若干意见). In the recently

published “Execution Opinions on Encouraging Social Capital to Promote Healthy Development of

Private School Education” issued by Anhui government (安徽省人民政府关于鼓励社会力量兴办教

育促进民办教育健康发展的实施意见) on Oct 17, 2017, the document even mentioned that private

schools will be encouraged to become chain-operated groups through M&A.

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

0

50

100

150

200

250

300

350

400

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Baby care products Apparel and home Others

Nov 15, 2017

5

2018 Sector Outlook

Figure 6: Student enrolment at private primary and secondary schools in China


Figure 7: Market share of private primary and secondary schools in China


Increasing number of newborns is a long-term positive The preschool segment should benefit

from the increasing number of newborns earlier than other segments. Driven by the increasing

number of newborns since 2016 and the government’s target of raising the preschool enrolment

ratio from 75% in 2015 to 85% in 2020, we think the preschool segment could have a higher student

enrolment CAGR from 2015 to 2020 than other segments.

0

2

4

6

8

10

12

14

16

18

20

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

(million) High school Middle school Primary school

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

High school Middle school Primary school

Nov 15, 2017

6

2018 Sector Outlook

Figure 8: Student enrolment and enrolment ratio of fundamental education in 2016 and number of newborns in 2014-2016

Sources: Frost & Sullivan, Ministry of Education, GF Securities (Hong Kong) *Enrolment ratio of compulsory education in 2016

Figure 9: China’s 13th Five-Year Plan targets

Sources: Frost & Sullivan, Ministry of Education, GF Securities (Hong Kong) *Enrolment ratio of compulsory education in 2016

Company valuations Maple Leaf (1317 HK, Buy) is trading at 20.9x 1-year forward P/E, above its

historical average of 15.0x but below its historical high of 28x. Wisdom Education is trading at 23.0x

1-year forward P/E, above its historical average of 16.1x but below its historical high of 26x. Both

stocks are trading below the sector’s weighted average of 30.9x/22.7x FY18/19E P/E. With market

concerns about the “Revisions of the Laws for Promoting Private Education” now alleviated, we

expect valuations in the sector to rise.

(million ppl)Total student

enrolment

Student

enrolment per

grade

Population Enrolment ratio

High school 39.66 13.22 87.5%

Middle school 43.29 14.43 93.4% *

Primary school 99.13 16.52 93.4% *

Preschool 44.14 11.03 77.4%

Number of newborns in 2014 16.87



Targets 20152020

targetCAGR

Preschool

Student enrolment (mil ppl) 42.65 45.00 1.1%

Enrolment ratio (%) 75.0% 85.0%

Compulsory education



High school



Higher education



Nov 15, 2017

7

2018 Sector Outlook

Figure 10: Maple Leaf’s P/E band

Sources: Bloomberg, GF Securities (Hong Kong) estimates

Figure 11: Wisdom Education’s P/E band


Figure 12: Valuation comparison for Chinese school operators

Sources: Bloomberg estimates, GF Securities (Hong Kong) estimates

1

2

3

4

5

6

7

8

9

10

11

No

v-1

4

Feb

-15

May

-15

Au

g-1

5

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Au

g-1

7

23x

18x

13x

8x

28x(HK$)

1

2

3

4

5

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

25x

20x

15x

10x

30x

(HK$)

Mkt Cap

Ticker Rating (US$ m) Crncy Price TP FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E

Chinese school operators

Wisdom Education 6068 HK Buy 1,215 HKD 4.65 5.90 30.7 25.8 19.5 29 32 28 6 18 28 40 24 23 1.7 2.2 4.1 3.6 16.9 19.4

Maple Leaf 1317 HK Buy 1,559 HKD 8.82 9.10 27.1 22.1 18.4 27 23 16 24 22 16 28 33 16 1.8 2.1 3.9 3.3 18.4 19.1

Bright Scholar BEDU US NR 2,873 USD 24.50 94.6 52.8 35.0 (609) 82 52 (543) 79 51 28 39 33 0.0 0.0 14.1 10.9 20.4 24.3

RYB Education RYB US NR 757 USD 26.40 77.0 36.8 24.6 58 125 48 23 109 49 26 30 24 na na 5.8 4.6 17.5 21.3

Yuhua Education 6169 HK NR 1,488 HKD 3.87 28.5 21.7 18.2 15 26 20 na 31 20 9 12 12 2.4 2.8 3.5 3.1 16.1 18.1

China New Higher Education 2001 HK Buy 899 HKD 4.90 25.4 18.8 15.1 69 41 24 na 35 25 29 55 20 1.8 2.2 2.9 2.5 16.5 17.8

Simple average 47.2 29.7 21.8 (68) 55 31 (123) 49 31 27 32 21 1.5 1.9 5.7 4.7 17.6 20.0

Weighted average 8,790 54.0 33.5 24.1

Yield (%) P/B (x) ROE (%)P/E (x) Net profit growth (%) EPS growth (%) Revenue growth (%)

Nov 15, 2017

8

2018 Sector Outlook

Figure 13: Peer comparison

Sources: Company data, GF Securities (Hong Kong)

Figure 14: Valuation table for companies under our coverage

Sources: Bloomberg, Company data, GF Securities (Hong Kong) estimates Note: Updated as of Nov 7, 2017

CompanyWisdom Education

(6068 HK)

Yuhua Education

(6169 HK)

