Tsingtao Brewery - H. Underweight. Decelerating core brand volume growth presents downside risk to margins

Tsingtao Brewery - H Decelerating core brand volume growth presents downside risk to margins Underweight 0168.HK, 168 HK Price: HK$59.05 Price Target: HK$45.00 Previous: HK$49.00 Tsingtao s share price has declined 10% YTD (vs. HSI down ~1%), and we expect a further share price correction, as: (1) Tsingtao s core brand volume growth decelerated to -1% in 2H13 from +9% in 1H13 and +6% in 2012; (2) overall sales growth was relatively weak in 2H13, at 8%, indicating that Tsingtao is losing market share; (3) the product mix shift is leading to margin pressure, as volumes are largely driven by second-tier brands; (4) earnings growth is limited at c10% CAGR; and (5) valuations are stretched, in our view, at 32x FY14E, a 35% premium to consumer staples. We cut our FY14 earnings estimates by 14% and reiterate our UW rating with a PT of HK$45. Core brand volume disappoints, with overall volumes weak, as well. 2H13 sales growth of 8% (vs. +12% in 1H13) lagged key competitors CRE (~27%) and ABI (mid-teens), suggesting that Tsingtao lost market share in 2H13. More importantly, higher-end core Tsingtao brand volumes declined 1% in 2H13 on easy comps (4% in 2H12). Growth for its higher-end core brand has decelerated from previous quarters (2Q13 +8%, 1Q13 +10%), indicating to us that Tsingtao has lost share in the higher end of the market (an area where peers have continued to do well) and failed to capitalize on the premiumization trend in the beer market. Product mix not favorable and presents downside risk to margins. The higher-margin core brand now makes up ~52% of total sales volumes, compared to ~56% in 2011 and ~54% in 2012. We expect the core brand s share of total sales volume to fall to 51% in FY14. Easing competition and benign raw material costs will not save the day, in our view. We do not expect competition to worsen into FY14, as players have largely refrained from cutting ASPs. Barley futures (+2% for FY14) also point to benign input cost pressures. For FY14, we look for 11% sales growth (10% volume and 1% ASP) and 12% earnings growth. We model in a 20bps expansion in gross margin on benign raw material costs, but note downside risks to our estimates if the mix continues to shift to lower-margin secondary brands, as evidenced in 2H13. Tsingtao Brewery - H (Reuters: 0168.HK, Bloomberg: 168 HK) Rmb in mn, year-end Dec FY11A FY12A FY13A FY14E FY15E Revenue (Rmb mn) 23,158 25,782 28,291 31,265 34,712 Net Profit (Rmb mn) 1,738 1,759 1,973 1,981 2,166 EPS (Rmb) 1.29 1.30 1.46 1.47 1.60 Recurring EPS (Rmb) 1.27 1.32 1.34 1.50 1.64 DPS (Rmb) 0.18 0.26 0.40 0.40 0.43 Revenue growth (%) 16.4% 11.3% 9.7% 10.5% 11.0% Net Profit growth (%) 14.3% 1.2% 12.2% 0.4% 9.3% Recurring profit growth 12.9% 4.0% 1.2% 12.4% 9.1% EPS growth (%) 14.3% 1.2% 12.2% 0.4% 9.3% ROE 