China/Hong Kong Consumer Staples

China Yurun Food (1068 HK)
Firing on all cylinders
Blow-out FY10 results. China Yurun’s reported FY10 net profit of RMB2.73b (up 56% YoY) is 22% and 16% higher than our and consensus estimates, respectively, on strong slaughtering volume growth (up 54% YoY), good SG&A control, lower-than-expected taxes and high government grants. High upstream growth to sustain. FY11F is guided to see 25-30% slaughtering volume growth. This target appears conservative, considering management’s track record of consistently underestimating upstream growth as well as rapid capacity add in FY10. Our new base case looks for 41% growth in FY11F. Continued surprises on the capacity and production growth front suggest government subsidy and negative goodwill recognition will also remain high. Favorable pricing environment continues. Management estimates hog prices will increase 15% in FY11F, which creates a favorable pricing environment for Yurun’s upstream operation. Too cheap to miss, but watch for near-term placement risk. We revise up our EPS estimates by 34% and 46% in FY11-12F. The stock is on 12x FY11F PE following the changes. Even stripping out subsidy and goodwill recognition, the stock is on only 16x, while normalized EPS CAGR is projected to be exceptional, at 35% through FY13F. Our new target price is based on 17x PE, implying a PE/G ratio of 0.7x (lowered from 1.0x to reflect general F&B de-rating). At the results presentation, the company stated that it will rely on operating cash flow and debt financing to satisfy its capex needs (estimated at HK$2.5-3.0b in FY11F). The Chairman stated his intention to list his personal property business this year and also that he is not considering reducing his interest. Yet we do not think placement risk will completely diminish and note that the lock-up period will expire in May 2011. 2009 2010 21,473 – 2,728 – 1.565 44 1.049 40 15.1 1.7 (1.1) 26.1 2011F 33,074 24 3,648 34 2.010 28 1.483 41 11.8 2.3 3.3 24.3 2012F 46,468 33 4,586 46 2.527 26 1.985 34 9.4 2.9 2.9 25.7 2013F 60,704 – 5,477 – 3.019 19 2.550 28 7.8 3.4 9.7 23.9

29 March 2011
Company Rating: Outperform
(maintained)

Sector Rating:

Underweight
(maintained)

Price: Target:

HK$23.65 HK$34.50
(up from HK$31.80)

Trading data
52-week range Market capitalization (m) Shares outstanding (m) Free float (%) 3M average daily T/O (m share) 3M average daily T/O (US$ m) Expected return (%) – 1 year Closing price on 29 March 2011 HK$18.28 – 34.40 HK$42,911/US$5,503 1,814 75 8.4 26.6 48.2

Stock price and HSCEI
HK$ 34 32 30 28 26 24 22 20 18 29-Mar-10

Forecasts and valuation
Year to 31 Dec Revenue (HK$m) 13,870 Rev forecast change (%) – Net profit (HK$m) 1,745 NP forecast change (%) – EPS (HK$) 1.089 EPS (YoY, %) 46 Core EPS (HK$) 0.749 Core EPS (YoY, %) 35 PER (x) 21.7 Yield (%) 1.3 FCF yield (%) (2.6) ROAE (%) 20.5 Source: Company data, CCBIS estimates

29-May-10

29-Jul-10

29-Sep-10

29-Nov-10

29-Jan-11

29-Mar-11

Yurun

HSCEI (rebased)

Source: Bloomberg

Forrest Chan, CFA
(852) 2532 6743 forrestchan@ccbintl.com

Sze Pan Pan
(852) 2532 2559 szepanpan@ccbintl.com

Timothy Sun
(852) 2532 6746 timothysun@ccbintl.com

Please read the analyst certification and other important disclosures on last page