Maple Leaf

(1317 HK)

China New Higher

Education (2001 HK)

Business segments

Higher education P P

High school - international programs P P P

High school - PRC curriculum P P

Secondary vocational education

Compulsory education - PRC curriculum P P P

Preschool P P

Ancillary services P P

School network locationGuangdong and other

regionsHenan

Nationwide and some

overseas locations

Yunnan, Guizhou,

Gansu, Heilongjiang,

Hubei

Schools require reasonable return? Yes No NoYunnan school: Yes,

Guizhou school: No

Financials

Number of student enrollment (FY16) 31,788 48,220 22,693 33,462

Utilization rate (%, FY16) 90.5% 67.7% 64.4% 92.4%

Student-to-teacher ratio (FY16) 16.6 19.6 10.7 22.4

Average tuition fee (Rmb, FY16) 19,900 16,203 37,356 10,006

Average teacher cost (Rmb, FY16) 118,548 73,809 158,112 83,793

Revenue (Rmb m, FY16) 701 781 830 341

Adjusted net profit (Rmb m, FY16) 186 322 304 130

GPM (%, FY16) 47.1% 52.0% 48.4% 48.0%

OPM (%, FY16) 31.8% 44.5% 35.4% 49.0%

Adjusted NPM (%, FY16) 26.5% 41.2% 36.6% 38.0%

1HFY17 results highlights

Revenue growth (%) 40.6% 8.0% 27.1% 19.3%

GPM (%) 46.3% 53.0% 47.0% 57.1%

YoY ppt change -0.6 +2.2 -0.1 +0.8

Adjusted net profit growth (%) 30.3% 30.1% 37.3% 52.4%

Closing price Target

Company Rating (Nov 7, 2017) Price FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E

Anta 2020 HK Buy 35.55 33.20 26.5 23.2 24 16 2.6 3.0 4.2 4.0 26.4 24.7

Li Ning 2331 HK Hold 6.90 6.00 30.0 20.8 49 46 0.0 1.4 2.5 2.4 10.9 13.6

Xtep 1368 HK Hold 2.82 3.00 11.6 10.0 (10) 18 5.2 6.0 1.1 1.1 9.4 10.5

Chow Tai Fook 1929 HK Hold 8.34 8.50 22.5 20.5 21 10 2.2 2.4 2.6 2.5 11.6 12.3

Luk Fook 590 HK Accumulate 31.65 33.00 16.0 14.4 15 11 3.5 3.5 1.7 1.6 12.7 13.2

Chow Sang Sang 116 HK Hold 17.04 19.50 13.9 12.4 12 12 2.7 3.1 1.3 1.2 8.9 9.4

Maple Leaf 1317 HK Buy 8.82 9.10 27.4 22.0 24 22 1.4 1.8 4.4 3.8 17.3 18.4

Wisdom Education 6068 HK Buy 4.65 5.90 30.7 25.8 6 18 1.2 1.8 4.7 4.1 18.4 16.9

Goodbaby 1086 HK Buy 4.30 6.90 20.3 13.1 26 55 1.5 2.3 1.8 1.5 9.3 14.6

I.T 999 HK Buy 3.93 5.22 11.3 9.0 34 26 4.0 5.0 1.4 1.2 13.1 15.0

ROE (%)Stock

code

P/E (x) EPS growth (%) Yield (%) P/B (x)

Nov 15, 2017

9

2018 Sector Outlook

Wisdom Education (6068 HK)

Buy (maintained)

Target price: HK$5.90

Expanding in the Greater Bay Area to better leverage on its brand name

Figure 15: Stock performance Figure 16: Key data

Sources: Bloomberg

Figure 17: Stock valuation

Sources: Company data, GF Securities (Hong Kong) estimates

Solid academic record Wisdom Education (WEDU) has consistently achieved a higher admission

rate of high school graduates to the best universities in China compared with the Guangdong provincial average. In FY16 (school year 2015/2016), 23.2% of the company’s high school

graduates were admitted to first-class universities in China (重点本科大学), better than Guangdong

province’s average of 10.0%, according to Frost & Sullivan. The percentage for Dongguan

Guangming School (东莞市光明中学) was even higher at 36%. In each of the 2015/16 and 2016/17

school years, WEDU had ten graduates admitted to Peking University and Tsinghua University. Beneficiary of the “Greater Bay Area” initiative WEDU currently operates schools in Dongguan

and Huizhou. In addition, WEDU has secured framework co-operation agreements to establish schools in Guangzhou’s Zhaoqing and Zengcheng districts. The company will focus on expanding its school network in the Guangdong-Hong Kong-Macau Bay Area to take advantage of the region’s economic growth opportunities and better leverage on the brand equity of its Dongguan Guangming School and Huizhou Gunagzheng School. Good execution track record We believe WEDU’s expansion plan is supported by its good execution track record. 1) M&A: The number of students at Dongguan Guangzheng Preparatory

School (acquired in Aug 2013) more than doubled from 4,151 as at Sept 1,t 2013, to around 10,700 as of Sept 1, 2017. 2) Replication of Dongguan Guangming School’s success to Huizhou Guangzheng School: Huizhou Guangzheng School had three graduates admitted to Peking

University and Tsinghua University in the 2016/17 school year, the year the school had its first batch of high school students graduate. This excellent academic achievement has improved the school’s brand name significantly. The number of students at Huizhou Guangzheng Preparatory School jumped from 3,900 in the 2016/17 school year to around 6,000 as of Sept 1, 2017. Maintain Buy We forecast a 3-year EPS CAGR of 23.1% during FY18-20. Our target price of

HK$5.90 represents 25.4x FY19E P/E and is based on 1.1x PEG. We have cross-checked this with a DCF-based valuation, which comes in at HK$6.15/share, suggesting that our PEG-based target price is not aggressive. Potential catalyst: the likely inclusion of the stock in the Shenzhen-HK Stock Connect list at the next review.

