Disclaimer & Disclosures
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: The Hongkong and Shanghai Banking Corporation Limited
Shares resume trading after a suspension in October 2015 on
the back of a major deal announcement, later disclosed to be
GE appliance assets acquisition
We cut FY15e core profit by 25% after adding contributions
from overseas white goods assets acquired from parent
Maintain Buy with new DCF TP of RMB10.1(was RMB14.9)
Trading resumed on 1 Feb. After resuming trading today, shares fell, reaching the
10% limit for daily falls. This is not surprising: the-A share CSI 300 index has fallen 17% since 19 Oct 2015, when Haier announced it was planning an acquisition and its shares were suspended. On 14 Jan 2016, Haier disclosed that it planned to acquire GE’s appliance assets for USD5.4bn. According to its announcement, the acquisition target posted USD6.75bn revenue in 2015, which is equivalent to c50% of Haier’s 2015e revenue, with c90% coming from the US. The target’s EBITDA margin in 2015 was 8% (vs Haier’s own EBITDA margin of 6%). Should the deal be successful, we estimate Haier will turn from net cash of USD2.6bn to a net debt of USD2.8bn. In the near term, EPS accretion from the deal would be minimal after deducting finance costs relating to the deal (debt was raised to finance 60% of the deal price). However, we regard the deal as strategically important. First, it would allow Haier to diversify overseas: post the deal, its overseas sales contribution would go up to 40%, up from 13% now. Second, Haier could leverage GE’s logistics, installation and sales network to develop the US business under its own brand. Third, the company ought to be able to generate cost synergies from global procurement and resource sharing on R & D. The deal will likely be completed in a year, according to Haier.
Cut FY15 core profit forecast by 25%. Due to the worse-than-expected 9M15
results reported in October 2015, we expect its organic sales in FY15 to fall by c8% y-o-y and net profit down by 22% y-o-y to RMB3,911m (sales were down by 11% and profit down by 18.6% in 9M15). The overseas white goods assets acquired from its parent (announced in May 2015 and approved by shareholders in Dec 2015) will be consolidated into its FY15 results. Factoring that in, our new FY15 core profit estimate falls 25% to RMB3,780m. Our 2015 earnings forecast is 11% below cons.
Maintain Buybut with TP cut 32% to RMB10.1 (old RMB14.9). We believe the
acquisition will benefit the company strategically in the long term and we expect its growth in 2H to recover with: 1) the end of air conditioner (AC) de-stocking; 2) recovery in export business led by weaker RMB. We expect AC de-stocking will last into 1H16, so we also cut FY16e net profit by 21% following the cut in FY15e earnings and cut AC industry growth to flat from 4.5% before. The cut in TP was from the earning cuts in F15-17e and lowering CAGR in 2018-2024 to 4% from 5%. The GE deal is not in our forecasts. Our TP implies a target PE of 15x on 2016e core EPS vs. historical 3.5x to 23.5x. Downside risks: weaker-than-expected results in export business; intensifying competition in air conditioner sales; currency risk to overseas sales division.
