Spring 2012 Stock Pitch Competition 23 February, 2012

Spring 2012 Stock Pitch Competition

Spring 2012 Stock Pitch Competition 23 February, 2012


Agenda

1 About the Stock Pitch Competition

2 Student Investment Fund update

3 Competition’s Judges

4 Stock Pitch Finalists

5 Student Presentations

6 Judges’ final decision

Autumn 2011 Stock Pitch CompetitionSpring 2012 Stock Pitch CompetitionSpring 2012 Stock Pitch Competition


About the Stock Pitch Competition (I)

Objectives• Select stocks for the Student Investment Fund

• Allow students to practice a fundamental skill for Investment Management and Investment Management interviews

Description• Held twice a year (Spring/Autumn)

• 5 finalists chosen to present their ideas to judges from sponsoring firms

• Top placed students will represent the School at the inter business school Alpha Challenge held in the US

Autumn 2011 Stock Pitch CompetitionSpring 2012 Stock Pitch Competition


About the Stock Pitch Competition (II)

Rules• Participants have to select a stock that represent a good investment opportunity and put

together a convincing recommendation

• All participants have to submit a one-page summary of their recommendation using a pre-determined template for review by the judges

• Company must be listed on one of the following exchanges: • USA: NYSE, NASDAQ, AMEX • Canada: TSE, Canadian Venture Exchange• Europe: LSE, Paris Bourse, Deutsche Bourse, Amsterdam SE, Madrid SE, Brussels SE,

Swiss Exchange, Stockholm SE• Asia: Australia SE, Hong Kong SE, Singapore SE

• Market capitalisation must be over $50m

• Daily Liquidity/Volume: >$250k (3mo avg.)

• Finalists will be invited to pitch their idea in front of the judges at the final round


Agenda








Student Investment Fund update (I)

Performance update as of 20th February 2012

Since inception 1 Year YTDSIF 109.5% -2.7% -0.03%MSCI All Country World Index 86.8% -7.3% 3.2%Over/Under-performance 22.7% 4.7% -3.2%


Student Investment Fund update (II)

Portfolio Composition: GBP 276,880 in equities and GBP 3,972 in cash


Agenda








Daniel M. BrocklebankOrbis Mr. Brocklebank joined Orbis in 2002 and is now a Director of the Company. He has primary responsibility for the UK‐based team of global sector investment analysts and has previous experience at Arthur Andersen. Master of Arts (Honours) in Politics, Philosophy and Economics (Brasenose College, University of Oxford), Chartered Accountant, CFA.

Jon GuinnessFidelity Worldwide InvestmentMr. Guinness joined Fidelity in of 2005 as an MBA intern and re-joined Fidelity in Autumn 2006, upon graduating from LBS. He has covered UK Non-Food Retail, UK Housebuilders and Builders, and Large Cap Telecoms, and was a TMT Team Leader..Now Jon covers US Consumer companies for the Global Team and has previous experience at Bain. He has a Masters Degree from LSE and graduated in Economics from Cambridge University.

Alexandra PerriconeSanford C. BernsteinAlexandra Perricone joined Sanford C. Bernstein in 2009 as Associate Director of European Research. Ms Perricone started her career in fixed income sales at Nomura and then moved into equity research, first at Dresdner Kleinwort and then at HSBC. In 2006, she joined Lehman Brothers to run the Graduate Training and Development Programme for the Investment Banking Division. Immediately prior to joining Sanford C. Bernstein, Ms Perricone was co-Head of Soft Skills Training for Moody's Analytics. Alexandra graduated in Modern Languages at Oxford University.

Competition’s Judges


Agenda








Stock Pitch Finalists

• JP MonforteMIF 2012Dell Inc.

• Samuel KimMBA 2012Lifestyle International Holdings Ltd

• Yabing WuMiM 2012Altria Group Inc.

• Harshita RawatMBA 2013SanDisk Corporation

• Stelios FragosMBA 2013Cheniere Energy Inc.


Agenda







LBS Stock Pitch 2012 JP Monforte

Dell in a nuthsell (i)

• Founded in 1984 by Michael Dell• Market cap of $ 32.6 billion• Dell sells desktops, notebooks, servers, storage,

services, and software and peripherals to enterprises and consumers across the globe

Dell in a nutshell (ii)

Global Large En-terprise

29%

Global Pub-lic

27% Global Small and Medium Business

24%

Global Consumer20%

Revenues by Business Unit

Servers and Networking12% Storage

4%

Services12%

Software & Peripherals17%

Mobility31%

Desktop PCs24%

Revenues by product

Source: Dell

Historical Performance

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

10000

20000

30000

40000

50000

60000

70000

Sales

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

1000

2000

3000

4000

5000

6000

EBITDA

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

5001000150020002500300035004000

Net Income

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

2000

4000

6000

8000

10000

12000

Net cash

Source: Factset

Market share

Source: Dell and IDC

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

WW Client PCs 13% 15% 16% 17% 18% 16% 14% 14% 13% 13%USA 24% 29% 32% 35% 36% 33% 29% 29% 24% 23%EMEA 9% 9% 10% 11% 12% 12% 11% 11% 9% 10%Asia Pacific 4% 5% 6% 6% 7% 7% 7% 9% 8% 10%Japan 6% 7% 9% 11% 12% 14% 14% 14% 12% 10%

Desktop PC 12% 15% 17% 18% 17% 16% 15% 15% 13% 14%Portable PC 14% 15% 16% 17% 18% 17% 14% 14% 12% 12%x86** 19% 22% 25% 25% 26% 26% 25% 27% 27% 28%

Consumer 6% 10% 12% 13% 12% 11% 8% 9% 9% 9%SMB1 12% 12% 13% 14% 15% 14% 14% 14% 12% 13%Public 20% 19% 15% 17% 21% 17% 19% 20% 21% 18%Large Enterprise2 30% 30% 30% 31% 32% 25% 29% 31% 32% 29%

Annual Share

3Q11 WorldwideHP 18%Lenovo 14%Dell 12%Acer 10%Asus 7%Top 5 60%

3Q11 USHP 29%Dell 22%Apple 11%Toshiba 8%Lenovo 7%Top 5 77%

Competitors

• Global competitors – HP, Lenovo, Acer and Asus– Dell is number 3– Together they control 60% of the global PC market

• US market represents 50% of Dell’s business– HP, Apple, Toshiba and Acer – Dell is number 2– Together they control 77% of the US PC market

Business Strenghs• “Utility” model: computers/servers/data storage have become a necessary tool

to run a business, making it a non-discretionary expenditure by companies• Leadership: desktops and laptops have become a commodity, making scale a

crucial component of profitability. • Oligopoly: the global market for desktop is highly concentrated among few

players, which makes the market more rational in pricing and supply. The top 5 players have approximately 60% of market share worldwide and 77% in the US.

