Buy. Ozner Water International Holding Limited (L) New O2O marketing strategy, upgrade volume estimates, add to CL ACTION. Return Potential: 90%

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1 ACTION Buy Ozner Water International Holding Limited Return Potential: 90% Equity Research New O2O marketing strategy, upgrade volume estimates, add to CL Source of opportunity We continue to believe Ozner is poised to capture the growth opportunity in China s highly fragmented water purifier market, driven by rising environmental safety awareness. Ozner s new offline to online (O2O) marketing strategy (announced Oct 2014) and smart cup (Nov 2014) are positive developments which we expect to bear fruit from 1Q15. We increase forecast new water purifiers (business and household) by 3%/33%/58% to 194k/306k/ 444k in E considering production capacity and rapid business expansion. Our revised DCF-based 12-month target price of HK$6.0 implies 90% upside. We maintain our Buy rating and add to our Conviction List. Catalyst Ozner s smart cup will likely be a marketing bright spot in The smart cup developed in-house at Ozner will have water quality monitoring, health management and social functions, and has reached more than 200k preorders in just the first month. If this momentum continues, we see great potential to convert users into water purifier customers. Differentiated business model, open channel strategy avoids direct competition with traditional appliance leaders. Ozner is taking advantage of third-party social channels and marketing systems, harnessing WeChat, Weibo, apps and other internet tools to attract consumers in a positive O2O feedback loop. Its 12/12 Li Ka Tong promotion trial was very effective. Valuation We estimate non-gaap net profit of Rmb203/294/428/575 mn, for a CAGR of 40%. Given the firm s distinct lease and service model, we continue to use a DCF valuation method. Our 12-month target price increases to HK$6.0 (from HK$4.3), implying 30X 2015E P/E and 90% upside. Investment Profile Low Growth Returns * Multiple Volatility Percentile 20th 40th 60th 80th 100th Asia Pacific Consumer Peer Group Average High Growth Returns * Multiple Volatility * Returns = Return on Capital For a complete description of the investment profile measures please refer to the disclosure section of this document. Key data Current Price (HK$) month price target (HK$) 6.00 Market cap (HK$ mn / US$ mn) 5,534.1 / Foreign ownership (%) -- 12/13 12/14E 12/15E 12/16E EPS (Rmb) New EPS revision (%) EPS growth (%) EPS (dil) (Rmb) New P/E (X) P/B (X) EV/EBITDA (X) Dividend yield (%) ROE (%) CROCI (%) Price performance chart Key risks Worse-than-expected marketing strategy execution; lower-than-expected volume growth; intense industry competition. INVESTMENT LIST MEMBERSHIP Asia Pacific Buy List Asia Pacific Conviction Buy List 2.0 Jan-14 Apr-14 Jul-14 Oct-14 Ozner Water International Holding Limited (L) MSCI China (R) Share price performance (%) 3 month 6 month 12 month Absolute (6.8) Rel. to MSCI China (15.5) Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 1/13/2015 close. 49 Coverage View: Neutral Weibo Hu Goldman Sachs does and seeks to do business with companies +86(21) weibo.hu@ghsl.cn Beijing Gao Hua Securities Company Limited Joshua Lu joshua.lu@gs.com Goldman Sachs (Asia) L.L.C. Lin Tang +86(21) lin.tang@ghsl.cn Beijing Gao Hua Securities Company Limited The Goldman Sachs Group, Inc. 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. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S. Global Investment Research