MAINTAIN BUY
TARGET PRICE (CNY) PREVIOUS TARGET (CNY)
10.10
14.90
SHARE PRICE (CNY) UPSIDE/DOWNSIDE
8.93 +13.1%
(as of 01 Feb 2016)MARKET DATA
Market cap (CNYm) 54,680 Free float 100%
Market cap (USDm) 8,315 BBG 600690 CH
3m ADTV (USDm) RIC 600690.SS FINANCIALS AND RATIOS (CNY)
Year to 12/2014a 12/2015e 12/2016e 12/2017e HSBC EPS 0.80 0.35 0.54 0.58 HSBC EPS (prev) 1.36 0.79 0.96 1.09 Change (%) -41.2 -55.7 -43.7 -46.8 Consensus EPS 0.84 0.74 0.89 1.01 PE (x) 11.1 25.2 16.5 15.4 Dividend yield (%) 5.9 2.2 2.3 2.4 EV/EBITDA (x) 4.0 5.5 5.1 4.4 ROE (%) 13.4 9.3 12.6 12.2
52-WEEK PRICE (CNY)
Source: Thomson Reuters IBES, HSBC estimates
Lina Yan*
Consumer Analyst, HK / China
The Hongkong and Shanghai Banking Corporation Limited [email protected]
+852 2822 4344
Erwan Rambourg*
Global Co-Head Consumer & Retail Research
The Hongkong and Shanghai Banking Corporation Limited [email protected]
+852 2996 6572
Vishal Goel*
Associate Bangalore
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
HOUSEHOLD DURABLES
China
7.60 12.80 18.00
Feb 15 Aug 15 Feb 16
Target price: 10.10 High: 16.10 Low: 8.61 Current: 8.93
Buy: Going global amid weak growth in China
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Financials & valuation
Financial statements
Year to 12/2014a 12/2015e 12/2016e 12/2017e Profit & loss summary (CNYm)
Revenue 88,775 91,951 94,613 100,491
EBITDA 7,241 5,614 5,776 6,111
Depreciation & amortisation -783 -853 -949 -1,048 Operating profit/EBIT 6,458 4,762 4,826 5,064 Net interest 411 469 495 559 PBT 8,047 6,052 6,142 6,443 HSBC PBT 6,925 5,196 5,286 5,587 Taxation -1,354 -956 -952 -979 Net profit 4,992 4,059 4,160 4,407 HSBC net profit 2,442 2,169 3,304 3,551
Cash flow summary (CNYm)
Cash flow from operations 7,007 3,175 5,486 5,923
Capex -2,005 -4,000 -2,500 -2,500
Cash flow from investment -3,251 -4,000 -2,500 -2,500
Dividends -1,591 -1,219 -1,249 -1,323
Change in net debt -7,084 2,043 -1,737 -2,099
FCF equity 4,620 -609 3,195 3,659
Balance sheet summary (CNYm)
Intangible fixed assets 75 75 75 75
Tangible fixed assets 8,087 11,312 12,940 14,470 Current assets 59,475 61,536 61,481 65,232 Cash & others 28,644 26,875 28,893 31,290 Total assets 75,006 80,215 81,711 86,914 Operating liabilities 42,930 45,024 43,328 45,150 Gross debt 2,809 3,083 3,364 3,662 Net debt -25,835 -23,791 -25,529 -27,628 Shareholders' funds 21,840 24,680 27,591 30,675 Invested capital -3,863 1,098 2,349 3,411
Ratio, growth and per share analysis
Year to 12/2014a 12/2015e 12/2016e 12/2017e Y-o-y % change Revenue 2.5 3.6 2.9 6.2 EBITDA 12.8 -22.5 2.9 5.8 Operating profit 12.8 -26.3 1.4 4.9 PBT 19.7 -24.8 1.5 4.9 HSBC EPS -8.1 -55.8 52.4 7.5 Ratios (%) Revenue/IC (x) -24.8 -66.5 54.9 34.9 ROIC -151.8 -294.7 240.4 151.4 ROE 13.4 9.3 12.6 12.2 ROA 10.0 6.7 6.5 6.6 EBITDA margin 8.2 6.1 6.1 6.1
Operating profit margin 7.3 5.2 5.1 5.0 EBITDA/net interest (x)
Net debt/equity -88.7 -74.4 -73.2 -72.8 Net debt/EBITDA (x) -3.6 -4.2 -4.4 -4.5 CF from operations/net debt
Per share data (CNY)
EPS reported (diluted) 1.64 0.66 0.68 0.72 HSBC EPS (diluted) 0.80 0.35 0.54 0.58
DPS 0.52 0.20 0.20 0.22
Book value 7.17 4.03 4.51 5.01
Key forecast drivers
Year to 12/2014a 12/2015e 12/2016e 12/2017e
Refrigerator Growth Rate -0.03 -0.04 0.02 0.04 Air conditioner Growth Rate 0.12 -0.22 -0.11 0.03 Washing machine Growth Rate 0.06 0.08 0.06 0.06 Small Appliances Growth Rate 0.14 0.08 0.08 0.08
Overall GPM 0.28 0.31 0.31 0.30
SGA Growth 0.11 0.13 0.03 0.05
Valuation data
Year to 12/2014a 12/2015e 12/2016e 12/2017e
EV/sales 0.3 0.3 0.3 0.3 EV/EBITDA 4.0 5.5 5.1 4.4 EV/IC 28.1 12.4 8.0 PE* 11.1 25.2 16.5 15.4 PB 1.2 2.2 2.0 1.8 FCF yield (%) 8.5 -1.1 5.8 6.7 Dividend yield (%) 5.9 2.2 2.3 2.4
* Based on HSBC EPS (diluted)
Price relative
Source: HSBC
Note: Priced at close of 01 Feb 2016
4.60 6.60 8.60 10.60 12.60 14.60 16.60 4.60 6.60 8.60 10.60 12.60 14.60 16.60
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Acquiring GE appliance assets
Qingdao Haier has disclosed that it plans to acquire GE's appliances business unit for
USD5.4bn. The asset sale is a “carve-out”, which carries no interest-bearing debt. The pension liabilities of the business prior to the acquisition belong to GE and those occurred post the acquisition will belong to Haier. The acquisition includes the right to use the GE appliance brand globally for 40 years (20 years for free and another 20 years based on negotiated terms). Around 90% of the business unit’s sales are from the US and the products are mostly
