Samsonite (1910 HK)-Buy: Ten useful major insights on the ...pg.jrj.com.cn/acc/Res/HK_RES/STOCK/2016/3/22/2d0f26e5-1585-416… · Ten major questions about the proposed deal: On 4

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

View HSBC Global Research at:

https://www.research.hsbc.com

We look at 10 recurring questions about the proposed TUMI

acquisition

FY15 results uneventful; increase target price to HKD34 (from HKD33) on slight margin beat and lower WACC

Reiterate Buy on Samsonite (an HSBC Asia Super Ten stock)

Ten major questions about the proposed deal: On 4 March 2016, the Samsonite

Group announced the planned acquisition of Tumi (TUMI US, Not Rated) in an all-cash

deal, valuing Tumi at USD26.75/share, or a total consideration of USD1,824m. As

highlighted in Samsonite (1910 HK) – Buy: M&A provides comfort in flight, 20 October

2015, and in Global Sector Playbook – Ten high-conviction themes, 10 February 2016,

M&A is an important theme for consumer companies generally and an inherent part of

Samsonite’s business model. While we view the proposed deal positively, we attempt in

this report to answer ten of the most recurring questions about it.

1. Why now?

2. What can Samsonite bring to Tumi?

3. What can Tumi bring to Samsonite?

4. What are the sales and cost synergies?

5. What will the deal actually cost and is the debt manageable?

6. Is the price right and what will the value creation be?

7. What is the timing of all this?

8. What could go wrong?

9. Any other potential acquisitions after Tumi?

10. What will the group look like in five years?

Reiterate Buy and slightly raise target price: As sales in the US (FX and political

uncertainty) and China (macro) could remain muted in the short term, we slightly lower

our sales growth estimate for 2016 (to +9% from +10%) and in turn believe margins will

not grow much this year (+10bp to an EBITDA margin of 16.6%). At the same time, as

2015 results were slightly better than expected and we now use a lower risk-free rate

(3.0% from 3.5%), we slightly increase our target price to HKD34 (from HKD33). We

introduce our 2018 estimates. Key downside risks include worse-than-expected sales in

key regions, unfavourable FX (i.e., a stronger USD), macro threats to travel (terrorism,

recession and epidemics), commoditisation of the luggage market, execution of M&A

transactions, and a spike in the price of oil. We believe the market could react

negatively, if the proposed Tumi transaction is not successfully concluded.

22 March 2016

MAINTAIN BUY

TARGET PRICE (HKD) PREVIOUS TARGET (HKD)

34.00 33.00 SHARE PRICE (HKD) UPSIDE/DOWNSIDE

25.35 +34.1% (as of 21 Mar 2016)

MARKET DATA Market cap (HKDm) 35,740 Free float 85%Market cap (USDm) 4,610 BBG 1910 HK3m ADTV (USDm) 13.4 RIC 1910.HK

FINANCIALS AND RATIOS (USD) Year to 12/2015a 12/2016e 12/2017e 12/2018eHSBC EPS 0.14 0.17 0.19 0.22HSBC EPS (prev) - - - -Change (%) - - - -Consensus EPS 0.14 0.16 0.18 0.18PE (x) 23.3 19.3 16.9 15.1Dividend yield (%) 1.9 2.3 2.6 2.9EV/EBITDA (x) 12.2 9.9 8.5 7.3ROE (%) 15.0 16.6 17.0 17.0

52-WEEK PRICE (HKD)

Source: Thomson Reuters IBES, HSBC estimates

Erwan Rambourg* Global Co-Head of Consumer and Retail ResearchThe Hongkong and Shanghai Banking Corporation [email protected] +852 2996 6572

Cathy Chao* Consumer and Retail Analyst, Asia-PacificThe Hongkong and Shanghai Banking Corporation [email protected] +852 2996 6570

* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

Samsonite (1910 HK) EQUITIES TEXTILES, APPAREL & LUXURY GOODS

Hong Kong

17.00

26.50

36.00

Mar 15 Sep 15 Mar 16Target price: 34.00High: 29.25 Low: 19.24 Current: 25.35

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Buy: Ten useful major insights on the proposed TUMI deal

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EQUITIES TEXTILES, APPAREL & LUXURY GOODS

