Noodles Recovered, but Challenges in Beverages Remain

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1 - Consumer Sector-Food & Beverage Equity Research 股票研究 Company Report: 公司报告 : 康师傅 (00322 HK) Barney Wu 吴宇扬 (86755) wuyuyang@gtjas.com Noodles Recovered, but Challenges in Beverages Remain 方便面复苏, 但饮料挑战依旧 公 司 报 告 证 券 研 究 报 告 消费行业 食品饮料 Equity Research Report Company Report Tingyi s results beat expectations. Tingyi's revenue increased 5.9% YoY to RMB15,037 million. Instant noodles sales and beverage sales grew by 8.5% YoY and 4.6% YoY, respectively. Tingyi s gross margin was up 1.6 ppt YoY to 29.7%, thanks to product mix trade-up and product price adjustments. Due to lower distribution expenses and lower effective tax rate, the Company's shareholders profit increased 64.3% YoY to RMB712 million. If one-off income and losses were excluded, core shareholders profits for instant noodles and beverages increased 54.4% YoY and 158.7% YoY, respectively. Instant noodles continued to recover, but challenges in beverages remain. China's instant noodles market maintained strong recovery in, with sales volume growth of 7.5% YoY. In order to regain market share in bottled water, the Company is moving heavily into the mineral water market. Tingyi is expanding its advertising expenses and leveraging new media to connect with young customers. Produce 101 is providing huge exposure for Tingyi. Due to the Company s light asset strategy, it may be routine for the Company to dispose of idle capacity. We raise our TP for Tingyi to HK$16.50 due to better earnings forecasts and surging valuation of the F&B sector. However, we believe that there is still uncertainty in its beverage business, mainly from the high base, acceptance on price adjustments of beverages and delays in rollout of new premium RTD tea. Therefore, we raise TP to HK$16.50 but maintain the Company s rating at "Neutral". The new TP represents 33.1x 2018 PER, 29.3x 2019 PER and 26.6x 2020 PER. 康师傅 2018 年第 1 季度业绩好于预期 康师傅 2018 年第 1 季度收入同比增长 5.9% 至人民 币 15,037 百万 方便面收入和饮料收入分别同比增长 8.5% 和 4.6% 由于产品组合优化和产 品提价, 康师傅 2018 年第 1 季度毛利率同比提升 1.6 个百分点至 29.7% 因为更少的分销费 用和更低的有效税率, 公司股东净利同比增长 64.3% 至人民币 712 百万 如果不计入一次性 的收入和损失, 其方便面业务和饮料业务的核心股东净利分别同比增长 54.4% 和 158.7% 方便面持续复苏, 但饮料挑战依旧 中国方便面市场在 2018 年第 1 季度维持强劲复苏, 销量 同比增长 7.5% 为了重新夺回瓶装水市场份额, 公司正大力进军矿泉水市场 康师傅正提高 其广告费用支出, 并利用新媒体加强与年轻消费者的联系 创造 101 正在为康师傅取得巨大 的关注度 因为轻资产战略, 处置闲置资产可能对于公司来说将会成为常规性的行为 因为更高的盈利预测和上升的行业估值, 我们上调康师傅目标价至 港币 但我们认为其 饮料业务仍然存在不确定性, 主要来自高基数, 饮料价格调整的接受程度和延迟推出新的即饮 茶产品 因此我们上调目标价至 港元但维持公司评级在 中性 新的目标价相当于 33.1 Rating: Neutral Maintained 评级 : 中性 ( 维持 ) 6-18m TP 目标价 : HK$16.50 Revised from 原目标价 : HK$15.50 Share price 股价 : Stock performance 股价表现 [Table_PriceChange] Change in Share Price HK$ 倍,29.3 倍和 26.6 倍 2018 年,2019 年和 2020 年市盈率 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 股价变动 Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. Share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 Source: Bloomberg, Guotai Junan International. 3 M 3 个月 1 Y 1 年 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) (10.0) % of return (20.0) May-17 Aug-17 Nov-17 Feb-18 May-18 HSI TINGYI 中外康师运傅输 2016A 55,579 1, (30.3) A 58,954 1, F 61,904 2, F 65,268 2, F 68,690 2, [Table_BaseData] Shares in issue (m) 总股数 (m) 5,616.6 Major shareholder 大股东 Ting Hsin 33.8% Market cap. (HK$ m) 市值 (HK$ m) 96,380.9 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 6,807.1 FY18 Net gearing (%) FY18 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 (HK$) / FY18 Est. NAV (HK$) FY18 每股估值 ( 港元 ) 17.2 Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 10

