9M16 passenger volume steady; revenue growth accelerated 9M16 passenger departure volume fell 1% YoY (H116: -1% YoY), mainly on diversionof passengers to high-speed rail (HSR) and fewer visits to Hong Kong by mainlandtourists. In our view, most of the negative impact on the company's passenger volumefrom the launch of the Guangzhou-Shenzhen HSR (late 2011) and Xiamen-ShenzhenHSR (28 Dec 2013) has already materialized over the past four years, and we expectpassenger volume to remain stable in full-year 2016. 9M16 revenue was Rmb12.7bn,with growth accelerating to 12% YoY from 10% in H1, driven by other transportservices (+51% YoY). Railway transport services to become a new revenue growth driver Railway transport services include railway operation services and other services. Thesetwo categories generated H116 revenue of Rmb1.27bn/Rmb670m, respectively,accounting for 16%/8% of total revenue. This was mainly due to continuous growth inits volume of transport services provided for trains that transit via HSR lines inGuangdong province. Meanwhile, our statistics indicate that 1,200km of new HSRtrack will be added in Guangdong in the next 5 years, implying a 12% CAGR. Thisshould provide further impetus to the company's other transport services business,turning the segment into a new top-line driver. More positive on growth of transport services revenue; upgrading earnings Guangshen Railway provides transport services for the Wuhan-Guangzhou Railway,Guangzhou-Shenzhen-Hong Kong Railway, Guangzhou-Zhuhai Intercity Line, Xiamen-Shenzhen Railway, etc., covering a total track length of over 1,600km, which is likely tokeep rising. We believe the company's other transport services are reaching asignificant size and will maintain strong growth. Therefore, we estimate its othertransport services business to post revenue growth of 41%/7%/6% in 2016/17/18(from 4.2%/5.1%8.2%). Accordingly, our 2016/17/18E EPS rise 6.7%/4.9%/7.0%. Valuation: Rmb5.21 price target and Buy rating Our Rmb5.21 price target is based on DCF (WACC to 8.1% from 8.3%). We maintainour Buy rating. The stock is trading on 1.1x 2017E PB, lower than its historical average. We believe development of the other transport services business could become a newsource of sustainable growth.

Q: How did the results compare vs expectations? A: Guangshen realised revenue of Rmb12.7bn (+12%) and net profit of Rmb1.1bn(+23% YoY) in 9M16. Q3 revenue increased 16% YoY, quicker than 10% in H116;overall gross margin is 13.4% in Q3, 0.3ppts higher than in H116. Net profit declined3% YoY in Q3, vs. 47% YoY growth in H116, mainly because of the high base causedby high non-operating income (gains from asset disposal) in Q315. Q: What were the most noteworthy areas in the results? A: Guangshen announced that its Board of Directors passed the resolution to acquireassets from Guangzhou Railway and its controlling subsidiaries for a total considerationof Rmb700m, mainly wagons and equipment but not including railway line assets. Webelieve the impact on Guangshen's operation is minimal. Q: Has the company's outlook/guidance changed? A: Management did not make any changes to its outlook. Q: How would we expect investors to react? A: We expect a neutral response given quicker revenue growth and slower net profitgrowth (compared with interim results).

Q: How did the results compare vs. expectations? A: In 9M16, Inovance posted revenue of Rmb2.45bn (up 31.1% YoY) and net profit ofRmb690m (up 17.5% YoY). Q316 revenue/net profit came in at Rmb990m/Rmb300m,up 30.2%/17.3% YoY, respectively. Impacted by change in product mix and intensifiedcompetition, Inovance's gross margin declined 2.6ppts YoY to 47.8% in Q316. Q: What were the most noteworthy areas in the results? A: Various businesses were growing well in Q1-Q316: general low-voltageinverter/general-purpose servo system/control-related products' revenue grew38%/53%/40% YoY, respectively; NEV electric motor controller revenue grew c30%YoY; rail traction system revenue grew 12x YoY, mainly due to Jiangsu Kingway'sconsolidation into the company's financial statement. Q: Has the company's outlook/guidance changed? A: The company is optimistic about growth potentials of its general-purposeautomation business, new-energy logistics trucks and passenger cars. Q: How would we expect investors to react? A: Results in line with its preliminary earnings announcement; we expect a neutralinvestor reaction.