6m head as at end-2009 by 39% to 35. good SG&A control and lower-than-expected taxes. Growth should improve to the high-teens in FY12F upon commencement of a 100. In our view.40%. 2 . A 10% hog price increase is assumed in our new financial projections. We forecast 14.China Yurun Food (1068 HK) 29 March 2011 Further details and analysis Yurun’s reported FY10 net profit of RMB2. considering management’s track record of consistently underestimating upstream growth.51b by 21%. Production volume of Yurun’s downstream unit grew 15%.5%) and 7. respectively.0% volume growth for downstream in FY11F.6m head as at end-2010. Such growth rates were ahead of our estimate of c.83b (up 52%) would still have beaten our forecast of RMB1. Yurun’s remarkable upstream business development shows that China’s hog slaughtering industry is going through an accelerating policy-driven consolidation that benefits the larger players with better ability to add capacity and penetrate the modern retail channel.6m by end-2011. followed by 35% in FY12F and 27% in FY13F (newly introduced estimates). respectively. Its slaughtering capacity increased from 25.3% (FY09: 11.8% YoY in 2010. which underpinned slaughtering volume growth of 54% to 15m head in FY10 as well as upstream sales volume growth of 60%.9% and 22. providing upside risk. Abundant supply of hog throughout 2010 allowed the company to better utilize its significant capacity growth. The recent clenbuterol scandal involving its major competitor Shuanghui (000895 CH. We estimate that the average hog price in China rose by 2. The longer-term capacity target of Yurun continues to be aggressive: 70m head by end-2015. Gross profit margins of chilled meat and frozen meat products were largely stable at 11. largely in line with our forecast. and clearly indicate rapid market share gains by Yurun. a positive for Yurun. and is planned to further reach 42. Brand strength and R&D excellence continue to support gross margin of this operation amidst cost fluctuations. We previously established in our initiation report (“Gold in the meat” on 1 March 2010) that there is some positive correlation between hog prices and the unit dollar margin of Yurun’s upstream products – higher hog prices typically benefit the company’s gross profit.73b (up 56% YoY) is 22% and 16% higher than our and the Bloomberg consensus estimate. on strong slaughtering volume growth. Not Rated) has not yet tainted Yurun’s reputation and Yurun management is hopeful the incident turns out to be a catalyst for faster industry consolidation. in our view.4% in FY09 to 29.3%).7% in FY10. Our new base case looks for 41%. underlying earnings of RMB1. ahead of our estimate of 30m.0% and 21. as the government tightens regulations. Even excluding government grants and negative goodwill that were once again a major surprise. Low temperature meat products (LTMP) and high temperature meat products (HTMP) improved from 29. as 30. which will create a favorable pricing environment for Yurun’s upstream operations provided that hog supply remains abundant.000 tons of capacity is planned to come online this year. The target seems too conservative.000-tonne downstream facility in Nanjing. 2H: 10%).2% (FY09: 6. Management estimates hog prices will increase 15% in FY11F (1H: 20%. FY11F is guided to see 25-30% upstream slaughtering volume growth.

thanks to strong operating cash flow growth expected for FY11F.000) (2.China Yurun Food (1068 HK) 29 March 2011 Another major factor supporting the earnings surprise is stringent SG&A control.000 7.000 6.0b.0b. Management earmarks HK$2. we do not expect negative goodwill to decline materially over the forecast years. coming in at HK$3. our estimate: RMB600m) of government subsidy as income in FY10F. We believe operating leverage and scale economies have also contributed. Management noted that staff efficiency and productivity have improved as measured on production volume per employee. equivalent to 26% of its net profit. Yurun recognized RMB713m (FY09: RMB426m.000 0 (1. from 6. management made an effort to be more transparent on the significant amount of government grants it receives every year. Our financial projections suggest that this is achievable assuming management’s capex estimate is accurate. over 93% of the government grants for FY10 was related to Yurun’s contribution to industrialization of local agriculture when it invested in additional slaughtering capacity.0b for capex in FY11F and expects to achieve positive free cash flow. Yurun resorted to equity financing twice in FY10 and its cash flow situation remains a major investor concern.000 1. our estimate: RMB133m).0% in FY09 to only 5. Foreseeing fast capacity growth to continue. Cash flow projections HK$m 8. According to the company disclosure. in part explained by accelerated capacity growth towards end-2010. For the first time.000 3. Our expectation for sustainable high top-line growth justifies a further decline in the SG&A expense ratio we assume for the forecast years.000 2. M&A activity or expansion of existing facilities.000) 2005 2006 2007 2008 2009F Free cash flow 2010F 2011F 2012F Net cash flow 2013F Operating cash flow Source: CCBIS estimates 3 .5-3. through either greenfield projects. 7% of net profit. Likewise.000 5. SG&A expense as percentage of sales fell. There was further negative goodwill recognition of RMB186m (FY09:RMB119m. Capex for FY10 outweighed operating cash flow of HK3.1% in FY10.000 4. management guided that the high level of subsidy will be sustainable in FY11F. which was substantially above the previously guided budget of about HK$2.4b.

