A true global company; maintaining Buy 2016 to continue optimizing sales channel management We like Haier’s brand equity and its leading position in the washing machine and refrigerator segment. We believe management has identified the channel management issue and is optimizing the channel management. About 95% of its products sold overseas are own-brand products. We expect the GE Appliance deal to be completed by mid-2016, and it is likely to raise EPS by 15- 16% in 2017-18E. Overseas business accounted for 20% of total sales in 2015 after consolidation of Haier Singapore, and is likely to increase to 44% after consolidation of GE Appliance; maintaining Buy. 2016 to continue optimizing sales channel management We expect Qingdao Haier to continue streamlining its sales channel in 2016 and expect it to report organic growth of 3-6% during 2016-18E with bottom-line growth of 5-10% during the same period, mainly driven by GP margin expansion with a focus on development of high-end products. For 2016, we expect NP to grow 15% yoy to RMB4.9bn, including a one-off gain (RMB528m) from the re-classification of Bank of Qingdao (3866.HK, NR) from 1Q16. GE Appliance to raise NP by 15-16% in 2017-18E We expect GE Appliance to raise Qingdao Haier’s net profit by 15-16% in 2017-18E. In 2016, the increase should be about 10% of Haier’s net profit, as it is likely to start consolidation in 2H16. In our model, we have not factored in the acquisition of GE Appliance, as it is still awaiting approval. Valuation and risks We maintain our Buy rating, while lowering our DCF-based target price (9.5% COE, 2% long-term growth rate) by 6% to RMB10.16 to reflect the constraint output in air conditioners and the investment for high-end products. We have not factored in the GE deal as it is still awaiting approval. Our target price translates into 12x/11x FY16E/17E PE. Downside company risks include: 1) failure to develop overseas markets, 2) failure to integrate the acquired business, 3) delay in acquiring GE Appliance and 4) the continued connected transaction with Haier Electronics.

2016-20 development strategy Yonghui released a five-year development plan (2016-20) in its audited FY15results on 27 April. According to the plan, it targets becoming one of the topthree offline retailers in China, by developing both online and offline channelsto cater to consumers’ evolving demands. It will focus on strengthening themerchandise operation capability by enhancing the supply chain managementand optimising business procedures. It targets 1) establishing strongrelationships with 300 domestic key suppliers and 30 overseas suppliers, 2)private label products accounting for 15-20% of total sales, 3) building 10regional DCs and 30 fresh food DCs, 4) building five to 10 central kitchens. 2016: focus on supply chain integration and digitalised management Yonghui plans to continue to improve the supply chain management for thefresh food and general merchandise divisions. For apparel, it will reinforceprofitability by improving inventory turnover, lowering costs, andstrengthening KPI reviews and motivation. It will develop a joint procurementwith allied partners to source from domestic and international suppliers. Itlaunched its first central kitchen in February 2016 in Chongqing to processfresh food, and it will build another two kitchens, in Beijing and Fujian. Lowering net profit by 9-12% for 2016-17E; maintaining Buy We cut our 2016-17E net profit by 9-12% to reflect the investment in supplychain management and lower-than-expected FY15 results, owing to corporaterestructuring. We estimate 38% net profit growth for FY16-18, on 20% rev. growth, driven mainly by adding 60-80 new stores each year, 2-3% SSSg andop. leverage. Prelim. 1Q16 rev. and net profit are 26% and 41% of our FY16forecast, respectively, vs. 25% and 36% in FY14. We believe Yonghui shouldbe a l/t beneficiary of China’s secular trends of modern retail and mgmnt’soperational expertise in fresh food. Our primary valuation methodology is aDCF, employing 9.5% COE, a 1.0 beta and a 2.5% TGR, which is at the highend of the 1-3% range we apply for the consumer sector (as China is one ofthe key drivers in the food retail consolidation globally). This produces a fairvalue of RMB11.6/share (previously RMB12.9), implying 39x FY17E P/E. Keydownside risks: keen competition; low CPI; challenge in nationwide expansion.

