Fu Shou Yuan International

Fu Shou Yuan International Lowering PT to HK$6 - Slowdown in plot sales hurt sentiment Overweight 1448.HK, 1448 HK Price: HK$5.21 Price Target: HK$6.00 Previous: HK$6.80 FSY is the largest provider of burial and funeral care services in the PRC in terms of revenue, with branches in nine provinces. FSY reported 1H16 sales growth of 9%, which was 12% below our estimate, due mainly to a tough comparable period in 1H15 as well as a conservative plot disposal strategy. We remain OW with a lower Dec-17 PT of HK$6. Slowdown hurts sentiment. FSY reported 1H16 sales growth of 9%, to Rmb642mn, which was 12% below our estimate. Sales growth was slower in most regions, but especially poor (a sales decline) in Henan and Chongqing, as these two cemeteries had an exceptionally strong 1H15. Overall, NP growth of 12% was 15% below our estimate. The key to an improvement in sales in the future is an acceleration of new acquisitions (currently one each quarter), and any deregulation that makes it easier for people to buy plots without current strict restrictions (in-need conditions before cemeteries can be purchased) would also lift sales revenues. However, neither of these factors is easy to predict or likely in the near future. Lowering sales and net profit estimates. Given the declining pace of cemetery plot sales seen in 1H16 results, we lower our FY16 and FY17 sales growth expectations by 11% and 12%, respectively. Our margin expectations remain unchanged, and NP is revised down 10% for FY16 and 12% for FY17. Our new EPS estimates are 5% and 8% below consensus, respectively. We lower our Dec-17 PT to HK$6 (from HK$6.80) due to the earnings revisions. China Consumer Services Leon Chik, CFA AC Bloomberg JPMA CHIK <GO> Christine Wang (852) 2800-8528 christine.wang@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 6.0 5.0 HK$ 4.0 3.0 Aug-15 Nov-15 Feb-16 May-16 Aug-16 1448.HK share price (HK$) HSCEI (rebased) YTD 1m 3m 12m Abs -13.6% -3.3% -6.5% 5.5% Rel -14.1% -10.6% -23.3% 16.9% Price, valuation and risks. Our DCF-based Dec-17 price target of HK$6 implies a CY18E P/E of 21.1x. The key risks to our rating and PT include implementation risk for the company s aggressive M&A strategy and new low barriers to entry, allowing new entrants to lower prices. Fu Shou Yuan International (Reuters: 1448.HK, Bloomberg: 1448 HK) Rmb in mn, year-end Dec FY13A FY14A FY15A FY16E FY17E Revenue (Rmb mn) 612 795 1,108 1,225 1,525 Net Profit (Rmb mn) 168 231 285 328 396 EPS (Rmb) 0.11 0.11 0.13 0.16 0.19 DPS (Rmb) 0.00 0.03 0.05 0.06 0.07 Revenue growth (%) 27.5% 30.0% 39.4% 10.6% 24.4% EPS growth (%) - 1.3% 20.6% 15.4% 20.5% ROCE 19.2% 12.8% 14.2% 14.6% 16.7% ROE 18.4% 13.0% 13.5% 14.0% 15.4% P/E (x) 40.5 39.9 33.1 28.7 23.8 P/BV (x) 5.6 4.7 4.3 3.9 3.5 EV/EBITDA (x) 31.0 30.8 21.9 19.4 16.0 Dividend Yield 0.0% 0.7% 1.1% 1.3% 1.5% Source: Company data, Bloomberg, J.P. Morgan estimates. Company Data Shares O/S (mn) 2,075 Market Cap (Rmb mn) 9,250 Market Cap ($ mn) 1,394 Price (HK$) 5.21 Date Of Price 15 Aug 16 Free Float(%) - 3M - Avg daily vol (mn) 1.93 3M - Avg daily val (HK$ mn) 10.51 3M - Avg daily val ($ mn) 1.4 HSCEI 9708.89 Exchange Rate 7.76 