Greatview Aseptic Packaging

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1 Greatview Aseptic Packaging Initiating at Overweight - Riding the Solid Growth in Dairy Beverage Initiating coverage of Greatview Aseptic Packaging ( Greatview ) with an OW rating and Dec-14 PT of HK$5.50, implying potential upside of 14% over the current share price. With 13% market share, Greatview is the second-largest aseptic packaging manufacturer in China by volume and has been gradually gaining market share from its peers in the past several years. Growing aseptic packaging market, particularly in China. The highestend (highest-quality) use for boxboard in China is aseptic packaging, in particular for liquid dairy products (LDP) and non-carbonated soft drinks (NCSD), which strong demand has been shown. The China aseptic packaging market is expected to grow at a solid ~12% CAGR in 12-15E, according to Frost & Sullivan. Initiation Overweight 0468.HK, 468 HK Price: HK$4.77 Price Target: HK$5.50 China SMID-Caps Andrew Hsu AC Bloomberg JPMA AHSU <GO> Leon Chik, CFA (852) leon.hk.chik@jpmorgan.com Bloomberg JPMA CHIK <GO> J.P. Morgan Securities (Asia Pacific) Limited Market share gain from the market leader, Tetra Pak. Greatview s market share in the aseptic packaging industry in China has risen from 8% in 2008 to 13% in Greatview is making inroads in China as key customers, such as, China Mengiu Dairy looks to diversify its supplier base and search for lower pricing points. International ramp-up the swing factor. Greatview has slowly ramped up its production capacity in Germany. International sales are expected to reach ~15-20% of Greatview s revenue by FY15E, in our view. The utilization rate in China is likely to remain at ~65%, while that in Germany is likely to increase from the current 30% to 40%/50% in FY14/15E. YTD 1m 3m 12m Abs 13.8% 7.2% 2.4% 10.2% Rel 20.5% 7.7% -10.9% 10.9% Valuation, price target and risks. We are confident that Greatview can achieve stable GM in the China region in 2H13, which came in at a solid 33.5% in 1H13. Greatview s share price has rebounded by over 15% since early Sep (vs. a 2% rise in the HSI) and the stock is trading at 13x CY14E P/E, which is 12% lower than that of its global peers such as Amcor and Ball Corp at 14.9%. Our DCF-based Dec-14 of HK$5.5 implies CY15E P/E of 12.3x. Key risks to our rating and PT are a higher R&D costs and disappointing return from overseas business. Greatview Aseptic Packaging Co (Reuters: 0468.HK, Bloomberg: 468 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E FY15E Revenue (Rmb mn) 1,574 1,744 2,051 2,463 2,910 Net Profit (Rmb mn) EPS (Rmb) DPS (Rmb) Revenue growth (%) 35.7% 10.8% 17.6% 20.1% 18.2% EPS growth (%) 19.0% 9.7% (2.6%) 26.3% 21.4% ROCE 15.9% 16.3% 14.4% 16.4% 17.6% ROE 17.4% 18.0% 15.6% 17.5% 18.7% P/E (x) P/BV (x) EV/EBITDA (x) Dividend Yield 0.0% 2.2% 1.8% 2.3% 2.8% Source: Company data, Bloomberg, J.P. Morgan estimates. Company Data Shares O/S (mn) 1,334 Market Cap (Rmb mn) 5,001 Market Cap ($ mn) 821 Price (HK$) 4.77 Date Of Price 21 Oct 13 Free Float(%) 78.8% 3M - Avg daily volume (mn) M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) 1.4 HSCEI 1, Exchange Rate 7.75 Fiscal Year End Dec See page 18 for analyst certification and important disclosures, including non-us analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, 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.

