Research Report

12 Aug 2020

Bajaj Electricals (BJE IN)

Lockdown Hurts Q1FY21; Balance Sheet Improvement On
Investment Focus

Maintain OUTPERFORM Bajaj Electricals (Bajaj) continued its focus on balance sheet
strengthening activities in Q1FY21 and has significantly
Rating OUTPERFORM
Rs437.35
brought down its debt levels. During Q1FY21 revenue
Current Price
Target Price Rs550.00
dropped 53% YoY even as the company reported loss during
the quarter. The demand in Consumer business has already
Market cap Rs49.76bn / US$0.66bn reached last year’s level and it expect to sustain the
Daily traded value (3mth) US$0.10mn momentum going forward. In EPC business, the focus is
Shares outstanding 113.77mn clearly on collection and working capital. Bajaj has reduced
Free float (%) 35% debt by Rs1.52bn (down 16%) to Rs8.1bn with plans to curtail
1 yr high - low Rs446.55-Rs267.45
it to Rs5.5bn by end FY21. We have adjusted our estimates
Note: Share price and market data as of 11 August 2020.
given the extended and sporadic lockdown across the country
Price Return Nifty100 index and marginally trimmed our earnings estimate by 15% for
140 FY21, even as we maintain it for FY22. For the Consumer
120 Products segment, we build in 11% revenue CARG over FY20-
100 22 while see the EPC segment flat over the same period. We
80
reiterate our OUTPERFORM rating on the stock with a target
price to Rs550, based on 26x (unchanged) its FY22 EPS.
60
Result Highlights
Volume

At Rs6bn, Bajaj reported revenue decline of 53% YoY, led by weak

performance across Consumer Durables (revenue down 50% YoY)
and EPC (revenue down 46% YoY) segments, mainly due to the Covid-
Aug-19 Dec-19 Apr-20
Source: Factset
19 led lockdown. Despite gross margin expansion by 30bps to 28.1%,
the company reported an operating loss of Rs208mn, mainly due to
1mth 3mth 12mth higher fixed costs on lower sales. The Consumer Durables segment
Absolute 10.6% 23.2% 17.3% saw EBIT margin contract by 4.3ppts to 2.7%, while the EPC segment
Absolute USD 11.0% 24.2% 10.8% made an EBIT loss of Rs437mn. Adjusted net loss for the quarter
Relative to Nifty100 4.0% -3.2% 15.3% came at Rs419mn excluding the exceptional gain of Rs147mn led by
the Hind Lamps demerger transaction. In EPC, the order backlog at
[Table_Profit]
(Rs mn) Mar-19A Mar-20A Mar-21E Mar-22E Rs16bn with most of the company sites operational now.
Revenue 66,732 49,771 46,775 57,370
Valuation & recommendation
（+/-） 42% -25% -6% 23%
Net profit 1,671 -1 913 2,406
Given the extended and sporadic lockdown across the country, we
（+/-） 100% -100% 164%
have marginally reduced our FY21 earnings by 15% even as we
Diluted EPS (Rs) 16.32 -0.01 8.02 21.15 maintain our FY22 earnings. We continue to like the stock and value
GPM 22.7% 26.8% 27.0% 27.5% the company at 26x its FY22 EPS, which gives us our target price of
ROE 16.5% -0.0% 6.5% 15.6% Rs550. Our target multiple is based on the company’s historical 10-
P/E 27 n.a. 55 21 year PE median.
Source: Company data, HTI
Risks to rating and attainment of target price:
(a) Slowdown in domestic business, (b) Highly competitive intensity,
and (c) Technological disruption.