Property market recovery to drive ramp-up of new elevator/escalator marketThe property market has recovered noticeably YTD: Jan-Sep new-start GFA rose 26.9%YoY, much faster than at end-2015 (-14.0%). Contracted sales GFA rose 6.8% YoY. The UBS property and macro teams have raised their forecasts for 2016 contractedsales and new-start GFA growth to 12.6%/6-8% (from 9.1%/5.0%). According to theNational Bureau of Statistics, a total of 390k units (+7.4% YoY) of elevators/escalatorswere produced in China in Jan-Aug 2016. We believe the recovery of the propertymarket will drive the new elevator and escalator market to ramp up and estimate newelevator and escalator output will reach 750k in 2016, up 11% YoY. GPM likely to expand further with rising OEM repair/maintenance demandThe Beijing Municipal Quality Supervision Bureau (QSB)'s elevator safety assessment inSeptember found that there are >15k elevators in Beijing with potential safety risks,58% of which are residential elevators. The bureau plans to carry out special elevatorrepair work. The Shenyang Municipal QSB said 38% of the complaints it received inH116 involved elevators. The government and residents are paying more attention toelevator quality/safety, but there is still potential safety risk from third-partyrepair/maintenance, so we think more residential elevators will shift to OEMrepair/maintenance. Canny is developing a cloud-based smart elevator service platformusing IoT technology, and we expect IoT applications to further expand its OEM repair/maintenance business. In H116, installation, repair & maintenance gross margin rose3ppt to 25%. We expect increasing revenue to further expand gross margin. Expanded presence in robotics sector, but limited near-term growthCanny acquired a stake in Canbot in 2014 to enter the service robots area. Under thevaluation adjustment mechanism agreement, Canbot pledged 2016 net profit of atleast Rmb30m; however, it reported a net loss of Rmb7.75m in H116, opening up awide gap with the full-year target. In addition, Canny, via its wholly-owned subsidiaryCanny Robotics Industry Investment, invested Rmb3m in Ruibukang in June 2016 toenter rehabilitation/exoskeletal robots. As the market for these products is stillmonopolised by European/American producers and the company only has a 5% stake,we see limited near-term earnings growth from the robotics sector. Valuation: Maintain Rmb18.00 PT, Buy ratingOur DCF-based PT of Rmb18.00 assumes 8.4% WACC and implies 20x 2017E PE. Wehave a Buy rating based on Canny's robust growth.

New energy business growth improved YTD; R&D inputs continued to increase. Inovance estimated revenue at Rmb2.33-2.53bn (up 25-35% YoY) and net profit atRmb660-720m (up 12-22% YoY) in 9M16. Net profit growth was slower than revenuegrowth because its SG&A expense ratio rose due to increasing inputs in new energyR&D. Inovance saw substantial growth in the new energy vehicle controller segment in9M16. Its R&D is focused on powertrains for new energy passenger vehicles. InSeptember 2016, Inovance invested Rmb200m to set up Inosa, a wholly-ownedsubsidiary, in Suzhou to engage in R&D and sales of new energy powertrain systems. We expect it will take two years for the company to achieve meaningful sales. Release of tranche III of equity incentive plan draft may help R&D. Inovance announced the first and second tranches of its equity incentive plan in 2012and 2015, respectively, mainly targeting mid-level/senior executives and core technicalstaff. In October 2016, it released the third tranche of the equity incentive plan (draft),proposing to grant 56.82m restricted shares (3.54% of total shares) to 652 employeesat a price of Rmb9.77/share. The number of recipients of this tranche is far higher thanthat of the first and second tranches (217 and 164, respectively). We believe the aim isto motivate employees, retain technical staff and lay the foundation for improved R&Dand production capacity in the medium/long term. Investing in R&D and operation centre, may benefit in longer term. Inovance plans to set up the Inovance R&D and Operation Centre at SongshanhuEcological Park in Dongguan, with total investment of at least Rmb282.75m, of whichRmb230m will be used for FAI. Located in the Guangzhou-Shenzhen-HK triangle,Songshanhu Ecological Park has an excellent location and hosts an industry clustercovering new energy and robots. We believe the setup of the R&D and operationcentre will further improve Inovance's R&D capabilities and help its medium/long-termdevelopment. Inovance estimates annual depreciation from the new FAI at Rmb11m,which will not affect its net profit growth, in our view. Valuation: Maintain price target of Rmb23.40, Buy rating. We derive our PT based on 35x 2017E PE. Inovance is trading at 30x 2017E PE, which isattractive, in our view. We are positive on Inovance's long-term growth outlook in newenergy vehicles and industrial robots and maintain our Buy rating.

