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MCI (P) 194/11/2012 Ref. No.: SG2013_0124 1 of 14 Zhongmin Baihui Retail Group Into Neighboring Residents’ Daily Life BloombergReuters ZBR SP ZBRG.SI Industry: Retail Phillip Securities Research Pte Ltd 22 July 2013 Report type: Site Visit Zhongmin Baihui Retail Group Ltd Rating - Not Rated - Previous Rating - Not Rated Target Price (SGD) - - Previous Target Price (SGD) - Closing Price (SGD) 1.67 Expected Capital Gains (%) N.A. Expected Dividend Yield (%) N.A. Expected Total Return (%) N.A. Raw Beta (Past 2yrs w eekly data) 0.46 Market Cap. (USD mn / SGD mn) 259 / 328 Enterprise Value (USD mn / SGD mn) 243 / 309 3M Average Daily T/O (mn) 0.1 52 w eek range (SGD) N.A. - 1.7 Closing Price in 52 w eek range Major Shareholders (%) 20.61 20.27 10.21 Key Financial Summary FYE Dec FY10 FY11 FY12 1QFY13 Revenue (RMB mn) 81 217 286 104 Net Profit (RMB mn) (7) 16 11 (3) EPS (RMB) (0.17) 0.08 0.06 (0.01) P/E (X) (47.6) 101.2 135.0 N.A. BVPS (RMB) 0.05 0.35 0.40 0.39 P/B (X) 162.0 23.1 20.2 20.8 DPS (RMB) 0.00 0.00 0.00 0.00 Div. Yield (%) N.A. N.A. N.A. N.A. Source: Bloomberg, PSR est. *All multiples & yields based on current market price Analyst Roy Chen roychencz@phillip.com.sg +65 6531 1535 2. SWEE KENG LEE 3. CAIYE SU 1. KAITONG CHEN 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.40 1.45 1.50 1.55 1.60 1.65 1.70 1.75 1.80 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Volume, mn ZBR SP Equity STI rebased 0% 50% 100% Company Overview Zhongmin Baihui Retail Group Ltd (“ZMBH”) owns, operates and manages department stores in the PRC under the name “中闽百汇”. The group currently owns 6 operational department stores, and has another 5 in the pipelines. The group also manages 4 stabilized department stores for Quanzhou Zhongmin Baihui Shopping Co., Ltd, (”Quanzhou ZMBH”), a non-listed sister company. On a site visit tour to 7 of the 10 operational department stores owned and/or managed by ZMBH. All the department stores are located at prime locations of easy access by public transportation. Shopper traffic is generally decent in the 7 operational department malls we have visited, even in afternoons of normal working days. The very recently opened Quanzhou Zhongshan store has received very healthy shopper traffic and is expected to record profit from 3Q13. This is a non-rated report. What is the news? In June we visited 7 operational department stores of ZMBH in Xiamen and Quanzhou, two major cities of Fujian Province, China. All the ZMBH stores are situated at prime locations, usually the intersections of arterial roads. The stores are easily accessible by public transportation and have strong shopper catchment in the neighborhoods. We are impressed by the heavy shopper traffic in ZMBH’s stabilized stores, particularly the very first self-owned one, Xiamen Wucun Store. ZMBH achieved fast expansion since listed and has opened its 10 th department store, Quanzhou Xinhua store, in April. The management envisions opening more department stores in the following 2 to 3 years and strives to become a department store leader in Fujian Province and beyond. How do we view this? In this increasingly competitive retail market flooded by Chinese indigenous department store players like Xinhuadu and Tianhong, as well as international supermarket giants like Walmart, Carrefour and Tesco, Zhongmin Baihui is able to stand its ground in Fujian and even has yielded remarkable growth thanks to its well established reputation over the past 16 years of local retail business. Walking in Zhongmin Baihui’s self-owned supermarkets, one is reminded, by the cheaply priced and neatly shelved daily goods, of some supermarket chains in Singapore. The stabilized ZMBH department stores have already well merged into neighboring residents’ daily life. We believe, by sticking to fairly pricing and warranted service quality, ZMBH is solidly grounded in Fujian where it has competitive edge as well as great potential for further expansion.
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  • MCI (P) 194/11/2012 Ref. No.: SG2013_0124 1 of 14

