Greatview (468 HK)doc.xueqiu.com/147850fce82703fe70e1bfd5.pdf · Tetra Pak (unlisted) with a share of over 90%. Thanks to its quality product offering at competitive prices, Greatview

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Growing dairy market boosts demand. The demand for aseptic packaging in China has

been rising fast, at around 13% annually in 2005-13, mainly driven by the growing market

for liquid milk which increased at a 9% CAGR in the same period. We still see long-term

growth potential as China lags behind other developed countries in terms of liquid milk

consumption per capita, which represents an opportunity for aseptic packaging producers

such as Greatview.

Higher market share. Before Greatview’s entrance in 2004, the market was dominated by

Tetra Pak (unlisted) with a share of over 90%. Thanks to its quality product offering at

competitive prices, Greatview has become the second-biggest player in China with a 14%

share, and we expect it to increase this to 19% in 2016 due to its lower-price strategy and

long-standing business relationship with key customers such as Mengniu and Yili. While

there could be price competition risk from Tetra Pak, we think the risk of aggressive price

discounting is low, given healthy supply-demand outlook and the high entry barrier due

to product complexity and technology requirements. Besides, Tetra Pak is now under

anti-trust investigation in China which makes it unlikely to adopt a hostile pricing strategy.

Secular earnings growth. We project a 17% earnings CAGR over 2014-16e on the back

of a 19% total sales CAGR due mainly to volume growth, which should be supported by

production capacity expansion. We expect the ASP for China to decline moderately by 2-4%

between 2014 and 2016 as we think Greatview will continue its competitive-pricing strategy.

Despite a lower ASP, we expect the overall gross margin to remain steady due to improving

utilization of the new plant in Germany as it grows European sales with competitive

pricing. Our estimates are in line with consensus for 2014 and 4-6% lower for 2015-16.

Valuation and risks. Greatview has been FCF-positive since 2012. Our DCF-based target

price of HKD6.90 implies a 16.7x 2015e PE, lower than the average 22x for large-cap F&B

stocks offering similar growth to Greatview’s 17% 2014-16e EPS CAGR. The risk-reward

now also looks favourable, at 1.0x PEG versus the historical average of 1.4x. Key downside

risks: rising competition with deeper price cuts, patent infringement claims by competitors,

and slower-than-expected demand due to macro factors and food safety issues.

Greatview (468 HK)

Initiate at OW: Market share taker

Greatview is an alternative provider of aseptic packaging material at a price discount to Tetra Pak

Its lower-price strategy and rising demand for liquid milk in China should support sales growth

We initiate on Greatview at Overweight with a DCF-based target price of HK6.9, implying a 16.7x 2015e PE

Consumer & Retail Food Products Equity – China

Company report

^Index HSCEIIndex level 10,940RIC 0468.HKBloomberg 468 HK

Source: HSBC

Overweight Target price (HKD) 6.90 Share price (HKD) 5.74 Potential return (%) 20.2

Note: Potential return equals the percentage difference between the current share price and the target price

Dec 2013a 2014e 2015e

HSBC EPS 0.24 0.27 0.32 HSBC PE 19.3 17.2 14.3

Performance 1M 3M 12M

Absolute (%) 8.3 18.6 22.4 Relative^ (%) 1.5 7.8 9.4

Enterprise value (RMBm) 5,965Free float (%) 84Market cap (USDm) 996Market cap (HKDm) 7,724

Source: HSBC

30 July 2014

Alice Chan*, CFA Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2996 6535 [email protected]

Christopher K Leung* Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2996 6531 [email protected]

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

View HSBC Global Research at: http://www.research.hsbc.com

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

Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

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

http://www.research.hsbc.com/

https://www.research.hsbc.com/R/25/m9pUXlhXtx/377650.PDF

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Greatview (468 HK) Food Products 30 July 2014

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Financials & valuation Financial statements

Year to 12/2013a 12/2014e 12/2015e 12/2016e

Profit & loss summary (RMBm)

Revenue 2,160 2,610 3,106 3,679EBITDA 507 570 682 793Depreciation & amortisation -91 -96 -110 -126Operating profit/EBIT 417 474 572 666Net interest 0 -1 -1 -2PBT 417 473 571 664HSBC PBT 417 473 571 664Taxation -99 -114 -137 -159Net profit 317 360 434 505HSBC net profit 317 360 434 505

Cash flow summary (RMBm)

Cash flow from operations 233 313 397 459Capex -205 -200 -300 -300Cash flow from investment -173 -204 -304 -304Dividends -106 -119 -144 -167Change in net debt -57 10 51 13FCF equity 45 101 85 147

Balance sheet summary (RMBm)

Intangible fixed assets 54 54 54 54Tangible fixed assets 1,256 1,362 1,555 1,731Current assets 1,405 1,627 1,812 2,079Cash & others 386 376 325 311Total assets 2,754 3,082 3,461 3,903Operating liabilities 480 568 657 761Gross debt 177 177 177 177Net debt -209 -198 -147 -134Shareholders’ funds 2,097 2,337 2,627 2,964Invested capital 1,849 2,100 2,441 2,791

Ratio, growth and per share analysis

Year to 12/2013a 12/2014e 12/2015e 12/2016e

Y-o-y % change

Revenue 23.8 20.9 19.0 18.5EBITDA 10.9 12.4 19.6 16.3Operating profit 5.0 13.7 20.6 16.5PBT 5.0 13.5 20.6 16.4HSBC EPS 0.5 12.2 20.6 16.4

Ratios (%)

Revenue/IC (x) 1.3 1.3 1.4 1.4ROIC 18.5 18.2 19.1 19.4ROE 16.0 16.2 17.5 18.1ROA 12.3 12.3 13.3 13.7EBITDA margin 23.5 21.8 22.0 21.5Operating profit margin 19.3 18.2 18.4 18.1EBITDA/net interest (x) 4571.9 637.2 648.9 436.4Net debt/equity -10.0 -8.5 -5.6 -4.5Net debt/EBITDA (x) -0.4 -0.3 -0.2 -0.2

Per share data (RMB)

EPS reported (diluted) 0.24 0.27 0.32 0.37HSBC EPS (diluted) 0.24 0.27 0.32 0.37DPS 0.08 0.09 0.11 0.12Book value 1.57 1.75 1.96 2.20

Valuation data

Year to 12/2013a 12/2014e 12/2015e 12/2016e

EV/sales 2.8 2.3 1.9 1.6EV/EBITDA 11.7 10.5 8.8 7.6EV/IC 3.2 2.8 2.5 2.2PE* 19.3 17.2 14.3 12.3PB 2.9 2.6 2.3 2.1FCF yield (%) 0.7 1.6 1.4 2.4Dividend yield (%) 1.7 1.9 2.3 2.7

*Based on HSBC EPS (diluted)

Price relative

Source: HSBC Note: Priced at close of 24 July 2014

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Investment summary 4

Growing market, breaking monopoly 8

Market share taker 12

Secular earnings growth 16

Valuation and risks 22

Company background 24

Disclosure appendix 29

Disclaimer 31

Contents

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Company overview Greatview Aseptic Packaging (Greatview) is the second-largest supplier of aseptic packaging materials in

China with about a 14% market share. Its customers are mainly dairy and beverage companies such as

Mengniu and Yili, with Mengniu being the largest customer, contributing 41% of Greatview’s total sales

in 2013. We are positive on Greatview’s growth outlook as the increasing liquid milk consumption in

China should drive the demand for aseptic packaging and the company should be able to grow its market

share by offering lower prices than the major competitor. We initiate on Greatview with an Overweight

rating and a DCF-based target price of HKD6.90.

