Update from 1Q17 conference call. Management commented that the overall performance in 1Q was better than it had expected, owing mainly to 1) a strong performance, with consumption upgrades in lower-tier cities with active property markets, 2) less of a slowdown from tier-1 cities, despite the government’s control of the property market, and 3) better-than-expected online sales, with 40% growth. The GPM was also better than expected, despite a raw material price increase, due to a rise in sales from the online business and a product mix shift that offset the raw material price increase. With the company raising prices in April, we expect the GPM to continue to improve. As for opex, the company expects this to be under control, except for R&D, which is expected to rise. Deutsche Bank’s view. On the back of a better 1Q17 outlook, which is in the first year of its three-year plan (one of the targets is to achieve a 30% net profit CAGR over 2017-19), we raise our FY17/18/19E net profit by 5/7/9%, assuming that the above net profit growth target is achievable. We raise our target price by 10%, to RMB57.88, which translates into 26x/20x FY17/18E PE. We believe this is justified given the above-mentioned 30% CAGR. Maintaining Buy. Our primary valuation methodology is a DCF (as investors focus on Robam’s long-term value), employing COE of 9.5% (RFR of 3.9% and ERP of 5.6%, both following Deutsche Bank’s house view), a beta of 1 and a TGR of 1.5% (in line with our Hong Kong and China consumer coverage). Downside risks include a weaker property market, higher material prices, new competitors, and price wars.

NP grew 54.3% partially due to higher government subsidies Robam reported NP up 54.3% to RMB 2512m NP on net sales up 34% to RMB1.4bn in 1Q17. Sales/NP accounts for 19%/16% of our 2017 full-year forecast. For reference, 1Q16 sales/NP accounted for 18%/14% of full-year sales/NP, respectively. Excluding exceptional item, particularly government subsidies which increased by 433% to RMB54.4m, core earnings grow 33.13%. GPM increased 0.5ppt to 59% and EBIT margin remains largely stable. AR grew 34.23% which was mainly due to sales increase. Prepayment increase was mainly attributed to advanced purchase of raw materials. To recap, Robam outlined a strategic target, i.e., “Triple 30%” plan, during their 2016 annual results analyst meeting. 1) Earnings growth of 30% CAGR: management is confident of delivering the earnings growth target, albeit revenue CAGR may be slower than 30%; 2) Market share for range hood to increase to 30%; 3) Sales volume for high-end range hoods to lead that of the second player by 30%. The company will host a conference call at 10:00 am HK time on 26 April 2017. We will review our estimates post conf call.

14% sales growth and 58% net profit growth in1Q17 Yonghui reported 1Q17 results with 13.8% sales growth to Rmb15.26bn and57.55% net profit growth to Rmb743.7m, in line with its preliminary resultsannounced last week. The sales are mainly driven by 1-2% SSSG, 105 newstore openings in 2016, and 140bps yoy expansion in net margin. Thecompany opened 33 new stores in 1Q17 (vs. 24 new stores in 1Q16), includingone select Store, one Super Species, and 9 membership store. Strong margin expansion trend on margin-focus strategy Yonghui’s net margin expanded 140bps yoy in 1Q17, helped by 60bps yoy inGPM and 90bps decline in Opex/sales. We believe this is helped by itsreclassification of Fujian and northeast region to margin focus group fromOctober 2016. Further, we believe management’s efforts in improving thecompany’s supply chain and operating efficiency are bearing fruits. 2017 outlook – margin expansion trend to continue We expect Yonghui to enter a margin expansion cycle from 2017, helped by anincreasing sales contribution from high-end stores and by operating efficiencyimprovingmeasures. Meanwhile, management is switching more focus fromscale to margin growth. We expect the margin expansion trend to continue inthe next three quarters. We forecast 48% recurring net profit growth toRmb1,494mn. Reiterate Buy We maintain Buy on Yonghui and are encouraged by the company enteringmargin expansion phase. Our target price is RMB6.50, based on DCF model,factoring in 9.5% COE, 1.0 beta and 1.5% TGR. Downside risk: competitionfrom on/offline players, weak SSSG, and management capability in nationwideexpansion.