Price Target End Date 31-Dec-17 See page 11 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 catalysts for the stock price: Upside risks to our view: Downside risks to our view: Strong demand for burial and funeral services as incomes rise Tremendous value in unsold plots of existing cemeteries High stable margins with strong pricing power. Leading brand and market consolidation New asset-light expansion potential in franchised or managed cemeteries Better-than-expected macro economy to drive demand Lower-than-expected land cost Competitive fragmented markets with many strong incumbents Negative impact on demand in an uncertain macro environment Execution risks on new cemeteries in new cities with strong existing players Rising costs of land used for cemeteries Key financial metrics FY15 FY16E FY17E FY18E Valuation and price target basis Revenues (LC mn) 1,108 1,225 1,525 1,942 Our price target is based on DCF methodology with a Revenue growth (%) 39.4% 10.6% 24.4% 27.4% WACC of 11.4%. The nature of the industry leads us to EBITDA (LC mn) 460 530 652 858 apply a terminal growth of 3.0%, the midpoint of the 3.0- EBITDA margin (%) 41.5% 43.3% 42.8% 44.2% 6.0% growth rate used for SMID-caps. Tax rate (%) 21% 22% 22% 22% Net profit (LC mn) 284 329 396 515 EPS (LC) 0.133 0.156 0.187 0.244 EPS growth (%) 23% 16% 20% 30% EBITDA margin trend and sales growth DPS (LC) 0.048 0.056 0.068 0.088 50.0% BVPS (LC) 1.05 1.15 1.26 1.42 Operating cash flow (LC mn) 397 472 548 713 40.0% Free cash flow (LC mn) (23) (177) (115) 36 Interest cover (X) -13-11 -18-34 30.0% Net margin (%) 25.7% 26.9% 26.0% 26.5% 20.0% Sales/assets (X) 0.31 0.31 0.35 0.39 Debt/equity (%) 34.5% 32.9% 32.4% 32.5% 10.0% Net debt/equity (%) NC NC NC NC ROE (%) 13% 14% 15% 18% 0.0% Key model assumptions FY15E FY16E FY17E FY18E 2012 2013 2014 2015 2016E 2 Burial services (% of EBITDA margin Sales growth sales) 86.2% 86.6% 87.0% 87.4% Funeral services (% of Source: Company, J.P. Morgan estimates. sales) 12.6% 12.1% 11.7% 11.3% Auxiliary services (% of sales) 1.1% 1.3% 1.4% 1.3% EBITDA EPS JPMe vs. consensus, change in estimates Sensitivity analysis FY16E FY17E FY16E FY17E EPS (LC) non-gaap FY16E FY17E Sensitivity to JPMe old 0.173 0.213 1% chg. in plot ASP 1.3% 1.3% 2.1% 2.1% JPMe new 0.156 0.187 1% chg. in plot volume sales 1.0% 0.9% 1.6% 1.6% % chg. -10.0% -12.2% 1% increase in wage costs 0.1% 0.1% 0.2% 0.2% Consensus 0.164 0.203 Source: J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan estimates. Mcap Company Name Code Price (US$M) (US$M) chg. P/E (x) P/E (x) ROE (%) P/B (x) Yield (%) CAR INC 699 HK 7.5 2,237 8.4 (5.2) 10.8 10.4 18.6 1.6 0.0 CHINA TRAVEL 308 HK 2.4 1,655 6.4 7.2 24.2 16.6 3.5 0.9 1.6 FU SHOU YUAN 1448 HK 5.2 1,400 1.4 (6.0) 25.8 20.9 15.5 4.1 1.4 EHi CAR SERVICES EHIC US 10.8 749 0.6 10.2 na 19.8 0.3 0.9 0.0 IMAX CHINA HOLDI 1970 HK 45.7 2,094 5.4 4.3 41.2 30.8 27.3 13.3 0.4 TRAVELSKY TECH-H 696 HK 15.6 5,885 6.6 12.9 19.5 17.8 15.8 3.3 1.5 SHANGRI-LA ASIA 69 HK 8.8 4,057 2.0 (0.3) 29.1 24.6 1.9 0.6 1.3 LOCALIZA RENT3 BZ 42.2 2,799 12.3 15.7 23.0 21.2 17.9 4.2 1.2 Average 4.9 24.8 20.3 12.6 3.6 0.9 Source: Company data, J.P. Morgan estimates. Share prices as of the close. Vol 3M 16E 17E 2