2 Key catalysts for the stock price: Upside risks to our view: Downside risks to our view: Growing aseptic packaging market, particularly in China High barriers to entry for liquid dairy product Promising prospects for growth of the dairy sector Stronger-than-expected increase in the utilization rate of the Germany factory that leads to improving margins Rapid growth in the sale volume of the dairy product Higher demand of the aseptic packaging products in China Significant increase in R&D costs in an effort to catch up with the patents Slow progress made in the overseas markets Food safety scandal in some of its major customers Key financial metrics FY12A FY13E FY14E FY15E Valuation and price target basis Revenues (Rmb) 1,744 2,051 2,463 2,910 Our PT (Dec-14, DCF-derived) of HK$5.5 implies a forward P/BV Revenue growth (%) 10.8% 17.6% 20.1% 18.2% (CY15E) of 2.2x and implies a forward P/E of 12.2x (CY15E). EBITDA (Rmb) EBITDA margin (%) 26.1% 22.4% 22.9% 23.0% Tax rate (%) 21% 22% 21% 21% Net profit (Rmb) EPS (Rmb) EPS growth (%) 19.6% -2.6% 26.3% 21.7% One year forward P/E Band DPS (Rmb) BVPS (Rmb) Operating cash flow (Rmb mn) Free cash flow (Rmb mn) Interest cover (X) Net margin (%) 18.0% 14.9% 15.7% 16.2% Sales/assets (X) Debt/equity (%) 29.3% 24.9% 25.7% 26.3% Net debt/equity (%) NC NC NC NC ROE (%) 18% 16% 18% 19% Key model assumptions FY12A FY13E FY14E FY15E Sales volume (MM packs) PER(x) -1 std dev Avg +1 std dev ASP (Rmb/ pack) CoS (Rmb/ pack) Source: Bloomberg, Company data and J.P. Morgan estimates. Source: Bloomberg, Company data and J.P. Morgan estimates. Sensitivity analysis EBITDA EPS JPMe vs. consensus, change in estimates Sensitivity to FY13E FY14E FY13E FY14E EPS FY13E FY14E 1% chg in ASP 3.9% 3.9% 4.6% 4.5% JPMe old NA NA 1% chg in volume 0.9% 1.0% 1.1% 1.1% JPMe new % chg in LPB -1.4% -1.2% -1.6% -1.5% % chg 0% 0% 1% chg in polyethylene -0.5% -0.3% -0.5% -0.5% Consensus Source: Bloomberg, Company data and J.P. Morgan estimates. 12/10/2010 4/10/2011 8/10/ /10/2011 4/10/2012 8/10/ /10/2012 Source: Bloomberg, Company data and J.P. Morgan estimates. 4/10/2013 8/10/2013 Comparative metrics Company Name Mkt Cap P/E EV/EBITDA P/BV YTD Code Price (PT) $Mn FY13E FY14E FY13E FY14E FY13E FY14E Stock perf. AMCOR (OW) AMC AU 10.6 (9.9) 13, NA NA 31.4 BALL CORP (OW) BLL US (50) 7, ND PAPER (OW)* 2689 HK 6.2 (8.9) 3, LM PAPER (OW)* 2314 HK 5.38 (8) 3, SHANGHAI ZJ (NC) CH NA NA GREATVIEW (OW)* 468 HK 4.82 (5.5) CPMC HOLDINGS (NC) 906 HK NA NA 13.9 AMVIG HOLDINGS (NC) 2300 HK Average Average (global peers) Source: Bloomberg, Company data and J.P. Morgan estimates. Prices are as of 29 Oct