Aseptic packaging is widely used for dairy products packaged in liquid carton form, as well as juice,

ready-to-drink (RTD) tea, soup, sauces, and so on. The packaged products have a longer shelf-life than

fresh products at up to 12 months without the need for preservatives or refrigeration. The liquid cartons

have a lower production cost and lighter weight, for easier transport, compared to metal cans and glass

containers. The aseptic packaging industry in China should grow with the increasing consumption of

liquid milk in the long run, for which penetration is still low (15.9kg per capita) compared to other

countries (24-109kg per capita). Room-temperature liquid milk will likely be the dominant category, as

more consumers are demanding convenience foods for consumption as they commute or travel. There is

also a lack of cold-chain logistics development in China, underpinning the need for aseptic packaging.

The aseptic packaging market in China is dominated by Tetra Pak (unlisted) which has also dominated

the global market for the last few decades. Tetra Pak provides its customers with complete solutions

including the packaging materials and dedicated filling machines, together with training and repair

services. Established by former employees of Tetra Pak in the early 2000s, Greatview sells aseptic

packaging materials that are compatible with Tetra Pak’s filling machines. Greatview is a price taker with

its ASP at 5-10% discount to Tetra Pak’s, but has been successful in growing its market share in China to

about 14% over the last decade thanks to its lower-price strategy and up-to-standard product quality.

Investment summary

Greatview should continue to take share from the market leader

as it provides lower-priced alternatives for customers

We project a 17% earnings CAGR in 2014-16e, driven mainly by

sales volume growth

We initiate coverage on Greatview with an Overweight rating and

a target price of HKD6.90, based on DCF valuation

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Could Tetra Pak cut prices to fight back? It is possible for Tetra Pak to reduce prices, but we think the

risk it will make significant cuts to eliminate competitors is low, as it is now under anti-trust investigation

by the State Administration of Industry and Commerce (SAIC) in China regarding alleged abuses of its

market dominance, including bundling sales and discriminatory treatment of customers. Under the close

watch of Chinese regulators, Tetra Pak may hesitate to adopt a hostile pricing strategy. In 1991, Tetra Pak

incurred heavy penalties under EU competition law, fined EUR75m for anti-competitive practices such as

predatory pricing.

Besides this, due to its current capacity constraints, Tetra Pak may not be able to satisfy all the demand

for aseptic packaging in China if it eliminated the competition. The estimated sales volume of the total

market was about 66bn packs in 2013. Tetra Pak has a production capacity of 60bn packs in China

compared to Greatview’s 17.4bn packs, and we believe the normal utilization rate averages at 60-70% for

Tetra Pak and Greatview’s factories, due to maintenance of the facilities, time for changing the

specification for different customer orders and so on.

In the international market, Greatview’s sales come mainly from Europe, and the company has recently

set up a new plant in Germany. We believe the risk of aggressive pricing by Tetra Pak is low in the near

term because Greatview’s market share is still insignificant and will likely remain small due to its limited

capacity in Europe in the next three years.

Greatview derives over 90% of sales from aseptic packaging materials for dairy products, and the rest are

for materials for non-carbonated soft drinks. Based on the assumption that liquid milk production grows

at 8% per year, we expect Greatview’s market share in China to reach 19% by 2016.

Market share breakdown of aseptic packaging in China Greatview – sales breakdown by use of product

Source: Frost & Sullivan, TechNavio Analysis, HSBC estimates Source: Company data, HSBC

Earnings estimates We are looking for an earnings CAGR of 17% in 2014-16e, on the back of a 19% CAGR for total

revenue, mainly driven by sales volume growth of over 20% per year. We expect the company’s ASP in

the domestic market to go down by 4% in 2014 and 2% in both 2015 and 2016 as it continues to adopt the

lower-price strategy. For the overseas business, we expect stronger sales growth of 30-50% in 2014-16e

from a low base.

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Greatview’s gross margin for the domestic market will likely decline from 32.2% in 2013 to 29.3% in

2016 due to lower product prices. However, we believe this will be offset by the improving profitability

of the overseas business. The company recorded a loss for the overseas business with gross margin at

-6.6% as the new production plant in Germany was in the ramp-up stage. We expect to see the overseas

business break even at the gross margin level in 2014 despite an expected net loss, and turn to profit in

2015-16, as the utilization rate at this factory increases with higher operating leverage.

Greatview – gross margin breakdown

Year to 31 Dec 2013 2014e 2015e 2016e

China 32.2% 30.8% 29.9% 29.3% International -6.6% 0.0% 8.0% 10.0% Total 26.8% 25.5% 25.6% 25.1%

Source: Company data, HSBC estimates

Greatview – margins and growth

Year to 31 Dec 2013 2014e 2015e 2016e

Margins Gross margin 26.8% 25.5% 25.6% 25.1% EBITDA margin 23.5% 21.8% 22.0% 21.5% EBIT margin 19.3% 18.2% 18.4% 18.1% PBT margin 19.3% 18.1% 18.4% 18.1% Net margin 14.7% 13.8% 14.0% 13.7%

Growth rate Sales growth 24% 21% 19% 18% Gross profit growth 5% 15% 19% 16% EBITDA growth 11% 12% 20% 16% EBIT growth 5% 14% 21% 17% NI growth 1% 13% 21% 16%


Valuation and risks We initiate coverage on Greatview at Overweight with a target price of HKD6.90, based on a DCF

valuation. The stock has traded at a 12-month forward PE between 12x and 17x over the last two years,

and our target price implies a 16.7x 2015e PE.

The risk-reward looks favourable at the current 14x 2015e PE for a 17% 2014-16e earnings CAGR,

compared with the average 22x for large-cap Chinese food and beverage companies offering similar

growth. The stock is now at a 1.0x PEG ratio (on 2014-16e CAGR) and our target price implies 1.2x,

compared to historical average forward PEG of 1.4x.

The company’s free cash flow has turned positive and it has started to pay dividend since 2012. As we

expect the company to maintain its net cash position and continue to generate positive free cash flow, we

factor in a pay-out ratio of around 33% in the coming years, which is the same level as in 2013. This

implies a dividend yield of 2% at the current share price level.

Key risks

Key downside risks include significant price cuts forced by Tetra Pak, hurting the company’s

profitability, patent infringement claims by competitors resulting in fines, and slower-than-expected

demand for liquid milk and other beverages that use aseptic packaging, due to a macro slowdown or food

safety issues affecting the company’s customers.

