Company Profile

Huida Sanitary Ware Co., Ltd. was established in 1982. At present, Huida Group has been providedwith a total asset of 1.3 billion Yuan with the number of employees totaling over 10,000. The gastunnel kiln production lines total 17 with an output of more than 9 million pieces of sanitary wareswith HUIDA brand. The products have been formed by more than 200 varieties in top-grade, andHuida Group has established itself as a national large-scale ceramic enterprise group with completesets management such as sanitary wares, wall tiles, the plastic fittings, the bathtub and thehardware fittings. At the beginning of 2002, “Huida” was appraised as Well-known Trademark ofChina by the National Industry and Commerce Bureau. It has filled the blank in Chinese ceramicarea. In September, 2003, “Huida” sanitary wares were appraised as China Top Brand. In January,2004, “Huida” ceramic were named as Inspection Free Products. Huida Group became the firstenterprise which has owned the 3 top titles in national construction sanitary wares calling.

As China’s leading bathroom product supplier, Huida Group mainly focus on the production andsale of sanitation products and the components.

It also provides integrated solutions for bathroom facilities. The company’s key products includesanitary ware and ceramic tile. In 2016, the company made revenue of CNY 2.28 billion, up 2.1%YoY. The net profit was CNY 234 million, up 129.5% YoY. The net profit attributable to the parentcompany was CNY 210 million, up 160% YoY. Huida Group sells its products both directly to themarket and through its retailers. Between 2014 and 2016, over 80% of its revenue came from itsretailers across the globe.

Both domestic and global bathroom product markets enjoy strong growth prospects.

China has long been the world’s largest ceramic tile producer and consumer, accounting for over40% of global production and consumption. Demand for sanitary products will further increasewith the rise of residents’ indispensable income, accelerated urbanization drive, fast growth of realestate market and increasing demand for apartment renovation. The level of China’s bathroomproduct market concentration is quite low. More resources are tilted to leading companies amidthe M&A boom. In the future, the industry profit margin will further increase.

Company Valuation: We made our EPS forecast for the company at CNY 0.93 in 2017, CNY 1.19 in2018 and CNY 1.32 in 2019. Taking various factors into consideration, we believe it’s fair to give thecompany PE of 45-55x, implying fair price of CNY 27.9-34.1.

Potential Risk: Sales may weaken due to tightening housing market control. Raw material pricemay rise. Brand reputation may be impaired due to poor management of retailers.