3 Investment summary Positive share price drivers The second-largest roll-fed aseptic packaging Aseptic packaging materials are multi-layered sheets which are used to protect food items, such as liquid dairy product (LDP) and non-carbonated soft drinks (NCSD). With a market share of ~13% (by sales volume) in China s aseptic packaging material industry in 2012, according to Frost & Sullivan, Greatview Aseptic Packaging ( Greatview ) is the second-largest roll-fed aseptic packaging materials provider in China, behind Tetra Pak (~67%). Another major player is SIG Combibloc, with ~10% market share. Growing aseptic packaging market, particularly in China The highest-end (highest-quality) use for boxboard in China is aseptic packaging, in particular for the dairy sector. While aseptic packaging is not as popular in North America, it is a larger market in Europe and Asia. A key driver of demand has been growth in China, particularly for LDP and NCSD, which tend to get packaged in aseptic solutions. In China, these end markets are expected to grow at a solid ~12% rate CAGR, 12-15E, according to Frost & Sullivan. Figure 1: Aseptic Packaging Is a Steady Growth Market, Driven by China Portion Packs, in Billions Source: Greatview, Frost & Sullivan. Market share gain from the leader, Tetra Pak Greatview s market share in the aseptic packaging industry in China has risen from 8% in 2008 to 13% in Take China Mengiu Dairy (2319 HK, HK$34, rated OW by Ebru Sener Kurumlu ), one of the key customers of Greatview, as an example. Mengniu currently has three major aseptic packaging suppliers, including Tetra Pak, Greatview and Compec. Seventy-five percent to 80% of Mengniu s aseptic packaging materials were used to be supplied by Tetra Pak, but the proportion has now lowered to 65% as Mengniu looks to diversify its supplier base and search for lower pricing points. Compec and Greatview, in the past, each supplied 10% of Mengniu's packaging needs. Greatview has taken shares from its competitors, now supplying 15%-20%. 3

4 High barriers to entry for liquid dairy product (LDP) Breaking down the China liquid paper board (LPB) market, the two key end markets are liquid dairy, which represents ~60% of the total market, and NCSD, which is ~40%. For liquid dairy, the LPB used is highly specialized, as the milk product inside of the package is difficult to keep fresh during transportation and storage, requiring certification by the LPB customer that the product meets its standards. The standards for NCSD are not quite as high as in liquid dairy, which appears to allow more flexibility around the suppliers that can be used. LDP accounts for over 94% of 1H13 sales of Greatview and the high barriers to entry for LDP can defend more players competing with Greatview. Figure 2: Liquid Dairy and Non-CSD Are the Key End Markets in China RMB, Billions Source: Greatview, Frost & Sullivan. Growth and competitive landscape of dairy sector both promising (The following is extracted from the report 'China Mengniu Dairy The consolidator published by Ebru Sener Kurumlu dated 19 Jun 2013) 4

5 We believe dairy sector is one of the major growth segments among China F&B space as it has: 1) largest market revenue pool among the staples space, 2) relatively low competitive intensity (only two or three major players with limited international competition); and 3) margin upside potential on the back of product mix upgrades. We expect dairy demand will at a worst case grow in line with GDP per capita growth and is likely to accelerate, given increasing awareness in nutrition and health benefits of milk. Figure 3: Dairy still growing at double digits from 2013F to 2017F Source: Euromonitor, J.P. Morgan estimates. Figure 4: Relatively low competitive intensity Source: Euromonitor. Figure 5: Sales per capita (US$) vs. GDP per capita (US$) Source: Euromonitor. 5

6 The volume growth assumptions of downstream liquid milk produced by China Mengiu Dairy made by our Consumer analyst, Ebru Sener Kurumlu, are as follow: 2H13E: +12.8% YoY; FY14/ 15E: +c13% YoY. Negative share price drivers and risks to our thesis Late starter in the patent game Participants in the aseptic packaging industry seek to protect various technologies through a wide array of patents. The greatest litigation risk present to Greatview is the patent infringement claim initiated by Tetra Pak, which is by far the market leader (67% market share in China) in the aseptic packaging industry. Greatview has a low number of patents compared to Tetra Pak (+5,000 patents). In the aseptic packaging industry, intellectual property litigation surrounding patents does occur and Greatview needs to continue its R&D effort. In July 2010, Tetra Pak filed a complaint against Greatview in the Düsseldorf district court in Germany, alleging patent infringement. The Court denied Tetra Pak s Claim in Dec 2011 and found Tetra Pak liable for the costs of the proceedings. Then, in Jan 2012, Tetra Pak filed a notice of appeal to Düsseldorf Higher Regional Court against the Judgment. Based on the communication with its legal advisor on German law, Tetra Pak made its assessment that Greatview may prevail in the defence against Tetra Pak s appeal. The appeal is still under process at the Court in Germany. Should Greatview lose the case, the maximum financial damage would be ~Rmb 22mn, according to the legal advisor. That said, we do not expect the patent issue to pose serious threat to Greatview's operational activities, as small players tend to be protected by the global competition law. In the past, Greatview has won lawsuits initiated by other players. Further, in Oct 2010, Greatview commenced opposition proceedings before the European Patent Office to invalidate the subject patent in question in Tetra Pak s infringement claim. In Nov 2012, the opposition division of EPO revoked the subject patent in its entirety. However, Tetra Pak has filed an appeal in Apr Further disclosure will be made as and when appropriate. Overseas markets will take time to bear fruit 16% of 1H13 sales are derived from the overseas market. Greatview has established a factory in Halle, Germany, which was chosen as the base of its overseas business because the location is in the center of the whole EU both geographically and economically. Moreover, Germany symbolizes high quality for manufacturing given their high standards. The plant started trial production in Jun 2012 and commercial production in Dec Greatview is expected to extend its geographical coverage to reach across the European region and other international markets upon the completion of ramp-up of production of the plant. Due to the company s short presence in those markets and potential lack of connections with non-prc clients, its overseas expansion plans may be unsuccessful. Dependent on a handful of customers Greatview relies heavily on a handful of beverage manufacturers, with its Top 2 customers, Mengniu and Yili, currently accounting for ~65% of its sales. 6