Highlights from analyst briefing Sales growth slower in 1H16. Sales declines in two provinces in particular dragged down overall results: (1) Henan last year, FSY worked with the local government for a tomb relocation program that generated one-time revenue of Rmb25mn that did not recur in 2016; and (2) Chongqing the local government recently invested in its own funeral parlor, making competition in the local market more intense and leading to the bad operating results. M&A according to plan and our estimates. FSY is continuing to work on potential acquisitions, some of which are partnerships with local governments. FSY is planning to acquire two to three projects in 2H16 (we expect two more for 2H16). FSY is also helping the Beijing/Jiangxi government with some employee training programs and that could lead to more partnerships or possible M&A in the future. New crematoria being developed. FSY is planning to promote new hightech cremation machines nationwide in 2H16. New environmental regulations will be in force next January, and FSY believes most, if not all, current machines used in the market are all below the standard. FSY s newly developed machines (which have passed gas emission tests) might be another new business driver in a two- to three-year timeframe. 1H16 results show slowdown in sales FSY reported 1H16 sales growth of 9%, to Rmb642mn, which was 12% below our estimate. There is no reliable 1H16 consensus, but our FY16 sales estimate is 3% below consensus. Sales growth was slower in 1H16 (up 9% YY) than in 1H15 (up 43%YY) in most regions, but especially poor (sales decline) in Henan and Chongqing, as these two cemeteries had an exceptionally strong 1H15. 1H16 GPM improved slightly, to 78.9%, and EBIT margin improved 3%, to 42.7%, on strong control over selling expenses. Overall, NP growth of 12% was 15% below our estimate due mainly to weak sales. There is no reliable 1H16 EPS estimate, but our FY16E EPS of Rmb0.17 is in line with consensus. Table 1: FSY 1H16 results Rmb in millions 1H15 1H16 Y/Y 1H16E Var Turnover 588 642 9% 731-12.3% Gross profit 459 506 10% 565-10.4% Gross margins 78.1% 78.9% 77.3% EBIT 232 274 18% 305-10.2% EBIT margins 39.5% 42.7% 41.8% Net profit 159 178 12% 210-15.2% Net margins 27.0% 12.0% 32.0% EPS 0.03 0.03 12% 0.04-15.2% Source: Company data, J.P. Morgan estimates. 3

Lowering sales and net profit estimates Given the declining pace of cemetery plot sales seen in 1H16 results, we have lowered our FY16 and FY17 sales growth expectations. Our margin expectations remain unchanged, and NP is revised down 10% for FY16 and 12% for FY17, respectively. Our new EPS estimates are 5% and 8% below consensus, respectively, but consensus probably has not factored in the 1H16 results. The key to an improvement in sales is an acceleration of new acquisitions (currently one each quarter), which would require more cash outflow and should prompt management to accelerate plot sales. Any deregulation that makes it easier for people to buy plots without current strict restrictions (inneed conditions before cemeteries can be purchased) would also lift sales revenues. However, neither of these