Q3 earnings disappointed, GM dragged by new products. 9M16 revenue was Rmb4.99bn, up 17.2% YoY; net profit (NP) was Rmb630m, up3.5% YoY. This included Q3 revenue of Rmb1.87bn, up 9.1% YoY, with NP ofRmb230m, down 21% YoY. Q3 NP undershot UBS-S/consensus estimates, which wemainly attribute to a gross margin (GM) decline during the Q3 high season. This year,GM was 38.9% in Q1, 41.2% in Q2 & 38.3% in Q3. However, quarterly GM peaked inQ3 in each of the four years since 2012. Management stated overall GM was draggedby recognition of low-margin sales of new products (eg, automatic testing lines) duringQ3; the new products were priced inexpensively to help build market share. Improving industry presence via M&A; stronger growth in high-powered lasers. Domestically, penetration of high-powered laser equipment lags far behind that of lowpoweredlasers. This year, the company acquired Setwin Industry Equipment andSpain's Aritex, aiming to leverage their accumulated technical know-how and customerresources to accelerate market development and seize market share from foreignbrands. Laser-cutting and welding products developed by Han's have launched and aregradually consolidating market share. Helped by recovering downstream demand, highpoweredlaser product revenue rose 38% YoY to Rmb680m in H116, along with astrong order backlog. We forecast revenue from high-powered products to grow 29%in 2016 (2014/2015: 21%/10%). Focusing on key technologies; robotics investments likely to boost earnings. In 2015, the company started building a presence in robotics and automation. Subsidiary Han's Motor has key technologies related to robot components. Thecompany has also: 1) set up robotics industry investment funds as platforms forinvesting in UAVs and firefighting robots; and 2) set up three subsidiaries focused onkey robotics technologies to conduct R&D into robotics sensor systems, harmonicreducers and laser sensors to complement its automation production offerings. Byimproving its R&D and production capabilities, we believe the company will havestronger bargaining power when it comes to automation system integration orders,ultimately driving stronger profitability. In the long run, these investments could createnew opportunities and growth potential for Han's. Valuation: Rmb29.0 price target; Buy rating. We base our price target on 26x 2017E PE. We are positive on the company's longterm(LT) growth in the automation segment.

Q: How did the results compare vs. expectations A: Inovance guided for revenue of Rmb2.33-2.53bn (up 25-35% YoY) in 9M16, 68-73%/67-72% of UBS-S/consensus full-year forecasts, and net profit of Rmb660-720m(up 12-22% YoY), 73-79%/67-73% of UBS-S/consensus full-year forecasts,respectively. Q316 revenue increased 25-35% YoY, largely in line with growth of 32%in H116; Q316 net profit increased 12-22% YoY, also largely in line with growth of18% in H116. 9M16 results growth is in line with our expectations. Q: What were the most noteworthy areas in the results A: General-purpose servos/inverters continued to grow rapidly in 9M16, while NEVcontrollers also delivered good industry-driven growth. Consolidation of JiangsuKingway's rail transport operations helped maintain rapid revenue growth. Grossmargin declined, due to a product mix change and market competition. Theadministrative expense ratio rose, due to higher R&D expenses. Q: Has the company's outlook/guidance changed A: Management's outlook has not changed. Q: How would we expect investors to react A: Results in line with our/market expectations; we expect a neutral investor reaction.

Industrial automation: Growth continues to improve Inovance attended our 2016 A-share conference in Shenzhen. Management said H1'sstronger-than-expected growth remains intact in elevator-related segments, withcumulative newly-signed orders growing by at least double digits YoY in 8M16. However, management has a cautious outlook on the elevator business in 2017, givenproperty sales trends and intensifying competition. In general-purpose inverters, growthhas recently accelerated compared to H1. Due to rapid import substitution,management estimates full-year revenue growth of 20% YoY for these products. H1'sstrong growth is also continuing in general-purpose servos; management expects fullyearrevenue to increase 50% YoY for these products, vs. 10-20% for special-purposeservos and 35% for PLCs. Upping R&D investment in NEV segment, with emphasis on powertrains In new-energy passenger vehicles, Inovance is working with a foreign partner todevelop powertrain products (motors, electrical control products, and transmissions). This makes it one of the few domestic players to be focusing its R&D efforts onpowertrains. The company estimates two years are needed to achieve large-scale sales,though it could receive small orders (Rmb10m) in 2016/17. In new-energy buses,Inovance continues to supply motor controllers to Yutong Bus; in addition, it isdeveloping bus powertrain products and expects to start supplying motors in 2017. Inthe new-energy logistics vehicle segment, the company has set its 2016 sales target atRmb100m in orders and 5,000 electrical control systems. Rail transit: Focusing on raising localization rate, Shenzhen subway orders Kingway Rail's order backlog currently stands at Rmb750m, mainly consisting of ordersfrom the Suzhou subway system and a small amount of tram orders. Due to purchasingtechnology from Skoda, Kingway Rail's localization rate is still not high, resulting in agross margin that trails the industry average. Inovance intends to use its advantages intechnical R&D to boost Kingway Rail's localization rate. Meanwhile, the company alsoaims to win an order this year to supply traction systems for the Shenzhen subway. Valuation: Maintain Rmb23.40 price target, Buy rating Our price target is based on 35x 2017E PE. We view the current valuation as attractiveand maintain our Buy rating.