7 Over the past few years, there have occasionally been scandals on food safety issues in the dairy segment (most notably the melamine scandal in 2008). Negative sales growth in these segments can impact Greatview s sales given the exposure (~over 94% of 1H13 sales). Lack of major LPB suppliers Liquid paper boards (LPB) are the major raw materials of Greatview, accounting for ~45% of COGS for aseptic packaging materials in 1H13. There are only a handful of major LPB suppliers. We believe there are four major international suppliers to the key Chinese aseptic customers: Stora Enso, Korsnas (recently acquired by Billerud), Klabin and MeadWestvaco. As shown in the chart below, we believe these major suppliers represent the import share that is currently 47% of the market. Meanwhile, IP/Sun is listed as a local player because the board is produced domestically. We believe the other local players generally serve the NCSD market, as opposed to liquid dairy. Given the much higher market share compared to peers, Tetra Pak may have stronger purchasing power with LPB suppliers than Greatview. Figure 6: China Liquid Packaging Board Market Share 950k tons Source: International Paper. Share disposal by private equity investors Private equity investors Bain Capital and CDH each hold ~13% and 4% stakes of Greatview currently. We believe there are possibilities that both firms may offload more stakes in the future to release profits. Other shares are held by management (~20%), Fidelity (10.3%), Wiseland (9.7%) and Wellington (9.0%). Share offload by private equity investors could weigh on the stock s price performance. Roll-fed system compatibility risk The standard roll-fed filling machines made by Tetra Pak have historically been widely used by beverage producers. Greatview s products are designed specifically to be used with these machines. As a result, it is crucial that the products be compatible with the standard roll-fed filling machines used by customers. Should Tetra Pak alter its standard roll-fed filling machines, or launch new models, Greatview needs to continue to utilize the resources of its R&D Centres to maintain compatibility with the latest standard roll-fed filling machines. 7

8 Valuation and share price analysis DCF valuation Our Dec-14 price target is based on a DCF valuation that assumes a market risk premium of 6.0% and a risk-free rate of 4.2% (yield on 10-year government notes in China). We assume a beta of 1.2. Accordingly, we assume a WACC of 8.8%. We estimate free cash flow until 2015 and assume a terminal growth rate of 5.5%. The terminal growth is based on the annual growth rate expected in 2015 (the final year of the estimate period) subject to a minimum of 4% and a maximum of 7%, depending on the nature of the industry and the level of maturity in China. We also analyze the DCF price sensitivity to WACC, and the terminal multiple. Table 1: Base-case DCF analysis HK$ MM E 2014E 2015E Cash flow estimates Sales ,160 1,574 1,744 2,051 2,463 2,910 EBIT NOPAT Capex, net 0 0 (239) (102) (460) (270) (200) (200) (200) Depreciation Change in working capital 0 (51) (37) (205) (212) 4 (16) (123) (129) Free CF (excl. non-core)) (44) (59) (352) DCF Parameters Assumptions Liabilities as a % of EV 30% Terminal growth 5.5% WACC 8.8% Risk-free rate 4.2% Market risk 6.0% Enterprise NPV (10E-16E) 5,802 Beta Net cash (debt), current 152 Cost of debt 6.2% - Minorities (Market value) 0 +/- Other items 0 Implied exit P/E multiple (x) 11.0x = Equity value 5,954 / Number of shares 1,334 = Equity value per share (HK$) 5.5 Source Company data, J.P. Morgan estimates. Table 2: Sensitivity analysis based on WACC and perpetual terminal growth rate WACC Terminal growth rate % 5% 5.0% 5.5% 6.0% 6.5% 7.0% 8.1% % % % % % % Source: Company data, J.P. Morgan estimates. 8