Greatview

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Valuation comparison

Mkt-cap Price (HKD)

____HSBC____ _______PE (x)______ ______EPS growth_____ ________PB (x)_______ _____ROE_____ _____Share price movement_____

Company RIC USDm 24-Jul TP Rating CY13a CY14e CY15e CY13a CY14e CY15e CY13a CY14e CY15e CY13a CY14e 1M 3M 6M YTD Packaging Greatview 0468.HK 997 5.7 6.9 OW 19.1 17.0 13.9 1% 12% 21% 2.9 2.6 2.3 16% 16% 9% 18% 29% 25% CPMC 0906.HK 869 6.8 NR NR 13.8 11.8 9.8 5% 17% 21% 1.4 1.2 1.1 10% 11% 6% 7% 10% 12% Nine Dragons 2689.HK 3,353 5.6 6.6 N(V) 11.8 9.7 8.5 18% 22% 13% 0.9 0.8 0.8 8% 9% 5% 3% -22% -18% Lee & Man Paper 2314.HK 2,462 4.2 5.9 OW 10.2 9.5 9.1 43% 8% 4% 1.2 1.1 1.1 13% 13% -2% 0% -20% -17% 12.5 10.8 9.5 22% 16% 13% 1.1 1.2 1.1 11% 11% 4% 4% -11% -9% China F&B (Large-caps) Uni-President China 0220.HK 3,438 6.4 4.1 UW 47.8 40.8 37.9 -46% 17% 8% 2.7 2.6 2.5 6% 6% 10% 0% -5% -16% Mengniu Dairy 2319.HK 9,575 37.9 46.5 OW 34.3 28.4 20.8 20% 21% 37% 3.5 2.8 2.5 10% 11% 9% -10% 1% 3% CRE 0291.HK 7,034 22.6 NR NR 28.6 28.2 24.1 -52% 1% 17% 0.9 1.1 1.1 4% 4% 8% 2% -4% -12% Huishan Dairy 6863.HK 3,383 1.9 2.7 OW(V) 15.4 13.3 10.5 29% 15% 27% 2.0 1.6 1.5 18% 13% 6% -14% -33% -34% Tsingtao H 0168.HK 10,789 61.9 39.6 UW 37.7 34.0 28.3 1% 11% 20% 4.8 4.3 3.8 13% 13% 5% 8% 8% -6% Hengan 1044.HK 13,271 84.0 85.0 N 27.8 23.8 20.4 6% 17% 17% 6.7 6.0 5.4 25% 26% 5% 3% -4% -8% Want Want 0151.HK 18,080 10.6 12.9 OW 26.4 22.8 18.9 24% 16% 21% 9.3 8.3 7.1 35% 39% 4% -15% -3% -5% Sun Art 6808.HK 11,163 9.1 13.0 OW 25.1 21.9 19.3 15% 14% 13% 3.7 3.3 3.0 16% 16% 4% -8% -17% -16% Tingyi 0322.HK 15,785 21.8 21.5 N 38.6 32.9 26.7 12% 18% 23% 5.5 5.1 4.7 15% 16% 4% -1% 1% -3% Biostime 1112.HK 2,951 36.3 65.0 OW(V) 18.1 16.1 12.9 32% 12% 25% 6.9 6.1 5.1 41% 39% -18% -32% -48% -48% 30.8 26.8 22.3 8% 15% 21% 5.4 4.8 4.3 19% 21% 4% -5% -5% -9% China F&B (Small-caps) Huabao 0336.HK 2,202 5.5 NR NR 9.3 8.4 7.8 8% 11% 8% 2.1 1.9 1.7 24% 25% 29% 42% 41% 28% Wumart 1025.HK 1,197 7.2 8.9 N 15.8 15.6 15.6 -22% 1% 0% 2.0 1.9 1.8 13% 12% 22% -13% -37% -43% China Modern Dairy 1117.HK 2,311 3.8 3.8 N(V) 24.3 14.4 13.0 92% 69% 11% 2.6 2.3 2.1 11% 17% 21% 4% 4% -10% China Agri 0606.HK 2,276 3.4 NR NR 11.6 28.5 13.5 1% -59% 111% 0.5 0.6 0.6 5% 2% 16% 7% -5% -13% Vinda 3331.HK 1,690 13.1 NR NR 24.2 26.0 21.2 0% -7% 23% 2.8 2.6 2.4 12% 10% 13% 13% 11% 2% China Foods 0506.HK 1,086 3.0 NR NR na na 29.8 n/a -102% n/a 1.0 1.4 1.3 -14% 2% 9% 11% 3% -9% YST Dairy 1431.HK 651 1.3 NR NR 11.7 9.1 7.0 n/a 28% 30% na 0.9 0.8 0% 10% 6% -7% -41% -42% Lianhua 0980.HK 614 4.3 NR NR 68.0 22.5 17.3 -83% 202% 30% 1.1 1.0 0.9 2% 6% 3% -8% -28% -29% Yashili 1230.HK 1,304 2.8 3.7 OW 18.4 27.1 22.0 -7% -32% 23% 2.6 2.5 2.4 14% 9% 3% -30% -36% -41% Tenwow 1219.HK 784 2.9 4.1 OW(V) 13.7 12.7 10.2 17% 8% 25% 2.1 1.8 1.6 12% 15% 3% -14% -10% -17% Changshouhua 1006.HK 515 7.2 NR NR 11.7 9.5 7.2 27% 24% 31% na 1.4 1.2 0% 16% -8% -9% -24% -28% Shenguan 0829.HK 1,278 3.0 3.5 N 10.4 10.1 9.7 3% 2% 4% 3.0 2.7 2.4 31% 28% -9% -11% -13% -13% Huiyuan Juice 1886.HK 938 3.3 NR NR 19.7 18.5 11.9 n/a 7% 56% 0.4 0.5 0.6 0% 4% -22% -38% -25% -33% 18.1 17.7 14.5 11% 3% 29% 1.9 1.8 1.6 11% 13% 11% 1% -5% -13%

Key: OW = Overweight; N = Neutral; UW = Underweight; V = Volatile; NR = not rated Source: Thomson Reuters Datastream for non-rated companies, HSBC estimates for rated companies

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What is aseptic packaging? In the past, perishable food was usually sterilized and packaged in metal cans or glass containers, but then

in the 1950s Tetra Pak, founded in Sweden, invented aseptic packaging in liquid carton form. It was

designed as multi-layered sheets of cardboard, plastic and aluminium foil. Initially, this new aseptic

packaging process was mainly applied to dairy products, and its usage was later expanded to other

products such as juice, RTD tea, soup, and sauces. The packaged products have an extended shelf-life of

six to twelve months, without the need to add preservatives or use refrigeration.

The aseptic packaging materials are made of multiple layers of liquid packaging board (LPB),

polyethylene and aluminium foil. The production process has three stages:

Printing the customer’s original pack design and nutritional information on the LPB, creasing the

printed LPB to make foldable lines for pack forming at the beverage filling stage, and punching straw

holes if required;

Lamination – adding alternative layers of polyethylene and aluminium foil;

Slitting the large rolls of laminated packaging material into smaller reels for sale to customers.

There are two different systems of aseptic packaging: roll-fed and blank-filled. In the roll-fed system, the

aseptic packaging supplier provides the uncut packaging materials in cylindrical rolls to the customer.

The customer then feed the rolls into the roll-fed filling machines, where the packaging material is cut

into individual packs, takes shape as it is filled with the sterilized liquid product and is sealed. Examples

of companies with products packaged under the roll-fed system include Nestlé, Dean Foods, Mengniu,

Yili and Want Want.

Growing market, breaking monopoly

Rising consumption of dairy products and non-alcoholic

beverages will boost demand for aseptic packaging in China

Tetra Pak dominates the market in China and globally, but

competitors are taking share

By providing lower-priced products, Greatview has grown rapidly

in the last decade with a current market share of 14% in China

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In the blank-filled system, the aseptic packaging supplier provides individually cut and pre-shaped aseptic

packs to the customer and the customer fills these packs with the sterilized food and beverage products

using blank-filled type filling machines. For example, UHT milk brands such as Arla Foods and

Deutsches Milchkontor (DMK), Sunraysia and V8 package some of their products in cartons made under

the blank-filled system.

These two systems are not interchangeable. Therefore, customers cannot easily switch between roll-fed

system and the blank-filled system.