22 March 2016

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Financials & valuation

Financial statements Year to 12/2015a 12/2016e 12/2017e 12/2018e

Profit & loss summary (USDm)

Revenue 2,432 2,625 2,850 3,075EBITDA 368 436 488 539Depreciation & amortisation -60 -66 -72 -77Operating profit/EBIT 309 370 416 461Net interest -18 -14 -10 -6PBT 291 356 406 455HSBC PBT 291 356 406 455Taxation -74 -94 -108 -121Net profit 198 238 272 305HSBC net profit 198 238 272 305Cash flow summary (USDm)

Cash flow from operations 259 328 368 410Capex -68 -68 -61 -66Cash flow from investment -121 -68 -61 -66Dividends -100 -106 -121 -136Change in net debt -43 -154 -186 -208FCF equity 188 243 290 327Balance sheet summary (USDm)

Intangible fixed assets 1,111 1,097 1,083 1,068Tangible fixed assets 211 226 230 234Current assets 894 1,105 1,347 1,612Cash & others 181 335 521 729Total assets 2,216 2,429 2,660 2,914Operating liabilities 647 705 759 813Gross debt 63 63 63 63Net debt -118 -272 -458 -666Shareholders' funds 1,360 1,515 1,693 1,892Invested capital 1,388 1,389 1,381 1,371

Ratio, growth and per share analysis Year to 12/2015a 12/2016e 12/2017e 12/2018e

Y-o-y % change

Revenue 3.5 7.9 8.6 7.9EBITDA 5.0 18.4 11.8 10.4Operating profit 3.2 19.8 12.4 10.9PBT 3.1 22.4 14.0 12.0HSBC EPS 6.0 20.7 14.0 12.0Ratios (%)

Revenue/IC (x) 1.8 1.9 2.1 2.2ROIC 17.5 20.3 22.8 25.5ROE 15.0 16.6 17.0 17.0ROA 10.6 11.7 12.1 12.2EBITDA margin 15.1 16.6 17.1 17.5Operating profit margin 12.7 14.1 14.6 15.0EBITDA/net interest (x) 20.7 31.5 49.3 84.9Net debt/equity -8.7 -17.9 -27.1 -35.2Net debt/EBITDA (x) -0.3 -0.6 -0.9 -1.2CF from operations/net debt Per share data (USD)

EPS reported (diluted) 0.14 0.17 0.19 0.22HSBC EPS (diluted) 0.14 0.17 0.19 0.22DPS 0.06 0.08 0.09 0.10Book value 0.96 1.08 1.20 1.34

Key forecast drivers Year to 12/2015a 12/2016e 12/2017e 12/2018e

Asia 7.5 6.4 11.0 9.8Europe 1.1 14.8 10.0 8.0North America 13.6 4.5 4.2 5.0Latin America -6.4 10.0 12.0 11.0Global 3.5 7.9 8.6 7.9

DCF analysis HSBC assumptions DCF, comprising

Risk-free rate (%) 3.0 EBIT growth, 2016-26e CAGR (%) 9.8Equity risk premium (%) 5.0 EBIT growth, 2026-45e CAGR (%) 3.1Sector beta 1.20 Fade period 2046-53e Specific beta 0.90 WACC 8.2

Sensitivity and valuation range Cost of capital vs fade period 4 years 8 years 12 years

7.2% 38.4 39.4 39.97.7% 35.7 36.5 37.18.2% 33.3 34.0 34.68.7% 31.2 31.7 32.39.2% 29.3 29.7 30.2

Valuation data Year to 12/2015a 12/2016e 12/2017e 12/2018e

EV/sales 1.8 1.7 1.5 1.3EV/EBITDA 12.2 9.9 8.5 7.3EV/IC 3.2 3.1 3.0 2.9PE* 23.3 19.3 16.9 15.1PB 3.4 3.0 2.7 2.4FCF yield (%) 4.1 5.3 6.3 7.1Dividend yield (%) 1.9 2.3 2.6 2.9

* Based on HSBC EPS (diluted)

Price relative

Source: HSBC Note: Priced at close of 21 Mar 2016

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Jan-14 Jul-14 Jan-15 Jul-15 Jan-16Samsonite Intl SA Rel to HANG SENG INDEX