manufactured by OEMs. The assets include 10 subsidiaries, 3 JVs and 3 minority interests. It is the second largest appliance maker in the US with 10%-plus share. Whirlpool has is the number one maker in the US with 20%-plus share.
Qingdao Haier will settle 40% of the consideration in cash and the rest by raising debt in the US. The deal was priced at 8.2x EV/EBITDA 2015 (EV is adjusted for deferred tax assets) and 10x on reported 2015 EV/EBITDA. Based on the actual 2014 financials, the un-leveraged PE is 27x. The announcement did not disclose the net margin. However, the US tax rate could be as high as 40%, including state and federal taxes.
GE first tried to sell its GE appliances business unit to Electrolux for USD3.3bn in 2014 but the deal was blocked by the US department of Justice in Dec 2015 for antitrust reasons. The 64% increase in the asset valuation is partly due to the 47% rise in EBITDA vs EBITDA at the time of Electrolux's offer. According to the announcement, recurring EBITDA grew 40% y-o-y in 2015 and reported EBITDA grew 32% y-o-y. Detailed financials were not disclosed in the
announcement. Qingdao Haier attributed the fast rise in EBITDA margin to the benefits of GE's USD1bn investments in R&D since 2012.
The deal is pending approval from US antitrust investigation, Chinese authority approval, shareholder approval. The whole process might last for one year, according to the company. According to Qingdao Haier, GE assets will be independently managed and Haier will appoint a board to oversee the operations.
Going global amid weak
growth in China
Shares resume trading after being suspended in Oct 2015 after
announcing acquisition of GE appliance assets
We cut our FY15 core profit forecast by 25% after adding
contributions from overseas white goods assets acquired from parent
Maintain Buy with new of TP of RMB10.1 (old RMB14.9) based
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In our view, strategic benefits of the proposed deal include:
Haier can broaden its product offering: GE has a strong market presence in kitchenware
Haier can leverage GE's logistics, installation and sales network to develop its US business
Cost synergies relating to global procurement and sharing resources, particularly in R&D Pro-forma financials of GE appliances and Qingdao HaierQD Haier GE + QD Haier % impact to QD Haier
(USD m) 9MQ2015 2015e 9MQ2015 2015e 9MQ2015 2015e
Balance sheet
Total Assets 11,483 15,018
Total liabilities 7,765 12,647 Owner's Equity 3,718 5,610
- (Net cash) / net debt 2,600 -2,800
Income statement Revenue 9,541 14,006 14,199 20,756 48.8% 48.2% EBIT 632 855 - EBIT margin 6.6% 6.0% EBITDA 855 1,395 63.1% - EBITDA margin 6.1% 6.7%
Additional interest cost 122 162
Core net profit -480 492 2.6%
Segment 9MQ2015 100% 9MQ2015 100% White goods 7,392 77% 84% Kitchen appliance 1,610 12% Refrigerator 2,961 31% 4,127 30% Washer 1,561 16% 2,344 17% Dishwasher 383 3%
Home care product 341 3%
Air conditioner 2,150 23% 2,150 16% Water heater 496 5% 496 4% Integrated channel services 1,823 19% 1,823 13% Equipment parts 262 3% 262 2%
Other non-core 63 1% 63 0%
Overseas 1,233 13% 5,292 39% Domestic 8,308 87% 8,308 61% Source: Company announcement, HSBC estimates
Earnings revisions
The decline in Qingdao Haier standalone revenue slowed to 11.5% y-o-y in 3Q15 from 18.5% in 2Q. However, the fall in core profit accelerated to 45.3% y-o-y from 4% y-o-y in 2Q due to fast rising costs. The gross margin rose by 1ppt y-o-y to 27.7% in 3Q16, but this was more than offset by the operating cost ratio, which rose by 3.8ppts y-o-y to 22.8%. In 1H15, operating margin expanded y-o-y thanks to a higher gross margin. The weaker results in 3Q15 were due to the poorer performance of the AC and refrigerator segments. Qingdao Haier’s AC sales were hurt by the two market leaders in that product segment clearing out inventory. The third largest player in the AC market, Qingdao Haier reported that its AC sales dropped by 38% y-o-y in 3Q, faster than the 25% drop it recorded in 2Q. Refrigerators also performed worse in 3Q than in previous quarters.