9 Company background Greatview Aseptic Packaging (Greatview) is a manufacturer of roll-fed aseptic packaging materials. The company provides packaging materials to dairy companies and non-carbonated soft drink makers (less than 10% of sales in 1H13). With ~13% market share in the aseptic packaging market in China (as of FY12 according to Frost & Sullivan), Greatview is the second-largest player in China and has factories in Shandong, Gaotang, Inner Mongolia and Germany. Financials Sales: Greatview s market share in China (by sales volume) is expected to reach ~15% in FY15E, while Tetra Pak s to be narrowed from ~67% in 2012 to ~65% in 2015E, in our view. We expect domestic/international sales growth to register at +8%/+73% in 2H13E as Greatview slowly ramps up its production capacity in the Germany. According to management, international sales are expected to reach ~15-20% of Greatview s revenue in FY15, following the ramp- up of the German production plant, which is estimated to produce ~4bn packs/year when fully operational. The utilization rate in China is likely to remain at ~65% while that in Germany is likely to increase from the current 30% to 40%/50% in FY14E/15E. NCSD accounted for less than 5% of the sales in 1H13. Proportion of NCSD should remain low in 2H13 and has been reducing since 2010 due to lower margins in that segment. 1H13 results miss was partly because of lower-than-expected sales volume, as the group focused on maintaining its margin and ASP. We estimate that every 1% increase in ASP will lift FY13E/14E EPS by ~4.6%/ 4.5%. We also estimate that every 1% increase in volume will lift FY13E/14E EPS by ~1.1%/ 1.1%. Figure 7: Sales mix (China Vs International) Figure 8: Sales mix (Dairy vs NSDR) Source: Bloomberg. Source: Bloomberg. 9

10 Figure 9: Sales and GPM Source: Company data. Cost structure Breaking down the China Liquid paper board (LPB) market, the two key end markets are liquid dairy, which represents ~60% of the total market, and NCSD, which is ~40%. For liquid dairy, the LPB used is highly specialized, as the milk product inside of the package is difficult to keep fresh during transportation and storage, requiring certification by the LPB customer that the product meets its standards. The standards for NCSD are not quite as high as in liquid dairy, which appears to allow more flexibility around the suppliers that can be used. Figure 10: Liquid Dairy and Non-CSD Are the Key End Markets in China RMB, Billions Source: Greatview, Frost & Sullivan. Liquid paper board (LPB), which represents ~45% of the company s cost of sales, is the largest raw material component in the aseptic packs. The LPB market is niche, with only ~10 suppliers of high-quality LPB globally. The highest-quality LPB must be imported, requiring a lead time of 1-2 months for transport. The four major international suppliers to the key Chinese aseptic customers are Stora Enso, Korsnas, Klabin and MeadWestvaco (MWV), which are regarded as imports' in the chart below. Among the domestic players, IP/ Sun is the No. 1 player and is a joint venture between International Paper (55%) and Sun Paper Group (45%) begun in Oct