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10 recurring questions about the proposed TUMI acquisition

1. Why now?

On 4 March 2016, the Samsonite Group announced the proposed acquisition of Tumi in an all-

cash deal, valuing Tumi at USD26.75/share, or a total consideration of USD1,824m. We believe

the timing of the deal is justified by:

a) Tumi’s share price had hit a low of USD15.49 on 15 January 2016.

b) Samsonite Group’s cash generation is starting to accelerate after some investments and this

provides good visibility on the capacity the group has to pay back quickly.

c) Interest rates remain low.

d) Most other acquisitions have now been broadly digested, implying that integrating a new

brand should be feasible from an operational standpoint.

As a reminder, here are the brands/assets that currently constitute the Samsonite portfolio:

Hartmann: Bought in 2012, Hartmann retails luggage for USD1,000 and above where no

large competitors operate and can look for substantial growth (off a low base).

Samsonite: Operates at price points of between USD150 and USD800 with most products

positioned at the lower end of Tumi and Rimowa.

Ten useful major insights

We look at 10 recurring questions about the TUMI acquisition

FY15 results uneventful, increase target price to HKD34 (from HKD33) on slight margin beat and lower WACC

Reiterate Buy rating on Samsonite, an HSBC Asia Super Ten stock

Tumi ‒ Share price since the IPO, April 2012 to present

Source: Thomson Reuters Datastream

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Samsonite Red: Launched in 2011, Samsonite Red has firmly anchored the brand in the

casual/lifestyle segment.

American Tourister: Bought in 1993, American Tourister is mostly positioned at the

USD100-150 level and is competing with Delsey from France, and Diplomat and Crown

from Taiwan, and is positioned to capture consumers trading up to brands.

Kamiliant: Developed internally in 2015, Kamiliant is the value-for-money proposition within

the Samsonite Group and sells luggage products retailing at USD50-100 with potential to

expand in crossovers, backpacks and more. The brand competes against local Chinese

propositions, such as Aiwas, Caranya, and Waypard.

Outside of region-specific lines, such as Xtrem and Saxoline in Latin America, the Samsonite

Group has bought brands that could become global one day: High Sierra (outdoor, bought in

2012), Speck (mobile device cases, 2014), Lipault (lightweight, feminine brand, 2014), and

Gregory (outdoor, 2014). These brands could provide rapid sales and cost synergies. Beyond

those brands, the Samsonite Group has also opportunistically acquired retail chains (Rolling

Luggage in the UK and Chic Accent in Italy), which is another way to develop the company’s

brands at the expense of the competition in what remains a fragmented market.

Samsonite – Breakdown of sales by region before and after the pending Tumi acquisition

Source: Company data, HSBC estimates

2. What can Samsonite bring to Tumi?

Samsonite has been a globally balanced company for some time, but recently has clearly

significantly increased its exposure to Asia. In 2006, sales by region were: Europe 38%, North

America 43% and Asia 13%. Ten years later, the Samsonite Group is more balanced, with

Europe, North America and Asia at 22%, 33% and 39%, respectively. Tumi remains an

American company, with North America accounting for 68% of sales. We believe the Samsonite

Group can facilitate the development of Tumi in prime distribution locations in both Europe and

Asia over the next few years.

Pre-IPO, Samsonite’s products were relatively similar across markets. The discrete revolution

operated since has been nicknamed “glocalisation”, an efficient strategy, in our view. Samsonite

has basically differentiated its products to cater to the specific needs of various markets/regions

to the point that in Korea, for instance, 70% of sales are derived from products that are destined

specifically for the Korean market. We believe Tumi can potentially benefit from adapting its

products to different tastes and needs. For instance, it seems that in Asia Tumi is seen as a

solid brand, but the products are also viewed as heavy/sturdy. Samsonite can help develop

more lightweight products for Asian markets, which could help Tumi gain market share.

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Samsonite Tumi Samsonite+Tumi

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3. What can Tumi bring to Samsonite?

Tumi is very much a retailer, with 54% of sales going through that channel, while Samsonite does 80% of its sales via wholesale. Tumi can provide retail expertise; the brand being noticeably more profitable that the Samsonite Group, despite the size gap.

