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					                                                                             MORGAN                STANLEY                 RESEARCH
                                                                             ASIA/PACIFIC


                                                                             Morgan Stanley Asia Limited+              Angela Moh
                       Morgan Stanley appreciates your support in the
                       Institutional Investor 2013 All-Asia Research                                                   Angela.Moh@morganstanley.com
                       and Sales Team Survey.                                                                          +852 2848 5405
                       Request your ballot.                                                                            Robert Lin
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                       view all
                                                                                                                       Lillian Lou
                                                                                                                       Lillian.Lou@morganstanley.com
January 16, 2013
                                                                                                                       Robby Gu
                                                                                                                       Robby.Gu@morganstanley.com

HK/China Consumer                                                                                                      Edward Lui
                                                                                                                       Edward.Lui@morganstanley.com

2013 Picks: Most Preferred
                                                                             Industry Views
and Least Preferred                                                          Industry                                                                    Industry View

                                                                             China Agricultural Products                                                    Attractive
                                                                             China Branded Sports Apparel and                                                  In-Line
We currently prefer Consumer Discretionary to                                 Footwear
Consumer Staples and expect the outperformance                               China Department Stores                                                           In-Line
to be driven by recovering sales growth and                                  China Food, Bev. & Tobacco                                                     Attractive
multiple re-rating. We remain selective on                                   China Home Improvement                                                            In-Line
global/export names, as the external macro                                   China Juvenile Products                                                        Attractive
environment continues to be difficult.                                       China Textiles, Apparel and Footwear                                           Attractive
                                                                             China Watch & Jewelry                                                          Attractive
                                                                             Hong Kong Consumer                                                             Attractive
In discretionary, consensus has preferred industry
                                                                             Hong Kong Retail                                                                  In-Line
leaders … : We expect sales growth to stabilize and
recover modestly in 2013, paving the way for share price
outperformance for the cyclicals in 1H13. MS China RSLI
                                                                             Most and Least Preferred Stocks
is starting to show signs of a pickup in April and May. The
inflection upwards could signal a re-rating if the past                               Most Preferred                 Shr Px          RT          PT         13e PE
                                                                               #1     Luk Fook                         28.4          OW         31.6          10.4
relationship between retail sales and valuation holds.
                                                                               #2     Chow Sang Sang                   21.0          OW         24.6          10.3
                                                                               #3     Belle                            17.3          OW         17.5          21.7
… but there are also “hidden gems”: These are stocks                           #4     Springland                        4.5          OW         5.2           13.6
that offer similarly attractive earnings growth recovery but                   #5     Mengniu                          23.5          OW         26.0          19.2
trade at substantial discounts.                                                       Least Preferred                Shr Px          RT          PT         13e PE
                                                                               #1     Li Ning                           6.1          UW         3.2            NM
                                                                               #2     Esprit                           10.9          UW         8.7            NM
In staples, we prefer restructuring/recovery names,
                                                                               #3     Tsingtao                         45.4          UW         36.0          24.3
as valuations are relatively high: Fundamentally, sales                        #4     Yue Yuen                         25.5          EW         25.9          10.3
growth is the key market focus and the main driver for                       Prices as of Jan. 15, 2013
earnings growth in 2013, with less tailwind from raw                         Source: Thomson Reuters, Morgan Stanley Research (e) estimates

material costs than in 2012 and continued investment in
marketing and promotion amid competition. Sector
valuation has generally factored in growth expectations
for 2013, in our view. We believe that stocks with greater
clarity on growth beyond 2013 or that are temporarily
undervalued will provide better opportunities.

In global/export segment, we prefer stocks exposed
to Asia: According to Morgan Stanley economists’
                                                                             Morgan Stanley does and seeks to do business with
forecasts for 2013, global GDP will grow 3.1%, US growth                     companies covered in Morgan Stanley Research. As
will slow to 1.4%, and the Euro area will face another                       a result, investors should be aware that the firm may
contraction, at -0.5%.                                                       have a conflict of interest that could affect the
                                                                             objectivity of Morgan Stanley Research. Investors
Our top picks are Luk Fook, Chow Sang Sang, Belle,                           should consider Morgan Stanley Research as only a
                                                                             single factor in making their investment decision.
Springland and Mengniu. Least favored stocks are Li
Ning, Esprit, Tsingtao, and Yue Yuen.                                        For analyst certification and other important
                                                                             disclosures, refer to the Disclosure Section,
                                                                             located at the end of this report.
                                                                             += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be
                                                                             associated persons of the member and may not be subject to NASD/NYSE restrictions on
                                                                             communications with a subject company, public appearances and trading securities held by a
                                                                             research analyst account.
                                                                                              MORGAN                STANLEY                     RESEARCH

                                                                                              January 16, 2013
                                                                                              HK/China Consumer




Investment Case
Summary & Conclusions                                                                         Exhibit 2
                                                                                              2012 Market Cap-weighted Stock Performance and
2012 was a relatively difficult year for most consumer                                        Earnings Revisions by Segment
companies. While staples companies are generally more
                                                                                               Stock Performance                                                      2012 Full Year Performance
defensive, the FMCG companies were not immune to the
                                                                                               120%                                                                   2012e Earnings Revision
slower macro environment. Nevertheless, we saw investors                                                  90%
hide in staples to a greater degree, and the valuation gap                                      80%
between staples and discretionary names widened to an
all-time high of 40% in late 3Q12. Amid recent hopes of                                         40%
improvement in the macro backdrop, discretionary names have                                                14% 14%              10%            5%        3%
moved up more strongly, and the valuation gap is starting to                                     0%
narrow a bit.                                                                                                        -11% -16% -13%                        -9% -4%   -9%
                                                                                                                                                                 -19% -25% -18% -20%
                                                                                               -40%
                                                                                                                                                                                  -35%
Exhibit 1
                                                                                                                                                                                                -57%
Wide value gap among consumer segments                                                         -80%




                                                                                                                                                                                     Jewelry
                                                                                                                                                         Downstream
                                                                                                           Global

                                                                                                                    Specialty


                                                                                                                                 Food Retail


                                                                                                                                                Export




                                                                                                                                                                        Dept Store




                                                                                                                                                                                                          Sports
                                                                                                                                                                                               Upstream
                                                                                                                                                                                     & Gold
                                   12M Forward P/E




                                                                                                                     Retail




                                                                                                                                                                                                Staple
                                                                                                                                                           Staple
  50
                                                 Discretionary
  45                                             Staples
  40                                             Export plays
                                                 Staples (ex-Mengniu)
  35                                             Global Retail (ex-Esprit)                    Source: Company Data, Morgan Stanley Research, Thomson Reuters
  30
                                                                                              China Retail Sales Leading Indicator (RSLI) Bottoming Out
  25
                                                                                              and Showing Signs of Reacceleration
  20
                                                                                              After a full year of deceleration, our proprietary China RSLI is
  15
                                                                                              starting to point to a pickup in April and May 2013, having
  10
                                                                                              flattened for two months (Exhibit 3). Key driving factors for our
   5
                                                                                              RSLI are residential property prices, food & beverage sales as
   0
                                                                                              a percentage of total retail sales and YoY change in 3-month
       May-05



       May-06



       May-07



       May-08



       May-09



       May-10



       May-11



       May-12
       Jan-05

       Sep-05
       Jan-06

       Sep-06
       Jan-07

       Sep-07
       Jan-08

       Sep-08
       Jan-09

       Sep-09
       Jan-10

       Sep-10
       Jan-11

       Sep-11
       Jan-12

       Sep-12
       Jan-13




                                                                                              deposit rate. The recent uptick in our RSLI was driven mainly
                                                                                              by some pickup in property prices. Our property team is
Staples P/E includes: China Agri, China Foods, China Resource, Hengan, Mengniu, Sun Art,      expecting a mild increase in prices in China this year, in the
Tingyi, Tsingtao, Uni-President China, Want Want, Yurun.
Discretionary P/E includes: Anta, Belle, Dongxiang, Gome, Lining, Ports, Pou Sheng, Daphne,   low- to mid-single digits. If so, this would imply a more mild
Xinyu Hengdeli, New World, Parkson, Golden Eagle, Intime, Luk Fook, Chow Sang Sang and        upward swing in our RSLI in the coming months. Nonetheless,
Chow Tai Fook.
Export Plays P/E includes: Li & Fung, Yue Yuen.                                               should the past relationship between the stocks’ valuation
Global Plays P/E Includes: Esprit, Giordano, Prada, Samsonite.
Source: Company Data, Morgan Stanley Research                                                 multiples and the retail sales growth trend hold, the inflection
                                                                                              upwards should be a signal of a possible re-rating for the
                                                                                              stocks. In the past, valuations have tended to peak/trough 6-8
                                                                                              months before retail sales growth does (Exhibits 4-5), although
                                                                                              this year there has been a lot more volatility.




                                                                                                                                                                                                                   2
                                                                                                                                                                                                                       MORGAN        STANLEY        RESEARCH

                                                                                                                                                                                                                       January 16, 2013
                                                                                                                                                                                                                       HK/China Consumer




Exhibit 3                                                                                                                                                                                                              Focusing on Mix of Sector Leaders and “Hidden Gems” in
Retail Sales Leading Indicator: Bottoming out in 1Q13                                                                                                                                                                  Discretionary and Restructuring Stories in Staples
and picking up 2Q13
 25%                                                                                                                                                                                                                   In the discretionary/retail segment, we expect sales growth to
                 R-square = 0.81                                                                                                                                                                                       stabilize and modestly recover in 2013, paving the way for share
 20%                                                                                                                                                                                                                   price outperformance for the cyclicals in 1H13. Share price
                                                                                                                                                                                                                       performance of the retailing segments is already off to a good
 15%                                                                                                                                                                                                                   start and will likely outperform in 1H as the market factors in a
                                                                                                                                                                                                                       recovering economy that should eventually boost consumer
 10%                                                                                                                                                                                                                   confidence and sales. Based on this broad recovery thesis, the
                                                                                                                                                                                      May-13E                          consensus has preferred the leaders in the respective segments,
  5%                                                                                                                                                                                  12.5%                            but there are also “hidden gems” -- companies that offer similarly
                                                                                                                                                                                                                       attractive earnings growth recovery and trade at substantial
  0%
                                                                                                                                                                                                                       discounts. We think a selective blend between sector leaders
        Jan-00


                   Jan-01


                                Jan-02


                                           Jan-03


                                                        Jan-04


                                                                      Jan-05


                                                                                        Jan-06


                                                                                                          Jan-07


                                                                                                                            Jan-08


                                                                                                                                              Jan-09


                                                                                                                                                                 Jan-10


                                                                                                                                                                                   Jan-11


                                                                                                                                                                                                 Jan-12


                                                                                                                                                                                                              Jan-13

                                                                                                                                                                                                                       and “hidden gems” would outperform in 1H13 in a normalizing
       Leading Indicator                            China Retail Sales YoY Growth                                                                               +1 Stdev                                  -1 Stdev     growth environment. We prefer companies that exhibit: 1)
Source: Company data, Morgan Stanley Research. E=Morgan Stanley Research estimates.                                                                                                                                    relatively stronger SSSG (same-store sales growth) recovery, 2)
                                                                                                                                                                                                                       stable gross margins, 3) fixed cost leverage and 4) low-base
                                                                                                                                                                                                                       comparisons, thanks to 2012 restructuring. Our preferred picks
Exhibit 4                                                                                                                                                                                                              in discretionary retail currently are: Luk Fook, Chow Sang Sang,
MS RSLI vs. Staples P/E                                                                                                                                                                                                Belle, NWDS and Springland.
 30%                                                                                                                                                                                                            50
                             MS Retail Sales Leading Indicator
                                                                                                                                                                                                                45
                                                                                                                                                                                                                       In staples, we see better value emerging from restructuring/
 25%                         MS Staple PE                                                                                                                                                                              recovery name Mengniu with re-rating potential when
                                                                                                                                                                                                                40
                                                                                                                                                                                                                35     operations resume growth momentum. We also rate China Agri
 20%
                                                                                                                                                                                                                30     Overweight, based on its undemanding valuation, and we
 15%                                                                                                                                                                                                            25     expect some recovery in crushing margin with better pricing of
                                                                                                                                                                                                                20     final crushing products in China. We maintain a relatively
 10%
                                                                                                                                                                                                                15     cautious stance on beverages and beer, given intensifying
  5%
                                                                                                                                                                                                                10     competition. With less raw material cost tailwind than in 2012, it
                                                                                                                                                                                                                5      will be more difficult to protect margins while fighting for market
  0%                                                                                                                                                                                                            -
                                                                                                                                                                                                                       share, we expect. We rate Tsingtao Underweight. For Want
        Jan/00

