More resilient growth during macro slow down Yanghe is the largest brand in premium liquor (Rmb300-600/bottle) in China. Near term, we expect its growth to be more resilient than other liquor brands, helped by its “value for money” nature, flat channels and rapid market response. Yanghe exhibited its resilience in the last downcycle in 2013-14. Long term, we expect it to consolidate the premium liquor sector through increased penetration and improved product mix. Risk/reward is attractive at 15x 2019E P/E with a 22% earnings CAGR over FY18-20E. Initiate Buy. Premium liquor sector: fast-growing sales and improving consolidation The premium segment accounted for 9% of liquor volume and 20% of liquor sales in 2017. Premium liquor has good branding and reasonable pricing catered to the social and business demand. With middle-class consumers trading up, the premium segment is expected to have the highest growth among all categories in Baijiu, and estimated to have a 16% sales CAGR in 2018-20 by Euromonitor. Meanwhile, in view of consumers’ increased brand awareness, we expect leading brands to gain market share in the segment. Yanghe: well positioned to scale up in the premium sector Yanghe takes a 30% market share by volume in the premium segment and we expect it to continue to consolidate the segment. Compared to other premium peers, Yanghe has a wider distribution channel, better brand awareness and more diversified products. Management also has high incentives with a significant interest in the company. We expect Yanghe to gain market share through increased penetration and improved product mix in the long term. Initiating with Buy; Target price RMB150 Yanghe’s shares have fallen 30% (MSCI China staples index: -23%) since June due to weak market sentiment, but we believe the story of market share gains in the premium segment is intact. The stock trades at 15x 2019E P/E with a 22% earnings CAGR in 2018-20E. We initiate on Yanghe with a Buy rating. Our target price of RMB150 is based on DCF (9.5% WACC and 2% terminal growth). Downside risk: macro slowdown, channel destocking of Moutai and food safety. (See pages 17 & 18).

Sales/NP in line with DB/consensus for 2017 Yonghui announced its 2017 preliminary results after market closed today. NPgrew by 45.1% to RMB1.8bn, which is in line with both DBe/market consensus. NP margin improved from 2.6% in 2016 to 3.1%. Sales grew 18.61% to RMB58bn,also in line with DB forecast and market consensus. For 4Q17, sales grew by 24% while NP declined by 4% in 4Q17, which is 4%/8%lower than our expectation. This is mainly due to higher than expected opex ratiowhich we believe is due to more stores opened in this period. NP growth is mainly attributed to 1) GPM improvement resulting from enhancedsupply chain management and lower scrap rate for fresh products; 2) operatingleverage helped by its effective “partnership structure”. Among the regions,Beijing, East China and Sichuan regions outperformed in terms of store efficiencyand profitability; 3) interest income growth. In our view, sales growth was mainly driven by store opening expansion andSSSg. According to its website, it net opened 141 stores in 2017 and the totalno. of stores reached 597 as of end-2017. This is ahead of its 80-100 guidance. It also saw SSSg acceleration from 2% in 9M17 to 3% in 4Q17 (DBe), despitethe late CNY this year, based on our meeting with management before its resultsblack out period. Going forward, we believe Yonghui is able to keep the similar store expansionpace in 2018 as it has signed contract with another 170+ stores based on itswebsite. Apart from its traditional Red Label/Green Label supermarkets, it mayopen more Super Species and Yonghui Life stores with Tencent's partnership. To recap, Tencent announced it would acquire 15% stake of Super Species andYonghui Life on 16 Dec 2017. We believe the next catalyst for the company lies on the future businessdevelopment between Yonghui, its strategic partners, like Tencent (5% in YH) onthe integrating its investments in Hongqi ( YH invested 21% in the company) andCarrefour China (stake not disclosed). Management announced on 25 Jan that itmight incurred more cost and investment short term. We will try to speak with management after the full results were released in theend of Mar and review our model.