[Table_Author]
Rahul Gajare Saras Singh
rahul.gajare@htisec.com saras.singh@htisec.com

This research report is distributed by Haitong International, a global brand name for the equity research teams of Haitong International
Research Limited (“HTIRL”), Haitong Securities India Private Limited (“HSIPL”), Haitong International (Japan) K.K. (“HTIJKK”), Haitong
International Securities Company Limited (“HTISCL”), and any other members within the Haitong International Securities Group of Companies
(“HTISG”), each authorized to engage in securities activities in its respective jurisdiction. Please refer to the appendix for the Analyst
Certification, Important Disclosures and Important Disclaimer.
 [Table_header1]
Bajaj Electricals (BJE IN) MAINTAIN OUTPERFORM

Outlook and valuation

During the distribution revamp, the company ceded market share in its consumer business
to competition and it now will focus on recouping some of its lost market share. We believe
the consistency of improvement in market share and profitability will be the key drivers for
further rerating of the stock. The consumer business has already seen uptick in profitability
and we expect it to continue this trajectory on the back of refreshed product portfolio and
SOTP Valuation cost rationalization. On EPC business, we see moderate growth given lowered order
EPS P/E
Value/ backlog and being selective in new orders, which will aid profitability.
Share
(Rs) (x) We value the stock based on 26x (unchanged) its FY22 EPS. Our target multiple is based on
(Rs)
Consumer Products 20.6 25 515 the historical median of the company over the past 10 years. It trades at discount to peers
EPC Business 2.9 10 29 mainly due to the baggage of its EPC business, which weighs on the overall financials.
Source: HTI Alternatively, we also value the stock based on SoTP method, valuing each business
separately in line with its peers.

Key highlights from conference call:

Guidance for FY21:
 The management indicated it plans to clock sales of about Rs30bn in Consumer
Looking for Flat revenue in FY21; 1%
business despite sharp drop in Q1FY21. While in the EPC business, it plans revenue of
margin expansion in consumer
about Rs18-19bn. Thus, expect revenue of Rs48-49bn in FY21, flat over FY20.
business
 Based on the margin improvement and cost cutting drive, the company expects 1%
improvement in operating profit margin for the consumer business in FY21 while EPC
profitability is pushed by a quarter to Q1FY22 instead of Q4FY21 earlier.

Financials and Balance Sheet:

 The company has seen improvement in balance sheet on the back of Rs1.45bn of cash
flow from operations, which helped further debt reduction to Rs8.1bn compared to
Strong cash flow generation aids
Rs9.62bn in March 2020. The company plans to continue to work towards debt
further debt reduction
reduction with plans to bring down debt to Rs5.5bn by end FY21.
 The cash flow improvement during the quarter was aided by drop in inventory, which
is likely to increase as the company prepares for the festive season and normalisation
of business.
 From the total receivables of Rs23bn, EPC accounted for the bulk of it at Rs18.43bn
while consumer business made up Rs4.59bn. Channel Financing stood at Rs2.87bn of
the consumer business receivables. For EPC, retention money made up Rs6.6bn of the
total receivables.
Advt spend to increase to 4-5% of
 On advertisement costs, the company spent 60% of that it spent in Q1FY20 given
consumer business sales gradually.
clamp down on variable spending during the quarter. However, for the full year, expect
it to be higher than FY20. The company expects to ramp up advertisement spending to
4-5% of sales gradually.
 From the savings that the company has had during the lockdown, it intends to invest
some of it in R&D and other facets of business.

Consumer Business:
 April and May was affected due to lockdown. June is back to over 100% of last year but
July has seen supply side disruption due to sporadic lockdown in certain pockets of the
country.
June 2020 sales higher than June
 During the quarter, the consumer business was affected across the sub-categories –
2019; July affected due to sporadic
Lighting (down 40%), Appliances (down 53%), Fans (down 50%) and Morphy Richards
lockdown
(down 51%). The management indicated buoyancy in demand in Appliances while that
in the seasonal products like Fans, it has seen uptick but pick up was low for Air Coolers
during the quarter.
 On the demand, the management indicated that the sustainability of the demand
indicates that this is not only pent up demand but more normalisation of demand.