    Zhongmin Baihui Retail Group

    Into Neighboring Residents’ Daily Life

    Bloomberg│Reuters

    ZBR SP │ZBRG.SI Industry: Retail

    Phillip Securities Research Pte Ltd

    22 July 2013

    Report type: Site Visit Zhongmin Baihui Retail Group LtdRating - Not Rated

    - Previous Rating - Not Rated

    Target Price (SGD) -

    - Previous Target Price (SGD) -

    Closing Price (SGD) 1.67

    Expected Capital Gains (%) N.A.

    Expected Dividend Yield (%) N.A.

    Expected Total Return (%) N.A.

    Raw Beta (Past 2yrs w eekly data) 0.46

    Market Cap. (USD mn / SGD mn) 259 / 328

    Enterprise Value (USD mn / SGD mn) 243 / 309

    3M Average Daily T/O (mn) 0.1

    52 w eek range (SGD) N.A. - 1.7

    Closing Price in 52 w eek range

    Major Shareholders (%)

    20.61

    20.27

    10.21

    Key Financial Summary

    FYE Dec FY10 FY11 FY12 1QFY13

    Revenue (RMB mn) 81 217 286 104

    Net Profit (RMB mn) (7) 16 11 (3)

    EPS (RMB) (0.17) 0.08 0.06 (0.01)

    P/E (X) (47.6) 101.2 135.0 N.A.

    BVPS (RMB) 0.05 0.35 0.40 0.39

    P/B (X) 162.0 23.1 20.2 20.8

    DPS (RMB) 0.00 0.00 0.00 0.00

    Div. Yield (%) N.A. N.A. N.A. N.A.

    Source: Bloomberg, PSR est.

    *All multiples & yields based on current market price

    Analyst

    Roy Chen

    roychencz@phillip.com.sg

    +65 6531 1535

    2. SWEE KENG LEE

    3. CAIYE SU

    1. KAITONG CHEN

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    Volume, mn ZBR SP Equity STI rebased

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    Company Overview Zhongmin Baihui Retail Group Ltd (“ZMBH”) owns, operates and manages department stores in the PRC under the

    name “中闽百汇”. The group currently owns 6 operational department stores, and has another 5 in the pipelines. The group also manages 4 stabilized department stores for Quanzhou Zhongmin Baihui Shopping Co., Ltd, (”Quanzhou ZMBH”), a non-listed sister company.

    On a site visit tour to 7 of the 10 operational department stores owned and/or managed by ZMBH.

    All the department stores are located at prime locations of easy access by public transportation.

    Shopper traffic is generally decent in the 7 operational department malls we have visited, even in afternoons of normal working days.

    The very recently opened Quanzhou Zhongshan store has received very healthy shopper traffic and is expected to record profit from 3Q13.

    This is a non-rated report. What is the news? In June we visited 7 operational department stores of ZMBH in Xiamen and Quanzhou, two major cities of Fujian Province, China. All the ZMBH stores are situated at prime locations, usually the intersections of arterial roads. The stores are easily accessible by public transportation and have strong shopper catchment in the neighborhoods. We are impressed by the heavy shopper traffic in ZMBH’s stabilized stores, particularly the very first self-owned one, Xiamen Wucun Store. ZMBH achieved fast expansion since listed and has opened its 10

    th department store, Quanzhou

    Xinhua store, in April. The management envisions opening more department stores in the following 2 to 3 years and strives to become a department store leader in Fujian Province and beyond.