16.6% 15.1% 13.6% 13.8% 13.6% ROA 8.7% 7.9% 7.1% 7.2% 7.4% P/E (x) 36.7 36.3 32.3 32.2 29.5 P/BV (x) 5.7 5.1 4.5 4.1 3.7 EV/EBITDA (x) 26.9 26.9 26.5 24.2 22.2 Dividend Yield 0.4% 0.6% 0.8% 0.8% 0.9% Source: Company data, Bloomberg, J.P. Morgan estimates. China Beverages AC Bloomberg JPMA KURUMLU <GO> Shen Li, CFA (852) 2800 8523 shen.w.li@jpmorgan.com Henry Tan (852) 2800-8559 henry.wd.tan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance HK$ 70 60 50 40 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 0168.HK share price (HK$) MSCI-Cnx (rebased) YTD 1m 3m 12m Abs -9.9% 1.5% -3.8% 18.8% Rel -6.9% -2.6% -4.7% 15.5% Company Data Shares O/S (mn) 1,351 Market Cap (Rmb mn) 63,792 Market Cap ($ mn) 10,289 Price (HK$) 59.05 Date Of Price 10 Apr 14 Free Float(%) 50.1% 3M - Avg daily vol (mn) 1.20 3M - Avg daily val (HK$ mn) 69.00 3M - Avg daily val ($ mn) 8.9 MSCI-Cnx 6236.36 Exchange Rate 7.75 Price Target End Date 31-Dec-14 Price Target (HK$) 45.00 See page 9 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. www.jpmorganmarkets.com

Key catalyst for the stock price: Upside risks to our view: Downside risks to our view: Weaker-than-expected sales Sudden sharp drop in input costs; management cutting A&P spending notably, and management focusing more on Tsingtao brand, which could lead to strongerthan-expected margin improvement Weaker-than-expected sales growth, increase in input costs, losing market share to competitors Key financial metrics FY12A FY13E FY14E FY15E Valuation and price target basis We roll forward our PT timeframe from Jun-14 to Dec-14 and Revenues (LC) 25,781.5 28,291.0 31,265.1 34,712.0 lower our PT to HK$45 from HK$49 as we cut earnings. We value Revenue growth (%) 11.3% 9.7% 10.5% 11.0% Tsingtao at a 24.5x one-year forward P/E, which is 2 standard EBITDA (LC) 2,790.1 2,757.1 3,021.6 3,297.9 deviations below the historical mean, given the notable slowdown EBITDA margin (%) 10.8% 9.7% 9.7% 9.5% in earnings growth, and arrive at our Dec-14 PT of HK$45. Using Tax rate (%) 25.7% 25.9% 26.0% 26.0% a CNY/HKD exchange rate of 1.25, we arrive at our Dec-14 A- Reported Net profit (LC) 1,758.9 1,973.4 1,980.8 2,165.8 share PT of Rmb36. Reported EPS (LC) 1.30 1.46 1.47 1.60 Reported EPS growth (%) 1.2% 12.2% 0.4% 9.3% Tsingtao - Forward P/E DPS (LC) 0.26 0.40 0.40 0.43 BVPS (LC) 9.23 10.38 11.45 12.62 32 Operating cash flow (LC mn) 3,103.6 3,403.8 2,829.0 3,059.2 Free cash flow (LC mn) 605.9 1,193.0 150.0 383.8 Interest cover (X) NM NM NM NM 28 Net margin (%) 6.8% 7.0% 6.3% 6.2% Sales/assets (X) 1.1x 1.1x 1.1x 1.2x Debt/equity (%) 15.7% 13.7% 12.4% 11.3% Net debt/equity (%) -39.9% -47.8% -41.9% -37.8% 24 ROE (%) 15.1% 13.6% 13.8% 13.6% Key model assumptions FY12A FY13A FY14E FY15E Sales Growth 11.3% 9.7% 10.5% 11.0% 20 Gross Margin 31.6% 32.0% 32.2% 32.2% Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Operating Margin 7.5% 6.6% 