000 410.000.000 440. MOFCOM Historical corn to hog price ratios 10 9 8 7 6 5 4 2000 2001 2002 2003 2004 2006 2007 2008 2009 2011 Source: NDRC Live pig inventory and sow to live pig ratios Heads 480.000.6% 10.6% Source: NDRC.000 470.China Yurun Food (1068 HK) 29 March 2011 Hog prices RMB/kg 16 15 14 13 12 11 10 9 8 7 28-Apr-10 13-Oct-10 15-Sep-10 18-Aug-10 8-Dec-10 3-Feb-10 2-Feb-11 3-Mar-10 31-Mar-10 23-Jun-10 26-May-10 10-Nov-10 2-Mar-11 6-Jan-10 21-Jul-10 5-Jan-11 6 60% 50% 40% 30% 20% 10% 0% (10)% (20)% Hog price (LHS) YoY change (RHS) Source: NDRC.000.000 420.2% 10.2% 11.8% 9.000 450.000.000.000.4% 10.000.000 430.8% 10.000 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Number of live pigs (LHS) Sow to live pig volume ratio (RHS) 11.000 460.0% 10. MOFCOM 4 .000.4% 11.0% 9.

3 700 800 121 184 11.808 29 41 199 201 14 14 10 10 6.5 1.864 2.5 650 800 127 157 9.438 25 35 227 239 14 19 5 5 6.0 9.0 7.0 3.China Yurun Food (1068 HK) 29 March 2011 Key changes in assumptions and earnings drivers Year to December Upstream sales volume (‘000 tons) Old New Upstream sales volume YoY (%) Old New Downstream sales volume (‘000 tons) Old New Downstream sales volume YoY (%) Old New YoY change in hog price (%) Old New SG&A expense ratio (%) Old New Government subsidies (HK$ m) Old New Negative goodwill (HK$ m) Old New Tax rate (%) Old New Source: CCBIS estimates 1.1 4.106 27 277 16 3 4.5 6.492 1.280 40 54 175 177 14 15 0 3 6.5 1.0 2010 2011F 2012F 2013F 5 .161 1.1 600 713 133 186 7.1 5.1 700 150 11.1 4.