    How do we view this? In this increasingly competitive retail market flooded by Chinese indigenous department store players like Xinhuadu and Tianhong, as well as international supermarket giants like Walmart, Carrefour and Tesco, Zhongmin Baihui is able to stand its ground in Fujian and even has yielded remarkable growth thanks to its well established reputation over the past 16 years of local retail business. Walking in Zhongmin Baihui’s self-owned supermarkets, one is reminded, by the cheaply priced and neatly shelved daily goods, of some supermarket chains in Singapore. The stabilized ZMBH department stores have already well merged into neighboring residents’ daily life. We believe, by sticking to fairly pricing and warranted service quality, ZMBH is solidly grounded in Fujian where it has competitive edge as well as great potential for further expansion.

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

    2 of 14

    Company Background Zhongmin Baihui Retail Group Ltd was incorporated in Singapore on 17 September 2004 and listed on the Catalist Board of the Singapore Exchange (“SGX”) on 20 January 2011, becoming the first SGX-listed company with pure exposure to the PRC retail business.

    Prior to being listed, the “中闽百汇” brand was previously carried by 5 department stores in Quanzhou and 1 in Zhangzhou, under Quanzhou ZMBH (the non-listed sister company of ZMBH). To date, the brand name has already been well established in Fujian local retail market from the past 16 years of business operations. ZMBH currently owns and/or manages 10 department stores across 4 cities including Xiamen, Quanzhou, Zhangzhou and Nanjing. Business Segment The Group’s revenue mainly comprised of 4 components, namely, direct sales, commission from concessionaire sales, rental income and income from managed rental: Direct Sales is the revenue from merchandise sourced and sold by ZMBH directly. The arrangement mainly applies to supermarket sales and electric appliance sector, and give ZMBH better control to achieve the optimizing mix of product offerings. Concessionaire Sales refers to the commission, usually a fixed rate of the sales revenue generated by store concessionaires. This arrangement usually applies to jewellery, cosmetics, and apparels and so on. The rates charged usually depend on popularity, recognition and estimated sales on a particular brand. Rental Income refers to the fixed rental collection from leasing certain areas to tenants, including F&B and some telecommunication companies. Managed Rental refers to the income from leasing of store areas bundled with management services including cash collection, staff management and payroll services. Fig 1. FY12 Revenue Breakdown

    57%

    17%

    17%

    8%

    Direct Sales

    Concessionaire

    Sales

    Rental Income

    Managed Rental

    Source: Company Data, PSR

    Fig 2. FY12 Revenue (in RMB mn) continues growing

    81

    217

    286

    104

    45

    95

    138

    43

    16 11-7 -3

    -50

    0

    50

    100

    150

    200

    250

    300

    350

    FY10 FY11 FY12 1QFY13

    Total Revenue

    Gross Profit

    Net Proft

    Source: Company Data, PSR

    Review and Outlook on ZMBH Operations

    Steady Cash Flow from the 1st

    Self-owned Store: The very first self-owned Wucun store of ZMBH is one of the largest underground pedestrian retail malls in Fujian province. The store provides a very convenient pedestrian connection between the long distance bus station and Xiamen Railway station and therefore enjoys very heavy shopper traffic since opened in 2010. Wucun store would continue to bring in steady and decent operating cash flow to help finance ZMBH’s potential acquisitions of existing managed stores and openings of new ones in the future (Refer to Fig 4 on page 4 to see the heavy shopper traffic in a normal Monday afternoon) Fast Expansion in Fujian and Ventured into Nanjing: After listed, the group continues to expand by opening up Xiamen Jiahe store in Oct 2011 and Nanjing Nanzhan store in Sep 2012. Besides newly openings, in Mar 2013, ZMBH has also acquired 2 of the 6 stabilized department stores managed by ZMBH but owned by Quanzhou ZMBH, the non-listed sister company. In Apr 2013, ZMBH opened Quanzhou Xinhua store, the 10