6.7% 6.7% Source: Bloomberg, Company and J.P. Morgan estimates. Source: Bloomberg JPMe vs. consensus, change in estimates Sensitivity analysis EBITDA EPS EPS FY14E FY15E Sensitivity to FY14E FY15E FY14E FY15E JPMe old 1.70 1.89 1% chg in Packaging costs 4.6% 4.6% 4.7% 4.8% JPMe new 1.47 1.60 1% chg excise tax 0.9% 0.9% 0.9% 1.0% % chg -14% -15% 1% chg SGA expense as % of sales -3.0% -3.0% -3.1% -3.1% Consensus 1.72 2.01 Source: Bloomberg, Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates. Comparative metrics CMP Mkt cap P/E EV/EBITDA P/BV YTD (LC) ($M) FY14E FY15E FY14E FY15E FY14E FY15E stock perf. BEIJING YAN-A 7.0 3,172.9 22.6x 20.1x N/A N/A 1.5x 1.4x -13.3% CHINA RES ENTERP 23.2 7,177.1 29.0x 24.7x 8.2x 7.0x 1.2x 1.2x -10.1% CHINA FOODS LTD 2.9 1,042.7 47.4x 20.6x 11.2x 9.0x 1.3x 1.2x -12.2% HENGAN INTL 84.9 13,476.1 23.8x 20.5x 16.0x 13.4x 5.6x 5.0x -7.4% TINGYI HLDG CO 22.3 16,096.8 30.3x 25.0x 12.4x 10.4x 5.2x 4.6x -0.4% Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of April 10, 2014 close. 2

Table 1: Estimate revisions table Estimate revisions New Old % chg y/y Rmb in millions, Year-end Dec 2014E 2015E 2014E 2015E 2014E 2015E Revenue 31,265 34,712 32,115 36,006-3% -4% Gross profit 10,082 11,179 10,365 11,604-3% -4% Operating profit 2,082 2,314 2,361 2,724-12% -15% NPAT 1,981 2,166 2,294 2,560-14% -15% Recurring NPAT 2,031 2,216 2,294 2,560-11% -13% % chg y/y Sales 11% 11% 12% 12% Operating profit 11% 11% 14% 15% NPAT 0% 9% 1% 12% Recurring NPAT 12% 9% 15% 12% Margins Gross margin (%) 32.2% 32.2% 32.3% 32.2% Operating margin (%) 6.7% 6.7% 7.4% 7.6% Net margin (%) 6.3% 6.2% 7.1% 7.1% Recurring net margins (%) 6.5% 6.4% 7.1% 7.1% Source: J.P. Morgan estimates. FY13 results summary Table 2: Tsingtao FY13 P&L Rmb in millions, Year-end Dec 2012A 2013A % chg 2013E Actual vs. estimates Revenue 25,782 28,291 10% 28,645-1% Gross profit 8,147 9,055 11% 9,234-2% Gross margin (%) 31.6% 32.0% 32.2% SG&A -6,200-7,183 16% -7,167 0% Operating profit 1,946 1,872-4% 2,067-9% Operating margin (%) 7.5% 6.6% 7.2% Net financial expenses 178 251 41% 241 4% Asset impairment losses -1-2 0 Losses on changes in FV 0 0 0 Investment income (share of assoc. & JVs) 15 229 254 Non-operating income 395 564 43% 573-2% Non-operating expenses -49-248 406% -183 36% PBT 2,484 2,667 7% 2,953-10% Tax expense -639-692 8% -635 9% Tax rate (%) -25.4% -27.0% -27.0% PAT 1,845 1,975 7% 2,318-15% Minority -86-2 -98% -58-97% Net income to shareholders 1,759 1,973 12% 2,260-13% Net margin (%) 6.8% 7.0% 7.9% Recurring NPAT 1,785 1,806 1% 1,991-9% Net margin (%) 6.9% 6.4% Source: J.P. Morgan estimates, Company data. 3