-20%0%

20%40%60%80%

100%120%140%160%180%200%

Jan-17 Apr-17 Jul-17 Oct-17

HSI Wisdom Education

Nov 6 close (HK$) 4.38

Shares in issue (m) 2039.154

Major shareholder Liu Xuebin (48.5%)

Market cap (HK$ bn) 9.5

3M avg. vol. (m) 5.8

52W high/low (HK$) 5.07/1.61

Year-end

Aug 31

Turnover

(Rmb m)

Net profit

(Rmb m)

Adjusted net

profit (Rmb m)

Adjusted EPS

(Rmb)

EPS YoY

(%)

Adjusted

P/E

Yield

(%)

BPS

(Rmb)

P/B ROE

(%)

2015 569 182 173 na na na na na na 29.1

2016 701 154 186 na na na na na na 24.7

2017E 980 226 239 0.131 na 30.6 1.2 0.9 4.6 18.4

2018E 1,214 317 317 0.156 18 25.3 1.8 1.0 4.1 16.9

2019E 1,492 406 406 0.199 28 19.8 2.3 1.1 3.6 19.4

2020E 1,803 500 500 0.245 23 16.0 2.8 1.2 3.2 21.3

Nov 15, 2017

10

2018 Sector Outlook

Figure 18: Admission rate of WEDU’s high school graduates to first-class universities in China

Figure 19: Student enrollment capacity and utilization rate

Sources: Company prospectus, Frost & Sullivan Report, xkb.com.cn, company data, GF Securities (Hong Kong) estimates Note: “First-class universities” are first-tier universities identified in the “University Application and Enrollment Guidelines for Guangdong Province” issued by the Education Examinations Authority of Guangdong Province for the 2013/2014, 2014/2015 and 2015/2016 school years.

Figure 20: WEDU’s tuition and boarding fees

Sources: Company data, GF Securities (Hong Kong) Note: *These schools typically raise tuition and boarding fees once every two years.

18.4%

21.4%23.2%

8.1% 8.6%10.0%

0%

5%

10%

15%

20%

25%

FY14 FY15 FY16

Wisdom Education Guangdong province

23,128 25,719

30,552 33,152

50,304

60,494

69,794

83.7%

88.8% 90.5%

95.9%

81.9%

78.8%

80.2%

0%

20%

40%

60%

80%

100%

120%

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Number of students (LHS)

Utilization rate as at 1 Sep (%) (RHS)

Tuition and boarding fees (Rmb)2014/15-2015/16

school year

2016/17 school

year

2017/18 school

year

Increase for new

students (%)

Dongguan Guangming School*

High school 23,000-25,200 25,600-30,600 25,600-30,600 no change

Middle school 21,000-23,200 23,600-27,600 23,600-27,600 no change

International programs 92,600 92,600 93,600-110,600 19.4%

Dongguan Guangming Primary School* 15,040-21,000 18,180-24,400 18,180-24,400 no change

Dongguan Guangzheng*

High school 20,400-22,400 22,800-25,800 22,800-25,800 no change

Middle school 18,000-19,400 19,800-23,000 19,800-23,000 no change

Primary school 16,400-18,000 16,600-21,200 16,600-21,200 no change

International programs 50,600-88,600 50,600-88,600 66,600-110,600 22.1-28.3%

Huizhou Guangzheng

High school 23,000 23,000-25,600 23,000-25,600 no change

Middle school 18,000 18,000-20,600 18,000-20,600 no change

Primary school 18,200 18,200-20,800 18,200-20,800 no change

Panjin Guangzheng

High school (opened in Sep 2017) na na 20,600 na

Middle school 18,000 18,000 18,600-19,200 6.7%

Primary school 13,000-14,200 13,000-14,200 13,600-15,400 8.5-9.2%

Weifang Guangzheng

High school (opened in Sep 2017) na na 18,600 na

Middle school na 13,000 13,600-16,600 27.7%

Primary school na 11,000 11,600-14,600 32.7%

Jieyang school (acquired recently)