2 Tingyi Quarterly Results Review Tingyi's revenue growth was better than expected thanks to strong recovery of instant noodles. In, the Company s revenue increased 5.9% YoY to RMB15,037 million. Tingyi s instant noodle sales continuously improved, which grew by 8.5% YoY RMB6,308 million in, mainly driven by high-end noodles sales. The Company's beverage sales recorded moderate growth, up 4.6% YoY in, mainly contributed by growth of RTD tea and carbonated drinks. Tingyi s gross margin was up 1.6 ppt YoY to 29.7%, thanks to product mix trade-up and product price adjustments. As the Company is continuously optimizing its promotion expenses on channels, its distribution expenses to sales ratio was down 0.25 ppt YoY to 18.2%. Tingyi s core profit beat market consensus and our expectation. Some of Tingyi's plants recorded losses in previous years, but these losses did not deduct tax expenses due to Chinese tax laws, accruing temporary tax differences. When these plants started to make profit in, temporary tax differences were reversed to offset current tax in. Together with lower tax rate on disposal gain, the Company recorded a much lower effective tax rate, down 13.6 ppt YoY from 37.2% in to 23.6% in. The Company recorded income of around RMB420 million on activation on assets, while recorded impairment losses of around RMB248 million and RMB287 million on instant noodles and beverage businesses, respectively. If relevant income and losses were excluded, Tingyi s core EBITDA rose 12. YoY to RMB1,941 million, and core shareholders profit on instant noodles and beverages increased 54.4% YoY and 158.7% YoY, respectively. If including relevant income and losses, Tingyi s EBITDA grew 4.8% YoY to RMB1,816 million, while shareholders profit increased 64.3% YoY to RMB712 million. Table-1: Tingyi s Quarterly Results Review Income Statement RMB mn YoY YoY Turnover 14,198 15, % 55,579 58, % Cost of sales -10,217-10, % -38,201-41, % Gross Profit 3,981 4, ,378 17, % Other net income Distribution costs -2,612-2, % -12,070-11, % Administrative expenses % -2,044-2, % Other operating expenses % -1,116-1, % Operating Profit % 2,856 3, % Finance costs, net % % Share of results of associates % % Profit before tax % 2,434 3, % Taxation % -1,051-1, % Profit after tax % 1,382 2, % Minority interests % Shareholder's Profit % 1,162 1, % EPS (RMB) % Core EBIT* 804 1, % Core PAT* % Gross Margin % 1.6 ppt 31.3% 29.4% -1.9 ppt Operating Margin 5.7% 6.6% 0.9 ppt 5.1% 6.4% 1.2 ppt PAT Margin 3.3% 4.8% 1.4 ppt 2.5% 3.8% 1.3 ppt Net Margin 3.1% 4.7% 1.7 ppt 2.1% 3.1% 1 ppt Source: the Company, Guotai Junan International. Note: Excluded effects of activation on assets and provision of impairment on machinery and equipment. See the last page for disclaimer Page 2 of 10

3 Table-2: Tingyi s Segment Results Breakdown Segment Revenue RMB mn YoY YoY Segment revenue Instant Noodle 5,811 6, % Beverage 7,982 8, % Instant Food & Others % Total 14,198 15, % Gross profit Instant Noodle 1,612 1, % Beverage 2,247 2, % Instant Food & Others % Total 3,981 4, EBIT Core EBIT* Instant Noodle % % Beverage % % Instant Food & Others % % Total % 804 1, % Net profit Core Net Profit Instant Noodle % % Beverage % % Instant Food & Others Total % Gross margin Instant Noodle 27.8% 30.3% 2.5 ppt Beverage 28.2% 29.3% 1.2 ppt EBIT margin Core EBIT Margin* Instant Noodle 8.3% 8.9% 0.6 ppt 8.3% 12.5% 4.2 ppt Beverage ppt % 0.4 ppt Net margin Core Net Profit Instant Noodle 6.8% ppt 6.8% 9.5% 2.7 ppt Beverage 0.5% -0.6% -1.1 ppt 0.5% 0.7% 0.2 ppt Source: the Company, Guotai Junan International. Note: Excluded effects of activation on assets and provision of impairment on machinery and equipment. See the last page for disclaimer Page 3 of 10