Table 3: Tsingtao 4Q13 P&L Rmb in millions, Year-end Dec 4Q12A 4Q13A % chg 4Q13E Actual vs. estimates Revenue 3,986 4,098 3% 4,453-8% Gross profit 1,076 1,023-5% 1,202-15% Gross margin (%) 27.0% 25.0% 27.0% SG&A -1,187-1,312 11% -1,296 1% Operating profit -110-289 162% -94 208% Operating margin (%) -2.8% -7.1% -2.1% Net financial expenses 46 72 58% 62 17% -64 Asset impairment losses 5-9 -7 Losses on changes in FV 0 0 0 Investment income (share of assoc. & JVs) 1-21 3 Non-operating income 197 185 195 Non-operating expenses -11-58 8 PBT 127-120 -194% 167-172% Tax expense -44-115 158% -58 98% Tax rate (%) 0.0% 0.0% 0.0% PAT 83-234 -382% 109-316% Minority -7 43-736% -13-419% Net income to shareholders 76-192 -351% 95-301% Net margin (%) 1.9% -4.7% 2.1% Source: J.P. Morgan estimates, Company data. Table 4: Quarterly volume trends Hl in millions 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Main brand 11.2 7.1 9.4 10.9 12.3 7.3 9.5 12.5 14.0 6.9 10.5 13.5 14.3 6.7 Secondary brand 10.5 3.6 5.6 11.6 10.6 3.8 6.9 12.9 12.4 3.9 7.8 14.0 15.2 5.0 Total 21.7 10.7 15.0 22.5 22.9 11.1 16.4 25.4 26.4 10.8 18.3 27.5 29.5 11.7 % chg y/y Main brand 21.7% 20.3% 35.1% 14.3% 9.8% 2.8% 1.1% 14.7% 13.8% -5.5% 10.1% 8.3% 2.1% -2.9% Secondary brand 5.0% -5.3% 5.7% 24.7% 1.0% 5.6% 23.2% 11.2% 17.0% 2.6% 13.5% 8.3% 22.6% 28.2% Total 13.0% 10.3% 22.3% 19.4% 5.5% 3.7% 9.3% 12.9% 15.3% -2.7% 11.5% 8.3% 11.7% 8.3% Source: Company data. 4

Table 5: Quarterly P&L trends Rmb in millions, Year-end Dec 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Revenue 5,245 6,805 7,123 3,985 5,600 7,806 8,390 3,986 6,312 8,659 9,221 4,098 Gross profit 1,875 2,279 2,409 1,154 1,744 2,517 2,810 1,076 2,093 2,915 3,024 1,023 Gross margin (%) 35.8% 33.5% 33.8% 29.0% 31.1% 32.2% 33.5% 27.0% 33.2% 33.7% 32.8% 25.0% SG&A -1,356-1,515-1,532-1,196-1,218-1,808-1,987-1,187-1,489-2,208-2,174-1,312 Operating profit 520 764 877-42 525 709 823-110 605 706 850-289 Operating margin (%) 9.9% 11.2% 12.3% -1.1% 9.4% 9.1% 9.8% -2.8% 9.6% 8.2% 9.2% -7.1% Net financial expenses -1-1 23 16 41 43 49 46 41 55 83 72 Asset impairment 0-1 0-15 -1-3 -2 5 0 7 1-9 losses Losses on changes in FV 0 0 0 0 0 0 0 0 0 0 0 0 Investment income 4-2 3-1 2 4 8 1 3 229 18-21 (share of assoc. & JVs) Non-op income 52 73 75 270 68 46 84 197 54 246 79 185 Non-op expenses -6-8 -15-127 -10-6 -22-11 -4-179 -8-58 PBT 567 824 963 101 625 794 938 127 698 1,064 1,024-120 Tax expense -143-202 -268-44 -167-202 -226-44 -189-136 -252-115 Tax rate (%) -25.2% -24.5% -27.9% -44.1% -26.7% -25.4% -24.1% -34.8% -27.0% -12.8% -24.6% 95.7% PAT 424 623 695 56 458 592 712 83 510 928 772-234 Minority -31-26 -20 18-8 -35-36 -7-22 -21-2 43 Net income to 393 597 674 74 451 557 675 76 488 907 770-192 shareholders Net margin (%) 7.5% 8.8% 9.5% 1.9% 8.0% 7.1% 8.0% 1.9% 7.7% 10.5% 8.4% -4.7% % chg y/y Sales volume 22.3% 19.4% 5.5% 3.7% 9.3% 12.9% 15.3% -2.7% 11.5% 8.3% 11.7% 8.3% Revenue 26.7% 17.6% 11.0% 12.2% 6.8% 14.7% 17.8% 0.0% 12.7% 10.9% 9.9% 2.8% Gross profit 27.4% 8.7% 5.5% 0.6% -7.0% 10.5% 16.6% -6.7% 20.1% 15.8% 7.6% -5.0% Operating profit 37.3% 17.9% -0.5% -144% 1.1% -7.2% -6.2% 160.8% 15.1% -0.3% 3.4% 162.2% PBT 35.6% 18.8% 6.3% -4.5% 10.2% -3.7% -2.6% 26.7% 11.7% 34.0% 9.2% -194.1% Net income 38.2% 9.4% -3.0% NA 14.5% -6.6% 0.1% 3.3% 8.3% 62.9% 14.0% -351.2% Source: Company data. 5