• Customer service: unlike its peers Dell has since its birth employed a direct sales process which gives it a competitive edge.

• Balance sheet flexibility: the large net cash position of Dell provides it with many shareholder value-enhancing opportunities such as share buy-back, dividends or acquisitions.

Financial AssesmentUSD MM 2009 2010 2011 2012E 2013E 2012/11 2013/11Sales 61101 52902 61599 62523 63461 1,5% 1,5%EBITDA 4243 3505 4686 4752 4760 1,4% 0,8%EBITDA margin 6,94% 6,63% 7,61% 7,60% 7,50%Net Income 2478 1433 2635 3655 3173 38,7% 9,7%NI margin 4,06% 2,71% 4,28% 5,85% 5,00%Free Cash Flow 1454 3539 3525 3555 3596 0,8% 1,2%

Mkt Cap 18833 25323 25686 32625 32625Net cash 7294 7075 8393 8393 8393Mkt Cap ex-cash 11539 18248 17293 24232 24232

P/E 7,60 17,67 9,75 8,93 10,28P/E ex-cash 4,66 12,73 6,56 6,63 7,64FCF Yield 7,7% 14,0% 13,7% 10,9% 11,0%FCF Yield ex-cash 12,6% 19,4% 20,4% 14,7% 14,8%

Valuation Sensitivity Analysiske 10%g 0% 34,7% 8,0% 9,0% 10,0% 11,0% 12,0%FCF 2012E 3.555 -4,0% 16,5% 9,5% 3,6% -1,6% -6,2%Firm value 35.547 -2,0% 34,7% 24,8% 16,5% 9,5% 3,6%Net cash 8.393 0,0% 61,9% 46,8% 34,7% 24,8% 16,5%Equity value 43.940 2,0% 107,3% 81,4% 61,9% 46,8% 34,7%# shares 1.797 4,0% 198,1% 143,6% 107,3% 81,4% 61,9%Target price 24,46Current price 18,16Upside 34,7%

Peers

Source: Bloomberg

US MM Market Cap

P/E LTM Rank Net

CashNet Cash % of Mkt Cap

Mkt cap ex-cash

Operational P/E Rank

Qualcomm 105088 21,06 9 19919 19% 85169 13,43 9Cisco 108592 14,23 8 27763 26% 80829 8,11 3Apple 462642 14,13 7 81570 18% 381072 9,62 4Microsoft 261456 11,50 6 40851 16% 220605 9,78 5Intel 135905 10,76 5 8068 6% 127837 10,22 7Dell 32589 8,94 4 8368 26% 24221 6,31 2HP 59382 7,49 3 -22591 -38% 81973 9,98 6AMD 5220 6,81 2 -102 -2% 5322 12,01 8RIM 7957 3,43 1 2121 27% 5836 2,64 1

Risk and mitigationsRisk Mitigation

Large net cash position (~25% of market cap) could prompt the company to invest poorly Dell recently created a new software group, which can be seen as a sign for M&A activity

Part of the cash is held at overseas subsidiaries which limits the company’s hability to misuse itCompany has been engaging in share buybacks (target for 2012 is ~700 mio)

US tax laws affect the companies’ ability to repatriate excess cash

Current economic scenario is pushing companies to lobby US congress to repatriate the cash

Technological innovations could jeopardize the company’s business

The PC market is more mature and less volatile then other tech segments

Weak economic environment could promote greater competition in the market

The concentration of the industry should enable players to maintain profitability

APPENDIX

-0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08 0.1 0.12

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03

0.04

0.05

GDP vs. IT Spending

World US

Total IT Spending

GDP

Source: Bloomberg

IMC Stock Pitch CompetitionLifestyle International Holdings Ltd

Samuel Kim (MBA2012)23 February 2012

Executive Summary (HK$21, TP HK$26, Rating ‘Buy’)

My recommendation Buy: Lifestyle International Holdings Limited (HK$34.2 bn MC)

TP: HK$26, 31% upside from current (including dividend yield)

My target price is based on SOTP and DCF analysis, at an implied 2012E P/E multiple of 18x on my numbers which are 16% above consensus.

Currently trading in line with peers with similar ROE

In the short-term, Lifestyle is a play on high-end consumption and rise in Chinese tourists’ spending in HK

In the long-term, Lifestyle’s growth will be driven by the emergence of department stores as one of the key retail formats in China and management’s ability to capture the upside. Appreciating value of owned store properties is an added bonus

I expect China will replicate the Korea/Japan story - consumption in department stores will enter the accelerated growth phase when China’s GDP per capita grows from US$10K to 20k (sales growth +10% CAGR over 10 years, market cap 5-10x)

I believe the durability of growth potential and margin expansion are not fully reflected in the current valuation

1

Investment Rationale and Risks

Investment Rationale

+ Rise in disposal income of China’s affluent middle/upper class will lead to a double digit growth in topline in the foreseeable future (~15% topline / ~20% EPS growth)

+ Strong franchise with sound retail management and consistent execution (Dominant market position in HK, negative working capital and sound capital allocation)

+ Operating leverage from asset-heavy model will lead to continued margin expansion (operating margin trending up towards 18-19%)

+ Stable, prudent expansion strategy with greater reliance on organic growth (strong balance sheet / smaller margin dilution from expansion compare to peers)

