China Zaino - No surprises

China Zaino's 1Q09 net profit accounts for 29% of our full-year estimate (-4% yoy to Rmb101.5m), in line with our expectations but significantly below consensus. Due to a slowdown in consumer spending, Zaino had cut its ASPs in order to maintain market share. As a result, while overall volume increased by 19.2% yoy, overall ASP was flat at Rmb98.90. Earnings remain at risk as demand for bags may fall as people cut down on their discretionary spending, including travel. Maintain Outperform, nevertheless, given the substantial upside to our target price. Our target price remains S$0.37, still based on 4x CY10 P/E, at a discount to retail peers.

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