Net profit up 58% yoy in 2017; in line with market expectation Kweichow Moutai issued a profit alert on 31Jan 2018and announced that itsnet profit increased 58% yoy to Rmb26.4bn in 2017. On quarterly basis, the 4Q17profit grew 51% yoy to Rmb6.4bn. The net profit growth was driven by: 1) "FeitianMoutai" sales volume, increased 34% yoy to 31,000tons; 2) 10% ASP increaseof Moutai liquor due to increasing sales portion of super premium products; and3) Lower SG&A/sales ratio due to improved operating efficiency and operatingleverage. The result was in line with its operation update announcement in Dec 2017ofa 58% yoy increase in profit before tax. It is also in line with our forecast atRmb26.2bn in 2017and market's consensus (Wind) at Rmb25.4bn. Long-term growth potential remains intact We think the strong net profit growth is not a surprise to the market. We maintainBuy on the stock for its strong branding and increasing channel control; yet inthe near-term, the potential over supply risk might assert pressure on its retailprice and market sentiments. We maintain our target price at Rmb790based onDCF model (factoring in 9.5% WACC and a 2% terminal growth rate). Downsiderisks: shorter-than-expected restocking cycle; government policy changes; foodsafety incidents.

4Q sales growth slowing down due to late Chinese New Year Management expects sales growth in 4Q17to slow down from 18% in 3Q17,due to shorter peak season falling in 4Q17with a later 2018Chinese New Yearseason. For the full year 2017, it expects sales growth to achieve double digit,core margins (exclude government subsidy) to expand, and net profit to achievepositive growth. The sales growth has been mainly driven by increasing demandand increasing market share in the lower tier region. The management indicatesthat the industry sales grew by 7% in 2017, with 8-10% growth in lower tier regionand 5-6% in high tier regions. Industry competition could ease down in 2018 Management expects the good demand growth to continue in the near-term. Thekey sales driver will be UHT yoghurt and high end UHT milk. The competitioncould ease down thanks to a more balanced raw milk supply. Yet there will beincreasing cost pressure due to rising raw material cost. Unless there is a sharpincrease in raw milk price, the management does not expect a like-for-like pricehike, but it will reduce price promotion to partly offset the cost increase. Soy milk contribution is still limited in early stage Yili launched soy milk with the brand "plant selected" in January. It currently hastwo SKUs for soy milk , the original taste priced at Rmb4.0/pack and the black soybean priced at Rmb4.6/pack. The company is positive on the sector and estimatethe industry market size to be Rmb100bn. In 2018, it expects soy milk sales shouldbe a few hundreds million, and think it is still too early to achieve break even dueto initial marketing spendings. Our view: growth story intact Yili's guidance is in line with our expectations. We expect its market share couldcontinue to increase in 2018with industry competition slowing. Meanwhile, thesoy milk and new SKUs continues to be key sales drivers. As industry leader, webelieve Yili could pass through the cost inflation by reducing price promotion andultimately price hikes. We reiterate Buy on Yili. Downside risks: food safety, andoversupply.

Still needs more time before next price hike Investors' questions focus on whether Wuliangye will raise its ex-factory prices.Management did not rule out the possibility of an increase in time, especiallyafter Moutai's price hike. However, it thinks that more time is needed, given thatchannel profit has only been stable for one year. The company's priority currentlyis to maintain channel profit margins and to strengthen the retail price stability. Target 30% yoy sales growth in 2018 Management is confident it can reach its target. Key sales drivers will be: 1)mainstream Wuliangye to grow by 18% from 17,000tons in 2017to 30,000tonsin 2018; 2) price increase through raising the portion of "out of plan" volume from10% in 2017to 50% in 2018, implying a 5% price increase; and 3) incrementalsales of mass market sub brands to RMB10bn in 2018– it targets to build upone sub brand with RMB2bn sales, and 2-3sub brands with RMB1bn sales bythe end of 2020. To increase channel penetration through its "10thousand project" Management aims to increase its penetration through a “hundreds of cities,thousands of counties, and ten thousand stores” program. By the end of 2017,it had built up 7,000core POS and 1,000Wuliangye specialty stores. It targetsto increase to 8,000core POS and 1,500specialty stores in 2018. The channelexpansion will be a key driver for its 30% growth target. Meanwhile, throughinstalling IT systems at the retail end, the company will have stronger control inchannel inventory and better understanding of the market. Our view: don't leave the party too early We like Wuliangye for its lower risk in channel de-stocking, especially afterMoutai price increase and with the approach of Chinese New Year. We expect thecompany to enter a secular growth period in 2018-19, and its earnings to register29% CAGR in 2018-20E, driven by management’s strong incentives for growthand expanding the high end liquor market after the increase in Moutai price. Wereiterate our Buy rating with TP of RMB98based on DCF approach. Downsiderisk: channel de-stocking in the high-end liquor sector; food safety; worse-thanexpectedmacro FAI slow down.