Samsonite – Sales by channel mix before and after the pending Tumi acquisition

Source: Company data, HSBC

Besides, Tumi is strongly developed in the business category (41% of sales), an area that the Samsonite Group has tried to develop with lower price points. Even outside the pure business category, we believe about half of Tumi’s luggage sales can be classified as “business” in nature, as the category is made up of carry-on business suitcases.

Samsonite – Sales by product category before and after the pending Tumi acquisition

Source: Company data, HSBC

Finally, we believe Tumi can potentially bring more scale to the Samsonite Group as it continues to dominate a fragmented market. Pre-IPO, Samsonite had about a 9.5% share of the market. We now consider, it is close to 15%. With the addition of Tumi, this would go to a high teen percentage, with no single competitor commanding more than a 3% share. Samsonite is unique in the market inasmuch as it is the only global company. Indeed, luggage is mostly driven by local companies (Antler in the UK, Delsey in France, Tumi in the US, VIP in India, ACVE in Japan, Crown in China, etc.) and, as Samsonite helps Tumi become truly global, the gap could widen further, in our view.

4. What are the sales and cost synergies?

We believe Tumi would complete the Samsonite Group’s portfolio well from a regional standpoint (US heavy brand becoming global), business perspective (a small piece of the

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puzzle at Samsonite for now) and, more importantly, in terms of price points with limited overlap; Tumi is essentially starting at prices where Samsonite ends. Considering the proposed deal could close late this year – we are taking a theoretical date of late September and, as such, believe Samsonite will benefit from one quarter of integration – we believe Tumi within the Samsonite Group could see sales 2% above Bloomberg consensus estimates (pre-deal announcement) for FY16 and 10% above for FY17. See page 8 for our estimates.

Samsonite manufactures about 20% of its products in-house with factories in Belgium, India and

Hungary, and has already identified some benefits from bringing in some of the Tumi

production, such as, for instance, lightweight hardcase products in Hungary. Besides, the

remaining 80% is made by Asian OEM suppliers, the vast majority being in China (with the

remainder in Thailand and Vietnam mostly). Tumi shares with Samsonite many of these

suppliers. The scale should enable the Samsonite Group to optimise its own production

capacity but also to negotiate better terms with partners. There will be much duplication in terms

of general and admin costs, as well as selling expenses. For instance, sales teams will simply

welcome a new brand with Tumi; there will be no incentive to add on a new sales team to

distribute the brand independently. We factor in that total costs (i.e. both cost of goods sold but

also SG&A) will be reduced at Tumi by 2% in 2016 (again, three months of integration only), 5%

in 2017 and 10% in 2018; 10% seems high but bear in mind that we have expressed cost

savings that are group-wide relative to Tumi’s cost base when duplication will obviously be

eliminated at Tumi’s level but also at the Samsonite Group’s level.

5. What will the deal actually cost and is the debt manageable?

We look at Samsonite’s revolving credit facility and the cost of that is 1.5%. Besides, given low

interest rates and the fact that this deal is USD-driven and mostly focusing on acquiring a US-

centric company, we believe a 2.5% cost of debt is achievable; a more EM-driven company may

have triggered a higher rate. Samsonite Group’s CFO mentioned that, on 2015 metrics, the net

debt-to-EBITDA ratio would have been 3.4x. As the proposed deal is scheduled to close in late

2016, we believe that looking at a 2016 figure (c2.8x) would be more relevant and looking at the

first full year of integration makes even more sense (c2.0x). Having a net debt-to-EBITDA ratio of

2.0x in the first year of full integration seems healthy, in our view, and all the more so as it implies

the company could well be back in a net cash position less than three years after the transaction.

6. Is the price right and what will value creation be?

We have heard investor feedback arguing that the Tumi acquisition price of USD1.8bn, implying

a trailing 2015 EV/EBITDA of 13.0x and a 2015 PE of 28.6x, is considered expensive. However,

analysis on a trailing basis excludes the prospects for growth and potential synergies to be

gained after the acquisition. If we consider synergies over only the next two years alone, the

benefits that Tumi could gain implies that the transaction on a forward basis is not necessarily

expensive relative to other listed peer categories as shown below.