2 Ozner Water International Holding Limited: Summary Financials Profit model (Rmb mn) 12/13 12/14E 12/15E 12/16E Balance sheet (Rmb mn) 12/13 12/14E 12/15E 12/16E Total revenue ,115.9 Cash & equivalents Cost of goods sold (129.5) (192.2) (265.5) (365.1) Accounts receivable SG&A (101.6) (119.7) (169.7) (231.5) Inventory R&D Other current assets Other operating profit/(expense) (6.5) (52.3) (66.8) (46.3) Total current assets , ,180.3 EBITDA Net PP&E , , ,576.5 Depreciation & amortization (14.3) (37.7) (55.5) (59.5) Net intangibles EBIT Total investments Interest income Other long-term assets Interest expense (1.8) (6.4) (2.1) (10.0) Total assets 1, , , ,910.2 Income/(loss) from uncons. subs Others Accounts payable Pretax profits Short-term debt Income tax (30.7) (31.5) (50.4) (87.7) Other current liabilities Minorities Total current liabilities ,302.7 Long-term debt Net income pre-preferred dividends Other long-term liabilities Preferred dividends Total long-term liabilities Net income (pre-exceptionals) Total liabilities ,309.3 Post-tax exceptionals Net income Preferred shares Total common equity , , ,600.9 EPS (basic, pre-except) (Rmb) Minority interest EPS (basic, post-except) (Rmb) EPS (diluted, post-except) (Rmb) Total liabilities & equity 1, , , ,910.2 DPS (Rmb) Dividend payout ratio (%) NM BVPS (Rmb) Free cash flow yield (%) -- (4.3) (5.9) (3.1) Growth & margins (%) 12/13 12/14E 12/15E 12/16E Ratios 12/13 12/14E 12/15E 12/16E Sales growth CROCI (%) EBITDA growth ROE (%) EBIT growth ROA (%) Net income growth ROACE (%) EPS growth Inventory days Gross margin Receivables days EBITDA margin Payable days EBIT margin Net debt/equity (%) 17.5 (40.9) (24.4) (15.4) Interest cover - EBIT (X) NM NM NM NM Cash flow statement (Rmb mn) 12/13 12/14E 12/15E 12/16E Valuation 12/13 12/14E 12/15E 12/16E Net income pre-preferred dividends D&A add-back P/E (analyst) (X) Minorities interests add-back P/B (X) Net (inc)/dec working capital EV/EBITDA (X) Other operating cash flow EV/GCI (X) Cash flow from operations Dividend yield (%) Capital expenditures (447.5) (616.5) (878.5) (1,031.6) Acquisitions 0.0 (5.0) Divestitures Others (67.0) 5.0 (0.7) (0.1) Cash flow from investments (514.4) (616.5) (878.5) (1,031.6) Dividends paid (common & pref) Inc/(dec) in debt (106.4) (106.4) Common stock issuance (repurchase) 0.0 1, Other financing cash flows (0.2) Cash flow from financing (106.4) Total cash flow (14.9) (368.7) Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates. Analyst Contributors Weibo Hu weibo.hu@ghsl.cn Joshua Lu joshua.lu@gs.com Lin Tang lin.tang@ghsl.cn Goldman Sachs Global Investment Research 2

3 Innovative social marketing strategy to attract consumers Wechat Li Ka Tong platform converting registered members to offline consumers In October 2014, Ozner announced its new O2O marketing strategy. Ozner plans to gain traffic through five channels, then convert them to water purifier users, leveraging its Wechat marketing platform. Ozner s Li Ka Tong reward system is the main platform that turns registered members into installed users. The December 12, 2014 Li Ka Tong sales promotion trial was very effective, with single-hour sales volume of over 1,000 units. Exhibit 1: Ozner O2O branding campaign strategies Source: Company data, Gao Hua Securities Research. The five main components of this strategy are as follows: 1. Converting business to home use Ozner began in the commercial water purifier market, first entering the household market in By 1H14, it had increased installed home units from 6,000 in 2011 to 126,000, and increased the percentage of total units installed in households to 23.4% from 5.6%. Assuming that every commercial water purifier covers employees, then its 414,000 commercial units (as of 1H14) potentially cover mn people, implying a penetration rate of just 1.5% for home units among its business customers. Starting in November 2014, the employees could register as Ozner WeChat members using QR codes, entering the Li Ka Tong platform. We believe there is significant potential to increase household user penetration among commercial users. 2. Public water bars Starting in November 2014, the company has been installing 1-2 sq m public water bars in areas where people congregate, improving brand awareness and visibility. In addition, it is attracting WeChat members through interactive means such as prizes and QR codes. In the two months since this program started, Ozner has placed almost 700 water bars in airports, supermarkets, and other similar areas. In the future, public water bars will be placed with cooperative partners, including more airports, hospitals, schools, and securities exchanges. Goldman Sachs Global Investment Research 3

