RETAIL LOSS IN NORTH NARROWING

We don’t see breakeven till 2015

CRE hosted an investor day in Shenyang and updated us on the status ofretail business in northeast China. Its late entry and strong competitionlead to CRE’s retail business incurring a HKD334m loss in 2012. In 2013,CRE has changed over 20 mid-to-senior level managers in its retailsegment, trying to narrow the loss and turnaround the business in 2015.

BEER POSITION UNCHALLENGED IN LIAONING

Targeting 8% 2012-15 vol CAGR with double-digit net marginWith a >65% market share in its home market of Liaoning, Snow Beer hasdriven ASP growth by changing product mix and achieved a double-digitnet margin in the last few years. With major competitors continuing tolose market share, we expect CRE to maintain its strong performance inthe northeast.

VALUATION: MAINTAINING OUR RATING AND TP

BUY and HKD28.72 TP based on EV/EBITDA and SOTP methodology

We believe CRE is a secular growth story in the China consumer spaceand like its consistent strategy. We would see any share price weaknessas an opportunity to accumulate and, with the share price down over 20%YTD, think now is a good time to BUY. The main risk to our view is higherthan-expected retail losses due to the unfavourable market environment.

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