(%) HK$ (%) (X) HK$ (%) (X) (%) (X)

CASH Research Egana Jewellery Worth to watch out for 8 October, 2003 Accumulate Price: $2.375 Earnings Estimates Yr-end Net Profit Change EPS Change PER DPS Yield P/B ROE EV/EBITDA May HK$m (%) HK$ (%) (X) HK$ (%) (X) (%) (X) 2002A 42 n.a. 0.136 n.a. 17.4 0.015 0.6 1.8 10.4 8.9 2002A# 30 n.a. 0.096 n.a. 24.7 0.011 0.4 2.6 10.4 12.0 2003A 58 94.1 0.187 94.1 12.7 0.100 4.2 1.6 12.9 9.6 2004F 70 20.8 0.226 20.8 10.5 0.102 4.3 1.4 13.2 8.2 # Note: Financial year end changed from Dec to May and the annualised column is prepared for comparison purpose Investment Highlights Vertically integrated operation Egana Jewellery (EJ) is an international multi-brand jewellery and accessories marketing and distribution company. Having its own manufacturing facilities in both Europe and Asia would allow the company to better control its production schedule and response quickly to the rapidly changing consumer market. Extensive distribution network Leveraging on its parent s strong sales and distribution network, EJ has an access of over 13,000 POS (point of sales) around the globe. The company has currently used only half of its parent s network and the ratio is expected to increase in coming years as business grows. Multi-brand marketer offer defensiveness EJ maintains a well-diversified brand portfolio covering different market segments. Most of its global brands like Goldpfeil, Abel & Zimmermann, Pierre Cardin, Esprit, Mexx and Joop! have their own respective market position and track record. A diversified client base should help make the company more resilient to economic downturn. Asian markets would be growth driver The company s Europe business should grow steadily in coming years while much of the growth is expected to come from Asia. The company is targeting to boost its Asian sales (currently 14%) to 28% of its total sales in 3 to 5 years. This is possible given the CEPA driven China potential and its successful market development in Japan. Reasonable valuation with potential re-rating EJ trades at forward PER of about 10x and at a good discount to international players which have average forward PERs of 20x or above. Although it may take time for EJ to enjoy a similar rating because of its smaller operational and financial scales, such valuation gap should narrow over time and EJ may eventually become a shining jewel. EJ s long-term potential makes it an interesting company to watch out for. Key Data Stock Code : 926 12-month High/Low ($) : 2.4/1.04 Hang Seng Index : 11,723.92 Issued Shares (m) : 310.21 Market Capitalization ($m) : 736.74 Average Daily Turnover (K) : 1,022.38 Major shareholders : EganaGoldpfeil Holdings (0048) 73.97% Rel. Performance - 1 month (%) : +14.75-3 months (%) : +17.62-12 months (%) : +37.06 Chart

Business Overview Company background Egana Jewellery (0926) was spun off from its parent EganaGoldpfeil (0048) in 1998 and is currently 74% owned by EganaGoldpfeil. Distribution network EganaGoldpfeil operates an extensive distribution and sales network which covers 96 countries. Leveraging on its parent s strong distribution network, Egana Jewellery has an access of over 13,000 POS (point of sales) around the globe. Egana Jewellery has currently used only half of its parent s network and it is expected that the ratio will increase in coming years as its business grows. Vertically integrated Unlike most of its peers, Egana Jewellery has an integrated manufacturing base and it operates manufacturing facilities in Europe for advanced and high-end manufacturing process while its Asian factories are focused on standardised manufacturing activities. Such an integrated operation would enable the company better control its product schedule response quickly to the rapidly changing consumer market. Global operations Egana Jewellery is a true global company with operations and logistic supports in Germany, Austria, Switzerland, UK, France, and Italy in Europe; Japan, Thailand, India, HK and China in Asia; and USA in the North America. Brand Portfolio Egana Jewellery maintains a well-diversified brand portfolio comprising owned and licensed brands, and covering fashion, contemporary, and luxury segments. Examples of Egana Jewellery s luxury brand include Goldpfeil and Abel & Zimmermann. Its fashion licence brands include Esprit, Mexx and Joop! and the licences are usually exclusive and under a 5-year fixed term plus another 5-year renewal option. Each brand has its own market position and track record. Brand Portfolio Brand Segment Ownership Territory Abel & Zimmermann Jewellery Own Worldwide Abraxas Jewellery Licence Europe Blue Fire Jewellery Own Worldwide Carrera Watches, Jewellery & Leather Own Worldwide Dugena Timepieces, Jewellery, Leather & Optical Own Worldwide dunouveau Jewellery Own Worldwide Egana Watches & Jewellery Own HK, PRC & Switzerland Esprit Watches & Jewellery Licence Worldwide ex-us Ferrano Jewellery Own Germany, PRC & HK Goldpfeil Watches, Jewellery, Leather, Optical & Own Worldwide Lifestyle Jacquelin Jewellery Own Worldwide JOOP! Watches, Jewellery, Footwear & Licence Worldwie Accessories Kai-Yin Lo Jewellery Own Worldwide Katarina Witt by Dugena Watches & Jewellery Licence Worldwide Kazto Jewellery Own Worldwide Keimothai Jewellery Own Worldwide MEXX Jewellery Licence Germany & Austria Pierre Cardin Timepieces & Jewellery Own Worldwide ex-argentina, Uruguay, Chile & Japan Speidel Jewellery Own Worldwide Yamato (Perlen) Jewellery Own Worldwide Young Manhattan Jewellery Own Worldwide Source: Egana Jewellery, CASH Research Resilience Egana Jewellery has maintained profitable operations in the last two years amid difficult economic conditions. This is mainly because the company has a diversified brand portfolio that has made it more resilient to economic downturn. 2 Egana Jewellery