Tumi ‒ Implied acquisition price and compared to consumer sub-sector valuations

2015 2016e 2017e 2015 2016e 2017eEV/EBITDA PETumi (on consensus estimates) 14.7x 15.3x 14.4x Tumi (on consensus estimates) 28.6x 28.3x 26.1xTumi (on HSBC base case scenario) 13.0x 8.5x 6.2x Tumi (on HSBC base case scenario) 28.6x 23.7x 14.6x Sub-sector average Sub-sector average US Dept. stores 12.7x 10.7 9.8x US Dept. stores 18.6x 17.2x 21.1xLuxury brands 11.0x 9.7x 8.6x Luxury brands 20.2x 17.6x 15.9xSportswear 19.6x 17.5x 14.4x Sportswear 41.4x 32.6x 24.7xVF Corp 13.6x 13.4x 12.7x VF Corp 21.2x 20.5x 18.1xPrice as of 21 March 2016 for sub-sectors. Assuming implied Tumi valuation based on acquisition price of USD1.8bn. Source: Bloomberg, Thomson Reuters Datastream, HSBC estimates

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On the following two pages, we look at the combined Samsonite/Tumi entity taking into account sales synergies, cost synergies described above, as well as a 2.5% cost of debt. We take into account Tumi’s Bloomberg consensus estimates (pre-deal) and our own estimates on Samsonite itself. Given those assumptions, we believe the proposed Tumi deal would actually start to create value after 2020, i.e. less than 3.5 years after the deal close, an exceptionally quick pay-back period.

7. What is the timing of all this?

A shareholder circular is scheduled to be published in June 2016 and should contain specifics on actual sales and cost synergies, as well as financing of debt, and should help the market get clarity on how to more precisely price the integration. After that, both Samsonite and Tumi shareholders will be voting on the transaction in July 2016. The deal can then close after that in 2H16. For our synergy assumptions, we take the view the deal closes on 31 September 2016, so we factor in one quarter of integration.

8. What could go wrong?

Samsonite has had a slew of acquisitions in a short period of time and, theoretically, the size of Tumi could be disruptive to local management teams trying to develop too many brands at the same time. The fundamental risk in this proposed acquisition, in our view, beyond the pure financing of the deal is down to the gap of strategy between Samsonite, which has been championing “glocalisation” (majority of sales in a given market generated by products only sold in that market), and a brand spirit at Tumi that has been more akin to a luxury company (one product, one label to protect brand equity and sustain pricing power). Investors critical of the proposed deal have pointed to the fact that Samsonite has been an asset aggregator, mostly focusing on opening channels and accounts, rather than a brand builder. Tumi’s particular high-end positioning, unified product offering and retail footprint imply that the brand’s DNA needs to be protected and it’s unlikely this will work if Tumi’s product line-up becomes diversified/bespoke in different markets it is operating in.

9. Any other potential acquisitions after Tumi?

As Samsonite is committed to continuing to pay a dividend and should also be stretched for the next two years after the proposed Tumi deal closes, we do not expect any incremental acquisitions in the short term. Beyond mid-2018, we believe the Samsonite Group could revert to its previous stance, looking selectively at “adjacent” acquisitions, i.e. brands or assets that are not bound to cannibalise existing business directly but more to complement them. Historically, this has meant selectively purchasing retail assets (Chic Accent and Rolling Luggage), mountain/trek/backpack brands (Gregory and High Sierra) or then again a value-for-money, female-driven concept (e.g. Lipault). Given how fragmented the luggage industry is, we do not find it hard to imagine Samsonite could continue to aggregate market share with more brands once Tumi will have been digested.

10. What will the group look like in five years?

The Samsonite Group’s stated objective is to double group sales every five years, which implies a 15% sales CAGR, leaving aside any FX considerations. With the integration of Tumi, it is, indeed, quite likely that the company will be close to achieving this goal starting in 2015 with sales of USD2,432m, with Tumi on its own adding cUSD956m, i.e. c39% to the existing Samsonite Group’s business by 2020. Whilst we view Samsonite’s business model as essentially top-line driven – incremental profits being re-invested in the business – the actual margin of the company should benefit from the accretive nature of Tumi, whose EBITDA margin is 23.1%, i.e. a good 650bp above the Samsonite Group’s average, as well as from synergies derived from the deal. In other words, the Samsonite Group with Tumi’s acquisition should move from a USD2.4bn entity with a 16.5% EBITDA margin in 2015 to a cUSD4.8bn entity with low 20s EBITDA margins in 2020.