High school na na 12,200 na

Middle school na na 7,400-11,000 27.9%

Primary school na na 8,800-10,800 22.7%

Nov 15, 2017

11

2018 Sector Outlook

Figure 21: Key assumptions


Figure 22: Wisdom Education's P/E band

Sources: Company data, GF Securities (Hong Kong) estimates, Bloomberg

Year-end Aug 31 (Rmb m) FY15 FY16 FY17E FY18E FY19E FY20E

Total revenue 569 701 980 1,214 1,492 1,803

growth % 26.1% 23.2% 39.8% 24.0% 22.9% 20.9%

Tuition and boarding fees 442 550 673 849 1,048 1,269

growth % 25.8% 24.4% 22.4% 26.1% 23.4% 21.1%

Others 126 151 307 365 444 534

growth % 27.4% 19.1% 103.5% 19.2% 21.6% 20.2%

Gross margin 49.1% 47.1% 46.5% 47.0% 47.6% 48.1%

Marketing expense ratio 1.3% 1.9% 2.5% 2.8% 2.7% 2.6%

Administrative expense ratio 13.4% 13.4% 13.2% 13.4% 13.0% 12.4%

Operating profit margin 35.3% 31.8% 31.5% 31.4% 32.6% 33.6%

Adj effective tax rate 14.1% 20.7% 23.0% 15.5% 15.5% 15.5%

Net profit 182 154 226 317 406 500

growth % 100.5% -15.3% 46.5% 40.3% 27.9% 23.2%

Adj net profit 173 186 239 317 406 500

growth % 45.6% 7.6% 28.9% 32.5% 27.9% 23.2%

Net profit margin 30.4% 26.5% 24.4% 26.1% 27.2% 27.7%

Payout ratio na na 45.0% 45.0% 45.0% 45.0%

Average tuition and boarding fee (Rmb) 19,364 19,900 21,174 20,618 21,981 22,671

growth % 6.6% 2.8% 6.4% -2.6% 6.6% 3.1%

Student enrollment (as at Sept 1) 22,837 27,644 31,788 41,180 47,671 55,980

growth % 18.0% 21.0% 15.0% 29.5% 15.8% 17.4%

Utilization rate 88.8% 90.5% 95.9% 81.9% 78.8% 80.2%

Total teachers 1,359 1,666 1,960 2,510 2,900 3,434

Student to teacher ratio 16.8 16.6 16.2 16.4 16.4 16.3

1

2

3

4

5

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

25x

20x

15x

10x

30x

(HK$)

Nov 15, 2017

12

2018 Sector Outlook

Figure 23: Financial statements

Sources: Company, GF Securities (Hong Kong) estimates

Year-end Aug 31 (Rmb m) FY15 FY16 FY17E FY18E FY19E FY20E Year-end Aug 31 (Rmb m) FY15 FY16 FY17E FY18E FY19E FY20E

Revenue 569 701 980 1,214 1,492 1,803 Fixed assets

Cost of sales (289) (370) (524) (644) (781) (937) PPE 1,007 1,344 1,952 2,621 3,069 3,501

Gross profit 280 330 456 570 711 867 Prepaid lease payments 213 226 220 214 208 202

Investment properties 18 20 20 20 20 20

Other income 7 7 9 10 11 12 Amounts due from related parties 99 0 0 0 0 0

Other gains and losses (2) (8) (2) (2) (2) (2) Intangible assets 0 0 27 27 27 27

Selling expenses (8) (13) (24) (34) (40) (47) Deposits 95 0 0 0 0 0

Administrative expenses (76) (94) (130) (162) (193) (224) Deferred tax assets 1 3 4 4 4 4

Operating profit 201 223 309 382 486 606 Prepayments for construction to a related company 0 170 197 0 0 0

1,433 1,763 2,420 2,886 3,327 3,753

Net finance income 11 (6) (8) (1) (1) (1)

Listing expenses 0 (24) (7) 0 0 0 Current assets

Change in FV of investment properties 1 2 0 0 0 0 Inventories 2 5 6 8 10 11

Profit before tax 212 195 293 381 485 605 Deposits, prepayments and other receivables 26 30 43 53 65 78

Income tax expense (30) (40) (68) (59) (75) (94) Amounts due from related parties 1,486 551 0 0 0 0

Non-controlling interests (0) (0) (0) 5 4 12 Prepaid lease payments 5 6 6 6 6 6

Net profit 182 154 226 317 406 500 Bank balances and cash 12 104 615 644 655 738

Adjusted net profit 173 186 239 317 406 500 1,532 695 670 711 735 834

Adjusted EPS (Rmb) na na 0.13 0.16 0.20 0.25

Total assets 2,965 2,458 3,089 3,596 4,062 4,586

Growth rates (%)

Revenue 26 23 40 24 23 21 Current liabilities

Adjusted net profit 46 8 29 32 28 23 Deferred revenue 285 365 458 565 684 788

Adjusted EPS na na na 18 28 23 Trade payables 25 40 57 69 84 101

Other payables and accrued expenses 204 208 294 361 438 525

Margin & ratios (%) Amount due to related parties 433 340 0 0 0 0

Gross margin 49.1 47.1 46.5 47.0 47.6 48.1 Income tax payable 61 58 91 80 101 127

OP margin 35.3 31.8 31.5 31.4 32.6 33.6 Bank borrowings 538 142 64 64 64 64

Adjusted net margin 30.4 26.5 24.4 26.1 27.2 27.7 1,546 1,153 963 1,139 1,371 1,604

Effective tax rate 14.1 20.7 23.0 15.5 15.5 15.5

Payout ratio na na 45.0 45.0 45.0 45.0 Non-current liabilities

Deferred tax l iabilities 6 9 11 11 11 11

Interest-bearing bank borrowings 738 465 262 262 262 262

Year-end Aug 31 (Rmb m) FY15 FY16 FY17E FY18E FY19E FY20E 744 475 272 272 272 272

Profit before tax 212 195 293 381 485 605 Equity

Depreciation and amortization 46 55 62 84 109 124 Shareholders' equity 675 831 1,775 1,978 2,207 2,487