2

Investment Risks / Concerns

Investment Risks

- Susceptibility to deterioration in HK retail environment Risk Mitigant – I expect HK will continue to attract Chinese tourists due to its concentrated and

high-end retail environment with considerable price difference to mainland (~30%)

- Intensifying competition and potential oversupply in China Risk Mitigant – Lifestyle’s management has been prudent in its expansion plan and have careful

executed its entry strategies in China (i.e. Shanghai). I believe its management will continue to be patient and opportunistic when expanding in China

- Increase in land costs leading to longer payback periods. Risk Mitigant – Management’s track record of identifying good land and development execution

gives some comfort that its new stores will breakeven in a reasonable time frame (2-4 years)

- Decrease in value of its commercial properties

Risk Mitigant – Value in its HK stores will hold. Its Chinese stores were bought much earlier (Shanghai before 2004) and mainly under JV arrangement (50:50)

3

Industry Conclusion and Stock Picking Framework

HK Department Store Sector:- Stable growth story in an established market (9.4% CAGR 2003-2010)

- Concentrated market with top 6 names with +75% M/S (Lifestyle with ~22% M/S)

- Influx of Chinese tourists (12.6% CAGR 2005-2010) and increasing demand for luxury goods will drive topline and margins

- Good environment for incumbents

China Department Store Sector: - Strong growth (12.4% CAGR 2003-2010) and fragmented market with top 10 players with ~15% M/S

- Government policy directed to promote consumption

- Polarized growth in disposable income – driver behind luxury retailers’ +30% y-o-y growth

- Expect to follow Korea/Japan department store consumption/growth pattern

4

I am positive on the sector – however, important to pick stocks based on the business model

Stock Picking: I prefer department stores with - Asset Heavy over Asset Light models

Prudent Expansion over Rapid Expansion strategies

Regional Concentration over National Coverage

Evidence Behind Durability of Growth - Korea/Japan Case Study

5

1 Mitsukoshi 872 1 Itoyokado 10,042 1 Seven Eleven 50,220 1 Fast Retailing 19,5872 Itoyokado 847 2 Seven Eleven 9,643 2 Itoyokado 22,105 2 7 & I 18,1753 Daie 726 3 Matsuzakaya 5,106 3 Fast Retailing 11,010 3 Yamada Denki 6,3954 Marui 587 4 Marui 4,879 4 Aeon 7,514 4 Aeon 6,3625 Mycal 525 5 Mitsukoshi 3,851 5 Marui 5,899 5 Lawson 4,3166 H2O Retailing 455 6 Takashimaya 3,355 6 Lawson 4,818 6 Nitori 4,1917 Aeon 443 7 Isetan 3,355 7 Skylark 3,452 7 MitsukoshiIsetan 3,4918 Uny 384 8 Daie 3,279 8 FamilyMart 2,614 8 Shimamura 3,4579 Maruzen 366 9 Aeon 3,107 9 Isetan 2,484 9 FamilyMart 2,83410 Seven Eleven 350 10 Nagasakiya 2,917 10 Takashimaya 2,199 10 Mc Donalds 2,500

Convenience stores grew as dept store format became

stagnant

8,930

24,24937,664 39,411GDP per capita (US$)

1832.0113526129.850045

9699.788584

19150.20576

JAPAN

Department stores/Super Stores in a sweet spot as GDP/capita rose from 10k to 20k

Specialty retailers now consist of 5 out of 10 top retailers

1 Hyundai H&S 280 1 Shinsegae 499 1 Shinsegae 8,6982 Shinsegae 196 2 Hyundai H&S 146 2 Lotte Shopping 8,6303 Daegu Dept.Store 55 3 GS Home Shopping 137 3 Hyundai Dept Store 2,194

4 CJ O Shopping 92 4 CJ O Shopping 7335 Daegu Dept.Store 26 5 Lotte Midopa 6606 Hyundai DSF 18 6 GS Home Shopping 4847 Interpark 16 7 Hyundai H&S 3968 Hanwha Timeworld 10 8 Interpark 3309 Lotte Midopa 9 9 Gwangju Shinsegae 17510 Grand Dept.Store 7 10 Daegu Dept.Store 111

Similar to Japan's case in 1980s, dept/super stores are Korea's

main retail format as GDP/capita goes from 10 to 20k

1,8326,130

9,700

19,150KOREA

China’s GDP per Capita (2011) is ~$8,400. I expect strong and sustained growth in department stores sector when going from $10k to $20k

1980 RetailersMarket Cap (US$) 1990 Retailers

Market Cap (US$) 2000 Retailers


Market Cap (US$)

1 Mitsukoshi 874 1 Itoyokado 10,042 1 Seven Eleven 50,220 1 Fast Retailing 19,587 2 Itoyokado 847 2 Seven Eleven 9,643 2 Itoyokado 22,105 2 7 & I 18,175 3 Daie 726 3 Matsuzakaya 5,106 3 Fast Retailing 11,010 3 Yamada Denki 6,395 4 Marui 587 4 Marui 4,879 4 Aeon 7,514 4 Aeon 6,362 5 Mycal 525 5 Mitsukoshi 3,851 5 Marui 5,899 5 Lawson 4,316 6 H2O Retailing 455 6 Takashimaya 3,355 6 Lawson 4,818 6 Nitori 4,191 7 Aeon 443 7 Isetan 3,355 7 Skylark 3,452 7 MisukoshiIten 3,491 8 Uny 384 8 Daie 3,279 8 Family Mart 2,614 8 Shimamura 3,457 9 Maruzen 366 9 Aeon 3,107 9 Isetan 2,484 9 Family Mart 2,834 10 Seven Eleven 350 10 Nagasakiya 2,917 10 Takashimaya 2,199 10 McDonalds 2,500

1990 RetailersMarket Cap (US$) 2000 Retailers


Market Cap (US$)

1 Hyundai H&S 280 1 Shinsegae 499 1 Shinsegae 8,698 2 Shinsegae 196 2 Hyundai H&S 146 2 Lotte Shopping 8,630 3 Daegu Dept Store 55 3 GS Home Shopping 137 3 Hyundai Dept Store2,194