Investment Thesis, Valuation and Risks Tsingtao Brewery - H (Underweight; Price Target: HK$45.00) Investment Thesis Given demanding valuations, intense competition in the sector and lackluster earnings growth compared to the rest of the staples universe, we reiterate our UW rating. Valuation We roll forward our PT timeframe from Jun-14 to Dec-14 and lower our PT to HK$45 from HK$49 as we cut earnings. We value Tsingtao at a 24.5x one-year forward P/E, which is 2 standard deviations below the historical mean, given a notable slowdown in earnings growth, and arrive at our Dec-14 PT of HK$45. Using a CNY/HKD exchange rate of 1.25, we arrive at our Dec-14 A-share PT of Rmb36. Risks to Rating and Price Target Upside risks include a sudden sharp drop in input costs, management cutting A&P spending notably, and management focusing more on the Tsingtao brand, which could lead to stronger-than-expected margin improvement. 6

JPM Q-Profile Tsingtao Brewery Co., Ltd. Class H (CHINA / Consumer Staples) As Of: 04-Apr-2014 Quant_Strategy@jpmorgan.com Local Share Price Current: 57.00 12 Mth Forward EPS Current: 1.80 70.00 2.50 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2.00 1.50 1.00 0.50 0.00-0.50-1.00 Earnings Yield (& local bond Yield) Current: 4% Implied Value Of Growth* Current: 53.68% 9% 12Mth fwd EY China BY Proxy 0.90 8% 0.80 7% 6% 5% 4% 3% 2% 1% 0% 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 PE (1Yr Forward) Current: 25.3x Price/Book Value Current: 4.6x 70.0x 8.0x PBV hist PBV Forward 60.0x 50.0x 40.0x 7.0x 6.0x 5.0x 4.0x 30.0x 3.0x 20.0x 10.0x 0.0x 2.0x 1.0x 0.0x -1.0x ROE (Trailing) Current: 17.02 Dividend Yield (Trailing) Current: 0.86 20.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Summary Tsingtao Brewery Co., Ltd. Class H 9840.15 As Of: 4-Apr-14 CHINA 8.572141 SEDOL 6905808 Local Price: 57.00 Consumer Staples Beverages EPS: 1.80 Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg 12mth Forward PE 25.34x 12.99 59.82 25.07 26.05 40.13 11.97-49% 136% -1% 3% P/BV (Trailing) 4.58x 0.28 7.02 2.70 2.97 6.51-0.57-94% 53% -41% -35% Dividend Yield (Trailing) 0.86 0.00 8.72 1.52 1.98 5.26-1.30-100% 919% 78% 132% ROE (Trailing) 17.02 1.74 18.82 8.78 9.88 21.15-1.38-90% 11% -48% -42% Implied Value of Growth 53.7% 0.27 0.82 0.57 0.56 0.76 0.37-50% 52% 6% 5% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 * Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP) 7