3 43.988 5 820 2 11.548 – 1.515 (9) 79 22 14.318 3 840 2 12.1 0.5 1.065 16 10.648 7 14.166 2.393 3 1.957 10 371 20 10.166 2.6 7.541 (4) 13.2 4.710 (30) 71 15 19.486 (8) 713 186 5.219 4 9.670 (10) 1.600 5 14.9 1.686 10 15.0 7.1 2.259 23 196 0 5.001 (20) 236 20 8.1 0.121 (5) 230 119 6.210 – 9.372 15 197 (12) 12.272 (6) 9.845 (6) 7.456 11 560 (29) 13.514 17 738 35 10.804 0 21 50 12.265 10 178 14 20.100 (37) 1.952 6 .4 6.4 1.808 5 213 20 21.995 (2) 11.789 24 79 12 19.041 2 800 184 4.4 6.679 26 – 9.779 2 12 73 12.200 2 10.623 6 24 (4) 11.2 1.473 (2) 9.135 971 64 12.499 (19) 12.138 (8) 37 39 7.125 (2) 1.444 (4) 12.274 243 20 7.5 1.166 273 58 11.158 3 252 18 21.465 10 800 8 11.China Yurun Food (1068 HK) 29 March 2011 Key assumptions Year to December Slaughtering division – chilled pork Production volume (’000 ton) YoY (%) Unit cost (RMB/ton) YoY (%) Gross profit (RMB/ton) YoY (%) Implied ASP (RMB/ton) YoY (%) Slaughtering division – frozen pork Production volume (’000 ton) YoY (%) Unit cost (RMB/ton) YoY (%) Gross profit (RMB/ton) YoY (%) Implied ASP (RMB/ton) YoY (%) Processed meat division – LTMP Production volume (’000 ton) YoY (%) ASP (RMB/ton) YoY (%) Unit cost (RMB/ton) YoY (%) Processed meat division – HTMP Production volume (’000 ton) YoY (%) ASP (RMB/ton) YoY (%) Unit cost (RMB/ton) YoY (%) Other assumptions Government subsidy (HK$m) Negative goodwill (HK$m) SG&A expense as % of revenue Effective interest rate on bank deposit (%) Effective interest rate on debt (%) Effective tax rate (%) HK$/RMB Source: Company.122 593 42 12.3 2.490 (3) 7 (49) 14.0 6.897 (2) 1.012 40 13.2 4.704 16 1.691 2 13.8 8.246 – 11.308 10 1.400 2 15.097 2 25 0 13.961 59 89 13 19.134 (35) 547 (2) 8.788 22 8.098 (2) 1.395 (5) 13.740 15 77 11 19.610 (4) 14.162 (2) 13.978 301 24 13.532 76 1.852 2 25 10 13.5 2.751 24 25 (4) 10.9 6.206 28 13.000 6 9.733 14 0 5.599 (35) 89 (6) 7.036 (5) 147 44 8.141 320 31 13.5 3.3 2.5 1.0 11.8 1.3 1.081 (5) 26 0 8.767 (13) 252 53 4.986 26 123 50 6.0 4.252 18 156 11 19.385 – 7.0 5.172 61 789 42 11.758 – 189 – 7.0 1.640 (3) 309 31 9.939 (38) 552 (36) 8.400 2 10.681 5 426 15 10.137 3 490 15 11.970 1 9 26 11.755 (2) 166 13 9.681 (33) 140 21 19.026 417 39 15.1 6.334 4 99 193 6.974 5 1.621 49 15.000 2 14.9 5.1 2.154 73 223 12 11.8 8.0 5.491 (37) 69 28 19.0 5.204 1 461 133 6.863 4 800 157 4.0 9.630 (3) 14.142 421 54 10.148 1.142 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 1H09 2H09 1H10 2H10 65 – 15.0 1.309 6 14.653 – 621 – 8.770 (6) 14 (42) 13.171 (33) 538 92 8.657 3 13.962 22 827 54 10.341 (2) 143 61 9.452 34 11.707 4 15.650 2 9.959 (9) 556 (10) 7.6 7.183 1 700 150 4.817 (11) 9.5 5.668 3 17.086 (10) 8.1 1.519 5 23 10 13.744 2 16.1 2.437 48 13. CCBIS estimates 202 – 8.615 30 14.9 2.0 2.884 (10) 7 (32) 11.391 (8) 13.269 10 426 119 6.141 550 72 13.097 15 643 16 9.6 1.391 (21) 1.016 9 116 30 20.350 (7) 1.929 3 13.755 (10) 200 6 6.