4 CJ O Shopping 92 4 CJ O Shopping 733 5 Daegu Dept Store 26 5 Lotte Midopa 660 6 Hyundai DFS 18 6 GS Homeshopping 484 7 Interpark 16 7 Hyundai H&S 396 8 Hanwha Timeworld 10 8 Interpark 330 9 Lotte Midopa 9 9 Gwangju Shinsegae 175 10 Grand Dept Store 7 10 Daegu Dept Store 111

Department stores in a sweet spot as GDP per capita rose from 10k to 20k

Similar to Japan’s case in 1980’s, department stores are Korea’s main retail format as GDP per capita goes from 10k to 20k

Top Retailers by Market Cap

Lifestyle International (HK: 1212) (HK$21, TP HK$26, Rating ‘Buy’) HK/China Department Store

Overview Lifestyle is a HK based department store operator of mid-high

to high-end department stores in Hong Kong and China. The group currently operates 2 stores in HK under the SOGO

brand and has expanded its stores portfolio to 3 in China under the Jiuguang brand. In 2010, HK contributed to 73% of total group sales and over 85% of group operating profit.

Approximately 25-30% of HK sales are generated from cross-border Chinese tourists.

Lifestyle adopts an asset-heavy model and focuses on developing 1 flagship store every 2-3 years.

CEO owns +70% of the company’s shares

Valuation

6

TP HK$26 (31% upside incl. div) based on:- SOTP: HK$28 (implying Fwd 2012E PE of 20.6x)

DCF: HK$25 (implying Fwd 2012E PE of 18.4x)

Multiple: HK$27 (applying 20x Fwd 2012 PE).

Potential Downside – 16% downside if Chinese economy slows down below 7.5%

Lifestyle Current $20.5 Target $26 Upside 31%22/02/2012 Market Cap 34,186 EV 33,156 Shares 1,691

FY ending Dec (HK$ mn) 2009 2010 2011E 2012E 2013ERevenue $3,756 $4,317 $5,260 $5,860 $6,624Y/Y Growth 6.7% 14.9% 21.8% 11.4% 13.0%

EBIT Margin 14.9% 16.0% 16.7% 17.4% 17.8%

Conversion Ratio 58.8% 63.4% 66.2% 69.5% 71.0%

EPS $0.59 $0.72 $1.00 $1.17 $1.36Y/Y Growth 27.2% 22.6% 39.0% 16.8% 16.0%

P/E - Current 34.8x 28.4x 20.4x 17.5x 15.1xP/E - Target 44.1x 36.0x 25.9x 22.1x 19.1x

Fwd PEAve: 21.6xAve (excl.GFC): 23.1xMin: 7.1xMax: 42.8x

Lifestyle International (HK: 1212) (HK$21, TP HK$26, Rating ‘Buy’) Stable growth and margin expansion

Lifestyle experienced a stable growth on the back of strong performance of its flagship store and ramp-up of sales in its China stores

Margin expansion is expected as:

- Movement towards higher ticket item

- Sales ramp-up in China stores will have positive contribution to earnings

Key drivers of the revenue are growth in ticket size in HK and volume/ticket size growth in China

Chinese tourists in HK are trading up to big ticket items (jewelry, watches and luxury brands) and this will continue to contribute growth in HK while China stores will benefit from volume growth, as well as increasing demand for luxury goods

7

13.6% 0.3%

4.3%

4.0% 21.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

HK TicketSize

HK Volume China TicketSize

ChinaVolume

2011 GrossSales Growth

Key Revenue Driver (2011)

Lifestyle International (HK: 1212) (HK$21, TP HK$26, Rating ‘Buy’) Industry leading operational efficiency and sound capital allocation

Lifestyle outperformed its peers in operational efficiency due to:-

- Strong bargaining power and merchandising skills

- Smaller number of stores and prudent expansion strategy

- Self ownership of operating properties

Despite its asset heavy model, Lifestyle has above industry average ROCE (13% vs. 11%)

Lifestyle has low inventory days and has negative working capital

Distributes ~30% of FCF from operation as dividend and share buyback

On 2-3 year cycle, it spends most of FCF from operation for expansion of new stores

8

18%

22%

15%16% 17%

20%

12% 11% 10% 10%11%

13%11%

10%7% 8% 9%

11%

5%

10%

15%

20%

25%

2006 2007 2008 2009 2010 2011E

Return on Capital

ROE

ROCE

ROA

19,626

13,84510,156 9,014 8,411 7,432

0

5,000

10,000

15,000

20,000

25,000

Lifestyle Golden Eagle Springland Intime Parkson Maoye

Total Sales Proceeds (2010) per Sqr m (HK$)

19.2 16.5 14.5 13.8

12.1 10.0

56.0 55.5 51.8 51.4 49.4 51.1

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011E

Working Capital

InventoryDays

AP Days

32.9%30.2%

49.8%

35.3%

26.2%33.0%

10.7% 7.3%

63.2%

20.0%15.5%

32.7%40.0%

57.4%

13.5%7.3%

25.2%

5.0%

15.0%

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

2006 2007 2008 2009 2010 2011E

Usage of FCF from OperationDiv anShareBuyback

Capex

Acquisition

Lifestyle International (HK: 1212) (HK$21, TP HK$26, Rating ‘Buy’) Valuation - SOTP

SOTP used to carve out the value attributing to its department store retail operations, and value of its properties and other investments

9

Key FiguresHK$ mn HK$/Share Assumptions

HKRetail (CWB + TST) 25,585 15.2 85% net profit contribution adjusted for rental expense, 18x 2012 PEProperty (CWB) 11,742 7.0 5.5% Cap rate, annual rental charge of HK$1,500/sf

HK Total 37,328 22.1

ChinaRetail (Shanghai, Suzhou) 2,062 1.2 15% of net profit adjusted for rental expense, 20x 2012 PEProperty (Shanghai) 1,980 1.2 Value of RMB35,000/sq mProperty (Suzhou) 3,658 2.2 Value of RMB17,500/sq mDalian and other Itokin propoerties 743 0.4 At cost