Entering margin expansion cycle. 1Q17: strong beat on store network and margin expansion We expect Yonghui to enter a margin expansion cycle from 2017, helped by an increasing sales contribution from high-end stores and by operating efficiency-improving measures. Meanwhile, management is switching more focus from scale to margin growth. We expect the margin expansion trend to continue in the next three years. We revise up our EPS forecast by 6-14% in 2017-19E and raise our TP by 14% to Rmb6.5. Reiterating Buy. 1Q17: strong beat on store network and margin expansion. Yonghui announced 1Q17 preliminary results with 14% sales growth and 58% net profit growth, which is tracking ahead of DB’s previous 28% recurring earnings growth for the full year. This is mainly driven by 1-2% SSSG, 105 new store openings in 2016, and 160bps yoy expansion in recurring OP margin. In addition, we estimate it booked Rmb80mn interest income from the cash proceeds from the share placement in 2H16. More to be expected in 2017. Last October, management reclassified its core region, Fujian, and loss-making Northeast region to its “quality-focus group”, indicating the majority of business (54% of sales in 2016) will be focused on margin and operating efficiency. We expect 30bps recurring OP margin expansion in 2017, helped by margin improvement in Fujian and the Northeast region. In addition, Yonghui will complete the investment in Damon and could book associate income from 2Q17, which is likely to contribute Rmb90mn net profit in 2017. Revising up TP by 14%; reiterating Buy. We revise earnings in 2017-19E up by 6-14%, to factor in a higher profitability on management’s increasing focus on profitability. We forecast 18% sales and 24% earnings CAGR in 2017-19E. We revise up our TP by 14% to RMB6.50 based on our new earnings forecast. Our DCF approach factors in 9.5% COE, 1.0 beta and 1.5% TGR. Downside risk: competition from on/offline players, weak SSSG, and management capability in nationwide expansion.

Preliminary 1Q17 results Yonghui reported preliminary results for 1Q17 with net profit up 57.55% yoy toRMB743.7m on the back of a 13.76% increase in sales revenue toRMB15.26bn. The company attributed the net profit growth to 1) improvedgross profit margin due to tighter cost control; and 2) increased interestincome resulting from more efficient fund management. Net margin hasexpanded from 3.2%/3.5% in 1Q15/1Q16 to 4.9% in 1Q17. Deutsche Bank comments 1Q17 revenue is 25.4% of our full-year forecast vs. 26.6%/27.3% in 1Q15/1Q16,largely in line with our forecast. We believe that the top-line growth is mainlyfrom 1) accelerating new store opening in 1Q17 as it has 202 stores in thepipeline by the end of 2016; 2) low-single-digit SSSg affected by declined foodCPI in first two months of 2017. Net profit is 53% of our full-year forecast vs 60%/38% in 1Q15/1Q16, higherthan our forecast mainly due to the higher interest income contributed by thecompany’s more efficient fund management and strong cash balance ofRMB8bn by the end of 2016 (2015: RMB4.3bn) as a result of private placementin 2H16. The company has scheduled to report its audited 1Q17 results on 15 April. Wewill have more updates on financials at that time.

New TP at RMB52.54; maintaining BuyWe rate Robam as Buy as its strong network (it still has penetration growth)and additional investment in R&D (resulting in differentiated products) shoulddrive its sales/NP growth at a CAGR of 27%/28% for its new three-year plan(2017-19). We believe Robam is set to benefit from a strong property market inthe past 12 months and consumption upgrades for home improvement(demand for built-in kitchen appliances). We raise our 17/18 NP forecast by5%/3% and introduce our 2019 forecast. Our new TP is RMB52.54. 2017: healthy industry trend will likely continueRobam plans to hike prices by c. 5% on average, starting from 2Q17. Management views this price hike as an industry-wide reflection of rawmaterial costs. The company indicated it will not cut prices in exchange forvolume growth. Robam’s comments likely suggest strong industry pricediscipline in 2017, despite new entrants into the kitchen appliance market. Rollover of 3-year target; 30% earnings CAGR guided for 2017-2020Robam provided upbeat earnings guidance as part of its refreshed 3-year plan. To achieve the targets, it wishes to: (1) further strengthen its R&D to cementleadership for the core range hood & cooker hood businesses. (2) seek storeexpansion opportunities into tier 3 cities, aiming to open 300-400 brandedstores each year, (3) further grow the built-in kitchen appliance business. Robam sees built-in products as the biggest beneficiary of the consumptionupgrade trend, and sees most potential in steam ovens. (4) Robam alsoconsiders global collaborations, including R&D and potential M&A. DCF-based target price raised to RMB52.54In this update, we raise 17/18 earnings forecasts by 5%/3%, mainly to accountfor better-than-expected market conditions and innovation. We also roll overour valuation model. This leads us to lift our target price by 14%. Our primaryvaluation methodology is DCF (as investors focus on Robam’s long-termvalue), employing a COE of 9.5% (RFR of 3.9% and ERP of 5.6% both followingDeutsche Bank house view), beta of 1, and TGR of 1.5% (in line with our HongKong and China consumer coverage). Downside risks include a weakerproperty market, higher material prices, new competitors and price wars.

