Summary

Goodbaby International Holdings Limited is an international durable juvenile products company headquartered in China. It is a leading durable juvenile manufacturer in North America, Europe and China. Its key business included design, research and development, manufacture, marketing and sale of (1) Strollers and accessories, (2) Car seats and accessories, (3) Bicycles, tricycles and e-cars and (4) Other durable juvenile products.

World's leading durable juvenile goods manufacturer

According to Frost & Sullivan, in 2009, it had the largest market share of strollers in terms of units sold and retail value in China, which was 27.2% and 41.2%, respectively. In North America, it has been the largest supplier of strollers for 11 years. In 2009, the strollers that it supplied accounted for 55.1% of the total number of strollers sold in North America and 34.1% of the total sales of strollers in North America in terms of retail value. In its European market, it has been the largest supplier of strollers for four years. In 2009, the strollers that it supplied accounted for 24.1% of the total number of strollers sold in its European market and 16.4% of the total sales of strollers in it European market in terms of retail value.

Goodbaby operates different business models in connection with operations relating to its self-owned brands (“Goodbaby” and “Happy Dino”) operations relating to international brand (“Safety 1st”, “Cosco”, “Quinny”, “Maxi Cosi”, “Silver Cross”, “Play & Mothercare”) owners.

In China, it sells its products through an extensive distribution network, with coverage of 5,297 maternity and childcare specialty stores, 835 hypermarket outlets, and 664 department store outlets as of July 31, 2010. It sells its products in China to distributors, who in turn distribute its products to end consumers through retail outlets operated by the distributors themselves or their sub-distributors.

In North America and its European market, its products are sold to owners of internationally leading durable juvenile products brands. It designs and develops durable juvenile products either on its own or jointly with these leading international brand owners, and manufacture and sell such products to the brand owners. These durable juvenile products are in turn sold by the brand owners under their brands using their distribution channels.

Market Segment

Goodbaby revenue is mainly generated from its Europe & North America market, accounting for 30.6% and 33% respectively, while China market accounting for 24.1%. In future, we expected that China market would increase its contribution to revenue and earning per shares due to the higher growth rate compared with its Europe & North America Market.

Investment Thesis: Influence of the discontinued operations to EPS

From 2007 – 2010, there was lose from discontinued operations, which account 31.7%, 100.1%, 63.7% and 25.8% for 2007, 2008, 2009, 2010 respectively. Due to the significant present of lose from discontinued operations, EPS was reduced substantially. Hence, if the effect of discontinued operations vanishes in 2011, we expect a major boost for EPS.

Peers Comparison

Valuation

Comparing with its peer, Goodbaby deserves a great premium from the estimated P/E relative to its peers with the following reasons.

1. Goodbaby is the industry leader of juvenile goods sector in China with few competitors. It is benefited from its scale of operation and the barrier of entry.

2. High growth rate of the China consumer market.

3.Fading effect of the discontinued operations.

We believe the aggressive pricing of the security has already captured most of the premium. Fundamentally, our Target Price is HK$4.9, which is close to the upper limit of the offering price. However, we won`t rule out the short-term rally because of the current market condition. Rating: Neutral.

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