11 Figure 11: China Liquid Packaging Board Market Share 950k tons Source: International Paper. Unlike with Nine Dragon Papers& Lee& Man Paper, of which we can track the pulp prices, for Greatview the LPB market is relatively small market size and hardly discloses the public prices. In the figure below, we take 100 as the starting reference point for both LPB and pulp prices on 1/1/2011 and find that LPB prices did not have significant movement despite the volatility in pulp price from Jan-11 to Mar-13. Since most global suppliers of LPB utilize the pulp from their respective forest, the LPB price has been relatively stable. Figure 12: LPB Vs Pulp Price Index Source: International Paper; Bloomberg. LPB price has held up well since early 2011 and is expected to stay flat or edge up YoY modestly in FY13E/ 14E, according to J.P. Morgan s paper and packaging analyst, Phil Gresh. Meanwhile, the internal forecast made by Greatview is a 3-4% moderate appreciation YoY in LPB prices every year. That said, per-unit LPE cost may remain largely stable thanks to operating leverage. We estimate that every 1% increase in LPB price will lower FY13E/14E EPS by ~1.6%/ 1.5%. Polyethylene (PE) is the second-largest raw materials, representing ~17% of Greatview s cost of sales. The major suppliers are Dow Chemical, DuPont and LG 11

12 Chemical. 70% of the PE employed by Greatview is regarded as commodity, whose price movement is largely correlated to the oil prices. The rest is regarded as rare PE and is less vulnerable to oil price. We project the per-unit PE cost to be higher in FY13 vs. FY12 largely due to the spike in oil price in 2Q/3Q13. However, we may see a softer per unit PE in 4Q13 due to the significant supply in PE in the past month. We estimate that every 1% increase in polyethylene price will lower FY13E/14E EPS by ~0.5%/ 0.5%. Figure 13: PE prices (2008 -present) USD/mt Source: Bloomberg. Most of the cost is paid in US dollars and a substantial increase in USD/ CNY will affect the cost of Greatview. Other materials include aluminum, polymer and ink. Margins We are confident that the high margin of 33.5% in China business will remain in 2H13, but note that the international business may not break even until FY15, in our view. SG&A ratio and staff cost expense ratio should remain roughly flat in 2H13 and FY14. The higher-than-expected effective tax rate of 22.8% in 1H13 was owing to the loss in the international segment, and thus high tax rate may remain in FY14 until the international business starts to make profits. Capacity expansion Table 3: Historical capex 1H13 FY12 FY11 FY10 ~Rmb 104mn on Shandong plant (2nd production line), which should be completed in 2H13, and provide annual capacity of 4bn packs, according to mgmt. ~Rmb100mn on completion of the Germany plant and ~Rmb 170mn on the construction of Shandong plant ~RMB460.0 mn, on the Inner Mongolia factory and Germany production facilities ~RMB102.2 mn, on the Inner Mongolia factory Source: Company data, J.P. Morgan estimates. 12

13 Table 4: Developments and capacities of the production plants Halle, Germany (FY13 The European production facility started trial production in Jun 2012 and commercial capacity: 4 bn packs/ year) production in Dec Euro 50 mn was invested in the production lines, Helingeer, Inner Mongolia First and second production lines of the Helingeer factory in Inner Mongolia (FY13 capacity: 8 bn commenced production in 2H10 and 1H12 respectively. Rmb mn was packs/ year) invested in these production lines, Gaotang, Shandong (FY13 Greatview started construction of the third production line in Gaotang in 1H12. The capacity: 5.4 bn packs/ construction is scheduled to complete in the 2H13, bringing an additional annual year) production capacity of 4bn packs. Rmb 300 mn was invested in the production lines. Total capacity: 17.4 bn packs/ year Source: Company data. 13

14 Financials Table 5: Key assumptions Year-end Dec E 2014E 2015E Sales volume (MM packs) ASP (Rmb/ pack) CoS (Rmb/ pack) Utilization (%) 68% 56% 52% 53% 58% Source: Company data, J.P. Morgan estimates. Table 6: Revenue mix Rmb MM, year-end Dec E 2014E 2015E Domestic sales YoY 33.0% 10.2% 9.5% 13.0% 12.0% % of total 91.5% 91.0% 84.7% 79.7% 75.6% International sales YoY 72.6% 17.1% 73.0% 70.0% 50.0% % of total 8.5% 9.0% 13.2% 18.8% 23.8% Total 1,574 1,744 2,051 2,463 2,910 YoY 35.7% 10.8% 17.6% 20.1% 18.2% Source: Company data, J.P. Morgan estimates. 14

