Lenovo Group

Please read carefully the important disclosures at the end of this report

Equity Research

February 4, 2016

Lenovo Group

Harder days ahead; downgrade to SELL, slash TP 41.8% to HK$5

Investment Focus

Downgrade to SELL

Action

Lenovo’s 3QFY15/16 revenue decreased 8% YoY to US$12.9bn, 2.4% below market consensus; PTI grew 16.7% YoY to US$320mn mainly due to the significant decrease of other operating expenses rather than improved operating efficiency. We downgrade Lenovo from HOLD to SELL and cut its TP by 41.8% from HK$8.6 to HK$5.

Reasoning

Hard to maintain profitability of mobile business. According to IDC, Lenovo + MOTO’s shipments fell 18% YoY globally in 3QFY15/16. As smartphone penetration is already very high, we think competition will be brutal and Lenovo will find it hard to maintain profitability in the mobile market.

PC’s newcomer threat has not been fully priced in. In addition to Xiaomi, Huawei is also reported to have been working on launching laptops1; both companies are very strong competitors of Lenovo in consumer smart devices (smartphones, routers, etc.). Although we believe Xiaomi’s or Huawei’s PCs will not overturn Lenovo’s market position in the short term, they may cause sales and margin pressure over the long run.

Foreign exchange risks. With the US dollar continuing to rise against other currencies, Lenovo’s top line might be impacted.

Earnings forecast and valuation

We revise down our FY15/16e & FY16/17e revenue forecasts by 0.2%/12%, from US$46.1bn/46.8bn to US$46bn/41.4bn; and trim adjusted net income by 1%/39% from US$1.14bn/1.16bn to US$1.12bn/710mn. The adjusted EPS is US$0.1008/0.0638, or HK$0.79/0.5, respectively. We thus downgrade Lenovo’s rating from HOLD to SELL, and cut its TP by 41.8% from HK$8.6 to HK$5 based on 10x FY16/17e EPS.

Risks

Weaker market demand; fierce price competition.

Ticker 00992.HK

CICC investment rating SELL

Last close HK$6.61

CICC target HK$5.00

52wk price range HK$13.92~5.98

Market cap (bn) HK$73

Daily value (mn) HK$313.07

Shares outstanding (mn) 11,109

Free float (%) 100

Daily volume (mn sh) 45.31

Business sector Technology Hardware & Equipment

(US$ mn) 2014A 2015A 2016E 2017E

Revenue 38,707 46,296 45,989 41,443

(+/-) 14.3% 19.6% -0.7% -9.9%

Net profit 817 997 1,122 710

(+/-) 28.7% 22.0% 12.6% -36.7%

EPS 0.07 0.09 0.10 0.06

BPS 0.27 0.37 0.32 0.34

DPS 0.03 0.03 0.00 0.02

CPS 0.13 0.02 -0.03 0.03

P/E 11.6 9.5 8.4 13.4

P/B 3.1 2.3 2.6 2.5

EV/EBITDA 8.5 19.3 N.M. N.M.

Dividend yield 3.4% 4.0% 0.0% 1.8%

ROAA 4.6% 4.4% 4.4% 3.0%

ROAE 28.7% 28.0% 29.1% 19.3%

Source: Bloomberg, company data, CICC Research

1 http://news.mydrivers.com/1/467/467017.htm

Kai QIAN Liping ZHAO

[email protected]

SAC Reg. No.: S0080513050004

SFC CE Ref: AZA933

[email protected]

SAC Reg. No.: S0080113120016

SFC CE Ref: BEH709

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00992.HK HSCEI

CICC Research: February 4, 2016


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Financial summary Financial statement (USD mn) 2014A 2015A 2016E 2017E