Net profit in line with preliminary result Yonghui reported 2016 results with 16.8% yoy sales growth to Rmb49bn and 105% yoy net profit growth to Rmb1,242m. The result is in-line with its preliminary result announced in January. Excluding Lianhua disposal gain of RMB170m, the core net profit at Rmb1.1bn is also in line with DB forecast. On quarterly basis, the sales increase 14% yoy in 4Q16 and recurring net profit increase 442% on low base. What we like in the result: solid sales growth and margin expansion The 16.8% sales growth has been helped by 1.9% SSSG and 105 new stores in 2016 (488 stores by end-2016). The SSSG should be better than industry average, mainly driven by its 11.3% SSSG for its high-end “Bravo” brands. Meanwhile, its operating margin expands 1.2ppts yoy to 3.3%, helped by improving efficiency in supply chain and stronger control in operating expense. 2017 outlook - new store opening to drive earnings growth Yonghui’s store pipeline has increased by 18 stores to 202 stores by the end of 2016. It will focus in high-end brands, i.e., it targets to open over 100 “Bravo” stores in 2017 and will open it in new provinces. We expect the strong cash balance at Rmb8bn should support its store openings. In addition, we expect Yonghui to book increasing revenue contribution from high-margin private-label products, helped by closer cooperation with Daymon Worldwide, the retailers’ service company it acquired in January 2017. The private-label products could also help it to differentiate from online stores. Reiterating Buy We expect its store opening and improving operating efficiency to drive earnings growth in 2017-18. In the long term, increasing high-end stores and increasing sales from private label should drive its margin expansion. We maintain Buy with target price of Rmb5.7. Our primary valuation methodology is DCF, employing COE of 9.5%, a beta of 1.0 and a TGR of 1.5%, which is in line with the 1-2.5% range we apply for the consumer sector (as China is one of the key drivers in the food retail consolidation globally). Key risks: competition from on/offline players, weak SSSG, and management capability in nationwide expansion.

Core NP better than Deutsche Bank and market, partially due to higher government subsidies Robam recorded net profit up 40.33% yoy, at RMB1.1bn and a 27.56% yoy revenue rise to RMB5.8bn. Operating profit rose 41% yoy to RMB1.3bn, with the operating margin improving 2ppts yoy. Core net profit (excluding a one-off government subsidy of RMB47m, received in December 2016) was 5% and 2% above Deutsche Bank and market consensus estimates, respectively. This is consistent with the preliminary results announced on 23January 2017. Details are set below table.

2017 Q1 preliminary results announced Kweichow Moutai announced preliminary results of Q1 2017. The company estimates revenue to grow 25.4% to RMB12.8b and net profit to increase 15.9% to RMB5.7b. The slower growth rate of net profit is probably due to continued adjustment of the consumption tax rate. Moutai also reported last year’s base liquor production which hit a historical high of c.a. 60,000 tons, including 39,000 tons of Moutai brand base liquor and 21,000 tons of sub-brands base liquor. Only one quarter but broadly in line with our full year forecasts Moutai’s estimated 1Q performance is stronger than our full year revenue forecast of 23% but weaker than our net profit growth forecast of 24%. We are not overly concerned about Moutai’s full year net profit growth as 2H 2016 was a low base after consumption tax adjustment, thus Moutai’s 2H 2017 earnings growth may accelerate. Maintain Buy rating and price target of CNY410.00 Moutai’s strong Q1 preliminary results announcement is consistent with our observations from a recent market visit, which showed strong end demand and high velocity on the distributor level. Moutai’s first tier distributors’ selling price after Chinese New Year has stabilized at around RMB1,150 per bottle which is in line with our expectations. We remain positive on Moutai, maintain Buy rating and price target of CNY410.00.