                   Jan/01

                               Jan/02

                                         Jan/03

                                                    Jan/04

                                                                 Jan/05

                                                                               Jan/06

                                                                                                 Jan/07

                                                                                                                   Jan/08

                                                                                                                                     Jan/09

                                                                                                                                                       Jan/10

                                                                                                                                                                          Jan/11

                                                                                                                                                                                        Jan/12

                                                                                                                                                                                                     Jan/13




                                                                                                                                                                                                                       Want and Sun Art, we would wait for a correction before adding
                                                                                                                                                                                                                       to positions in these two names. We would also look to pick up
Source: Company data, Morgan Stanley Research. E=Morgan Stanley Research estimates.                                                                                                                                    UPC on pullbacks. While noting the near-term headwind of
Exhibit 5
                                                                                                                                                                                                                       slowing demand for high-end liquor due to tightening control
MS RSLI vs. Discretionary P/E                                                                                                                                                                                          over government entertainment activities, we remain positive
                                                                                                                                                                                                                       on Moutai’s long-term value from its strong brand equity.
  30%                                                                                                                                                                                                           40
                             MS Retail Sales Leading Indicator
                             MS Discretionary PE                                                                                                                                                                35
  25%
                                                                                                                                                                                                                30
  20%
                                                                                                                                                                                                                25

  15%                                                                                                                                                                                                           20

                                                                                                                                                                                                                15
  10%
                                                                                                                                                                                                                10
   5%
                                                                                                                                                                                                                5

   0%                                                                                                                                                                                                           -
          Jan/00

                    Jan/01

                                Jan/02

                                          Jan/03

                                                    Jan/04

                                                                 Jan/05

                                                                               Jan/06

                                                                                                 Jan/07

                                                                                                                   Jan/08

                                                                                                                                     Jan/09

                                                                                                                                                       Jan/10

                                                                                                                                                                          Jan/11

                                                                                                                                                                                        Jan/12

                                                                                                                                                                                                    Jan/13




Source: Company data, Morgan Stanley Research. E=Morgan Stanley Research estimates.




                                                                                                                                                                                                                                                                                       3
                                                                                              MORGAN            STANLEY             RESEARCH

                                                                                              January 16, 2013
                                                                                              HK/China Consumer




 Ranking             Most Preferred                                                                Least Preferred
      #1             Luk Fook – Franchisees’ restocking and low comps to                           Li Ning – Cash flow and balance sheet moving to our
                     drive sales outperformance.                                                   Bear Case scenario, potentially translating to higher
                                                                                                   refinancing risk.
      #2             Chow Sang Sang – Should benefit from recovery in                              Esprit – Near-term earnings weakness on falling
                     higher-tier cities, strong operating leverage.                                revenue, weaker gross margin and still high costs.
                                                                                                   Execution risk on Transformation Plan remains high.

      #3             Belle – A volume-led pickup in SSSG should offset lack                        Tsingtao – Volume-driven strategy could slow ASP
                     of ASP rise, and we expect gross margin to improve.                           hike and incur increasing expenses.

      #4             Springland – 2012 completion of restructuring at a few                        Yue Yuen – Potential gross margin pressure from tail
                     key stores should support SSSG recovery. Fewer new                            risk of multi-year Indonesia minimum wage increase.
                     stores translate to less margin dilution.                                     Softer footwear growth in the US also puts pressure on
                                                                                                   the top line.
      #5             Mengniu – Corporate restructuring and consumption
                     growth to drive recovery and re-rating.



Exhibit 6
Performance and Valuation of Most Preferred / Least Preferred

x                                                                                                                                               x
                                                                                                      Calendarised 2013E PE vs. Recurring Earnings
                            2012 Stock Performance                                                                      growth
                                                                                                                                                                          10
                           -25%                                                               Luk Fook               10.4                                     25%
     Luk Fook
                                     -10%
                                                                                                                                                                          9
    Chow Sang                       -13%                                                   Chow Sang
                                                                                                                     10.3                                     49%
      Sang                                            3%                                     Sang                                                                         8

                                                          9%                                        Belle                             21.7              14%
            Belle
                                                                    24%                                                                                                   7

                      -34%                                                                  Springland                       14.8                   5%
    Springland                                                                                                                                                            6
                                -19%

                                                        6%                                     Mengniu                              19.2                         26%      5
      Mengniu
                                                                  21%

                                -17%                                                         Yue Yuen                 10.8                             10%                4
     Yue Yuen
                                                        5%

                                         -9%                                                                                                                              3
      Tsingtao                                                                                 Tsingtao                                 24.3          10%
                                                         6%

                                          -7%                                                                                                                             2
            Esprit                                                                                 Esprit       * 2013e Net Losses
                                                               16%
                                                                                                                                                                          1
                      -34%
        Li Ning                                                                                  Li Ning        * 2013e Net Losses
                                -18%
                                                                                                                                                                          0
                 -50%        -30%         -10%         10%          30%          50%                        -             10               20            30            40 (x)

                 Absolute Performance                  Relative Performance*                            2013e PE                    2013e Recurring earnings growth
x                                                                                                                                                                  x
* Stock performance vs. segment average performance e = Morgan Stanley Research estimates Source: Company Data, Morgan Stanley Research Price as of 2013/01/15




                                                                                                                                                                                4
                                                                   MORGAN       STANLEY       RESEARCH

                                                                   January 16, 2013
                                                                   HK/China Consumer




Consumer Discretionary / Retail: Recommend a blend of industry
leaders and “hidden gems” for alpha generation
2013 Recommendations / Key Themes                                  regarding retail supply are that: 1) slower real estate
                                                                   investment growth in 2013 will result in slower project launches
Likely stabilization of sales growth and an anticipated            and 2) abundant retail supply should be in the low end /
recovery in 2013 pave the way for share price                      mid-end rather than the mid-range/high end.
outperformance for the cyclicals in 1H13 … Share price
performance of the retailing segments is off to a good start and   No. 3: Channel vs. Brands – this long-term debate is
will likely trend positively in 1H as the market factors in a      unlikely to be resolved in 2013, but market perception is
recovering economy that should eventually boost consumer           key. China’s e-commerce channel is growing exponentially,
confidence and sales. Based on this broad recovery thesis, the     and the market will put more focus on differentiating the risk /
consensus prefers the sector leaders in the respective             reward among traditional channels, specialty retailers and
segments, but there are also “hidden gems” -- companies that       brands. In our view, the disruption from e-commerce for the
offer similarly attractive earnings growth recovery and trade at   box retailers will depend on concentrations in each
substantial discounts. We think a selective blend between          sub-segment and its respective suppliers’ e-commerce
sector leaders and “hidden gems” would outperform in 1H13 in       exposure over time. We also think the explosive growth of
a normalizing growth environment. We prefer companies that         smart phones will both enable and disrupt offline retailers. We
exhibit: 1) SSSG recovery, 2) gross margin stabilization, 3)       will likely see offline retailers aggressively adopting a mobile
fixed cost leverage and 4) low-base comparisons after 2012         strategy for their stores rather than a pure online strategy in
restructuring. Our preferred picks in discretionary retail are:    2013. While the market prefers the brands over the channel on
Belle, NWDS, Springland, Luk Fook, and Chow Sang Sang.             a long-term basis, similar to other developed markets, a
                                                                   profitable trade on this theme in 1H13 remains unclear. (See
… three key themes in 2013 could affect share prices:              page 68 of January 9, 2013, report, eCommerce Disruption: A
                                                                   Global Theme / Transforming Traditional Retail.)
No. 1: High-end vs. Low-end – A consumption-led
economy starts with addressing affordability. While we             2013 Retail Sub-Sector Outlooks
think Chinese demand for luxury goods will continue in 2013,
                                                                   Department stores – A year of normalizing growth
the price gap for luxury brands between China and home
                                                                   This year marks the bottoming and normalizing of SSSG for
countries has continued to widen given euro weakness. This,
                                                                   most department store companies. Barring government-led
coupled with a focus on cracking down on excessive
                                                                   stimulus, we expect SSSG to be relatively steady throughout
government spending, will likely result in soft domestic
                                                                   2013 with a bounce in 1Q SSSG, given a longer Chinese New
high-end demand in 2013. While selective sub-segments in
                                                                   Year (CNY) holiday period and a low base comparison.
low-mid-end retail were burdened with excess inventories in
2012, we expect the level of discounting to ease as inventories
                                                                   We think further sector re-rating hinges on recovery in
are realigned. Companies with attractive product value
                                                                   consumer confidence and property values, as outlined in our
propositions, strong execution, effective inventory control and
                                                                   Nov. 23, 2012, report, Asia Insight: Seeking Value in a
scalability will likely re-rate further.
                                                                   Moderate 2013 Recovery (China Dept. Stores: Asia Insight:
                                                                   Seeking Value in a Moderate 2013 Recovery). Based on our
No. 2: Higher Rental Pressure and Oversupply in Retail – a
                                                                   property price trackers for retailers, which leads SSSG by 3~6
trend suggesting box retailers with prime locations
                                                                   months, a modest recovery in property prices (particularly in
cannot be easily replaced. Most specialty retailers still face
                                                                   higher-tier cities) could provide support for consumption
higher rental pressures as more brands penetrate lower-tier
                                                                   demand as the negative wealth effect from the property
cities for growth. Although the Street was expecting 2012 to be
                                                                   downturn in 2011 and 2012 diminishes.
the first year of abundant retail supply reaching the lower-tier
cities, this trend has failed to alleviate rental pressure for
retailers. The reason: Prime retail locations and destination
stores are hard to replace, which we discussed in our
November 23, 2012, report, Asia Insight: Seeking Value in a
Moderate 2013 Recovery. Our counter-consensus views



                                                                                                                                 5
                                                                                                                                                      MORGAN               STANLEY        RESEARCH

                                                                                                                                                      January 16, 2013
                                                                                                                                                      HK/China Consumer




Exhibit 7                                                                                                                                             Exhibit 8
Bottoming of property prices in cities where these                                                                                                    Price performance since Nov 23, 2012, and YTD 2013
retailers are exposed offers support for improving                                                                                                     Price Performance since Nov. 23, 2012
consumer confidence and spending in 2013                                                                                                                  25%
 Property Indices By Retailers                                                                                                                                    18.5%
                                                                                                                                                          20%                17.9%
    25%
                                                       Jan'08              April'09             Aprl'10                          Dec'11
                                                                                                                                                          15%
                                                                                                                                                                                         14.0%
    20%
                                                                                                                                                          10%
    15%                                                                                                                                                                                                6.7%
                                                                                                                                                                                                               5.1%
    10%                                                                                                                                                   5%

    5%                                                                                                                                                    0%

    0%                                                                                                                                                    -5%                                                           -2.6%
    -5%
                                                                                                                                                      -10%
 -10%                                                                                                                                                             Intime    Springland   NWDS      HS Index   Parkson   Golden
                   Jan-06