12 Aug 2020 2
 [Table_header1]
Bajaj Electricals (BJE IN)
Margin uptick on the back of price
hikes taken last year
Focus on execution, profitability and
capital employed in EPC
12 Aug 2020
MAINTAIN OUTPERFORM
 During the lockdown, the company like many of its peers have seen uptick in share of
its e-commerce sales. Also, local retailers have seen pick up in demand even as modern
retail lags.
 Also, on the back of price hikes in the range of 2-3%, taken last year, the company has
seen 2% increase in first level margin.
EPC Business:
 The order book stands at Rs15.95bn comprising of Rs6.24bn for Transmission Line
Towers, Rs7.64bn for Power Distribution, and Rs2.07bn for Illumination Projects.
 While project sites have opened post the lockdown, in monsoon, the execution is
slower and thus the labour shortage issue is unlikely to affect materially.
 While EPC was expected to make profit by Q4FY21, the same has been pushed by a
quarter to Q1FY22. However, Transmission Line Towers and Illumination Projects
business is set to become profitable in FY21.
 Out of the total EPC receivable of Rs18.43bn, UP projects accounts for bulk at Rs8.2bn.
3
 [Table_header1]
Bajaj Electricals (BJE IN) MAINTAIN OUTPERFORM

Financial Performance
Income Statement (Rs Mn) Q1FY21 Q1FY20 YoY (%) Q4FY20 QoQ (%) FY20 FY19 YoY (%)
Topline saw sharp decline due to Revenue 6,077 13,042 (53.4) 12,996 (53.2) 49,771 66,731 (25.4)
Covid led lockdown Cost of revenue 4,372 9,412 (53.5) 9,962 (56.1) 36,420 51,576 (29.4)
Gross Profit 1,705 3,629 (53.0) 3,034 (43.8) 13,351 15,156 (11.9)
Gross Margin (%) 28.1 27.8 23.3 26.8 22.7
While gross margins expanded, high Staff Cost 955 924 3.4 947 0.8 3,834 3,567 7.5
fixed cost over a lower revenue base Other Exp 958 1,893 (49.4) 1,753 (45.3) 7,447 8,106 (8.1)
led to operating loss EBITDA (208) 813 (125.6) 334 (162.1) 2,069 3,483 (40.6)
EBITDA Margin (%) (3.4) 6.2 2.6 4.2 5.2
Depreciation 172 161 6.9 182 (5.0) 680 385 76.8
Interest 269 495 (45.7) 358 (24.9) 1,692 1,159 46.0
Exceptional gain from Hind Lamps Other Income 78 116 (32.7) 194 (59.9) 526 654 (19.6)
demerger Exceptional Item 147
PBT (424) 273 (255.2) (11) 224 2,594 (91.4)
Tax (152) 99 (253.6) (11) 225 924 (75.6)
Tax Rate (%) 35.9 36.3 100.0 100.6 35.6
PAT (272) 174 (256.1) (0) (1) 1,671 (100.1)
Adjusted PAT (419) 174 (340.7) (0) (1) 1,671 (100.1)
Source: HTI

Quarterly Performance
Segmental Perfomance (Rs Mn) Q1FY21 Q1FY20 YoY (%) Q4FY20 QoQ (%) FY20 FY19 YoY (%)
Segmental Revenue
Both segments reported a sharp
Consumer Durables 3,944 7,834 (49.7) 7,457 (47.1) 30,846 27,408 13
revenue decline due to the Covid
Engineering & Projects 2,133 5,207 (59.0) 5,538 (61.5) 18,918 39,319 (52)
led lockdown
Segmental EBIT
Consumer Durables 105 545 (80.7) 476 (77.8) 2,082 1,801 16
Engineering & Projects (437) 208 (310.1) (234) 86.9 (346) 1,953 (118)
Segmental EBIT Margin (%)
Consumer Durables 2.7 7.0 6.4 6.8 6.6
Engineering & Projects (20.5) 4.0 (4.2) (1.8) 5.0
Capital Employed
Consumer Durables 2,158 3,270 (34.0) 3,812 (43.4) 3,812 4,438 (14.1)
Engineering & Projects 13,741 19,580 (29.8) 14,137 (2.8) 14,137 18,084 (21.8)
Unallocable (2,060) (11,888) (82.7) (4,169) (50.6) (4,169) (11,768) (64.6)
Source: Company Data

Changes in Estimates
New Estimates (Rs Mn) Old Estimates (Rs Mn) Change in Estimates (%)
FY21 FY22 FY21 FY22 FY21 FY22
Sales 46,775 57,370 46,775 57,370 0.0 0.0
EBITDA 2,245 3,901 2,245 3,901 0.0 0.0
Margins (%) 4.8 6.8 4.8 6.8
Net Profit 913 2,406 1,079 2,403 -15.4 0.1
Source: HTI estimates