China Total 8,444 5.0

OthersInvestment in Beirin 830 0.5 At costNet Cash 1,372 0.8

Others Total 2,202 1.3

Total Value 47,974 28.4 implied 2012E PE 20.9xvs current share price +38.6%

Lifestyle International (HK: 1212) (HK$21, TP HK$26, Rating ‘Buy’) Valuation - DCF Base Case

HK Continued current retail environment Topline growing at CAGR 10% p.a. 2011-

2015 China

Continued GDP growth at ~10% Topline growing at CAGR 15% p.a. 2011-

2015 EBIT Margin expands to ~18%

1 Bull Case HK

Continued current retail environment Topline growing at CAGR 13% p.a. 2011-

2015 China

Continued GDP growth at ~10% Topline growing at CAGR 18% p.a. 2011-

2015 EBIT Margin expands to ~20%

2 Bear Case HK

Slowdown in 2H2012-2013 Topline growing at CAGR 3% p.a. 2011-2015

China Hard landing (GDP growth at below 7.5%) Topline growing at CAGR 5% p.a. 2011-2015

EBIT contracts to expands to ~15%

3

10

Case Applied = Base CaseFY End: December (HK$ MM) 2011 2012 2013 2014 2015Income StatementTotal Gross Sales Proceeds 12,072 13,447 15,218 17,083 19,202

Grow th (%) 22.8% 11.4% 13.2% 12.3% 12.4%EBIT 2,019 2,345 2,704 3,097 3,456

EBIT Margin (% of GSP) 16.7% 17.4% 17.8% 18.1% 18.0%EBITDA 2,281 2,637 3,033 3,467 3,872

EBITDA Margin (% of GSP) 18.9% 19.6% 19.9% 20.3% 20.2%Net Profit 1,699 1,982 2,295 2,638 2,956

Prof it margin (%) 14.1% 14.7% 15.1% 15.4% 15.4%Adjusted Diluted EPS 1.00 1.17 1.36 1.57 1.76

Growth (%) 39.0% 16.8% 16.0% 15.1% 12.2%Average Share Price (HK$) 20.50 20.50 20.50 20.50 20.50Market Multiples

EV / Sales 6.43x 5.71x 4.97x 4.34x 3.76xEV / EBITDA 14.84x 12.68x 10.84x 9.29x 8.11xP/E 20.41x 17.46x 15.05x 13.07x 11.65x

DFCNet Present Value 41,600 Net Debt (1,030) Equity Value 42,630 # shares outstanding 1,691 Value per share HK$ 25Upside / (downside) 23.0%implied 2012E PE 18.5x

Case Applied = Bull CaseFY End: December (HK$ MM) 2011 2012 2013 2014 2015Income StatementTotal Gross Sales Proceeds 12,096 14,181 16,424 18,378 20,502

Grow th (%) 23.0% 17.2% 15.8% 11.9% 11.6%EBIT 2,089 2,590 3,123 3,659 4,064



Prof it margin (%) 14.5% 15.4% 16.2% 16.9% 16.9%Adjusted Diluted EPS 1.04 1.30 1.57 1.85 2.07

Growth (%) 43.7% 24.9% 21.3% 17.6% 11.6%Average Share Price (HK$) 20.50 20.50 20.50 20.50 20.50Market Multiples


DFCNet Present Value 45,481 Net Debt (1,088) Equity Value 46,568 # shares outstanding 1,691 Value per share HK$ 28Upside / (downside) 34.3%implied 2012E PE 17.5x

Case Applied = Bear CaseFY End: December (HK$ MM) 2011 2012 2013 2014 2015Income StatementTotal Gross Sales Proceeds 11,877 12,296 12,463 13,086 13,740

Grow th (%) 20.8% 3.5% 1.4% 5.0% 5.0%EBIT 1,997 1,647 1,691 1,785 2,023



Profit margin (%) 14.1% 11.3% 11.5% 11.6% 12.5%Adjusted Diluted EPS 0.99 0.83 0.85 0.90 1.02

Growth (%) 37.3% -16.7% 2.9% 6.0% 13.5%Average Share Price (HK$) 20.50 20.50 20.50 20.50 20.50Market Multiples


DFCNet Present Value 28,166 Net Debt (1,008) Equity Value 29,174 # shares outstanding 1,691 Value per share HK$ 17Upside / (downside) -15.9%implied 2012E PE 20.3x

Lifestyle International (HK: 1212) (HK$21, TP HK$26, Rating ‘Buy’) Valuation – Multiple Approach

Lifestyle is currently trading at 20.5x/15.7x consensus 2011/12 PE, at discount to its historical Fwd PE range (average 23.1x excl. PE during GFC)

Now is a good entry point- on the back of continued EPS growth and should trade between 20-25x Fwd PE range

Lifestyle is trading in line with its peers. However, I expect multiple expansion for Lifestyle and the sector as a whole

I believe in the durability of growth going beyond the consensus timeframe

11

Department Stores Trading Comps

Market Cap Ave Trading PE (x) 10-13 (HK$ bn) Vol (HK$ mn) 2011E 2012E EPS CAGR ROE

Lifestyle 34.2 55.8 20.5 15.7 24.3% 21.2%

Golden Eagle 18.7 36.3 24.6 15.8 21.3% 29.8%

Parkson 26.6 33.8 19.0 13.7 18.4% 23.9%

PCD 6.3 60.1 12.9 7.7 25.8% 16.5%

Springland 12.1 12.7 17.1 11.5 30.7% 14.6%

Intime 19.1 73.6 19.0 12.7 25.4% 14.4%

Maoye 11.4 39.9 14.7 7.9 33.0% 13.3%

New World 7.9 6.8 12.4 10.1 NA 11.5%

Average 17.5 11.9 25.6% 18.1%

Median 18.1 12.1 25.4% 15.5%

0x

5x

10x

15x

20x

25x

30x

35x

40x

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

EPS vs Fwd PE

EPS 1 yr Fwd PE

APPENDIX

Sector Analysis

CompetitionMedium• Established market with top 6 dominating the

market

HK Department Stores Chinese Department Stores

Barrier to Entry

Pricing Power

Substitutes

• Expansion into inland areas and other underserved citiesTrend

Medium-High• Fragmented market with fierce competition• Tier 1 cities already saturated

High• Incumbents with well established brands and prime

location• Lack of new prime location for new entrants

Medium• Prime location in Tier 1 cities already taken• Tier 2-4 cities are currently underserved

High• Incumbents have well established stores and can

command high concessionaire rates

Medium• Most stores are relatively new and due to

competition, offer discount to brands

Low• Department stores have steady market share• Shopping malls and outright stores already exist

Low-Medium• Shopping malls and outright stores may take some

pie of the retail sales from department stores

• Increasing ticket size due to Mainland Chinese tourist trade up on luxury goods

12

STOCK PITCH

- ALTRIA GROUP, INC.