                                     Jan-07




                                                       Jan-08




                                                                         Jan-09




                                                                                           Jan-10




                                                                                                               Jan-11




                                                                                                                                   Jan-12
          Jul-05




                            Jul-06




                                              Jul-07




                                                                Jul-08




                                                                                  Jul-09




                                                                                                      Jul-10




                                                                                                                        Jul-11




                                                                                                                                             Jul-12

                                                                                                                                                                                                                        Eagle

                                                                                                                                                       Price Performance YTD 2013
             GE                      Intime                     Parkson                             Springland                              NWDS
                                                                                                                                                          25%

Source: Company Data, Morgan Stanley Research                                                                                                                     19.8%
                                                                                                                                                          20%

                                                                                                                                                          15%
Current industry valuation for sector leaders (i.e., Golden Eagle                                                                                                            10.2%
and Intime) is fair, we believe, at 19~22x forward 2013 P/E.                                                                                              10%

We see value with company-specific catalysts, and our top                                                                                                 5%
                                                                                                                                                                                         4.0%          3.2%
picks within the China Department Store segment are NWDS                                                                                                  0%
and Springland:                                                                                                                                                                                               -1.0%
                                                                                                                                                          -5%
                                                                                                                                                                                                                        -5.8%
•         NWDS (OW) has several key positives that are not                                                                                            -10%
                                                                                                                                                                  Intime    Springland   NWDS      HS Index   Parkson   Golden
          completely priced in, we believe. These include: 1) On an                                                                                                                                                     Eagle
          SSSG basis, NWDS has been outperforming Parkson
                                                                                                                                                      Source: Company Data, Morgan Stanley Research.
          since 4Q10; 2) its increased pipeline of managed stores
          reduces its business model risk; 3) high fixed rental
                                                                                                                                                      Footwear – Volume gains and gross margin upside offset
          income as a percentage of operating income at ~60%
                                                                                                                                                      lackluster ASP growth
          provides earnings visibility. Our FY13 earnings forecast is
                                                                                                                                                      Similar to other discretionary retail segments, the footwear
          currently 8% above consensus. We find the stock
                                                                                                                                                      category’s SSSG will likely pick up in 1Q13 due to low base
          attractively valued at 12x our 2013e P/E.
                                                                                                                                                      comparison, colder weather, and longer CNY holiday. While
                                                                                                                                                      we think there are downside risks to 2012 earnings, sales and
•         Springland (OW) is smaller in scale than Intime but has
                                                                                                                                                      margin for 2013 would be supported by volume gains as well as
          higher sales productivity, margins and cash flow. In
                                                                                                                                                      easing promotions and inventory levels.
          addition to a prudent growth strategy and strong execution
          track record, the company owns ten of the 14 department
                                                                                                                                                      Conversely, we think new store growth will start to slow in an
          stores it operates. At its current price, the stock trades at
                                                                                                                                                      economic recovery scenario as the companies focus on
          13.8x our 2013e P/E, and this level would imply little value
                                                                                                                                                      enhancing store productivity. Emphasis on their multi-brands
          for its supermarket unit.
                                                                                                                                                      strategy both online and offline will be key to becoming more
                                                                                                                                                      competitive in the next three years. We believe that both
                                                                                                                                                      covered footwear retailers will outperform in 2013, for different
                                                                                                                                                      reasons.

                                                                                                                                                      We expect Belle to outperform in 1H and Daphne in 2H:

                                                                                                                                                      •         Belle (OW) maintains its leadership position in the ladies
                                                                                                                                                                footwear segment. Belle has consistently outperformed
                                                                                                                                                                our new stores and gross margin expectations over the




                                                                                                                                                                                                                                 6
                                                                                                                            MORGAN                                   STANLEY                                            RESEARCH

                                                                                                                            January 16, 2013
                                                                                                                            HK/China Consumer




          years, and we expect gross margin to be the main driver                                                           Exhibit 10

          this year. Lower cost from new Anhui plant, easing                                                                P/E (x) Gap: Belle vs. Daphne
          promotional activities and lower level of industry                                                                     0%

          inventories should translate to improving gross margin for
                                                                                                                                -10%
          the footwear segment. High level of inventories for the
                                                                                                                                -20%
          sportswear industry is likely to start showing signs of                                                                                   Target Discount = 30%
          improvement in 2H13, which should bode well for Belle’s                                                               -30%

          leading sportswear retail operation for Nike and Adidas.                                                              -40%
                                                                                                                                                    Historical average = 34%
                                                                                                                                -50%
•         Daphne (OW) faces a tough SSSG comparison in 1H13,
          as gross margin pressure from higher inventory level from                                                             -60%

          2012 poses downside earnings risks. However, given                                                                    -70%

          Daphne’s higher fixed costs and its effort to optimize its
                                                                                                                                -80%
          retail operation in 2H12, we expect operating leverage to




                                                                                                                                                                                                                                                                                                         Nov-11


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                                                                                                                                                                                                                        Aug-09
          kick in in 2H13 with better earnings growth momentum.
          Daphne currently trades at 11x 2013e PE.                                                                          Source: Company Data, Morgan Stanley Research

Exhibit 9
Daphne faces tough 1H13 SSSG comparison, while Belle’s                                                                      Sportswear – Expectations ahead of fundamentals
1Q13 SSSG comparison becomes easier                                                                                         We continue to believe that fundamentals in the sportswear
                                                                                                                            segment will not turn around until 2014, plagued as the
 Qtrly SSSG: Footwear                                                                                                       segment is by over-distribution, excess channel inventory,
    35%
    30%                                                                                                                     increasing competition from casualwear brands, and a
    25%                                                                                                                     misaligned e-commerce strategy for most brands. Please refer
    20%
                                                                                                                            to our Oct report, Video and Interactive Guide: China
    15%
                                                                                                                            Branded Sports Apparel and Footwear: Stress Testing
    10%
    5%                                                                                                                      Refinancing, for details.
    0%
    -5%                                                                                                                     Although the sportswear segment has outperformed the
 -10%                                                                                                                       broader market in the past few months on early signs of
 -15%
                                                                                                                            recovery, we believe optimism is premature. We expect a
 -20%
                                                                                                                            multi-year industry consolidation (2011-14) to exert pressure
            1Q09

                   2Q09

                          3Q09

                                 4Q09

                                        1Q10

                                               2Q10

                                                      3Q10

                                                             4Q10

                                                                    1Q11

                                                                           2Q11

                                                                                  3Q11

                                                                                         4Q11

                                                                                                1Q12

                                                                                                       2Q12

                                                                                                              3Q12

                                                                                                                     4Q12




                                                                                                                            on industry participants’ earnings and balance sheets.
           Belle (Sports)                      Belle (Footwear)                          Daphne (Footwear)
                                                                                                                            More important, Li Ning’s recently announced receivables and
Source: Company Data, Morgan Stanley Research
                                                                                                                            inventory restructuring plan with distributors will likely result in
                                                                                                                            further retail discounting for the segment near-term, forcing
                                                                                                                            other brands’ distributors to do more aggressive discounting to
                                                                                                                            destock. These brands will likely need to provide additional
                                                                                                                            subsidies and/or lower wholesale prices to mitigate the impacts
                                                                                                                            on their retailers. However, if the market continues to discount
                                                                                                                            a medium-term recovery, we would prefer Anta (OW) to Li Ning
                                                                                                                            in the near term.

                                                                                                                            •      ANTA (OW) has a stronger balance sheet and lower
                                                                                                                                   near-term refinance risk under our stress test scenarios. It
                                                                                                                                   is also better positioned during an extended period of
                                                                                                                                   industry consolidation (2012-14, in our view) due to its
                                                                                                                                   lower earnings risk, given a more variable cost structure
                                                                                                                                   than Li Ning’s. Anta’s strong cash flow generation and




                                                                                                                                                                                                                                                                                                                                                      7
                                                                                      MORGAN                                   STANLEY                                            RESEARCH

                                                                                      January 16, 2013
                                                                                      HK/China Consumer




      attractive dividend yield would provide share price support,                               the highest fixed costs among peers, which bodes well for
      giving it an attractive risk-reward profile.                                               operating leverage in an upturn.
                                                                                      •          Chow Tai Fook (EW) should also benefit from restocking,
•     Li Ning (UW) could face refinancing risks as early as 2013                                 but with a milder earnings rebound, as it has lower
      under our bear case scenario, if it fails to restructure its                               exposure to top-tier cities’ recovery and wholesale
      operation in the near term, mismanages its receivables                                     restocking, and more stable margins (highest gold hedging
      collections or conducts more inventory buybacks. We                                        of the four). (Link to CTF’s recent Dec-quarter update)
      advise caution in the near term and do not find the stock                       •          Hengdeli (EW) could see improved high-end watch sales,
      attractive at current levels.                                                              but public scrutiny of watch gifting may curb its potential.

Exhibit 11                                                                            Exhibit 12
Li Ning to need >Rmb900mn per year in net cash in                                     W&J stock valuation tends to lead actual sales growth;
2012-14 to meet short-term obligations, we estimate                                   Sales momentum poised for an upswing
                                                                                       % YoY                           Hong Kong Watch & Jewellery sales                                                       China Gold/silver jewellery sales                                                       P/E
                                                                                                                       W&J Retailer fwd P/E, right
                                 % of annual                                              80%                                                                                                                                                                                                          30x
Li Ning                         bal. settled in      Refinance Case                       70%
                                                                                                                                                                                                                                                                                                       25x
                                     cash          2012e 2013e 2014e                      60%

Major cash obligations                                                                    50%
                                                                                                                                                                                                                                                                                                       20x
Staff expense                        25%              147        159        175           40%

Interest expense                    100%              130        130        130           30%                                                                                                                                                                                                          15x

Operating lease                      25%               71         77         85           20%
                                                                                                                                                                                                                                                                                                       10x
Trade payables                       30%              375        309        335           10%

Other payable/accruals               30%              159        153        165            0%
                                                                                                                                                                                                                                                                                                       5x
Tax payable                         100%               28         28         28           -10%

License fee payable                 100%               72         72         72           -20%                                                                                                                                                                                                         0x
                                                                                                          May-06




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                                                                                                 Jan-06


                                                                                                                   Sep-06
                                                                                                                            Jan-07


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                                                                                                                                                       Jan-08


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                                                                                                                                                                                                                                                                                     Sep-12
                                                                                                                                                                                                                                                                                              Jan-13
Refinance Risk Net Cash Level                        983         929        991
Ending Cash Balance                                1,470
Source: Company Data, Morgan Stanley Research e = Morgan Stanley Research estimates   Source: Company Data, Morgan Stanley Research

                                                                                      Apparel – Lucrative dividend yield despite limited
Watch & Jewelry – W&J retail cycle poised for upswing
                                                                                      earnings growth
We believe that sales momentum is bottoming for the watch &
jewelry segment. Valuation for W&J retailers has historically                         We think the Chinese apparel segment will continue to suffer
tracked closely with, and, in fact, led sales momentum; hence,                        from excess inventory, increasing competition from foreign
we would recommend buying ahead of a forthcoming upswing                              brands, and the lack of a cohesive omni-channel strategy. We
in the sales cycle. On the back of a quickly declining YoY base,                      think a meaningful pickup in earnings growth is unlikely, as 1)
our scenario analysis suggests that 15-20% YoY growth for                             we foresee only a mild SSSG recovery in 2013; 2) margin
FY13 (FY12E: 6%) could be comfortably achieved with                                   pressure from heavy promotion; 3) still high rental and wage
seasonal MoM growth for the next 12 months, while downside                            inflation; 4) higher stock provisions.
is limited (-2% YoY) in a bear case. This is also supported by
our Retail Sales Leading Indicator and Property Price Tracker.                        Our pecking order within the apparel segment is: 1) Bosideng
(Link to our Watch & Jewelry initiation report, with video).                          (OW), 2) Giordano (OW) and 3) Ports Design (EW).