A series of new retail initiatives roll out Yonghui rolled out a series of initiatives internally and externally over the pasttwo months. We regard these moves as farsighted preparation for the new era ofthe retail market. We also believe that its solid offline merchandising capabilitiesemployed by new technology and new business models will potentially createnew growth drivers for Yonghui. We lift our target price by 4% to RMB10.5afterfactoring in the Hongqi stake that it acquired in December. Seeking online strategic partner and soliciting offline resources Yonghui announced Tencent's investment in December. This surprised the marketalong with Tencent's partnership with Vipshop. We believe Tencent is an idealpartner for Yonghui as Yonghui should have more flexibility and independence,given that Tencent is not a retailer by nature. Yonghui should benefit from itsonline traffic and increase its online capability. More recently, it teamed up with Hongqi chain, a regional offline chain, by takinga 21% stake in the company. In addition, YH, Hongqi and CMIG Futurelife (aproperty management company in West China) signed a strategic agreement totap into a community retail network. We believe this regional corporation shouldboost its growth in the Southwest market where it has a solid track record. Valuation and risks We factor this deal into our model and derive a new RMB10.5target price (vs.RMB10.14). Our primary valuation methodology is DCF, employing 9.5% COE,1.0beta and a 1.5% TGR, which is in line with the 1-2.5% range we apply to theconsumer sector. Downside risks: 1) failure to achieve its three-year plan; 2) M&Acapability (having control as the second-largest shareholder); 3) challenges in themultichannel strategy.

Entering secular growth cycle After Wuliangye's 130% share price hike in past 12month, market has increasingconcerns on whether there is still upside. Our view is positive. We expect thecompany to enter a secular growth period in 2018-19, and its earnings to growat 29% CAGR in 2018-20, driven by management’s strong incentives for growthand expanding high end liquor market after Moutai raising price. We revise upour target price to Rmb98, implying 27x 2018P/E. We reiterate Buy. Management has strong incentive to drive sales and improve efficiency During 1218distributor meeting, Wuliangye management indicates to achievegross sales of Rmb40bn in 2018and Rmb60bn in 2020(vs Rmb30bn in 2017E).Management will invest in channel penetration, brand building and productsstreamlining to drive sales growth. Helped by completion of management sharesincentive schemes and strong support from Wuliangye group, we believe thecompany could achieve its target. Moutai’s price hike to release more market for Wuliangye On Dec 29, Moutai announced to raise ex-factory price by 18% to Rmb969/bottle,and set retail price at Rmb1499/bottle. As a result, the ex-factory price gap ofMoutai over Wuliangye expands from 10% to 30%. We believe Wuliangye is thebiggest beneficiary of the price hike, helped by the expanding high end liquormarket room released by Moutai. We reiterate Buy; revising up TP to Rmb98 We are revising up our earnings forecast by 13%-42% for 2018-2020to factor in abetter volume growth, mix upgrade, and margin expansion, and revise up targetprice by 40% to Rmb98based on DCF model. We are changing our valuationmethodology from EV/EBITDA to DCF as we believe DCF model can incorporatelong-term growth and solid cash flow. Downside risk: channel de-stocking inhigh-end liquor sector; food safety; worse than expected macro FAI slow down.

On 11 December, Yonghui announced to sell 5% stake to Tencent (0700.HK, lastclosing price: HKD394). The details are yet to be confirmed. Tencent will also invest in Yonghui Yun Chuang, a subsidiary of Yonghui listcothat mainly includes Super Species and Yonghui Life. With this investment,Tencent expects to own a 15% stake in Yonghui Yunchuang. Given that the discussion is still at an early stage and uncertainties remain,Yonghui will remain suspended from trading from 12 December; however, thecompany has assured to confirm the details and resume trading before 18December 2017. Deutsche Bank view. The deal implies Tencent’s plans to further explore both online and offline retailmarkets, apart from the partnership with Jingdong; despite that the details of thepartnership are yet to be formed. Yonghui’s Super Species and Yonghui Life can also leverage Tencent’s large onlinecustomer base to extend their online and O2O presence. Please refer to our reportSun Art and Yonghui - A new wave of partner-seeking in a new retail environmentpublished on 8 December 2017 for further details. Currently, Yonghui owns 52%,CTGEI under Capital Toady owns 12%, Chairman Mr Zhang Xuanning owns 12%and co-founder Mr Peng Huasheng owns 24% of Yonghui Yunchuang . After theinvestment, we believe Yonghui Yunchuang will potentially become an associateof Yonghui listco (owning <50% stake).