12 Aug 2020 4
 [Table_header1]
Bajaj Electricals (BJE IN) MAINTAIN OUTPERFORM

Revenue Trend EBITDA Trend

While the company’s FY20 revenue
trend has been downwards on 25,000 100
1,600 10
account of strategic reduction in 80 1,400
20,000 8
EPC segment, Q1FY21 sharp 60 1,200
1,000 6
revenue decline led by lockdown in 15,000 40 800 4
the country 20 600
2
10,000 400
- 200 -
(20) - (2)
EBITDA under pressure on lower 5,000 (200)
(40) (4)
topline (400)
- (60) (600) (6)

Q1FY21
Q1FY15
Q4FY15
Q3FY16
Q2FY17
Q1FY18
Q4FY18
Q3FY19
Q2FY20

Q1FY15
Q4FY15
Q3FY16
Q2FY17
Q1FY18
Q4FY18
Q3FY19
Q2FY20
Q1FY21
Revenue (Rs Mn) YoY Growth %; (RHS) EBITDA (Rs Mn) Margins %; (RHS)

Source: Company Data Source: Company Data

ECD Revenue Trend ECD EBIT and Margin Trend

ECD segment reported a steep
decline in revenue on account of 10,000 40 800 9
9,000 30 700 8
pandemic disruptions
8,000 20 7
600
7,000 10 6
6,000 500
- 5
5,000 400
(10) 4
4,000 300
3,000 (20) 3
(30) 200 2
2,000
1,000 (40) 100 1
0 (50) - -
Q4FY15

Q1FY21

Q1FY15

Q2FY20
Q1FY21
Q1FY15

Q3FY16
Q2FY17
Q1FY18
Q4FY18
Q3FY19
Q2FY20

Q4FY15
Q3FY16
Q2FY17
Q1FY18
Q4FY18
Q3FY19
ECD Revenue (Rs Mn)
YoY Growth %; (RHS) ECD EBIT (Rs Mn) Margins %; (RHS)

Source: Company Data Source: Company Data

EPC Revenue Trend EPC EBIT and Margin Trend

16,000 200 1500 15

EPC segment saw sharp decline in 14,000 10
150 1000
revenue during Q1FY21 led by sites 12,000 5
100 -
not being operational due to 10,000 500
(5)
lockdown 8,000 50
(10)
6,000 0
- (15)
4,000 (20)
(50) -500
2,000 (25)
0 (100) -1000 (30)
Q4FY15

Q4FY18

Q1FY21
Q1FY15
Q4FY15
Q3FY16
Q2FY17
Q1FY18
Q4FY18
Q3FY19
Q2FY20
Q1FY21

Q1FY15

Q3FY16
Q2FY17
Q1FY18

Q3FY19
Q2FY20

EPC Revenue (Rs Mn)

YoY Growth %; (RHS) EPC EBIT (Rs Mn) Margins %; (RHS)