5 46.1 10.1 6.6 38.9 67.834 3.4 26.779 9.0 21.1 10.468 36.9 2.375) (28.9 22.4 67.778 180 (492) 59 69 40 15 54 63 18 42.1 62.5 24.736 1.5 4.8 15.082 1.9 1.0 17.0 (3.7 19.8 30.4 74.471 1.6 18.2 26.6 29.345 38 15.3 6.204 6.6 1.130) 31 34 18 20 2 32 19 1H09 5.4 (4.3 83.878 2.3 28.7 9.130 2.4 32.4 10.0 2.6 89.693 5.1 700 150 82 47.6 25.951 6.6 3.0 10.9 10.0 7.9 21.0 10.6 40.525 296 (1.0 2.1 11.3 1.8 23.9 10.3 2.2 29.9 5.9 1.753 277 (808) 87 125 86 51 23 109 47 2008 13.2 6.5 58.6 73.6 61.4 40.473 15.6 22.1 29.3 7.704 49.4 8.6 13.3 23.9 18.9 29.870 4.045 1.7 63.644 302 (930) 51 74 5 51 9 48 45 2009 13.7 6.6 4.098 43 14.0 7.433) (52.4 85.2 7.9 29.024 8.6 78.0 18.4 7.8 17.474) 54 65 34 21 18 59 21 2012F 46.752 48 13.8 38.678 2.7 12.057 4.690 38 13.421 2.4 29.2 800 157 76 66.5 28.3 29.1 51.852) 1.870 5.9 36.2 78.3 20.9 1.6 28.5 14.2 13.621 2.7 44.027) 1.1 10.4 23.0 7.198 3.3 28.8 1.495 1.220 72 14.7 1.462 1.5 6.181) 55 61 56 14 42 60 16 2011F 33.747 116 (689) 49 51 84 14 28 57 15 2H10 12.3 11.5 29.4 8.5 1.2 26.1 16.4 34.858) 976 19 16.8 3.8 59.1 12.6 46.2 29.3 10.8 28.8 25.6 72.2 59.635 3.074 25.5 28.282 397 (2.1 19.0 14.9 53.9 6.779 5.4 80.4 230 119 22 52.1 56.2 23.9 28.744 28 12.325 3.3 11.035 36 13.4 37 39 13 41.8 8.9 69.5 99 193 52 50.1 11.6 2.161 28 15.0 16.7 15.8 9.4 4.5 11.9 72.926 863 1.621) (40.960) 1.9 6.5 21.453 44 13.6 58.5 20.0 28.2 80.2 16.8 0.710) (18.9 25.6 48.2 713 186 67 62.3 (6.225 391 (1.9 43.8 88.1 1.185 36 14.159 225 (315) – – – – – – – 2007 8.8 6.635 4.081 208 (1.036 5.2 29.2 14.8 55.8 41.2 10.0 53.5 6.5 1.0 0.9 30.0 11.4 29.930 1.6 461 252 133 53 39 27 (to be continued) 7 .8 (7.268 2.1 21.1 19.0 7.8 3.4 49.3 25.4 78.7 6.415) (11.4 10.5 24. %) Upstream – chilled pork Upstream – frozen pork Downstream – LTMP Downstream – HTMP Upstream – subtotal Downstream – subtotal Revenue mix (%) (before intersegment elimination) Upstream – chilled pork Upstream – frozen pork Downstream – LTMP Downstream – HTMP Upstream – subtotal Downstream – subtotal COGS (after intersegment elimination) Gross profit YoY (%) Gross margin (%) Gross margin by product (%) Upstream – chilled pork Upstream – frozen pork Downstream – LTMP Downstream – HTMP Upstream – subtotal Downstream – subtotal Gross profit mix (%) (before intersegment elimination) Upstream – chilled pork Upstream – frozen pork Downstream – LTMP Downstream – HTMP Upstream – subtotal Downstream – subtotal Government subsidy Negative goodwill Other income 2006 4.271 350 (1.4 20.2 63.0 10.3 2.7 29.5 6.6 7.9 78.8 10.0 7.9 800 184 79 68.0 15.7 63.2 74.5 10.7 6.5 29.536 90 (581) (3) 5 (39) 21 (32) (7) 16 2H09 8.545 117 (583) 15 25 1 13 (31) 19 8 1H10 8.2 12.334) (11.1 16.4 426 119 80 55.3 43.3 42.910) 711 – 15.4 1.4 11.9 69.1 26.3 11.2 29.7 10.4 13.9 11.8 40.590 1.870 9.9 23.9 21.348) (11.6 29.4 1.164) 6 16 (19) 17 (31) 7 12 2010 21.4 16.3 36.China Yurun Food (1068 HK) 29 March 2011 Profit and loss projections (HK$m) Year to December Total revenue (external sales) Upstream – chilled pork Upstream – frozen pork Downstream – LTMP Downstream – HTMP Intersegment elimination Total revenue (YoY.8 (7.4 76.0 86.3 1.3 29.3 15.6 2.4 196 0 58 51.6 1.8 44.1 10.797) 40 47 21 22 12 43 22 2013F 60.2 123 50 18 46.

