China Zaino - Driven by higher ASPs and volume

China Zaino's 4Q08 net profit (+12.9% yoy to Rmb106.8m) came in 3% above our forecast and consensus. Revenue increased 29.4% yoy to Rmb615.3m, led by higher ASPs and volume growth. However, we have cut our FY09-10 earnings forecasts by 19-25% to factor in a slowdown in sales of its products as consumer spending declines. Based on checks with other retailers in the mid-end market, we believe Zaino's target customers are starting to cut down on their discretionary spending. Following our earnings reductions, our target price has been lowered to S$0.37 from S$0.49, still based on 4x CY10 P/E. Maintain Outperform given the substantial upside potential to our target price.

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