Income statement

Revenue 38,707 46,296 45,989 41,443

COGS -33,643 -39,614 -39,321 -35,351

Selling expenses -1,900 -2,302 -2,414 -2,155

Administrative expenses -1,403 -1,883 -2,116 -1,865

Other ops income (expense) 1 -169 -736 -124

Operating profit 1,052 1,109 -64 622

Finance costs -47 -155 -184 -166

Other income (expense) 9 17 0 0

Profit before income tax 1,014 971 -248 456

Income tax -197 -134 99 -68

Minority interest 0 -8 18 -8

Net profit 817 997 1,122 710

EBITDA 717 501 -795 -145

Recurrent net income 817 997 1,122 710

Balance sheet

Cash and bank balances 3,858 2,855 1,522 1,239

Trade and bill receivables 3,619 5,513 5,059 4,559

Inventories 2,701 2,995 2,359 2,121

Other current assets 3,223 4,065 3,999 3,596

Total current assets 13,401 15,428 12,939 11,515

Fixed assets and CIP 667 1,496 1,454 1,409

Intangible assets and others 4,289 10,157 10,093 10,026

Total non-current assets 4,957 11,654 11,546 11,435

Total assets 18,357 27,081 24,485 22,950

Short-term borrowings 445 1,168 1,180 1,061

Trade and bill payables 4,751 4,662 4,719 4,242

Other current liabilities 8,266 11,331 9,178 8,081

Total current liabilities 13,462 17,161 15,076 13,383

Long-term borrowings 10 1,886 1,886 1,886

Total non-current liabilities 1,870 5,814 5,814 5,814

Total liabilities 15,332 22,975 20,890 19,197

Share capital 1,650 2,690 2,690 2,690

Retained profit 1,360 1,394 883 1,041

Equity 3,025 4,106 3,595 3,753

Total liabilities & equity 18,357 27,081 24,485 22,950

Cash flow statement

Pretax profit 1,014 971 -248 456

Depreciation & amortization 335 608 731 766

Change in working capital 279 -1,069 -929 -552

Others -197 -271 117 -298

Cash flow from operations 1,432 238 -330 372

Capital expenditure -566 -2,932 -624 -655

Others -18 -350 0 0

Cash flow from investing -584 -3,282 -624 -655

Equity financing -39 0 0 0

Bank borrowings -23 1,803 0 0

Others -367 339 -380 0

Cash flow from financing -430 2,143 -380 0

Foreign exchange gain (loss) -14 -102 0 0

Net changes in cash 404 -1,003 -1,333 -283

Financial ratios 2014A 2015A 2016E 2017E

Growth ability

Revenue 14.3% 19.6% -0.7% -9.9%

Operating profit 31.5% 5.4% -105.8% N.M.

EBITDA -10.4% -30.1% -258.9% N.M.

Net profit 28.7% 22.0% 12.6% -36.7%

Profitability

Gross margin 13.1% 14.4% 14.5% 14.7%

Operating margin 2.7% 2.4% -0.1% 1.5%

EBITDA margin 1.9% 1.1% -1.7% -0.3%

Net margin 2.1% 2.2% 2.4% 1.7%

Liquidity

Current ratio 1.00 0.90 0.86 0.86

Quick ratio 0.79 0.72 0.70 0.70

Cash ratio 0.29 0.17 0.10 0.09

Liabilities / assets 83.5% 84.8% 85.3% 83.6%

Net debt / equity net cash 4.8% 42.9% 45.5%

Return

RoA 4.6% 4.4% 4.4% 3.0%

RoE 28.7% 28.0% 29.1% 19.3%

Per-share data

EPS (USD) 0.07 0.09 0.10 0.06

BPS (USD) 0.27 0.37 0.32 0.34

DPS (USD) 0.03 0.04 0.00 0.02

Cash flow per share (USD) 0.13 0.02 -0.03 0.03

Valuation

P/E 11.6 9.5 8.4 13.4

P/B 3.1 2.3 2.6 2.5

EV/EBITDA 8.5 19.3 N.M. N.M.

Dividend yield 3.4% 4.0% 0.0% 1.8%

Source: Company data, CICC Research

Company description Lenovo Group Ltd. is an investment holding company which develops, manufactures and markets technology products and services,

including laptops, tablets, desktops and all-in-ones, workstations, servers, accessories and software. It operates in four geographical

areas: China, Asia Pacific, Europe/Middle East/Africa, and the Americas. The Lenovo Group was founded in 1984 and is

headquartered in Hong Kong.