Midea’s annual Investor Day in Shunde on 27April Midea hosted its annual Investor Day on 27April. We visited its home ACautomation factory in Nansha, the innovation projects in its R&D workshop,and Ande Logistics. The managers of five divisions – home AC, commercialAC, washing machine, small appliances and kitchenware – presented therecent developments in those divisions. The key takeaways from the Q&Asession with senior management are: Destocking of home AC: Midea is de-stocking home AC from Jun-Jul 2015.This has reduced inventory by 40% at the regional sales offices and by 20-30%at the distributors from the peak. Shift from make-to-stock (压货) to make-to-order model: Management is quitedecisive on shifting from the current make-to-stock (demand push) distributionmodel to make-to-order (demand pull) model by introducing the “T+3” ordermanagement system. In T+3, there are four stages for a full cycle: 1) orderplacement; 2) material and parts preparation by suppliers; 3) final assembling;and 4) delivery of finished goods to clients. Midea’s subsidiary Little Swan(000418.SZ, NR) has piloted this model and has reduced the turnover period(from order placement to receiving the merchandise) to 12days from 28.Management believes this is achievable as it has: 1) standardized productionprocesses and procedures; 2) automated production; and 3) logistics capabilityfor nationwide delivery in a short time. Continuation of globalization strategy: It plans to enter the US and Europeanmarkets through M&A, backed by its strong operating cash flow. For theToshiba (6502.T, NR) white goods acquisition, it has formed working groupsfor ensuring a smooth transition. Midea has found that Toshiba’s refrigeratorsegment in Japan is loss making. The company plans to turnaround Toshiba(5-6% net loss ratio) in 2-3years. Deutsche Bank commentsWe like Midea’s initiatives to shift to the make-to-order distribution modelbacked by its strong execution capability. We believe this should benefit Mideain the long run as it will: 1) enable the company to flexibly adjust productionand R&D to address the evolving and personalized end-user demand; 2)improve operating efficiency by reducing inventory in both the factories anddistribution channels; and 3) optimize the supply chain by flattening thedistribution channel. However, Midea has to prolong the output constraint tofully de-stock the channel inventory, which could result in a short-term marketshare loss. The company is scheduled to release its 1Q16results on 30April.

1Q16 revenue is 37% of our full-year forecast vs. 36%/38% in 1Q13/1Q14 and60% in 1Q15. We believe that the top-line growth is mainly from 1) mid-singledigitSSSg and 2) accelerating new store opening of 15 stores vs. 13 stores in1Q15. We expect full-year SSSg to grow by low mid-single-digits for 2016. According to management, Mr. Li has completed his five-year term of serviceas president. To recap, Mr. Li was mainly responsible for the operationstandardization in the company, and this has been launched successfully. The company has scheduled to report its audited full-year 2015 results and1Q16 results on 28 April and 30 April, respectively. We will have more updatesat that time.