The automation reform and diversification strategy are bearing fruits. In her speech, Ms. Dong commented that Gree began to diversifyits businesses in recent years. In addition air-conditioning business, ithas entered into the field of small appliances, smart manufacturing,smart phones etc. Gree is undergoing automation reform. The companyconsidered using the domestic equipment before, but it finally chose theimported German devices due to the higher precision. But as a long termplan, Gree decided to enter into the field of industrial manufacturing in2013. Currently, Gree’s CNC machine, and robots are not only providedfor internal use, but also for other industries. Ms. Dong said that all ofthe devices in Zhuhai Silver Dargon (a company invested by Ms Dongprivately) were produced by Gree. Preview of 2017 results. According to Ms. Dong, Gree ‘s 2017-ytdrevenue increased RMB 40bn (2016 revenue: RMB108.3bn) as comparedwith last year’s same period, and its NP margin was 15%. With 2017 sales increased by RMB40bn, this implies 2017 total gross revenuewill reach RMB148bn, which beat DB's forecast and market consensus by 5%and 4%, respectively. As for NP margin, her guidance is 0.3/0.8 ppt higher thanDB's forecast (14.7%) and market consensus (14.2%), respectively. Managementdid not comment on Ms Dong's 2017 sales and NPM data. Better product mix: an important positive in 2018 restocking that is not fullypriced in. Gree’s strong net margin could be driven by better product mix. In our recent channel checks we noticed that distributors (starting from thenew air conditioner year) are focusing more on improving their product mixthan in previous years, clearing inventory to recover cash. This may drive betterprofitability for air conditioner brands (on top of strong volume growth which islikely in the price). Profitability expansion should be universal, as Midea previouslyindicated that its core brand gross margin has improved by 2-3ppt YoY during 3Q17 analyst meeting. In our model, we expect GPM for 4Q17F to reach 32.3%for Gree vs 3Q17's 30.9% and 4Q16's 29.4%.

Restocking cycle to continue; revising up TP to Rmb745. We estimate Moutai’s current channel inventory equals six months of Moutai'sreal consumption, indicating there is still room for distributors and high-wealthindividuals to fill up their warehouses. More importantly, this would leavemanagement time to deal with the channel stocking problem. Meanwhile, weidentify three possible catalysts that might trigger channel de-stocking, andbefore these catalysts are triggered, we expect less risk of a strong de-stocking. We are revising up Moutai’s TP to Rmb745 and we maintain Buy. Current channel inventory equals six months of real consumption. We think Moutai’s strong sales recovery from 2016 has been mainly driven byboth channel restocking and a consumption upgrade. Therefore, it is importantfor investors to gauge the water line in the channels. Based on historical channelinventory movement, Moutai’s ex-factory supply, and Moutai’s real consumptionpattern, we estimate that currently there are 12,000 tons of Moutai in distributors'and investors' warehouses, representing six months of real consumption in 2017. Compared with the peak level of 12 months in 2012, this implies there is roomfor channels to stock up (Figure 1). Three catalysts that could trigger channel de-stocking in next 12 months. Distributors are building up channel stocking because they expect the retail priceto continue to go up. Therefore, whenever such an expectation weakens, thecycle could turn from restocking to de-stocking. We identify three events thatmight lead to weakened expectation: 1) Moutai strictly implements a fixed pricee-commerce policy; 2) Moutai raises its ex-factory price at an inappropriate time;and 3) the retail price rises to Rmb2000 suddenly, which is the peak level in the lastcycle. Before these catalysts happen, we believe risk-reward remains attractivefor a Buy on the stock. Maintaining Buy. Moutai's management is undertaking several measures, including implementingprice guidance, increasing supply and implementing an e-commerce policy, tostabilize the retail price. We expect these measures to push distributors to releasechannel inventory gradually (instead of suddenly). We are revising up our TP toRmb745 based on the DCF method (factoring in 9.5% WACC and 2% TG). Wereiterate Buy. Downside risk: sudden channel de-stocking.

