The business is promising, but the valuation is too high - due to China's Haiding 1) well-known brand, 2) its huge distribution network, and 3) the growth of new distribution operations, we believe the Group will continue to grow. However, although Haiding's profit is expected to grow rapidly, its valuation is still higher than that of its peers. Furthermore, its aggressive expansion strategy also brought additional risks to Haizen. Therefore, we have only included Sea Dian on our observation list.

Both business segments can support growth - after completing the restructuring in 2011, Haiding focused on the development of the watch, watch and accessories business. I believe that 1) its own brand watch business and 2) watch distribution business can continue to grow rapidly.

Core net profit increased by 39.5% and 19.9% in 2012 and 2013 - As a result of continued business growth and stable gross profit margins, we expect Haidian's core net profit to increase 39.5% to HK$253 million in 2012, and a further increase of 19.9% to HK$303 million in 2013. Core net profit will grow at an average annual compound rate of 24.0% during the 2011-2014 fiscal year.

Overvalued - Haiding currently predicts a price-earnings ratio of 11.3 times in 2013, but the average predicted price-earnings ratio of the same industry is only 7.2 times. In other words, Haiding's valuation is 56.9% higher than that of the same industry. Of course, the Group's business will continue to grow rapidly, but its valuation is still too high.