Results Roundup Sales in FY03 reached HK$718m, an annualised increase of 19%. Gross margin was maintained at above 40% thanks to Egana Jewellery s manufacturing and distribution capabilities. Operating margin improved by 2.7 percentage point due to improvement in operation efficiency. Bottomline almost doubled to HK$58m on an annualised basis. Results Highlights 17-mth ended 12-mth 12-mth ended 31 May 2002 Annualised 31 May 2003 Results highlights FY02 FY02 FY03 Sales (HK$m) 855.7 604.1 718.4 Gross profit (HK$m) 379.1 267.6 298.0 Gross margin (%) 44.3 44.3 41.5 Operating profit (HK$m) 68.2 48.1 76.9 Operating margin (%) 8.0 8.0 10.7 Net profit ($HKm) 42.3 29.8 57.9 Growth (%) n.a. n.a. 94.1 EPS (HK$) 0.136 0.096 0.187 DPS (HK$) 0.015 0.011 0.100 Note: Financial year end changed from Dec to May and the annualised column is prepared for comparison purpose Source: Egana Jewellery, CASH Research Business Prospects Industry outlook Statistics indicated that half of the global luxury consumer goods sales was derived from timepiece, jewellery and leather. Egana Jewellery is set to growth in the luxury industry given its market positions and track records. Global ex-factory value for timepiece reach US$14bn while jewellery market is 3x of timepieces market size. Jewellery market is very fragmented itself and strong distribution network and brand portfolio are key to success in the jewellery market. Distribution network expansion EganaGoldpfeil is pursuing a global marketing and distribution strategy and operating a worldwide distribution network. This globalisation approach provides an unique communication channel and help increase market share. Egana Jewellery will continue to be benefited as its parent expands its distribution network with more international distributors and agents. Acquisition of brands Much of Egana Jewellery s capex is expected to be spent on acquiring brands and licences on different market segments to strengthen its brand portfolio. The EganaGoldfeil Group has proven track record in acquisition of brands with high market recognition and some of the good examples are Carrera, Dugena, and Speidel. Egana Jewellery 3