Source: Company Data Source: Company Data

12 Aug 2020 5
 [Table_header1]
Bajaj Electricals (BJE IN) MAINTAIN OUTPERFORM

Company Snapshot
Shareholding Pattern (%) Incorporated in July 1938 as Radio Lamp Works Limited and renamed as Bajaj Electricals
Q1FY21 Q4FY20 Q3FY20 (BJE) in 1960, BJE is one of the oldest Indian Consumer Electrical equipment manufacturing
Promoter 63.2 63.2 62.7 companies based in Mumbai, Maharashtra. Its business is spread across Consumer
DII 13.2 12.3 12.4 Products (Appliances, Fans, and Lighting), Exports, Luminaires and EPC (Illumination,
FII 9.2 8.0 5.7
Transmission Towers and Power Distribution projects). It has 18 branch offices spread in
different parts of the country, besides being supported by a chain of distributors,
Others 14.4 16.6 19.2
authorized dealers, retail outlets, exclusive showrooms called 'Bajaj World' and over 500+
Source: BSE
customer care centers along with 5 manufacturing facilities. To cater to the demand for
Top Institutional Shareholding (%)
premium products, the company is also present in the hi-end range of appliances, along
Institution Holding with brands like Platini and Morphy Richards, in India. BJE's business can be placed into
HDFC Asset Mgmt Co. 6.6 four broad counters - Consumer Products, Luminaires, EPC and Exports with consumer-
Capital Research & Mgmt Co. 5.5 facing businesses contributing 41% and Industry & Infrastructure-facing businesses
Nippon Life India Asset Mgmt 2.2 contributing 59% to overall revenue (FY19). The consumer-facing business accounted for up
CDPQ 1.6 to 48% of OP with the balance 52% coming from the EPC business.
Aditya Birla Sun Life AMC 0.8
Aditya Birla Sun Life Insurance Co. 0.5 Product Portfolio
Dimensional Fund Advisors 0.5 Consumer Durable Goods Peers
UTI Asset Mgmt Co. 0.4 Home Appliances
BlackRock Fund Advisors 0.3 Room Heater (Rank 1) Usha, V-Guard, Orpat
Mellon Investments Corp. 0.1 Water Heater (Rank 1) A.O. Smith, Racold, Venus, Crompton Greaves, Usha
Source: FactSet
Air Cooler (Rank 3) Symphony, Kenstar, Voltas, Usha, Bluestar
Irons (Rank 1) Usha, Rico, Orient Electric, Philips
Revenue Share % (FY20)
Fans (Rank 4) Crompton, Usha, Havells, Orient
Consumer Lightings (Rank 7 for LED (Lamps)) Philips, Crompton, Wipro, Havells
Kitchen Appliances TTK Prestige, Preethi, Butterfly, Panasonic
(Rank 1 in food prep & other kitchen appliances)
Source: HTI
EPC, 38

SWOT Analysis

Consum
er
Products Strengths Weakness
, 62

- Oldest players in consumer - Limited presence in premium

appliances product categories
Source: Company Data - Baring Fans, Appliances, it is not
- Widest distribution reach
among the top 5 players
- Asset light business model
EBIT Share (FY20)
EPC,
(20)

Opportunities Threats

- TOC and REEP to aid improve - Increase in competitive

market share intensity
- Several foreign tieups - Aggresive pricing strategy by
- Expand kitchen presence post market disruptor
Consum Nirlep acquisition - Low margin EPC orders
er
Products
, 120
Source: Company Data Source: HTI

12 Aug 2020 6
 [Table_header2]
Bajaj Electricals (BJE IN) MAINTAIN OUTPERFORM

Profit & Loss (Rs Mn) FY18 FY19 FY20 FY21E FY22E
Net Revenues 47,074 66,732 49,771 46,775 57,370
Cost of Goods Sold 34,149 51,576 36,420 34,146 41,593
Gross Profit 12,925 15,156 13,351 12,629 15,777
Operating Expenses 9,991 11,672 11,282 10,384 11,876
EBITDA 2,934 3,484 2,069 2,245 3,901
Depreciation 339 385 680 702 736
Interest 589 1,159 1,692 901 513
Other Income 532 654 526 577 564
Exceptional Items 894
Profit Before Tax 1,644 2,595 224 1,219 3,216
Tax 809 924 225 307 809
Net Profit 836 1,671 (1) 913 2,406
Adjusted Net Profit 1,730 1,671 (1) 913 2,406

Segmental Gross Revenue

Consumer Durables 22,285 27,408 30,846 29,304 38,095
Engineering & Projects 24,876 39,319 18,918 17,026 18,728

Balance Sheet (Rs Mn) FY18 FY19 FY20 FY21E FY22E

Share Capital 204 205 228 228 228
Reserves and Surplus 9,243 10,573 13,565 14,250 16,127
Borrowings 7,176 15,775 7,375 5,500 4,760
Deferred Tax Liabilities (735) (638) (453) (444) (435)
Current Liab & Prov. 18,103 25,050 24,418 20,394 23,645
33,992 50,965 45,132 39,927 44,325
Net Block 3,125 3,180 4,014 3,612 3,176
Investments 145 507 529 502 477
Other Non Current Assets 96 136 138 129 120
Current Assets
Inventories 5,792 8,210 6,908 6,174 6,837
Debtors 20,121 31,426 25,365 23,067 26,091
Cash and Bank 257 160 1,047 997 1,022
Other Current Asset 4,455 7,346 7,132 5,446 6,601
33,992 50,965 45,132 39,927 44,325