4 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Key Takeaways from Tingyi's Reverse Roadshow China's instant noodles market maintained recovery in. According to Nielsen, in, China s instant noodles market maintained its recovering trend. China's instant noodles sales volume growth recorded 7.5% YoY, while sales value experienced YoY growth of 11.9%, the highest figure in recent years. Favored by market recovery and a leading position, Tingyi s instant noodles business continuously improved, mainly driven by premium instant noodles sales. We believe that instant noodles possess unique advantages in the competition with O2O food delivery platforms, including: 1) price advantages as a lower amount of coupons are currently provided by O2O delivery platforms, 2) fresh taste compared to food turning cold with delivery food, and 3) customers' food safety concerns over non-licensed restaurants. These irreplaceable characteristics of instant noodles enable them to regain growth. Thanks to the Company's leading position in the instant noodles market, its price adjustments have been relatively smoothly accepted by customers and consumers, which contributed more profit to the Company. Figure-1: China's Instant Noodles Retail Sales Growth Figure-2: Tingyi's Instant Noodles Sales Growth 15% Value Volume 11.9% % Tingyi's Instant Noodles Sales Growth in 7.5% 30. 5% 3.6% % 0.3% % -5% -2.8% 0. Premium High-end Mid-end -6.4% -5.7% % Source: the Company, Guotai Junan International. Figure-3: Instant Noodles Market Share by Volume 6 Figure-4: Instant Noodles Market Share by Value % 4 Uni-President 统一 3 Hualong 华龙 Baixiang 白象 19.3% 2 9.7% 5.3% Uni-President 统一 Hualong 华龙 Baixiang 白象 49.9% 21.3% 8.5% 3.9% Moving heavily into the mineral water market. As Farmer's Spring and Yibao have solidly dominated the market of bottled water priced at RMB2, the Company's brand Youyue has not yet achieved satisfactory performance. Moreover, the Company has raised the retail price of its low-end bottled water from RMB1 to RMB1.5, but the market has not accepted the adjustment, resulting in a decline in the Company's bottled water sales and market share. With this in mind, Tingyi is strategically launching into the market of mineral water priced at RMB3, by introducing Hanyangqiu ( 涵养泉 ) to the national market, which was only sold in Disneyland previously. The Company is currently primarily marketing Hangyangqiu in key cities to test the market, but will launch the product nationwide afterwards. Tingyi acquired four mineral water resources located in Jilin, Anhui, Guangdong and Sichuan. The Company plans to bid more mineral water resources to cover national selling networks, which will result in higher capital expenditure and market expenses. In the market of bottled water priced at RMB3, the number of competitors is fewer, and the Company owns the most mineral water resources in China, which are limited natural resources, so we expect that the Company's success chances on bottled water priced at RMB3 is higher than bottled water priced at RMB2. See the last page for disclaimer Page 4 of 10

5 1Q15 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Company Report 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Figure-5: Hanyangqiu ( 涵养泉 ) Figure-6: Cooperation with Xinhuanet Source: the Company. Source: Xinhuanet. Uncertainties exist in beverage business. Last year was a big year for China's beverage sales due to favorable weather conditions, resulting in a high comparable base for this year, which indicates uncertainty for Tingyi's beverage sales this year. In addition, the Company has raised the price of juice and bottled water and downsized RTD tea from 550 ml to 500 ml in, but whose acceptance has not been tested by market. And its major competitor in the market of bottled water priced at RMB1 has not raised selling price, as a result, its sales of bottled water priced at RMB1 was under pressure. The effect of the Company's price adjustments hugely depends on its competitors' reactions, which