5 98 48 1.489) 25 4.3 4.1 422 47 1.74 27 846 23 6.07 46 1.2 617 18 1.4 1.052 (455) 9.1 1 481 – 10 0.891 (143) 7.6 1.53 26 2.0 520 – 11.974 52 13.5 26 2009 (830) (3) 6.1 63 (22) (1) 912 (51) 5.0 6.1 83 82 1.099 27 11.0 137 (73) (1) 1.8 21 2013F (2.3 3.090) 31 5.031 64 17.673 51 13.5 (3) 1.5 (9) 2.4 492 (2) 8.451 53 16.0 (12) 4.4 41 2H09 (432) (8) 5.5 4.7 137 69 1.113 57 8.627 28 7.523 51 11.477 19 9.1 5.1 (3) 1.8 (6) 1.4 1.2 1 1.74 27 0.33 – 405 – 8.3 20 (74) (0) 1.138 32 8.4 51 (116) (0) 1.187 21 10.135 64 15.5 33 2011F (1.1 179 39 1.588 54 18.3 81 29 1.99 29 2.0 129 55 1.429 36 13.478) 36 4.0 3.1 475 – 10.58 76 0.2 1.3 5.170 (679) 11.09 46 1.1 2.304 37 10.2 122 (169) (0) 2.998) 35 4.0 0.006 65 12.01 28 1.2 45 2H10 (562) 30 4.9 (2) 841 37 14.0 1.238 (101) 8.728 56 12.6 1.954 (297) 7.956 66 14.99 19 4.55 44 1.3 2.745 53 12.398 (86) 6.9 150 53 1.0 1. CCBIS estimates 2006 (326) – 7.58 79 686 70 7.829 52 8.2 872 84 10.7 25 (65) (0) 966 (61) 6.7 22 8 .309 56 15.2 708 107 8.200 42 8.4 135 (187) 0 3.33 – 0.6 1.7 31 2010 (1.1 1.0 524 24 1.3 46 – 1.56 44 1.0 2.602 34 7.419 57 11.1 101 (96) (0) 1.261 53 15.3 26 (14) (1) 485 (6) 1.8 287 60 1.6 16 1H09 (398) 3 6.9 20 2008 (859) 59 6.804 21 11.1 146 (193) 0 5.7 26 (51) (0) 925 (82) 8.7 0.586 26 9.China Yurun Food (1068 HK) 29 March 2011 Profit and loss projections (HK$ m) (continued) Year to December SG&A expense YoY (%) As % of revenue EBIT YoY (%) EBIT margin (%) D&A included in COGS and SG&A YoY (%) As % of revenue EBITDA YoY (%) EBITDA margin (%) Finance income Finance cost Share of loss of an equity-accounted investment Profit before tax Tax Effective tax rate (%) Minority interest Net profit YoY (%) Net margin (%) EPS (HK$) – basic YoY (%) EPS (HK$) – diluted YoY (%) Net profit before subsidy and goodwill YoY (%) Adjusted net margin (%) Subsidy and negative goodwill as % of NP Source: Company.8 950 68 16.1 26 2012F (1.104 63 13.926 (189) 6.1 6.4 1.528 (103) 6.8 16 2007 (540) 66 6.648 34 11.9 2.007 35 12.51 26 3.2 178 (195) 0 6.8 22 1H10 (527) 33 6.5 (10) 3.0 955 83 11.624 27 12.3 (2) 904 73 11.175 35 9.0 (14) 5.6 (2) 859 79 10.691 47 8.02 19 2.1 715 45 8.7 1.1 1.2 1.

