Crown Craft, Inc.: Macroeconomic Environment, Industry Analysis, and Valuation

1. 10/30/2018 Kathleen Cai, OufanJin, Xiaoling Zeng

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

3. Executive Summary 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 Industry 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. The macroeconomics condition is volatile with Trade Warand the uncertainty of foreign currency exchange rate, while the general economics perform well and the raw materials price maintain stable. Macroeconomics 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 Weight Portfolio Weight By Value Portfolio Yield By Cost

5. Stock Market Prospects • Current Market Price of $5.21 (as of 10/29/2018) • 52 Week range of $5.00 - $7.5375 (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: United States Census Source: Bureau of Labor Statistics

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 Historical Price of Cotton Foreign Currency Exchange Rate Source:OANDA Source:MacroTrend

9. Industry Overview

10. Porter’s Five Forces Analysis 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 • 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 Product Description 34 Global View • Three pillars of Infant product: crib bedding, infant bedding & Creative andstylishblankestandaccessories • 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 InsiderBreakdown source: Nasdaq

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

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

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

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

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 $41.6 - $48.5mm

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

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)