factors is easy to predict or likely in the near future. We lower our Dec-17 PT to HK$6 (from HK$6.80) due to the lower earnings. Table 2: Estimate changes New Old Chg. Rmb in millions FY16E FY17E FY16E FY17E FY16E FY17E Turnover 1,225 1,525 1,379 1,743-11.1% -12.5% Gross profit 940 1,152 1,058 1,321-11.2% -12.8% EBIT 472 591 532 680-11.3% -13.0% Net profit 329 396 365 451-10.0% -12.2% EPS (Rmb) 0.156 0.187 0.173 0.213-10.0% -12.2% Assumptions Gross margin 76.7% 75.6% 76.8% 75.8% -0.1% -0.2% Source: J.P. Morgan estimates. Valuation analysis DCF valuation Our Dec-17 PT is based on a DCF valuation that assumes a market risk premium of 6.0% and a risk-free rate of 4.2% (the yield on 10-year government notes in China). We assume a beta of 1.2. Accordingly, WACC is assumed at 11.4%. We estimate free cash flow for FSY until 2020 and assume a terminal growth rate of 3%. The terminal growth is based on the annual growth rate expected in 2020 (the final year of the estimate period) subject to a minimum of 1.5% and a maximum of 4.5%, depending on the nature of the industry and the level of maturity in China. We also analyze the DCF price sensitivity to WACC, and the terminal multiple. 4

Table 3: FSY Base-case DCF analysis HK$ in millions, year-end Dec 2013 2014 2015E 2016E 2017E 2018E 2019E Terminal Cash flow estimates Sales 612 795 1,108 1,225 1,525 1,942 2,475 3,153 EBIT 263 287 404 472 591 794 1,061 1,411 NOPAT 263 209 337 375 464 623 832 1,106 Capex, net (75) (534) (648) (648) (662) (677) (692) (171) Depreciation 28 32 56 58 61 64 67 68 Change in working capital (73) 49 (38) (8) (20) (28) (50) (28) Free operating CF (FoCF) 143 (243) (293) (222) (156) (15) 160 980 DCF Parameters Assumptions Liabilities as a % of EV 0% Terminal growth 4.0% WACC 11.4% Risk-free rate 4.2% Market risk 6.0% Enterprise NPV (10-16E) 10,221 Beta 1.20 + Net cash (debt), 14E 804 Cost of debt 4.0% - Minorities (Market value) (138) +/- Other items 0 Implied exit P/E multiple (x) 15x = Equity value 10,887 / Number of shares 2,134 = Equity value per share (HK$) 6.0 Source: Company data, J.P. Morgan estimates. Table 4: FSY Sensitivity analysis based on WACC and perpetual terminal growth rate WACC Source: J.P. Morgan estimates. Terminal growth rate 7.0 2.5% 3% 3.5% 4.0% 4.5% 5.0% 5.5% 9.9% 6.2 6.6 7.1 7.6 8.3 9.1 10.1 10.4% 5.7 6.1 6.5 7.0 7.5 8.2 9.0 10.9% 5.4 5.7 6.0 6.4 6.9 7.5 8.1 11.4% 5.0 5.3 5.6 6.0 6.4 6.8 7.4 11.9% 4.7 5.0 5.3 5.6 5.9 6.3 6.8 12.4% 4.5 4.7 4.9 5.2 5.5 5.8 6.2 12.9% 4.2 4.4 4.6 4.9 5.1 5.4 5.8 5

Table 5: FSY P&L statement Rmb in millions 2013 2014 2015 2016E 2017E 2018E Total Revenues 612 795 1,108 1,225 1,525 1,942 YoY change (%) 27.5% 30.0% 39.4% 10.6% 24.4% 27.4% Cost of Goods Sold (120) (159) (248) (285) (373) (470) YoY change (%) 28.3% 32.5% 55.8% 15.1% 30.5% 26.0% Gross Profit 492 636 860 940 1,152 1,473 YoY change (%) 27.3% 29.3% 35.2% 9.3% 22.6% 27.9% Gross Margin 80.4% 80.0% 77.6% 76.7% 75.6% 75.8% SGA (229) (349) (456) (468) (561) (679) YoY change (%) 14.9% 52.5% 30.5% 2.6% 19.9% 21.0% Operating profit 263 287 404 472 591 794 EBITDA 290 319 460 530 652 858 EBITDA margin 47.5% 40.1% 41.5% 43.3% 42.8% 44.2% Depreciation & Amortization (28) (32) (56) (58) (61) (64) YoY change (%) 39.6% 17.1% 71.6% 4.3% 4.7% 4.7% EBIT 263 287 404 472 591 794 EBIT margin 42.9% 36.1% 36.5% 38.5% 38.8% 40.9% Net Interest Expense 1 51 32 44 33 23 Exceptional item 0 0 0 0 0 0 Associates 0 0 0 0 0 0 Gains/losses 23 4 24 26 29 32 Net Income Before Taxes 260 340 459 541 651 847 YoY change (%) 20.3% 30.6% 35.0% 18.0% 20.4% 30.1% Tax (70) (56) (94) (117) (141) (183) Effective Tax rate 27.0% 16.5% 20.6% 21.6% 21.6% 21.6% Minority Interests (23) (55) (81) (95) (115) (149) Net Income 167 230 284 329 396 515 Source: Company data, J.P. Morgan estimates Table 6: FSY Cash flow statement Rmb in millions 2013 2014 2015 2016E 2017E 2018E EBIT 263 287 404 472 591 794 Depreciation and Amortization 28 32 56 58 61 64 Working Capital Changes (73) 49 (38) (8) (20) (28) Net Interest 1 51 32 44 33 23 Tax Paid (56) (70) (56) (94) (117) (141) Cash Flow From Operations 162 349 397 472 548 713 Capital expenditures (75) (77) (48) (120) (124) (127) Investments and others 69 (456) (600) (528) (539) (550) Cash Flow from Investing (5) (534) (420) (648) (662) (677) Free Cash Flow 157 (185) (23) (177) (115) 36 Payment of Cash Dividends (32) (192) (73) (110) (131) (164) Increase in Common Equity 1,216 174 12 0 0 0 Issuance of Debt (16) (4) 98 7 8 9 Other Financing Charges, Net (68) (41) (34) 11 11 11 Cash Flow from financing 1,101 (62) 3 (92) (112) (145) Change in cash 1,258 (247) (20) (269) (227) (109) Cash beginning 287 1,544 1,297 1,277 1,008 781 Foreign exchange changes (1) 0 0 0 0 0 Cash at end 1,544 1,297 1,277 1,008 781 672 Source: Company data, J.P. Morgan estimates 6

Table 7: FSY Balance sheet Rmb in millions 2013 2014 2015 2016E 2017E 2018E Cash and Cash Equivalents 1,544 1,297 1,277 1,008 781 672 Inventories 183 216 340 375 467 595 Accounts receivable 0 0 10 11 15 19 Other Current Assets 21 20 25 28 32 28 Total Current Assets 1,748 1,533 1,651 1,423 1,294 1,314 Property and Equipment 188 913 1,430 1,493 1,557 1,622 Other Assets 533 489 483 1,011 1,550 2,099 Non-Current assets 720 1,403 1,912 2,504 3,106 3,721 Total Assets 2,468 2,935 3,564 3,926 4,401 5,035 Trade payables, accruals & other payables 171 258 278 307 382 487 Other 171 13 16 14 14 14 Current income tax payable 131 123 126 148 172 215 Bank and other loans 39 56 64 63 62 62 Total Current Liabilities 512 451 483 533 631 777 Long-term Debt 38 38 142 141 139 138 Other Noncurrent Liability 0 (0) 0 0 0 0 Noncurrent liabilities 211 272 431 438 447 456 Total Liabilities 723 723 914 971 1,078 1,234 Share capital 121 126 127 127 127 127 Retained earnings 1,459 1,858 2,109 2,320 2,573 2,902 Total Shareholders' Equity 1,580 1,983 2,236 2,446 2,699 3,029 Minority Interest 165 229 414 509 624 773 Total Shareholders' Equity 1,745 2,212 2,650 2,955 3,323 3,801 Total Liabilities and Equity 2,468 2,935 3,564 3,926 4,401 5,035 Source: Company data, J.P. Morgan estimates 7