966 3.293 43 1 213 165 7 73 502 0 188 1 0 189 2.800 (3.657 0 30 0 1.029 15.370 30 12.124 8.249) Netcash 2013F 2.610 217 2.190 17.264 3.437 46 20.360 25.151 43 (801) Netcash 2007 682 1 15 0 501 207 4 30 1.711 0 30 0 762 794 0 300 6.361 3.132 591 7 2010 1.108 0 440 645 19 0 4.043 826 177 0 0 1.714 800 190 200 0 1.000 0 1.598 3.069 0 300 7.400 95 26 900 10 16.538 14.084 86 3 1.321 1.321 8.520 2.449 12 3.209 3.577 3.268 1 47 0 597 593 1 228 6.170 900 210 220 0 1.180 30 0 4.046 82 34.129) Netcash 9 .999 530 171 179 0 879 14.000 95 26 900 10 13.377 6.543 1.136 3.857 3.330 20.407 86 3 937 21 7.018 833 178 57 0 1.037 216 2.009) Netcash 2012F 2.859 8.935 3.900 (6.151 3.928 719 14 2009 936 7 31 0 576 351 0 759 2.308 1.020 1. CCBIS estimates 2006 514 2 5 4 323 165 0 2 844 1.844 12.442) Netcash 2011F 1.000 0 2.617 10 0 6.502 3.400 95 26 900 0 18.734 3.960 217 2.159 90 26 953 20 11.139 192 6.971 268 0 331 425 19 0 1.065 214 1.935 12.151 1 637 1.809 10.149 11.China Yurun Food (1068 HK) 29 March 2011 Balance sheet projections (HK$m) Year to December Inventory Other investments Current portion of lease prepayments Amounts due from related companies Trade and bills receivables Other receivables Income tax recoverable Pledged deposits Cash Current assets – total Property.648 900 220 240 0 1.681 (2.406 10.900 (3.277 0 30 0 1.000 0 1.201 5.214 0 300 10.779 220 723 0 4 233 13 2.304 56 24.256 2.264 24.213 24 164 133 0 322 8.361 20.421 3.929 217 2.559 1.068 5.853 68 28. plant and equipment Investment properties Lease prepayments Goodwill Investment in an equity accounted investee Non-current prepayments Deferred tax assets Non-current assets – total Current bank loans Finance lease liabilities Trade and bill payables Other payables Income tax payable Amount due to related companies Current liabilities – total Non-current bank loans Finance lease liabilities Deferred tax liabilities Convertible instruments Non-current liabilities – total Shareholder equity Minority interest Total assets Total liabilities and equity Gross debt Net debt (cash) Net gearing (%) Source: Company.421 28.053 11 5.004 4.377 1.406 1.094 (872) Netcash 2008 703 1 23 0 445 259 17 599 1.858 934 0 220 0 4 117 18 1.608 221 1.542 5.118 10 0 7.095 0 485 418 20 0 2.215 20 8.145 10 0 5.066 1.136 34.

440 (565) (533) 457 (641) 146 (193) (435) 4.7 22 13 13 22 14 37 2009 25.600 (2.411 6 (604) 3.6 22 10 11 21 Net cash 25 2011F 23.400 0 75 19 (855) 639 2012F 5.China Yurun Food (1068 HK) 29 March 2011 Cash flow projections (HK$m) Year to December EBIT D&A EBITDA Recognition of negative goodwill Adjustments for other non-cash items Operating cash flow before working capital changes due to: Inventory Trade and other receivables Trade and other payables Total change in working capital Interest received Interest paid Tax paid Operating cash flow Capex Free cash flow after capex Other investing cash flow Net proceeds from issue of new shares Other financing cash flow Dividend paid Net cash flow Source: Company.060) 1.2 29 17 13 33 Net cash 26 2008 24.095) 2009 1.880 Key financial ratios Year to December ROAE (%) ROAA (%) ROIC (%) Average inventory days Average receivable days Average payable days Cash conversion cycle (days) Net gearing (%) Gross gearing (%) Source: Company.0 31.358) 2.0 30.9 0.099 524 5.261 (186) (4) 3.009 (2.4 27.267 (443) (366) 886 77 135 (187) (283) 4.135 (119) 1 2.175 129 1.4 26.728) (1.127) 21 1.478 664 178 (195) (649) 6.4 19 8 14 13 Net cash 22 2012F 24.257 0 75 20 (1.4 29.111) 240 2013F 6.1 18.0 0.499) (472) 4 4.9 16.187 617 6.016 (232) (225) 176 (280) 32 (107) (61) 1.345 2011F 4.154 0 75 10 (1.765 0 (374) 286 2010 2.304 (193) 33 1.071 (332) (263) 732 137 122 (169) (134) 3.3 15.3 18 7 14 11 Net cash 19 2013F 23.346) (583) 13 771 (4) (168) 30 2008 1.498) 4.429 (157) (5) 4.317 (3.217 (2.144 17 43 112 172 22 (66) (55) 1.652 (2.007 422 4.804 (150) 0 6.0 16.654 (380) (434) 1.027 (3. CCBIS estimates 2006 475 46 520 (39) 5 486 (87) (18) 17 (88) 22 (1) (2) 418 (770) (352) 2 0 (13) (155) (518) 2007 872 83 955 (50) 25 930 (103) (147) 127 (123) 15 (16) (43) 764 (1.5 16.5 24.0 17.956 179 2.7 16.3 28.064) (847) 19 31 (7) (291) (1.9 43 26 17 52 Net cash 2 2007 26.6 26 13 14 25 7 37 2010 23.0 17 7 14 10 Net cash 16 10 .608) 1.624 (184) 0 5.974 287 3. CCBIS estimates 2006 20.