As AC and refrigerators account for 60% of sales at Haier’s specialty stores, the financial situation of its specialty store licensees deteriorated. In an attempt to alleviate pressure on its licensees, the company spent more on promotional activity, which led a 7.2% y-o-y increase in selling expenses during 9M15. Its operating cash inflow dropped 75% y-o-y to RMB1,353m in 9M15, as receivable days increased due to the company relaxing payment terms to licensees.
The sales performance of other product categories was stable in 3Q15; washing machines were the bright spot, with sales up 10% y-o-y in 3Q, vs a 5.7% increase in 1H, leading the y-o-y decline to narrower in 3Q vs. 2Q.
Overall, the company’s revenues fell 11.1% y-o-y in 9M15 and core profit was down 13.1% y-o-y. Inventory de-stocking cycle of Air Conditioners
In 2015, the domestic ex-factory sales volume of AC volume dropped by close to 10.1% y-o-y, based on Industry Online Data. During the year, the retail sales volume of AC was flat y-o-y, according to China Market Monitor Data. That means about 1.2 = 10.% *12 month of inventory was removed from the distribution channel.
We estimate the excess inventory for the whole industry was 2-3 months at the beginning of 2015, meaning there is still 1.5 months inventory left to be digested in 2016 either through supply discipline or pick up in retail demand.
From the supply side, the pace of de-stocking accelerated in 4Q15 with ex-factory AC volume down by 39% y-o-y in 4Q15 only.
From the demand side, AC retail volume was up by 8% y-o-y in 4Q.
We expect the de-stocking cycle would come to an end in 1Q16 with continuing supply discipline and recovery in retail demand.
Industry wise, we expect the total ex-factory sales volume growth to be flat in 2016 with 1Q drop by 30% y-o-y, 2Q drop by 10% y-o-y, and 2H to grow positive 20% as the ex-factory sell-in volume normalised to the demand for 6 months.
Air conditioner ex-factory sales volume vs. retail sales volume
Source: China market monitor, Industry online
FY15
After the weaker-than-expected results for 9M15, we cut our organic sales forecast for FY15 by 3.6% and now expect a 7.9% y-o-y decline to RMB81,742. We also lower our core net profit forecast by 26.1% for FY15, and now expect a 14% y-o-y decline to RMB3,715m.
We expect the overseas white goods assets acquired from its parent (announced in May 2015 and approved by shareholders in Dec 2015) to generate RMB10,209m in sales and RMB185m in net profit in FY15. We expect the export business’ sales in 2015 to decline by 10% y-o-y and the operating margin to contract to 2.2% of sales in 2015 from 4.6% in 2014 due to the weaker sales. After we build these contributions into our FY15 forecasts, our FY15 core profit still falls by 24.8% but our revenue forecast increases by 8.4%.