    th department stores under

    the name “中闽百汇” (the 6th

    self-owned store). Strategically

    located close to Kaiyuan Temple and some other popular historical sites, Xinhua store enjoys a strong shopper catchment from not only the neighboring residence, but also the rich tourist traffic. Opened for barely two months, Xinhua store has shown healthy shopper traffic and is expected to record profit from 3Q13. Expect More Openings in the next 2-3 years: Besides the 10 operational departments totaling 1,751,000 sq ft, ZMBH also holds a strong pipeline of 5 department stores totaling 1,922,000 sq ft (incl. 718,000 sq ft managed for Hui’an Hongyi Property Development Co., Ltd, an interest related company under a management agreement of 3 year term). The management envisions a strong expansion in the following years and targets to achieve a total GFA of 3,229,000 sq ft (300,000 sq m) in 2016. ZMBH also has 30% stake in the Joint Venture with Citi-Base Holdings Ltd to develop a logistic centre in Xiamen.

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Fig 3. Details on ZMBH Stores

    ZMBH Stores Sq ftOperation started /

    expected to startLocation

    Operational Stores

    Xiamen Wucun Store (厦门梧村店) 309,000 Dec-09

    It is located in the commercial centre of Xiamen City, in the heart of

    a transportation hub that is a nexus linked by walkways and

    underground pedestrian crossings to bus terminals.

    Xiamen Jiahe Store (厦门嘉禾店) 251,000 Oct-11Jiahe Store is strategically located in the heart of a residential area

    in Xiamen City with heavy human traffic.

    Nanjing Nanzhan Store (江苏省南京市南站店) 361,000 Sep-12Nanjing Nanzhan Store is near to the Nanjing Railway Station

    which is the biggest train station in Asia.

    Quanzhou Xinhua Store (泉州市新华店) 188,000 Apr-13

    Next to Kaiyuan Temple in Fujian province which is an attraction

    for domestic and foreign travelers. The store is also close to some

    of the most popular historical and commercial scenic spots in

    Quanzhou City, including Bell Tower, Zhongshan Road,

    Confucian Temple, Chengtian Temple, Guandi Temple and West

    Lake.

    Quanzhou Tumen Store (泉州涂门店) * 178,000 1999

    Tumen Store spans across four floors and a basement, at Tumen

    Street, one of the busy shopping belts in the city centre of

    Quanzhou City.

    Quanzhou Quanxiu Store (泉州泉秀店) * 115,000 2006

    Quanxiu Store spans across three floors of a building at Quanxiu

    Street, situated at the city centre of Quanzhou City with high

    pedestrian flow and high visibility.

    Quanzhou Anxi Store (泉州安溪店) ** 69,000 1997

    Anxi Store spans across five floors of a shopping mall on Jiefang

    Road, the commercial centre of Anxi County with high and

    constant pedestrian flow and high visibility.

    Quanzhou Quangang Store (泉州泉港店) ** 43,000 2003 Centre of Quangang District, an industrial area for petrochemicals.

    Zhangzhou Zhongshan Store (漳州中山店) ** 120,000 2003

    Zhangzhou Store spans across five floors and a basement of a

    building in the city centre of Zhangzhou City with high and

    constant pedestrian flow and high visibility.

    Quanzhou Hui’an Store (泉州惠安店) ** 117,000 2009

    Hui’an Store spans across three floors of a building at the heart of

    Hui’an county with high and constant pedestrian flow and high

    visibility, and within the residential areas.

    Total space sq ft 1,751,000

    Pipeline Stores

    Quanzhou Qiaonan Store (福建省泉州市桥南店) 68,000 2H/2013

    Quanzhou Qiaonan Store is located at intersection to several city

    areas such as Jinjiang District, Quanzhou Development District,

    and South District of Quanzhou Bridge.

    Xiamen Zhongshan Store (厦门中山店) 172,000 4Q13/1H14

    The Building is strategically located at along the Zhongshan

    Road, being one of the busiest commercial walking streets in

    Xiamen City.

    Zhangzhou Longwen Store (福建省漳州市龙文店) 471,000 1H14

    Zhangzhou Longwen Store is next to the CBD area and the

    municipal government of Zhangzhou City, surrounded by

    residential buildings and schools.