12 Aug 202011 Aug 2020 7

 [Table_header2]
Bajaj Electricals (BJE IN) MAINTAIN OUTPERFORM

Cash Flow Statement (Rs Mn) FY18 FY19 FY20 FY21E FY22E
Cash flow from operating activity (1,029) (6,019) 6,274 2,632 1,501
Capital expenditure (315) (546) (292) (291) (292)
Free Cash Flow (1,344) (6,565) 5,982 2,341 1,209
Cash flow from investing activity 361 (1,269) (462) 313 297
Cash flow from financing activity 273 7,191 (4,908) (2,995) (1,773)
Net change in cash (395) (97) 904 (50) 25

Valuation Metrics FY18 FY19 FY20 FY21E FY22E

Growth (%)
Revenue 10.5 41.8 (25.4) (6.0) 22.7
EBITDA 20.9 18.7 (40.6) 8.5 73.8
Adjusted Net Profit (22.4) 99.9 (100.1) na 163.7
Segmental Revenue Growth (%)
Consumer Durables (3.7) 23.0 12.5 (5.0) 30.0
Engineering & Projects 25.4 58.1 (51.9) (10.0) 10.0
Margins (x)
Gross Margin 27.5 22.7 26.8 27.0 27.5
EBITDA Margin 6.2 5.2 4.2 4.8 6.8
PAT Margin 3.7 2.5 (0.0) 2.0 4.2
Key Ratios
RoE (%) 19.0 16.5 (0.0) 6.5 15.6
RoCE (%) 21.2 18.0 8.2 10.5 18.5
Net D/E Ratio (x) 0.7 1.4 0.5 0.3 0.2
Leverage (x) 3.5 4.2 3.0 2.7 2.6
Asset Turnover (x) 1.5 1.6 1.0 1.1 1.4
Per Share Data (Rs)
EPS 8.2 16.3 (0.0) 8.0 21.2
BVPS 93 105 135 127 144
DPS 4.2 4.2 2.0 2.0 4.7
Cash operating cycle
Inventory days 62 58 69 66 60
Debtor days 156 172 186 180 166
Creditor days 91 77 90 90 90

Source: HTI

12 Aug 202011 Aug 2020 8

[Table_APPENDIX]
[Table_disclaimer]
APPENDIX
IMPORTANT DISCLOSURES
This research report is distributed by Haitong International, a global brand name for the equity research teams of Haitong International Research Limited (“HTIRL”), Haitong Securities India Private
Limited (“HSIPL”), Haitong International Japan K.K. (“HTIJKK”), Haitong International Securities Company Limited (“HTISCL”), and any other members within the Haitong International Securities
Group of Companies (“HTISG”), each authorized to engage in securities activities in its respective jurisdiction.
Analyst Certification:
I, Rahul Gajare, certify that (i) the views expressed in this research report accurately reflect my personal views about any or all of the subject companies or issuers referred to in this research and
(ii) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report; and that I (including members of my
household) have no financial interest in the security or securities of the subject companies discussed.
I, Saras Singh, certify that (i) the views expressed in this research report accurately reflect my personal views about any or all of the subject companies or issuers referred to in this research and (ii)
no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report; and that I (including members of my
household) have no financial interest in the security or securities of the subject companies discussed.

Conflict of Interest Disclosures

HTI and some of its affiliates may engage in investment banking and / or serve as a market maker or hold proprietary trading positions of certain stocks or companies in this research report. As far
as this research report is concerned, the following are the disclosure matters related to such relationship (As the following disclosure does not ensure timeliness and completeness, please send an
email to ERD-Disclosure@htisec.com if timely and comprehensive information is needed).