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Challenges ahead for Lenovo

Difficult to maintain profitability of mobile business

Lenovo announced its mobile business has achieved operational breakeven, delivering on its commitment to turn the business around in 4~6 quarters after the acquisition of MOTO. However, we believe it doesn’t necessarily mean that the mobile business will continue to be profitable.

According to IDC’s data, Lenovo + MOTO’s shipments decreased 18% YoY globally in 3QFY15/16. As the smartphone penetration rate is already very high, we think competition will be brutal in the mobile market and it will be hard for Lenovo to maintain its profitability.

Figure 1: Top Five Smartphone Vendors, 3QFY15/16 Preliminary Data (units in mn)

Source: IDC, CICC Research

China: In the domestic market, Lenovo has numerous competitors – such as Xiaomi, Huawei, Meizu, and, OPPO – and they are very aggressive. Lenovo has strategically shifted to emerging markets outside of China; we therefore believe it will continue to struggle in China – as will many of its competitors – until consolidation comes.

Emerging markets: other Chinese mobile makers are also trying hard to penetrate into emerging markets. Although smartphone shipment growth is still strong in emerging markets, Lenovo’s competitors have already realized the importance of emerging markets and entered the market. Therefore, Lenovo not only needs to compete with local mobile markers, but also Chinese mobile makers who are willing to lower their mobile ASPs to attract low-end consumers.

Mature markets: smartphone shipment growth to mature markets is weak. Also, Lenovo does not have competitive advantage over iPhone, Samsung or Huawei unless MOTO releases more innovative products.

Vendor

4Q15 Shipment

Volumes

4Q15 Market

Share

4Q14 Shipment

Volumes

4Q14 Market

Share YoY

1. Samsung 85.6 21.40% 75.1 19.90% 14.00%

2. Apple 74.8 18.70% 74.5 19.70% 0.40%

3. Huaw ei 32.4 8.10% 23.6 6.30% 37.00%

4. Lenovo 20.2 5.10% 14.1 3.70% 43.60%

5. Xiaomi 18.2 4.60% 16.5 4.40% 10.00%

Others 168.3 42.10% 174 46.10% -3.30%

Total 399.5 100.00% 377.8 100.00% 5.70%

Lenovo + Motorola 20.2 0.081 24.7 6.50% -18%



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PC’s challenge is even bigger: newcomer threat not fully priced in

Global PC shipments declined 10.6% YoY in 3QFY15/16, the largest ever YoY decline for the holiday quarter according to IDC. Although Lenovo outperformed the market with a YoY decrease of 4.5%, Lenovo’s PC revenue declined in 12% YoY. Due to the soft macroeconomic conditions, we believe the global PC market will continue to consolidate and Lenovo will also be impacted.

Figure 2: Top 5 Vendors, Preliminary Worldwide PC Shipments, 3QFY15/16 (shipments in thousands)

Source: IDC, CICC Research

In addition to Xiaomi, Huawei is also reported to have been working on laptop1. Xiaomi and Huawei are very strong competitors of Lenovo in consumer smart devices (smartphones, routers, etc.); although we believe the pair’s PCs will not overturn Lenovo’s market position in short term, they could cause Lenovo PC to face sales and margin pressure over the long run. Lenovo reached 40% of China PC market share.

Sensitivity analysis

We assume 30% of Lenovo’s PC shipments are to China, 40% of its China PC sales are to the consumer market and 30% of its China PC profits are from the consumer market.

Lenovo’s pricing strategy against Xiaomi’s move might be either to follow the price cut or to maintain the ASP and experience a shipment decline in China. We did a sensitivity analysis based on following assumptions:

Base case: In FY14/15, Lenovo’s overall PC shipments are 59.7mn units, according to IDC data. Due this year’s tough market conditions, we assume Lenovo’s overall PC shipments decease by 3%/0% YoY to 58mn units; and its ASP drops by 1%/0% YoY to US$553 in FY15/16e and FY16/17e, respectively.