4 Exhibit 2: Illustration of Ozner public water bars Source: Company material. 3. Brand partners Ozner has deepened cooperation with some commercial customers, and sees them as more than just water purifier users. For instance, Ozner can link its reward points with the customer s own loyalty scheme. We believe partnerships with health providers, property companies, financial institutions, etc. can help convert the clients of Ozner s commercial customers into Ozner WeChat members. 4. Smart cup strategy On November 21, 2014, Ozner held a press conference for its Smart Cup, allowing users to automatically register as Ozner members through the Ozner Clean Water app, adding them to the WeChat Li Ka Tong platform. This enables them to change and learn about Ozner equipment through membership marketing activities, while promoting the brand, strengthening word-of-mouth marketing, and increasing customer loyalty. Smart cup key functions include: Checking water quality, increasing brand confidence. The smart cup can immediately inform users of the water quality indices of different water sources, allowing users to observe directly and strengthening their confidence in Ozner and sense of security. We believe this will be more effective and convincing than TV advertising. Health management. The smart cup can track users water consumption, and set time and volume reminders based on user requirements. Social interactivity and sharing. Users can use the Ozner app and WeChat platform to interact socially and share. For instance, they can learn about friends and family members water consumption and compete with each other. In addition, users can control the smart cup with the app, send water reminders, and more. 5. Ozner experience stores In the long term, the company plans to open a few trial experience stores in tier 1 cities as a brand and product show room. Goldman Sachs Global Investment Research 4

5 Exhibit 3: Ozner s Smart Cup social interaction and sharing capabilities (an illustration) Source: Company material. Strong preorders highlight potential for smart cup in 2015 If Ozner successfully takes advantage of social marketing, we believe the smart cup could provide another boost to the business in Through social media, all users can potentially participate in its marketing, sharing benefits among members, and converting more smart-cup users into water purifier customers. For instance, if smart cup user A becomes a water purifier customer, they could enjoy a Rmb600 discount; in addition, if they send or give a new smart cup to user B, who then becomes a water purification customer, not only will B enjoy a discount of Rmb600, A will also receive a percentage commission. One month after the smart cup was announced, preorders had reached more than 200k. Exhibit 4: Smart cups set to be effective sales tool through WeChat-based viral marketing Rebate Distributor Water purifier leasing card Code of the smart cup will be connected to distributor s Li Ka Tong code Consumer A Smart water cup was sent as a gift Consumer B Lease water purifier Smart cup users could be effectively convert into water purifier users, so gifting of smart cup could also drive sales of water purifier Source: Gao Hua Securities Research. Goldman Sachs Global Investment Research 5

