Uoig Deer Final Report

UNIVERSITY OF OREGON December 1, 2010
INVESTMENT GROUP Consumer Goods
Deer Consumer Products

RECOMMENDATION – Hold
Stock Data
Price (52 weeks) 6.98 – 18.97
Symbol/Exchange DEER /NASDAQ
Beta 1.658
Diluted Shares 33,591,108
Outstanding
Average daily volume 379,206
(3 month average)
Current market cap 373,197,210
Current Price 11.41

Dividend 0
Dividend Yield 0
Valuation (per share)

DCF Analysis $20.57
Comparables Analysis $11.43
Target Price $16.00
Current Price $11.41
Summary Financials
(2009A)
Revenue $81,342,680
Net Income $12,369,082
Operating Cash Flow $384,221
BUSINESS OVERVIEW
Deer Consumer Products is a leading designer, manufacturer and seller of quality small home and
kitchen appliances. Deer develops and produces a variety of safe and easy to use products out of their
home and manufacturing facility in Shenzhen, China. They were found in 2001 and have been trading
on the NASDAQ since July of 2009. Their products are sold both in China and exported internationally,
with contractors selling their products in key North and South American, European, and Asian markets.
Covering Analyst: Steven Enders
Email: enders@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In
addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.
Deer Consumer Products university of oregon investment group
http://uoig.uoregon.edu
Their products include blenders, juicers and other appliances including soy milk, coffee and rice makers.
In China, Deer is an Original Brand Manufacturer (OBM), by selling their products under the Deer
brand name or other Deer private retail labels, targeting the rising Chinese middle class. In the export
market Deer is an Original Equipment Manufacturer (OEM) and an Original Design Manufacturer
(ODM), producing small kitchen appliances for international distributors. These products are sold under
internationally recognized brand names, such as Black & Decker, Betty Crocker Cookware, Disney, and
Toastmaster.
Revenues from 2008 to 2009 grew by 85% from $43.78 million to $81.34 million. Year on year quarter
growth for 2010 has been even greater with 2009 to 2010 quarter 3 revenue growth of 109% from $26.5
million to $55.3 million. Quarter 2 year on year revenue growth from 2009 to 2010 was 125%, $15.31
million to $34.45 million. This increased revenue is from expanding sales in the domestic Chinese
market, along with increasing market share in Asian, European, Middle Eastern and South American
markets. Third quarter domestic Chinese revenue accounted for 42.1% of revenue, up from 17.6% of
revenue for 2009.
Deer has 2000 employees and its manufacturing process is fully integrated, producing its motors and
moldings in house. This creates a cost advantage when compared to its competitors, as they are less
reliant on outside companies. This facility has 13 tooling houses, 136 injection-molding machines, and
18 production lines, producing potential revenue of $320 million. As of the end of 2009 less than 5% of
their components were manufactured by outside suppliers. Deer’s production process is fully automated
to keep labor costs down and to create consistent quality.
Deer’s core products can be broken down into three core categories, blenders, juicers, and other
products. Blenders have traditionally been a large portion of their sales, at 51% in 2009. They have 80
different models available, which are sold to over 300 brands in more than 40 countries. Their second
biggest product is their line of juicers. These juicers accounted for 21% of 2009 sales. 20 different
models are produced and sold to over 100 brands in more than 40 countries. Other appliances, such as
rice cookers, coffee makers and soy milk makers made up 28% of 2009 sales. Deer expects to further
penetrate the soy milk maker market and hope to gain a large market share. Deer manufactures 90
models for more than 20 different brands in greater than 40 countries throughout the world.
BUSINESS AND GROWTH STRATEGIES
Original Design and Equipment Manufacturer (ODM & OEM)

Deer exports their ODM and OEM products to large consumer product brands, who offer products
worldwide under numerous high-quality brand names. ODM accounted for 85% of export sales in 2009
and are expected to account for roughly 90% of export sales in 2010. OEM therefore accounted for 15%
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of 2009 export sales and is expected to account for around 10% of 2010 export sales. For OEM’s, Deer
produces appliances to the customers exact design and specifications. This does not allow for much
financial variability, as Deer must follow an exact design. On the ODM side, Deer can offer a better
valued product, as it can design, manufacture and make the necessary changes to better a product, for
financial or aesthetic reasons. Deer has a long running relationship with their ODM clients, and whose
top ten clients are all ODM product purchasers. Customers provide Deer with their annual sales
forecasts in order for Deer to develop a quality and reliable product on time. Deer believes their ODM
customers view them as a long time supplier due to building strong customer relations and producing a
quality product. Deer owns all of the designs and molds for ODM products, creating high switching
costs for their clients. Deer creates an economy of scope, as it can more efficiently produce many
products than its customers independently producing products. Growth in the ODM and OEM industry
is expected to increase in the coming years as the economy recovers. Export growth increased from
$41.59 million in 2008 to $66.7 million in 2009, 60.3% growth in what was deemed a down economy.
Increasing current ODM and OEM market share, along with increasing product models to the ODM
market, will allow for large growth in the future.
Original Brand Manufacturing (OBM)

Deer has begun to further tap into the massive growth of the Chinese consumer product market in recent
years. Deer produces products under the Deer brand name and other subsidiaries for the Chinese market.
Gross margins in this market are 40% compared to around 20% for the export market. These larger
margins are mostly due to proximity of sales, along with less money given to the middle man. However,
Deer does not have its own distribution and must establish a viable connect to move products to various
distribution channels. Deer is expanding its OBM over the upcoming years due to the increase in
Chinese demand and greater profitability margins. 2009 OBM revenue accounted for 17.9% of revenue
and 2010 revenue is expected to account for 42% of revenue. Deer believes OBM revenue will grow to
60% in a few years and will continue to grow past 60% as well.
R&D
Deer has a dedicated department of 47 employees to develop new products and technologies for their
ODM and OBM product segments. Their R&D expenditure increased 3% in 2009 and is expected to
increase in the future. The R&D department works with its ODM customers to develop products
consumers want while also improving efficiency in design and cost. SKU growth, the number of
products, has increased from 2007 by 199% from 80 to 239. Deer expects to introduce 20 new SKU’s
(Stock Keeping Units) to the market each year as a way to better facilitate customer demand. These
products are tailored to meet the demands of the respective market. Chinese OBM products have subtle
changes to a product that may be offered to Black & Decker. Deer has also been expanding into
producing heavy-duty products, such as blenders, juicers, etc. for commercial entities, such as bars,
hotels and restaurants. Deer expects sales in these segments to increase in the future as their name
spreads and they become better known.
Geographic Expansion
Deer plans to further expand its operations into the international market. Deer already has sales on five
continents and expects to further grow into emerging markets while solidifying its sales in already
established regions, like the US and Europe. Year on year sales growth for the third quarter 2010 were
291% in Asia, 115.6% in South America, 53.7% in the Middle East, and 42.5% in Europe. Deer believes
this sales growth is due to increasing wealth in South America and Asia along with increased market
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share following the financial crisis. United States revenue was down for the quarter, most likely due to
lower consumer spending. Deer expects revenue to recover in the coming years by pursuing other large
customer bases in the United States.
Sales and Marketing

