Robam Alert:3Q17,looking beyond the short-term volatilities,

We interacted with investors after the earnings release, key concerns byinvestors and our takes:

    3Q17revenue growth decelerated to 23% YoY (vs. 1H17of 27%):management attributed the deceleration to(1) e-commerce product pricehike that impacted volume and(2) property market slowdown. Despite theslowdown, Robam management is confident in a rather sustainable 25-30% YoY revenue growth in 2018. We believe the 2018growth target isachievable (DBe 28% YoY). We see signs suggesting Robam fares betterthan our expectation amid tier-1-city property slowdown: we estimate thatRobam delivered a high-single digit ppt YoY sales growth in tier 1cities in3Q17, vs. over 10% decline in property transaction. The resilience is drivenby(1) new embedded kitchen appliances and(2) market share gain viadecorated houses, in our view.

    Gross margin declined by 5ppt YoY in 3Q17: Robam management attributethis to wage hikes and accounting changes (Robam started in 4Q16todeduct part of its marketing-related OPEX directly from sales). We noteRobam’s 3Q17EBIT margin expanded by 50bps YoY. More importantly,our channel checks continue to suggest a healthy pricing environment forRobam and Fotile (private). We thus have confidence in a mild grossmargin uptrend for Robam in the next 3years.

    3Q17operating cashflow declined: according to management, the shortfallin operating cash flow YoY can be explained by(1) change in paymentterms by one of Robam’s major e-commerce platforms (explaining 2/3ofthe shortfall) and(2) higher raw material stock taken amid hiking rawmaterial prices.

    Positive investment case intact

威尼斯88330com,    We like Robam for (1) healthy industry pricing environment,(2) Robam’s abilityto penetrate into lower tier cities and(3) new embedded products drivinggrowth. On these three fronts Robam have been sustainably delivering. Wewill continue to monitor the volatilities in gross margin and cash flow butremain comfortable with Robam’s investment case.

    We fine-tuned our model by slightly raising 2019and 2020forecast whileincrease target price by c. 14%, all reflecting more resilient growth.

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