6 Differentiated business model, open channel strategy avoids direct competition with traditional home appliance leaders Many investors are concerned about the impact of Midea, Haier and other traditional home appliance majors entry into the water purifier market. We summarize our views on the competition landscape below: 1. All players have plenty of room for development in this highly fragmented and high-growth market The household water purifier market currently totals around Rmb30 bn, and is expected to exceed Rmb100 bn by 2017E with a CAGR of over 35%. However, none of the top ten firms has grossed sales revenue of over Rmb1 bn. The water purifier market is much more fragmented than other home appliance categories: data from ChinaIOL.com suggests a total market share of 85%, 61% and 55% for the top five producers of air conditioners, washing machines and refrigerators, respectively. Exhibit 5: The water purifier market is highly fragmented, with the top producer grossing less than Rmb1 bn of sales revenue Water purifier sales revenue of major producers, 2013 Rmb mn Midea Group Qinyuan Group A. O. Smith Ozner Group 3M Company Shenzhen Litree Shenzhen Angel Ecowater Systems Ltd. Canature Group Co., Ltd. Note: Ozner s sales revenue is based on its sales volume and retail price, different from the revenue reported in its financial data. Source: Company data, Gao Hua Securities Research. 2. No industry standard is available; market competition is undisciplined Currently, there is no national standard available for the water purifier market. The technical levels of the different producers vary greatly. Prices of water purifiers for sale on online platforms (such as Tmall.com and JD.com) range from several hundred to tens of thousands of Rmb, with more than 1,000 different brand names, highlighting a need for standards and discipline. Comments from consumers also widely diverge. Water purifiers are a special industry, as water matters to people s life and health. The speed and quality of after-sales service and the professional level of filter replacement will play important roles for a company s brand reputation and credibility in the long run. Low prices and aggressive marketing may help win market share in the short term, but only firms that value service will outperform in the long term, and may even succeed in crossselling products. Currently, many domestic and foreign brand names still have weak service capabilities, while Ozner has been managing its own service team. Goldman Sachs Global Investment Research 6

7 3. Differentiated channel layout Unlike conventional home appliance majors such as Midea or Haier, Ozner s distributors are only engaged to acquire clients and retain them for contract renewal, playing a role like that of an insurance agent. They are not responsible for purifier installation or after-sales service, nor do they face inventory pressure. In addition, Ozner s distributors earn higher gross margins than those of conventional home appliance companies. Therefore, they are highly incentivized to work exclusively for Ozner to expand their client base. Ozner s service team interacts directly with the clients for purifier installation, after-sales service, and return visits, etc., controlling all the accumulated client data in its own system. The flattened channel layout enables Ozner to better accommodate client requirements in the internet era. In contrast, transformation of channels and service systems will be costly for traditional home appliance majors. Raising 2014/15/16E new installations by 3%/33%/58% to 194k/306k/444k units We expect Ozner s O2O marketing strategy released last October to show results in 1Q15, and raise our 2014/15/16E installation assumption by 3%/33%/58% to 194k/306k/444k units accordingly. Given the seasonality of installations and thus delayed revenue our upward revision of revenue estimates is smaller in magnitude than that of our installation estimates. Exhibit 6: We raise our new installation assumptions for 2014E/2015E/2016E by 3%, 33% and 58% following the release of the firm s new marketing strategy Ozner Financial Summary 2014E 2015E 2016E 2017E (RMB mn) Year End Dec 31st 2013 New Old chg% New Old chg% New Old chg% New New water purifiers (units) 154, , , % 305, , % 443, , % 563,856 Corporate 95, , , % 150, , % 202, , % 250,000 Household 59,000 94,400 88, % 155, , % 241, , % 313,856 Total water purifiers (units) 463, , , % 963, , % 1,407,088 1,163, % 1,970,944 Corporate 371, , , % 621, , % 823, , % 1,073,500 Household 92, , , % 342, , % 583, , % 897,444 Revenue % % 1, % 1,517 Net income, GAAP % % % 557 Source: Company data, Gao Hua Securities Research. Goldman Sachs Global Investment Research 7