11.4% -14.5% 10.2% -8.6% -14.0% -3.2% -13.3% 19.4% -2.6% -22.8% 18.9% 4.6% -16.4% 9.0% 9.3% 3.0% -7.6% -13.9% -13.6% -22.3% -31.3% -25.1% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0%
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 CMM Monthly AC retail Volume YoY % IOL Domestic AC volume YoY %
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FY16 and FY17
We had previously already built contributions from the overseas white goods business into our FY16 and FY17 forecasts. However, we now lower our forecasts for the overseas white goods business due to a weak export performance in FY15 and a more cautious outlook for FY16 and FY17. In terms of organic performance, we expect the weak AC sales results will last until the end of 1H16, which will also negatively impact sales from its integrated channel services (represent 18% of F15e sales). Therefore, we cut our organic sales and core profit forecasts by 13.1% and 33.3% for FY16e.
Due the above changes, we lower our overall sales forecasts by 12.4% for FY16 and 16.6% for FY17, respectively, and our core profit forecasts by 33.3% for FY16 and 37.3% for FY17. We now forecast core profit to grow at a CAGR of 8.0% over 2015-17 with sales up at a 4.5% CAGR in the same period.
Consensus
Our target price of RMB10.1 (previously RMB14.9) is 12.7% below the median TP of the Street. Our FY15 revenue forecast is 7.9% above consensus. We believe our revenue forecast is higher as we have taken into account the overseas white goods assets acquired from its parent. We estimate that the proposed GE deal, if successful, could contribute RMB10.2bn in sales, about 11% of the total FY15e revenue.
Our 2015e net income is 11% below consensus. The highest EPS estimate on the Street is 40% above our estimate and the lowest is 2% below our estimate. The difference between the highest and lowest Street estimates is as wide as 43%.
HSBC vs. consensus The difference between HSBC and
low/high end of consensus EPS
Source: HSBC estimates, Thomson Reuters Datastream Source: HSBC estimates, Thomson Reuters Datastream
Valuation and risks
We cut our DCF-based TP by 32% to RMB10.1 from RMB14.9. The cut in TP is from the earning cuts in F15-17e and lowering the growth CAGR in 2024 to 4% from 5%. For 2018-2024, we forecast EBIT margin in our semi-explicit period to come down to 4.2% in 2024e from 5.2% in 2015e. Sales growth CAGR in semi explicit period (2018-24e) is 4.3% while 2015-17e CAGR is 4.5%. The other DCF assumptions are unchanged which include 1) WACC of 8.1% and is based on a 5.5% China equity risk premium, 0% terminal growth rate, a 6% cost of debt and a target 10:90 debt-to-equity ratio, and company-specific beta of 0.90. 2) terminal growth rate of 0%. Our revised target price implies 13% upside and we reiterate our Buy rating.
4,059 4,566 4,160 5,553 -11.1% -25.1% -30.0% -20.0% -10.0% 0.0% 2,000 4,000 6,000 2015e 2016e RMB m HSBC Net Income Consensus Net Income Consensus Diff. Net Income
40% 90% -2% 11% 43% 79% -20% 0% 20% 40% 60% 80% 100% 2015 2016 Upper Lower RANGE
Catalysts: better-than-expected GPM; sales recovery in air conditioners; fast growth in the number of users of its U+ smart appliance systems.
Key downside risks include: weaker-than-expected results in export business; intensifying
competition in air conditioner sales; currency risk in the overseas sales division.