Q: How did the results compare vs. expectations A: H1 revenue was Rmb1.63bn, up 11% YoY; net profit attributable to the parent wasRmb240m, up 22% YoY, in line with our full-year estimate of 23%. Net profit growthquickened largely because gross margin rose 3ppts YoY to 38.2%. Q: What were the most noteworthy areas in the results A: Elevators/escalators saw H1 revenue of Rmb960/410m (+11%/2% YoY) and grossmargin of 41.8%/35.8% (+2/6ppt YoY), helped by lower raw material costs/higherpercentage of higher-margin railway and rail transit projects. Installation/maintenancerevenue was Rmb140m (+35% YoY), and gross margin went up 3ppts to 25% ondilution of fixed expenses. As of end-H1, Canny had Rmb4.31bn of orders on hand.Operating cash flow jumped 514% YoY to Rmb190m thanks to an increase in notespayable. Canny plans to distribute a cash dividend of Rmb0.2/share. Q: Has the company's outlook/guidance changed A: With the rising number of elevators in China and demand for replacement, Cannymaintains an optimistic attitude towards elevator sales and maintenance. Q: How would we expect investors to react A: We expect a positive response from investors.

Q: How did the results compare vs. expectations? A: H1 revenue was Rmb8.08bn (+9.5% YoY); operating profit was Rmb930m (+40.1%YoY); net profit attributable to the parent was Rmb680m (+46.7% YoY). Gross marginrose 0.4ppt to 13.1%. Operating/net profit growth outpaced revenue growth, asadministrative expenses fell 5.7% YoY and asset impairment loss fell Rmb100m YoY. Q: What were the most noteworthy areas in the results? A: In H1, the launch of EMU service for Chaozhou-Shantou/long-distance service forShenzhen-Urumqi drove passenger revenue up 4.4% YoY to Rmb3.64bn (45% of totalrevenue). Rail network settlement-related business revenue was Rmb3.16bn (+21.8%YoY), driven by increased operational/crew workload for the Wuhan-Guangzhourailway/Guangzhou-Shenzhen-Hong Kong railway. Freight revenue fell 4.1% YoY toRmb790m due to a weak freight market/increased competition in the PRD market. Q: Has the company's outlook/guidance changed? A: Affected by the macroeconomic downturn, the company expects the passenger/freight transport businesses to continue to decline, with revenue growth staying slow. Q: How would we expect investors to react? A: We expect a positive reaction from investors to the faster net profit growth in H116.

Q: How did the results compare vs. expectations? A: H1 revenue was Rmb3.12bn (+23% YoY), operating profit was Rmb410m (+47%YoY) and net profit was Rmb400m (+26% YoY), in line with preliminary results. Grossmargin was 3ppts higher, at 41%. Net profit growth trailed revenue and operatingprofit growth because: 1) the software VAT refund declined 17% YoY and governmentsubsidies fell 54% YoY; and 2) the income tax rate rose 1.6ppts YoY to 16.1%. Q: What were the most noteworthy areas in the results? A: Revenue from lower-power laser equipment was Rmb1.54bn in H1 (+16% YoY),44% of which came from laser marking equipment (+38% YoY). Lower-power laserequipment had a gross margin of 47% (+6ppts YoY). Helped by bulk sales, high-powerlaser/PCB equipment posted revenue of Rmb680/350m, up 38%/47% YoY, higherthan our 2016 growth estimates of 25%/18%. Q: Has the company's outlook/guidance changed? A: Orders rose YoY on growing demand for equipment in the consumer electronics andpower battery fields. Han's expects Q1-Q316 net profit to grow <20% YoY. Q: How would we expect investors to react? A: We see a positive response to faster-than-expected growth in high-power products.