Our pecking order within the Watch & Jewelry segment is: 1)                           •          Bosideng is on a relatively strong footing in terms of the
Luk Fook (OW), 2) Chow Sang Sang (OW), 3) Chow Tai Fook                                          competition landscape in down jackets. It divided its
(EW) and 4) Hengdeli (EW).                                                                       multi-brand POS into single-brand POS in 2012 to further
                                                                                                 differentiate among its own brands and target different
•     Luk Fook (OW) has the most margin upside potential, as                                     groups of customers more effectively. There is some
      it is best placed to benefit from franchisee restocking and a                              increasing competitive pressure at the high end, but
      gold price rise in 2013. Its high fixed-cost ratio should also                             Bosideng remains dominant at the mass-market level. We
      provide strong operating leverage potential.                                               also like its defensiveness and the 7% prospective
•     Chow Sang Sang (OW) has higher exposure to coastal/                                        dividend yield.
      higher-tier cities, which we expect will see a stronger
      recovery following a bigger slowdown in 2012. It also has



                                                                                                                                                                                                                                                                                                            8
                                                                    MORGAN      STANLEY   RESEARCH

                                                                    January 16, 2013
                                                                    HK/China Consumer




•   Giordano has the biggest fixed-cost component and
    therefore is most leveraged operationally if retail recovers.
    However, we do not expect casual wear apparel retail to
    recover meaningfully in 2013 due to competition.
    Meanwhile, rental pressure remains high, and we still
    expect a double-digit total rental increase in 2013. The
    stock has run up recently and, in our view, has almost fully
    priced in the potential retail recovery, trading at 15x 2013e
    PE.
•   Ports Design should recover in 2013, we believe, thanks
    to improving macro, but this may be offset by sluggish
    high-end demand and more competition. Margin pressure
    may persist due to provisioning for high inventory level.
    We find the valuation fair at 8x our 2013e P/E.




                                                                                                     9
                                                                                               MORGAN            STANLEY              RESEARCH

                                                                                               January 16, 2013
                                                                                               HK/China Consumer




                                                                                               Exhibit 14
Consumer Staples                                                                               F&B consumption growth in line with macro trend
                                                                                                                      China F&B: Consumption and Production
2013 Outlook: We think top-line growth from a macro
                                                                                                  50%
recovery and market share gains will be the main earnings                                                              F&B Consumption Growth
                                                                                                  45%
drivers for the leading Food & Beverage and Food Retail                                           40%                  Nominal GDP Growth
companies. Gross margin expansion would likely be capped,                                         35%
as some of the soft commodity prices have edged back                                              30%
upwards. Companies would continue to reinvest the potential                                       25%
cost savings amid market competition. SG&A ratio should                                           20%
remain high, as all key players will be focusing more on market                                   15%

share gain, especially in the beverages and beer segment,                                         10%
                                                                                                   5%
where leading companies have added / are adding capacity. A
                                                                                                   0%
mild uptick in CPI would benefit Food Retail SSSG. Tax rate




                                                                                                        1Q05


                                                                                                               4Q05


                                                                                                                        3Q06


                                                                                                                               2Q07


                                                                                                                                      1Q08


                                                                                                                                             4Q08


                                                                                                                                                     3Q09


                                                                                                                                                            2Q10


                                                                                                                                                                   1Q11


                                                                                                                                                                          4Q11


                                                                                                                                                                                 3Q12
won’t be favorable, as the preferential treatments have been
phasing out. Stock valuation for the segment has fully reflected                               Source: Company Data, Morgan Stanley Research; CEIC
consensus growth expectations for 2013 in general, we believe.
Players with greater clarity on growth beyond 2013 and those                                   Gross Margin flattish: Mix upgrade will likely continue in 2013
temporarily undervalued due to specific reasons should see                                     as product innovation becomes an increasingly important
better returns. Mengniu and China Agri remain our top picks                                    winning factor amid higher consumer requirements for quality,
in the staples universe.                                                                       safety and variety. Tailwind from decline in raw material costs
Top-line growth re-accelerating: We think consumer                                             will likely subside in 2013, although prices of some raw
demand for food and beverages troughed in 2H12. Amid the                                       materials, including palm oil, sugar and soybeans, may
recovery in macroeconomic growth, we expect the growth of                                      continue to see a downward trend (Exhibit 20) in the near term.
F&B consumption to pick up somewhat as some purchasing                                         Overall, we do not expect F&B companies to show a significant
power is unleashed with continuously rising wages and better                                   YoY pickup in gross margin in 2013. The companies will still
sentiment (Exhibit 13 & 14). Additional volume growth could                                    tend to reinvest potential savings to offer better consumer
come from further penetration through not only continued                                       value (e.g., enlarging package size) or in marketing/branding.
exploration of lower-tier markets but also improvement in sales
per point of sales, thanks to more efficient channel                                           Competition keeping SG&A expenditure high: We have not
management.                                                                                    observed much of an increase in industry consolidation during
                                                                                               the downturn. Rather, some leading companies, such as
Exhibit 13                                                                                     Changyu, Mengniu, Tingyi and Yurun, faced difficulties in
Growth in F&B consumption and production started                                               gaining or defending market share in 2012, given weaker
to tick up after the slowdown in 1H12                                                          consumer sentiment, stiffer competition or food safety issues.
                       China F&B: Consumption and Production                                   Furthermore, F&B multinational corporations (MNCs) have
   50%                                                                                   35%   continued to raise their ambitions despite the challenges of the
   45%                                                                                         past year (Exhibit 15). Therefore, we expect competition to
                                                                                         30%
   40%                                                                                         keep companies from cutting SG&A in 2013, and those
   35%                                                                                   25%   companies that can better rationalize the spending will likely be
   30%                                                                                   20%   better able to protect profits (Exhibit 16).
   25%
   20%                                                                                   15%

   15%                                                                                   10%
   10%
                               F&B Consumption Growth                                    5%
    5%                         F&B Production Growth (RHS)
    0%                                                                                   0%
         1Q05

                4Q05

                        3Q06

                                 2Q07

                                        1Q08

                                               4Q08

                                                      3Q09

                                                             2Q10

                                                                    1Q11

                                                                           4Q11

                                                                                  3Q12




Source: Company Data, Morgan Stanley Research
F&B Consumption: Total retail sales by “above designated size enterprises”; source: NBS
F&B Production: Total production volume; source: DRCNET




                                                                                                                                                                                 10
                                                                                                               MORGAN             STANLEY                RESEARCH

                                                                                                               January 16, 2013
                                                                                                               HK/China Consumer




Exhibit 15                                                                                                     replacing old production lines in their existing plants. However,
Multinational F&B Companies Expanding in China                                                                 smaller players such as UPC will continue to add production
                                                                                                               bases to increase product penetration.
   Foreign Brands                        Aggressive Expansion in China
                                                                                                               Exhibit 17
   Coca-Cola                             Continuing its capex plan                                             Capex cycle reached near-term peak in 2011/12
   PepsiCo                               Tying up with Tingyi
                                                                                                                                              Capex/Sales Ratio
   Danone                                Functional drink Mizone achieved                                       30%                                                                        Noodle
                                         record growth amid industry weakness
                                                                                                                25%
   Nestle                                Expanding categories via Yinlu and                                                                                                                Beverage
                                         Hsu Fu Chi acquisitions                                                20%
   Yakult                                Increasing capacity in China for fast-                                                                                                            Dairy
                                                                                                                15%
                                         growing probiotics beverage
                                                                                                                10%                                                                        Red Wine
   AB-InBev                              Expanding capacity aggressively with
                                         greenfield projects and M&A                                             5%
                                                                                                                                                                                           Beer
   Import Goods                          Imports of wines and UHT milk growing
                                                                                                                 0%
                                         exponentially




                                                                                                                                                                           2012E

                                                                                                                                                                                   2013E
                                                                                                                         2005

                                                                                                                                2006

                                                                                                                                       2007

                                                                                                                                               2008

                                                                                                                                                      2009

                                                                                                                                                             2010

                                                                                                                                                                    2011
                                                                                                                                                                                           Spirits
Source: Company Data, Morgan Stanley Research

                                                                                                               Source: Company Data, Morgan Stanley Research
Exhibit 16                                                                                                     Noodle: Tingyi, UPC; Beverage: China Foods, Tingyi, UPC ; Dairy: Mengniu, Yili;
                                                                                                               Red Wine: China Foods, Changyu; Beer: CRE, Tsingtao; Spirits: Lao Jiao, Moutai, Wuliangye
High SG&A for Key Players

  45%                                                                                                          Food Retailers – Big chains become bigger
                      Mengniu                            Tingyi                        UPC                     We believe 2013 will be see further industry consolidation via
  40%                 Want Want                          Yili                          Tsingtao
                                                                                                               both organic store openings and acquisitions. While major
                      CRE - Beer
  35%                                                                                                          foreign Food Retail has scaled back expansion plans and
                                                                                                               proceeded with fundamental restructuring, Sun Art and CRE
  30%                                                                                                          seem to be the only two companies charting an aggressive
  25%
                                                                                                               expansion roadmap in 2013. Sun Art targets to open 50 stores
                                                                                                               this year (2012E: 272 total stores). We expect CRE to maintain
  20%                                                                                                          strong momentum in store opening as it adds 500~600 stores
                                                                                                               in 2013 (2012E: 3,595 total stores). We think it will be easier for
  15%
                                                                                                               the companies to fulfill their plans this year than it was in 2012,
                                                                                               2012E

                                                                                                       2013E
             2001

                    2002

                           2003

                                  2004

                                           2005

                                                  2006

                                                           2007

                                                                  2008

                                                                         2009

                                                                                2010

                                                                                        2011




                                                                                                               as the property development market is reviving.
Source: Company Data, Morgan Stanley Research
                                                                                                               The defensive nature of the food retail category has brought
                                                                                                               challenges of increased competition and a low-inflation
Wage increase as double-edged sword: Staples companies
                                                                                                               environment. In our view, the earnings growth lever from
in general should continue to benefit from rising incomes, but
                                                                                                               scalability through new stores and acquisitions holds the key to
some labor-intensive segments such as food retail are
                                                                                                               gross margin expansion that would offset rising labor and rental
suffering from increasing labor costs, as the new government
                                                                                                               costs. Strong chains with high cash flow generation and
has reiterated the focus on doubling incomes for mass-end
                                                                                                               balance sheet support are in better position to capture market
consumers by 2015 on the base of 2010. We believe that
                                                                                                               share.
companies that can maintain high sales density per headcount
and concentrate their efforts on standardizing store operations
                                                                                                               CNY Effect: Both F&B and Food Retail will see easier comps
will benefit from rising wages while better controlling cost
                                                                                                               in 1Q13, thanks to a longer “household preparation period” for
increases.
                                                                                                               Chinese New Year, at 41 days in 2013 vs. 23 days in 2012. In
                                                                                                               F&B, higher-price-point products, including high-end UHT milk,
Capex/sales ratio stabilizing: Most of the F&B categories
                                                                                                               snack foods, white liquor, and wine, should benefit. In Food
have seen relative peaks in the capex cycle in 2011/12 (Exhibit
                                                                                                               Retail, companies with superior promotional activities should
17). We expect most companies to focus on ramping up
                                                                                                               draw more consumers’ attention.
utilization of the new capacity built in the past 1-2 years and



                                                                                                                                                                                                     11
                                                                               MORGAN       STANLEY         RESEARCH

                                                                               January 16, 2013
                                                                               HK/China Consumer




