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1、,ANCHOR,REPORT,gl,Bicycles|T A I W A NC O N S U M E R R E L AT E DNOMURA INTERNATIONAL(HK)LIMITED,Dave Chiou,+852 2252 2178,NEW,THEME,Tour de TaiwanBicycles produced in Taiwan are gaining more international recognition(withTaiwanese exports clocking a 19%CAGR over the past five years,against steady3
2、-5%growth in global sales),and the vertically integrated industry in Taiwan shouldhelp these manufacturers remain competitive.Falling raw material costs andincreasing demand for electric bikes in China(we look for 15%growth in this segmentthat accounts for more than half of Chinas bicycle demand)are
3、 also positive for theindustry.We think investors should look beyond this years earnings declines and,Stocks for actionWe initiate coverage on Giant with aBUY call and on Merida with aNEUTRAL view.We believe Giants fullline-up strategy will provide greatercompetitiveness and flexibility duringdowntu
4、rns.,focus on the long-term growth opportunity for the leading Taiwanese players,Giant,Price,Price,and Merida,which continue to generate healthy cashflow.Given the overall economicuncertainty,however,we are selective in our stock recommendations.We prefer,StockGiant,RatingBUY*,(3 Apr)(NT$)71.20,Targ
5、et(NT$)82.90,Giants product mix flexibility and its penetration in Chinas electric bike segment,and,Manufacturing(9921 TT),rate the stock a BUY.While Meridas higher-end positioning works better in an upcycle,Merida Industry,NEUTRAL*,44.30,48.70,we think the current environment warrants a NEUTRAL sta
6、nce.Overcast economybut Taiwan retains its competitivenessSelective approach requiredBUY GiantNomura Anchor Reports examine the key themes and value drivers that underpin oursector views and stock recommendations for the next 6 to 12 months.See the important disclosures and analyst certifications on
7、 pages 49 to 52.Nomura,(9914 TT)*Initiating coverageAnalystDave Chiou+852 2252 8 April 2009,(9914 TT),1,Bicycles|T A I W A NC O N S U M E R R E L AT E DNOMURA INTERNATIONAL(HK)LIMITED,Dave Chiou,+852 2252 2178,NEW,THEME,Our viewWe initiate coverage on Giant with a BUY call and Merida with a NEUTRAL
8、take.We believe Giants flexible strategies and its penetration into Chinas electricbicycle business will help the company stay competitive during downturns.Contrastthis with Merida,where we think a higher-end focus will be a liability.Anchor themesAmid the global economic slowdown,we expect bicycle
9、sales to decelerate,with,Stocks for actionWe initiate coverage on Giant with aBUY call and on Merida with aNEUTRAL view.We believe Giantsfull line-up strategy will providegreater competitiveness andflexibility during downturns.,overall demand falling by 10%in 2009 followed by a moderate recovery in
10、2010 inline with our house macro view.We think lower-end models will take the hardest hitin 2009,followed by high-end bicycles.We believe Taiwans bicycle industry will keep its competitive edge through,StockGiantManufacturing(9921 TT)Merida Industry,RatingBUY*NEUTRAL*,Price(3 Apr)(NT$)71.2044.30,Pri
11、ceTarget(NT$)82.9048.70,improved brand recognition and vertical integration.Declining raw material prices,and increasing electric bicycle demand in China are also positive factors.Tour de TaiwanOvercast economyThe global economic slowdown is crushing consumer sentiment andaffecting discretionary spe
12、nding.Feeling the pinch,demand for sportsgear,equipment(including bicycles)and apparel is likely to contract aswell.As a result,we expect global bicycle demand to decrease by 10%y-y during 2009F.but Taiwan retains competitivenessDespite the negatives,we believe there are still positive factors to lo
