Express Note

China: Personal Products BUY

TP upside (downside) 57.1% Close 23 August, 2011
Price 12M Target Hang Seng Index HK$1.40 HK$2.20 19,875.5

24 August, 2011

Natural Beauty (157 HK)

Recovery on track
Event
Natural Beauty reported impressive 1H11 results last night (Aug 23), with EPS of HK$0.0302 up 280% YoY, beating our estimate by 24%.
58 48 38 28 18 8 -2 Nov-10 Feb-11 May-11

Share price performance relative to Hang Seng Index

3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Aug-10
Share Price (HK$) Performance relative to Hang Seng Index (%)

the HK$6 mn provision for bad debt in 1H10, net profit increased 107% YoY in 1H11.

Excluding the HK$25 mn provision for slow-moving inventory and

Our Take
1H11 sales increased by 25.6% YoY, beating our estimate by 16%, driven by strong New Concept Store (NCS) sales and recovery of sales in 1H11, vs. 6% in 2H10, while non-NCS achieved double non-NCS store sales. The 137 total NCS contributed 14% of total digit YoY same-store sales growth, slightly up from the 2010

Market cap 6M avg. daily turnover Outstanding shares Free float Major shareholders Net debt/equity BVPS (2011F) P/B (2011F) P/E (2011F)
Financial outlook Year to Dec Sales (HK$ mn) EPS (HK$) Div. yield (%) ROE (%) 2010 485 0.02 5.4 3.8

US$359.4 mn US$0.1 mn 2,002.1 mn 34.7% Dr. Tsai Yen Yu and family, 32.8% Net cash HK$0.37 3.8x 28.5x

level. Overall, its average sales per store grew by 36.4% in 1H11. 1H10, 1H11 gross margin contracted 250 bps YoY to 77.8%,

Excluding the HK$25 mn provision for slow-moving inventory in missing our estimate of 79.0% by 120 bps, mainly due to higher in 2H11 to ease the cost pressure.

labor costs. Management indicated it would seek to increase ASP

Excluding the HK$6 provision for bad debt in 1H10, 1H11

2011F 501 0.05 3.2 12.9 2012F 632 0.07 4.4 18.3 2013F 796 0.09 5.9 23.5

operating expenses as a percentage of sales fell 4 ppt YoY to

50.9%, beating our estimate by 1.1 ppt, mainly due to a 2.5 ppt drop in A&P expenses as a percentage of sales, as the company has widened its media channels to include magazines and the internet. Previously the promotions were carried out by more

expensive traditional channels such as gifts and free samples. Reiterate BUY: We believe Natural Beautys recovery is on track, and our positive view on its shares remains. We are reviewing our estimates, but given the impressive 1H11 results for now we reiterate our BUY rating.

Primary Analyst: Charles Z. Yan, CFA +852 3969 9530 charles.yan@yuanta.com With significant contribution from:

Catherine Chen
+86 21 6187 3823 catherinechen@yuanta.com

ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES BEGIN ON PAGE 2. Yuanta does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Appendix A: Important Disclosures

Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Natural Beauty (157 HK) Three-year recommendation and target price history
2.8 2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 1 0.8 Aug-08 No. 1: 2: Date 22 Nov 10 28 Mar 11 Feb-09 Aug-09 Closing Price (A) 2.42 1.81 Target Price (B) 2.90 2.20 Feb-10 Aug-10 Rating BUY BUY Feb-11 Analyst Charles Yan Charles Yan 2
Share Price HK$

2.8 1 2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 1 0.8 Aug-11

Adjusted Target Price (C) 2.97 2.25

Source: Bloomberg, Yuanta Research Notes: A = price adjusted for stock & cash dividends; B = unadjusted target price; C = target price adjusted for stock & cash dividends. Employee bonus dilution is not reflected in A, B or C.
Current distribution of Yuanta ratings

Rating Buy Hold Sell Under Review Restricted Total:

# of stocks 127 79 30 6 2 244

% 52% 32% 12% 2% 1% 100%

Source: Yuanta Research

Ratings Definitions BUY: We have a positive outlook on the stock based on our expected absolute or relative return over the investment period. Our thesis is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile. We recommend investors add to their position. HOLD: We have a neutral outlook on the stock based on our expected absolute or relative return over the investment period. Our thesis is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile. SELL: We have a negative outlook on the stock based on our expected absolute or relative return over the investment period. Our thesis is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile. We recommend investors reduce their position. Under Review: We actively follow the company, although our estimates, rating and target price are under review. Restricted: The rating and target price have been suspended temporarily to comply with applicable regulations and/or Yuanta policies. Note: Yuanta research coverage with a Target Price is based on an investment period of 12 months. Greater China Discovery Series coverage does not have a formal 12 month Target Price and the recommendation is based on an investment period specified by the analyst in the report.

Yuanta
China: Personal Products 24 Aug, 2011

Natural Beauty (157 HK) Express Note Page 2 of 4

Global Disclaimer 2011 Yuanta. All rights reserved. The information in this report has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. It is not an offer to sell or solicitation of an offer to buy any securities. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This report provides general information only. Neither the information nor any opinion expressed herein constitutes an offer or invitation to make an offer to buy or sell securities or other investments. This material is prepared for general circulation to clients and is not intended to provide tailored investment advice and does not take into account the individual financial situation and objectives of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, investments or investment strategies discussed or recommended in this report. The information contained in this report has been compiled from sources believed to be reliable but no representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. This report is not (and should not be construed as) a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on such business in that jurisdiction. Yuanta research is distributed in the United States only to Major U.S. Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended and SEC staff interpretations thereof). All transactions by a US person in the securities mentioned in this report must be effected through a registered broker-dealer under Section 15 of the Securities Exchange Act of 1934, as amended. Yuanta research is distributed in Taiwan by Yuanta Securities Taiwan. Yuanta research is distributed in Hong Kong by Yuanta Securities (Hong Kong) Limited, which is licensed in Hong Kong by the Securities and Futures Commission for regulated activities, including Type 4 regulated activity (advising on securities). In Hong Kong, this research report may not be redistributed, retransmitted or disclosed, in whole or in part or and any form or manner, without the express written consent of Yuanta Securities (Hong Kong) Limited. Taiwan persons wishing to obtain further information on any of the securities mentioned in this publication should contact: Attn: Institutional Department Yuanta Securities Taiwan 13F, 2-3, 225, Section 3 Nanking East Road, Taipei 104 Taiwan Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact: Attn: Research Yuanta Securities (Hong Kong) Limited 23/F, Li Po Chun Chambers, 189 Des Voeux Road, Central Hong Kong