Deer plans to have a large portion of its sales growth to come from the Chinese market. They have a
dedicated sales staff of 103 employees to increase brand awareness amongst the Chinese consumers.
Deer will achieve greater brand awareness by expanding Deer’s product distribution among the major
regions of China. Deer will facilitate this geographic growth by aligning new sales channels with
national, local and online retailers and distributors. Earlier this year, Deer began selling their products in
a large Chinese retail store with 1100 stores, along with establishing contracts to be sold in Wal-mart
China. If Wal-mart China proves to be successful, Deer could further expand its international customer
base to be sold in Wal-mart internationally. Deer further added retail locations in regional electric
appliance stores and department stores, along with a growing online presence, on HC360.com and
Taoboa.com. Deer expects triple digit growth on Taoboa.com, the Chinese eBay. Deer is also planning
to further their retail touchpoints by expanding into another 20,000 stores in the next 3-5 years. Their
rapid and aggressive expansion into retail stores has been warranted as Deer’s products have been
stocked out in early 2010.
Chinese Growth
Deer’s biggest potential for growth comes in China as their GDP, consumer income, and small appliance
spending are growing immensely. The small appliance market has grown over the past five years at
13.7% compounded yearly. Deer’s products target the growing middle class in China, which is
encouraged to spend on consumer goods by the government, and is demanding better lifestyle products.
The middles class in China is expected to grow to 340 million in 2016, a 162% increase from 2006, and
to grow to 500 million in 2026, an increase of 47%. Also, the average Chinese household has 5 home
appliances, compared to 30 in the US. This large growth of the middle class, along with the lack of
appliances translates to a huge amount of expected consumer spending in the coming years, which Deer
is expecting to have a large portion of.
Deer is expected to have large growth over the coming years due to several reasons: increasing market
share in the OEM and ODM product segments; further growing into emerging markets in South
America and Asia; immense growth in Chinese retail stores; and further expanding their online
presence.
MANAGEMENT AND EMPLOYEE RELATIONS
Mr. Bill Ying He has been with the company since its start in 1995. He was named
Chairman and CEO in 2001 of Winder Electric Group, now a wholly owned subsidiary of
Deer. He owns 22.2% of all shares outstanding. Mr. He controls the election of all or a
majority of the Board of Directors and is able approve significant corporate transactions.
Such a large composition of the company being held by He could be dangerous and
prevent Deer from entering into some potentially beneficial agreements if they conflict
with Mr. He’s interests.
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Mr. Nie was named Chief Financial Officer of the Company in 2009. He also joined the
Company's board of directors as a member in 2009. Prior to that, Mr. Nie was the
Company's Financial Controller since 2008.
PORTFOLIO HISTORY
Tall Firs Portfolio

Purchased 5/10/2010
2000 shares at $8.731 for a cost basis of $17,461.6
Current price as of 11/24/10: $11.01
Current Holdings: $22,020
% Change: 26.11%
Svigals Portfolio
330 shares at 9.004 for a cost basis of $2979.32
Current price as of 11/24/10: $11.01
Current Holdings $3633.3
% Change: 21.95%
DADCO Portfolio
500 shares for a cost basis of $4518.47
Current price as of 11/24/10
Current Holdings: $5505
% Change: 21.83%
RECENT NEWS
11/10/2010 – Deer Consumer Products, Inc. Announces Record 3rd Quarter Financial Results,
Raises 2010 Earnings Guidance, Provides Growth Outlook for 2011 –PR/Newswire
Deer announces their third quarter earnings and announce their recently purchased land will be used to
open a factory in Wuhu on the banks of the Ynagtze River, hours from economic centers Shanghai and
Nanjing. Wuhu is also close to raw material providers and major domestic retailers, SuNing and Gome.
This new factory will increase current capacity by 40% to $450 million in potential revenue, as well as
establish a factory for future growth. This new factory will decrease margins even more by cutting
transportation costs. Deer targets at least 30% revenue and net income growth for 2011 as well.
9/20.2010 – Deer Consumer Products, Inc. Initiates Non-Deal U.S. Road Show Through Wells
Fargo Securities – PR/Newswire
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Deer initiates a nondeal US road show through Wells Fargo Securities. Deer believes its stock price is
too low and too volatile for the type of company it is. Deer hopes this will help raise its stock price and
give the company some soled future growth.
6/10/2010 – Deer Consumer Products, Inc. Signs $12 Million Supply Contracts, Announces
Record Sales Growth in the North American Markets, Continues Stock Buyback –Press Release
Deer announces a $12 million contract with large global buyers in the North American and Southeast
Asia market. Deer has also recognized sales and new order growth in the North American and emerging
markets for the second quarter. Deer also initiated a $20 million share buyback program, therefore
reducing its excess amount of cash. While this may suggest they have too much cash and do not know
what to do with it, this could also suggest they made more than they had anticipated for the quarter and
increased revenue faster than expected.
INDUSTRY
Deer Consumer Products is classified as being in the small appliance market, and more specifically the
small kitchen appliance market. The global household small electrical appliance market generated
approximately $85.9 billion in retail sales in 2008, representing an increase of approximately 10% from
2007. Compound growth from 2005 to 2008 was 6.6% annually. China is the largest global
manufacturer of small household electrical appliances in the world, producing 1.63 billion units in 2008,
of which exports accounted for 74.3% of those sales, as many Chinese manufacturers of small electronic
appliances sell their products to global consumer products companies with access to consumers living in
the U.S. and Europe. Small electrical appliances are classified into three sectors: (i) kitchen, which
includes blenders, juicers, microwave ovens, coffee makers and rice cookers; (ii) living, which includes
electric fans, humidifiers, electric heaters, vacuums; and (iii) personal care, which includes hairdryers,
electric shavers and massagers. Deer products primarily fall into the kitchen sector. Of the $85.9 billion
about $43 billion is attributed to the kitchen appliance industry. Due to Deer being in the wholesale
industry, the market would therefore be about half at $21 billion. In 2008, Deer had about .2% of the
global market share. Average gross profit margins for small household electrical appliances are
approximately 30%, which are higher than that of traditional home appliances such as televisions and air
conditioners which have gross margins of 5-6%.
The industry has a whole is consolidating, mainly caused by the financial crisis, with smaller firms
either becoming bankrupt or being absorbed by larger firms. Buyers tend to favor those production
facilities with strong financial strength, higher quality, sufficient plant capacity, and a track record of
prompt delivery. Buyers placed even greater emphasis on being able to source quality supplies without
delays or interruptions. Deer has utilized this fact to expand its sales contracts and increase sales
volume.
International Growth
In North America, Europe, and other developed regions, sales growth in the appliance industry
maintains a steady but slow growth rate with most sales dependent on replacements and new product
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introduction. Growth in emerging markets, such as the Middle East, South America, Asia and Africa, is
much higher and growing at a large rate. For example Deer’s earnings in these markets from the second
quarter of 2009 and 2010 are:
2Q 2010 2Q 2009 % Change