Exhibit 18                                                                     Other Major Stocks
Unlike past pattern, Staples valuation has not
trended down with food CPI                                                     Tingyi (EW) vs. Uni-President China (EW)
               Inflationary Period              China Staple Index PER
 PE
               Food CPI yoy (RHS)               Current Food CPI level
                                                                               •   Near-term, we think UPC will continue to outperform in the
                                                                                   categories where it is focusing, while Tingyi will need to
    45                       Government                                  25%
    40                       announced                                             intensify its efforts to sort out the right product portfolio and
                             price                                       20%
    35                                                                             solidify the integration with Pepsi.
                             controlling
    30                                                                   15%
    25
                             measures                                          •   While both stocks are fully priced, in our view, we think
                                                                         10%
    20                                                                             UPC has greater upside risk to consensus earnings than
    15                                                                   5%        Tingyi does for 2013.
    10
                                                                         0%
     5
     -                                                                   -5%   Want Want (OW)
         Jan-01

         Jan-02

         Jan-03

         Jan-04

         Jan-05

         Jan-06

         Jan-07

         Jan-08

         Jan-09

         Jan-10

         Jan-11

         Jan-12
          Jul-01

          Jul-02

          Jul-03

          Jul-04

          Jul-05

          Jul-06

          Jul-07

          Jul-08

          Jul-09

          Jul-10

          Jul-11

          Jul-12

                                                                               •   Near-term catalysts: 1) GM expansion from the tailwind of
                                                                                   lower price raw material inventory; 2) favorable CNY
Source: Company Data, Morgan Stanley Research                                      timing, with some offsetting impact from slightly
                                                                                   slower-than expected sales growth of rice crackers in
Key Recommendations in Staples                                                     2H12.
                                                                               •   Dairy products have continued to show good momentum
Mengniu (OW)                                                                       so far
•        Near-term catalysts: More details on the new five-year                •   Additional long-term value from continued improvement in
         plan and update on execution of CEO’s business                            channel management and more efforts in developing
         initiatives.                                                              modern channel penetration.
•        Sales are generally recovering sequentially, and high-end
         products continue to see solid growth.                                China Foods (OW)
•        Further product mix upgrade should help GPM expansion                 •   With some slowdown in 2H12, we expect the wine
         and offset the increase in A&P expenses in the short term.                business to resume growth through improvement in
                                                                                   distribution channel management and to achieve margin
China Agri (OW)                                                                    expansion in the longer run.
•        Near-term catalysts: Recovery of industry crushing margin             •   Better scale effect for its kitchen food business.
         and improving internal efficiency; lower gearing, as major            •   Confectionery business will likely turn around in
         capex phase ended in 2012.                                                2012/2013.
•        We are expecting to see an improvement in crushing                    •   Potential inclusion of new businesses.
         margin in 2013 with some rebound in final soybean
         meal/oil prices after the soybean price rally in 1H12.                CRE (EW)
•        Trough valuation at 1.0x our 2013e P/B.                               •  Near-term catalyst: Further downward revision of
                                                                                  consensus earnings estimates for 2012/13.
Tsingtao (UW)                                                                  •   Although retail sales are likely to benefit from favorable
•        Near-term catalysts: 1) Downward revision of consensus                    CNY timing in 1Q13 and from an uptick in the CPI,
         earnings forecast on lower-than-expected margin; 2) stiffer               lingering losses from opening new stores and rising labor
         competition in mid/low-range products.                                    costs could keep retail margin low as CRE maintains its
                                                                                   expansion pace; beer margin expansion could be hindered
•        Tsingtao has recently shown its determination to focus on
                                                                                   by competition.
         volume growth. However, we expect headwinds from
         competition to continue in the near term, slowing the pace            •   The stock is trading at 24x 2013E P/E after 20%+ share
         of price hikes and driving up marketing expenses.                         price rebound since July 2012. We see downside risks.
•        The stock is trading at 25x 2013E P/E vs. staple average
                                                                               Sun Art (EW)
         of 23x. We think this premium is unwarranted.
                                                                               •   Likely to extend its leadership position further in 2013,
                                                                                   thanks to recovering SSSG, strong pipeline of new store



                                                                                                                                                12
                                                                               MORGAN       STANLEY        RESEARCH

                                                                               January 16, 2013
                                                                               HK/China Consumer




      additions, and stable operating margin from its scale and                    saturation level, it will limit Mengniu’s future earnings
      higher sales productivity.                                                   momentum.
•     While there could be some downside risk to consensus                     •   Our view: Our industry analysis indicates that demand
      earnings for 2012 due to changes in supplier incomes and                     and supply should favor Mengniu in the categories where it
      weaker SSSG, the company currently expects 2013 SSSG                         is focusing. The provincial analysis indentifies tangible
      recovery at CPI + 4ppt (vs. CPI + 1-2ppt in 2012) due to                     opportunities for market share gains and product upgrades.
      extra selling days (i.e., 40 days) from a later Lunar New                    (Please refer to China Mengniu Dairy (2319.HK): Asia
      Year (vs. 20 days in 2012); this would help support 19%                      Insight: A New Phase of Growth, Dec. 28, 2012).
      earnings growth in 2013.                                                     Near-term, organizational restructuring in 2H12 to
•     Premium valuation makes Sun Art’s risk-reward less                           streamline sales, brand, channel and product quality will
      attractive in the near term, we believe.                                     likely expedite the recovery in 2013. (Please refer to China
                                                                                   Mengniu Dairy (2319.HK): Key Takeaways from Annual
Exhibit 19                                                                         Distributor Conference, Dec. 18, 2012).
Sun Art: Sales Growth vs. Gross Margin
                                                                               Has Beer Entered the Margin Expansion Phase Yet?
 26%
                                                                               •   Market view: Brewers have already entered a period in
 24%                                                                               which they are improving margins. Consensus believes
                                                                                   that beer industry consolidation in China has reached the
 22%
                                                                                   point where brewers have started to see margin expansion
 20%                                                                               helped by less competition and price increases.
                                                                               •   Our view: Margin improvement will not happen so long as
 18%
                                                                                   gaining market share remains the key focus for major
 16%                                                                               brewers. Consolidation in the beer industry has not ended
                                                                                   yet, and competition among the leading brewers could
 14%                                                                               remain intense, especially as Tsingtao, China’s second-
             2008      2009         2010         2011         2012E    2013E       largest brewer, has turned its focus to volume growth and
                    Gross Margin                        Sales Growth               international brewer AB-InBev is becoming more active in
                                                                                   China. With fewer sizable acquisition targets available, top
Source: Company Data, Morgan Stanley Research (E) estimates
                                                                                   brewers have accelerated their capacity expansion plans,
                                                                                   which exceed projected industry growth in 2012-14. This
Moutai (OW)                                                                        will slow like-for-like price increases and drive higher
•     Near-term risk from weakening demand amid tightening                         SG&A expenses. Increased volume growth does not
      control over government entertainment activities.                            necessarily translate into earnings growth. Valuation at
•     Price hike (20-30% in Sep 12) could provide some support                     25x 2013E P/E implies de-rating risk.
      in 2013.
                                                                               Can UPC maintain its edge over Tingyi?
•     Long-term investment value, as 2013E P/E of 10x
      compares with historical average forward P/E of 20x. This                •   Market view: Some investors have started to question
      follows a share price correction amid concerns about the                     whether UPC’s earnings momentum will stall in 2013 after
      near-term negative impact on demand from tightening                          the past year’s rally and whether Tingyi will regain
      government spending. We believe that Moutai’s brand                          earnings growth off a relatively low base.
      power is intact and that it stands to benefit from solid                 •   Our View: We tend to think UPC will outperform Tingyi in
      fundamental demand in the longer run.                                        the next 1-2 quarters. Our channel checks at the retail and
                                                                                   distributors’ ends suggest that UPC is not weaker than
                                                                                   Tingyi in noodle sales and seems to be stronger in
Key Debates in Staples
                                                                                   beverage sales. Despite the aggressive sales target UPC
                                                                                   has imposed on distributors, its inventory level and retail
When will Mengniu unleash long-term value?
                                                                                   sell-through appear healthy. In contrast, sales trends for
•     Market view: Sporadic quality issues aside, consensus                        Tingyi’s iced black tea and iced green tea look likely to
      seems to worry that as dairy consumption approaches the                      remain relatively sluggish. While Tingyi and UPC are



                                                                                                                                               13
                                                                                                   MORGAN             STANLEY              RESEARCH

                                                                                                   January 16, 2013
                                                                                                   HK/China Consumer




      trading at similar multiples, we favor UPC in the near term,
      given its greater potential upside risk to earnings.

Exhibit 20
Raw Material Prices: Some are rebounding
                                          Current     2012E      2013E         1Q12      2Q12       3Q12       4Q12         1Q12    2Q12     3Q12     4Q12   Current   2012E   2013E
                                           price                                                                             YoY     YoY      YoY      YoY   vs 2011    YoY     YoY


Soybean (U.S.) (US$/ton)                      584        579        584           499        561        666        588        -7%       4%     27%     29%      14%      13%      1%

Soybean Future (China) (Rmb/ton)             4,638      4,460     4,638         4,205      4,315      4,661      4,638         2%       3%     11%     14%      12%       8%      4%
Soybean Oil Future (China) Rmb/ton           7,784      9,081     7,784         9,014      9,358      9,495        N/A       -10%      -5%      -3%    N/A     -19%      -6%    -14%

Soybean Meal Future (China) Rmb/ton          3,800      3,606     3,800         3,023      3,393      4,105        N/A       -10%     12%      28%     N/A      23%      16%      5%
Wheat (US) (US$/Ton)                          295        274        295           234        235        320        311       -15%    -12%      32%     41%      18%      10%      8%

Wheat (China) (RMB/Ton)                      2,400      2,274     2,400         2,197      2,289      2,239      2,369       0.0%     1.7%    0.7%    6.2%       8%       2%      6%

Flour (China Retail Price) (RMB/Ton)         3,780      3,799     3,780         3,789      3,813      3,795        N/A       11%        9%      7%     N/A       7%       8%     -1%

Corn (US) (US$/ton)                           288        269        288           247        239        302        292        -2%    -16%      12%     23%      10%       3%      7%

Corn (China) (Rmb/ton)                       2,420      2,430     2,420         2,409      2,433      2,489      2,377       14%        9%      4%      1%       6%       7%      0%

Rice (China Retail Price) (RMB/Ton)          4,840      4,824     4,840         4,795      4,840      4,849        N/A       21%      16%      13%     N/A      16%      15%      0%

Palm Oil (Malaysia future) (US$/ton)          674        934        674         1,063      1,043        934        757       -12%      -6%      -9%   -21%     -37%     -13%    -28%

Palm Oil (China) (Rmb/ton)                   6,400      7,626     6,400         7,908      8,301      7,753      6,457       -20%    -10%     -12%    -16%     -28%     -14%    -16%

Rapeseed-ICE future (US$/ton)                 607        601        607           560        610        629        604        -6%       2%     10%     18%       7%       6%      1%

Rapeseed Oil (China) Rmb/ton               10,500     10,537     10,500        10,013     10,738    11,019     10,285         -2%       7%      6%      4%       3%       4%      0%

Sugar (China) (RMB/Ton)                      5,650      6,223     5,650         6,567      6,510      5,917      5,945        -8%      -9%    -21%    -16%     -22%     -14%     -9%

Orange Juice Pirce Index                      138        138        138           185        126        118        118         9%    -28%     -32%    -30%     -19%     -20%      1%

Barley China CIF (USD/ton)                    303        311        303           336        301        298        N/A         8%    -13%        na     na     -11%      -9%     -3%

DDGS Southern Spot Price) (Rmb/Ton)          2,610      2,423     2,610         2,192      2,275      2,699        N/A         3%       2%     18%     N/A      19%      10%      8%

PET (US$/ton)                                1,400      1,380     1,400         1,482      1,361      1,280      1,396       -13%    -17%      -20%    -8%     -13%     -14%      1%