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Tumi/Samsonite combination scenarios

Pre-acquisition P&Ls

Tumi P&L summary (pre-acquisition)

USDm 2013 2014 2015 2016e 2017eSales 467 527 548 575 618 EBITDA 103 112 122 118 125 Net profit 55 58 63 64 69 y-o-y growth Sales 17% 13% 4% 5% 7%EBITDA 14% 8% 10% -4% 7%Net profit 48% 6% 9% 1% 9% Margin EBITDA 22.0% 21.2% 22.3% 20.4% 20.3%Net 11.7% 11.0% 11.5% 11.1% 11.2%Source: Company data, Bloomberg estimates

Samsonite – P&L summary (pre-acquisition)

USDm 2013 2014 2015 2016e 2017eSales 2,038 2,351 2,432 2,625 2,850 EBITDA 326 351 368 436 488Net profit 176 186 198 238 272 y-o-y growth Sales 15% 15% 3% 8% 9%EBITDA 16% 8% 5% 18% 12%Net profit 19% 6% 6% 21% 14% Margin EBITDA 16.0% 14.9% 15.1% 16.6% 17.1%Net 8.6% 7.9% 8.1% 9.1% 9.5%Source: Company data, HSBC estimates

Samsonite – Combined P&L with Tumi (assuming consensus figures)

USDm 2016e 2017eSales 3,200 3,468 EBITDA 554 613Net profit 302 341 y-o-y growth Sales 32% 8%EBITDA 50% 11%Net profit 53% 13% Margin EBITDA 17.3% 17.7%Net 9.4% 9.8% % difference above Samsonite only Sales 22% 22%EBITDA 27% 26%Net profit 27% 25%Source: Company data, Bloomberg estimates, HSBC estimates

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Tumi – Estimate of post-acquisition value creation

USDm 2016e 2017e 2018e 2019e 2020e 2021e 2022eSales 587 680 782 873 956 1,033 1,105 EBITDA 138 211 289 EBIT 117 190 266 306 337 366 393 NOPAT 76 123 173 199 219 238 256 Capital employed 1,824 1,824 1,824 1,824 1,824 1,824 1,824 ROCE 4.2% 6.8% 9.5% 10.9% 12.0% 13.0% 14.0%WACC 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2%ROCE-WACC spread (%) -4.0% -1.4% 1.3% 2.7% 3.8% 4.9% 5.8%Value created/(destroyed) (73) (26) 24 50 70 88 107Aggregate Value created/(destroyed) (73) (99) (75) (26) 44 132 239 % incremental sales for Tumi (relative to consensus estimates) Sales 2% 10% Acquisition synergies EBITDA cost savings 9 24 56 D&A (21) (21) Effective tax rate 35% 35% 35% 35% 35% 35% 35% y-o-y growth Sales 7% 16% 15% 12% 10% 8% 7%EBITDA 13% 53% Net profit 85% 63% Margin EBITDA 24% 31% EBIT 20% 28% 34% 35% 35% 35% 36%Net 13% 18% 22% 23% 23% 23% 23%Source: Company data, Bloomberg estimates, HSBC

Samsonite – Scenario analysis on potential P&L impact with synergies assumptions after the Tumi acquisition

Samsonite ____________________________ Samsonite + Tumi __________________________ only ______ Base case _______ ______ Bull case _______ _______Bear case _______USDm 2017e 2017e Difference 2017e Difference 2017e DifferenceSales 2,850 3,530 24% 3,561 25% 3,499 23%EBITDA 488 699 43% 746 53% 659 35%Net profit 272 490 80% 523 92% 462 70% Assumptions on synergies gained % incremental sales for Tumi (relative to consensus estimates) 10% 15% 5%SG&A cost savings 24 40 15 Incremental D&A (21) (21) (21)Incremental finance costs (2.5% rate) (45) (45) (45)Effective tax rate 29% 29% 29% Margin EBITDA margin 17.1% 19.8% 2.7ppt 20.9% 3.8ppt 18.8% 1.7pptNet margin 9.5% 13.9% 4.3ppt 14.7% 5.2ppt 13.2% 3.7pptSource: Company data, Bloomberg estimates, HSBC estimates

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Earnings estimates, valuation and risks

We slightly lower our growth estimates for Samsonite for 2016, as we believe China and North

America may remain muted at least over 1H16 and, consequently, we see limited operating

leverage kicking in for 2016. However, given the slight 2015 beat and the fact we are now using

a lower risk-free rate (3.0% from 3.5%), we see our DCF-derived target price increasing to

HKD34 (from HKD33). We lower our risk-free rate assumption in line with the level set by

HSBC’s equity strategy research team.