China 11,376,532 1,674,260 579.5%
South America 6,886,774 1,902,283 262.0%
Asia 5,641,665 1,909,456 195.5%
Middle East 4,359,474 2,029,455 114.8%
Africa 429,517 52,955 711.1%
Consumer spending is increasing in these areas as is the middle class and disposable income.
Chinese Domestic Growth

The Chinese small appliance market has been growing at a fairly stable and strong rate for the past five
years and is expected to continue into the future. In 2005, the small appliance market was 10.2 billion
while the expected 2010 market is 20 billion, almost doubling in size over the past six years. For 2011,
the Chinese market is expected to grow to 22.1 billion in sales. The compound growth over this period
has been 13.7%, with the expected growth in the market next year being 10.5%. This growth has been
facilitated by the rising demand for consumer products from the growing middle class, which by
conservative estimates, is expected to grow to 340 million by 2016 and to 500 million by 2026. The rise
of the middle class has partly been caused by China’s rapid GDP expansion. GDP increased by 8.7%
from 2008 to 2009, during what was considered a recessionary year for most. This growth may not be
sustainable but is expected to be positive and bigger than the rest of the developed world in the coming
years.
Deer plans to utilize this large growth in Chinese GDP and consumer spending by placing more products
in large Chinese department stores. Some of China’s largest department stores, Suning, Gome, and Wal-
mart, are placing a greater amount of Deer products on store shelves and a higher amount of SKU’s.
Deer has been in Suning stores since the middle of 2009 and are currently sold in 700 of their 941 stores.
Deer plans to be in more of their stores soon while also increasing the amount of products in stores as
well. Deer signed a major sales contract with Gome at the beginning of 2010 and are currently sold in
140 of their 1,170 stores. Deer anticipates being in 400 by the end of the year and more to come in the
following years. Deer has also been in Wal-mart China since the beginning of the year and have
obtained tremendous success. Deer sold out of a single product within two weeks in their 36 Wal-mart
stores. As a result, Deer plans to expand SKUs per store and to increase to 100 of Wal-mart’s 279 stores
by the end of the year. Apart from these major department stores, Deer plans to expand into 300 more
stores by the end of 2010 and 20,000 in the next five years.
Because of the large potential growth of China, many American companies have attempted to increase
their market share in China and add more products to Chinese shelves. However, many companies have
tried and failed at entering these markets. No major American company has a meaningful presence on
Chinese shelves. Deer attributes this to Chinese consumers not differentiating Deer-branded products to
any other US based global brand. Aside from this, Deer, and other Chinese based companies have lower
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costs and greater knowledge of the Chinese consumer. These factors help keep American companies
from infiltrating the Chinese small electrical appliance market.
S.W.O.T. ANALYSIS
Strengths
 Vertical Integration – Deer is one of the largest fully integrated companies in the small appliance
segment, allowing them to manufacture products more efficiently and cheaply. They are not
reliant on rising costs or markups from other producers.
 OBM & ODM – Deer owns all of the molds and processes that it uses in these segments. Its
portion of OEMs are low and do not have much effect on their revenue.
 R&D – Deer controls the products they produce and are able to retool products to meet the
consumer’s needs.
 Multiple Suppliers – Deer is able to keep costs down and maintain a stable supply chain by
inducing competition among raw material suppliers.
 Trusted and Varied Product – Deer has a reputation for quality and is able to produce a varied
product by size or price point.
Weaknesses
 Small Size – Deer’s production capacity is much smaller when compared to its competitors
 Customer Concentration – Deer’s five largest customers accounted for 37% of revenues in 2008
and 35% of revenues in 2009. If Deer loses one of its major customers then it may lose a major
portion of its revenue that it can’t make up.
Opportunities
 Rising Middle Class – China’s growth prospects and increased consumer spending will allow for
Deer to have greater potential for future sales and to become a major player in the Chinese
market for years to come.
 Emerging Markets – Rising income in the less developed countries allow a great opportunity for
future sales and market penetration
Threats
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 Volatility of Exchange Rates – The volatility of Chinese Yuan and other currencies across the
world cause difficulties and could decrease or increase net income and cash flow. Deer does not
take any precautions to hedge currency volatility.
 Volatility of Raw Materials – Deer’s costs are largely determined by the amount of plastic,
copper and steel purchased, so the price of oil, copper and steel could greatly affect their
operating costs. However, Deer does recycle 30 tons of plastic each month to be reused in the
production process.
 Economic and Political Turmoil – Potential economic and political issues in China, or the world
at large could affect their operations. Seizure or nationalization of companies could affect their
international operations as well.
PORTER’S 5 FORCES ANALYSIS
Supplier Power – Medium. Deer uses at least two suppliers for all of its raw goods but they cannot
control the volatile prices of the steel, copper and oil industry.
Barriers to Entry – Medium to High. Companies coming in to the industry must have capital in order to
begin production but must also have an outlet to sell its product to. Deer is very well respected in the
industry for having a quality product, and as a result receives many contracts.
Buyer Power – Medium to Low. There are many large companies that sell consumer goods in the world
and are competing to have the best good. Deer also owns its molds and patents for their products,
causing these companies to have high switching costs.
Threat of Substitutes – Medium to High. Companies could switch to another producer easily, but have
high switching costs. If a company was unsatisfied with Deer’s product they could completely retool
their product and switch to a different producer. However, Deer is known for their variety and quality of
product, causing a switch to be unlikely.
Degree of Rivalry – Medium to High. There are many manufacturers of small home appliances in the
world, however, most of these companies specialize in one product, with many smaller hoping one of
those products will take off in that segment.
CATALYSTS
Upside
 Appreciating Chinese currency will help their sales and net income.
 Decrease in price of their raw materials
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Downside
 Volatility in either the currency or commodity market
 Slower recovery or economic growth
CHINESE COMPARABLES ANALYSIS
Because Deer mainly operates in two distinct markets, International and Chinese domestic markets, I
decided to split the comparables into two sections. I weighted the Chinese comparable at 2/3 because
Deer’s Chinese revenues in the future are estimated to be 2/3 of total revenue, leaving the international
comparables with a 1/3 weighting. All Chinese company metrics were first put into US dollars from the
Chinese Yuan to make comparable.
Ultimately, I decided on using three Chinese companies: GD Midea Holding Co. (SHE:000527);
Joyoung Co., Ltd (SHE:002242), and Zhejiang Supor Co., Ltd (SHE:002032). Deer has no direct
competitors due to the nature of the market, however, these are the most direct competitors in the
Chinese market. Other companies considered were Guangdong Elecpro Electric Appliance Hld
(SHE:002260) and Tsann Kuen (China) Enterprise Co. Ltd. (SHE:200512), however, these companies
were deemed inadequate comparables due to outlier data.
GD Midea Holding Co. 10%
“GD MIDEA HOLDING CO.,LTD. is principally engaged in the manufacture and sale of household
electronics. The Company’s main products include household air conditioners, central air conditioners,
refrigerators and washing machines, as well as the related parts and components. The Company
distributes its products within the domestic market and to overseas markets.” –Google Finance
GD Midea is a major Chinese conglomerate and manufactures many of the large appliances in China.
GD Midea is considered to be in the white goods market, however, it still competes with Deer directly in
the small appliance industry. GD Midea is at leaset 20 times bigger than Deer and has over 50,000
employees. Due to its large stature and less future growth, GD Midea was only weighted at 10%.
Joyoung Co. 50%
“Joyoung Co., Ltd is principally engaged in the research, development, production and distribution of
small household appliances. The Company’s products include soymilk makers, induction cookers,
blenders, juicers, electric pressure cookers, electrical kettles, red porcelain cookers, commercial soymilk
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makers and meat grinders. The Company also provides soybean materials. The Company distributes its
products in China’s domestic market and to overseas markets.” –Google Finance
Joyoung directly competes with Deer in its production of cookers, blenders, juicers, and kettles. Joyoung
as well ships to many international markets as does Deer. Joyoung grew in 2009 by 7.5%, so it is not
growing as much as Deer, but it is also much larger than Deer at this time. Because of their similar
products and comparables, Joyoung was given the highest weighting at 50%.
Zhejiang Supor Corp. 40%
“Zhejiang Supor Co., Ltd is engaged in the research, development, production and sale of cookware and
electrical appliances under the brand name of Supor. The Company's major products are pressure
cookers, milk cookers, stockpots, stir fry pans, tureens, frying pans, cutters, electric kettles, induction
cookers, electrical hot pots, rice cookers, intelligent pressure cookers, juice extractors, electrical
saucepans, gas-ovens, ventilators and sterilizers. The Company distributes its products throughout China
and exports to overseas markets.” – Google Finance
Supor competes with Deer directly in its line of cookers but is mostly classified as a white goods
manufacturer. Supor is considered the main distributor of cookware in China and has similar gross
margins compared to Deer, despite being more than five times its size. Supor also grew much faster than
the other comparables and has very similar metrics compared to Deer. Its growth, similar metrics and
some direct competition is why Supor is weighted at 40%.
US COMPARABLES ANALYSIS
Jarden Corp (JAH) 35%
“The Company is a provider of a range of consumer products. Jarden operates in three business
segments: Outdoor Solutions, Consumer Solutions and Branded Consumables. It manufactures or
sources, markets and distributes a number brands in Consumer Solutions segment, which include
Bionaire, Crock-Pot, FoodSaver, Health o meter, Holmes, Mr. Coffee, Oster, Patton, Rival, Seal-a-Meal,
Sunbeam and VillaWare.”
– Google Finance
Jarden was weighted at 35% because they have a multitude of product segment and only 1/3 of their
profits are due to their small kitchen appliance sector. Jarden primarily manufactures blenders,
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coffeemakers, irons, mixers, slow cookers, toasters, toaster ovens and vacuum packaging machines.
These products compete semidirectly with Deer, which is why Jarden is weighted as highly as it is.
The Middleby Corp (MIDD) 50%
“The Middleby Corporation is engaged in the design, manufacture, marketing, distribution, and service
of a line of cooking and warming equipment used in all types of commercial restaurants and institutional
kitchens, and food preparation, cooking and packaging equipment for food processing operations. The
Company conducts its business through three divisions: the Commercial Foodservice Equipment Group;
the Food Processing Equipment Group, and the International Distribution Division.” – Google Finance
Some of the Middleby Corp’s products include ovens, food warming equipment, griddles, coffee
brewers, and tea brewers. Middleby was weighted at 50% because their company is solely focused on
providing cookware equipment and operate in similar international markets as Deer. Middleby
specializes in its line of commercial appliances for restaurants and hotels, which is one of Deer’s
emerging markets and which it plans to target for future growth.
National Presto Industries (NPK) 15%
“National Presto Industries, Inc. (National Presto) operates in three segments: Housewares/Small
Appliance Segment, Defense Products Segment and Absorbent Products Segment. The
Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical
appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances.” – Google
Finance
While NPK is in three very distinct and different industries, expecially the defense product segment,
they directly compete with Deer products in the houseware and small appliance segment. Another issue
with NPK is its lack of international exposure as their products are limited internationally. For being a
direct competitor but also being more diversified, NPK is weighted at 15%.
Valuation Multiples
All multiples were equally weighted at 1/3
EV/Revenue: To measure how well a company is able to generate revenue compared to its size
EV/Gross Profit: To measure how well a company is able to keep margins high regardless of its size
EV/EBITDA: To measure how well a company is able to maintain its margins excluding accounting
factors.
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Valuation Price Weight