Promising in SSSg terms, with long-term store expansion story; Buy Yonghui's strong store-opening pipeline in 4Q17/2018gives us more confidencein its sales growth in 2018/2019F. SSSg is seeing sequential improvement withtraffic resuming positive growth since 3Q. We believe this is mainly helped by itscompetitive fresh food segment. We also believe its cost advantage from supplychain management will help it to achieve GPM expansion over time. We havefine-tuned our 2017/2018NP by -3%/+2% to reflect a slightly higher opex ratio in2017and an acceleration in store opening in 2018. We also roll over by one yearto 2019in our DCF model and raise our TP by 14% to RMB10.14. We maintainour Buy rating on this stock. Yonghui reported NP up by 131% to RMB337m on sales up 20% to RMB15bn in3Q17. Sales were largely in line with DBe while NP was 6% lower than DBe. Thediscrepancy mainly stemmed from a higher-than-expected opex ratio. We expectthat SSS in 3Q was up by 1.5% vs. 0.8% in 1H17, and that Oct was even better.We expect the company to open 106/100new stores in 2017/2018(gross base)and also to open another 100Yonghui Life and 100Super Species storesby 2017/2018respectively. We believe its acceleration of store expansion andeffective organization structures (four business units and partnership model)can help the company to continuously enjoy better-than-market performanceand operating leverage. We forecast its NP for 2017/2018/2019to grow by47%/44%/29%, respectively.

Strong sales growth on recovering sector growth and market sharegains. We estimate the industry retail growth recovered from low singledigit in 3Q16 to high single digit in 3Q17, helped by less price discounton more balanced supply. Meanwhile, Yili's market share in Ambient/chilled products/IMF expanded from 31%/15%/5.7% to 34%/16%/6%respectively (Figure 1). Selling expense/sales ratio declined 100bps yoy to 21.9%, helped byeasing of competition within a more balanced supply environment. G&A expense declined 150bps yoy to 6.2% from a high base, as Yiliincurred incremental G&A for some one-off event (i.e. internal propertymaintenance). SG&A expense savings was partly offset by 102bps yoy decline in grossmargin, due to rising raw milk and packaging prices. Improving inventory turnover indicates that 4Q growth to remain strong. Inventory days improved from 31.9 days in 3Q16 to 30 days in 3Q17. Given theproduction date is an important decision factor when consumers choose brandsin retail ends, the shorten inventory days indicate improving fresh level of theproducts, which should help to drive its sales growth in 4Q17. The improvinginventory days also indicate a more balanced supply and demand market. We expect the recovery trend to continue with an under supply environment. We believe Yili's growth recovery from 2Q is mainly driven by more balancedsupply from 2017. After three years capacity reductions for upstream dairy farmsfrom 2014, raw milk supply is becoming more balanced with demand from 2017. During the over supply environment, smaller dairy players could source raw milkat a heavy discount compared with large brands, but during the under supply environment from 2017, smaller players need to pay a premium instead. This helpslarge players such as Yili and Mengniu to gain market share. Reiterating Buy. We are revising up our earnings forecast by 2-4% in 2017-19E, mainly to factorin higher-than-expected sales driven by Yili's market share gains. We revise upour TP by 13% to Rmb31.6 based on a DCF approach, factoring in a 9.5% WACC(3.9% RFR, 5.6% ERP, 1.0 beta, debt-free structure) and 2% terminal growth. Wereiterate Yili as our top pick among our A share coverage. Downside risks: higherthan-expected raw material price increase, food safety incidents and worse-thanexpectedcompetition.

3Q17earnings beat on higher sales growth and lower selling expense Wuliangye reported 3Q17results with 43% yoy sales growth to RMB6,356m and64% yoy net profit growth to RMB1,993m. Net profit in the first nine months grewby 37%, tracking ahead of the market's full-year growth forecast of 26%.The earning beat is mainly attributable to higher-than-expected sales growthand a lower SG&A expense ratio, which declined 670bps yoy to 19.6% in9M17, helped by lower channel subsidy and operating leverage. To recap, thecompany increased channel subsidy during 2014-16, when channel profit waslow/negative. As the retail price recovered from 2017, the company began toremove the channel subsidies. Adjusted sales declined 15% on increasing competition and a high base If adjusted by advances from customers (sales + changes in advance balance), theadjusted sales declined 15% yoy in 3Q17, which could be lower than the marketexpectation. This is partly because of the high base in 3Q16. The company raisedits ex-factory price in September 2016. Distributors increased their procurementvolume before the price hikes, resulting in higher advances and sales in 3Q16. Onthe other side, Wuliangye revised down the supply volume for distributors in 3Q17to streamline the pricing system. We think this is also partly due to increasingsupply from Moutai from Aug 15to Sep 30. We expect the adjusted sales to pickup on recovering retail prices. Needs more brand investment instead of simply controlling volumes For the near term, we expect Wuliangye's earnings growth to remain strong,helped by alternative demand from Moutai and new management's increasingefforts in channel building. Furthermore, savings in channel subsidy should alsodrive its margin expansion. However, we are a bit concerned about management's over-focus on supportingthe retail price. Wuliangye indicated that it is reducing supply volume todistributors by 25% to strengthen the retail price. In such a case, wheneverMoutai increases its sales volume, Wuliangye's volume and price could be underpressure, as we saw in 3Q. For the long term, a sustainable retail price dependsmore on branding than the supply and demand situation.