Tsingtao Brewery - H: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY12 FY13 FY14E FY15E FY16E Rmb in millions, year end Dec FY12 FY13 FY14E FY15E FY16E Revenues 25,782 28,291 31,265 34,712 38,562 PBT 2,484 2,667 2,679 2,929 3,230 % change Y/Y 11.3% 9.7% 10.5% 11.0% 11.1% Depr. & amortization 844 885 940 984 1,019 Gross Profit 8,147 9,055 10,082 11,179 12,414 Change in working capital 572 431 2 3 4 % change Y/Y 5.6% 11.2% 11.3% 10.9% 11.1% Tax & Other (84) 113 (94) (93) (93) Gross margin 31.6% 32.0% 32.2% 32.2% 32.2% Cash flow from operations 3,104 3,404 2,829 3,059 3,318 Other operating income - - - - - EBITDA 2,790 2,757 3,022 3,298 3,608 Capex (2,378) (2,036) (2,500) (2,500) (2,500) % change Y/Y (0.9%) (1.2%) 9.6% 9.1% 9.4% Sale of assets 13 12 0 0 0 EBITDA Margin 10.8% 9.7% 9.7% 9.5% 9.4% Acquisition of subsidiaries/intangibles (4) (0) (100) (100) (100) EBIT 1,946 1,872 2,082 2,314 2,589 Other 375 528 0 0 0 % change Y/Y (8.1%) (3.8%) 11.2% 11.2% 11.9% Cash flow from investing (1,995) (1,496) (2,600) (2,600) (2,600) EBIT Margin 7.5% 6.6% 6.7% 6.7% 6.7% Net Interest 178 251 242 237 240 Equity raised/(repaid) - - - - - Share of JVs 15 229 11 12 13 Debt raised/(repaid) (22) (170) 0 0 0 Other non operating income 395 564 404 425 447 Dividends paid (351) (540) (535) (585) (645) Earnings before tax 2,484 2,667 2,679 2,929 3,230 Other (19) (68) 95 95 95 % change Y/Y 1.2% 7.3% 0.5% 9.3% 10.3% Cash flow from financing (392) (778) (440) (490) (550) Tax (639) (692) (696) (762) (840) as % of EBT 25.7% 25.9% 26.0% 26.0% 26.0% FX gain/(loss) 2 (2) 0 0 0 Minorities (86) (2) (2) (2) (2) Net change in cash 719 1,128 (211) (30) 168 Net income (reported) 1,759 1,973 1,981 2,166 2,389 Ending cash 6,269 7,397 7,186 7,156 7,324 % change Y/Y 1.2% 12.2% 0.4% 9.3% 10.3% DPS 0.26 0.40 0.40 0.43 0.48 Recurring Net Income 1,785 1,806 2,031 2,216 2,439 % change Y/Y 4.0% 1.2% 12.4% 9.1% 10.1% EPS (reported) 1.30 1.46 1.47 1.60 1.77 % change Y/Y 1.2% 12.2% 0.4% 9.3% 10.3% Recurring EPS 1.32 1.34 1.50 1.64 1.81 % change Y/Y 4.0% 1.2% 12.4% 9.1% 10.1% Balance sheet Ratio Analysis Rmb in millions, year end Dec FY12 FY13 FY14E FY15E FY16E Rmb in millions, year end Dec FY12 FY13 FY14E FY15E FY16E Cash and cash equivalents 7,118 8,532 8,321 8,291 8,458 Gross margin 31.6% 32.0% 32.2% 32.2% 32.2% Accounts receivable 83 152 168 187 208 EBITDA margin 10.8% 9.7% 9.7% 9.5% 9.4% Inventories 2,360 2,535 2,799 3,120 3,478 Operating Margin 7.5% 6.6% 6.7% 6.7% 6.7% Others 517 867 867 867 867 Net margin 6.9% 6.4% 6.5% 6.4% 6.3% Current assets 10,142 12,274 12,344 12,654 13,200 Recurring net profit margin 6.9% 6.4% 6.5% 6.4% 6.3% Goodwill 1,082 1,080 1,080 1,080 1,080 Sales growth 11.3% 9.7% 10.5% 11.0% 11.1% Intangible assets 2,547 2,533 2,374 2,216 2,057 Net profit growth 1.2% 12.2% 0.4% 9.3% 10.3% Long term investments 164 1,272 1,372 1,472 1,572 Recurring net profit growth 4.0% 1.2% 12.4% 9.1% 10.1% Net fixed assets 9,032 9,252 10,971 12,646 14,287 EPS growth 1.2% 12.2% 0.4% 9.3% 10.3% Other assets 695 953 953 953 953 Total Assets 23,661 27,365 29,095 31,021 33,149 Interest coverage (x) - - - - - Net debt to equity (39.9%) (47.8%) (41.9%) (37.8%) (35.2%) Liabilities Sales/assets 1.1 1.1 