Chinese Comparable 12.55919 66.67%
Domestic Comparable 9.164269 33.33%
Weighted Comparable 11.42755
Based on the comparable method, I have come up with an implied price of 11.43. When compared to its
current price of 11.41, Deer is undervalued by .2%.
DISCOUNTED CASH FLOW ANALYSIS
Revenue Projections: The percentage of sales method was used for conducting this analysis. For
determining the revenue I separated revenue flows into its key segments, OBM, ODM, and OEM. I
believe separating the domestic and international markets was important for determining the growth rate
of each segment as their operations are growing at much different rates. For determining long run
targets, I used management projections, such as Deer expecting OEM would be less than 5% of total
exports and the OBM market to become more than 60% of total sales in the coming future. ODM and
OBM growth are projected to be high going into the future, especially in the next few years. Also,
management believes total revenue would increase by more than 30% compound growth for the next
five years, however, this amount of growth sounds to be high after the next two years as the world
economy recovers. For the past three years, the economy has grown at a considerable rate in each of
their regional markets.
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Deer expects to continue to grow in these segments in the future as they continue to make inroads in
these regions as their name becomes recognized by both consumers and retailers and consumer spending
begins to recover. This growth is expected to be especially large in China in the coming years due to
population growth, the rise of consumer spending in the middle class and increased shelf space in
wealthy sectors of China. Deer is currently in almost 2000 stores and expects to be in 20,000 within five
years. This store growth is attributed to entering into new department stores and other appliance stores in
China, along with expansion into more Suning, Wal-mart and Gome stores, which are currently their
biggest retailers. The Chinese small kitchen appliance sector is expected to grow at approximately 18%
in the coming years and growing. But, since all growth isn’t continually increasing, this growth rate was
trending down throughout the life of the DCF. Also, OBMs were stated by Deer to eventually become
65% of sales in the future. Revenues in the long run were trended towards this rate as well.
Cost of Revenue: Gross margins of ODM’s and OEM’s have been stated by Deer to be 20% while
OBM gross margin is expected to be 40%. As a result, cost of revenue was taken as a percent of
projected revenue, as revenue was broken up by OBM and the export market. As a result terminal gross
margin was stated at 33.4%.
SG&A: SG&A has remained fairly constant in the past but heir rapid growth in China, along with their
construction of a new factory, will cause SG&A expense to increase rapidly. As a result, SG&A was
expected to increase to 13.5 million for 2010, almost 8% of revenue, is projected to increase to 8.75%
for 2011 due to the new factory. From there, this is predicted by .25% until 2016 when it will remain
constant.
Current Assets: Current Assets in the past have pretty consistent with revenue except for cash. This
cash account increased in 2009 due to the sale of stock. To account for the large cash position, Deer has
been buying back shares to use the cash up, along with spending on capital expenditure to build a new
factory. Because the cash is expected to be used it was left in but trended down over time. After the
factory is completed in 2011 cash will be roughly 19% of revenue and expected to be 17% of revenue in
2012, and to continue so in the future. All other current asset accounts were held at a % of revenue
averaged over the past three years.
Current Liabilities: This account was held at the 2010 rate of 31.5% for the future. This is very similar
to their past year rates, except for 2008, which is taken as an outlier.
Tax Rate: Deer’s tax rate of 15% for the past three years is expected to continue. However, there is a
chance Deer will lose its special 15% rate from the Chinese government for operations in a privileged
economic zone. This deal is set to expire in 2010 but is expected by Deer to be renewed. If it is not then
the tax rate will increase to 25%. Because of the uncertainty of the rate, a conservative estimate of 20%
was taken.
14
Capital Expenditure: Because of the rapid expansion of Deer in the coming years Construction in
Process and acquisition of PP&E are expected to increase greatly in the next two years but remain high
in the future to account for more product being sold. The current expansion is expected to take revenue
capacity to $500 million. However, this factory can be renovated to increase production. The spikes in
CIP every three years is an estimate as to when a major renovation of the factories will be needed, based
on historical data. Long run is expected to be 3% of revenues moving forward. Acquisition of intangible
assets spiked in 2010 due to leasing land for their new factory for 50 years. Intangible assets are
expected to be an insignificant in the future and trended at .2% of revenue for the future based off of
past average. Acquisition of PP&E was trended down from 2009 values as Deer expects to grow through
CIP in the future. This will be at 2% of revenue in 2011 and trend down to 1.25% for the terminal year.
Depreciation & Amortization: D&A is expected to increase greatly in 2011 due to the factory and the
new land. 3% of revenue is projected for next year and expected to grow until 2016 by .1% per year and
then it will level off from there.
Debt: Deer has not historically taken out long term debt and does not expect so in the future. Because of
their large cash position they do not expect to take short term debt in the short run. Because they have no
debt, they do not expect to have any insurance expense as well.
Beta: Deer has only been trading on the NASDAQ since July of 2009 so a five year regression was not
possible. But due to their rapid expansion, this would not have been the best choice anyway. As a result,
I ran a weekly regression against the S&P, since the inception of their trading to create more data points.
As a result of the regression, the beta was calculated to be 1.658. When compared to other companies in
the industry over the same time Deer is .2 points higher. I believe this is reasonable due to Deer’s rapid
expansion, recent introduction to the NASDAQ, and market volatility.
RECOMMENDATION
Deer Consumer Products has huge potential to become a major player in the global small appliance
market due to its rapid expansion and increasing demand from ODM and OEM retailers along with
OBM consumers in China. The Chinese small appliance market is growing rapidly due to an increase in
Chinese domestic spending from a rising middle class. Deer is expecting to meet the large demand due
to its rapid production expansion and ability to meet consumer’s needs.
As a result of the DCF analysis, I value Deer at $20.57 while the comparable analysis yielding a price
target of $11.43. Weighting both the DCF and comparables equally, I have determined Deer’s implied
target price to be $16.00. With a current price of 11.41, Deer is currently undervalued by 40.2%. As a
result, I recommend a hold for all portfolios.
15
Valuation Price Weight