YABING WU, MiM2012

2012/02/23

Company overview

Altria Group is a holding company. As of Dec. 31, 2011, Altria Group’s wholly owned subsidiaries included:

- Philip Morris USA (PM USA)- John Middleton (acquired in 2007) - Ste. Michelle Wine- US Smokeless Tobacco Company (UST, acquired in 2009) - Philip Morris Capital

As of December 31, 2011, Altria Group, Inc.’s segments included cigarettes, smokeless products, cigars, wine and financial services.

Date: February 16, 2012Symbol: MOExchange(s): NYSEPrice: $29.54Market Cap: $60.14BPE(ttm): 18.07Avg Daily Liquidity: $13mm

Business & Geographic segment

Business segment Geographic segment

Source: Thomson Reuters

The company is primarily engaged in the manufacture and sale of cigarettes and other tobacco products, and operates primarily in the US.

Industry analysis:Defensive and sales growth

• Tobacco’s has been perceived as “affordable indulgence” among smokers

• Cigars have become fashion accessories and are highly popular among the upper-income class.

• U.S. Cigarette Consumption Falls 14% Since 2008, but Prices Rise 30%

• Cigarette industry has a higher barriers to entry, less competition once it has established monopoly position

Barriers to entry

Sales growth in cigarette

Relatively resistant to macroeconomics events

Demand growth in cigars and smokeless

Company analysis: business strengths• Established brand allows Altria to consolidate its current presence

and penetrate new market• Acquisition of UST and John Middleton resulted in strong

performance• Strong market position gives tremendous bargaining power

Revenue generators

• Continuously focused on cost reduction and manufacturing optimization program in the recent years.

• Generated approximately $300 million in UST integration cost savings as of December 2010

• Effective cost savings will continue to increase profitability

Cost management

• Altria Services will develop new products to capture more consumers

• Acquisition of UST has led to brand value leverage and market penetration in smokeless tobacco products.

Capture new trends through innovation and

acquisition

Company analysis: financial assessment• The company’s return on invested capital has averaged 22% over the past five

years. There’s a steady earning growth and the company is able to slightly increase margins through effective cost control:

Source: Bloomberg

Y/E 2008A 2009A 2010A 2011A 2012ESales 15,957 16,824 16,892 16,619 17,365 EBITDA 5,142 6,234 6,540 6,543 7,537 EBITDA Margin 32% 37% 39% 39% 43%EPS 2.38 1.55 1.87 1.64 1.92 EPS growth -35% 21% -12% 17%

Company Altria Reynolds American IncLorillard Inc

ValuationShare price 29.65$ 41.42$ 114.00$ Shares outstanding 2,056.42$ 582.91$ 135.01$ Equity value 60,972.85$ 24,144.13$ 15,391.14$

Net Debt (10,419.0) (1,707.0) (961.0) Enterprise value 50,553.9 22,437.1 14,430.1

Net incomehist 3,390.0projected 4,290.0

Value driversSalesHist 16,619.00$ 8,541.00$ 4,452.00$ Proj 1 17,365.25$ 8,616.00$ 4,741.50$

EBITDAHist 6,543.00$ 2,585.00$ 1,929.00$ Proj 1 7,537.44$ 3,056.00$ 2,034.38

Diluted EPSHist 1.64$ 2.40$ 7.99$ Proj 1 1.92$ 2.50$ 8.01$

Multiples Sector averageEV / salesHist 3.04 x 2.63 x 3.24 x 2.97 xProj 1 2.91 x 2.60 x 3.04 x 2.85 x

EV / EBITDAHist 7.73 x 8.68 x 7.48 x 7.96 xProj 1 6.71 x 7.34 x 7.09 x 7.05 x

P/EHist 18.08 x 17.26 x 16.90 x 17.41 xProj 1 15.44 x 16.57 x 16.86 x 16.29 x

Generica valuation EV / Sales EV / EBITDA PEHist Proj 1 Hist Proj 1 Hist Proj 1

Enterprise value 49,359.50 49,541.33 52,097.06 53,119.27 59,025.52 69,878.22Net debt (10,419.0) (10,419.0) (10,419.0) (10,419.0) (10,419.0) (10,419.0)Equity value 59,778.5 59,960.3 62,516.1 63,538.3 69,444.5 80,297.2Shares outstanding 2,056.4 2,056.4 2,056.4 2,056.4 2,056.4 2,056.4Implied share price 29.07 29.16 30.40 30.90 33.77 39.05

Valuation: Trading compsAltria Group is trading at multiples in line with its peers (Reynolds American Inc. and Lorillard, Inc.). The price target for MO is $39.00 at 16x projected 2012 EPS.

Source: Bloomberg

Risks and Mitigants• Key downside risks include:• 1) Continued FDA regulations. But MO appears increasingly focused

on increasing its agility and preparedness around FDA regulation, a trend which appears to be supported by the selection of Marty Barrington (a former General Counsel at PM USA) as incoming CEO and the company’s partnership with Okono A/S.

• 2) Any large-scale unforeseen adverse tobacco litigation development• 3) Potential state tax hikes (owing to large deficits and unfunded

pensions). The recent trend has been for minimal state tax hikes with only two states raising taxes and one state actually reducing the cigarette tax in 2011.

• 4) Little exposure to the global tobacco industry. Primary focus on US market, high single market risk.