creates uncertainty. Moreover, in order to drive sales team focus on the promotion of Hanyangquan, the Company is going to delay the plan of rollout of new premium RTD tea product, which may lead to delays. Figure-7: RTD Tea (including milk tea) Market Share by Volume Figure-8: RTD Tea (including milk tea) Market Share by Value Uni-President 统一 Farmer's Spring 农夫山泉 Wahaha 娃哈哈 48.3% Uni-President 统一 Farmer's Spring 农夫山泉 Wahaha 娃哈哈 % % % 3.6% % 3.5% Figure-9: Diluted Juice Market Share by Volume Figure-10: Bottled Water Market Share by Volume 4 35% 3 25% 2 15% Coca Cola 可口可乐 Wahaha 娃哈哈 Uni-President 统一 Huiyuan 汇源 37.5% % 45% 35% 25% 15% Farmer's Spring 农夫山泉 Yi Bao 怡宝 Jingtian 景田 Coca Cola 可口可乐 26.5% 21.3% 10.8% 9.9% 5% 3.4% 2.2% 5% -5% 6.3% See the last page for disclaimer Page 5 of 10

6 Leveraging new media to connect with young customers. The Company has saved a considerable amount in production costs and promotion expense through supply chain rationalization, intelligent production, delayering, as well as refined organization on logistics systems. But in order to maintain its exposure and connection with young consumers, the Company is raising expenses on advertisements, especially on new media platforms such as popular TV series and reality shows. Tingyi has deeply implanted its products into popular TV series, which makes a profound impression on customers. The Company has enough foresight to sponsor Produce 101, which has become a phenomenal reality show in China with around 3 billion total views so far, and overwhelming discussions on Weibo. Produce 101 has provided huge exposure for Tingyi's RTD tea and connected its image with hot fashion idols. We believe that Tingyi is capable of understanding and catching the trend among young people. Tingyi is going to raise its advertisement to promotion expense ratio to 50:50, and further to 60:40 in the future. Figure-11: Tingyi's Instant Noodles on Old Boy ( 老男孩 ) Figure-12: Tingyi's RTD Tea Shown on Produce 101 ( 创造 101) Source: Old Boy, Guotai Junan International. Source: Produce 101, Guotai Junan International. It may be routine for the Company to dispose of idle capacity. The Company recorded income of around RMB420 million on activation on assets in Tianjin, including plants and staff dormitories. As the Company is continuously implementing light asset strategy and logistics efficiency improves, It may be routine for the Company to dispose of idle capacity. The management expects that there will be more than RMB500 million-rmb1,000 million income from activation on assets. Tingyi may record impairment on assets in the same period as disposal, in order to offset the effects of one-off items on the financial statements. Pressure on raw material prices mainly comes from packaging costs. As at May 30, 2018, YTD prices of flour, palm oil and sugar declined 1.4% YoY, 18.1% YoY and 11.9% YoY, favorable for Tingyi. Pressure on raw materials prices mainly comes from packaging costs. As at May 30, 2018, the YTD price of PET rose 10.7% YoY driven by surging oil price. Cardboard prices maintained rising momentum due to limited upstream supply. Generally, we expect that raw material prices may not be a major concern for Tingyi. Figure-13: Palm Oil price Figure-14: Flour price 3,600 3,400 Palm Oil Price (MYR/Metric Tonne) Flour Price (RMB/kg) 3,200 3, , ,600 2, ,200 2,000 1,800 1,600 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Source: MDEX Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Source: the Ministry of Agriculture of China. See the last page for disclaimer Page 6 of 10