13、okfor.We have highlighted that bicycles produced in Taiwan are gainingmore international recognition,and the vertically integrated industry onthe island should help bicycle manufacturers remain competitive.Fallingraw material costs and increasing demand for electric bikes in China arealso positive f
14、or the industry.Selective approach requiredWhile we remain positive on Taiwans competitiveness,we believe thatmacro-economic conditions will still have a negative impact on overallbicycle demand in 2009F.As a result,we believe that stock pickingremains key and the winners will be those that:1)have e
15、conomies ofscale;2)provide a full line-up of products;3)produce electric bikes inChina;and 4)have a strong balance sheet.BUY GiantWe believe Meridas strategy of focusing on higher-end products will bea liability during downturns.We like Giants flexible game plan and itspenetration in Chinas E-bike b
16、usiness.On DCF valuation,we initiatecoverage on Giant with a BUY call and a price target of NT$82.90.Wehave a NEUTRAL view on Merida,and our SOTP price target isNT$48.70.Nomura,*Initiating coverageAnalystDave Chiou+852 2252 8 April 2009,3,3,3,5,6,7,8,10,11,12,12,12,15,17,19,21,22,22,23,25,29,2,Bicyc
17、les|TaiwanContentsIn a nutshellPositive on Taiwans competitivenessSelective approach requiredSo far,our theory seems rightInitiate with BUY on Giant and NEUTRAL on MeridaMajor markets hit hardHigh concentration in the US and EuropeProfit warnings from ShimanoSlumping economy=protectionism+higher tar
18、iffs?Taiwan:competitive edgeIncreasing health and environmental awarenessGlobal recognition;rising export ASPTaiwan:economies of scale and satellite factoriesFalling raw material cost is a plusGrowing electric bike demand in ChinaPicking the winnersFrom another perspective:share price correlation wi
19、th oilDevils advocateRisks to our view on the sectorSensitivity to raw material pricesTrough valuation analysisUS and Europe tariffs on bicyclesBicycle anatomyBicycle componentsBicycle types by functionLatest company viewsGiant ManufacturingMerida IndustryNomura,Dave Chiou,202227283139,8 April 2009,
20、0,3,Bicycles|TaiwanPreviewIn a nutshellPositive on Taiwans competitiveness,Dave Chiou,Despite a global economic slowdown and an expected decline in bicycle demand forthe next two years,we believe there are still positive factors to look for,and Taiwansbicycle producers should be competitive enough t
21、o survive and possibly even grabmarket share from smaller and less efficient producers.The major positive news andcompetitive edges for Taiwans bicycle industry are summarised below:Increasing health and environmental awareness;Global recognition of bicycles made in Taiwan;An abundance of satellite
22、factories,providing cheaper costs and vertical integration;Falling raw material costs could imply margin expansion;andIncreasing electric bike demand in China.Selective approach requiredWhile we remain positive on Taiwans competitiveness,we believe the macro-economic conditions will still have a neg
23、ative impact on overall bicycle demand in2009F.As a result,we believe selectivity remains key and we believe the winners inthis downturn will be bicycle companies that:Have economies of scale;Provide a full line-up of products;Produce electric bikes in China;andHave a strong balance sheet.Economies
24、of scale:Giant MeridaWe believe economies of scale are a factor for survival during an economic slowdown.In the case of Giant,the company is the largest manufacturer of bicycles in the world,with annual capacity of more than 5.8mn bicycles,versus Meridas 2.0mn units.Webelieve that Giants economies o
25、f scale will give it a cost advantage over its peers andallow the company to sustain margins,especially during difficult times.,Despite the negatives,we believethere are still positives to look forin the next two yearsSelectivity is required and weoutline four major criteriaEconomies of scale will h