ConclusionRecommend buying

• 1) industry advantages• - defensive • - high entry barriers• 2) business strength • - strong market position• - new market penetration• - effective cost management • 3) attractive valuation:• - high dividend yield (6%)• - implied undervalue

Harshita Rawat | [email protected]

SanDisk

Investment Thesis

February 2011

Introduction

Company Background

Agenda for Discussion

• SanDisk designs, manufactures and packages NAND flash based removable cards, embedded storage, USB drives, SSD and enterprise storage solutions

• Key statistics:– Market cap: USD 11.4 bln– Net Cash Balance : USD 3.7 bln– Last Close : USD 48, EPS : USD 4.65– PE – 10.3, EV/EBIT – 6.5

• Industry overview • Company overview • Financial and Operating Performance• Key Valuation Drivers• Conclusion

Industry Poised for Growth

Smart Mobile Devices Driving Demand for NAND

Will the Overcapacity Continue?

Smart Mobile Devices Leading Growth Leading Industry Growth

Industry Snapshot• Major players are Intel-Micron alliance, Samsung, SanDisk-Toshiba

JV and Hynix • Industry barriers to entry include complex NAND technology,

licensing, patents and contracts with chip set manufacturers.• Ability to build controllers for the memory key to shorter lead times

for new technologies.• In 2011, amidst fear of supply constraints after the Japan Earthquake,

global manufacturers ramped up supply. Supply from Japan, however, came back on track in record time. This led to an overcapacity leading to a worse than expected 34% decline in the Average Selling Price per gigabyte and a tough pricing environment for NAND manufactures.

Source: SanDisk Analyst Presentation


Strong Company Powered By Sound Management

Competitive Advantage Through Technology Changing Product Mix

Led by Visionary Founder

• OEM segment is occupying increasing revenue share• Owing to its recent acquisitions, SanDisk would derive 25% of its

revenue from SSD in 2014 vs. 3% in 2011. • Does Cloud really hurt SanDisk’s business? While retail suffers, new

acquisition will enable caching solution used in servers

Is low NAND pricing really bad for SanDisk?

• Through technology leadership, SanDisk defended operating margins of 25% in the last 2.5 years. Cost per gigabyte improved by 31% despite the strong yen.

• The vertically integrated business model enables the technology to be on the market at a remarkable pace

• Differentiates through proprietary controllers along with firmware architecture

Company has repositioned itself to derive revenues from new product mix and cost effeciency

Strong Relationships with

Tier 1

OEMS

Cost

Leadership

Technology Pionee

r (eg 19nm NAND).

Working on 3D Nand

Positioning by Management

Develop capability for SSD Increasing focus on OEM Reduce the reliance on non captive supply


Growing Revenues, Defensible Margins

52

Revenue Growth, Defensible Margins Achieved Through Investments in Technology

Increasing R&D Spending

Strong Revenue Growth Accompanied by Defensible Margins

Strong Operational Performance

• In FY 2011, revenue and Operating income grew 17% and 4.7%, respectively. Free cash flow yield was 7.58%.

• SanDisk has a solid balance sheet that will allow it to make more aggressive investments in the future.

• Cost Savings Outperformed price declines by 3.7%• 3.3% reduction of Gross Margin vs. 2010 was the result of 3.9%

unfavourable movement in Yen• Return on assets computed on total assets including cash

Solid balance sheet will allow SanDisk to make

more aggressive network investments in

the future

Source:SanDisk’s Annual Report

Source:SanDisk’s Annual Report

• Cash conversion cycle improved from 85 days to 72 days in the last 2 yrs. • To minimized operational risks, SanDisk has also been increasing captive

supply and reducing dependence on third party foundries• 14% of R&D expense went to investment in new technologies vs. 8% for 2010.

Captive Supply Growth YoY

DCF Suggests 30% Price UpsideValuation Drivers Valuation

Lowest PEG vs. Semiconductor Companies

Underpriced Relative to Intrinsic Value of $62

Risks

• Cash conversion cycle improved from 85 days to 72 days in the last 2 yrs.• Inability to perform cost reductions compared to decline in NAND pricing

Increasing reliance on non captive supply• A new technology/natural disaster that can disrupt the demand for NAND

flash; • Stronger Yen

• DCF implies a fair value of $62 vs. the current price of $48• CAGR (2011-2015) revenue growth rate of 12% is less than

the CAGR projected for industry as I modelled the fact that SanDisk will not maintain its current market share in the growing industry

• Changing product mix and technology invested in cost reductions will help the company defend around 25% EBITDA margin.

• Terminal Value is estimated using FCF growth of 2.5%.• Terminal Values implies exit EV/EBITDA multiple of 5.5x• A meeting with management should provide more guidance to

accurately forecast Capex

Attractive Investment Opportunity

Conclusions

• Despite the attractive growth prospects, SanDisk’s stock is down 7.5% in the last one year due to fears that it cannot defend margins amidst declining NAND prices.

• Investors are underplaying the growth prospects of SanDisk’s core markets and the company’s ability to deliver cost reductions through technology leadership.

• Run by strong management, SanDisk has repositioned itself to capture the growing Smartphone, SSD and Tablet market. • Overall I believe that at a price of $48, the stock is undervalued relative to its intrinsic value of $62.

Appendix 1: Revenue Mix and Bit Data

Revenue Mix

• 2011 Unit sales of 760 million• iNand qualified for 50% tablets and 60% android

Cheniere Energy, Inc.

Stock Pitch Competition

by Stelios Fragos

February 23rd, 2012

Cheniere - Business Overview

Cheniere Energy, Inc. (NYSE AMEX:LNG1 is looking to export Liquefied Natural Gas ("LNG") from the US Gulf region.

Initially, the company planned on importing LNG but subsequently changed its business plan and is developing a liquefaction facility at Sabine Pass, in Louisiana. 4 LNG trains: 18 mtpa capacity; Received all major regulatory approvals

except for FERC.

All 4 trains are contracted: 20 year contracts; Reputable investment-grade

counterparties; Take-or-pay contracts.

57

Note(1): Cheniere and Company to be used interchangeably throughout the presentation.