Scenario 1: We assume Xiaomi launches its PC products in the beginning of 2016 and causes Lenovo to cut its China PC ASP by 10% to US$498 in FY16/17e. The other conditions remain the same as in the base case.

Scenario 2: We assume Xiaomi launches its PC products in the beginning of 2016 and causes Lenovo to cut its China PC ASP by 20% to US$442 in FY16/17e. The other conditions remain the same as in the base case.

Scenario 3: We assume Xiaomi launches its PC products in the beginning of 2016 and Lenovo maintains its ASP, which leads to a 10% YoY decrease in shipments. The other conditions remain the same as in the base case.

Scenario 4: We assume Xiaomi launches its PC products in the beginning of 2016 and Lenovo maintains its ASP, which leads to a 20% YoY decrease in shipments. The other conditions remain the same as in the base case.

1 http://news.mydrivers.com/1/467/467017.htm

Vendor 4Q15 Shipments 4Q15 Market Share 4Q14 Shipments 4Q14 Market Share 4Q15/4Q14 Growth

1. Lenovo 15,394 21.40% 16,125 20.00% -4.50%

2. HP 14,290 19.90% 15,900 19.80% -10.10%

3. Dell 10,169 14.10% 10,780 13.40% -5.70%

4. ASUS* 5,713 7.90% 5,668 7.00% 0.80%

4. Apple* 5,658 7.90% 5,504 6.80% 2.80%

Others 20,664 28.70% 26,460 32.90% -21.90%

Total 71,889 100.00% 80,436 100.00% -10.60%



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Figure 3: Sensitivity analysis


From the above analysis, we see that a 10%/20% cut in China PC ASP will cause Lenovo’s PTI decrease 49%/98% and a 10%/20% fall in Lenovo’s China PC shipments will lead the group’s PTI to decrease by 24%49%. Hence, if Xiaomi adopts a zero-profit-pricing strategy and Lenovo follows the pricing cut to compete against it, a slight decrease in ASP will greatly hurt its PTI in China.

The majority of Lenovo’s pretax profits come from the China PC market. If Xiaomi and Huawei both launch PC products, their first market will definitely be China. We believe that if both Xiaomi and Huawei enter the PC arena, it will force Lenovo to squeeze its PC margins in order to protect its China market.

Figure 4: Adjusted pre-tax income, 3QFY15/16


(in US$ mn)

FY16EFY17E

(base case)

FY17

(Consumer ASP-10%

YoY)

FY17E

(Consumer ASP -20%

YoY)

FY17E

(Shipment -10%

YoY)

FY17E

(shipment -20% YoY)

Overall PC shipment (mn) 58 58 58 58 56 54

China PC shipment(mn) 17.38 17.38 17.38 17.38 15.64 13.90

as a % of Global 30% 30% 30% 30% 28% 26%

Enterprise ASP (US$) 553 553 553 553 553 553

Consumer ASP (US$) 553 553 498 442 553 553

China PC revenue 9,608 9,608 9,224 8,839 8,646 7,685

Consumer 3,843 3,843 3,458 3,074 2,881 1,920

Enterprise 5,765 5,765 5,765 5,765 5,765 5,765

China PC gross profit 1,922 1,922 1,537 1,153 1,729 1,537

Consumer 768.53 768.53 384.27 - 576.14 384.00

Enterprise 1,153.06 1,153.06 1,153.06 1,153.06 1,153.06 1,153.06

Gross margin 20% 20% 16.67% 13.04% 20% 20%

China PC Operating Cost (1,153) (1,153) (1,153) (1,153) (1,153) (1,153)

China PC Operating profit 768.64 768.64 384.37 0.11 576.24 384.11

Consumer 230.59 230.59 (153.68) (537.94) 38.20 (153.94)

Enterprise 538.05 538.05 538.05 538.05 538.05 538.05

Margin 8% 8.00% 4.17% 0.00% 6.66% 5.00%

China PC non operating cost (192.16) (192.16) (192.16) (192.16) (192.16) (192.16)