2017 – a new era for the company, reinstating with Buy With this note, we reinstate coverage on Midea with a Buy rating postrestriction. We believe the company has now formulated its long-term growthstrategy of globalization and automation, after the acquisitions of ToshibaAppliance and KUKA in 2016. Midea can now expand its global presence inhome appliance, leveraging Toshiba’s distribution network in Japan and SouthEast Asia. Within the automation segment, it will enable KUKA to furtherdevelop in China and also increase automation levels in its manufacturing andlogistics. Reinstating with Buy. KUKA acquisition: a key step towards smart manufacturing & smart appliancestrategy We expect the KUKA acquisition will help Midea access the automation marketvia the German company’s robotics products for the automotive sector andgeneral industries. We expect Midea will also improve its own productionefficiency (smart manufacturing) and flexibility (smart appliance) by leveragingKUKA’s automation solutions. In addition, Midea could help KUKA to developthe China market through localization. We forecast the robotics revenue fromKUKA will contribute 12% of group revenue by 2018E, with 7% in NP. Mideashould continue to invest in the supply chain of robotics. A solid growth outlook in 2017, mainly driven by air con re-stocking We expect air con (47% of total home appliance sales) to deliver double-digitgrowth in revenue in 1H17, mainly driven by channel re-stocking and thedemand from new home sales. Washing machines (9%) and refrigerators (8%)should grow at a double-digit rate and continue to gain market share. Itscombination of product mix upgrade and new product launches will offsethigher raw material costs, and we expect an 11%/11% increase inEBIT/revenue for its home appliance business. New target price of RMB35.5 on SOTP, implying 13x FY17E PE; risks We lift our NP by 21-25% for FY17-18E to reflect the consolidation of Toshibaand KUKA. We use SOTP to value the company (see Figure 4). Our new targetprice is RMB35.5, implying 13x/12x FY17/18E PE. Downside risks: globalexpansion; rising raw material prices and fierce competition.

FY16 preliminary results in line with our estimates (DBe) and market forecasts Robam announced preliminary net profit up 48% yoy, to RMB1.2bn, on a 9%yoy revenue rise, to RMB5.8bn. Operating profit rose 41% yoy, to RMB1.3bn,with the operating margin improving 2ppts yoy. Core net profit (excluding aone-off government subsidy of RMB47m, received in December 2016) was 5%and 2% above our and market consensus estimates, respectively. Revenuewas in line with our and market forecasts. For 4Q16, core net profit rose 40%yoy, to RMB479m, on a 31% revenue rise, to RMB1.9bn. Market share gains in all product categories, with a margin improvement We believe Robam has gained market share in all product categories. According to China Market Monitor, the industry revenue for range hoods, gasstoves and disinfecting cabinets increased 9%, 5% and 1%, respectively, in2016. The operating margin improved by 2ppts, due mainly to 1) improvedoperating efficiency from internal optimisation, 2) the rapid growth of the ecommercechannel, 3) the increase in the new product sales mix, and 4) thedecline in the selling expense ratio as a result of the cost control measures. Good track record of delivering results above market estimatesRobam has had a good track record of delivering results above marketestimates for six consecutive years since its listing in 2010. The averagesurprise of its reported results was +3% during 2011-15, according toBloomberg Finance LP. A leading kitchen appliance brand; maintaining Buy Robam is a leading kitchen appliance brand in China, and it is set to benefitfrom the fast-growing high-end market segment. We expect its market shareto gain 6ppts, to 16%, by 2020, driven mainly by the expansion of its specialtystore network, riding the e-commerce boom, and the growth in built-inappliances. We maintain our Buy recommendation. The company is scheduledto release audited FY16 results on 30 March.

Preliminary FY16results – net profit RMB1.2bn Yonghui reported preliminary results for FY16on 17January after the marketclose. Net profit rose 105% yoy to RMB1.2bn on a 17% increase in salesrevenue, to RMB49bn. The company attributed the increase in net profit to: 1)the optimization of the organizational restructuring and strong cost control, 2)one-off gain from the disposal of its Lianhua stake, and 3) finance income(DBe: RMB88m in FY16, vs. RMB25m in FY15). Revenue in 4Q16was 25% offull-year 2016, vs. 27%/25% in 4Q14/15, respectively. Core FY16results in line with DBe; maintaining Buy Excluding the disposal gain of RMB170m, core net profit (RMB1.1bn) andrevenue (RMB49bn) were in line with DB estimates (RMB1.1bn/50bn). Webelieve same store sales increased by ~1% yoy in 4Q16, vs. 2-3% increase in1H/3Q16. For 4Q16, core net profit was RMB255m (vs. RMB8m in 4Q15) andnet margin was 2.1%, in line with that in 4Q14.We maintain our Buy recommendation as we believe the company should be along-term beneficiary of China’s secular trend of modern retail andmanagement’s operational expertise in fresh food. We expect its operationalefficiency to improve, given the completion of the organizational restructuringin 2016. In addition, we believe Yonghui is gaining market share, driven by itsacceleration in store expansion (adding 70-80stores each year in FY17-18).Downside risks include weak consumer sentiment and SSS.