Around 70% yoy volume growth for mainstream Moutai (DB estimates).To recap, Moutai indicated on August 28that it supplied 6,200tons ofliquor (including 5,600tons of "Feitian Moutai" and 600tons of otherSKUs) between August 15and September 30, to meet the strong demandduring National Holiday and Mid-Autumn Festival, implying 70% yoygrowth. Strong growth of super premium Moutai. We estimated that most of 600tons of other SKU are super premium Moutai. This drives mix-upgrade formainstream Moutai. Strong growth of mass market Moutai products. According to news fromMoutai website, mass market Moutai sales increased over 200% yoyin the first 9months. This is a result of Moutai's "133" brand strategy(one core brand, three strategy brands - Huamao, Wangmao, Laimao,and three key brands - Hanjiang, Renjiu and Wangzi). Meanwhile, thenumber of domestic distributors increased by 634YTD to 2,965, mainlyfor penetration of mass market Moutai. Net margin expanded 440bps yoy on operating leverage Moutai's gross margin was stable at 75% in 3Q17, as the impact from lowermargin mass-market products was offset by high margin customized Moutai.Selling expense ratio increased 20bps yoy to 3.2%, due to increasing A&P expensefor its "133" brand strategy and "5+5" channel strategy (5core markets and 5potential markets). G&A expense ratio declined 480bps yoy , mainly helped byoperating leverage. Increasing transparency in revenue recognition Moutai booked most ex-factory shipments as revenue in 3Q17. This is differentfrom market's and our expectation that it would allocate the shipments into salesand advances from customer accounts. Therefore, advances from customers were stable at Rmb17bn on Sep 30(vs Rmb18bn on June 30). This partlycontributed to the results beat in 3Q. We believe this implies increasingtransparency and improving cooperate governance for the company.

We interacted with investors after the earnings release, key concerns byinvestors and our takes: 3Q17revenue growth decelerated to 23% YoY (vs. 1H17of 27%):management attributed the deceleration to(1) e-commerce product pricehike that impacted volume and(2) property market slowdown. Despite theslowdown, Robam management is confident in a rather sustainable 25-30% YoY revenue growth in 2018. We believe the 2018growth target isachievable (DBe 28% YoY). We see signs suggesting Robam fares betterthan our expectation amid tier-1-city property slowdown: we estimate thatRobam delivered a high-single digit ppt YoY sales growth in tier 1cities in3Q17, vs. over 10% decline in property transaction. The resilience is drivenby(1) new embedded kitchen appliances and(2) market share gain viadecorated houses, in our view. Gross margin declined by 5ppt YoY in 3Q17: Robam management attributethis to wage hikes and accounting changes (Robam started in 4Q16todeduct part of its marketing-related OPEX directly from sales). We noteRobam’s 3Q17EBIT margin expanded by 50bps YoY. More importantly,our channel checks continue to suggest a healthy pricing environment forRobam and Fotile (private). We thus have confidence in a mild grossmargin uptrend for Robam in the next 3years. 3Q17operating cashflow declined: according to management, the shortfallin operating cash flow YoY can be explained by(1) change in paymentterms by one of Robam’s major e-commerce platforms (explaining 2/3ofthe shortfall) and(2) higher raw material stock taken amid hiking rawmaterial prices. Positive investment case intact We like Robam for (1) healthy industry pricing environment,(2) Robam’s abilityto penetrate into lower tier cities and(3) new embedded products drivinggrowth. On these three fronts Robam have been sustainably delivering. Wewill continue to monitor the volatilities in gross margin and cash flow butremain comfortable with Robam’s investment case. We fine-tuned our model by slightly raising 2019and 2020forecast whileincrease target price by c. 14%, all reflecting more resilient growth.