【正文】 nd conscious Annual per capita disposable ine of urban residents ? Not price sensitive, but smart on consumer value ? Strong brand consciousness, brand as a key influencer to the purchasing decision ? Demanding on product quality, target to high end market ? Willing to try new concepts ? Poor brand loyalty Features of the top consumer group 5 , 8 5 49 , 1 2 69 , 1 8 21 0 , 9 3 2Sh a n g h a i B e i j i n g G u a n g d o n g C h i n a[RMB] % of households have reached monthly ines of more than 8000 RMB in Shanghai, Beijing and Guangzhou Segmentation by monthly household disposable ine 5 . 9 %5 . 6 %1 0 . 5 %2 3 . 1 %5 4 . 9 %30005000 3000 Target household units In the top 3 Chinese cities, there exist more than million household units, each of which earns more than 8000 RMB per month [Million] 50008000 800010000 10000 Top 3 cities Number of Household units Shanghai Total Beijing Guangzhou Backup [RMB] Target Source: China Infobank, RBP analysis Bathroom decoration standard has increased significantly ? To decorate the bathroom to be a cozy private space by spending generously ? Use branded, high quality sanitary products ? Cost around 20~30% of the total house decoration budget, . in Shanghai, it’s mon for one household to spend from RBM 4000 to 10,000 in bathroom decoration Bathroom revolution in China Source: China infobank, Asian monitor, RBP analysis Housing privatization leads to more private housing ownership Social concept influenced by western countries A growing household ine and consumption power Marketing output of the leading international sanitary manufacturers such as American Standard, Toto, Kohler A2. Market analysis of sanitary system Chinese sanitary market is mostly a ceramic market, the annual market demand of sanitary ceramic reached 43 million units in 1999 Composition of sanitary market demand (1999) Composition of flushing tank consumption (1999) 2 8 . 4 %1 6 . 22 8 . 4 %1 2 . 32 8 . 4 %1 2 . 35 . 6 %2 . 4Washbasin [Million unit] 7 . 9 %0 . 9 72 7 . 1 %3 . 3 16 5 . 0 %7 . 9 8Nonresidential buildings [Million unit] Total: 43 Total: Urban residential buildings Toilet bowl Flushing tank Others* *: Urinal ceramic and squatting toilet Rural residential buildings Source: National Building Materials Bureau, RBP analysis It will continually grow at 68% per year in the next 5 years ? Real estate market will be developed at an annual growth of 7~ 8% in the next 5 years ? The annual urban residential house will increase from 450 million sqm in 1998 to 550 from 20232023 ? The urbanization process will speed up in the next 15 years, and the number of cities will increase % per year Residential housing growth ? Bathroom decoration market will steadily grow at 5% annually in the next 5 years ? There exist around 6070 million toilet sets in China, a large amount of which are too old to be functioning well, or not efficient for water consumption. This will lead to market growth in bathroom renovation Renovation market growth ? An annual growth of 68% of sanitary market The data of total sanitary ceramic sales in 1999 is based on the statistics of both housing supply market and sanitary industry Total sanitary ceramic sales in 1999 [Million unit] Washbasin Flush tank Toilet bowl Urinal Squatting toilet Total National New Renovation Beijing New Renovation Shanghai New Renovation Jiangsu New Renovation Zhejiang New Renovation Yangtze River Delta* New Renovation Guangdong New Renovation Backup *: The total of Zhejiang, Jiangsu, Shanghai Source: National Building Materials Bureau, RBP analysis Medium to high end segment is leading the sanitary market growth Source: China Infobank, National Building Materiel Bureau, RBP analysis Volume share of medium to high end sanitary products 20%35%8%1998 2023 2023Industry response ? Production upgrade to move the general industry product standard to a higher level ? Fierce petition continually drives consumer value by lowering down the retail price Government’s direction ? Aim to upgrade the industry standard due to environmental concern ? Built industry petence by structure optimization Consumer’s demand ? Growing purchasing power ? Increased demand for sanitary condition leads to higher bathroom decoration standard [Million unit] ) 1) 2) 1): The projection based on 2023 Jan.~Aug. market performance 2): The industry target set by government 3): Based on the conservative annual growth rate of 5% : The percentage of medium to high end segment in the market of sanitary ceramic Government institutions have worked out the policies and regulations to direct the sanitary industry on environmental friendliness and industry efficiency ? National Water Saving Office has issued the regulation to standardize sanitary industry that toilet flush volume should be no more than 9 liters per time, and 6liter flush and dual flush toilet are motivated by water saving concern ? National Building Material Bureau has set clear direction for ceramic industry to close or upgrade small scale ceramic enterprises which are not environmental friendly Environmental concern Industry petence ? Chinese government wants to build sanitary industry petence to pr