15 Table 7: P&L statement Rmb MM, year-end Dec E 2014E 2015E Total Revenues 1,574 1,744 2,051 2,463 2,910 YoY change (%) 10.8% 17.6% 20.1% 18.2% Cost of Goods Sold (1,099) (1,194) (1,477) (1,755) (2,058) YoY change (%) 38.9% 8.6% 23.8% 18.8% 17.3% Gross Profit YoY change (%) 28.7% 15.9% 4.3% 23.4% 20.3% Gross Margin 30.2% 31.6% 28.0% 28.8% 29.3% SGA (177) (195) (203) (244) (288) YoY change (%) 25.1% 10.6% 4.0% 20.1% 18.2% Other Income/(Expenses) Operating profit EBITDA EBITDA margin 23.4% 26.1% 22.4% 23.0% 23.2% Depreciation & Amortization (50) (59) (70) (78) (85) YoY change (%) 24.2% 17.8% 18.4% 11.5% 9.7% EBIT EBIT margin 20.2% 22.8% 19.0% 19.8% 20.3% Net Interest Expense (2) (0) Exceptional item Associates Gains/losses Net Income Before Taxes YoY change (%) 33.4% 25.7% -1.3% 24.7% 21.4% Tax (52) (82) (85) (101) (123) Effective Tax rate 16.6% 20.7% 21.7% 20.7% 20.7% Minority Interests (0) (0) (0) (0) (0) Net Income YoY change (%) 30.8% 19.6% -2.6% 26.3% 21.4% Net margin 16.7% 18.0% 14.9% 15.7% 16.2% Source: J.P. Morgan estimates, Company data. Table 8: Interim estimates Year to Dec (Rmb MM) 1H12 2H12 1H13 2H13E 1H14E 2H14E Total Revenues ,068 1,124 1,339 Gross Profit EBIT Net Income Before Taxes Net Income Diluted EPS (HK$) Ratios Revenue split 49.5% 50.5% 47.9% 52.1% 45.6% 54.4% GPM 32.2% 31.0% 27.4% 28.5% 28.6% 28.9% EBIT margin 23.0% 22.5% 18.8% 19.3% 19.0% 20.5% NPM 18.3% 17.7% 14.5% 15.4% 15.1% 16.2% YoY Revenue 19.6% 3.4% 14.0% 21.2% 14.3% 25.4% GP 22.5% 9.8% -2.8% 11.5% 19.2% 27.1% EBIT 37.7% 14.2% -6.9% 3.6% 15.7% 33.2% NP 35.0% 7.2% -10.0% 4.9% 19.3% 32.5% Source: J.P. Morgan estimates, Company data. 15

16 Table 9: Balance sheet Rmb MM, year-end Dec E 2014E 2015E Cash and Cash Equivalents Inventories Accounts receivable Other Current Assets 0 (0) (0) (0) (0) Total Current Assets 1,088 1,194 1,329 1,593 1,941 Intangible Assets Property and Equipment, Net 792 1,032 1,162 1,284 1,399 Other Assets Non-Current assets 985 1,212 1,342 1,464 1,579 Total Assets 2,073 2,405 2,671 3,057 3,520 Accounts Payable Other Accrued Expenses Taxes Payable ST and current LT debts Total Current Liabilities Long-term Debt Other Noncurrent Liability Noncurrent liabilities Total Liabilities Share capital Reserves and Surplus ,048 1,319 1,648 Total Shareholders' Equity 1,640 1,860 2,074 2,345 2,674 Minority Interest Total Shareholders' Equity 1,640 1,860 2,074 2,346 2,675 Total Liabilities and Equity 2,073 2,405 2,591 2,949 3,378 Source: Company data, J.P. Morgan estimates. Table 10: Cash flow statement Rmb MM, year-end Dec E 2014E 2015E EBIT Depreciation and Amortization Working Capital Changes (212) 4 (16) (123) (129) Tax Paid (2) (52) (82) (85) (101) Cash Flow From Operations (44) Capital expenditures Investments and others (460) (270) (200) (200) (200) Net Interest (86) (0) Cash Flow from Investing (487) (200) (400) (400) (400) Free Cash Flow (377) Dividends 0 (54) (100) (104) (129) Common issue Debt 102 (112) (85) 0 0 Other Financing 102 (166) (185) (104) (129) Cash Flow from financing (272) 28 (22) Change in cash Cash beginning (3) (0) Foreign exchange changes Cash at end E 2014E 2015E Source: Company data, J.P. Morgan estimates. 16