8 Exhibit 7: Even with our updated installation assumptions, Ozner s market share in the household subsector will only improve from 0.3% in 2014 to 0.9% in 2017E and 3% in 2029E Ozner (in CNY mn) E 2015E 2016E 2017E 2029E China households (mn) China urban households (mn) yoy growth 3.7% 3.6% 3.4% 3.3% 3.2% 3.0% 1.8% % of urban household 52% 53% 54% 55% 56% 57% 58% 68% China households that use water purifiers (mn) yoy growth 22.9% 15.4% 14.0% 12.8% 11.9% 5.2% Urban household penetration rate 21.9% 26.0% 29.0% 32.0% 35.0% 38.0% 62.0% Ozner Annual New Installment Forecast (household) 6,000 27,000 59,000 94, , , , ,000 yoy growth 118.5% 60.0% 65.0% 55.0% 30.0% 0.0% Number of Households that use Ozner purifiers 6,000 33,000 92, , , , ,444 6,692,290 yoy growth 178.8% 102.6% 83.6% 70.6% 53.8% 8.1% Ozner household market share in terms of units 0.1% 0.1% 0.3% 0.4% 0.6% 0.9% 3.0% Source: Company data, Gao Hua Securities Research. Exhibit 8: Summary of earnings estimates revisions Ozner Financial Summary 2014E 2015E 2016E 2017E (RMB mn) Year End Dec 31st 2013 New Old chg% New Old chg% New Old chg% New Revenue % % 1, % 1,517 Cost of goods sold % % % -502 Gross profit % % % 1,015 Operating expenses % % % -278 Operating income % % % 698 Net interest income/(expenses) % % % -7 Other non-operating income/(los % 10 0 na 10 0 na 5 Income before tax % % % 696 Provision for income tax % % % -139 Net income, GAAP % % % 557 Net income, non-gaap % % % 575 YoY chg % Sales 38.5% 35.9% 31.3% 4.6ppt 42.0% 32.8% 9.2ppt 43.7% 28.2% 15.5ppt 36.0% COGS 25.8% 48.4% 37.1% 11.3ppt 38.1% 32.3% 5.8ppt 37.5% 27.0% 10.5ppt 37.6% Gross profit 45.6% 30.0% 28.6% 1.4ppt 44.1% 33.0% 11.1ppt 46.9% 28.8% 18.2ppt 35.1% SG&A 71.5% 17.8% 14.1% 3.7ppt 41.8% 17.5% 24.3ppt 36.4% 27.9% 8.5ppt 20.0% Labor costs 24.3% 15.0% 15.0% 0.0ppt 29.7% 21.3% 8.4ppt 36.7% 31.5% 5.2ppt 24.2% Rental expenses 16.4% 12.7% 12.7% 0.0ppt 14.1% 14.1% 0.0ppt 13.8% 13.8% 0.0ppt 8.0% Operating income 35.5% 10.9% 10.8% 0.1ppt 50.3% 44.5% 5.9ppt 72.3% 44.3% 28.0ppt 47.6% Pretax income 48.0% 7.2% 6.9% 0.3ppt 50.8% 40.2% 10.6ppt 64.2% 41.9% 22.4ppt 42.8% Net income, GAAP 50.4% 8.1% 7.8% 0.3ppt 49.0% 38.6% 10.4ppt 62.2% 40.1% 22.1ppt 39.3% Net income, non-gaap 50.4% 33.0% 32.7% 0.3ppt 44.7% 36.2% 8.5ppt 45.3% 26.0% 19.3ppt 34.4% Margins Consolidated gross margins 67.8% 64.8% 66.4% -1.5ppt 65.8% 66.5% -0.7ppt 67.3% 66.8% 0.5ppt 66.9% SG&A / Sales 25.3% 21.9% 21.9% -0.1ppt 21.9% 19.4% 2.4ppt 20.7% 19.4% 1.4ppt 18.3% Operating margin 40.9% 33.4% 34.5% -1.1ppt 35.3% 37.6% -2.2ppt 42.4% 42.3% 0.1ppt 46.0% Pretax income 45.6% 36.0% 37.1% -1.2ppt 38.2% 39.2% -1.0ppt 43.7% 43.4% 0.3ppt 45.9% Net margin 38.0% 30.2% 31.2% -1.0ppt 31.7% 32.6% -0.8ppt 35.8% 35.6% 0.2ppt 36.7% Source: Gao Hua Securities Research. Goldman Sachs Global Investment Research 8

9 Still use DCF valuation; 12-month target price of HK$6.0 We continue to use the DCF method to value Ozner, mainly for the following reasons: 1. Under the company s distinctive lease and service model, the input cost of purifiers will be amortized over ten years, and rental for the first year will be much higher than that in subsequent years. This means in the initial stage, when the firm is growing fast, more installations will require higher capex, which often leads to both higher cash flow pressure and higher gross margins. Therefore, valuation metrics such as P/E will not be able to capture the long-term growth outlook and cash flow status, in our view. 2. Some investors worry that long periods of depreciation and amortization can affect the firm s real earnings, while the DCF method is not affected by this factor. We forecast non-gaap net profit in E of Rmb203/294/428/575mn, with CAGR of 40%. We derive a DCF-based 12-month target price of HK$6.0, implying 30X 2015E P/E and 90% potential upside. We maintain our Buy rating, and add the stock to our Conviction List. Exhibit 9: New water purifiers