Net finance income (11) 6 8 1 1 1

Others (0) 26 0 0 0 0 Non-controlling interests (0) 0 78 208 212 223

Change of working capital 78 98 182 175 197 192

Tax paid (6) (42) (54) (63) (67) (84) Total liabilities & equity 2,965 2,458 3,089 3,596 4,062 4,586

Operating cash flow 319 338 492 578 724 837

Capex (194) (197) (400) (550) (550) (550) Year-end Aug 31 FY15 FY16 FY17E FY18E FY19E FY20E

Acquisition of subsidiaries 0 0 (224) 0 0 0

Change in advance to related parties (128) 356 211 0 0 0 Current ratio 1.0 0.6 0.7 0.6 0.5 0.5

Interests received 0 0 2 3 3 3 Quick ratio 1.0 0.6 0.7 0.6 0.5 0.5

Others 13 93 11 0 0 0

Investing cash flow (309) 251 (400) (547) (547) (547) Asset turnover 0.2 0.3 0.3 0.3 0.4 0.4

Total assets/total equity 4.4 3.0 1.7 1.6 1.7 1.7

Change of borrowings 6 (668) (283) 0 0 0 Net cash/(debt) (Rmb m) (210) (293) 289 319 330 413

Change in advance to related parties 94 271 0 0 0 0

Interests paid (110) (88) (6) (4) (4) (4) ROE (%) 29.1 24.7 18.4 16.9 19.4 21.3

Dividend paid 0 0 (51) (122) (163) (204) ROA (%) 6.1 6.9 8.6 9.5 10.6 11.6

Share issue 0 0 759 0 0 0

Others 0 (12) 0 125 0 0

Financing cash flow (11) (497) 419 (1) (167) (208)

Net change of cash flow (1) 91 511 30 11 83

Forex changes 0 0 0 0 0 0

Income Statement Balance Sheet

Cash Flow Statement

Financial Ratios

Nov 15, 2017

13

2018 Sector Outlook

Goodbaby International (1086 HK)

Buy (maintained)

Target price: HK$6.90

Key beneficiary of rising number of newborns; acquisition not factored in by consensus

Figure 24: Stock performance Figure 25: Key data

Sources: Bloomberg

Figure 26: Stock valuation


Earnings growth outlook boosted by acquisition The acquisition of non-durable maternity, baby

and children’s (MBC) products branded businesses and online and offline sales platforms from Goodbaby China (Target Group) was completed on Oct 23, 2017. China’s MBC products market is forecast to grow at a CAGR of 15% in 2016-21, faster than Europe and North America’s 3-5% CAGR, according to Frost & Sullivan. After the acquisition, the company’s proportion of revenue from China will increase from 23% in 1H17 to 36% in FY18, and the proportion of net profit from China will exceed 50% in FY18. Also, the size of China’s non-durable MBC products market is around ten times that of durable MBC products. This should provide the company with greater growth potential. 40% EPS accretion in FY18 We estimate net profit at the Target Group will grow 110%/21%/17%

in FY17/18/19, respectively, driven by 27%/18%/15% revenue growth and a 3.2pp/0.3pp/0.4pp EBIT margin expansion. Based on our estimates, the acquisition consideration (HK$2,812m) represents 11.6x/9.5x FY17/18E P/E. We forecast net profit of Rmb255m (or HK$297m) for the Target Group in FY18. Assuming a 3.9% borrowing cost for the deal’s cash consideration (HK$941m), we estimate the company’s FY18 net profit prior to the acquisition would be HK$276m. This means the acquisition will increase its net profit by 107% in FY18 (see Figure 2). As the acquisition increases the total number of shares by just 48% in FY18, we expect strong EPS accretion during the year. Market concerns alleviated Firstly, Goodbaby China is the biggest distributor of the company’s

products in China, contributing 64% of company sales in China during FY16. After the acquisition, most of the company’s connected party transactions will be eliminated and the transparency of the company’s sales and operating costs will improve. Secondly, there was concern that the shareholding of the Chairman, Mr Song, was low. After the acquisition, Mr Song’s equity stake has increased from 23.1% to 47.9%. Acquisition not factored into FY18 consensus We estimate total net profit of the consolidated

group will be HK$544m in FY18 (HK$297m from the Target Group and HK$247m from Goodbaby International), which is 52% above Bloomberg consensus of HK$357m. Re-rating justified by acquisition We maintain our Buy rating and target price of HK$6.90, based

on 21x FY18E P/E. The stock is trading at 12.8x FY18E P/E, below its historical average 1-year

-20%

-10%

0%

10%

20%

30%

Nov-16 Feb-17 May-17 Aug-17 Nov-17

HSI Goodbaby

Nov 6 close (HK$) 4.20

Shares in issue (m) 1659.204

Major shareholder Song Zhenghuan (47.92%)

Market cap (HK$ bn) 7.1

3M avg. vol. (m) 2.8

52W high/low (HK$) 4.62/3.11

Year end

Dec

Turnover

(HK$ m)

Net profit

(HK$ m)

Core profit

(HK$ m)

Core EPS

(HK$)

EPS YoY

(%)

P/E Yield

(%)

BPS

(HK$)

P/B ROE

(%)