26、elp tocrimp costs,Exhibit 1.Giant and Merida:capacity and production breakdownGiant,Merida,China accounts for more than80%of Giants total capacity,Capacity in China(units)Capacity outside of China(units)E-bike capacity(units)Total capacity(units)High-end bicycle production(%)*Mid-end bicycle product
27、ion(%)*Low-end bicycle production(%)*,4,500,0001,000,000350,000-450,0005,850,00045-5540-4510-15,1,150,000850,000 5,000*2,000,00070-8020-30,Note:*Based on Nomura estimatesSource:Company data,Nomura International(Hong Kong)Limited estimatesFull line-up of products:Giant Merida,Ranging from city bicycl
28、es to folding bicycles to mountain bicycles,both Giant andMerida provide a full-line up of products.However,the biggest difference between thetwo companies is that Merida focuses solely on higher-end models,while Giantsproducts range from low-end to high-end.Nomura,A full line-up of products thatinc
29、ludes high-and low-endmodels is vital to market share8 April 2009,4,Bicycles|Taiwan,Dave Chiou,We believe Meridas focus is an excellent strategy during bull markets,as higher-endproducts will usually translate to higher margins and profitability.However,as globaleconomies slow,we believe Giants stra
30、tegy of providing low-end and high-endproducts is a better approach.E-bike production in China:Giant Merida,We believe 15%y-y growth in E-bike demand in China seems reasonable,since E-bikes are a cheap,attractive means of transportation,especially in tier-two and threecities in China.Because Meridas
31、 E-bike production is very limited and it has nointention to expand it in the near term,we believe this is a missed opportunity.Solid balance sheet:Giant MeridaManagement is very conservative at both Giant and Merida on leverage and theirbalance sheets reflect this.On a consolidated basis,we forecas
32、t Giants FY09F net-debt-to-equity ratio at 20%.Even more impressive is Merida,where limited capex in,E-bike demand is still likely togrow by 15%y-y in 2009FBoth Giant and Merida appearwell managed,with solid balancesheets,FY09-10F should see the company maintain its net cash position.Exhibit 2.Peer
33、comparisonNet debt toequity ratio,EPS,Earnings gr.(%),P/E(x),P/B(x),ROE(%),(%),Bloomberg,Price,code,Rating(3 April)FY09F FY10F,FY09F,FY10F FY09F FY10F FY09F FY10F FY09F FY10F,FY09,Giant Manufacturing Co*,9921 TT,BUY,71.2,6.50,7.79,(6.9),19.8,10.9,9.1,2.1,1.8,21.6,21.7,20.4,Merida Industry Co*,9914 T
34、T NEUTRAL,44.3,5.04,5.97,(10.9),18.6,8.8,7.4,1.6,1.4,18.7,20.0,net cash,Shimano*,7309 JP NEUTRAL 3,020.0 211.00 173.50,(22.1),(20.4),14.3,17.4,1.6,1.6,11.5,9.1,15.2,Accell Group,ACCEL NA,Not rated,19.6,2.53,2.45,(14.3),(3.0),7.8,8.0,1.3,1.2,16.7,14.5,68.0,Average,(13.6),3.7,10.5,10.5,1.7,1.5,17.1,16
35、.3,34.6,Note:*Nomura estimates.Local priceSource:Bloomberg,Nomura International(Hong Kong)Limited,Exhibit 3.Giant:sales assumptions,(NT$mn),1Q09F,2Q09F,3Q09F,4Q09F,1Q10F,2Q10F,3Q10F,4Q10F,Sales breakdown,Taiwan salesHolland salesKusan salesChengdu salesTianjin salesElectric bicycle salesSales agent
36、salesNet revenue(%),3,1219142,3681331055461,4938,6801Q09F,3,5589102,7941831046312,52610,7052Q09F,4,1098283,2892832308991,66911,3073Q09F,4,6148972,5511111817005959,6494Q09F,3,2811,0412,5261571336361,5609,3351Q10F,3,7211,0553,1012311327672,61411,6212Q10F,4,2251,0643,6633342451,0351,78512,3523Q10F,4,96
37、21,2093,01119320498666711,2324Q10F,Common size analysis,Taiwan salesHolland salesKusan salesChengdu salesTianjin salesElectric bicycle salesSales agent sales,36.010.527.31.51.26.317.2,33.28.526.11.71.05.923.6,36.37.329.12.52.07.914.8,47.89.326.41.21.97.36.2,35.111.127.11.71.46.816.7,32.09.126.72.01.