China PC PTI 576.48 576.48 192.21 (192.05) 384.08 191.95

Consumer 230.59 230.59 (153.68) (537.94) 38.20 (153.94)

Enterprise 345.89 345.89 345.89 345.89 345.89 345.89

Margin 6% 6.00% 2.08% -2.17% 4.44% 2.50%

Lenovo PTI 1,005 786 402 17 593 401

Change -48.90% -97.79% -24.48% -48.93%

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Risks of foreign exchange

Lenovo’s procurement is mainly settled in US dollars, while <30% of its revenue is paid in US dollar. As the US dollar keeps rising against other currencies – such as the RMB, Russian Ruble etc. – Lenovo’s topline might be impacted. In fact, if we exclude the impact of foreign exchange in 3QFY15/16, Lenovo’s topline was down 2% (vs. 8% including the currency impact). We believe forex risks will become an issue for Lenovo in coming quarters if they don’t follow a good hedging strategy.

Earnings revisions

We revise down our FY15/16e revenue forecast by 0.2%, from US$46.1bn to US$46bn and cut that of FY16/17e by 11% from US$46.8bn to US$41.4bn.

We revise down FY15/16e adjusted net income by 1%, from US$1.14bn to US$1.12mn; and slash that of FY16/17e by 39% from US$1.16bn to US$710mn.

Therefore, our adjusted EPS for FY15/16e and FY16/17e is US$0.1008 and US$0.0638, or HK$0.79 and HK$0.5, respectively.

Hence we downgrade our rating for Lenovo from HOLD to SELL, and cut its TP by 41.8% from HK$8.6 to HK$5 based on 10x FY16/17e EPS.

Figure 5: Earnings revisions


Figure 6: Financial highlights


(in US$ mn) FY16E FY17E FY16E FY17E FY16E FY17E

Revenue 46,068 46,757 45,989 41,443 -0.17% -11.36%

PC 31,345 31,345 30,012 25,510 -4.26% -18.62%

Mobile 9,416 9,416 10,239 9,727 8.74% 3.30%

Enterprise 4,598 5,288 4,677 5,144 1.71% -2.71%

Others 708 708 1,062 1,062 50.00% 50.00%

Adjusted Profit before tax 1,068 1,357 1,005 786 -5.90% -42.08%

Adjusted Net income 1,136 1,164 1,122 710 -1.23% -39.03%

Adjusted diluted EPS (US$) 0.1024 0.1049 0.1008 0.0638 -1.48% -39.18%

Before After +/-

3QFY15 4QFY15 1QFY16 2QFY16 3QFY16

(US$ mn) (US$ mn) (US$ mn) (US$ mn) (US$ mn)

Revenue 14,092 11,334 10,716 12,150 12,913 -8% 6%

Gross profit 2,097 1,779 1,646 1,575 1,885 -10% 20%

Operating expenses -1,772 -1,652 -1,551 -2,359 -1,506 -15% -36%

Operating (loss)/profit 325 127 95 -784 379 17% -148%

Other non-operating expenses - net -51 -24 -44 -58 -58 16% 1%

(Loss)/profit before taxation 274 104 52 -842 320 17% -138%

(Loss)/profit for the period 257 97 102 -717 294 14% -141%

Adjusted net profit 327 194 196 294.3 377 15% 28%

Gross profit margin 14.88% 15.70% 15.36% 12.96% 14.60% (0.22) ppt 1.64 ppt

Operating margin 2.30% 1.12% 0.89% -6.45% 2.93% 0.63 ppt 9.38 ppt

Net margin 2.32% 1.71% 1.83% 2.42% 2.92% 0.6 ppt 0.5 ppt

YoY QoQ



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(HK$)