Business restructuring almost complete in 2016. Yonghui has established two business groups, namely Red Label and Bravo stores. The Bravo store has less operating area than Red Label, while its sales per square meter are 20-30% higher than Red Label stores due to selected mid-high-end merchandise. Yonghui also tests different store formats including the Jinbiao store (an upgrade from Bravo stores with catering services) and membership stores. Partnership expected to motivate store managers. Yonghui has rolled out a partnership program in its Bravo group. Store managers act as limited partners and take the initiative to set the growth target and operational plans. The company also simplified its SOP (standard operation procedure) to streamline operational procedures. Store managers were motivated by the profit sharing scheme. Salmon fish workshop and food court likely to attract traffic. The company’s salmon fish workshops source fresh fish from reliable upstream suppliers. The workshop is operated by independent teams and also adopts a partnership model and profit sharing incentive program. Yonghui aims to increase traffic to its offline store and increase customer repurchasing by offering more value for the money in Japanese and Chinese food. Private label development to accelerate. Private label sales comprise only 2% of sales, and Yonghui has a division to develop private label products. In the past, it was required to negotiate with suppliers on a case-by-case basis. Thus, the development of private label products was slow. However, it formed an alliance with Daman last year and expects to accelerate the process by introducing more resources from Daman. The company also plans to build up its products’ branding name with embedded stories to differentiate its products.

Robam – upgrading of 2016NP guidance On 9January after the market closed, the company announced that it isrevising its FY16net profit guidance from an increase of 20-40% yoy (as statedin its 3Q16results) to an increase of 40-50%, due to 1) a better-than-expectedsales performance in 4Q16, and 2) the government subsidy received at the2016year-end. According to the announcement, net profit in 2016will be in arange of RMB1,163m to RMB1,246m. Deutsche Bank comments We expect Robam to generate a 25% increase in net profit on a 31% rise inrevenue in 4Q16. Excluding the one-off government subsidy (DBe RMB47m),we estimate Robam’s net profit in 2016will be in a range of RMB1,116m toRMB1,199m. This is in line with our full-year forecast of RMB1,128m (35% yoyincrease). To recap, in December 2016, the company received a governmentsubsidy of RMB54m on R&D investment. Robam is a leading kitchen appliance brand in China and it is set to benefitfrom the fast-growing high-end market segment. We expect its market shareto gain 6ppts to 16% by 2020, driven mainly by expansion in its specialty storenetwork, riding the d-commerce boom and the growth in built-in appliances.We maintain our Buy recommendation.

Robam – upgrading of 2016 NP guidanceOn 9 January after the market closed, the company announced that it isrevising its FY16 net profit guidance from an increase of 20-40% yoy (as statedin its 3Q16 results) to an increase of 40-50%, due to 1) a better-than-expectedsales performance in 4Q16, and 2) the government subsidy received at the2016 year-end. According to the announcement, net profit in 2016 will be in arange of RMB1,163m to RMB1,246m. Deutsche Bank commentsWe expect Robam to generate a 25% increase in net profit on a 31% rise inrevenue in 4Q16. Excluding the one-off government subsidy (DBe RMB47m),we estimate Robam’s net profit in 2016 will be in a range of RMB1,116m toRMB1,199m. This is in line with our full-year forecast of RMB1,128m (35% yoyincrease). To recap, in December 2016, the company received a governmentsubsidy of RMB54m on R&D investment. Robam is a leading kitchen appliance brand in China and it is set to benefitfrom the fast-growing high-end market segment. We expect its market shareto gain 6ppts to 16% by 2020, driven mainly by expansion in its specialty storenetwork, riding the d-commerce boom and the growth in built-in appliances. We maintain our Buy recommendation.