Investment Thesis, Valuation and Risks Fu Shou Yuan International (Overweight; Price Target: HK$6.00) Investment Thesis FSY is the largest provider of death care services in the PRC in terms of revenue and geographical coverage, and has two main businesses, burial and funeral services. Demand is rising as incomes rise in China. FSY has strong organic growth with stable healthy margins. Additional growth can come from M&A activities, as FSY is using its brand and strong balance sheet to consolidate a fragmented market. Valuation Our Dec-17 PT is based on a DCF valuation that assumes a market risk premium of 6.0% and a risk-free rate of 4.2% (the yield on 10-year government notes in China). We assume a beta of 1.2. Accordingly, WACC is assumed at 11.4%. We estimate free cash flow for FSY until 2020 and assume a terminal growth rate of 3%. The terminal growth is based on the annual growth rate expected in 2020 (the final year of the estimate period) subject to a minimum of 1.5% and a maximum of 4.5%, depending on the nature of the industry and the level of maturity in China. Risks to Rating and Price Target Key risks to our rating and PT include the rising cost of buying land for cemeteries in China and low barriers to entry, with potential new entrants lowering prices and putting pressure on FSY s margins. 8

Fu Shou Yuan International: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Revenues 795 1,108 1,225 1,525 1,942 EBIT 287 404 472 591 794 % change Y/Y 30.0% 39.4% 10.6% 24.4% 27.4% Depr. & amortization 32 56 58 61 64 Gross Profit - - - - - Change in working capital 49 (38) (8) (20) (28) % change Y/Y - - - - - Taxes - - - - - EBITDA 320 462 532 654 861 Cash flow from operations 348 397 472 548 713 % change Y/Y 2.2% 44.3% 15.3% 23.0% 31.5% EBIT 287 404 472 591 794 Capex (77) (48) (120) (124) (127) % change Y/Y 9.1% 41.0% 16.8% 25.2% 34.3% Net Interest 51 32 44 33 23 EBIT Margin 36.1% 36.5% 38.5% 38.8% 40.9% Other (456) (372) (528) (539) (550) Net Interest 51 32 44 33 23 Free cash flow (185) (23) (177) (115) 36 Earnings before tax 341 460 542 653 849 % change Y/Y 30.9% 34.7% 18.0% 20.4% 30.1% Tax (56) (94) (117) (141) (183) Equity raised/(repaid) 174 12 0 0 0 as % of EBT 16.5% 20.5% 21.5% 21.5% 21.5% Debt raised/(repaid) (17) 2 2 2 2 Net income (reported) 231 285 328 396 515 Other (28) 62 16 17 17 % change Y/Y 38.1% 23.0% 15.4% 20.5% 30.2% Dividends paid (192) (73) (110) (131) (164) Shares outstanding 0 0 0 0 0 Beginning cash 1,544 1,297 1,277 1,008 781 EPS (reported) 0.11 0.13 0.16 0.19 0.24 Ending cash 1,243 1,277 1,008 781 672 % change Y/Y 1.3% 20.6% 15.4% 20.5% 30.2% DPS 0.03 0.05 0.06 0.07 0.09 Balance sheet Ratio Analysis Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Cash and cash equivalents 1,297 1,277 1,008 781 672 Gross margin - - - - - Accounts receivable 0 10 11 15 19 EBITDA margin 40.2% 41.7% 43.4% 42.9% 44.3% Inventories 216 340 375 467 595 Operating margin 36.1% 36.5% 38.5% 38.8% 40.9% Others 20 25 28 32 28 Net margin 29.1% 25.7% 26.8% 25.9% 26.5% Current assets 1,533 1,651 1,423 1,294 1,314 Sales per share growth (4.7%) 36.7% 10.6% 24.4% 27.4% LT investments 489 483 1,011 1,550 2,099 Sales growth 30.0% 39.4% 10.6% 24.4% 27.4% Net fixed assets 913 1,430 1,493 1,557 1,622 Net profit growth 38.1% 23.0% 15.4% 20.5% 30.2% Total Assets 2,935 3,564 3,926 4,401 5,035 EPS growth 1.3% 20.6% 15.4% 20.5% 30.2% Liabilities Interest coverage (x) NM NM NM NM NM Short-term loans 56 64 63 62 62 Payables 258 278 307 382 487 Net debt to equity (54.3%) (40.4%) (27.2%) (17.4%) (12.4%) Others 136 142 163 186 229 Working Capital to Sales 1.4 1.1 0.7 0.4 0.3 Total current liabilities 451 483 533 631 777 Sales/assets 0.3 0.3 0.3 0.4 0.4 Long-term debt 38 142 141 139 138 Assets/equity 1.5 1.5 1.6 1.6 1.6 Other liabilities 234 288 297 307 318 ROE 13.0% 13.5% 14.0% 15.4% 18.0% Total Liabilities 723 914 971 1,078 1,234 ROCE 12.8% 14.2% 14.6% 16.7% 20.3% Shareholders' equity 1,983 2,236 2,446 2,699 3,029 BVPS 0.96 1.05 1.15 1.26 1.42 Source: Company reports and J.P. Morgan estimates. 9

JPM Q-Profile Fu Shou Yuan International Group Ltd. (CHINA / Consumer Discretionary) As Of: 04-Aug-2016 Quant_Strategy@jpmorgan.com Local Share Price Current: 5.35 12 Mth Forward EPS Current: 0.19 7.00 0.25 6.00 5.00 0.20 4.00 0.15 3.00 2.00 0.10 1.00 0.05 0.00 Apr/02 Jan/03 Oct/03 Jul/04 Apr/05 Jan/06 Oct/06 Apr/08 Jan/09 Oct/09 Jul/10 Apr/11 Jan/12 Oct/12 Apr/14 Jan/15 Oct/15 Jul/16 0.00 Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 PE (1Yr Forward) Current: 24.0x P/E Relative to China Index Current: 2.17 35.0x 3.50 30.0x 3.00 25.0x 2.50 20.0x 2.00 15.0x 1.50 10.0x 1.00 5.0x 0.50 0.0x Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 0.00 Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 Earnings Yield (& Local Bond Yield) Current: 4.16% Dividend Yield (Trailing) Current: 0.85 6% 12Mth fwd EY China BY Proxy 1.4 1.2 5% 1.0 4% 0.8 3% 0.6 2% 0.4 1% 0.2 0% Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 0.0 Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 ROE (Trailing) Current: 13.48 Price/Book (Value) Current: 4.3x 60.00 6.0x P/B Trailing P/B Forward 50.00 5.0x 40.00 30.00 20.00 10.00 4.0x 3.0x 2.0x 1.0x 0.00 Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Summary Fu Shou Yuan International Group Ltd. 1453.15 As Of: 04-Aug-16 CHINA 1.384047 TICKER 1448 HK Equity Local Price: 5.35 Consumer Discretionary Diversified Consumer Services EPS: 0.19 Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg 12mth Forward PE 24.02x P/BV (Trailing) 4.27x 2.82 5.07 4.04 3.95 5.14 2.77-34% 19% -5% -7% Dividend Yield (Trailing) 0.85 0.00 1.16 0.84 0.58 1.49-0.33-100% 35% -1% -32% ROE (Trailing) 13.48 12.93 50.00 18.35 29.68 64.83-5.47-4% 271% 36% 120% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 0.0x Mar/02 Nov/02 Jul/03 Mar/04 Nov/04 Jul/05 Mar/06 Nov/06 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Mar/14 Nov/14 Jul/15 Mar/16 10

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 Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in securities issued by Fu Shou Yuan International. Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of Fu Shou Yuan International. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, 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. Fu Shou Yuan International (1448.HK, 1448 HK) Price Chart 10 9 8 OW HK$7.6 Price(HK$) 7 6 5 4 3 2 OW HK$7 OW HK$6.8 Date Rating Share Price (HK$) 08-Jun-15 OW 4.41 7.00 12-Aug-15 OW 4.55 7.60 25-Jul-16 OW 5.24 6.80 Price Target (HK$) 1 0 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Jun 08, 2015. 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 11

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