Tin (RMB/Ton)                             152,500    158,133    152,500      173,769    158,385    148,067    150,850         -8%    -23%     -25%    -13%     -20%     -18%     -4%
Oceania Skim milk powder (USD/ton)           3,350      3,161     3,350         3,323      3,153      2,975        N/A       -11%    -18%     -18%     N/A      -8%     -14%      6%

Raw Milk (China) Rmb/kg                       3.34       3.28       3.34         3.27       3.27       3.27       3.32         3%       2%      3%      3%       4%       3%      2%

Hog (Rmb/kg)                                  15.3       15.0       15.3         17.1       14.4       14.3       14.7       16%     -13%     -26%    -19%     -11%     -12%      2%
Pork Wholesale (Rmb/kg)                       21.4       21.3       21.4         23.8       21.0       20.1       20.9       21%       -2%    -20%    -17%      -7%      -7%      0%
Source: Company Data, Morgan Stanley Research E: Estimates assume prices in the future are equal to current prices. Current price as of 2012/12/31




                                                                                                                                                                                 14
                                                                        MORGAN        STANLEY        RESEARCH

                                                                        January 16, 2013
                                                                        HK/China Consumer




Export/Global Plays                                                     and Hartmann will drive growth in North America and boost
                                                                        2013 total sales growth rate by 6ppt to 18%. We expect more
                                                                        acquisitions in 2013 funded by Samsonite’s strong free cash
2013 Outlook: According to our Economics team, the global
                                                                        flow and revolving credit facilities. Using the global distribution
economy looks set to remain stuck in the ‘Twilight Zone’ that
                                                                        system with over 41,000 POS, we see multiple years of
divides sustainable expansion from renewed recession in 2013.
                                                                        synergies for these acquired brands to go global and drive
Our global GDP growth forecast stands at 3.1% in both 2012
                                                                        additional top line growth for Samsonite. We expect mild
and 2013, before accelerating to 4% in 2014. Among the
                                                                        operating leverage and adjusted EBITDA growth of 23% in
different regions, Morgan Stanley economists expect a cyclical
                                                                        2013. Our price target of HK$18.2 implies 14% upside potential
bottoming out for the emerging markets (EM) in 2013 ahead of
                                                                        from current levels. To derive our PT, we apply a 15% discount
the developed markets (DM). Within the DM, the US economy
                                                                        to our DCF intrinsic value of HK$21.4 (10.5% WACC and 2%
should hold up relatively well (GDP: +1.4%) while the Euro
                                                                        terminal growth) to reflect investors’ concerns over growth
area will likely face another annual contraction (GDP: -0.5%).
                                                                        sustainability and macro weaknesses in Europe. Key downside
                                                                        risks to our PT include slower sales growth due to weaker
Our bottom-up checks with exporters and global consumer
                                                                        demand amid economic slowdown and unsuccessful new
companies over the last few weeks reveal a similar outlook.
                                                                        product rollouts or integration of acquisitions.
Softline exporters are generally more optimistic on their US
business, forecasting a moderate pick-up in top line growth to a
                                                                        Goodbaby (OW)
mid-to-high single digit level in 2013 from a low single digit level
                                                                        We like Goodbaby for its leadership positioning in the
recorded in 2012. They also expect cotton price to be less
                                                                        fast-growing domestic market and its customer diversification
volatile in 2013 and therefore anticipate a more stable margin
                                                                        strategy to improve its export model. In our view, China is
outlook for 2013. The same group of exporters is cautious
                                                                        poised to take over from the US as its largest revenue
about Europe, however, forecasting no growth in 2013, similar
                                                                        contributor for a full year for the first time in 2013. We expect
to their performance in 2012. Given that most of these players
                                                                        China to account for 31% and 41% of total sales and gross
we talked to are industry leaders and are benefiting from
                                                                        profit, respectively, in 2013. We also expect Goodbaby to make
market consolidation, the implied LFL demand from Europe is
                                                                        progress in exporting its products through more retail channels
still negative. The EM is traditionally a low priority for exporters,
                                                                        in the US by tying up with new customers. In the longer run, we
and given the diversity of the region (CEEMEA, LATAM, Asia),
                                                                        also see Goodbaby as a beneficiary of the potential relaxation
we cannot distill a general conclusion for all the companies that
                                                                        of the one-child policy and the policy implementation of the
have exposure in the region. However, a generally positive bias
                                                                        mandatory use of car seats in China, which are not reflected in
towards global (often Western) brands at the “mass premium”
                                                                        our base case yet. Our price target of HK$3.00 is based DCF
level by the EM consumers should benefit companies such as
                                                                        derived (11% WACC, 2% terminal growth). Key downside risks
Samsonite and the LF Asia subsidiary under Li & Fung.
                                                                        include slower overseas growth amid worse-than-expected
                                                                        economic environment and greater gross margin pressure.
In summary, we favor global/export plays with meaningful
exposure to the EM (Samsonite, Goodbaby). We are bearish
                                                                        Yue Yuen (EW)
on Esprit for its European exposure and uncertainties in its
                                                                        Yue Yuen faces modest export recovery and a China retail
Transformation Plan. We are also Underweight on Li & Fung,
                                                                        turnaround in FY13. However, we believe consensus earnings
given slower organic growth, slower margin recovery and
                                                                        may still be too bullish and could result in near-term earnings
uncertainties about the restructuring of LF USA.
                                                                        risks. For its manufacturing arm, we expect the top line will be
                                                                        mainly driven by mid-single-digit growth in volume, with volume
Key Recommendations in Global/Export
                                                                        growth to pick up in the US, but likely remaining lackluster in
                                                                        Europe. Further, as highlighted in our recent report, we believe
Samsonite (OW)                                                          the minimum wage rise in 2013 in Indonesia to be a tail risk for
We continue to like Samsonite for its market leadership through         Yue Yuen, as the country represents about 30% of its
strong R&D and distribution. We think the growth profile will           manufacturing base. If the Indonesian government continues
improve in 2013 as Asia becomes a bigger and bigger                     to raise the minimum wage in the future, this could undermine
contributor to the overall business in terms of both sales and          Yue Yuen’s effort to move to lower-cost production sites. We
profit. We expect Asia to account for 40% and 45% of the total          estimate that every 10ppt increase in its Indonesia staff cost
sales and adjusted EBITDA, respectively, in 2013, vs. 23% and           translates to about 20-30bps of dilution in its gross margin (or
30% in 2008. In our view, the recent acquisitions of High Sierra        about 3-5% of earnings). We are currently 14% below



                                                                                                                                       15
                                                                      MORGAN                               STANLEY                              RESEARCH

                                                                      January 16, 2013
                                                                      HK/China Consumer




consensus for FY13e, and the stock is trading at what we              DCF valuation (10% WACC and 3% terminal growth rate). Key
consider fair valuation of 11x P/E. (Yue Yuen Industrial              upside risks are more rapid realization of cross-selling
(0551.HK): Downgrade on Valuation and Potential Earnings              opportunities, fast growth in beauty and more
Risks; but Export Growth Recovering)                                  earnings-accretive M&A deals.

Esprit (UW)                                                           Exhibit 21

We stay Underweight on Esprit due to near-term earnings               LF Organic Sales Growth vs. MS Retail Index (US)
weakness and lack of visibility. Relative to other HK-listed          >> Decoupling from US Retail
                                                                        15%
global plays, Esprit has the biggest exposure to the Euro Area
where our economist is expecting another year of contraction
                                                                        10%
(GDP: -0.5%) in 2013. We estimate that 78% of Esprit’s
revenue comes from Europe as of 2012. In Germany, i.e., its              5%
biggest market (43% of its total revenue), the apparel industry’s
sales turnover fell by about 2% YoY in 2012 and we think the             0%

outlook for 2013 remains bleak. This is consistent with the
                                                                         -5%
outlook for other apparel retailers in Europe. For 1Q13, our
European Retail analyst, Geoff Ruddell, is expecting SSSG to            -10%
                                                                                                                                                                                                                           MS Est

slow down for Inditex and to remain negative for H&M.
                                                                        -15%
                                                                               Jan-05

                                                                                        Jul-05

                                                                                                  Jan-06

                                                                                                            Jul-06

                                                                                                                     Jan-07

                                                                                                                              Jul-07

                                                                                                                                       Jan-08

                                                                                                                                                Jul-08

                                                                                                                                                         Jan-09

                                                                                                                                                                  Jul-09

                                                                                                                                                                           Jan-10

                                                                                                                                                                                    Jul-10

                                                                                                                                                                                             Jan-11

                                                                                                                                                                                                      Jul-11

                                                                                                                                                                                                               Jan-12

                                                                                                                                                                                                                        Jul-12

                                                                                                                                                                                                                                 Jan-13
On the company level, we expect declining retail SSSG and
wholesale turnovers in CY1H13. We think Esprit is taking the
                                                                                                 US MSRI - Total                                                                LF Organic Sales Growth
right steps to fix the time to market and ability to respond more
quickly to changes in fashion trends in order to get its product      Source: Company Data, Morgan Stanley Research estimates

right. However, these measures will take time and we do not
expect positive results to come through significantly in 2013.
Meanwhile, operating expenses are not declining quickly
enough to offset the falling revenue, leading to substantial profit
decline and even forcing Esprit into losses for F2013. Our price
target of HK$8.70 implies 19% downside from current levels.
To derive our PT, we apply a 50% discount to intrinsic DCF
value of HK$17.4 (11% WACC and 2% terminal growth), which
is unlikely to be reached in the near term, given macro
uncertainty and challenging rebranding task. Key upside risks
to our PT include faster recovery in sales momentum and
greater operating leverage; and better LFL gross margins from
lower input costs and fewer markdowns.

Li & Fung (UW)
We think the risk/reward is unattractive. We see L&F’s organic
growth deteriorating to -5% in 2H12 from -1% in 1H12, further
decoupling from US retail trends. We have also turned cautious
on US retail in 2013 in view of higher taxes and what is likely to
be lower consumer spending. This could stall LF USA’s
recovery. Weaker macro developments could also force L&F
into further restructuring in the rest of the business, while
weaker operations could impair its cash generation. We derive
our price target of HK$11.10 by applying a 25% discount to our




                                                                                                                                                                                                                                      16
                                                                                                                                MORGAN                      STANLEY                       RESEARCH

                                                                                                                                January 16, 2013
                                                                                                                                HK/China Consumer




Earnings Expectation Trends                                                                                                     Belle, Daphne, for both 2012 and 2013 earnings, given that
                                                                                                                                consensus expectation still appear high. For department
                                                                                                                                stores, we expect upside for NWDS, and Springland, given the
Staples: The market trimmed earnings forecasts throughout
                                                                                                                                company’s specific earning catalysts.
2012 mainly due to weaker top line growth and increasing opex.
We see some downward revisions to consensus as likely for
                                                                                                                                Export/Global: We expect a modest export recovery on
Tingyi, CRE, Tsingtao for both 2012 and 2013 earnings, and
                                                                                                                                demand uptick and stable input costs, but consensus still
Mengniu and China Foods for 2012 earnings. We expect
                                                                                                                                appears too bullish in general. We see downward revision risks
upside for UPC, while Want Want and China Agri are generally
                                                                                                                                for 2013 earnings in the following order of magnitude: Esprit,
in line.
                                                                                                                                Yue Yuen, and Li & Fung. We expect upward revisions for
                                                                                                                                Goodbaby.
Discretionary: We expect a slower retail recovery and see
some downward revisions as likely for footwear retailers like
Exhibit 22                                                                                                                      Exhibit 24
Consensus Earnings Revision: Staples Upstream                                                                                   Consensus Earnings Revision: Food Retail
 YTD Change                   Earnings Revision: Staple - Mid/Upstream                                                           YTD Change                               Earnings Revision: Food Retail