installation forecast Exhibit 10: We expect total number of water purifiers installed to reach over 10mn by , , , , , , , , ,000 0 New water purifiers installed (units) Total water purifiers installed (units) Corporate 12,000,000 Corporate Household 800,000 10,545,790 10,000,000 Household 700, ,000 8,000, ,000 6,000,000 6,692, ,000 4,000,000 3,853, ,000 2,000, E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Source: Gao Hua Securities Research. Source: Gao Hua Securities Research. Exhibit 11: DCF-based 12-month target price of HK$6.0 WACC 10.35% DCF Valuation (CNY mn) Equity component Total PV of CFs 2,702 Equity market premium 6.5% Terminal growth rate 2.5% Risk free rate 4.5% Terminal value 20,959 Beta 1.00 PV of terminal value 4,784 Cost of equity 11.0% Firm value 7,486 Debt component Net debt (799) Cost of debt 6.0% Minority interest 0 Tax rate 25.0% Implied value/ Equity value (CNY bn) 8.3 After-tax cost of debt 4.5% Implied value/ Equity value (HKD bn) 10.4 Long run capital structure Number of shares 1,751 Equity 90.0% Implied equity value per share (CNY) 4.7 Debt 10.0% Target price (HKD) 6.0 Source: Gao Hua Securities Research. Goldman Sachs Global Investment Research 9

10 Exhibit 12: Operating status implied by DCF valuation Ozner (in CNY mn) E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Sales ,116 1,517 1,991 2,492 3,022 3,576 4,059 4,499 4,988 5,514 6,078 6,659 7,242 7,829 EBIT ,111 1,323 1,541 1,721 1,868 2,046 2,249 2,478 2,717 2,954 3,189 Tax (6) (22) (31) (31) (50) (88) (139) (197) (276) (330) (386) (435) (476) (527) (584) (648) (716) (783) (851) Depreciation & amortisation ,110 1,265 1,427 1,593 1,765 1,941 2,117 2,289 2,459 Change in net working capital 42 (6) Capital expenditures & acquisition (185) (284) (447) (616) (878) (1,032) (1,177) (1,389) (1,567) (1,696) (2,002) (1,776) (1,867) (1,988) (2,276) (2,579) (2,820) (3,013) (3,195) Free cash flow to the firm (118) (158) (175) (251) (354) (248) (112) (43) ,126 1,165 1,203 1,302 1,449 1,605 % chg -34% -11% -44% -41% 30% 55% 62% 221% 364% 21% 168% 23% 17% 3% 3% 8% 11% 11% Discount period Discount factor PV of cash flows (318) (200) (81) (28) Sales Growth 183.9% 38.5% 35.9% 42.0% 43.7% 36.0% 31.3% 25.1% 21.3% 18.3% 13.5% 10.8% 10.9% 10.5% 10.2% 9.6% 8.8% 8.1% EBIT Margin 23.1% 41.9% 40.9% 33.4% 35.3% 42.4% 46.0% 45.4% 44.6% 43.8% 43.1% 42.4% 41.5% 41.0% 40.8% 40.8% 40.8% 40.8% 40.7% Net Margin 22.4% 35.0% 38.0% 30.2% 31.7% 35.8% 36.7% 35.1% 33.2% 32.7% 32.4% 32.1% 31.8% 31.7% 31.8% 32.0% 32.2% 32.4% 32.6% Capex to sales 180.6% 97.9% 111.2% 112.7% 113.1% 92.5% 77.6% 69.7% 62.9% 56.1% 56.0% 43.8% 41.5% 39.9% 41.3% 42.4% 42.3% 41.6% 40.8% Depreciation as % of Sales 7.0% 11.5% 17.1% 28.7% 31.5% 31.1% 30.6% 30.2% 30.4% 30.7% 31.0% 31.2% 31.7% 31.9% 32.0% 31.9% 31.8% 31.6% 31.4% Change in net working capital as % of sales 41.3% -2.2% 17.4% 10.4% 7.2% 4.7% 2.8% 1.9% 1.0% 0.5% 0.8% 0.1% 0.3% 0.0% 0.2% 0.2% 0.0% 0.0% 0.0% Working capital as % of sales -2.9% 13.6% 7.4% 2.2% -0.2% -1.0% -0.2% -0.5% -0.1% 0.4% 0.1% 0.5% 0.5% 0.7% 0.7% 0.7% 0.8% 0.9% 1.0% Source: Company data, Gao Hua Securities Research. Exhibit 13: Global peers valuation Country Ticker Name Mkt Cap As of Trading P/E PEG EV/EBITDA P/B ROE 9-Jan Ccy CY14E CY15E 14E P/E CY14E CY15E CY14E CY15E CY14E CY15E US$m L.C. (X) (X) CAGR (X) (X) (X) (X) (X) (X) CHINA SZ ZHEJIANG SUPOR-A 1, CNY % 18% CHINA SZ JOYOUNG CO -A 1, CNY % 17% CHINA SZ HANGZHOU ROBAM-A 2, CNY % 25% CHINA SZ XIAMEN COMFORT-A CNY % 11% CHINA SZ VATTI CORP LTD-A CNY % 21% Small appliances Median % 18% Average % 18% BRITAIN PNR PENTAIR PLC 12, USD % 15% SOUTH KOREA KS COWAY CO LTD 5,727 80, KRW % 28% UNITED STATES AOS SMITH (A.O.)CORP 4, USD % 16% JAPAN 6370.T KURITA WATER IND 2,399 2, JPY % 6% SINGAPORE HYF HYFLUX LTD SGD % 1% JAPAN 6788.T NIHON TRIM CO 194 2, JPY % 10% CHINA SZ SHANGHAI CANAT-A CNY n.a n.a. n.a n.a. n.a. Water treatment Median % 13% Average % 13% Overall Median % 16% Average % 15% CHINA 2014.HK OZNER WATER HKD % 14% Source: Goldman Sachs Global Investment Research (for Ozner, Pentair and A.O. Smith), Bloomberg consensus estimates for other stocks (Not Covered). Goldman Sachs Global Investment Research 10