Yes, investors have been burned before, but the business has been significantly de-risked

58

Company share price collapsed following the decrease in US natural gas prices. Cheniere refocused its strategy to take advantage of new global natural gas pricing dynamics Stock has been building momentum on the back of the following catalysts:

DoE Approval in May 2011 Secured contracts for all 4 trains (2011-Q1 2012) Initiation of coverage (CS in Jan ‘12)

Growth interest in LNG market globally could drive M&A activity Cheniere is an attractive M&A target

3-pillar Investment Approach

59

Assessing the Business

Risks / Concerns

Valuation

Dynamics and attractiveness of LNG exports from the US Gulf Region

Identify Cheniere’s competitive advantages

Identify inherent risks to the business and downside potential Assess mitigating factors

Deconstruct complicated corporate structure Overcome valuation challenges (i.e. lack of peers) and identify best

valuation method Quantify upside / downside

Investment Thesis - Strengths Exposure to the LNG Market without the underlying commodity

risk. Project viability defined & business has been de-risked. Long-term cash flow visibility from signed contracts. First mover advantage following DoE approval. Low cost positioning compared to peers. Access to vast low cost supply source. Location provides optionality.

60

Key Business Plan Milestones Reached

61

Investment Thesis - Risks & Concerns

62

Secure financing for Phases I & II. Pending FERC approval. Project execution. North America as a sustainable source of LNG exports. Competing projects in North America.

Significant Financing Requirements

63

Sources of Funds Phase I – Trains 1&2

Debt - Project Finance Market: c. $3b at Libor + 300bps (swapped) c. $1.2b of EBITDA for coverage

Equity Options: c. $2bn CQP common units CQP subordinated units LNG shares

Phase II Trains 3&4 Debt – Term Loans/Bonds:

c. $1.4b of EBITDA for coverage Equity

c. $2bn

Trains 1-4 total expected EBITDA c. $2.7b

64

Valuation

65

Valuation Challenges: Capture true valuation impact in the outer years:

Contracted revenue increases by c. $330m per year once all trains come online;

EBITDA of $2.7bn after 2018. No peers for multiples valuation.

Bottom-up model Liquefaction module; Financial module w/ sensitivity analysis; Financing module w/ scenario analysis; Valuation based on:

Dividend yield analysis; Sum-of-the-parts of Cheniere’s holdings.

Valuation (Cont’d) LNG cash flow per share (2018 onwards) is $6.4 using PIK

financing More conservative, as cash flow per share drops from $7.7 and

compensates CQP unit holders for near term dividend dilution

Given steady nature of cash flows per share, applying a dividend-yield of 8% to its 2018 dividend of $6.40,yields $45 per share with a discount factor of 10%.

Conservative approach given energy/midstream MLPs with similarly stable cash flows trade on dividend yields of 4-7%.

Sum-of the-parts of Cheniere’s was also used as an alternative methodology returning a range of $40-$55 Includes valuation of Common Units and Subordinated Units

Distributions

66

So, why does this trade exist?

Valuation / Investment Risk

Investors are having trouble valuing Cheniere: Lack of peers; C-Corp/MLP complicated

structure - market not properly valuing the GP.

Significant downside if: FERC blocks application; or Cheniere does not succeed

in securing financing.

Lack of Coverage

Only Citi and Credit Suisse covering stock: CS initiated coverage on

January 18th.

Issues with valuation approach of both analysts: CS is using “DCF” and is

overly conservative in its financing assumptions.

Citi analyst does not cover MLPs.

67

Concluding Remarks Despite Cheniere's complicated corporate structure and

inherent challenge in valuation, the Company represents a great long-term trade with significant upside (at least 2-3x its current share price)

Its take-or-pay contracts provide strong visibility and cash flow visibility without the underlying commodity risk

Scarcity value as a direct play on theme of increasing global LNG demand and low cost US LNG

Lastly, it is an attractive takeover target with clear competitive advantages for well-funded US midstream strategic players.

68

Appendix

69

Valuation Sensitivity Analysis

Drag picture to placeholder or click icon to add

70

Sensitivity Analysis - Operational Sensitivity table below outlines various operational scenarios:

$4.5-$5.50 dividend per share range reflecting the unlikely event 1 of the 4 contracting parties does not honour their contract)

$6.37-$7.75 per share, reflecting financing scenarios Sensitivity analysis vs. dividend yield (range reflecting upper part of dividend yields of

MLPs 4$-7%)

71

Sensitivity Analysis - Dividend Yield / Discount Rate

72

Financing Scenarios: Sensitivity Analysis Scenarios:

Base case (2015/2017, no PIK) PIK scenario (2012, 2014)

Sensitivity Analysis:

73

Operations Overview

74

Contracted Capacity at SPL Sale and Purchase Agreements (SPAs)

75

Attractive & Sustainable Transportation Costs

76

Sabine Liquefaction Gas Sources Asset Map

77

Sabine Pass LNG Terminal Expansion Plan

78

Group Structure & Debt Breakdown

79

Complicated Incentive Structure at GP Level

80

Cheniere owns the GP and the LP of CQP (86.8%). Cheniere owns 12.0mm common units in CQP,135.4mm subordinated units and 3.4mm

general partner units. Currently CQP only pays the MQD to common unit holders. Subordinated unit holders are not receiving distributions. The general partner manages CQP’s businesses, and through its ownership of incentive

distribution rights, is incented to grow CQP’s distributions. Distribution target levels were set at CQP’s formation:

Market Dynamics

81

US Natural Gas Market

82

Global Petroleum Demand - Stationary Sources

83Source: PIRA Energy Group, “The Potential for Natural Gas Substitution of Stationary Petroleum Demand”, January 2010

Global oil use totals 19 million b/d (~22%) in stationary sources, such as industrial, power and heating, that could be switched to natural gas: equivalent to 100+ Bcf/d natural gas demand

Global LNG Market

84

Firm Liquefaction Capacity Additions

85

North America Onshore Receiving Terminals

86


Agenda








Judges’ final decision

And the winner is…


Thanks for participating!

Next Stock Pitch CompetitionAutumn 2012

Please, join us at Sainsbury’s lower ground floor to celebrate

Documents

Spring 2012 Stock Pitch Competition 23 February, 2012