1. 10/30/2018 Kathleen Cai, Oufan Jin, Xiaoling Zeng

2. Agenda Executive Summary and Portfolio Weight
Macroeconomics and Industry Overview
Company and SWOT Analysis
Valuation Analysis
Summary and Appendix

3. Macroeconomics Overview Proposed Recommendation
Executive Summary
The macroeconomics condition is volatile with Trade War and the uncertainty of foreign currency exchange rate, while the general economics perform well and the raw materials price maintain stable.
Macroeconomics Overview
Crown Craft sits in a highly competitive retail environment, while experiencing a continued growth in online baby product sales. However, the declining birth rate poses a challenging factor to this industry overall.
Industry
Overview
Crown Craft, Inc. is one of America’s largest producers of infant bedding, toddler bedding, bibs and developmental toys. The firm operates through three subsidiaries and sale of products are generally made directly to retailers.
Company
Overview
After conducting Comparable Companies Analysis and Discounted Cash Flow Analysis, we came to a final enterprise value range of $38 to $65 million, implying a share price range of $4 to $5.6. We recommend a hold.
Proposed Recommendation

4. Portfolio Yield By Cost Portfolio Weight By Value

5. Stock Market Prospects
Current Market Price of $5.21 (as of 10/29/2018)
52 Week range of $ $ (10/11/18-1/17/18)
Relatively poor performance compared to Nasdaq index
Bought in at $9.37 for 1,000 shares
Two Years Stock Price Performance
Source: Yahoo Finance

6. Stock Market Prospects, Con’t
Dividend yield of 6.15% (FWD 0.32)
Revenue continuously missed the expectation over the past 4Qs
Actual EPS over the past 4Qs continuously lower than expected EPS
TTM EPS (as of 10/30/2018) is $0.275 and PE ratio is 19x
Dividends over the past 5 years
Expected EPS vs Actual EPS
Source: Yahoo Finance
Source: Yahoo Finance

7. Macroeconomic Overview
Source: United States Census
Source: Bureau of Labor Statistics
Source: United States Census

8. Macroeconomics Overview
Current Trade War between U.S and China
Volatility of foreign currency exchange rate
Cotton price mainly stay stable
Wage in China continue to raise
Foreign Currency Exchange Rate
Historical Price of Cotton
Source: OANDA
Source: MacroTrend

9. Industry Overview

10. Rivalry Porter’s Five Forces Analysis Rivalry: strong
Barriers to Entry
Supplier Power
Threat of substitutes
Buyer Power
Rivalry: strong
Limited market place
Barrier to entry: medium
Multiple distribution channel require
Suppliers Power: weak
Low cost to switch suppliers
Threat of substitutes: weak
Product differentiation and limited substitutes
Buyers power: high
Buyers have many choices in the market

11. Company History

12. Company Overview Business Description Dividend Focus Global View
Crown Craft is one of America’s largest producers of infant, toddler and juvenile consumer products
Through years of development, the firm owns attractive lines of leading name-brands and private label merchandise
It sits in the traditional stable niche of the retail industry and seeks to continue growth 27 4
373 22
Global View
Product Description 34
Three pillars of Infant product: crib bedding, infant bedding & Creative and stylish blankest and accessories
Neat solution products: Neat solutions for massy occasions (reusable bibs and disposable bibs)
Accessories: floor topper, multi-use pads, potty topper

13. Subsidiaries
Source: Crown Craft Inc. Investor conference presentation

14. Insider Holding
Insider Breakdown
source: Nasdaq

15. Sales Breakdown and Customer Overview
Source: Crown Craft Inc. Investor conference presentation

16. S W T O T SWOT Analysis Weakness Strength Low market share
Strong reliance of license
Agreement
Diversify products
Product design
Multiple distribution channel S W
Expand international market
E-Commercial
Opportunities T O
Closure of Toys R US
Expired Licensed Agreement with Disney
Large amount of debt
Threat T

17. Comparable Company Analysis
Summer Infant Inc.
Summer Infant is an American retail company that provide baby clothes and wide range of accessories
Carter’s Inc.
Carter’s is a major American manufacturer and retailers of children’s apparel mainly focusing in U.S
Dorel Industries Inc.
Dorel Industries Inc. design and manufacture for three areas: juvenile products, bicycles and home furnishings
Children’s Place Inc.
Children’s Place Inc. is an American specialty retailer of children’s apparel and accessories
Citi Trends Inc.
Citi Trends is an American retail clothing company that provide fashion & home goods, women and kids clothes
Source: Capital IQ

18. Comparable Company Analysis

19. Financial Analysis Return and Gross Margin
Asset Turnover and Quick Ratio

20. Financial Projections
Creative team for design (primarily internally) Brand recognition Strong intellectual property to drive sales Recent acquisition of Carousel (August 2017) and Sassy (Dec 15, 2017)
Sassy: developmental toy, feeding and baby care product line
Carosel: a manufacturer and online retailer of premium infant, toddler/kids' bedding and nursery décor
Overall sluggish retail environment for baby products and in general
Toys ‘R’ Us filing bankruptcy
Declining birth rate
High competition with other retailers and manufactures in quality, design, price, brand name recognition, service and packaging
Expiration of licensed products with Walt Disney
Position Factors
Negative Factors

21. Financial Statement Trend Demonstration
Income Statement Projections
Asset Information

22. Key Information of Financial Statements
Free Cash Flow
Cash Ratio
Working Capital
Dividend Yield
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23. Other Key Ratios P/E Ratio Earnings per Share Return on Equity
Quick Ratio

24. Income Statement Projections (in ‘000s)

25. Balance Sheet Projections (in ‘000s)

26. Statement of Cash Flow Projections (in ‘000s)

27. Discounted Cash Flow Analysis (in ‘000s)
Assuming a WACC of 11.1% after including 2% size premium
Assuming an EBITDA exit multiple of 6.0x
Perpetual growth rate of 3%
Highlighted an enterprise valuation range of $ $48.5mm

28. Valuation Output (in ‘000s)
Recommendation: HOLD
(Downgrade to SELL if growth doesn’t match expectations)
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29. Appendix

30. Fixed and Intangibles Asset Schedule (in ‘000s)

31. Working Capital Schedule (in ‘000s)

32. Equity Schedule (in ‘000s)

33. Debt Schedule (in ‘000s)

34. Interest Expense Schedule (in ‘000s)

35. Comparable Analysis (in millons)

36. WACC Calculation (in ‘000s)

37. Discounted Cash Flow Analysis (in ‘000s)