    QuanZhou Hui'an Hongyi Store (泉州惠安宏毅店) 992,000

    self-owned part 274,000

    managed part (managed by ZMBH for 3 years from 1 Oct 2013) 718,000

    Quanzhou Quangang Store (new) (泉州泉港店) 219,000 2H14

    Located at the intersection of Zhongxing Street and Xuefu Road

    which are the main roads cutting through Quangang District’s

    central area and is near to the offices of the Quangang District

    Government.

    Total space sq ft 1,922,000

    * Mar 2013 transferred from Quanzhou ZMBH (non-listed)

    ** ow ned by Quanzhou ZMBH and managed by ZMBH

    Company Disclosure, PSR

    strategically located adjacent to Luoyang Town Government,

    Hui’an County, Quanzhou City, Fujian and is located in the south

    of the town area of Hui’an County, a heavy human traffic area

    with a strong economic strength.

    1H14

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Fig 4. XiamenWucun Store (self-owned)

    Source: PSR

    Fig 5. Xiamen Jiahe Store (self-owned)

    Source: PSR

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Fig 6. Quanzhou Xinhua Store (self-owned)

    Source: PSR

    Fig 7. Quanzhou Tumen Store (self-owned)

    Source: PSR

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Fig 8. Quanzhou Quanxiu Store (managed store)

    Source: PSR

    Fig 9. Quanzhou Quangang Store (managed store)

    Source: PSR

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Fig 10. Quanzhou Hui’an Store (managed store)

    Source: PSR

    Fig 11. Xiamen Zhongshan Store (pipeline store)

    Source: PSR

    Fig 12 Quanzhou Hui’an Hongyi Store (pipeline store)

    Source: PSR

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Key risks: Slowdown in China GDP growth and hence slower growth in consumption - China’s GDP growth slowed down to 7.5% y-y in 2Q13, compared to an average growth rate of 7.8% y-y in 2012. The nation is undergoing an economic restructuring period led by the government. The government finance minster has indicated that there would be no large scale stimulus in 2013. Out of the 3 main drivers of China economy, investment and exports are under significant downward pressure. Under such background, households’ wealth accumulation is expected to slow down as well. Therefore we do not render the nation’s consumption would stay intact, even though the central government advocates consumption. Longer than expected gesture period for Nanjing Store - Nanjing Nanzhan store is strategically located at Nanjing South Station, a suburban station of Nanjing city and one of the biggest train stations in Asia. Opened in Sep 2012, Nanjing Nanzhan Store is currently the largest operational department store of ZMBH. Nanzhan store has opened ahead of other projects that are currently under development in the neighborhood. Under the macro picture of nationwide economic slowdown, it might take longer than expected time for shopper traffic to ramp up. Nevertheless, ZMBH has negotiated some favored leasing term with landlord according to which no fixed rental would be paid to landlord in the first few years of operation. Competition from existing physical retail players and the fast expanding E-commerce - E-commerce has been expanding very fast in China during past few years, which has put the physical retail business under pressure in general. A potentially increasing level of competition for customers from existing competitors may also shrink ZMBH’s profit margin. Currency translation risk - though we hold a positive long term outlook for RMB, a possible depreciation in RMB could have adverse impact on potential investment return repatriated to Singapore as dividend in the future.

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    FYE Dec FY10 FY11 FY12 1QFY13

    Valuation Ratios

    P/E (X) (47.6) 101.2 135.0 N.A.

    P/B (X) 162.0 23.1 20.2 20.8

    Dividend Yield (%) N.A. N.A. N.A. N.A.

    Per share data (RMB)

    EPS (0.17) 0.08 0.06 (0.01)

    DPS 0.00 0.00 0.00 0.00

    BVPS 0.05 0.35 0.40 0.39

    Growth & Margins (%)

    Growth

    Revenue N.M. 168.8% 31.4% N.M.

    EBIT N.M. N.M. -8.3% N.M.

    Net Income N.M. N.M. -29.7% N.M.