 20%                                                                                                                             30%
                                                                                                                                                            Sector Performance
 10%
                                                                                                                                 20%                        Earnings Revision: F12
  0%
                                                                                                                                                            Earnings Revision: F13
 -10%                                                                                                                            10%

 -20%
                                                                                                                                  0%
 -30%
 -40%                                                                                                                            -10%
                          Sector Performance
 -50%                     Earnings Revision: F12
                                                                                                                                 -20%
 -60%                     Earnings Revision: F13
 -70%                                                                                                                            -30%                                                     May-12
                                                        May-12
                          Mar-12

                                      Mar-12




                                                                                                              Nov-12




                                                                                                                                                            Mar-12

                                                                                                                                                                        Mar-12
        Jan-12

                 Jan-12




                                                                 Jun-12

                                                                          Jul-12




                                                                                                     Oct-12
                                               Apr-12




                                                                                   Aug-12

                                                                                            Sep-12




                                                                                                                       Dec-12




                                                                                                                                        Jan-12

                                                                                                                                                  Jan-12




                                                                                                                                                                                 Apr-12




                                                                                                                                                                                                   Jun-12

                                                                                                                                                                                                            Jul-12

                                                                                                                                                                                                                      Aug-12

                                                                                                                                                                                                                               Sep-12

                                                                                                                                                                                                                                        Oct-12

                                                                                                                                                                                                                                                 Nov-12

                                                                                                                                                                                                                                                          Dec-12
Source: Company Data, Morgan Stanley Research                                                                                   Source: Company Data, Morgan Stanley Research

Exhibit 23                                                                                                                      Exhibit 25
Consensus Earnings Revision: Staples Downstream                                                                                 Consensus Earnings Revision: Department Store
 YTD Change                                                                                                                      YTD Change
                                   Earnings Revision: Staple - Downstream                                                                                             Earnings Revision: Department Store
 30%                                                                                                                             30%
                          Sector Performance                                                                                                                                                                         Sector Performance
 20%                      Earnings Revision: F12                                                                                 20%                                                                                 Earnings Revision: F12
                          Earnings Revision: F13                                                                                                                                                                     Earnings Revision: F13
 10%                                                                                                                             10%

  0%                                                                                                                               0%

 -10%                                                                                                                            -10%

 -20%                                                                                                                            -20%

 -30%                                                                                                                            -30%
                                                                                                                                                                                          May-12




                                                                                                                                                                                                                                                 Nov-12
                                                                                                                                         Jan-12

                                                                                                                                                   Jan-12

                                                                                                                                                             Mar-12

                                                                                                                                                                        Mar-12

                                                                                                                                                                                 Apr-12




                                                                                                                                                                                                   Jun-12

                                                                                                                                                                                                            Jul-12

                                                                                                                                                                                                                      Aug-12

                                                                                                                                                                                                                               Sep-12

                                                                                                                                                                                                                                        Oct-12




                                                                                                                                                                                                                                                          Dec-12
                                                        May-12
                          Mar-12


                                      Mar-12
        Jan-12


                 Jan-12




                                               Apr-12




                                                                 Jun-12


                                                                          Jul-12


                                                                                   Aug-12


                                                                                            Sep-12


                                                                                                     Oct-12


                                                                                                              Nov-12


                                                                                                                       Dec-12




Source: Company Data, Morgan Stanley Research                                                                                   Source: Company Data, Morgan Stanley Research




                                                                                                                                                                                                                                                            17
                                                                                                                                    MORGAN                       STANLEY                                          RESEARCH

                                                                                                                                    January 16, 2013
                                                                                                                                    HK/China Consumer




Exhibit 26                                                                                                                          Exhibit 29
Consensus Earnings Revision: Specialty Retailer                                                                                     Consensus Earnings Revision: Global
 YTD Change                                                                                                                          YTD Change
                                     Earnings Revision: Specialty Retailer                                                                                                                   Earnings Revision: Global
 30%                                                                                                                                 110%
                          Sector Performance                                                                                                                     Sector Performance
                                                                                                                                      90%
 20%                      Earnings Revision: F12                                                                                                                 Earnings Revision: F12
                                                                                                                                      70%                        Earnings Revision: F13
                          Earnings Revision: F13
 10%                                                                                                                                  50%

  0%                                                                                                                                  30%

                                                                                                                                      10%
 -10%
                                                                                                                                     -10%
 -20%
                                                                                                                                     -30%

 -30%                                                                                                                                -50%
                                                           May-12
                           Mar-12


                                       Mar-12


                                                  Apr-12




                                                                             Jul-12
        Jan-12


                 Jan-12




                                                                    Jun-12




                                                                                       Aug-12


                                                                                                Sep-12


                                                                                                         Oct-12


                                                                                                                  Nov-12


                                                                                                                           Dec-12




                                                                                                                                                                                                                    May-12
                                                                                                                                                                  Mar-12

                                                                                                                                                                                    Mar-12
                                                                                                                                             Jan-12

                                                                                                                                                      Jan-12




                                                                                                                                                                                                      Apr-12




                                                                                                                                                                                                                              Jun-12

                                                                                                                                                                                                                                       Jul-12

                                                                                                                                                                                                                                                  Aug-12

                                                                                                                                                                                                                                                                Sep-12

                                                                                                                                                                                                                                                                                  Oct-12

                                                                                                                                                                                                                                                                                                    Nov-12

                                                                                                                                                                                                                                                                                                               Dec-12
Source: Company Data, Morgan Stanley Research                                                                                       Source: Company Data, Morgan Stanley Research

Exhibit 27                                                                                                                          Exhibit 30
Consensus Earnings Revision: Sportswear                                                                                             Consensus Earnings Revision: Esprit
 YTD Change                                                                                                                          YTD Change
                                         Earnings Revision: Sportswear                                                                                                                       Earnings Revision: Esprit


 70%                                                                                                                                 70%                                                                                                         Sector Performance
                                                                                      Sector Performance
                                                                                                                                                                                                                                                 Earnings Revision: F12
 50%                                                                                  Earnings Revision: F12                         50%
                                                                                                                                                                                                                                                 Earnings Revision: F13
                                                                                      Earnings Revision: F13
 30%                                                                                                                                 30%

 10%                                                                                                                                 10%

 -10%                                                                                                                                -10%

 -30%                                                                                                                                -30%

 -50%                                                                                                                                -50%
                                                           May-12
                            Mar-12

                                       Mar-12




                                                                                                                  Nov-12




                                                                                                                                                                                                                             May-12
        Jan-12

                 Jan-12




                                                                    Jun-12

                                                                             Jul-12




                                                                                                         Oct-12
                                                  Apr-12




                                                                                       Aug-12

                                                                                                Sep-12




                                                                                                                           Dec-12




                                                                                                                                                                           Mar-12


                                                                                                                                                                                             Mar-12
                                                                                                                                            Jan-12


                                                                                                                                                        Jan-12




                                                                                                                                                                                                               Apr-12




                                                                                                                                                                                                                                        Jun-12


                                                                                                                                                                                                                                                       Jul-12


                                                                                                                                                                                                                                                                         Aug-12


                                                                                                                                                                                                                                                                                           Sep-12


                                                                                                                                                                                                                                                                                                             Oct-12
Source: Company Data, Morgan Stanley Research                                                                                       Source: Company Data, Morgan Stanley Research

Exhibit 28                                                                                                                          Exhibit 31
Consensus Earnings Revision: Export                                                                                                 Consensus Earnings Revision: Li & Fung
 YTD Change                                                                                                                          YTD Change
                                                Earnings Revision: Export                                                                                                               Earnings Revision: Li & Fung
 30%                                                                                                                                 30%
                                                                                                                                                                                                                                                  Sector Performance
 20%                                                                                                                                 20%                                                                                                          Earnings Revision: F12
                                                                                                                                                                                                                                                  Earnings Revision: F13
 10%                                                                                                                                 10%

  0%                                                                                                                                  0%

 -10%                                                                                                                                -10%
                          Sector Performance
 -20%                     Earnings Revision: F12                                                                                     -20%
                          Earnings Revision: F13
 -30%                                                                                                                                -30%
                                                           May-12
                           Mar-12


                                       Mar-12
        Jan-12


                 Jan-12




                                                  Apr-12




                                                                    Jun-12


                                                                             Jul-12


                                                                                       Aug-12


                                                                                                Sep-12


                                                                                                         Oct-12


                                                                                                                  Nov-12


                                                                                                                           Dec-12




                                                                                                                                                                                                                             May-12
                                                                                                                                                                           Mar-12


                                                                                                                                                                                             Mar-12
                                                                                                                                            Jan-12


                                                                                                                                                        Jan-12




                                                                                                                                                                                                               Apr-12




                                                                                                                                                                                                                                        Jun-12


                                                                                                                                                                                                                                                       Jul-12


                                                                                                                                                                                                                                                                         Aug-12


                                                                                                                                                                                                                                                                                           Sep-12


                                                                                                                                                                                                                                                                                                             Oct-12




Source: Company Data, Morgan Stanley Research                                                                                       Source: Company Data, Morgan Stanley Research




                                                                                                                                                                                                                                                                                                                 18
                                                                               MORGAN        STANLEY        RESEARCH

                                                                               January 16, 2013
                                                                               HK/China Consumer




Exhibit 32
Valuation Methodology and Risks: Most Preferred and Least Preferred Stocks
Stock              Valuation Methodology                                 Risks
                                                                         Downside Risks: 1) Significant slowdown in Hong Kong/China
                   P/E based valuation; 10.8x midcycle target F2014E     consumer market, 2) Global macro shock, 3) Margin dilution with lower-
Luk Fook
                   P/E multiple                                          tier city expansion, 4) Execution risks with franchisee management, 5)
                                                                         Lackluster gold price trend
                                                                         Downside Risks: 1) Significant slowdown in Hong Kong/China
Chow Sang          P/E based valuation; 12.0x midcycle target 2013E      consumer market, 2) Global macro shock, 3) Inability to expand
Sang               P/E multiple                                          effectively in lower-tier cities given self-operated model, 4) Lackluster
                                                                         gold price trend
                   Based on the average of 20.5x P/E
                   (12% discount to historical P/E range of 23x) at      Downside risks: 1) Major slowdown in China’s consumer spending,
Belle              HK$15.8 and DCF value (10% W ACC and 5%               leading to slower expansion of SSSG; 2) Greater than expected
                   Terminal Growth Rate) of HK$19.2 to capture both      operating lease rates for footwear retail shops and higher labor costs.
                   short-term and long-term value of the company
                                                                         Downside Risks: 1) Slower-than-expected SSSG, given slower
                                                                         retailing activities and increased competition; 2) Delays in new store
Springland         P/E based valuation; 16x P/E on 2013E EPS
                                                                         openings; 3) Greater decline in margin if gold and jewelry sales mix
                                                                         continue to rise or if promotional activity intensifies
                                                                         Downside risks: 1) Lower sales growth due to slowing demand for
                   We derive our price target from our DCF model,        overall dairy products; 2) Worse-than-expected demand in the high-end
China
                   which assumes a W ACC of 11% and a terminal           products, and hence less gross margin improvement; 3) Gross margin
Mengniu
                   growth rate of 3%                                     pressure from increases in raw milk prices; 4) Higher A&P expense to
                                                                         enhance brand and boost sales.
                                                                         Upside risks: 1) Stronger-than-expected recovery of Li Ning brand sell-
                   Our price target is based on DCF intrinsic value of
Li Ning                                                                  through at retail level. 2) Earlier than expected completion of its
                   HK$3.20 (WACC of 12% and terminal growth of 3%)
                                                                         restructuring program and capturing of market share.
                   We apply a 50% discount to our DCF intrinsic value
                   (11% WACC and 2% LT growth). We believe this          Upside risks: 1) A re-acceleration in EU retail sales; 2) some
Esprit             intrinsic value is unlikely to be reached in the near restocking by wholesale customers; 3) a much stronger Euro; 4) faster
                   term, given macro uncertainty and challenging re-     improvement in the Chinese operations.
                   branding task.
                                                                         Upside risks: 1) better-than-expected volume growth of high-end/mid-
                   Based on DCF valuation with W ACC of 11% and a
Tsingtao                                                                 range wine; 2) Lower raw material price; 3) newly launched high-end
                   terminal growth rate of 2%.
                                                                         products, providing further top-line growth.
                                                                         Downside risks: 1) Prolonged weakness in the global economy,
                                                                         leading to a more significant drop in order flow and margin contraction
                                                                         for manufacturing business as a result of lower capacity utilization. 2) A
                                                                         major spike of raw material prices.
                   Our HK$25.9 PT is based on 11x FY13 EPS of
Yue Yuen
                   HK$2.43, similar to its historical average.
                                                                         Upside risks: 1) Faster recovery in orders for its major customers
                                                                         including Nike and Adidas. 2) Sustainable margin expansion due to
                                                                         production efficiency improvement. 3) Faster recovery in profitability for
                                                                         the retail business as excess inventory comes down.
Source: Morgan Stanley Research