11 Disclosure Appendix Reg AC I, Weibo Hu, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends. Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. GS SUSTAIN GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the environmental, social and governance issues facing their industry). Disclosures Coverage group(s) of stocks by primary analyst(s) Weibo Hu: Asia Pacific Media, Hong Kong/China Consumer. Joshua Lu: Asia Pacific Consumer and Retail, Asia Pacific Media, Hong Kong/China Consumer. Asia Pacific Consumer and Retail: Ace Hardware Indonesia, Amorepacific, Biostime International Holdings Limited, China Foods, China Modern Dairy Holdings, China Resources Enterprise, China Shengmu Organic Milk Limited, China Yurun Food Group, CJ CheilJedang, E-Mart, Far Eastern Department Stores, Greatview Aseptic Packaging Company, GS Retail Co., Hengan International, Huishan Dairy, Hyundai Department Store, KT&G, LG Household & Healthcare, Lotte Shopping, Matahari Department Store, Mengniu Dairy, Mitra Adiperkasa, Orion, PChome Online Inc, President Chain Store, PT Gudang Garam Tbk, PT Indofood CBP Sukses Makmur, PT Indofood Sukses Makmur Tbk, PT Kalbe Farma Tbk, PT Unilever Indonesia Tbk, Shinsegae, Stella International Holdings, Sun Art Retail Group, Taiwan FamilyMart Co Ltd, Tingyi (Cayman Islands) Holdings, Tsingtao Brewery (A), Tsingtao Brewery (H), Uni-President China Holdings Ltd., Uni-President Enterprises, Want Want China Holdings, WH Group Ltd., Yue Yuen Industrial. Asia Pacific Media: 58.com Inc., Alibaba Group Holding Ltd, Astro Malaysia Holdings Berhad, Autohome Inc, Baidu.com, Inc., Changyou.com, Ctrip.com International, Info Edge India Ltd, Jumei International Holding Limited, Just Dial Ltd, Makemytrip Ltd, New Oriental Education & Technology, Nord Anglia Education, Inc., Qihoo 360 Technology Co. Ltd., Qunar.com, SINA Corporation, Sohu.com, SouFun Holdings Limited, TAL Education Group, Tarena International, Inc., Television Broadcasts, Tencent Holdings, Vipshop Holdings Limited, Weibo Corporation, Xueda Education Group, Youku Tudou Inc.. Hong Kong/China Consumer: Anta Sports Products, Belle International Holdings, Better Life Commercial Chain Share Co., Bosideng International Holdings, Chow Sang Sang Holdings, Chow Tai Fook Jewellery Group, Daphne International Holdings, Esprit Holdings, Fujian New Hua Du Supercenter Co., Golden Eagle Retail Group, Gome Electrical Appliances Holding, Hengdeli Holdings Ltd., Intime Retail (Group) Company Limited, Lao Feng Xiang Co., Li & Fung, Li Ning Company, Lifestyle International Holdings, Luk Fook Holdings International Ltd., Maoye International Holdings, Ozner Water International Holding Limited, Sa Sa International Holdings Limited, Samsonite International SA, Suning Commerce Group Co Ltd., Yonghui Superstores, Zhejiang Ming Jewelry Co., Zhongbai Holdings Group Co.. Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs has received compensation for investment banking services in the past 12 months: Ozner Water International Holding Limited (HK$3.16) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Ozner Water International Holding Limited (HK$3.16) Goldman Sachs had an investment banking services client relationship during the past 12 months with: Ozner Water International Holding Limited (HK$3.16) Goldman Sachs had a non-securities services client relationship during the past 12 months with: Ozner Water International Holding Limited (HK$3.16) Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: Ozner Water International Holding Limited (HK$3.16) A director and/or employee of Goldman Sachs is a director: Ozner Water International Holding Limited (HK$3.16) Goldman Sachs Global Investment Research 11