Qingdao Haier PE band chart vs ROE Qingdao Haier PB band chart vs ROE
Source: HSBC estimates, Thomson Reuters Datastream Source: HSBC estimates, Thomson Reuters Datastream
12.0x 19.0x 26.0x 33.0x 5.0x 0% 5% 10% 15% 20% 25% 30% 0 5 10 15 20
Jan-10 Jan-12 Jan-14 Jan-16 Price ROE (RHS) 2.0x 3.0x 4.0x 5.0x 1.0x 0% 5% 10% 15% 20% 25% 30% 0 5 10 15 20 25
Jan-10 Jan-12 Jan-14 Jan-16 Price ROE (RHS)
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EQUITIES H O USEHOLD DURABLES 2 F ebruary 2 01 6Peer valuation comp table
CY Mkt-Cap Price Rev CAGR EPS CAGR _____ P/E (x) ______ _____ P/B (x) ______ ___ P/Sales (x) _____ ______ ROE ______ _ EV/EBITDA (x) ___ Company BLM code End USD m Ccy 1-Feb Rating (14-16) (14-16) CY14 CY15E CY16E CY14 CY15E CY16E CY14 CY15E CY16E CY14 CY15E CY16E CY14E CY15E CY16E Domestic Peers
Midea 000333 CH Dec 17,715 CNY 27.4 Buy 6.3% 12.6% 11.0 10.7 8.7 2.9 2.5 2.1 0.8 0.8 0.7 26% 25% 26% 6.6 5.7 4.4 Gree Electric 000651 CH Dec 17,134 CNY 18.4 Buy 2.7% -23.2% 3.9 7.6 6.6 1.3 2.2 1.9 0.8 0.8 0.8 38% 30% 30% 3.5 2.8 1.4
Qingdao Haier 600690 CH Dec 9,237 CNY 8.9 Buy 3.2% -17.8% 11.1 25.2 16.5 1.2 2.2 2.0 0.7 0.7 0.6 13% 9% 13% 4.0 5.5 5.1 Hangzhou Robam App. 002508 CH Dec 2,917 CNY 39.2 NR 28.1% 36.6% 33.8 23.8 18.1 7.6 5.5 4.4 5.3 4.1 3.2 26% 26% 27% 25.5 18.2 13.5 Zhejiang Supor 002032 CH Dec 2,500 CNY 25.8 NR 16.0% 21.7% 23.7 19.3 16.0 4.3 3.7 3.2 1.7 1.5 1.3 20% 20% 21% 16.2 13.2 11.3 Zhejiang Dun'An Artificial
Env. 002011 CH Dec 2,162 CNY 16.7 NR 3.2% 26.2% 111.5 140.5 70.0 4.0 3.4 3.3 2.1 2.3 2.0 4% 3% 5% n/a 26.6 22.0 Wuxi Little Swan 000418 CH Dec 1,836 CNY 20.7 NR 19.1% 26.0% 18.8 14.4 11.8 3.0 2.6 2.2 1.1 0.9 0.8 17% 18% 19% 11.5 10.2 7.8 Jiangsu Changfa Refrig. 002413 CH Dec 1,796 CNY 36.9 NR n/a n/a n/a 102.6 72.4 n/a 5.6 5.3 n/a 4.9 4.5 0% 5% 7% n/a 57.4 45.1
Joyoung 002242 CH Dec 1,778 CNY 15.1 NR 12.8% 15.1% 21.6 19.1 16.3 3.7 3.5 3.2 2.0 1.7 1.5 18% 20% 22% 14.8 13.7 11.8 Shai.Highly (Gp.) 600619 CH Dec 1,401 CNY 13.0 NR n/a n/a n/a 34.3 n/a n/a 2.7 n/a n/a 0.9 n/a 0% 8% 0% n/a 8.8 n/a
Average 11.4% 12.2% 29.4 39.8 26.3 3.5 3.4 3.1 1.8 1.9 1.7 16% 16% 17% 11.7 16.2 13.6 HK Peers
Haier Electronics Gp. 1169 HK Dec 4,902 HKD 13.7 Buy 6.2% 10.9% 13.4 11.6 10.9 2.7 2.2 1.9 0.4 0.4 0.4 25% 22% 19% 5.6 6.4 5.2 Skyworth Digital Hdg. 751 HK Mar 1,522 HKD 4.1 NR 4.0% 6.6% 6.6 6.1 5.8 0.9 0.8 0.7 0.3 0.3 0.3 16% 14% 13% 7.6 5.2 3.4 Hisense Kelon Elect.Hdg. 921 HK Dec 1,161 HKD 3.0 NR 6.5% 27.6% 5.1 3.6 3.1 1.0 0.9 0.8 0.3 0.3 0.3 22% 11% 13% 7.4 16.7 12.3 TCL MLTM.Tech.Hdg. 1070 HK Dec 745 HKD 4.2 NR 4.3% 11.2% 23.5 n/a 19.0 1.2 1.3 1.2 0.2 0.2 0.2 5% -4% 6% 6.8 23.3 7.9
Average 5.2% 14.1% 12.1 7.1 9.7 1.5 1.3 1.2 0.3 0.3 0.3 17% 11% 13% 6.8 12.9 7.2
International Peers
General Electric GE US Dec 294,179 USD 29.1 NR -7.3% -4.4% 17.6 22.6 19.3 2.3 2.6 2.9 2.0 2.4 2.3 13% 7% 14% 10.7 18.2 14.7 Samsung Electronics 005930 KS Dec 139,172 KRW 1,163,000 Buy -0.7% 2.1% 7.4 8.9 7.1 1.0 1.0 0.9 0.8 0.8 0.8 15% 11% 13% 2.7 2.4 2.1
Hitachi 6501 JP Mar 24,080 JPY 603.8 NR 2.5% 12.0% 10.7 9.6 8.5 1.0 0.9 0.9 0.3 0.3 0.3 10% 10% 10% 5.1 5.2 4.9 Panasonic 6752 JP Mar 23,063 JPY 1,139.5 NR 2.0% 15.0% 15.4 13.6 11.7 1.5 1.4 1.2 0.4 0.4 0.3 10% 10% 11% 4.0 3.6 3.2 Whirlpool WHR US Dec 10,539 USD 134.4 NR 3.2% 12.4% 11.8 11.1 9.3 2.1 2.0 1.9 0.5 0.5 0.5 18% 18% 18% 5.2 6.1 5.3 Bosch BOS IN Mar 8,096 INR 17,227.5 Hold 7.1% 17.1% 44.2 40.8 32.2 7.6 6.7 5.7 4.9 5.0 4.2 19% 18% 19% 27.5 26.1 20.0 LG Electronics 066570 KS Dec 7,904 KRW 56,900 Hold -0.1% 22.2% 25.7 82.4 17.2 0.9 0.9 0.8 0.2 0.2 0.2 3% 1% 5% 4.3 5.1 5.1