Company Ticker Stock Stock Price Market Cap mn Market Cap

Currency (2016-2-3) (Local Currency) (US$mn) 15A 16E 17E 15A 16E 17E

Lenovo 992-HK HKD 6.61 81,760 10,496 9.50 8.40 13.40 2.30 2.62 2.51

HP HPQ-US USD 9.88 17,703 17,703 6.06 6.14 5.94 n.a n.a n.a

IBM IBM-US USD 122.94 120,423 120,423 8.24 9.12 8.70 8.37 7.15 7.15

Apple AAPL-US USD 94.48 523,852 523,852 10.25 10.35 9.45 4.50 3.96 3.96

Acer 2353-TW TWD 11.10 34,376 1,030 17.34 56.24 33.40 0.51 0.53 0.53

Asus 2357-TW TWD 271.00 203,888 6,111 10.34 11.37 10.03 1.23 1.21 1.21

HTC 2498-TW TWD 75.00 63,429 1,901 41.90 n.a n.a 0.78 0.97 0.97

Toshiba 6502-JP JPY 192.90 847,688 7,049 n.a n.a 12.73 0.75 0.80 0.80

Sony 6758-JP JPY 2,623.50 3,396,267 28,242 n.a 18.61 13.67 1.32 1.21 1.21

Samsung 005930-KR KRW 1,146,000.00 168,135,600 139,260 9.22 9.05 8.39 1.07 0.94 0.94

P/E P/B

Figure 7: Comparable valuations

Source: Company data, Factset, CICC Research

Figure 8: Historical P/E & P/B bands

Source: Company data, Factset, CICC Research



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Figure 9: Historical and forecasted financials


FY14A FY15A FY16 1QA FY16 2QA FY16 3QA FY16 4QE FY16E FY17ERevenue 38,707.1 46,295.6 10,715.8 12,150.3 12,913.2 10,210.1 45,989.4 41,443.4

PC 31,632.9 33,346.1 7,282.0 8,142.9 8,033.0 6,553.7 30,011.5 25,509.8

Mobile 5,353.6 9,142.2 2,113.8 2,683.4 3,244.7 2,197.4 10,239.3 9,727.3

Enterprise 505.3 2,627.4 1,077.0 1,177.4 1,314.0 1,108.4 4,676.8 5,144.5

Others 1,215.3 1,179.9 243.0 146.6 321.6 350.6 1,061.9 1,061.9Cost of sales (33,643.5) (39,613.8) (9,069.4) (10,575.3) (11,028.4) (8,647.9) (39,321.0) (35,351.2)

Growth(YoY) 86.9% 85.6% 84.6% 87.0% 85.4% 84.7% 85.5% 85.3%Gross profit 5,063.6 6,681.8 1,646.5 1,575.0 1,884.8 1,562.2 6,668.5 6,092.2

Gross margin 13.1% 14.4% 15.4% 13.0% 14.6% 15.3% 14.5% 14.7%

Growth(YoY) 24.3% 32.0% 22.1% 8.1% -10.1% -12.2% -0.2% 270.0%

SG&A (4,034.0) (5,574.8) (1,552.7) (2,359.3) (1,506.2) (1,319.2) (6,737.5) (5,470.5)

S&GA% 10.4% 12.0% 14.5% 19.4% 11.7% 12.9% 14.7% 13.2%

Growth rate 22.5% 38.2% 46.7% 115.9% -15.0% -20.1% 20.9% -18.8%

Administrative expenses (1,403.0) (1,883.1) (565.7) (542.4) (524.2) (483.2) (2,115.5) (1,865.0)

As % of sales 3.6% 4.1% 5.3% 4.5% 4.1% 4.7% 4.6% 4.5%

Growth(YoY) 65.7% 34.2% 53.2% 38.7% -9.1% -11.5% 12.3% -11.8%

Selling and marketing expenses (1,900.0) (2,302.2) (565.6) (649.4) (622.3) (577.2) (2,414.4) (2,155.1)

As % of sales 4.9% 5.0% 5.3% 5.3% 4.8% 5.7% 5.3% 5.2%Growth(YoY) 0.6% 21.2% 21.2% 32.3% -9.4% -12.3% 4.9% -10.7%

Research and development expenses (732.5) (1,220.9) (389.5) (369.5) (380.6) (332.0) (1,471.7) (1,326.2)