Brand Pyramid (Jewellery segment only) Blue Fire Goldpfeil Luxury Prestigious Abel & Zimmermann Kazto dunouveau JOOP! Dugena Upscale Dressy / Fashion Upscale Sports Core, State-of-Art Technology Carrera Speidel Pierre Cardin Esprit MEXX Katarina Witt by Dugena Trendy Fashion Fashion Trendy Sports Ferrano Yamato (Pearls) Abraxas Source: EganaGoldpfeil, CASH Research Solid foundation in Europe Over the years, Egana Jewellery has established a solid business foundation in Europe. Europe is world fashion and trend setter and it is expected that the company s Europe business should grow steadily in comings years, especially in the light of owning famous brands such as Goldpfeil, Abel & Zimmermann, and Speidel. From Europe to Asia Egana Jewellery derives bulk of its sales from Europe but the company is targeting to boost its Asian sales (currently 14%) to 28% of its total sales in 3 to 5 years. This is possible given the CEPA driven China potential and its successful market development in Japan (with the establishment of 100 POS and the opening of a one-stop-shop in Ginza). China potential CEPA provides excellent opportunity for Egana Jewellery to expand its business into China through re-inovicing from its HK operation. This will allow the company to take full advantage of zero import tariffs and enhance its margin. The company has planned to develop 10 DOS (direct operated shop) and 50 franchises in China within the next few years. Besides, Egana Jewellery has teamed up with a renowned jewellery group in Shanghai for distribution of its Pierre Cardin jewel collections. Japanese market The Japanese market represents 40% of worldwide consumption of luxury goods. Egana Jewellery s luxury brands should be able to attract discreet customers in Japan. Goldpfeil Jewllery was introduced in Basel Fair (the world s largest watch & jewellery fair) with positive responses. The Goldpfeil brand is well received by the Japanese market, ranking 15 th in terms of brand awareness. We believe that the Goldpfeil collections will boosts sales when launched. USA high-end market The US market, currently accounts for less than 10% of Egana Jewellery s sales, is another potential growth area for the company. Egana Jewellery will try to tap the high-end market in US through product lines such as Abel & Zimmermann, Kazto, and Jacquelin Designs and sales is expected to grow to over 20% of its total sales in 5 years time. 4 Egana Jewellery

Sales Mix Asia 14% FY03 Asia 28% FY08F North America 8% Europe 78% North America 22% Europe 50% Source: Egana Jewellery, CASH Research Investment opinion P/Sales is one of the common tools to value consumer and retailer counters. Egana Jewellery s Price/Sales ratio is around 1x. Note that the Price/sales multiples for international consumer players are in the range of 2x to 4x. Earnings multiples are our preferred valuation yardstick, given investors current high level of risk aversion. In PER terms, Egana Jewellery has been trading at a substantial discount to other international luxury players such as LVMH, Hermes, and Gucci. The average forward PER for the luxury industry ranges from 20x to 35x. Similarly, jewellery specialty such as Tiffany & Co, Bulgari and Christian Dior are trading at 24x to 30x forward PER. Peer Comparison (Global) Company FYE Curr Mkt PEr Yield Sales Net P/Sales Cap 02A 03F 04F profit US$m (x) (x) (x) (%) US$m US$m (x) Luxury LVMH 12/02 EUR 31,431 48.7 31.5 26.3 2.2 14,698 644 2.1 Hermes Int'l 12/02 EUR 5,825 23.2 24.4 22.4 1.8 1,439 250 4.0 Richemont AG 03/03 CHF 10,127 23.6 14.1 20.7 0.0 4,001 798 2.8 Swatch Gp 12/02 CHF 3,336 15.7 16.1 14.3 0.0 2,942 370 2.0 Hugo Boss 12/02 EUR 655 14.9 13.4 12.1 0.0 1,266 86 1.0 Gucci Group 01/03 EUR 8,598 23.5 32.1 35.3 0.7 2,959 264 3.4 Jewellery Tiffany & Co 01/03 USD 5,648 33.7 29.6 27.9 0.4 1,707 190 3.1 Bulgari SpA 12/02 EUR 2,454 27.7 25.7 22.4 1.0 896 88 2.7 Christian Dior 12/02 EUR 9,365 39.4 23.8 17.5 2.8 15,249 206 0.6 Source: Bloomberg, CASH Research Being an international multi-brand jewellery players, one would expect Egana Jewellery to enjoy a similar PER prevailing to its international peers. However it may take years to happen because Egana Jewellery s sales turnover and market capitalisation are still way behind these counters. Note that Esprit (a fashion manufacturer and retailer which is also a licensing partner of Egana Jewellery) is currently trading at over 20x. On the other hand, local jewellery maker such as Luk Fook and Hang Fung Golds trades at historically PER of 10-14x. Egana jewellery trades at forward PER of about 10x and at a good discount to international players which have average forward PERs of 20x or above. Although it may take time for Egana jewellery to enjoy a similar rating because of its smaller operational and financial scales, such valuation gap should narrow over time and Egana jewellery may eventually become a shining jewel. Egana jewellery s longterm potential makes it an interesting company to watch out for. Egana Jewellery 5