7 Figure-15: Cardboard Price RMB/ton 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Source: WIND. Cardboard: Guangdong: Jiulong (126g) Cardboard: Jiangsu, Zhejiang: Sea Dragon (120g) Cardboard: Jiangsu, Zhejiang: Sequoia (120g) Cardboard: Tianjin: Sea Dragon (140g) Figure-16: Corrugated Paper RMB/ton Corrugated Paper: Guangdong: Jiulong (100g) Corrugated Paper: Guangdong: Sea Dragon (100g) 7,000 Corrugated Paper: Jiangsu and Zhejiang: Jiulong (100g) Corrugated Paper: Tianjin: Jiulong (100g) 6,000 5,000 4,000 3,000 2,000 1,000 0 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Source: WIND. Figure-17: PET price Figure-18: Domestic Sugar price 8,500 PET Resin Price (RMB/Tonne) 7,400 Sugar Price (RMB/Tonne) 8,000 6,900 7,500 6,400 7,000 5,900 6,500 5,400 6,000 4,900 5,500 4,400 5,000 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Source: WIND. 3,900 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Source: Bloomberg. Earnings Forecasts Assumptions and Revisions We have raised our earnings forecasts in Due to worse expectations on bottled water priced at RMB1, we revise down our revenue forecasts in by 0.5%, 0.5% and 0.4%, respectively. Thanks to lower effective tax rates, we raise our earnings forecasts in by 0.6%, 0.2% and 0.1%, respectively. Table-3: Earnings Estimates Revisions RMB million NEW OLD CHANGE 2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F Revenue 61,904 65,268 68,690 62,220 65,565 68, % -0.5% -0.4% Gross profit 19,484 20,903 22,226 19,584 20,998 22, % -0.5% -0.4% Operating profit 4,123 4,642 5,060 4,137 4,666 5, % -0.5% -0.7% Profit after tax 2,543 2,851 3,137 2,527 2,841 3, % 0.4% 0.2% Shareholder's profit 2,271 2,562 2,827 2,259 2,556 2, % 0.2% 0. EPS (RMB) % 0.2% 0.1% Gross margin 31.5% % 31.5% % 0 ppt 0 ppt 0 ppt Operating margin 6.7% 7.1% 7.4% 6.6% 7.1% 7.4% 0.1 ppt 0 ppt 0 ppt PAT margin 4.1% 4.4% 4.6% 4.1% 4.3% 4.5% 0 ppt 0.1 ppt 0.1 ppt Net margin 3.7% 3.9% 4.1% 3.6% 3.9% 4.1% 0.1 ppt 0 ppt 0 ppt Source: Guotai Junan International. Raise TP to HK$16.50 but maintain "Neutral". We raise our TP for Tingyi to HK$16.50 due to the surging valuation of the food & beverage sector and better earnings forecasts. However, we insist that the current price of Tingyi has reflected its See the last page for disclaimer Page 7 of 10

8 recovery potential. The market may overlook uncertainties in Tingyi's beverage business. Therefore, we raise TP to HK$16.50 but maintain the Company s rating at "Neutral". The new TP represents 33.1x 2018 PER, 29.3x 2019 PER and 26.6x 2020 PER. Table-4: Peers Comparison Company Ticker $ Share Price Market Cap (HK$ mn) PER (x) PBR(x) ROE(%) Gross Margin(%) Operating Margin(%) FY18F FY19F FY20F FY18F FY18F FY18F FY18F China Resources Beer 291 HK HKD , China Mengniu Dairy 2319 HK HKD , Tingyi 322 HK HKD , Dali Foods 3799 HK HKD , Want Want China 151 HK HKD , Tsingtao Brewery 168 HK HKD , Uni-President China 220 HK HKD , Vitasoy Ltd 345 HK HKD , China Foods 506 HK HKD , Simple Average Weighted Average Source: Bloomberg. Figure-19: PER Band of Tingyi Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul Figure-20: PEB Band of Tingyi Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul (x) (x) Tingyi 0.0 Tingyi PER (historical) PER (current) PER (high) PBR (historical) PBR (current) PBR (high) PER (low) PER band PBR (low) PBR band Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 8 of 10

9 Financial Statements and Ratios Income Statement [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F Total Revenue 55,579 58,954 61,904 65,268 68,690 Cost of sales (38,201) (41,616) (42,420) (44,365) (46,463) Gross profit 17,378 17,338 19,484 20,903 22,226 Other revenue and income ,117 Distribution costs (12,070) (11,269) (12,195) (12,858) (13,532) Administrative expenses (2,044) (2,189) (2,309) (2,434) (2,562) Other operating expenses (1,116) (1,124) (1,820) (1,965) (2,189) Operating Profit 2,856 3,746 4,123 4,642 5,060 Finance costs (496) (455) (432) (504) (509) Share