USD693m for 80% stake in Toshiba white goods business Midea announced on 30 March that it has reached an agreement with Toshiba(6502.T, NR) whereby Midea will acquire an 80.1% stake in Toshiba Lifestyle(TLSC) for a total consideration of USD693m in cash (USD473m for the equityand USD220m for debt repayment). TLSC will continue to develop,manufacture and sell white goods products such as refrigerators, washingmachines, vacuum cleaners and small appliances under the Toshiba brand. Midea will be granted the right to use the Toshiba brand globally for 40 years. Procedures for closing the deal This deal does not need SGM approval, but is pending approval from the JapanFair Trade Commission and needs to be registered with China’s Ministry ofCommerce and State Administration of Foreign Exchange. Midea expects tocomplete the deal by 30 June 2016. About TLSCToshiba is one of the largest white goods brands in Japan. Its washingmachines and refrigerators are ranked in the top three in Japan, according toEuromonitor, with a market share of 20%/15%. It also has a presence in SoutheastAsia and the Middle East. By region, 70% of its revenue is from Japan andthe remaining 30% is from other regions. By product, refrigerators, washingmachines and home air conditioners account for 26%/23%/15% of totalrevenue. It has nine production bases located in Japan, China and Thailand. Deutsche Bank comments We believe this is an important milestone for Midea in its exploration of theglobal market and is positive for Midea in the long term. We expect Midea to1) upgrade its R&D and automated manufacturing capability, leveragingToshiba’s R&D resources; 2) introduce Midea products to the Japanese andSoutheast Asian markets, leveraging Toshiba’s distribution network; and 3)turn around Toshiba’s white goods performance by improving operatingefficiency and controlling costs. We believe the target witnessed a net loss ofJPY8.2bn in 1HFY15 (deduced from the reduction in net assets), or 6% ofMidea’s NP for the same period, so we calculate that dilution is about 5% forMidea in 1HFY15. The sales revenue of the target was USD3.6bn in FY15(ending March 2015), or 16% of Midea’s revenue. This includes USD1.6bnrevenue from the distribution of Toshiba’s non-white goods products (TV sets,PCs and lighting products). We believe that the consideration implies 0.2x PSof the target, or 0.4x PS of Toshiba’s white goods business in FY15. Webelieve this is reasonable when compared with Qingdao Haier’s GE deal (0.9xPS). Midea had net cash of RMB8bn as of end-2015. We maintain our Buyrecommendation.

Key takeaways from Lianhua’s conference call Younghui’s associate Lianhua (0980.HK, CMP:HKD2.66, NR) released its FY15results and held a conference call on 31 March. Below are the key takeaways:Outlet development and store closure. LH plans to add 300+ new stores (204new stores added in 2015) in 2016, including 7-9 hypermarket stores, 150/150supermarket and CVS stores. In terms of store closure, it will cautiously closethe underperforming stores. The loss-making stores are mainly big stores. SSSg declined by 6.5% yoy in 2015, mainly due to traffic (-10%), while ASPincreased by 2-3%. By products, fresh goods, seasonal merchandise, andlaundry products outperformed. Sales performance in Jan-Feb 2016. Sales improved due to the efforts made in2H15, despite an intensive competition environment. Prepaid card sales improved in 1Q16. The decline in sales of prepaid cardsnarrowed by 3-5ppts in 2015 from that in 2013-14. Prepaid card sales in 1Q16were better than that in 2015. Prepaid card settlement is 25-30% of the totalsales. E-commerce. It plans to launch an omni-channel (on/offline plus mobile) inMay 2016, after a successful testing conducted in March in Shanghai. To continue to improve fresh food mix and GP margin. It plans to increase thesales mix of fresh food (30% currently) by efforts in the operationmanagement. It plans to improve GP margin from 12% in 2015 to the industrybenchmark level, by controlling shrinkage and logistics optimizations. Yonghui alliance update. Lianhua aims to lower procurement cost byleveraging Yonghui’s supply chain system and procurement platform. Fordirectly purchasing from Yonghui, the annual cap was set at RMB130m in2016 (0.5% of LH’s COGS in 2015). LH has improved its business operation ofits fresh food segment, by improving daily operations and training theoperation staff. The next step is to optimize non-fresh food operations by 1)centralized procurement for key items especially national procurementproducts, and 2) direct sourcing. YH has helped upgrade LH’s Zhuanqiao storein terms of optimizing shopping route, expanding gallery space, optimizingmerchandise mix and improving operating efficiency. It plans to renovate 13hypermarket stores and 13 supermarket stores in 2016. Deutsche Bank’s comments We believe Yonghui’s contribution in Lianhua’s turnaround is mainly focusedon the merchandise operations and store renovations. We expect Yonghui tobenefit from the joint procurement with Lianhua, which will lower theprocurement cost on economy of scale. LH was in a net loss of RMB146m in2015. YH holds 21% stake in LH and has nominated two of the 11 directors onLH’s board. This note marks the transfer of coverage for Yonghui to Richard Huang asprimary analyst, Anne Ling as the secondary analyst.