17 Greatview Aseptic Packaging: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Revenues 1,574 1,744 2,051 2,463 2,910 EBIT % change Y/Y 35.7% 10.8% 17.6% 20.1% 18.2% Depr. & amortization EBITDA Change in working capital (212) 4 (16) (123) (129) % change Y/Y 31.5% 23.9% 0.9% 22.9% 19.6% Taxes (44) (52) (82) (85) (101) EBIT Cash flow from operations % change Y/Y 32.7% 24.8% (1.7%) 24.9% 21.2% EBIT Margin 20.2% 22.8% 19.0% 19.8% 20.3% Capex (460) (270) (200) (200) (200) Net Interest (2) (0) Disposal/(purchase) Earnings before tax Net Interest (2) (0) % change Y/Y 33.4% 25.7% (1.3%) 24.7% 21.4% Other (27) 70 (0) (0) (0) Tax (52) (82) (85) (101) (123) Free cash flow (349) as % of EBT 16.6% 20.7% 21.7% 20.7% 20.7% Net income (reported) Equity raised/(repaid) % change Y/Y 30.8% 19.6% (2.6%) 26.3% 21.4% Debt raised/(repaid) 102 (112) (85) 0 0 Shares outstanding 1,224 1,334 1,334 1,334 1,334 Other EPS (reported) Dividends paid 0 (54) (100) (104) (129) % change Y/Y 19.0% 9.7% (2.6%) 26.3% 21.4% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Cash and cash equivalents EBITDA margin 23.4% 26.1% 22.4% 23.0% 23.2% Accounts receivable Operating margin 20.2% 22.8% 19.0% 19.8% 20.3% Inventories Net margin 16.7% 18.0% 14.9% 15.7% 16.2% Others Current assets 1,088 1,194 1,329 1,593 1,941. Sales per share growth 23.5% 1.7% 17.6% 20.1% 18.2% LT investments Sales growth 35.7% 10.8% 17.6% 20.1% 18.2% Net fixed assets 792 1,032 1,162 1,284 1,399 Net profit growth 30.8% 19.6% (2.6%) 26.3% 21.4% Total Assets 2,073 2,405 2,671 3,057 3,520 EPS growth 19.0% 9.7% (2.6%) 26.3% 21.4%. Liabilities Interest coverage (x) , Short-term loans Payables Net debt to equity (4.2%) (8.1%) (6.3%) (7.8%) (11.3%) Others Sales/assets Total current liabilities Assets/equity 122.8% 128.0% 129.0% 129.6% 131.0%. ROE 17.4% 18.0% 15.6% 17.5% 18.7% Long-term debt ROCE 15.9% 16.3% 14.4% 16.4% 17.6% Other liabilities Total Liabilities Shareholder's equity 1,640 1,860 2,074 2,346 2,675 BVPS (Rmb) Source: Company reports and J.P. Morgan estimates. 17

18 Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting calling , or ing with your request. J.P. Morgan s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call or research.disclosure.inquiries@jpmorgan.com. Greatview Aseptic Packaging (0468.HK, 468 HK) Price Chart Price(HK$) Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-australia) and U.K. small- and mid-cap equity research, each stock s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst s coverage universe can be found on J.P. Morgan s research website, Coverage Universe: Hsu, Andrew Tak Jun: China Lesso (2128.HK), TCL Communication Technology (2618.HK), TCL Multimedia (1070.HK) 18

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