Growing dairy market boosts demand Aseptic packaging is mainly used for dairy products in China. The market should be driven by growing

demand for liquid milk and the lack of cold-chain logistics development, resulting in strong demand for

room-temperature products such as UHT milk and milk beverages.

Liquid milk production growth in China slowed from 14% y-o-y in 1H14 to -0.5% in 2H14, mainly due

to a supply shortage in the raw milk market. This resulted from unfavourable weather conditions for raw

milk production and high beef prices which led to slaughtering of cows by dairy farmers. We expect a

recovery in liquid milk production growth in 2014 as milk supply improves with a significant increase in

milk powder imports, which surged by 73% y-o-y in 5M14.

We believe there is long-term growth potential for the liquid milk market in China, as the penetration of

liquid milk is still low compared to other markets, despite growing at a CAGR of 26% from 1kg per

capita in 2000 to 15.9kg per capita in 2012. In South Africa, Japan and Korea, the consumption levels are

1.5-2.2x the level in China, and the ratio is about 7x in Australia and the UK.

China liquid milk production Liquid milk consumption per capita in 2012

Source: CEIC, HSBC Source: Holstein Farmer, Dairy Consultants, HSBC

Greatview brings competition Market dominated by Tetra Pak

Tetra Pak supplies complete solutions for roll-fed aseptic packaging to its customers, including packaging

materials and filling machines, with patented technology. Customers can only use aseptic packaging

materials that are compatible with the standard filling machines. Due to its product exclusivity, Tetra Pak

has dominated the market globally for decades. In 2013, it sold 178.4bn packs around the world in 2013

and led the market with a 58% share, based on market size estimates by TechNavio Analysis.

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Greatview provides cheaper alternatives

In China, Tetra Pak had over 90% market share before Greatview’s entrance in 2004. Established by

former employees of Tetra Pak, Greatview provides aseptic packaging materials that are compatible with

the standard roll-fed filling machines as cheaper alternatives for food and beverage companies in China.

Its lower-price strategy has been successful, as evidenced by the increase in market share from 0% in

2004 to 10% in 2009 to 14% in 2013, and it is now the second-largest aseptic packaging material supplier

in China. We estimate Tetra Pak’s market share in China is still over 60% but has dropped over the last

few years, with more competition in the market.

It is possible for Tetra Pak to reduce prices, but we think the company is unlikely to make a significant

cut to eliminate competitors, as it is now under anti-trust investigation by the State Administration of

Industry and Commerce (SAIC) in China regarding alleged abuses of its market dominance, including

bundling sales and discriminatory treatment of customers. Under the close watch of Chinese regulators,

Tetra Pak may hesitate to adopt a hostile pricing strategy. In 1991 Tetra Pak incurred heavy penalties

under EU competition law, fined EUR75m for anti-competitive practices such as predatory pricing.

Besides, Tetra Pak may not be able to satisfy all the demand for aseptic packaging in China if it were the

only company in the industry due to its current capacity constraints. The estimated sales volume of the

total market was about 66bn packs in 2013. Tetra Pak has a production capacity of 60bn packs in China

compared to Greatview’s 17.4bn packs, and we believe the normal utilization rate averages at 60-70% for

Tetra Pak and Greatview’s factories, due to maintenance of the facilities, time for changing specification

for different customer orders, and so on.

Market share breakdown of aseptic packaging in China

Source: Frost & Sullivan, TechNavio Analysis, HSBC estimates

In the international market, Greatview is relatively small with about a 3% market share. Its lower-price

strategy is also followed in markets other than China, and the company has secured a number of European

leading dairy brands as customers. Although the volume is still small, its overseas sales grew at an 81%

CAGR over the last five years.

We think the presence of Greatview in the market is welcomed by its customers, since Greatview

offers lower-priced products and weakens Tetra Pak’s monopolistic position and hence its pricing power.

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We also believe that Greatview’s product quality is up to standard as proven by its long-term supplying

relationship with the leading dairy brands such as Mengniu and Yili, and the company should continue to

gain share in the coming years.

Other players

According to TechNavio Analysis, the global market of aseptic packaging is 87-91%, dominated by the

roll-fed system, and the blank-filled system takes up the rest. SIG Combibloc (unlisted), based in

Switzerland, is the largest supplier of blank-filled aseptic packaging in the world. It has about a 10%

market share in China.

Besides the top three companies mentioned, about 10-12% of the aseptic packaging market in China is

represented by a number of smaller local suppliers as well as foreign companies.

Favourable court ruling

Although Greatview develops its own aseptic packaging materials for sale, the products need to be

compatible with the standard filling machines, which are mostly produced by Tetra Pak. Before

Greatview’s listing in Hong Kong in December 2010, Tetra Pak took legal action against Greatview on

patent infringement.

In July 2010, Tetra Laval, the parent group of Tetra Pak, brought a claim against Greatview in Germany

alleging infringement of a European patent related to aseptic packaging material. The legal battle that

followed is summarized in the table below.

Timeline of legal actions by Tetra Pak and Greatview

Date Event

Jul-10 Tetra Pak filed a patent infringement claim against Greatview in Germany Sep-10 Greatview filed a notification of intention to defend against the claimOct-10 Greatview commenced opposition proceedings before the European Patent Office (EPO) to invalidate the patent in question with

effect in all EPO member states Dec-11 The court denied Tetra Pak’s patent infringement claim Jan-12 Tetra Pak filed an appeal against the judgement Nov-12 The subject patent was revoked in its entirety by EPO Apr-13 Tetra Pak files an appeal against the patent revocation by EPODec-13 Both appeals filed by Tetra Pak are pending decision

Source: Company

So far, the judgements by the German court and EPO have been in favour of Greatview. If Tetra Pak’s

appeal against the patent revocation does not succeed, the claim for patent infringement becomes invalid.

Tetra Pak under anti-trust investigation in China

Tetra Pak is also under anti-trust investigation in China. In July 2013, China’s State Administration of

Industry and Commerce (SAIC) announced that it had started an anti-trust investigation into Tetra Pak for

its abuse of market dominance, including bundling sales of packaging materials with packaging equipment

and repairing services, as well as discriminatory treatment of customers. SAIC stated in March 2014 that it

has had partial success in the investigation and will announce the results to the public when it is complete.

Although the anti-trust investigation is still in progress, the initiation of the investigation bodes well for

the competitive environment, as it suggests the Chinese government is paying attention to Tetra Pak. This

could benefit Greatview as the alternative supplier of aseptic packaging materials.

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Dairy products are the focus Greatview’s aseptic packaging materials are used for filled products such as UHT milk, flavoured milk

drinks, juice, and ready-to-drink (RTD) tea in carton or pouch form, providing sterile packaging and

allowing storage without refrigeration. They are sold as rolls of printed packaging materials which are

ready for customers to feed into standard filling machines to package dairy or beverage products in

different pack sizes, ranging from 200ml to 1000ml.

The company provides its products at more competitive prices than Tetra Pak to a number of leading

dairy and beverage companies in China such as Mengniu and Yili, as well as in the global market,

including in Europe, Japan and South America. In 2013, 94% of total sales were represented by

packaging materials for dairy products and the rest was for non-carbonated soft drinks. Domestic sales in

China accounted for 86% of its total revenue in 2013, of which we estimate 98% was for dairy products

and the rest for non-carbonated soft drinks.