A key beneficiary of air conditioner destocking; maintaining Buy We expect washing machine (WM) and refrigerator (RF) to continue theirgrowth momentum in 2016, while air conditioner (AC) should graduallyimprove due to the ASP pickup and low base in 2H15. We expect Midea to bea key beneficiary when AC destocking is completed by mid-2016. We expectMidea to keep developing the robot business and explore overseas businessvia M&As. It is trading at 9x FY17 PE and 4.5% dividend yield. Maintain Buy. 2016 – Washing machine and refrigerator to continue growth momentum Midea expects top line to grow in single digit for FY16, which is consistentwith its guidance during the 3Q15 analyst conference call. It believes WM andRF should continue their growth momentum (double-digit growth in 2015),while AC sales are likely to improve gradually, driven by the recovery in theproperty market and the low base due to output constraint in 2H15. We expectAC/RF/WM to grow at 4%/13%/16% yoy in 2016, respectively, and overall GPmargin to remain flattish yoy. We expect 7%/8% yoy growth in grosssales/EBIT to RMB149bn/RMB14bn for 2016, respectively. FY15 NP up 21% yoy to RMB12.7bn, in line with DB and market expectations NP grew by 21% yoy to RMB12.7bn, on a 2% decline in revenue to RMB139bnin 2015. NP and top line were in line with our and market expectations. WMand RF were the bright spots, with 17% and 20% yoy growth in sales,respectively, driven by the product upgrade and new products. For 4Q15, NPincreased by 9% on a 26% decline in EBIT. EBIT was in line with ourexpectation, while NP beat our expectation on a lower-than-expected ETR andhigher-than-expected subsidy income and associates. DPS was RMB1.2(flattish payout ratio at 40%). Target price fine-tuned to RMB33.25 from RMB34.09, on 10x FY17E PE; risks We lower our target price by 2% to reflect the AC output constraint ytd 2016.Our DCF (9.5% COE, 1.0 beta, 2% TGR) yields RMB33.25/share (old:RMB34.09), implying 11x/10x FY16/17E PE. Dividend yield is at 4.5% at currentprice. Key catalyst is the Toshiba M&A. Downside risks: global expansion;slower-than-expected destocking of AC; unfavorable weather; competition.

FY15 NP up 21% yoy, to RMB12.7bn, in line with our and market expectations. Midea reported FY15 results on 25 March, after the market close. NP rose 21%yoy, to RMB12.7bn, on a 2% decline in sales revenue, to RMB139bn. NP andthe top line were in line with our and market expectations. Midea declared adividend of RMB1.2 per share, implying a payout of 40% (unchanged vs. 2014). By segment, washing machines and refrigerators were the bright spots,with 17%/20% yoy sales growth. This was offset by an 11% decline in AC salesdue to the output constraint. The GP margin improved 0.4ppts to 25.9% drivenby the product mix change and a lower raw material price, while the opex ratiorose 0.4ppts mainly due to the 16% yoy increase of R&D expense (3.8% ofrevenue in FY15). The EBIT margin was flat yoy, at 9.3%. 4Q15 EBIT in line with Deutsche Bank estimates. For 4Q15, NP rose 9%, on a 26%/17% decline in EBIT/sales revenue. EBIT wasin line with our expectations, while net profit beat our expectations, on alower-than-expected ETR and higher-than-expected associates. Key tasks in 2016. Midea plans to continue with its upgrade production capability, to streamlinethe supply chain, enforce a logistics platform, speed up its globalisationexpansion and implement a smart home and smart manufacturing strategy. Post-results conference call on 28 March. Midea will hold a conference call at 10-11 am on 28 March. We expect the keyfocus to be 1) the progress of AC de-stocking, 2) the update of the Toshiba(6502.T, NR) M&A, and 3) the outlook for 2016. The dial-in number is +86-25-68673555; meeting room: 9402; pass code: 5013.