2015 6,951 197 197 0.179 41 23.5 1.2 2.1 2.0 8.5

2016 6,238 207 188 0.169 -6 24.9 1.2 2.2 1.9 7.8

2017E 6,568 237 237 0.212 26 19.8 1.5 2.4 1.8 9.3

2018E 9,646 544 544 0.328 55 12.8 2.3 2.9 1.5 14.6

2019E 10,661 635 635 0.383 17 11.0 2.7 3.2 1.3 12.7

Nov 15, 2017

14

2018 Sector Outlook

forward P/E of 17.2x, which we see as undervalued. The company is one of the few companies listed in Hong Kong that can benefit from China’s two-child policy. We expect a re-rating for the stock as: 1) two market concerns on the company have been alleviated. 2) the acquisition has increased the company’s exposure to the fast-growing China market and the larger non-durable MBC products market. 3) the company’s product portfolio will become more similar to Pigeon (7956 JP), a globally leading MBC brand trading at higher valuation. Potential catalyst: the likely inclusion of the stock in the Shenzhen-HK Stock Connect list at the next review.

Figure 27: Valuation comparison of international juvenile product companies


Figure 28: Revenue by segment in 1H17 Figure 29: Revenue by segment in 1H16


Mkt Cap Price PEG (x)

Ticker Rating (US$ m) Currency Nov 7 TP FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY18E FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E

Goodbaby Int'l 1086 HK Buy 914 HKD 4.30 6.90 20.3 13.1 11.2 26 130 17 26 55 17 0.4 5 47 11 2.3 2.7 1.5 1.4 14.6 12.7

International juvenile products companies

Pigeon 7956 JP NR 4,317 JPY 4055.0 na 35.2 31.5 27.6 24 12 14 24 12 14 2.4 8 4 7 1.7 1.9 7.3 6.5 24.1 23.9

Newell Rubbermaid NWL US NR 15,105 USD 30.82 na 10.9 10.3 9.3 160 6 8 126 6 11 1.2 11 (1) 2 3.1 3.5 1.1 1.1 11.7 11.9

Mattel MAT US NR 4,489 USD 13.06 na 197.9 24.5 12.4 (90) 475 95 (93) 709 97 0.1 (7) (0) 5 0.0 0.0 2.3 1.9 14.2 19.4

Hasbro HAS US NR 11,384 USD 91.01 na 18.2 17.4 16.2 16 3 7 13 5 7 2.9 7 3 5 2.7 2.9 4.4 3.5 30.8 na

Carter's CRI US NR 4,713 USD 99.59 na 17.7 16.0 14.4 5 7 8 10 10 11 1.5 6 6 6 1.6 1.8 6.0 5.6 37.7 38.7

Children's Place PLCE US NR 1,958 USD 111.00 na 15.0 13.9 13.0 30 4 3 34 8 7 1.9 3 0 1 1.6 1.6 3.3 4.3 28.9 33.0

Dorel DII/B CN NR 785 CAD 30.91 na 12.3 11.1 9.7 (591) 29 na (646) 12 14 na (2) 2 3 4.9 na na na 6.3 na

Mothercare MTC LN NR 226 GBP 1.01 na 9.8 8.4 7.4 112 19 15 115 17 14 0.5 3 (1) 0 na na 143.9 125.9 20.1 18.5

Simple average 39.6 16.6 13.8 (51) 78 23 (63) 109 23 1.4 3 1 3 2.3 2.0 26.8 23.7 21.4 24.3

Weighted average 35.8 16.6 14.0 1.7

Yield (%) P/B ROE (%)Revenue growth (%) P/E Net profit growth (%) EPS growth (%)

Evenflo27%

Cybex23%gb

18%

Blue chip17%

Others15% Evenflo

24%

Cybex19%

gb14%

Blue chip21%

Others22%

Nov 15, 2017

15

2018 Sector Outlook

Figure 30: Key assumptions for the company (excluding Target Group in FY18/19)


Figure 31: Key assumptions for the consolidated group (including Target Group in FY18/19)


Year-end Dec (HK$ m) FY15 FY16 FY17E FY18E FY19E

Total revenue 6,951.1 6,238.2 6,568.2 7,181.0 7,694.2

growth % 13.7% -10.3% 5.3% 9.3% 7.1%

Cybex 1,213.2 1,249.6 1,581.3 1,947.9 2,217.7

growth % 56.9% 3.0% 26.5% 23.2% 13.9%

Evenflo 1,796.5 1,680.8 1,788.0 1,933.5 2,085.5

growth % 157.6% -6.4% 6.4% 8.1% 7.9%

gb 972.8 980.7 1,194.9 1,373.3 1,520.4

growth % 7.1% 0.8% 21.8% 14.9% 10.7%

bluechip 1,736.3 1,226.9 1,030.6 918.3 826.4

growth % -29.9% -29.3% -16.0% -10.9% -10.0%

Others 1,232.3 1,100.2 973.5 1,008.1 1,044.2

growth % -2.1% -10.7% -11.5% 3.6% 3.6%

Gross profit 2,050.2 2,111.5 2,407.4 2,746.4 3,006.0

Gross margin 29.5% 33.8% 36.7% 38.2% 39.1%

SG&A expenses ratio 26.2% 29.7% 31.5% 32.9% 33.5%

EBIT 317.6 311.6 345.1 407.7 449.5

growth % 40.3% -1.9% 10.7% 18.2% 10.2%

EBIT margin 4.6% 5.0% 5.3% 5.7% 5.8%

Net finance cost (53.2) (51.8) (44.4) (90.2) (86.6)