38、16.622.5,34.28.629.72.72.08.414.5,44.210.826.81.71.88.85.9,Note:common size analysis is sales as a percentage of overall sales within the respective groupSource:Company data,Nomura International(Hong Kong)Limited estimates,Nomura,8 April 2009,May-03,May-04,Jan-03,Sep-03,Jan-04,Sep-04,Jan-05,May-05,M
39、ay-06,May-07,May-08,Sep-05,Jan-06,Sep-06,Jan-07,Sep-07,Jan-08,Sep-08,Jan-09,5,Bicycles|TaiwanExhibit 4.Merida:sales assumptions,Dave Chiou,(NT$mn),1Q09F,2Q09F,3Q09F,4Q09F,1Q10F,2Q10F,3Q10F,4Q10F,Sales breakdown,Taiwan salesShenzhen salesShandong salesNet revenue(%),2,0994551562,7101Q09F,1,8333492012
40、,3822Q09F,2,8445312233,5983Q09F,3,0126522423,9064Q09F,2,3694992073,0741Q10F,2,0163852602,6612Q10F,3,4116022834,2973Q10F,3,7867792964,8614Q10F,Common size analysis,Taiwan salesShenzhen salesShandong sales,77.516.85.7,76.914.68.4,79.014.86.2,77.116.76.2,77.116.26.7,75.814.59.8,79.414.06.6,77.916.06.1,
41、Note:common size analysis is sales as a percentage of overall sales within the respective groupSource:Company data,Nomura International(Hong Kong)Limited estimatesSo far,our theory seems right,Our top-down analysis and selective approach seem reasonable,as evidenced by theshare-price performance of
42、the two companies.As two of the largest companies in thebicycle industry,the share price correlation between Giant and Merida is high.However,looking deeper into the numbers,we find that from June 2006 to June 2008,Meridas shares outperformed Giants by 231%.Since then,Giants share price hasoutperfor
43、med Meridas by 33%.The reasons are:June 2006 to June 2008.On the back of strong earnings and improved margins,Meridas share price rose by 245%in the two-year period.EPS jumped fromNT$2.84 in FY05 to NT$6.18 in FY06,indicating,in our view,that Meridas focus onhigh-end products was positive during bul
44、l markets.July 2008 to March 2009.However,from July 2008 to the year to date,Giantsshare price has outperformed Meridas by 33%.This is another vote of confidenceto our theory that the market is becoming more concerned over demand for high-end bicycles.Exhibit 5.Share price comparison:Giant vs Merida
45、,The two companies share priceperformances confirm ourselective strategyHigh correlation between Giantand Meridas share price,but,(NT$),Giant,Merida,Giant has recently outperformed,1009080706050403020100Source:TEJ,Nomura International(Hong Kong)Ltd estimates,Nomura,8 April 2009,Jan-03,Jan-04,Jan-05,
46、Jan-06,Jan-07,Jan-08,Jan-09,Jul-03,Jul-04,Jul-05,Jul-06,Jul-07,Jul-08,Nov-08,Aug-08,Sep-08,Feb-09,Mar-09,Oct-08,Dec-08,Jan-09,Apr-09,Jul-08,6,Bicycles|TaiwanExhibit 6.Meridas share price relative to Giants(January 2003 to March 2009)(%)30025020015010050Source:TEJ,Nomura International(Hong Kong)Ltd e
47、stimates,Dave ChiouExhibit 7.Meridas share price relative to Giants(July 2008 to March 2009)(%)115105958575655545Source:TEJ,Nomura International(Hong Kong)Ltd estimates,Initiate with BUY on Giant and NEUTRAL on Merida,Making the simple screen,we believe Giant meets all of the criteria we have laid o
48、ut.While Merida has a more solid balance sheet,we believe the companys strategy offocusing on higher-end products will be a liability during downturns.We like Giantsflexible approach and its penetration in Chinas E-bike business.On DCF valuation,weinitiate on Giant with a BUY and a price target of N
49、T$82.90.We have a NEUTRALview on Merida,and our SOTP price target is NT$48.70.Risks to our view on Taiwans bicycle industry and our BUY call on Giant include:1)worse-than-expected bicycle demand from the US and Europe markets;2)worse-than-expected ASP of bicycle exports;3)an unexpected rise in raw m
50、aterial costs erodingmargins;and 4)worse-than-expected E-bike demand in China.Nomura,Giant is our top pick with a BUYcall and price target of NT$82.908 April 2009,7,Bicycles|TaiwanIndustry concernsMajor markets hit hard,Dave Chiou,The global economic slowdown is hammering consumer sentiment and affe