Greatview – sales breakdown by market Greatview – sales breakdown by use of product

Source: Company data, HSBC Source: Company data, HSBC

Greatview also supplies support services on standard roll-fed filling machines as well as machine spare

parts to its customers. However, the company does not manufacture filling machines for commercial sale.

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Market share taker

More than 90% of Greatview’s sales go to package dairy products

We expect Greatview will continue to gain market share from

Tetra Pak with its lower-price strategy

Capacity expansion should support sales volume growth

domestically and overseas

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Since most of Greatview’s aseptic packaging materials are sold for dairy products in China, the

company’s sales volume growth has been highly correlated to China’s liquid milk production growth over

the last few years (95% during 2009-13). Between 2008 and 2013, Greatview’s sales volume grew at a

CAGR of over 30%, outpacing the 9% CAGR of China’s liquid milk production, implying Greatview has

gained market share over the last few years.

Greatview’s sales volume growth vs China’s liquid milk production growth

Source: Company data, CEIC, HSBC

Production capacity expansion Greatview has two production bases in China in Gaotang, Shandong Province, and Helingeer, Inner

Mongolia, and one in Germany. The company also has R&D centres in Beijing and Shanghai to develop

and produce spare parts for its customers’ filling machines.

There are three production lines in Gaotang with an annual production capacity of 9.1bn packs. The third

line with a capacity of 4bn packs was newly completed at the end of 2013 and started operation in 1H14.

At the Helingeer factory, there are two production lines with a total production capacity of 8.3bn packs.

Together with the production line in Germany which was added in December 2012 with a capacity of 4bn

packs, the company currently has a total production capacity of 21.4bn packs.

New product development

Having been producing roll-fed aseptic packaging materials since its establishment, Greatview is planning

to add a new production line with blank-filled type products later this year at the Helingeer factory.

However, this should require Greatview’s own R&D to develop the new packaging materials that are

compatible with the blank-filled type filling machines, and we think it is likely that the product testing

procedures before commercial launch will take some time.

While we expect limited earnings impact from the new products in the near term, we believe it will not be

difficult for Greatview to expand its market share further with the new products in the long run, since the

company’s largest customers such as Mengniu and Yili are already customers of SIG Combibloc with

blank-filled type filling machines in operation.

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Sales volume yoy (LHS) China liquid milk production yoy (RHS)

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Additional investment in the European plant

With the strong demand in the European market, the company extended its overseas reach by constructing

a production plant in Europe. This started operation in December 2012, with an annual production

capacity of 4bn packs. The factory is located in Germany where the company sources the production

equipment supplies. It should enable the company to save on transportation costs for sales in Europe in

the long run. The company signed a proposal in May 2013 to invest EUR38m in a second production line

to add 4bn more packs of annual capacity which we expect to start operation in 2016.

Based on the market size estimate by TechNavio Analysis, Greatview’s global market share including

China was still low in 2013, at about 3%. We believe there is ample room for Greatview to grow its

overseas sales as it offers competitive pricing with proven product quality and compatibility, as supported

by the expansion of production capacity.

Greatview – production capacity


Raw materials Raw materials take up 85-90% of COGS, and the bulk of these are liquid packaging board (LPB) and

polyethylene, but there are also other materials such as aluminium foil, ink and product packaging materials.

LPB represents more than half of the raw material costs and about 45% of COGS. There are only a few

vendors of LPB globally, and Greatview mainly procures LPB from MeadWestvaco (MWV US, not

rated) and IP-Sun, a joint venture between International Paper (IP US, not rated) and Shandong Sun Paper

Industry (002078 CH, not rated). This year, Greatview has added two other suppliers of LPB, which

should help increase its bargaining power over the LPB suppliers in the long run.

Polyethylene accounts for about 20% of COGS and its price is highly correlated to the crude oil price.

While Greatview does not have hedging arrangements for fluctuations in polyethylene prices,

polyethylene represents a smaller part of costs and normally has less effect on the company’s gross

margin. The exception was in 2009 when crude oil and polyethylene prices dropped significantly by

about 40% y-o-y.

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COGS breakdown


SWOT analysis Strengths

One of the largest aseptic packaging and services providers in China.

Competitive pricing with proven track record to gain market share.

Management team with strong experience in the aseptic packaging industry.

Weaknesses

Low pricing power due to head-on competition with the dominant player Tetra Pak.

Customer concentration with the largest customer accounting for 41% of total sales.

Opportunities

Growing demand for dairy products in China.

New factory in Germany to accelerate sales growth in the overseas markets.

Development of new products for blank-filled type filling machines.

Threats

Successful patent infringement claims by Tetra Pak.

Large fluctuations in raw material prices.

LPB45%

Poly-ethylene

20%

Other raw materials

20%

Labour5%

D&A6%

Others4%

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Volume-driven growth As over 90% of Greatview’s total sales are dairy product packaging, we believe that the growing demand

for dairy products in China and Greatview’s overseas expansion should support the company’s growth.

While we expect Greatview’s ASP to drop in the next few years as the company aims to increase its market

share, its top line should rise 21% in 2014e, 19% in 2015e, and 18% in 2016e, mainly supported by volume

growth, driving earnings growth 13%, 21%, and 16%, respectively, in those years.

Revenue outlook

With little pricing power, Greatview has not been able to raise its product prices. In order to compete with

Tetra Pak and grab market share, Greatview will likely lower its selling prices in the next few years and

we factor in an ASP cut of 4% in 2014e and 2% in both 2015e and 2016e. This should help the company

increase its domestic sales volume by 21% in 2014e, and 18% in 2015e and 2016e, supported by the

increasing consumption of liquid milk in China. For its overseas sales, we project volume growth to be

higher at 50% in 2014e, 35% in 2015e and 30% in 2016e from a low base with the ramp-up of utilization

of its production plant in Germany, which started operation at the end of 2012.

Secular earnings growth

Sales revenue should grow at a 19% CAGR in the next three

years, supported by increasing sales volume

Margins should remain largely steady in 2014-16e, with improving

profitability at the European plant offsetting the effect of ASP cuts

We project a net profit CAGR of 17% over 2014-16e, driven by

top-line growth

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Margins to remain steady

We project Greatview’s gross margin to be largely steady at 25.1-25.6% in 2014-16e. While the gross

margin for the domestic market should drop due to declining ASP, this should be offset by the improving

margin for the overseas business due to production ramp-up at the new plant in Germany. We expect raw

material costs to be broadly stable, with LPB and polyethylene cost increases mostly offset by falling

aluminium prices.

Polyethylene price Aluminium price

Source: CMAI Source: CEIC

In 2010-12, Greatview’s gross margin was relatively steady at 30-32%, but it dropped to 26.8% in 2013,

mainly due to the loss at the new production plant in Germany resulting in a -6.6% gross margin for

overseas business. The plant started operation in December 2012 and was in the ramp-up stage during

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Greatview – sales assumptions

Year to 31 Dec (RMBm) 2013 2014e 2015e 2016e

Sales by region China 1,859 2,159 2,497 2,888 International 301 451 609 791 Total 2,160 2,610 3,106 3,679 y-o-y PRC 17.1% 16.2% 15.6% 15.6% Int’l 91.4% 50.0% 35.0% 30.0% Total 23.8% 20.9% 19.0% 18.5% Sales volume (bn packs) China 9.2 11.1 13.1 15.5 International 1.4 2.0 2.7 3.6 Total 10.5 13.2 15.9 19.1 y-o-y China 17% 21% 18% 18% International 91% 50% 35% 30% Total 22% 25% 21% 20% ASP (RMB/pack) China 0.20 0.19 0.19 0.19 International 0.22 0.22 0.22 0.22 Overall 0.21 0.20 0.20 0.19 y-o-y China -4% -2% -2% International 0% 0% 0% Overall 1% -4% -1% -1%


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2013 with an average utilization rate of 30%, compared to the normal level of 60-70% at the company’s

factories in China.