Other expenses 0.0 (98.0) 0.0 0.0 0.0

Share of profit/(loss) of JV (0.0) 0.0 0.0 0.0 0.0

Profit before tax 264.3 161.8 300.7 317.6 362.9

Tax expenses (61.7) 50.4 (60.1) (66.7) (79.1)

Effective tax rate 23.3% -31.1% 20.0% 21.0% 21.8%

Profit after tax 202.7 212.2 240.6 250.9 283.8

Non-controlling interests 5.2 4.9 3.4 3.6 7.4

Net profit 197.4 207.4 237.2 247.3 276.4

Core net profit 197.4 187.9 237.2 247.3 276.4

growth % 42.0% -4.8% 26.2% 4.3% 11.8%

Core net profit margin 2.8% 3.0% 3.6% 3.4% 3.6%

Year-end Dec (HK$ m) FY15 FY16 FY17E FY18E FY19E

Total revenue 6,951.1 6,238.2 6,568.2 9,645.9 10,661.4

growth % 13.7% -10.3% 5.3% 46.9% 10.5%

Gross profit 2,050.2 2,111.5 2,407.4 4,175.2 4,698.0

Gross margin 29.5% 33.8% 36.7% 43.3% 44.1%

SG&A expenses ratio 26.2% 29.7% 31.5% 35.1% 35.5%

EBIT 317.6 311.6 345.1 812.1 938.9

growth % 40.3% -1.9% 10.7% 135.3% 15.6%

EBIT margin 4.6% 5.0% 5.3% 8.4% 8.8%

Net finance cost (53.2) (51.8) (44.4) (90.2) (86.6)

Other expenses 0.0 (98.0) 0.0 0.0 0.0

Share of profit/(loss) of JV (0.0) 0.0 0.0 0.0 0.0

Profit before tax 264.3 161.8 300.7 722.0 852.3

Tax expenses (61.7) 50.4 (60.1) (170.6) (204.9)

Effective tax rate 23.3% -31.1% 20.0% 23.6% 24.0%

Profit after tax 202.7 212.2 240.6 551.4 647.4

Non-controlling interests 5.2 4.9 3.4 7.1 12.1

Net profit 197.4 207.4 237.2 544.3 635.3

Core net profit 197.4 187.9 237.2 544.3 635.3

growth % 42.0% -4.8% 26.2% 129.5% 16.7%

Core net profit margin 2.8% 3.0% 3.6% 5.6% 6.0%

Nov 15, 2017

16

2018 Sector Outlook

Figure 32: Goodbaby International’s P/E band


1

2

3

4

5

6

7

8

No

v-1

0

Mar

-11

Jul-

11

No

v-1

1

Mar

-12

Jul-

12

No

v-1

2

Mar

-13

Jul-

13

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

Jul-

16

No

v-1

6

Mar

-17

Jul-

17

28x

22x

16x

10x

34x

(HK$)

Nov 15, 2017

17

2018 Sector Outlook

Figure 33: Financial statements

Sources: Company, GF Securities (Hong Kong)

Year-end Dec 31 (HK$ m) FY15 FY16 FY17E FY18E FY19E Year-end Dec 31 (HK$ m) FY15 FY16 FY17E FY18E FY19E

Revenue 6,951 6,238 6,568 9,646 10,661 Fixed assets

Cost of sales (4,901) (4,127) (4,161) (5,471) (5,963) PPE 879 858 878 1,007 1,086

Gross profit 2,050 2,111 2,407 4,175 4,698 Prepaid land lease payments 60 54 52 50 48

Goodwill 820 812 812 812 812

Other income 95 59 24 26 27 Intangible assets 682 656 634 3,137 3,137

Selling & distribution expenses (1,030) (982) (1,143) (2,389) (2,726) Investment in a JV 1 1 1 1 1

Administration expenses (794) (871) (924) (997) (1,057) Other LT assets 4 8 8 8 8

Other expenses (3) (5) (20) (3) (3) Deferred tax assets 43 131 131 131 131

EBIT 318 312 345 812 939 2,488 2,519 2,515 5,145 5,222

Net finance cost (53) (52) (44) (90) (87) Current assets

Share of profit/(loss) of JV (0) 0 0 0 0 Inventories 1,245 1,100 1,109 1,312 1,430

Other expenses 0 (98) 0 0 0 A/C receivables 696 644 679 996 1,101

Profit before tax 264 162 301 722 852 Derivative financial instruments 0 0 0 0 0

Income tax expense (62) 50 (60) (171) (205) Due from related parties 304 284 328 220 244