Peer Comparison (Local) Company Code FYE Market PER# Yield Sales Net P/sales Cap 02A 03A profit US$m (x) (x) (%) US$m US$m (x) Local Jewellery Chow Sang Sang 116 HK 12/02 166 17.6 n.a. 3.9 625 8 0.2 Egana Jewellery 926 HK 05/03 89 16.2 11.8 0.5 93 8 1.0 Hang Fung Gold 870 HK 03/03 92 21.4 9.5 0.0 221 11 0.4 King Fook 280 HK 03/03 37 n.a. n.a. 0.0 74-3 0.5 Luk Fook 590 HK 03/03 83 9.8 13.9 4.4 190 6 0.4 Man Sang Int'l 938 HK 03/03 16 5.6 4.7 0.0 42 3 0.4 Tse Sui Luen 417 HK 02/03 17 n.a. n.a. 0.0 124-6 0.1 Fashion Retailer Esprit 330 HK 06/03 3,631 29.2 23.4 1.0 1,607 154 2.2 # as of 3 October 2003 Source: Source: Bloomberg, CASH Research Income Statement (HK$m) Yr ended Yr ended 17-mth ended 31-Dec-99 31-Dec-00 31-May-02 Profit & Loss Sales 691.8 670.6 855.7 Cost of sales -399.8-375.2-476.6 Gross profit 292.0 295.5 379.1 Other revenue 7.1 12.4 34.3 Operatin expenses -202.1-243.5-345.3 Operating profit 97.0 64.3 68.2 Finance costs -12.2-17.1-23.0 Associates -0.8 0.0 0.0 Pre-tax profit 84.1 47.2 45.2 Tax -12.0-4.6-3.4 MI 0.0 0.0 0.5 Net profit 72.0 42.6 42.3 Source: Egana Jewellery Balance sheet (HK$m) Yr ended Yr ended 17-mth ended 31-Dec-99 31-Dec-00 31-May-02 Non-current assets Fixed assets 43.6 37.0 29.8 Others 49.0 42.2 125.6 Current assets Cash and bank balances 74.4 135.0 112.6 Inventoreis 167.0 173.9 179.2 A/R 108.6 79.1 69.2 Others 123.4 126.3 241.0 Total assets 566.0 593.6 757.5 Current liabilities Borrowings 57.9 114.7 145.1 A/P 66.1 65.5 122.9 Others 113.7 69.6 74.7 Non-current liabilities 2.8 7.0 9.0 MI 0.0 0.0 0.0 Share capital 155.0 155.1 155.1 Reserves 170.5 181.6 250.8 Shareholders' funds 325.5 336.7 405.9 Liabilities & Shareholders' funds 566.0 593.6 757.5 Source: Egana Jewellery 6 Egana Jewellery

Cashflow Statement (HK$m) Yr ended Yr ended 17-mth ended 31-Dec-99 31-Dec-00 31-May-02 Operating activities Profit before taxation 84.9 47.2 45.2 Depreciation 24.9 13.4 18.6 Chg in working capital 41.2-1.6-19.5 Returns on inv & serv of fin -16.2-46.0-17.9 Tax -0.4-15.0-2.4 Investing activities Capex -22.3-10.4-22.3 Others -0.0-42.0-26.1 Financing activities Equity issue 0.1 0.3 0.0 Debt -0.7 29.6-51.0 Net chg in cash 111.3-24.4-75.3 Cash and cash equivalents at start -16.1 96.0 70.5 Foreign exchange 0.8-1.1-1.3 Cash and cash equivalents at end 96.0 70.5-6.1 Source: Egana Jewellery Key Ratios Yr ended Yr ended 17-mth ended 31-Dec-99 31-Dec-00 31-May-02 Gross margin (%) 42.2 44.1 44.3 Operating margin (%) 14.0 9.6 8.0 Net margin (%) 10.4 6.4 4.9 ROA (%) 12.7 7.2 5.6 ROE (%) 22.1 12.7 10.4 Current ratio (x) 2.0 2.1 1.8 Interest coverage (x) 8.0 3.8 3.0 Gearing (%) 17.9 35.4 37.4 Net Gearing (%) Net cash Net cash 9.6 A/R turnover (days) 57.3 43.1 29.5 Inventory turnover (days) 152.4 169.2 137.3 A/P turnover (days) 60.3 63.8 94.1 Source: Egana Jewellery, CASH Reserach Egana Jewellery 7

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