Midea has become the second-largest shareholder of KUKA According to KUKA’s (KU2G.D, Sell) press release, Midea has increased itsstake to 10.22% from 5.43% in KUKA as of 3 February 2016. Midea thus hasbecome the second-largest shareholder of KUKA. KUKA, headquartered inAugsburg, is one of the world’s leading suppliers of robotics, automation andsystems engineering. Deutsche Bank’s comments We believe this is consistent with Midea’s strategy to develop the robotsmanufacturing as a new business. We talked with management that itsintention is to have further cooperation with KUKA in R&D and manufacturingof the industrial robots through equity investment. Midea has M&A plans fordeveloping the new businesses. Please refer to our notes “Access ChinaConference Highlight” published on 11 January 2016. To recap, it acquired 5.43% stake in KUKA in August 2015. We believe Mideahas established a good relationship with KUKA’s senior management teamafter its initial share purchase. Besides that Midea has established two jointventures with Yaskawa (6506.T, NR) to manufacture industrial and servicerobots in China since last August. During its 3Q15 conference call, Midea’s management had guided that it plansto install 1,700 industrial robots to enhance its manufacturing automation witha capex of RMB1bn for 2016.

FY15 core net profit increased by 7% yoy Yonghui Superstores (YH) announced preliminary results for 2015 on 1February. The company expects NP in 2015 to decline by 29% yoy toRMB606m, mainly due to corporate restructuring, investment in the Bravostores, and a weak retail environment. Excluding the investment loss ofRMB69m in Lianhua (0980.HK, NR) and the re-classification of its investmentin Zhongbai (000759.SZ, NR) as a long-term investment (equity method) from afinancial trading asset (fair value gain of RMB221m) in 2014, core NP grew 7%yoy to RMB675m, 28%/29% lower than Deutsche Bank/market estimates ofRMB944m/RMB956m, respectively. The 2015 result implies NP of RMB78mexcluding the LH investment loss booked in 4Q15. The company will announceits audited 2015 results on April 28, 2016. Deutsche Bank comment 4Q15 sales growth was 9% yoy, which implies a slight decline in SSSg vs. adecline of 1-2% in 3Q15. We expect SSSg to improve in 2016 as YH completedits business restructuring in 2015. However, we believe SSSg will remainunder pressure in 2016, as the company continues to expand its Bravo storenetwork, investing in staff recruitment and store renovations, and taking intoaccount a longer cultivating period than the the traditional Red Label store. Fore-commerce, we believe YH will work closely with JD (JD.OQ, Buy, USD25.59)to expand the O2O business. It launched the Jing Dong Dao Jia O2O servicesin 30 stores in Beijing during November-December 2015, and will expand toother cities including Chengdu, Chongqing, and Shanghai this year. Thebusiness is still in the initial stage. Please refer to our report China Consumertour takeaways published on January 22, 2016. YH held 20%/21% stakes inZhongbai/Lianhua as of September 2015.

US$5.4bn cash to acquire GE’s home appliance business; EPS enhancement Qingdao Haier announced on 15January that it had reached an agreementwith General Electric (GE) to acquire the entire assets and liabilities of GE’shome appliance business for a cash consideration of US$5.4bn (40%/60%financing by self-owned cash /bank borrowing). This deal is awaiting approvalfrom the anti-trust authorities in the US, Mexico and Canada, and registrationin China's NDRC and local Commerce Bureau and approval in the SGM. QH'sshares will continue to be suspended from 18January, pending review by theShanghai Stock Exchange. We expect this deal to enhance QH’s FY14EPS by2-5% and FY15EPS by 11-14%, assuming a 3-4% financing cost. Management: 8.2x FY15E EV/EBITDA and synergies The consideration is 8.2x FY15E EV/EBITDA, within the global comparablepeers’ and M&A deals’ range of 8-10x, according to management. QH expectsGE’s EBITDA to grow 40% yoy (32% yoy excluding one-off) in FY15, mainlydue to GE’s improved earnings capability, as it has invested USD1bn in R&D,products and manufacturing capabilities over the past three years. QH plans toleverage GE’s sales network, R&D, logistics and after-sales service network inthe US to expand the Haier and Fisher Paykel brand in the US. It aims to retainthe current management team to operate the GE business independently. Consistent global expansion strategy We believe this deal underpins QH’s globalization strategy. We think this dealwill help QH expand its market presence in the US and other counties,leveraging the GE brand. We expect this deal to enhance QH’s FY14EPS by 2-5% and FY15EPS by 11-14%, assuming a 3-4% financing cost. Valuation and risks Our primary valuation methodology is DCF, employing a COE of 9.5%, beta of1, and terminal growth rate of 2%. This produces a fair value estimate ofRMB11.51/share, implying a 15/16E P/E of 14x/12x. Company-specific risksinclude failure to integrate the acquired business and delays to the acquisition.