Non-controlling interests 5 5 3 7 12 Prepayments 144 187 197 290 320

Net profit 197 207 237 544 635 AFS investments 310 0 0 0 0

Core net profit 197 188 237 544 635 Pledged deposits 27 25 25 25 25

Core EPS (HK$) 0.18 0.17 0.21 0.33 0.38 Time deposits 3 0 0 0 0

Cash and cash equivalents 705 758 901 1,661 2,036

Growth rates (%) 3,434 3,000 3,239 4,505 5,158

Revenue 14 (10) 5 47 11

Core profit 42 (5) 26 130 17 Total assets 5,922 5,519 5,754 9,651 10,379

Core EPS 41 (6) 26 55 17

Current liabilities

Margin & ratios (%) A/C payables 941 926 934 1,351 1,473

Gross margin 29.5 33.8 36.7 43.3 44.1 Other payables 464 558 587 776 858

EBIT margin 4.6 5.0 5.3 8.4 8.8 Bank borrowings 692 278 230 180 180

Core margin 2.8 3.0 3.6 5.6 6.0 Tax payables 68 28 32 35 42

Effective tax rate 23.3 -31.1 20.0 23.6 24.0 Provision 37 64 67 99 109

Payout ratio 28.1 29.7 30.0 30.0 30.0 Others 0 0 0 0 0

2,203 1,855 1,851 2,442 2,663

Year-end Dec 31 (HK$ m) FY15 FY16 FY17E FY18E FY19E Non-current liabilities

Profit before tax 264 157 301 722 852 Bank borrowings 1,006 951 951 2,151 2,151

Share of (profit)/loss of JV (0) 0 0 0 0 Others 104 89 89 89 89

Depreciation and amortization 195 199 202 241 252 Deferred tax l iabilities 201 146 146 146 146

Net finance cost 53 52 44 90 87 1,311 1,185 1,185 2,385 2,385

Others 41 64 (3) (32) (10)

Change of working capital 570 196 (60) 100 (74) Equity

Tax paid (63) (133) (5) (115) (188) Shareholders' equity 2,365 2,440 2,676 4,775 5,271

Operating cash flow 1,061 535 479 1,006 919 Non-controlling interests 43 38 41 48 60

2,408 2,478 2,718 4,823 5,331

Capex (200) (279) (200) (300) (300)

Disposals 11 36 0 0 0 Total liabilities & equity 5,922 5,519 5,754 9,651 10,379

Interest received 7 4 4 6 8

Acquisition of subsidiaries (33) 0 0 (941) 0

Purchase of AFS financial investments (121) 0 0 0 0 Year-end Dec 31 FY15 FY16 FY17E FY18E FY19E

Others 51 313 0 0 0 Current ratio 1.6 1.6 1.7 1.8 1.9

Investing cash flow (284) 73 (196) (1,235) (292) Quick ratio 1.0 1.0 1.2 1.3 1.4

Change of borrowings (601) (441) (48) 1,150 0 A/C receivable turnover days 62 56 54 42 44

Change of pledged time deposits 139 2 0 0 0 A/C payable turnover days 77 83 82 76 86

Interest paid (50) (53) (48) (96) (95) Inventory turnover days 104 104 97 81 84

Dividend paid 0 (56) (56) (71) (163)

Share issue 7 14 12 6 6 Asset turnover 1.2 1.1 1.1 1.0 1.0

Financing cash flow (507) (534) (140) 989 (252) Total assets/total equity 2.5 2.2 2.1 2.0 1.9

Net gearing ratio (%) 27% 18% 9% 13% 5%

Net change of cash flow 271 53 143 760 375

Effect of forex change (11) (23) 0 0 0 ROE (%) 8.5 7.8 9.3 14.6 12.6

ROA (%) 3.2 3.3 4.2 7.1 6.3

Balance SheetIncome Statement

Cash Flow Statement

Financial Ratios

Nov 15, 2017

18

2018 Sector Outlook

Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months

Company ratings

Buy Stock expected to outperform benchmark by more than 15%

Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15%

Hold Expected stock relative performance ranges between -5% and 5%

Underperform Stock expected to underperform benchmark by more than 5%

Sector ratings

Positive Sector expected to outperform benchmark by more than 10%

Neutral Expected sector relative performance ranges between -10% and 10%

Cautious Sector expected to underperform benchmark by more than 10%

Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report.

Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited (“GF Securities (Hong Kong)”) and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2) GF Securities (Hong Kong) and/or its affiliated or associated companies do not have any investment banking relationship with the companies mentioned in this research report in the past 12 months. (3) Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the company mentioned in this report and has any financial interests or hold any shares of the securities mentioned in this report.

Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or recommendation for investment in, any securities. The research report is intended solely for use of the clients of GF Securities (Hong Kong). The securities mentioned in the research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of the research reports to any person in any jurisdiction that the circulation or distribution of such research report is unlawful. No representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness of the information contained in the research report. GF Securities (Hong Kong) accepts no liability for all loss arising from the use of the materials presented in the research report, unless is excluded by applicable laws or regulations. Please be aware of the fact that investments involve risks and the price of securities may be fluctuated and therefore return may be varied, past results do not guarantee future performance. Any recommendation contained in the research report does not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. The report is not to be taken in substitution for the exercise of judgment by respective recipients of the report, where necessary, recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in the research report. The points of view, opinions and analytical methods adopted in the research report are solely expressed by the analysts but not that of GF Securities (Hong Kong) or its affiliates. The information, opinions and forecasts presented in the research report are the current opinions of the analysts as of the date appearing on this material only which may subject to change at any time without notice. The salesperson, dealer or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentary or dealing strategy either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have different investment decision which may be contrary to the opinions expressed in the research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in securities mentioned in the research report. Recipients should be aware of relevant disclosure of interest (if any) when reading the report. Copyright © GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. © GF Securities (Hong Kong) Brokerage Limited. All rights reserved. 29-30/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: +852 3719 1111 Fax: +852 2907 6176 Website: http://www.gfgroup.com.hk

http://www.gfgroup.com.hk/

Documents

2018 Consumer Discretionary Sector Outlook · 11/15/2017 · towards the consumption of better quality products, the retail sales value of maternity and baby care products is expected