Chinese Comparable 12.55919 66.67%
Domestic Comparable 9.164269 33.33%
Weighted Comparable 11.42755
Weighted Comparable 11.42755 0.5

DCF Valuation 20.57 0.5
Implied Price 15.9973

Current Price 11.41
Under (Over) Valuation 0.402039
16
APPENDIX 1 – CHINESE COMPARABLES ANALYSIS
The University of Oregon Investment Group
10.00% 50.00% 40.00%
In $ DEER GD Midea Joyoung Supor

6.7865Y=$1
Stock Characteristics
Current Price 11.41 2.494658513 2.559493111 3.539379651
50 Day Moving Avg. 9.15
200 Day Moving Avg. 9.02

Beta 1.658235308
Size
ST Debt (MRQ) 9,393,419 1310800000 0 0
LT Debt (MRQ) 0 0 0 0
Cash and Cash Equiv. (MRQ) $ 54,377,822 $ 1,252,400,000 $ 342,100,000 $ 115,900,000
Minority Interest $ - $ 513,400,000 $ 10,000,000 $ 38,900,000
Market Value Preferred Stock 0 0 0 0
Diluted Share Count $ 33,591,108 $ 3,120,300,000 $ 760,950,000 $ 577,250,000
Market Cap $ 383,274,542 $ 7,784,082,959 $ 1,947,646,283 $ 2,043,106,903
Enterprise Value $ 338,290,139 $ 8,355,882,959 $ 1,615,546,283 $ 1,966,106,903
Profitability Margins Max Min Avg. Median
Gross Margin 0.369 0.192 0.283 0.285 0.283 0.192 0.369 0.286
EBIT Margin 0.203 0.048 0.122 0.118 0.203 0.048 0.139 0.098
EBITDA Margin 0.214 0.101 0.141 0.109 0.214 0.101 0.143 0.104
Net Margin 0.152 0.041 0.095 0.094 0.152 0.041 0.115 0.074
Credit Metrics
Interest Expense (MRQ) 7900000 0 1983994 17989 35,977 7900000 0 0
Debt/Equity (MRQ) 0.612 0.000 0.171 0.036 0.072 0.612 0 0
Debt/EBITDA (LTM) 1.432 0.000 0.433 0.150 0.300 1.432 0 0
EBITDA/Interest Expense (LTM) 870 0 246 58 869.970 115.899 0 0
Operating Results
Revenue (LTM) $ 9,058,800,000 $ 146,235,375 $ 2,698,583,844 $ 794,650,000 $ 146,235,375 $ 9,058,800,000 $ 786,900,000 $ 802,400,000
Gross Profit (LTM) $ 1,740,000,000 $ 41,450,945 $ 575,362,736 $ 260,000,000 $ 41,450,945 $ 1,740,000,000 $ 290,300,000 $ 229,700,000
EBITDA (LTM) $ 915,600,000 $ 31,298,899 $ 285,874,725 $ 98,300,000 $ 31,298,899 $ 915,600,000 $ 112,900,000 $ 83,700,000
Valuation Weighted Avg.
EV/Revenue 2.45 x 0.92 x 1.93 x 2.18 x 2.31 x 0.92 x 2.05 x 2.45 x 2.10 x
EV/Gross Profit 8.56 x 4.80 x 6.77 x 6.86 x 8.16 x 4.80 x 5.57 x 8.56 x 6.69 x
EV/EBITDA 23.49 x 9.13 x 14.43 x 12.56 x 10.81 x 9.13 x 14.31 x 23.49 x 17.46 x
17
Appendix_2_Domestic Comparables Analysis