550 15 Huabao 336 HK 11.6 0.8 10.9 8.1 5.0 Net cash/ Net share (%) gearing (%) 2 3 2 Net debt 9 6 18 5 7 7 28 33 Net debt 28 27 32 30 46 53 Net cash Net cash Net cash 10 Net cash Net cash Net cash Net cash Net cash Net cash Net cash Net cash 25 Net cash Net cash Net cash Net cash Net cash Net cash 11 .2 24.4 0.8 6.507 27 Mengniu Dairy 2319 HK 20.1 8.1 20.6 19.9 23.0 16.91 1.5 1.61 1.0 9.889 3 China Foods 506 HK 4.1 23.36 778 3 Besunyen 926 HK 2.7 39.9 NA 1.759 3 Uni-president China 220 HK 3.0 15.86 1.3 18.4 2.5 3.3 0.5 13.34 873 3 Ruinian* 2010 HK 5.1 0.2 5. Source: Bloomberg.5 33.0 14.1 8.8 18.2 0.681 7 Shenguan Holdings 829 HK 8.0 18.6 11.1 23.9 1.0 1.6 34.6 14.7 1.3 13.6 2.6 2.8 1.5 2.6 3.8 2.3 1.0 19.5 19.3 1.3 14.2 1.5 2.1 2.9 1.9 0.1 19.45 6.20 14.628 8 Yurun Food* 1068 HK 23.6 CY12 22.1 15.482 14 Want Want China 151 HK 6.3 6.55 323 2 Average ex Bawang Group # Calculated in HK dollar terms.3 14.7 2.3 4.5 0.7 0.1 11.06 969 4 Bawang Group 1338 HK 2.2 0.1 45.5 18.6 0.7 1.7 1.4 21.1 0.9 16.China Yurun Food (1068 HK) 29 March 2011 Valuation summary Stock Share price Market cap 3M average value traded Company code (local currency) (US$m) (US$m) China consumer products Tingyi 322 HK 20.5 2.7 0.9 3.5 20.06 10.3 2.3 12.4 15.98 1.4 1.40 4.2 1.7 1.838 2 Yashili 1230 HK 2.5 PE/G (x) CY11 2.8 28.65 5.6 11.6 22.3 2.5 7.73 437 1 Global Dairy* 1007 HK 2.59 559 0 Dynasty Wines 828 HK 2.3 17. * Denotes CCBIS estimates.8 0.75 9.8 Yield (%) CY11 1.3 1.2 18.50 9.5 17.7 10.90 376 1 Ausnutria 1717 HK 2.5 1.387 24 CRE 291 HK 30.7 9.7 28.5 NA 0.387 14 Tsingtao Brewery 168 HK 38.8 9.9 18.6 14.179 2 Vinda* 3331 HK 8.9 1.274 12 Hengan 1044 HK 59.58 4.6 ROAE (%) CY11 26.0 NA 0.9 P/B (x) CY11 7.8 20.8 14.8 18. CCBIS estimates EPS growth (%)# CY11 CY12 10 25 26 (54) 19 28 28 19 34 46 20 (6) 33 NA 20 99 30 33 65 23 26 26 24 22 16 26 23 4 28 26 29 22 31 125 22 31 17 26 25 27 PE(x) CY11 27.9 2.6 1.5 11.4 10.3 9.

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