As % of sales 1.9% 2.6% 3.6% 3.0% 2.9% 3.3% 3.2% 3.2%

Growth(YoY) 17.4% 66.7% 116.2% 82.2% -8.0% -21.8% 20.5% -9.9%

Other operating expense 1.4 (168.6) (31.9) (798.0) 20.9 73.2 (735.8) (124.3)

As % of sales 0.0% 0.4% 0.3% 6.6% -0.2% -0.7% 1.6% 0.3%

Growth rate -97.8% -11996.5% -24.1% 9931.6% -122.0% -410.0% 336.5% -83.1%

Other income 22.4 1.5 1.7 0.5 0.0 2.4 4.6 0.0As % of sales 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Operating profit 1,052.1 1,108.5 95.4 (783.8) 378.6 245.4 (64.4) 621.7

Operating margin 2.7% 2.4% 0.9% -6.5% 2.9% 2.4% -0.1% 1.5%

Growth(YoY) 31.5% 5.4% -67.2% -314.4% 16.6% 92.7% -105.8% -1065.5%

Finance costs (47.1) (154.6) (42.0) (56.5) (55.4) (30.1) (184.0) (165.8)

As % of sales 0.1% 0.3% 0.4% 0.5% 0.4% 0.3% 0.4% 0.4%

Growth(YoY) -2440.0% 228.4% 68.9% 59.3% 13.4% -33.8% 19.0% -9.9%

Shares of associated companies 9.2 17.1 (1.6) (1.8) (3.1) 6.4 0.0 0.0

Profit before taxation 1,014.2 971.0 51.8 (842.0) 320.1 221.7 (248.3) 455.9

Margin 2.6% 2.1% 0.5% -6.9% 2.5% 2.2% -0.5% 1.1%

Growth(YoY) 26.6% -4.3% -80.4% -355.8% 16.7% 113.5% -125.6% -283.6%

Amortization of acquired intangible assets 0.0 168.0 91.0 85.0 77.0 77.0 330.0 330.0

Ajusted PTI 1,014.2 1,139.0 142.8 166.0 397.1 298.7 1,004.7 785.9

Margin 2.6% 2.5% 1.3% 1.4% 3.1% 2.9% 2.2% 1.9%

Growth(YoY) 62.8% 12.3% -45.9% -49.6% 14.1% 51.0% -11.8% -21.8%

Income tax (expense) benefit (196.7) (134.4) 50.0 125.5 (26.1) (50.1) 99.3 (68.4)

Effective tax rate 19.4% 13.8% -96.6% 14.9% 8.2% 22.6% -40.0% 15.0%

Net Income 817.5 836.6 101.9 (716.5) 294.0 171.6 (149.0) 387.5

Net margin 2.1% 1.8% 1.0% -5.9% 2.3% 1.7% -0.3% 0.9%

Growth(YoY) 29.4% 2.3% -51.6% -363.3% 14.5% 76.7% -117.8% -360.1%

Net profit contributed to shareholders 817.2 828.7 105.2 (713.7) 300.4 177.0 (131.1) 379.7

Net margin 2.1% 1.8% 1.0% -5.9% 2.3% 1.7% -0.3% 0.9%

Growth(YoY) 28.7% 1.4% -50.7% -372.3% 18.6% 77.1% -115.8% -389.6%

EPS (Basic) USD 0.08 0.08 0.01 (0.06) 0.03 0.02 (0.01) 0.03

Growth% 27.9% -1.5% -54.1% -354.8% 16.5% 73.9% -115.2% -389.6%

EPS (Diluted) USD 0.07 0.07 0.01 (0.06) 0.03 0.02 (0.01) 0.03

Growth% 28.7% 1.4% -50.7% -372.3% 18.3% 76.7% -115.8% -389.6%

Adjusted EPS (Basic) HKD 0.61 0.72 0.13 0.21 0.26 0.18 0.79 0.50

Growth% 28.0% 18.5% -17.3% 5.6% 13.8% 34.1% 8.7% -36.7%

Adjusted EPS (Diluted) HKD 0.57 0.70 0.13 0.21 0.26 0.18 0.79 0.50

Growth% 28.8% 21.9% -11.4% 12.9% 15.6% 36.2% 12.9% -36.7%

(in US$ mn)