The University of Oregon Investment Group
($s, except per share data) DEER JAH MIDD NPK

35% 50% 15%
Stock Characteristics
Current Price 11.41 30.89 79.67 116.04
50 Day Moving Avg. 9.15 31.32 65.95 111.13
200 Day Moving Avg. 9.02 29.67 59.79 104.02
Beta 1.658 1.457 1.456 0.904
Size
ST Debt (MRQ) $ 9,393,419 $ 432,100,000 $ 5,300,000 $ -
LT Debt (MRQ) $ - $ 2,523,600,000 $ 238,300,000 $ -
Cash and Cash Equiv. (MRQ) $ 54,377,822 $ 456,100,000 $ 6,000,000 $ 29,700,000
Minority Interest 0 0 0 0
Market Value Preferred Stock 0 0 0 0
Diluted Share Count 33,591,108 89,600,000 18320000 6,860,000
Market Cap $ 383,274,542.3 $ 2,767,744,000.0 $ 1,459,554,400.0 $ 796,034,400.0
Enterprise Value $ 338,290,139.3 $ 5,267,344,000.0 $ 1,697,154,400.0 $ 766,334,400.0
Profitability Margins Max Min Avg. Median
Gross Margin 41.2% 25.6% 30.6% 27.0% 0.283 0.272770101 0.412251656 0.256467712
EBIT Margin 21.6% 4.5% 13.8% 14.6% 0.203391 0.088253769 0.044701987 0.21633734
EBITDA Margin 23.4% 11.2% 19.4% 21.5% 0.214031 0.112489531 0.216586394 0.234263597
Net Margin 15.2% 1.1% 8.1% 8.1% 0.152061157 0.010678392 0.026339554 0.135669179
Credit Metrics
Interest Expense (MRQ) $ 47,600,000.0 $ - $ 12,470,494.3 $ 1,140,988.5 $ 35,977.0 $ 47,600,000.0 $ 2,246,000.0 $ -
Debt/Equity (MRQ) 1.646 0.000 0.471 0.119 0.071582844 1.646170983 0.166900254 0
Debt/EBITDA (LTM) 4.585 0.000 1.644 0.996 0.30011979 4.584612998 1.692842252 0
EBITDA/Interest Expense (LTM) 869.970 0.000 236.896 38.807 869.9696751 13.54411765 64.06945681 0
Operating Results
Revenue (LTM) $ 5,731,200,000 $ 146,235,375 $ 1,758,183,844 $ 577,650,000 $ 146,235,375 $ 5,731,200,000 $ 664,400,000 $ 490,900,000
Gross Profit (LTM) $ 1,563,300,000 $ 41,450,945 $ 501,137,736 $ 199,900,000 $ 41,450,945 $ 1,563,300,000 $ 273,900,000 $ 125,900,000
EBITDA (LTM) $ 644,700,000 $ 31,298,899 $ 233,724,725 $ 129,450,000 $ 31,298,899 $ 644,700,000 $ 143,900,000 $ 115,000,000
Valuation Weighted Avg.
EV/Revenue 2.55 x 0.92 x 1.84 x 2.06 x 2.31 x 0.92 x 2.55 x 1.56 x 1.83 x
EV/Gross Profit 8.16 x 3.37 x 5.95 x 6.14 x 8.16 x 3.37 x 6.20 x 6.09 x 5.19 x
EV/EBITDA 11.79 x 6.66 x 9.36 x 9.49 x 10.81 x 8.17 x 11.79 x 6.66 x 9.76 x
18
Chinese Comparables Anallysis

Metric Implied Price Weight
EV/Revenue 10.48 33.33%
EV/Gross Profit 9.59 33.33%
EV/EBITDA 17.61 33.33%
Price Target 12.56

Current Price 11.41
Under (Over) Valued 0.10
Domestic Comparable Analysis

Metric Implied Price Weight
EV/Revenue 9.319137 33.33%
EV/Gross Profit 7.7441 33.33%
EV/EBITDA 10.42957 33.33%
Price Target 9.164269

Current Price 11.41
Under (Over) Valued -0.19682
19
APPENDIX 3 – DISCOUNTED CASH FLOWS