    Margins

    Gross margin 55.9% 43.7% 48.2% 41.3%

    EBIT margin -10.3% 11.6% 8.1% -0.6%

    Net Profit Margin -8.8% 7.5% 4.0% -2.6%

    Key Ratios

    ROE (%) -171.8% 42.6% 15.6% -3.5%

    ROA (%) -9.2% 9.5% 4.4% -1.0%

    Net Debt/(Cash) (6) (68) (100) (96)

    Net Gearing (X) Net Cash Net Cash Net Cash Net Cash

    Income Statement (RMB mn)

    Revenue 81 217 286 104

    Gross Profit 45 95 138 43

    SG&A (59) (92) (142) (50)

    Depreciation and amortization (1) (2) (3) (1)

    Other Income 7 24 31 8

    EBIT (8) 25 23 (1)

    Finance Expense (0) 1 (0) (0)

    Other items n/a n/a n/a n/a

    Associates & JVs 0 (0) (1) (0)

    Profit Before Tax (9) 25 23 (1)

    Taxation 2 (8) (12) (2)

    Net Income (7) 16 11 (3)

    Source: PSR

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    FYE Dec FY10 FY11 FY12 1QFY13

    Balance Sheet (RMB mn)

    PPE 11 13 34 36

    Investment in an Associate 0 5 8 11

    Deferred Tax Asset 4 6 8 10

    Total non-current assets 14 24 50 57

    Inventories 11 23 48 51

    Trade and other receivables 9 20 28 28

    Prepayment and others 9 17 24 25

    Cash & Cash Equivalents 33 88 111 112

    Others 0 0 0 0

    Total current assets 62 147 210 215

    Total Assets 77 171 261 272

    Loan and Borrow ings 6 6 1 3

    Trade & Other Payables 20 50 104 109

    Others 6 12 15 14

    Total current liabilities 33 68 120 125

    Loan and Borrow ings 20 14 10 13

    Others 16 21 52 57

    Total non-current liabilities 36 35 62 71

    Shareholder Equity 8 68 79 76

    Cashflow Statements (RMB mn)

    CFO

    PBT (9) 25 23 (1)

    Adjustments 16 7 15 7

    Cash from ops before WC changes 7 32 38 7

    WC changes 22 4 14 0

    Cash generated from ops 29 36 52 7

    Taxes paid & net interest received (0) (9) (11) (4)

    Cashflow from ops 29 27 41 3

    CFI

    Net purchases of PPE (10) (4) (24) (3)

    Investment in Associate 0 (5) (4) (3)

    Others 0 0 0 0

    Cashflow from investments (10) (9) (27) (7)

    CFF

    Net proceeds from issue of new shares 23 43 0 0

    Loans, net of repayments 8 (7) (9) 5

    (Dec)/Inc in amount due to shareholders & directors 5 0 19 (0)

    Others (24) 0 (0) 0

    Cashflow from financing 11 37 10 4

    Net change in cash 30 55 24 0

    Effects of exchange rates (2) 0 (1) 0

    Cash & Cash Equivalent, end 33 88 111 112

    Source: PSR

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    F12

    -

    Zho

    N.A.

    N.A.

    N.A.

    Total Returns Recommendation Rating

    > +20% Buy 1

    +5% to +20% Accumulate 2

    -5% to +5% Neutral 3

    -5% to -20% Reduce 4

    < -20% Sell 5

    We do not base our recommendations entirely on the above quantitative return bands.

    We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market

    sentiment, recent rate of share price appreciation, presence or absence of stock price

    catalysts, and speculative undertones surronding the stock, before making our f inal

    recommendation

    Ratings History

    PSR Rating System

    Remarks

    12345

    0

    0.5

    1

    1.5

    2

    Jan-1

    1

    Apr-1

    1

    Jul-1

    1

    Oct-1

    1

    Jan-1

    2

    Apr-1

    2

    Jul-1

    2

    Oct-1

    2

    Jan-1

    3

    Apr-1

    3

    Jul-1

    3

    Oct-1

    3

    Source: Bloomberg, PSRMarket Price

    Target Price

  • Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013

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    Important Information

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