                                                                                                                                               19
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                                                                                January 16, 2013
                                                                                HK/China Consumer




                                                       Disclosure Section
The information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley Asia Limited (which accepts the
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Important US Regulatory Disclosures on Subject Companies
As of December 31, 2012, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered
in Morgan Stanley Research: China Flooring Holding Company, China Mengniu Dairy, Daphne International Holdings, Intime Department Store
(Group), Samsonite International, Tsingtao Brewery, Uni-President China, Yili Industrial.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from ANTA Sports Products,
Belle International, China Agri-Industries, China Mengniu Dairy, China Resources Enterprise, China Yurun Food Group Ltd., Chow Sang Sang
Holdings International, Esprit Holdings, Golden Eagle Retail Group Limited, Goodbaby International Holdings, Hengdeli Holdings Ltd., Intime
Department Store (Group), Li & Fung Ltd, New World Department Store China Limited, Parkson Retail Group Limited, Samsonite International,
Springland International Holdings, Sun Art Retail Group Limited, Tingyi (Cayman Islands), Uni-President China, Want Want China Holdings Ltd, Yili
Industrial, Yue Yuen Industrial.
Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from ANTA
Sports Products, Belle International, Bosideng International Holdings Limited, China Flooring Holding Company, China Foods Limited, China Yurun
Food Group Ltd., Chow Tai Fook Jewellery Group Ltd., Esprit Holdings, Golden Eagle Retail Group Limited, Goodbaby International Holdings, Intime
Department Store (Group), Uni-President China, Yue Yuen Industrial.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client
relationship with, the following company: ANTA Sports Products, Belle International, China Agri-Industries, China Mengniu Dairy, China Resources
Enterprise, China Yurun Food Group Ltd., Chow Sang Sang Holdings International, Esprit Holdings, Golden Eagle Retail Group Limited, Goodbaby
International Holdings, Hengdeli Holdings Ltd., Intime Department Store (Group), Li & Fung Ltd, New World Department Store China Limited, Parkson
Retail Group Limited, Samsonite International, Springland International Holdings, Sun Art Retail Group Limited, Tingyi (Cayman Islands),
Uni-President China, Want Want China Holdings Ltd, Yili Industrial, Yue Yuen Industrial.
Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past
has entered into an agreement to provide services or has a client relationship with the following company: ANTA Sports Products, Belle International,
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Jewellery Group Ltd., Esprit Holdings, Golden Eagle Retail Group Limited, Goodbaby International Holdings, Intime Department Store (Group),
Uni-President China, Yue Yuen Industrial.
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recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.




                                                                                                                                                    20
                                                                                              MORGAN            STANLEY           RESEARCH

                                                                                              January 16, 2013
                                                                                              HK/China Consumer




                              Coverage Universe    Investment Banking Clients (IBC)
                                             % of                   % of % of Rating
Stock Rating Category            Count       Total     Count Total IBC Category
Overweight/Buy                   1103           37%           436          41%           40%
Equal-weight/Hold                1301           44%           497          46%           38%
Not-Rated/Hold                    108            4%            27           3%           25%
Underweight/Sell                  478           16%           111          10%           23%
Total                           2,990                        1071
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual
circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan
Stanley received investment banking compensation in the last 12 months.
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Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
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.
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                                                                                                                                                                              21
                                                                                             MORGAN           STANLEY            RESEARCH

                                                                                             January 16, 2013
                                                                                             HK/China Consumer




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                                                                                                                                                                            22
                                                                                      MORGAN        STANLEY              RESEARCH




                                                                                        Edward Lui
                                                                                        Chow Sang Sang Holdings                      O (01/02/2013)               HK$20.95
                                                                                        International (0116.HK)
Industry Coverage:China Agricultural Products                                           Chow Tai Fook Jewellery Group                 E (01/02/2013)              HK$12.84
                                                                                        Ltd. (1929.HK)
Company (Ticker)                              Rating (as of) Price* (01/15/2013)        Hengdeli Holdings Ltd. (3389.HK)             E (01/02/2013)                HK$2.91
                                                                                        Luk Fook Holdings (International)            O (01/02/2013)               HK$28.45
                                                                                        Ltd. (0590.HK)
Lillian Lou
China Agri-Industries (0606.HK)              O (11/30/2009)                 HK$4.85
                                                                                        Stock Ratings are subject to change. Please see latest research for each company.
                                                                                        * Historical prices are not split adjusted.
Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.



                                                                                        Industry Coverage:China Textiles, Apparel and
Industry Coverage:Hong Kong Retail                                                      Footwear

Company (Ticker)                              Rating (as of) Price* (01/15/2013)        Company (Ticker)                              Rating (as of) Price* (01/15/2013)


Robby Gu                                                                                Robby Gu
Giordano International (0709.HK)             O (05/26/2010)                 HK$7.41     Bosideng International Holdings              O (10/27/2011)                 HK$2.38
Angela Moh                                                                              Limited (3998.HK)
Esprit Holdings (0330.HK)                     U (12/19/2012)                HK$10.9     Ports Design Ltd (0589.HK)                    E (05/23/2012)                HK$7.45
                                                                                        Robert Lin
Stock Ratings are subject to change. Please see latest research for each company.       Belle International (1880.HK)                O (12/16/2009)               HK$17.28
* Historical prices are not split adjusted.                                             Daphne International Holdings                O (09/13/2007)               HK$10.12
                                                                                        (0210.HK)

                                                                                        Stock Ratings are subject to change. Please see latest research for each company.
                                                                                        * Historical prices are not split adjusted.
Industry Coverage:Hong Kong Consumer

Company (Ticker)                              Rating (as of) Price* (01/15/2013)
                                                                                        Industry Coverage:China Juvenile Products
Robby Gu
Samsonite International (1910.HK)            O (07/27/2011)               HK$16.62
                                                                                        Company (Ticker)                              Rating (as of) Price* (01/15/2013)
Robert Lin
Yue Yuen Industrial (0551.HK)                 E (12/18/2012)              HK$25.55
Angela Moh                                                                              Robby Gu
Li & Fung Ltd (0494.HK)                       U (01/13/2013)              HK$11.68      Goodbaby International Holdings              O (02/24/2012)                 HK$3.38
                                                                                        (1086.HK)
Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.                                             Stock Ratings are subject to change. Please see latest research for each company.
                                                                                        * Historical prices are not split adjusted.




Industry Coverage:China Watch & Jewelry
                                                                                        Industry Coverage:China Home Improvement
Company (Ticker)                              Rating (as of) Price* (01/15/2013)




© 2013 Morgan Stanley
                                                                                    MORGAN         STANLEY             RESEARCH

                                                                                    January 16, 2013
                                                                                    HK/China Consumer




The Americas                                   Europe                                       Japan                                          Asia/Pacific
1585 Broadway                                  20 Bank Street, Canary Wharf                 4-20-3 Ebisu, Shibuya-ku                       1 Austin Road West
New York, NY 10036-8293                        London E14 4AD                               Tokyo 150-6008                                 Kowloon
United States                                  United Kingdom                               Japan                                          Hong Kong
Tel: +1 (1) 212 761 4000                       Tel: +44 (0) 20 7 425 8000                   Tel: +81 (0) 3 5424 5000                       Tel: +852 2848 5200




Company (Ticker)                              Rating (as of) Price* (01/15/2013)           Company (Ticker)                              Rating (as of) Price* (01/15/2013)


Robby Gu                                                                                   Robert Lin
China Flooring Holding Company                E (02/07/2012)                HK$1.67        Golden Eagle Retail Group Limited             E (11/23/2012)                  HK$18
(2083.HK)                                                                                  (3308.HK)
                                                                                           Intime Department Store (Group)               E (11/23/2012)                HK$10.9
Stock Ratings are subject to change. Please see latest research for each company.          (1833.HK)
* Historical prices are not split adjusted.
                                                                                           New World Department Store China             O (02/11/2010)                  HK$5.2
                                                                                           Limited (0825.HK)
                                                                                           Parkson Retail Group Limited                  U (11/23/2012)                HK$6.12
                                                                                           (3368.HK)
Industry Coverage:China Food, Bev. & Tobacco                                               Springland International Holdings            O (01/31/2011)                 HK$4.55
                                                                                           (1700.HK)
Company (Ticker)                              Rating (as of) Price* (01/15/2013)
                                                                                           Stock Ratings are subject to change. Please see latest research for each company.
                                                                                           * Historical prices are not split adjusted.
Lillian Lou
China Foods Limited (0506.HK)                O (02/27/2012)                HK$7.34
China Mengniu Dairy (2319.HK)                O (12/12/2008)                HK$23.5
China Resources Enterprise                   E (02/04/2012)               HK$27.25         Industry Coverage:China Branded Sports
(0291.HK)
China Yurun Food Group Ltd.                   E (09/27/2011)                HK$6.55
                                                                                           Apparel and Footwear
(1068.HK)
Kweichow Moutai Company Ltd.                 O (12/07/2009)             Rmb210.85          Company (Ticker)                              Rating (as of) Price* (01/15/2013)
(600519.SS)
Luzhou Lao Jiao Co. Ltd                      O (03/19/2009)               Rmb35.98         Robert Lin
(000568.SZ)                                                                                ANTA Sports Products (2020.HK)               O (08/31/2007)                 HK$7.95
Shuanghui Investment (000895.SZ)             O (06/28/2007)               Rmb64.55         Li Ning (2331.HK)                            U (07/19/2011)                 HK$6.37
Tsingtao Brewery (0168.HK)                   U (02/04/2012)                HK$45.4
Tsingtao Brewery (600600.SS)                 E (02/04/2012)               Rmb33.45         Stock Ratings are subject to change. Please see latest research for each company.
Want Want China Holdings Ltd                 O (03/04/2010)               HK$10.16         * Historical prices are not split adjusted.
(0151.HK)
Wuliangye Yibin Company Ltd.                 O (06/16/2010)               Rmb28.53
(000858.SZ)
Yantai Changyu Pioneer Wine                   E (08/10/2009)              Rmb46.74
Company Ltd. (000869.SZ)
Yantai Changyu Pioneer Wine                  O (03/19/2009)               HK$46.85
Company Ltd. (200869.SZ)
Yili Industrial (600887.SS)                   E (12/12/2008)               Rmb24.6
Angela Moh
Sun Art Retail Group Limited                  E (09/23/2011)              HK$11.22
(6808.HK)
Tingyi (Cayman Islands) (0322.HK)             E (08/21/2012)                 HK$21
Uni-President China (0220.HK)                 E (04/26/2010)                 HK$9.2

Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.




Industry Coverage:China Department Stores


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