($s, except per share data) 0.25 1.25 2.25 3.25 4.25 5.25 6.25 7.25 8.25 9.25
2007 2008 2009 2010 A123 2010 E Q4 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E
Total Company Revenue 33,476,259 43,784,935 81,342,680 113,616,453 56,383,547 170,000,000 228,760,000 299,675,600 389,578,280 502,555,981 638,246,096 785,042,698 934,200,810 1,074,330,200 1,203,250,644
% Y/Y Growth 30.79% 85.78% 108.99% 34.56% 31.00% 30.00% 29.00% 27.00% 23.00% 19.00% 15.00% 12.00%
Cost of Revenue 26,249,009 34,125,019 61,176,610 81,011,120 40202753.8 121,213,874 159,674,480 206,176,813 265,692,387 340,732,955 430,177,869 525,978,608 624,046,141 715,503,913 801,364,929
% Revenue 78.41% 77.94% 75.21% 71.30% 71.30% 71.30% 69.80% 68.80% 68.20% 67.80% 67.40% 67.00% 66.80% 66.60% 66.60%
Gross Profit 7,227,250 9,659,916 20,166,070 32,605,333 16172758.7 48,778,092 69085520 93498787.2 123885893 161823025.9 208068227.3 259064090.3 310154668.9 358826286.8 401885715.1
Gross Margin 21.59% 22.06% 24.79% 28.70% 28.68% 28.69% 30.20% 31.20% 31.80% 32.20% 32.60% 33.00% 33.20% 33.40% 33.40%
Operating Expenses
SG&A 3,306,507 5,421,580 5,936,408 9,250,414 4323199.062 13,573,613 20016500 26970804 36035990.9 47742818.2 60633379.12 76541663.06 91084578.98 104747194.5 117316937.8
% Revenue 9.88% 12.38% 7.30% 8.14% 7.67% 7.98% 8.75% 9.00% 9.25% 9.50% 9.50% 9.75% 9.75% 9.75% 9.75%
Total Operating Expenses 3,306,507 5,421,580 5,936,408 9,250,414 4323199.062 13,573,613 20016500 26970804 36035990.9 47742818.2 60633379.12 76541663.06 91084578.98 104747194.5 117316937.8
% Revenue 9.88% 12.38% 7.30% 8.14% 7.67% 7.98% 8.50% 8.75% 9.00% 9.25% 9.50% 9.75% 9.75% 9.75% 9.75%
EBIT 3,920,743 4,238,336 14,229,662 23,354,919 11,849,560 35,204,479 49,069,020 66,527,983 87,849,902 114,080,208 147,434,848 182,522,427 219,070,090 254,079,092 284,568,777
% Revenue 11.71% 9.68% 17.49% 20.56% 21.02% 20.71% 21.45% 22.20% 22.55% 22.70% 23.10% 23.25% 23.45% 23.65% 23.65%
Financing Costs -194 -247,901 -223,607 0 0 0 0 0 0 0 0 0 0 0 0
% Revenue 0.00% -0.57% -0.27% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Interest Income 18,524 13,870 94,986 519,814 257964.0213 777,778 686280 899026.8 1168734.84 1507667.943 1914738.288 2355128.094 2802602.43 3222990.6 3609751.932
% Revenue 0.06% 0.03% 0.12% 0.46% 0.46% 0.46% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30%
Interest Expense -114,361 -310,762 -122,299 -85,438 -42399.64689 -127,838 0 0 0 0 0 0 0 0 0
% Revenue -0.34% -0.71% -0.15% -0.08% -0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Income (Expense) 64,698 40,216 364,418 17,450 8659.774788 26,110 228760 299675.6 389578.28 502555.981 638246.096 785042.698 934200.81 1074330.2 1203250.644
% Revenue 0.19% 0.09% 0.45% 0.02% 0.02% 0.02% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Realized loss on trading securities 0 -34,873 0 0 0 0 0 0 0 0 0 0 0 0 0
% Revenue 0.00% -0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Unrealized gain on trading securities 57,043 0 0 0 0 0 0 0 0 0 0 0 0 0 0
% Revenue 0.17% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Foreign Exchange Gain (Loss) 90,707 959,943 138,284 -884,431 -773998.944 -1,658,430 0 0 0 0 0 0 0 0 0
% Revenue 0.27% 2.19% 0.17% -0.78% -1.37% -0.98% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Non-operating Income 116,417 420,493 251,782 -432,605 -549,775 -982,380 915040 1198702.4 1558313.12 2010223.924 2552984.384 3140170.792 3736803.24 4297320.8 4813002.576
Pre-tax Income 4,037,160 4,658,829 14,481,444 22,922,314 11,299,785 34,222,099 49,984,060 67,726,686 89,408,215 116,090,432 149,987,833 185,662,598 222,806,893 258,376,413 289,381,780
% Revenue 12.06% 10.64% 17.80% 20.18% 20.04% 20.13% 21.85% 22.60% 22.95% 23.10% 23.50% 23.65% 23.85% 24.05% 24.05%
Less Taxes (Benefit) 615,568 1,302,045 2,112,382 3,599,127 1694967.72 5,294,095 9996812 13545337.12 17881643.05 23218086.32 29997566.51 37132519.62 44561378.64 51675282.62 57876355.98
Tax Rate 15.25% 27.95% 14.59% 15.70% 15.00% 15.47% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
Net Income 3,421,592 3,356,784 12,369,062 19,323,187 9,604,817 28,928,004 39,987,248 54,181,348 71,526,572 92,872,345 119,990,266 148,530,078 178,245,515 206,701,130 231,505,424
Net Margin 10.22% 7.67% 15.21% 17.01% 17.03% 17.02% 17.48% 18.08% 18.36% 18.48% 18.80% 18.92% 19.08% 19.24% 19.24%
Add Back Depreciation and Ammortization 814040 1,218,301 1449186 1,186,426 588778.3359 1,775,204 6862800 9289943.6 12466504.96 16584347.37 21700367.26 27476494.43 32697028.35 37601557 42113772.54
% Revenue 2.43% 2.78% 1.78% 1.04% 1.04% 1.04% 3.00% 3.10% 3.20% 3.30% 3.40% 3.50% 3.50% 3.50% 3.50%
Add Back Interest Expense*(1-Tax Rate) 96924 223911 104459 72,014 36040 108,053 0 0 0 0 0 0 0 0 0
% Revenue 0.29% 0.51% 0.13% 0.06% 0.06% 0.06% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Operating Cash Flow 4,332,556 4,798,996 13,922,707 20,581,627 10,229,635 30,811,262 46,850,048 63,471,292 83,993,077 109,456,693 141,690,633 176,006,573 210,942,543 244,302,687 273,619,196
% Revenue 12.94% 10.96% 17.12% 18.12% 18.14% 18.12% 20.48% 21.18% 21.56% 21.78% 22.20% 22.42% 22.58% 22.74% 22.74%
Current Assets 14,967,471 25,102,155 118,026,587 128,343,593 129200000 129200000 148694000 194789140 253225882 326661387.7 414859962.4 510277753.7 607230526.5 698314630 782112918.6
% Revenue 44.71% 57.33% 145.10% 76.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00%
Current Liabilities 10,261,460 21,718,975 24,060,237 38,621,145 53550000 53550000 72059400 94397814 122717158.2 158305134 201047520.2 247288449.9 294273255.2 338414013 379023952.9
% Revenue 30.65% 49.60% 29.58% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50%
Net Working Capital 4,706,011 3,383,180 93,966,350 89,722,448 75,650,000 75,650,000 76634600 100391326 130508723.8 168356253.6 213812442.2 262989303.8 312957271.4 359900617 403088965.7
% Revenue 14.06% 7.73% 115.52% 44.50% 33.50% 33.50% 33.50% 33.50% 33.50% 33.50% 33.50% 33.50% 33.50%
Change in Net Working Capital -1,322,831 90,583,170 -4,243,902 -18316350 -18,316,350 984,600 23,756,726 30,117,398 37,847,530 45,456,189 49,176,862 49,967,968 46,943,346 43,188,349
Construction in Process 111,835 559,651 2,829,702 2,195,791 563835.47 2,759,626 18000000 8990268 11687348.4 25127799.05 19147382.88 23551280.94 32697028.35 32229906 36097519.32
% Revenue 0.33% 1.28% 3.48% 1.93% 1.00% 1.62% 7.87% 3.00% 3.00% 5.00% 3.00% 3.00% 3.50% 3.00% 3.00%
Acquistions of PP&E 2,191,640 3,627,873 1,474,527 1,539,295 1127670.94 2,666,966 4575200 5244323 5843674.2 7538339.72 7978076.2 9813033.73 11677510.13 13429127.5 15040633.05
% Revenue 6.55% 8.29% 1.81% 1.35% 2.00% 1.57% 2.00% 1.75% 1.50% 1.50% 1.25% 1.25% 1.25% 1.25% 1.25%
Acquistions of Intangible Assets 162,263 8,319 0 22,305,052 281917.735 22,586,970 457520 599351.2 779156.56 1005111.962 1276492.192 1570085.396 1868401.62 2148660.4 2406501.288
% Revenue 0.48% 0.02% 0.00% 19.63% 0.50% 13.29% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Unlevered Free Cash Flow 1,866,818 1,925,984 -80,964,692 -1,214,609 26,572,561 21,114,050 22,832,728 24,880,624 35,565,500 37,937,912 67,832,494 91,895,311 114,731,635 149,551,648 176,886,194
Discounted Unlevered Free Cash Flows 26157274.95 21103438.79 21592008.02 28979909.76 29025377.33 48727998.28 61982698.88 72660210.96 88928509.74 98759774.57
20
APPENDIX 4 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
Assumptions for Discounted Free Cash Flows Model