12 Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 33% 54% 13% 44% 38% 32% As of January 1, 2015, Goldman Sachs Global Investment Research had investment ratings on 3,483 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below. Price target and rating history chart(s) Stock Price Currency : Hong Kong Dollar Goldman Sachs rating and stock price target history Stock Price Jul 21 B F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2014. Rating Covered by Weibo Hu, Price target as of Jul 21, 2014 Index Price Price target at removal Not covered by current analyst MSCI China The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets. Regulatory disclosures Disclosures required by United States laws and regulations See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities. The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at Additional disclosures required under the laws and regulations of jurisdictions other than the United States The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined in the Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act, unless otherwise agreed by Goldman Sachs. In producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other meetings hosted by the issuers the subject of its research reports. In some instances the costs of such site visits or meetings may be met in part or in whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific circumstances relating to the site visit or meeting. Brazil: Disclosure information in relation to CVM Instruction 483 is available at Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman Sachs Canada Inc. is an affiliate of The Goldman Sachs Group Inc. and therefore is included in the company specific disclosures relating to Goldman Sachs (as defined above). Goldman Sachs Canada Inc. has approved of, and agreed to take responsibility for, this research report in Canada if and to the extent that Goldman Sachs Canada Inc. disseminates this research report to its clients. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited. Japan: See below. Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its affiliates are neither "registered banks" nor "deposit takers" (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This research, and any access to it, is intended for "wholesale clients" (as defined in the Financial Advisers Act 2008) unless otherwise agreed by Goldman Sachs. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number: W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Conduct Authority, should read this Goldman Sachs Global Investment Research 12

13 research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request. European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at which states the European Policy for Managing Conflicts of Interest in Connection with Investment Research. Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer registered with the Kanto Financial Bureau under registration number Kinsho 69, and a member of Japan Securities Dealers Association, Financial Futures Association of Japan and Type II Financial Instruments Firms Association. Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance Company. Ratings, coverage groups and views and related definitions Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded. Global product; distributing entities The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd (ABN ); in Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; in Canada by either Goldman Sachs Canada Inc. or Goldman, Sachs & Co.; in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union. European Union: Goldman Sachs International authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, has approved this research in connection with its distribution in the European Union and United Kingdom; Goldman Sachs AG and Goldman Sachs International Zweigniederlassung Frankfurt, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany. General disclosures This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC ( Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analyst's published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analyst's fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. Goldman Sachs Global Investment Research 13