We believe the profitability of the overseas business should improve in the next three years as the

utilization rate of the German plant goes up. We do not expect the overseas business to turn to profit until

2015-16e, but it should breakeven at the gross margin level in 2014e.

Greatview – gross margin breakdown

Year to 31 Dec 2013 2014e 2015e 2016e

China 32.2% 30.8% 29.9% 29.3% International -6.6% 0.0% 8.0% 10.0% Total 26.8% 25.5% 25.6% 25.1%


Capex and cash flow We estimate Greatview’s capex to be RMB200m in 2014e and RMB300m in 2015e, which we expect to

be mainly spent on the additional production facilities for new blank-filled type products and for the

proposed second production line in Germany. We believe Greatview can fund its capex requirements with

internal operating cash flow thanks to steady earnings growth and working capital. We expect the

company to generate positive free cash flow in the next few years and remain in a net cash position.

Preview of 1H14 results We expect Greatview to post a net profit of RMB156m, up 9% y-o-y, in 1H14. Total revenue should rise

by 15% to RMB1,133m, driven by 20% y-o-y growth in sales volume along with a 4% lower ASP. We

project gross margin to be 26%, down from 27.4% in 1H13, as a result of lower ASP.

Greatview – semi-annual estimates for 2014

Year to 31 Dec (RMBm) 1H13 2H13 1H14e 2H14e

Sales 983 1,176 1,133 1,477 EBIT 185 232 206 268 Net profit 142 175 156 204 Margins Gross margin 27.4% 26.3% 26.0% 25.1% EBIT margin 18.8% 19.8% 18.1% 18.2% Net margin 14.5% 14.9% 13.8% 13.8% Growth rate Sales growth 14% 33% 15% 26% EBIT growth -7% 17% 11% 16% NI growth -10% 12% 9% 17%


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Greatview – income statement

Year to 31 Dec (RMBm) 2011 2012 2013 2014e 2015e 2016e

Sales 1,574 1,744 2,160 2,610 3,106 3,679 COGS (1,099) (1,194) (1,580) (1,944) (2,311) (2,755) Gross profit 475 550 579 666 794 924 Other income, net 19 42 56 64 75 89 Distribution costs (81) (87) (105) (123) (143) (167) Admin expenses (96) (108) (114) (133) (154) (180) EBIT 318 397 417 474 572 666 Finance income, net (2) (0) (0) (1) (1) (2) PBT 316 397 417 473 571 664 Tax (52) (82) (99) (114) (137) (159) Net profit 263 315 317 360 434 505 Margins Gross margin 30.2% 31.6% 26.8% 25.5% 25.6% 25.1% EBITDA margin 23.4% 26.2% 23.5% 21.8% 22.0% 21.5% EBIT margin 20.2% 22.8% 19.3% 18.2% 18.4% 18.1% PBT margin 20.0% 22.8% 19.3% 18.1% 18.4% 18.1% Net margin 16.7% 18.1% 14.7% 13.8% 14.0% 13.7% Key ratios Distribution costs as % of sales 5.1% 5.0% 4.9% 4.7% 4.6% 4.5% Adm exp as % of sales 6.1% 6.2% 5.3% 5.1% 5.0% 4.9% Effective tax rate 16.6% 20.7% 23.9% 24.0% 24.0% 24.0% Growth rate Sales growth 36% 11% 24% 21% 19% 18% Gross profit growth 29% 16% 5% 15% 19% 16% EBITDA growth 32% 24% 11% 12% 20% 16% EBIT growth 33% 25% 5% 14% 21% 17% NI growth 31% 20% 1% 13% 21% 16%


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Greatview – balance sheet


PPE 792 1,032 1,251 1,355 1,545 1,719 Land use rights 3 3 5 7 10 12 Intangible assets 52 54 54 54 54 54 Deferred tax assets 22 20 29 29 29 29 LT prepayment 117 103 10 10 10 10 Non-current assets 985 1,212 1,350 1,456 1,648 1,824 Inventories 355 475 437 586 697 830 Trade receivables, other receivables and prepayments

460 417 582 665 791 937

Restricted cash 20 6 91 91 91 91 Cash & bank balances 254 295 295 284 233 220 Current assets 1,088 1,194 1,405 1,627 1,812 2,079 LT loans 33 – – – – – Deferred govt grants 9 80 108 108 108 108 Deferred tax liabilities 4 5 3 3 3 3 Non-current liabilities 46 85 111 111 111 111 Trade payables, other payables and accruals

196 286 338 415 494 589

Income tax liabilities 20 25 32 42 52 62 ST loans 172 150 177 177 177 177 Current liabilities 387 460 547 635 723 828 Combined capital and capital reserve

931 938 962 962 962 962

Statutory reserve 85 113 145 181 225 275 FX reserve (31) (24) (23) (23) (23) (23) Retained earnings 655 833 1,012 1,216 1,462 1,749 Total equity 1,640 1,860 2,097 2,337 2,627 2,964 Liquidity Total debt 204 150 177 177 177 177 Cash and cash equivalents 274 301 386 376 325 311 Net cash/(debt) 69 152 209 198 147 134 Net debt/equity NC NC NC NC NC NC Current ratio 2.8x 2.6x 2.6x 2.6x 2.5x 2.5x Quick ratio 1.9x 1.6x 1.8x 1.6x 1.5x 1.5x Inventory days (average) 93 127 105 96 101 101 Receivable days (average) 91 92 84 87 86 86 Payable days (average) 54 74 72 71 72 72 Cash conversion cycle 129 145 118 112 115 115


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Greatview – cash flow statement


PBT 316 397 417 473 571 664 Amortisation of intangible assets and land use right

1 1 2 2 2 2

Amortisation of deferred revenue (0) (1) (5) Depreciation 50 59 89 96 110 126 Impairment provision 0 3 (1) Provision for obsolescence on inventories 4 1 (0) Loss on disposal of PPE 0 0 (0) Share-based payment 15 7 6 Finance income, net 2 0 0 1 1 2 FX 12 (4) (9) Operating Cash Flow 400 464 499 572 684 795 Change in inventories (155) (121) 38 (149) (111) (134) Change in trade receivables, other receivables and prepayments

(121) 54 (246) (83) (126) (146)

Change in trade payables, other payables and accruals

36 89 49 78 78 95

Cash generated from operations 160 487 341 418 525 610 Interest paid (6) (4) (4) (1) (1) (2) Tax (44) (75) (103) (104) (127) (149) Net cash flow from operating activities 110 408 233 313 397 459 Capex (380) (275) (205) (200) (300) (300) Prepayment of PPE (80) – – Interest paid – capitalised (PPE) (2) – – Value added tax paid (PPE) (23) – – Government grant received related to PPE – 72 32 Proceeds from disposal of PPE 0 0 0 Acquisition of land use rights – – (2) (2) (2) (2) Purchase of intangible assets (1) (4) (2) (2) (2) (2) Interest received 4 6 4 Net cash flow from investing activities (482) (200) (173) (204) (304) (304) Proceeds from IPO/issuance of shares – – 18 Proceeds from borrowings 282 749 818 – – – Repayments of borrowings (180) (805) (791) Dividends paid to equity holders – (109) (106) (119) (144) (168) Net cash flow from financing activities 102 (166) (61) (119) (144) (168) Net change in cash & cash equivalents (271) 42 (1) (10) (51) (14) Cash & bank balances – BoY 527 254 295 295 284 233 FX (3) (0) (0) Cash & bank balances – EoY 254 295 295 284 233 220


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DCF valuation We value Greatview using the discounted cash flow (DCF) methodology to capture its long-term growth

potential, and we expect the company will continue to generate positive free cash flow in the following

years. We use a three-stage DCF model for Greatview with the following assumptions:

Stage one: an explicit period of three years (2014-16e) with a revenue CAGR of 19% and a

NOPLAT CAGR of 17%.