Fully positioned in fragmenting TV landscape; Buy. Oriental Pearl (OP) has established a universal pay-TV ecosystem, leveraging itsunique business resources, which makes it better positioned in thefragmenting pay-TV sector. OP has set fast-growing internet-TV as its strategicfocus. It benefits from its unique competitive advantages and solid IPTVfoundation. We forecast sustainable recurring profit growth of 15%/12%/21%in 16/17/18, after analyzing OP’s diverse growth drivers and subscriberleverage. Our DCF-derived target price of RMB46 implies 26% upside potential. SoTP analysis also suggests OP’s value is not fully discounted. Buy. Shifting growth drivers. After a major reorganization in 1H15, OP now commands leading positions inIPTV, TV-shopping, tourism, property, etc. These offer OP a diverse businessportfolio that generates stable growth. We expect OP’s core IPTV business(representing over 50% of recurring earnings) to deliver sustainable earningsgrowth. In addition, the lucrative tourism business and TV-shopping shouldalso contribute growth. On top of that, the monetization of legacy propertyprojects should drive near-term profit and support OP’s investment in internet-TV. In the longer term, we forecast shifted growth drivers to internet-TV whileOP should generate more synergies through technological investments. Internet-TV: differentiated competitive edges. OP covers all major internet-TV monetization models, ranging from B2B2C toB2C, which should allow faster subscriber accumulation than for peers. Oncontent, OP is well positioned to execute a differentiated strategy thanks to itsfirst-mover advantage and close bond with SMG (Shanghai Media Group). Moreover, OP demonstrates full regulatory compliance with a well-roundedlicense portfolio. We believe OP’s communication with the government will befurther enhanced thanks to SMG. OP’s existing IPTV business will be crucial togenerating leverage against growing (fixed) costs from content andinfrastructure investments. The solid IPTV foundation makes OP one of the fewinternet-TV operators with a cash-generating video business globally. DCF TP of RMB46; SoTP analysis suggests potential not fully discounted; risks. We value OP based on DCF methodology as we expect investors to focus onOP’s long-term monetization of business resources. We derive a WACC of9.6%, with a cost of equity of 10.1% (risk-free rate 3.9%, beta 1.12, market riskpremium 5.6%) and cost of debt (after tax) of 4.5%. Our SoTP analysissuggests the market is not fully pricing in OP’s business potential. Downsiderisks: weaker user acquisition and ARPU of internet-TV, more severe contentprice inflation, slower property monetization and regulatory loosening.