9

Figure 10: Historical and forecasted financials (continued)


(in US$ mn) FY13 FY14A FY15A FY16E FY17E

Cash and cash equivalents 3,454.1 3,858.1 2,855.2 1,522.3 1,239.1

Inventories 1,964.8 2,701.0 2,995.4 2,359.3 2,121.1

Accounts receivable 3,458.0 3,618.7 5,512.6 5,058.8 4,558.8

Prepaid expenses 3,235.5 3,000.8 3,572.0 3,538.9 3,181.6

Other current assets 277.4 221.9 492.5 459.9 414.4

Current assets 12,389.7 13,400.5 15,427.7 12,939.2 11,515.0

Property, plant and equipment 479.8 667.4 1,496.5 1,453.6 1,409.1

Intangible assets & goodw ill 3,326.4 3,339.5 8,929.7 8,865.4 8,798.7

Other non-current assets 686.1 949.6 1,227.4 1,227.4 1,227.4

Total assets 16,882.0 18,357.1 27,081.3 24,485.5 22,950.1

Short-term bank loans 175.8 445.5 1,168.3 1,179.6 1,060.5

Accounts payables 3,724.0 4,751.3 4,662.4 4,718.5 4,242.1

Tax payable 100.2 177.7 168.5 134.4 (50.0)

Other current liabilities 8,091 8,088 11,162 9,044 8,131

Current liabilities 12,091.5 13,462.3 17,161.4 15,076.3 13,383.4

Interest-bearing bank borrow ings 303.1 10.1 1,885.8 1,885.8 1,885.8

Other non-current liabilities 1,807.2 1,859.9 3,927.9 3,927.9 3,927.9

Total liabilities 14,201.8 15,332.4 22,975.2 20,890.1 19,197.2

Equity

Issued capital 33.5 1,650.1 2,689.9 2,689.9 2,689.9

Reserves 2,633.2 1,360.0 1,393.8 883.0 1,040.5

Non-controlling interests 13.5 14.6 22.5 22.5 22.5

Total equity 2,680.2 3,024.7 4,106.1 3,595.3 3,752.9

Total equity and liabilities 16,882.0 18,357.1 27,081.3 24,485.5 22,950.1

(in US$ mn) FY13 FY14A FY15A FY16E FY17E

Net Profit 635.1 817.2 828.7 (131.1) 157.5

Dprn 92.1 109.7 208.4 292.4 306.5

Amor 195.2 225.7 399.4 438.6 459.7

Change in Working Capital (828.6) 279.3 (1,069.2) (929.4) (551.9)

Others (74.3) 0.1 (128.8) 0.0 0.0

Operating Cashflow 19.5 1,432.1 238.5 (329.5) 371.8

Change in Investment 2.2 9.1 (1.0) 0.0 0.0

CAPEX (520.4) (565.8) (2,931.8) (623.8) (655.0)

Others 272.8 (27.0) (349.0) 0.0 0.0

Investing Cashflow (245.4) (583.7) (3,281.9) (623.8) (655.0)

Issuance/repurchase of shares/bonds (37.7) (39.4) 0.4 0.0 0.0

Others (76.5) (172.7) 660.7 0.0 0.0

Financing Cashflow (68.2) (430.1) 2,142.6 (379.6) 0.0

Exchange influence (9.5) (14.2) (102.1) 0.0 0.0

Net Cash proceed/(payment) (303.6) 404.1 (1,002.9) (1,333.0) (283.2)

Cash equivalent @ year end 3,454.1 3,858.1 2,855.2 1,522.3 1,239.1

Less: Cash @ year opening 3,757.7 3,454.1 3,858.1 2,855.2 1,522.3

Change of cash (303.6) 404.1 (1,002.9) (1,333.0) (283.2)

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V150707

Editing: Dom FITZSIMMONS

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