Stage two: a semi-explicit period of seven years with a NOPLAT CAGR of 9%. We expect the EBIT

margin to slightly decline to 15-17% from 18% in 2016e, mainly due to cost inflation and the

company having little pricing power with which to raise ASP.

Stage three: a terminal growth rate of 2%.

For our DCF model, we use an industry beta of 1.0 (same as the China dairy sector) and a higher

company-specific beta of 1.1 reflecting its weak pricing power and risk of successful claims by Tetra Pak

on patent infringement to derive an overall beta of 1.1. This results in a WACC of 9.6% with a risk-free

rate of 3.5%, an equity risk premium of 6% and a cost of debt of 3%. Our target price is HKD6.9,

implying 16.7x 2015e PE. This is higher than the historical average of 14.5x forward PE, and we think it

is justified given our expectation of further ROIC improvement.

The risk-reward also looks favourable at the current 14x 2015e PE for a 17% 2014-16e earnings CAGR.

The stock is now at a 1.0x PEG ratio (on 2014-16e CAGR), and our target price implies a 1.1x PEG ratio,

compared to historical average forward PEG of 1.4x.

The company’s free cash flow has turned positive and it started to pay dividends in 2012. As we expect

the company to maintain its net cash position and to continue to generate positive free cash flow, it will

likely maintain a pay-out ratio of around 33% going forward, which is the same level as in 2013. This

implies a dividend yield of 2% at the current share price level.

Valuation and risks

We use the DCF methodology to value Greatview

The company has paid a dividend since 2012 and we expect a

33% pay-out ratio going forward

Initiate at Overweight with a target price of HKD6.90, implying

16.7x 2015e PE

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Under our Equity Research model, the 12-month potential return band required for a non-volatile stock to

merit a Neutral rating (the ‘Neutral band’) equals the local hurdle rate (average cost of equity) set by our

Global Equity Strategy team, plus or minus 5ppt. The hurdle rate for China is 9.5%; this translates into a

Neutral band of 4.5-14.5%. Our target price of HKD6.90 implies a potential return of 20.2% (excluding

forecast dividend yield), which is above the Neutral band; we therefore initiate coverage with an

Overweight rating on Greatview shares. Potential return equals the percentage difference between the

current share price and the target price, including the forecast dividend yield when indicated.

Greatview – DCF valuation

Year to 31 Dec (RMBm) 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e

Revenue 2,610 3,106 3,679 4,283 5,042 5,680 6,328 6,908 7,502 8,148 % Chg. 21% 19% 18% 16% 18% 13% 11% 9% 9% 9% EBIT 474 572 666 728 844 949 1,041 1,100 1,142 1,185 – EBIT margin 18% 18% 18% 17% 17% 17% 16% 16% 15% 15% Tax (114) (137) (159) (174) (202) (227) (249) (263) (273) (284) – Tax to EBIT ratio 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% NOPLAT 360 435 507 553 642 722 792 837 869 901 % Chg. 14% 21% 17% 9% 16% 13% 10% 6% 4% 4% D&A 98 112 128 148 170 194 222 252 285 318 Capex (200) (300) (300) (400) (400) (500) (500) (600) (600) (600) FCF 259 247 335 301 412 417 514 489 554 619 Discount factors 1.00 0.91 0.83 0.76 0.69 0.63 0.58 0.53 0.48 0.44 PV of cash flow 259 225 279 229 285 264 296 257 266 271

DCF 2,632 Continuing value 4,692 Total value (RMBm) 7,324

Value per share (RMB) 5.4 Value per share (HKD) 6.9

Source: HSBC estimates

Greatview – 12M-forward PE bands

Source: Thomson Reuters Datastream, Company data, HSBC estimates

Key downside risks to our view

Slower-than-expected demand for liquid milk and other beverage products that use aseptic packaging

due to macroeconomic factors or food safety issues affecting the company’s customers.

Contingent claims by competitors on patent infringement resulting in fines.

Increased competition with Tetra Pak with more aggressive price discounts.

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Company history The history of Greatview Aseptic Packaging can be traced back to 2001 when Shandong Tralin Packaging

was established by Shandong Tralin Paper (controlled by Mr. Li Hongfa), Liu Baozhong and Li Donghua.

Its first production line was in Gaotang, Shandong Province to make multi-layered packaging materials,

paper cartons and other paper packages for beverage companies in China.

Mr Bi Hua, Mr Hong Gang, Mr Chen Guining and Mr Yang Jiuxian, who are now members of the

company’s senior management, joined Shandong Tralin Packaging in 2003 from Tetra Pak. They took

advantage of their industry knowledge and experience to streamline the business and production

equipment and prepared the company to enter the aseptic packaging market. In 2004, the company

established its Beijing R&D Centre and started to produce aseptic packaging materials compatible with

industry standard roll-fed filling machines in two general forms: the carton form under the name “Tralin

Brick” and the soft-pouch form under the name “Tralin Pilo”.

During 2005 and 2006, the company obtained equity investment from CDH Packaging and Bain Capital,

both of which are financial investors, to repay financing from Shandong Tralin Paper and increase its

production capacity. The company also began securing sales orders from companies such as Mengniu and

Yili. In 2007, the second production line in Gaotang was built and Beijing Tralin, another subsidiary, was

established to focus on servicing customers’ standard roll-fed machines and providing spare parts. The

company also started its overseas sales in Europe in the same year. A new subsidiary, Tralin Pak Europe,

was set up in 2009 to expand the business in Europe.

Construction was completed for the second factory in Helingeer, Inner Mongolia, in 2010, with the

company’s total annual production capacity increased from 5.1bn packs to 9.4bn packs. At the end of

2013, the annual production capacity of the company reached 17.4bn packs with two production lines

each in the Gaotang and Helingeer factories as well as one in Europe.

Company background

Greatview was founded by former employees of Tetra Pak in early

2000s

The CEO and Chairman hold a combined 16% interest, and

pre-IPO investors have already exited in 4Q13

Management team led by co-founders with over 17 years of

experience in the aseptic packaging industry

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The group went public on the Stock Exchange of Hong Kong as Greatview Aseptic Packaging Company

Limited on 9 December 2010.

Shareholding structure

Currently, the largest shareholders of Greatview are institutional investors, while Mr Bi (CEO) owns

9.6% and Mr Hong (Chairman) owns 6.4%. CDH Packaging and Bain Capital, as pre-IPO investors, used

to be the largest shareholders, with a combined shareholding of 55.5% at the IPO in December 2010, but

sold their stakes over the following three years and completed their exit in 4Q13.

Management profiles Bi Hua, Chief Executive Officer

Mr Bi Hua (50 years old) is a co-founder of the company and became an executive director on 29 July

2010. He is primarily responsible for the company’s overall business strategy formulation, execution and

organizational development.