Yuanta
China: Personal Products 24 Aug, 2011

Natural Beauty (157 HK) Express Note Page 3 of 4

Yuanta Greater China Equities

Research
Ming Tan, CFA Head of Greater China Research Head of Financials +852 3969 9525 ming.tan@yuanta.com Kevin Gin, CFA Head of Real Estate +852 3969 9515 kevin.gin@yuanta.com Charles Z. Yan, CFA Head of Consumer +852 3969 9530 charles.yan@yuanta.com Dennis Chan Notebook Supply Chain +886 2 3518 7913 dennis.chan@yuanta.com Ming Hsun Lee, CFA Taiwan Consumer/Small & Mid Cap +886 2 3518 7938 ming.lee@yuanta.com Rita Wu China Energy +852 3969 9513 wurong@yuanta.com John Brebeck, CFA Head of Taiwan Research, Taiwan Strategist +886 2 3518 7906 john.brebeck@yuanta.com Danny Ho Head of Basic Materials +886 2 3518 7923 danny.ho@yuanta.com Aidan Wang Head of Macroeconomic Research +886 2 3518 7992 aidanwang@yuanta.com Andrew C Chen IC Backend +886 2 3518 7940 andrew.chen@yuanta.com May Lin PC Distribution/ODM & Taiwan Telecom +886 2 3518 7942 may.lin@yuanta.com Kelvin Ho Deputy Head of China Research, Head of Telecom and Media +852 3969 9518 kelvin.ho@yuanta.com Min Li Head of Alternative Energy +852 3969 9521 min.li@yuanta.com Bonnie Chang Handsets +852 3969 9904 bonnie.chang@yuanta.com Alison Chen Downstream Tech Small & Mid Cap +886 2 3518 7975 alison.chen@yuanta.com Stone Lin Taiwan Non-Tech +886 2 3518 7927 yichilin@yuanta.com Vincent Chen Head of Technology Research, Tech Strategist +852 3969 9903 vincent.chen@yuanta.com Kim-Chong Tan Head of Oil & Gas Research +852 3969 9526 kimchong.tan@yuanta.com Tess Wang Taiwan Financials +886 2 3518 7901 tess.wang@yuanta.com Charlene Gu Industrials & Autos +852 3969 9531 charlene.gu@yuanta.com Baron Nie, AIAA, CFA China/Hong Kong Insurance +852 3969 9514 baron.nie@yuanta.com Samuel Kwok, CFA China/Hong Kong Strategy and Quant +852 3969 9527 samuel.kwok@yuanta.com Hsinyi Tsai China Retail +852 3969 9532 hsinyi.tsai@yuanta.com George Chang, CFA Head of Upstream Tech +886 2 3518 7907 george.chang@yuanta.com

Johnny Wong Head of Metals & Mining +852 3969 9524 johnny.wong@yuanta.com

Sales and Trading

John Chang Head of Taiwan Equities +886 2 2175 8898 john.chang@yuanta.com Chris Dunham Head of HK Equities Head of HK Sales Trading & Execution +852 3969 9768 chris.dunham@yuanta.com Fanny Lin Head of Dealing +886 2 2175 8818 fanny.lin@yuanta.com Jimmy Huang Head of Greater China Sales +852 3969 9866 jimmy.huang@yuanta.com Augustine Chen Head of Taiwan Sales +886 2 2175 8962 augustine.chen@yuanta.com Duncan Wun Head of Hong Kong Sales +852 3969 9869 duncan.wun@yuanta.com

Tom Hsu Head of Taiwan Sales Trading +886 2 2175 8800 tom.hsu@yuanta.com Kerry Chen - Sales +886 2 2175 8922 kerrychen@yuanta.com Jenny Lo Sales Trading +852 3969 9769 jenny.lo@yuanta.com Joyce Wan Sales +852 3969 9876 joyce.wan@yuanta.com

Leo Hu - Sales +886 2 2175 8880 leo.hu@yuanta.com Sammy Mui Sales +852 3969 9875 sammy.mui@yuanta.com Jason Wang Sales Trading +886 2 2175 8888 Jason.wang@yuanta.com

Vickie Hu - Sales +852 3969 9878 vickie.hu@yuanta.com Charles Nissen - Sales +852 3969 9832 charles.nissen@yuanta.com Sharon Zhao - Sales +852 3969 9870 sharon.zhao@yuanta.com

Chan Hui Sales Trading +852 3969 9728 hui.chan@yuanta.com Fiona Tan Sales +886 2 2175 8921 fiona.tan@yuanta.com

Michael Lin - Sales +886 2 2175 8977 michael.lin@yuanta.com Ming Yi Tan - Sales +852 3969 9879 mingyi.tan@yuanta.com

Sales of Non-Taiwan Equities

Franker Lin Head of Foreign Equity Department +886 2 2175 8720 laiochenlin@yuanta.com Lunghui Chen Co-Head of Sales, Foreign Equity Department +886 2 2175 8730 lunghuichen@yuanta.com Oscar Yang Co-Head of Sales, Foreign Equity Department +886 2 2175 8733 oscaryang@yuanta.com