Carlyle withdraws bid for stake in Coway; good news for Haier Trading of Qingdao Haier has been suspended since 19 October due topossible M&A, with no update or timetable on its suspension. However,according to Bloomberg news on 11 Nov, Carlyle Group has withdrawn its bidfor the Coway stake due to the high price. To recap, Haier Group (parent ofQingdao Haier) formed a consortium with CJ Group in Oct to bid for a 31%stake in Coway (021240.KS, NR). Affinity Equity Partners and Carlyle Group arethe other bidders, according to the local press (pulsenews.co.kr). Coway – a market leader in Korean home wellness appliances Coway is a market leader in Korean home wellness appliances, its main focusbeing on health and well-being. It recorded sales of KRW2.2tr (USD2bn) in2014. According to the company’s website, its key products are water filtersand air purifiers, in which it has a 55%/44% market share in South Korea. MBKPartners acquired a 31% stake in Coway for KRW1.2tr in Aug 2012. Deutsche Bank comments We have not been able to confirm the news with Qingdao Haier. Based on pastexperiences with Sanyo and FPA, Haier normally acquires the overseas brandsthrough its parent company (Haier Group) and then injects them into the listco. We believe Haier’s water purifier business is in the Haier Group, but we don’tknow how Haier allocates the air/water purifier business among its three listedvehicles: Qingdao Haier, Haier Elec (1169.HK, Hold, HKD 14.22) and HaierHealthwise (348.HK, NR). In July 2014, Haier Elec and Haier Healthwise (27%stakes held by Haier Group) established a 51%/49% JV (Goodaymart Water) todistribute water purification products. According to the press, the consideration for the Coway stake is KRW3tr orUS$2.6bn, implying 39x FY14 PE. This is higher than Coway’s trading multipleof 26x FY14 PE as of 11 Nov. We believe this potential deal underpins Haier’s strategy of becoming a globalleading white goods brand with a diversified product portfolio. We seepotential synergy in Coway’s plans to grow its air/water purifier business inChina, while Haier has a strong local manufacturing capability and distributionnetwork and is eager to learn technical skills in manufacturing air/waterpurifiers. Qingdao Haier had net cash of RMB23bn as of 30 Sept. AssumingQingdao Haier acquires a 15.5% stake in Coway (half of the consortium’spotential stake), we estimate the acquisition would enhance its net profit by4% in FY14, given Coway’s net profit of KWR250bn in 2014. Qingdao Haier’sshares are still suspended but we maintain our Buy recommendation.

Update 1) No further circular will be released by the company, as it is not required. TheRMB40/share price tag and the taking of an additional 31% stake by aseparate entity are Ping An’s decisions, and thus there is no comment frommanagement. However, management added that the increase in stake showsPing An’s confidence in Jahwa’s long-term outlook. 2) In 30 effective days, if the registered shares are fewer than the targetednumber of shares that Ping An intends to purchase, then Ping An willpurchase all the registered shares. If the number exceeds the target, Ping Anwill purchase shares proportionately. 3) For the new entity, Tai Fu Xiang Er, all the financed capital from the trust planhas been put in place. But management did not comment as to whether thisfinancing came from Ping An or an external source. Deutsche Bank’s view In the short term, the share price is likely to be supported by the RMB40 pricetag offered by Ping An, despite the earnings miss in 3Q15. Taking a sizableadditional 31% stake has also prompted market speculation that the stakecould be sold to a strategic partner in the future.

It resumes trading on 2 Nov 2015; the price was limited up at HK$37.91. Deutsche Bank’s view. We are neutral on this announcement at this stage aswe have yet to understand the rationale behind the pricing and the stakeinvolved (which involves an exemption of a general offer). That said, the majorshareholder’s move to increase its stake is a positive move. To gain moreclarity, we would require the following information from management. Pricing and procedure. Will there be a circular detailing how the offer ispriced (which deals are the benchmarks)? and the timing and procedure ofthe offer (a pro rata basis of every 3.2 shares to 1, for instance)Anychance that Ping An will raise the price? Under what conditions will PingAn get an exemption from the stock exchange to avoid a general offer Ping An’s stake in Jahwa. After the deal, Ping An will own 58.87% ofJahwa, relative to only 5-15% of its other investments, according to theannouncement. What is the rationale behind owing a controlling stake?And why 31%? What are Ping An’s plans for the cosmetic segment The new entity. Is the set-up of Tia Fu Xiang Er just for the sake of holding31% of Jahwa? Will there be any expiry date on the fund? What is thefund-raising process for this company?