1.1 1.2 1.2 Short-term loans 150 1,898 1,898 1,898 1,898 Assets/equity 192.1% 192.6% 191.5% 184.9% 179.0% Trade & other payables 1,993 2,707 2,989 3,333 3,715 ROE 15.1% 13.6% 13.8% 13.6% 13.6% Others 5,192 6,508 6,508 6,508 6,508 ROCE 10.5% 9.1% 9.3% 9.4% 9.7% Total current liabilities 7,336 11,114 11,396 11,739 12,122 Long-term debt 1,862 5 5 5 5 Others 1,680 2,373 2,373 2,373 2,373 Total Liabilities 10,878 13,491 13,774 14,117 14,500 Minorities 315 (147) (147) (147) (147) Shareholders' equity 12,468 14,021 15,468 17,051 18,796 BVPS 9.23 10.38 11.45 12.62 13.91 Source: Company reports and J.P. Morgan estimates. 8

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. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Tsingtao Brewery - H. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com 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 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com. Tsingtao Brewery - H (0168.HK, 168 HK) Price Chart Price(HK$) 110 88 66 44 22 0 Oct 06 OW HK$44 OW HK$33.5 Apr 08 Oct 09 Apr 11 UW HK$32 N HK$17.5 UW HK$29 UW HK$35 UW HK$36 UW HK$49 OW HK$30 OW HK$33.8OW HK$21 N HK$28UW UW HK$34 HK$35.5 N HK$40N HK$44.5UW HK$33 UW HK$32 UW HK$33 UW HK$47 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Aug 27, 2007. Oct 12 Apr 14 Date Rating Share Price (HK$) 27-Aug-07 OW 22.85 30.00 12-Nov-07 OW 23.05 33.50 14-Jan-08 OW 33.80 44.00 27-Apr-08 OW 20.80 33.80 02-Feb-09 OW 14.88 21.00 15-Apr-09 N 18.10 17.50 07-Aug-09 N 26.90 28.00 11-Nov-09 UW 36.60 29.00 12-Apr-10 UW 41.20 34.00 16-Aug-10 UW 38.70 35.50 07-Dec-10 N 42.95 40.00 28-Jul-11 N 50.40 44.50 12-Oct-11 UW 40.50 35.00 14-Jan-12 UW 42.05 32.00 11-Apr-12 UW 44.20 33.00 21-Aug-12 UW 43.80 32.00 28-Mar-13 UW 48.05 33.00 27-Apr-13 UW 52.85 36.00 30-Aug-13 UW 57.45 47.00 30-Oct-13 UW 62.40 49.00 Price Target (HK$) 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, www.jpmorganmarkets.com. 9

Coverage Universe: Sener, Kurumlu Ebru: Ajisen China Holdings Ltd (0538.HK), Belle International Holdings Ltd. (1880.HK), Cafe de Coral Holdings Ltd (0341.HK), China Foods Ltd (0506.HK), China Mengniu Dairy Co. Ltd. (2319.HK), China Resources Enterprise (0291.HK), Chow Tai Fook Jewellery Company Ltd. (1929.HK), Dairy Farm International Holdings Limited (DAIR.SI), Esprit Holdings (0330.HK), Golden Eagle Retail Group Ltd (3308.HK), Hengan International Group Ltd (1044.HK), L'Occitane International SA (0973.HK), Li & Fung (0494.HK), Lifestyle International Holdings (1212.HK), New World Department Stores Ltd (0825.HK), Parkson Retail Group Ltd (3368.HK), Prada S.P.A (1913.HK), Tibet 5100 Water Resources Holdings Ltd (1115.HK), Tingyi (Cayman Islands) Holding Corp (0322.HK), Tsingtao Brewery - A (600600.SS), Tsingtao Brewery - H (0168.HK), Uni-President China Holdings Ltd (0220.HK), Want Want China Holdings Ltd (0151.HK) J.P. 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