Tax Rate 20% Terminal Growth Rate 0.03
Risk-Free Rate 0.02563 Terminal Value 1,416,228,347.54
Beta 1.658235308 PV of Terminal Value 362,732,990.57
Market Risk Premium 0.07 Sum of PV Free Cash Flows 328,134,835.97
% Equity 1 Firm Value 690,867,826.53
% Debt 0 LT Debt 0
Cost of Debt 0
CAPM 0.141706472 Equity Value 690,867,826.53
WACC 0.141706472 Diluted Share Count 33,591,108
Terminal Risk Free Rate 4.26% Implied Price 20.57
Terminal CAPM 15.864647158453400% Current Price 11.41
Terminal WACC 0.158646472 Under (Over) Valued 0.802540347
APPENDIX 5 – BETA SENSITIVITY ANALYSIS
0.547657238
Beta St. Deviation Implied Price Under (Over) Valued
2.75354978 2.00 10.59 -7.17%
2.47972117 1.50 12.21 7.04%
2.20589255 1.00 14.28 25.13%
1.93206393 0.50 16.96 48.68%
1.658235308 0.00 20.57 80.25%
1.38440669 -0.50 25.58 124.21%
1.11057807 -1.00 32.93 188.63%
0.83674945 -1.50 44.54 290.38%
0.56292083 -2.00 65.17 471.20%
21
APPENDIX 6 – REVENUE MODEL
($ in millions, except per share data)
2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
OEM 9.04 10.4 10.05 10.97 11.21 11.55 12.01 12.37 12.61 12.87 13.06 13.26 13.39
% Growth 15.0% -3.4% 9.2% 2.1% 3.0% 4.0% 3.0% 2.0% 2.0% 1.5% 1.5% 1.0%
% Exports 30.0% 24.6% 15.0% 11.0% 10.0% 8.8% 7.5% 6.3% 5.3% 4.7% 4.1% 3.7% 3.4%
ODM 21.07 31.82 56.95 88.79 100.88 120.31 147.72 183.63 223.54 261.90 304.57 341.27 383.68
% Growth 51.0% 79.0% 55.9% 23.0% 19.3% 22.8% 24.3% 21.7% 17.2% 16.3% 12.1% 12.4%
% Exports 70.0% 75.4% 85.0% 89.0% 90.0% 91.2% 92.5% 93.7% 94.7% 95.3% 95.9% 96.3% 96.6%
Total Exports 30.10 42.20 67.00 99.76 112.09 131.86 159.73 196.00 236.15 274.76 317.63 354.53 397.07
% Growth 40% 59% 49% 12% 18% 21% 23% 20% 16% 16% 12% 12%
% of Total 90% 96% 82% 58% 49% 44% 41% 39% 37% 35% 34% 33% 33%
Domestic OBM 3.35 2.05 14.32 72.24 116.67 167.82 229.85 306.56 402.10 510.28 616.57 719.80 806.18
% Growth -38.8% 598.5% 404.5% 61.5% 43.8% 37.0% 33.4% 31.2% 26.9% 20.8% 16.7% 12.0%
% of Total 10% 5% 18% 42% 51% 56% 59% 61% 63% 65% 66% 67% 67%
Total Revenue 33.45 44.25 81.32 172.00 228.76 299.68 389.58 502.56 638.25 785.04 934.20 1074.33 1203.25
% Growth 32% 84% 112% 33% 31% 30% 29% 27% 23% 19% 15% 12%
APPENDIX 6 – SOURCES
Deer 10-K
Deer 10-Q Third Q 2010
Google Finance
Yahoo Finance
Fact Set
www.deerinc.com
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UNIVERSITY OF OREGON December 1, 2010

INVESTMENT GROUP Consumer Goods

Deer Consumer Products

Current Price 11.41

Valuation (per share)

BUSINESS AND GROWTH STRATEGIES

Original Design and Equipment Manufacturer (ODM & OEM)

Original Brand Manufacturing (OBM)

Sales and Marketing

MANAGEMENT AND EMPLOYEE RELATIONS

Tall Firs Portfolio

2Q 2010 2Q 2009 % Change

Chinese Domestic Growth

PORTER’S 5 FORCES ANALYSIS

 Decrease in price of their raw materials

 Volatility in either the currency or commodity market

 Slower recovery or economic growth

CHINESE COMPARABLES ANALYSIS

GD Midea Holding Co. 10%

Joyoung Co. 50%

Zhejiang Supor Corp. 40%

Jarden Corp (JAH) 35%

The Middleby Corp (MIDD) 50%

National Presto Industries (NPK) 15%

Valuation Price Weight

DISCOUNTED CASH FLOW ANALYSIS

Valuation Price Weight

Weighted Comparable 11.42755 0.5

Implied Price 15.9973

APPENDIX 1 – CHINESE COMPARABLES ANALYSIS

The University of Oregon Investment Group

10.00% 50.00% 40.00%

In $ DEER GD Midea Joyoung Supor

200 Day Moving Avg. 9.02

Appendix_2_Domestic Comparables Analysis

($s, except per share data) DEER JAH MIDD NPK

Chinese Comparables Anallysis

Price Target 12.56

Domestic Comparable Analysis

Price Target 9.164269

APPENDIX 3 – DISCOUNTED CASH FLOWS

APPENDIX 4 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS

Assumptions for Discounted Free Cash Flows Model

APPENDIX 5 – BETA SENSITIVITY ANALYSIS

APPENDIX 6 – REVENUE MODEL

($ in millions, except per share data)

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