In our DCF, we use a 1.2 sector beta to take into account the limited barriers to entry in the

sector, meaning current growth rates for the company could be challenged beyond the forecast

period (for our DCF assumptions, see page 2). However, we use a company-specific beta of 0.9;

although the industry is fragmented, we think Samsonite, as the market leader, will be resilient.

We introduce our 2018 estimates.

Key downside risks include worse-than-expected sales in key regions, unfavourable currency

moves (i.e., a stronger USD), macro threats to travel (terrorism, recession and epidemics),

commoditisation of the luggage market, execution of M&A integration, and a spike in the price of

oil. We believe the market could react negatively, if the proposed Tumi transaction is not

successfully concluded.

Samsonite ‒ Split of sales and simplified P&L

USDm 2011 2012 2013 2014 2015 y-o-y 2016e y-o-y 2017e y-o-y 2018e y-o-ySales by region Asia 578 684 768 892 948 8% 1,009 6% 1,120 11% 1,229 10%Europe 479 465 515 558 545 1% 627 15% 690 10% 745 8%North America 388 500 622 761 811 14% 848 5% 883 4% 927 5%Latin America 109 113 124 131 120 -6% 133 10% 148 12% 165 11%Total 1,565 1,772 2,038 2,351 2,432 3% 2,625 8% 2,850 9% 3,075 8%Sales by brand Samsonite 1,244 1,296 1,414 1,536 1,490 -3% 1,555 5% 1,632 5% 1,714 5%American Tourister 236 355 429 504 549 9% 625 15% 703 13% 789 12%Other 85 121 195 311 365 18% 446 22% 515 16% 572 11%Total 1,565 1,772 2,038 2,351 2,432 3% 2,625 8% 2,850 9% 3,075 8% Simplified P&L Net sales 1,565 1,772 2,038 2,351 2,432 3% 2,625 8% 2,850 9% 3,075 8%Gross profit 857 951 1,088 1,244 1,279 3% 1,386 8% 1,516 9% 1,645 9%Gross margin 54.8% 53.7% 53.4% 52.9% 52.6% 52.8% 53.2% 53.5%Distribution 411 466 541 626 666 6% 706 6% 758 7% 812 7%as a % of sales 26.3% 26.3% 26.5% 26.6% 27.4% 26.9% 26.6% 26.4%Marketing 123 117 129 145 132 -9% 144 9% 165 14% 188 13%as a % of sales 7.8% 6.6% 6.3% 6.2% 5.4% 5.5% 5.8% 6.1%G&A expenses 114 121 133 151 154 2% 165 7% 177 7% 185 4%as a % of sales 7.3% 6.8% 6.5% 6.4% 6.4% 6.3% 6.2% 6.0%Adjusted EBITDA 248 287 338 384 401 4% 436 9% 488 12% 539 10%EBITDA margin (%) 15.9% 16.2% 16.6% 16.4% 16.5% 16.6% 17.1% 17.5%Tax 36 58 73 77 74 94 108 121Tax % 25.6% 25.8% 27.0% 27.3% 25.4% 26.5% 26.5% 26.5%Net profit 137 167 197 205 217 6% 262 21% 299 14% 334 12%Profit margin 5.5% 8.4% 8.6% 7.9% 8.1% 9.1% 9.5% 9.9%Profit attributable to equity holders 87 148 176 186 197.6 238.5 271.9 304.5Source: Company data, HSBC estimates

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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: Erwan Rambourg and Catherine Chao

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.