Electrolux ELUXB SS Dec 6,749 SEK 187.2 NR 5.4% 10.4% 16.6 21.3 13.6 3.3 3.1 3.1 0.5 0.5 0.5 22% 22% 25% 8.0 8.6 6.4
Average 1.5% 10.8% 18.7 26.3 14.9 2.5 2.3 2.2 1.2 1.2 1.1 14% 12% 14% 8.4 9.4 7.7
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Lina Yan and Erwan Rambourg
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating.
From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates).
Upside/Downside is the percentage difference between the target price and the share price. Prior to this date, HSBC’s rating structure was applied on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.
*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change. Rating distribution for long-term investment opportunities
As of 01 February 2016, the distribution of all ratings published is as follows:
Buy 47% (30% of these provided with Investment Banking Services)
Hold 39% (28% of these provided with Investment Banking Services)
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For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above.
Share price and rating changes for long-term investment opportunities Qingdao Haier Co Ltd (600690.SS) share price
performance CNY Vs HSBC rating history
Rating & target price history
From To Date
N/A Buy 05 June 2015
Target price Value Date
Price 1 17.95 05 June 2015
Price 2 14.90 30 August 2015
Source: HSBC
Source: HSBC
HSBC & Analyst disclosures
None of the below disclosures applies to any of the stocks featured in this report.
1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company.
4 As of 31 December 2015 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 30 November 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6 As of 30 November 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 30 November 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.
9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below.
11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company
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HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.
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Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities.
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Additional disclosures
1 This report is dated as at 2 February 2016.
2 All market data included in this report are dated as at close 1 February 2016, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
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Disclaimer
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Europe
Consumer Brands & Retail
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Head of Consumer Retail, Europe
David McCarthy +44 207 992 1326 [email protected] Analyst Andrew Porteous +44 20 7992 4647 [email protected] Analyst Paul Rossington +44 20 7991 6734 [email protected] Analyst Jérôme Samuel +33 1 56 52 44 23 [email protected] Analyst Emmanuelle Vigneron +33 1 56 52 43 19 [email protected] Analyst Graham Jones +44 20 7992 5347 [email protected] Analyst Damian McNeela +44 20 7992 4223 [email protected] Analyst - Beverages Anthony Bucalo +44 20 7991 9815 [email protected] Analyst Lena Thakkar +44 20 7991 3448 [email protected] Analyst Joe Thomas +44 20 7992 3618 [email protected] CEEMEA
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