600060 CH, HDFCAMC IN, HDFCLIFE IN and TROW US are/were clients of Haitong currently or within the past 12 months. The clients have been provided for non-investment-banking
securitiesrelated services.

TROW US is/was a client of Haitong currently or within the past 12 months. The client has been provided for non-securities services.

Haitong has received compensation in the past 12 months for products or services other than investment banking from HDFCAMC IN, HDFCLIFE IN and TROW US

Haitong acts as a market maker or liquidity provider in the securities of 1810 HK.

Ratings Definitions (from 1 Jul 2020): Rating Distribution

Haitong International uses a relative rating system using Outperform,
Neutral, or Underperform for recommending the stocks we cover to
investors. Investors should carefully read the definitions of all ratings used
in Haitong International Research. In addition, since Haitong International
Research contains more complete information concerning the analyst's
views, investors should carefully read Haitong International Research, in
its entirety, and not infer the contents from the rating alone. In any case,
ratings (or research) should not be used or relied upon as investment
advice. 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.
Analyst Stock Ratings
Outperform: The stock’s total return over the next 12-18 months is
expected to exceed the return of its relevant broad market benchmark, as
indicated below.
Neutral: The stock’s total return over the next 12-18 months is expected
to be in line with the return of its relevant broad market benchmark, as
indicated below. For purposes only of FINRA/NYSE ratings distribution
rules, our Neutral rating falls into a hold rating category.
Underperform: The stock’s total return over the next 12-18 months is
expected to be below the return of its relevant broad market benchmark,
as indicated below.
Benchmarks for each stock’s listed region are as follows: Japan – TOPIX,
Korea – KOSPI, Taiwan – TAIEX, India – Nifty100; for all other China-
concept stocks – MSCI China.

9
Haitong International Equity Research Ratings Distribution, as of June 30, 2020
BUY Neutral SELL
(hold)
HTI Equity Research Coverage 82% 14% 4%
IB clients* 7% 2% 3%
*Percentage of investment banking clients in each rating category.
BUY, Neutral, and SELL in the above distribution correspond to our current ratings of Outperform, Neutral, and Underperform.
For purposes only of FINRA/NYSE ratings distribution rules, our Neutral rating falls into a hold rating category. Please note that stocks with an NR designation are not
included in the table above.
Previous rating system definitions (until 30 Jun 2020):
BUY: The stock’s total return over the next 12-18 months is expected to exceed the return of its relevant broad market benchmark, as indicated below.
NEUTRAL: The stock’s total return over the next 12-18 months is expected to be in line with the return of its relevant broad market benchmark, as indicated below. For
purposes only of FINRA/NYSE ratings distribution rules, our Neutral rating falls into a hold rating category.
SELL: The stock’s total return over the next 12-18 months is expected to be below the return of its relevant broad market benchmark, as indicated below.
Benchmarks for each stock’s listed region are as follows: Japan – TOPIX, Korea – KOSPI, Taiwan – TAIEX, India – Nifty100; for all other China-concept stocks – MSCI China.

Haitong International Non-Rated Research: Haitong International publishes quantitative, screening or short reports which may rank stocks according to valuation and other metrics or may
suggest prices based on possible valuation multiples. Such rankings or suggested prices do not purport to be stock ratings or target prices or fundamental values and are for information only.
Haitong International Coverage of A-Shares: Haitong International may cover and rate A-Shares that are subject to the Hong Kong Stock Connect scheme with Shanghai and Shenzhen. Haitong
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rating system employed by HS differs from that used by HTI and as a result there may be a difference in the HTI and HS ratings for the same A-share stocks.
Haitong International Quality 100 A-share (Q100) Index: HTI’s Q100 Index is a quant product that consists of 100 of the highest-quality A-shares under coverage at HS in Shanghai. These stocks
are carefully selected through a quality-based screening process in combination with a review of the HS A-share team’s bottom-up research. The Q100 constituent companies are reviewed
quarterly.

IMPORTANT DISCLAIMER
For research reports on non-Indian securities: The research report is issued by Haitong International Research Limited (“HTIRL”), a wholly owned subsidiary of Haitong International Securities
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Recommendation Chart
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Source: Stockcube Research

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