As of 22 March 2016, the distribution of all ratings published is as follows: Buy 47% (27% of these provided with Investment Banking Services)

Hold 39% (28% of these provided with Investment Banking Services)

Sell 14% (18% of these provided with Investment Banking Services)

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12

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

Samsonite Intl SA (1910.HK) share price performance

HKD Vs HSBC rating history

Rating & target price history

From To Date

Neutral (V) Overweight 28 June 2013 Overweight Neutral 18 January 2015 Neutral Overweight 17 March 2015 Overweight Buy 20 April 2015 Target price Value Date

Price 1 23.40 28 June 2013 Price 2 23.10 28 August 2013 Price 3 25.00 29 October 2013 Price 4 26.50 17 February 2014 Price 5 27.50 19 March 2014 Price 6 28.50 09 April 2014 Price 7 29.00 03 June 2014 Price 8 32.00 19 June 2014 Price 9 31.00 05 November 2014 Price 10 27.00 18 January 2015 Price 11 29.00 17 March 2015 Price 12 30.00 20 April 2015 Price 13 33.00 25 June 2015 Price 14 32.00 26 August 2015 Price 15 35.00 19 October 2015 Price 16 33.00 19 January 2016 Source: HSBC

Source: HSBC

HSBC & Analyst disclosures

Disclosure checklist

Company Ticker Recent price Price date Disclosure

SAMSONITE INTL SA 1910.HK 25.35 21-Mar-2016 5, 6, 7

Source: HSBC

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 29 February 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company.

5 As of 31 January 2016, 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 31 January 2016, 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 31 January 2016, 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

9

14

19

24

29

34

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

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22 March 2016

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

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.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

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.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that

company available at www.hsbcnet.com/research.

Additional disclosures

1 This report is dated as at 22 March 2016.

2 All market data included in this report are dated as at close 21 March 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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14

Disclaimer

Legal entities as at 30 May 2014

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[503770]

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Europe

Consumer Brands & Retail

Head of Consumer Brands and Retail Equity Research Antoine Belge +33 1 56 52 43 47 [email protected]

Analyst Anne-Laure Bismuth +44 207 991 6587 [email protected]

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


Analyst Bulent Yurdagul +90 212 3764612 [email protected]

Analyst Jeanine Womersley +27 21 6741082 [email protected]

Analyst Ankur P Agarwal +966 11 299 2103 [email protected]

Analyst Yazeed Al Turki +966 11 299 2260 [email protected]

Asia


Head of Consumer Brands and Retail Equity Research Erwan Rambourg +852 2996 6572 [email protected]

Analyst Christopher Leung +852 2996 6531 [email protected]

Analyst Lina Yan +852 2822 4344 [email protected]

Analyst Catherine Chao +852 2996 6570 [email protected]

Analyst Charlene Liu +65 6658 0615 [email protected]

Scott Chan +852 3941 7005 [email protected]

Analyst Karen Choi +822 3706 8781 [email protected]

Analyst Permada (Mada) Darmono +65 6658 0613 [email protected]

Analyst Selviana Aripin +65 6658 0610 [email protected]

Analyst Amit Sachdeva +91 22 2268 1240 [email protected]

Analyst Kuldeep Gangwar +91 22 3396 0686 [email protected]

Analyst Chloe Wu +8862 6631 2866 [email protected]

Associate Jenny Chae +822 3706 8774 [email protected]

North & Latin America

Consumer & Retail

Analyst Richard Cathcart +55 11 2169 4429 [email protected]

Associate Ana C Hernandez +52 55 5721 2745 [email protected]

Associate Mariana Vergueiro +55 11 3847 6066 [email protected]

Food & Beverage

Global Head of Beverages Research Carlos Laboy +1 212 525 6972 [email protected]

Analyst Andrew Muench +1 212 525 4866 [email protected]

Agricultural Products

Analyst Ravi Jain +1 212 525 3442 [email protected]

Analyst Gustavo Gregori +55 11 3847 9881 [email protected]

Specialist Sales

David Harrington +44 20 7991 5389 [email protected]

Jean Gael Tabet +44 20 7991 5342 [email protected]

Global Consumer Brands & Retail Research Team

Samsonite (1910 HK)-Buy: Ten useful major insights on the ...pg.jrj.com.cn/acc/Res/HK_RES/STOCK/2016/3/22/2d0f26e5-1585-416… · Ten major questions about the proposed deal: On 4

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