of profits from associates Profit Before Tax 2,434 3,393 3,770 4,224 4,646 Income Tax (1,051) (1,137) (1,226) (1,373) (1,509) Profit after Tax 1,382 2,255 2,543 2,851 3,137 Non-controlling Interest (220) (436) (273) (290) (310) Shareholders' Profit / Loss 1,162 1,819 2,271 2,562 2,827 Basic EPS Cash Flow Statement Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F PBT 2,434 3,393 3,770 4,224 4,646 DD&A 3,677 3,514 2,611 2,545 2,447 Change in working capital 2,544 1,510 (114) 913 (233) Others (41) (161) Cash generated from operations 9,312 8,499 6,631 7,641 6,700 Income and interest tax paid (1,318) (1,817) (1,322) (1,667) (1,829) Cash from Operating Activities 7,994 6,682 5,309 5,974 4,871 Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F Property, plant and equipment 32,557 28,015 27,504 26,459 25,512 Prepaid lease payments 3,932 3,731 3,824 3,920 4,018 Others 2,994 3,413 3,090 3,191 3,302 Total Non-current Assets 39,483 35,158 34,417 33,570 32,831 Cash & Cash Equivalents 10,232 10,285 15,339 19,195 22,999 Inventories 2,482 2,397 2,484 2,499 2,720 Bills receivable 1,590 1,636 1,332 1,798 1,496 Others 2,734 4,623 1,337 4,922 1,665 Total Current Assets 17,038 18,941 20,491 28,413 28,880 Total Assets 56,521 54,099 54,909 61,983 61,710 Short-term debts 9,164 7,775 8,404 8,480 9,098 Bills payable 6,595 7,119 4,967 7,795 5,571 Accrued expenses and other payables 6,698 7,417 5,948 8,030 6,609 Others 1,251 1,668 1,781 1,903 2,025 Total Current Liabilities 23,708 23,980 21,100 26,208 23,303 Net current assets (6,670) (5,039) (608) 2,205 5,576 Total assets less current liabilities 32,813 30,120 33,809 35,775 38,407 Long-term debts 6,880 6,609 8,404 8,480 9,098 Others 1,832 1,217 1,477 1,651 1,809 Total Non-current Liabilities 8,712 7,825 9,881 10,131 10,908 Total Liabilities 32,420 31,805 30,981 36,339 34,211 Share capital Reserves 17,889 18,177 19,538 20,965 22,511 Total Shareholders' Equity 18,124 18,412 19,773 21,200 22,746 Minority Interest 5,977 3,882 4,154 4,444 4,754 Total Equity 24,101 22,294 23,928 25,644 27,500 Investing activities Capital expenditure (1,539) (1,049) (2,100) (1,500) (1,500) Interest income Others (330) (54) 23 (96) (98) Cash from Investing Activities (1,651) (832) (1,769) (1,135) (1,022) Financing activities Loans changes (1,646) (3,141) 2, ,237 Share placing Dividend paid (941) (713) (910) (1,135) (1,281) Others (1,200) (1,908) 0 0 (0) Cash from Financing Activities (2,791) (5,762) 1,514 (983) (44) Net Changes in Cash 3, ,054 3,856 3,805 Foreign exchange effect 33 (35) Cash at Beg of Year 6,647 10,232 10,285 15,339 19,195 Cash at End of Year 10,232 10,285 15,339 19,195 22,999 [Table_FinancialRatio] Financial Ratios 2016A 2017A 2018F 2019F 2020F Revenue Growth (%) Gross Profit Growth (%) EBIT Growth (%) Net Profit Growth (%) Gross Margin (%) Instant noodles Beverages PAT Margin (%) Instant noodles Beverages Net Margin (%) ROA (%) ROE (%) Inventory turnover days Account receivable days Account payable days Net gearing (%) Net cash Net cash Net interest cover (x) Payout ratio (%) Source: the Company, Guotai Junan International. See the last page for disclaimer Page 9 of 10

10 [Table_CompanyRatingDefinition] Company Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Buy 买入 Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. [Table_IndustryRatingDefinition] Sector Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Outperform 跑赢大市 Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance <-5%; Or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GREENLAND BROAD (01253 HK),KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886 HK),GFI MSCI A I (03156 HK),CAM SCSMALLCAP (03157 HK),ZHENRO PPT (06158 HK),LINK HOLDINGS (08237 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 10 of 10