Mr Bi has more than 17 years of experience in marketing development in the aseptic packaging industry

as well as company management. From 1997 to 2003, he was a sales and marketing manager at Tetra Pak.

From 1992 to 1997, Mr Bi was the Greater China manager of Echostar Corporation, a software and

service provider for television companies worldwide. Mr Bi graduated from the University of Denver

with a Master of Arts degree in 1991.

Hong Gang, Chairman

As one of the co-founders of the company and an executive director from July 2010, Mr Hong Gang (55

years old) is mainly responsible for the strategic development of the company, as well as supervision of

marketing, communications and investor relations.

Mr Hong has more than 25 years of experience in the packaging industry. From 1993 to 2002, he held

various executive positions with Tetra Pak. Mr Hong graduated from Zhejiang University in China with a

Bachelor of Science degree in 1982 and obtained a Master of Philosophy degree from Sussex University

in the United Kingdom in 1987.

Chang Fuquan, Chief Financial Officer

Mr Chang Fuquan (56 years old) is the company’s Chief Financial Officer and one of the company’s joint

company secretaries. Mr Chang joined the company in June 2005 and has over 25 years of experience in

financial management. He is primarily responsible for the overall accounting, financial management and

treasury of the company. Mr Chang had been the CFO of Fujian Nanping Nanfu Battery Co., Ltd. from

2002 to 2005, the finance controller of John Deere Jialian Harvester Co. Ltd. from 1999 to 2001, the

deputy finance controller of China Automotive Components Corporation from 1997 to 1999.

Mr Chang graduated from Xiamen University in the PRC in 1985, majoring in International Accounting.

He completed a Master of Accounting Class in Xiamen University in China in 1998.

Chen Guining, Chief Technical Officer

Mr Chen (58 years old) has over 22 years of experience in the aseptic packaging industry. He joined

the company in May 2003 and is mainly responsible for aseptic packaging filling line production and

maintenance. Before joining the company, Mr Chen was a technical service engineer of Tetra Pak.

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Mr Chen graduated from the Beijing Open University with a Bachelor of Science in Machinery Science

in 1983.

Lan Qintang, Converting Director

Mr Lan (56 years old) joined the company in April 2012, overseeing all converting plants in the Group.

He has 26 years of experience in converting of aseptic packaging material industry. Prior to joining the

company, he had been working as a factory director in Great China area at Tetra Pak. Mr Lan graduated

from Si Xin University in Taiwan, where he majored in Printing Engineering.

Liu Jun, Chief Operating Officer

Mr Liu (52 years old) joined the company in October 2009. He is primarily responsible for management

and operations. Mr Liu has nearly 22 years of experience in management and technology, including many

years in high-tech industries. Mr Liu graduated from Peking University in the PRC with a Bachelor of

Science in Physics in 1983. He obtained a PhD in Materials Science and Applied Physics from Cornell

University in 1992 and an Executive MBA from the China Europe International Business School in the

PRC in 2008.

Yang Jiuxian, Sales Director

Mr Yang (50 years old) joined the company in September 2003 and is primarily responsible for domestic

sales. He has over 15 years of experience in dairy industry management and sales. Mr Yang was the

general manager of NIUMAMA Dairy Co., Ltd. in 2003. Before that, Mr Yang was a key account

manager for a leading aseptic packaging materials producer Tetra Pak from 1998 to 2003. Mr Yang

graduated from the Beijing Union University with a Bachelor of Chinese Language and Literature degree

in 1986.

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Notes

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Notes

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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: Alice Chan, Christopher Leung and Erwan Rambourg

Important disclosures

Equities: Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor’s existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: (1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12-month horizon; and (2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0- to 3-month horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor’s decision to buy or sell a stock should depend on individual circumstances such as the investor’s existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts’ views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings HSBC assigns ratings to its stocks in this sector 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 price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 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, must exceed the required return by at least 5ppt over the next 12 months (or 10ppt for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5ppt over the next 12 months (or 10ppt for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any ‘material change’ (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is 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 has to move 2.5ppt past the 40% benchmark in either direction for a stock’s status to change.

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Rating distribution for long-term investment opportunities

As of 29 July 2014, the distribution of all ratings published is as follows: Overweight (Buy) 44% (31% of these provided with Investment Banking Services)

Neutral (Hold) 37% (31% of these provided with Investment Banking Services)

Underweight (Sell) 19% (26% of these provided with Investment Banking Services)

HSBC & Analyst disclosures Disclosure checklist

Company Ticker Recent price Price Date Disclosure

GREATVIEW 0468.HK 5.93 28-Jul-2014 7Source: 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 30 June 2014 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 30 June 2014, 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 June 2014, 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 June 2014, 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 HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (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 revenues.

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

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 30 July 2014. 2 All market data included in this report are dated as at close 24 July 2014, 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 and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. 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Europe Consumer Brands & Retail Antoine Belge Head of Consumer Brands and Retail Equity Research +33 1 56 52 43 47 [email protected]

Cedric Besnard Head of Consumer Staples Equity Research, Developed Europe +33 1 56 52 43 66 [email protected]

Florence Dohan Analyst +44 207 992 4647 [email protected]

David McCarthy Head of Consumer Retail, Europe +44 207 992 1326 [email protected]

Jérôme Samuel Analyst +33 1 56 52 44 23 [email protected]

Emmanuelle Vigneron Analyst +33 1 56 52 43 19 [email protected]

Paul Rossington Analyst +44 20 7991 6734 [email protected]

Leisure Lena Thakkar Analyst +44 20 7991 3448 [email protected]

CEEMEA Consumer Brands & Retail Bulent Yurdagul Analyst +90 212 3764612 [email protected]

Jeanine Womersley Analyst +27 21 6741082 [email protected]

Erin Archer Analyst +27 11 676 4537 [email protected]

Specialist Sales Lynn Raphael +44 20 7991 1331 [email protected]

David Harrington +44 20 7991 5389 [email protected]

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

Chris Zee Analyst +852 2822 2912 [email protected]

Christopher Leung Analyst +852 2996 6531 [email protected]

Lina Yan Analyst +852 2822 4344 [email protected]

Catherine Chao Analyst +852 2996 6570 [email protected]

Charlene Liu +852 2822 4398 [email protected]

Alice Chan +852 2996 6535 [email protected]

Karen Choi Analyst +822 3706 8781 [email protected]

Jena Han Analyst +822 3706 8772 [email protected]

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

Ananita M Kusumaningsih Analyst +65 6658 0610 [email protected]

Thilan Wickramasinghe Analyst +65 6658 0609 [email protected]

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

North & Latin America Consumer & Retail Richard Cathcart Analyst +55 11 2169 4429 [email protected]

Stewart Ragar Analyst +1 212 525 3460 [email protected]

Manisha A Chaudhry Associate +1 212 525 3035 [email protected]

Food & Beverage Lauren Torres Analyst +1 212 525 6972 [email protected]

James Watson Analyst +1 212 525 4905 [email protected]

Diego T Maia Analyst +55 11 33718192 [email protected]

Agricultural Products Alexandre Falcao Analyst +55 11 3371 8203 [email protected]

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

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

Global Consumer Brands & Retail Research Team

mailto:[email protected]













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Greatview (468 HK)doc.xueqiu.com/147850fce82703fe70e1bfd5.pdf · Tetra Pak (unlisted) with a share of over 90%. Thanks to its quality product offering at competitive prices, Greatview