Interim results in line; full-year operating targets achievable. Inovance realised revenue/net profit of Rmb1.47bn/340m, respectively, in H116 (+32%/+15% YoY). Net profit growth was lower than revenue growth because administrativeand selling expenses increased rapidly. In particular, research and development (R&D)expenses rose 44% YoY since the company started R&D of new-energy passengervehicles and industrial robots in H116. Management guided to a slower administrativeexpense increase in H216 and believes its full-year targets of 15-30% revenue growthand 10-30% net profit growth are achievable. Entering NEV market to create high-quality supply system. Inovance realised revenue of Rmb281m from its new-energy vehicle (NEV) segment(+75% YoY) in H116 – we estimate Yutong Bus contributed cRmb200m. It isdeveloping electric motor control system solutions for new-energy logistics/passengervehicles. According to management, the company has collaborated with severalenterprises on logistics vehicle-related electric motor products and their sales couldincrease sharply if logistics vehicles are eligible for subsidies in H216. In terms of newenergypassenger vehicles (PVs), no domestic companies can meet large automobileOEMs' requirements for electric motor control products, since safety and qualityrequirements for PV electric motor control systems are very high. As such, Inovance'sfocus is to create a high-quality supply system to enter large auto OEMs' supply chain. Smart device & robot growth reflects product and marketing strength. The company's smart device & robot segment contributed Rmb1.11bn in revenue inH116 (+18% YoY). Despite weak downstream demand, its inverter/sport controlproducts contributed a respective Rmb710m/230m in revenue (+14%/+32% YoY),better than the industry average, benefiting from the launch of new competitiveproducts and execution of its key account strategy. As of 30 June 2016, Inovance had asmart device & robot backlog of Rmb1.4bn, +20% YoY. We estimate this will bring inRmb2.35bn in full-year revenue (+16% YoY). Valuation: Price target of Rmb23.40; maintain Buy. Our price target is based on 32x 2017E PE. We view the current valuation as attractiveand maintain our Buy rating.

Valuation Method and Risk Statement We derive our price target based on 30x 2016E PE. Downside risks: 1) lower-thanexpecteddemand for high-power laser equipment; 2) products developed by thecompany being unable to satisfy market demand; and 3) slower-than-expecteddevelopment in the robotics industry. Upside risks: 1) higher-than-expecteddemand for laser equipment used to make electronics devices, helped by thelaunch of Apple's next-gen iPhone.

Q216 results growth quicker than Q116 growth. Inovance announced preliminary H116 results: revenue up 25-35% YoY to Rmb1.39-1.50bn; net profit up 12-22% YoY to Rmb370-400m. We estimate its revenue/netprofit YoY growth at 25-42% and 13-29%, higher than 25%/10% in Q116. Resultsgrowth was driven by new energy vehicle business, strong inverter growth andconsolidation of Kingway Rail. Selling and administrative expense growth outpacedrevenue growth due to expansion of sales scale and amortization of equity incentiveexpenses, resulting in relatively slower net profit growth. Strong performance in all business segments. Yutong Bus, Inovance's largest new energy business client, sold 7,400 NEV buses inH116 (+106% YoY), better than our expectations. We believe Inovance will continue totake orders from Yutong and orders for electric control products for new-energylogistics trucks will surge in H216. We estimate Inovance posted double-digit elevatorcontroller sales growth in H116 due to recovery of elevator sales and steady full-yeargrowth is likely. Its servo products may maintain 50%+ YoY growth (as in 2015) drivenby downstream demand recovery and a higher market share. Increase investment in buyout fund to accelerate business expansion. Inovance's Board of Directors unanimously passed the motion to increase itssubscription to Shenzhen Qianhai Jingrui Central Europe Buyout Fund by Rmb360mwith its self-owned funds on 11 July. Inovance had already invested Rmb140m whenthe fund was set up and its total investment is now Rmb500m. We believe thecompany's has a clear investment goal for its idle funds, which are invested in buyoutfund targeting industrial automation, new energy vehicles and core parts aligned withits core businesses, ie., controller and servo. Increase in fund investment will accelerateits presence along the industry chain, improve the competitiveness of its core businessand create value for Inovance via M&As. Valuation: PT at Rmb23.40; maintain Buy. Our price target is based on 36x 2016E PE. We view the current valuation as attractiveand maintain our Buy rating.

Acquiring 56% stake in Shanghai Lai'en, rising to 60% after capital increaseThe company announced today that it will acquire a 55.5556% stake in ShanghaiLai'en Precision Machine Tool Parts Corporation from Shanghai Rabbit CNC MachineTools for Rmb50m in existing cash. At the same time, it will expand the capital ofShanghai Lai'en with Rmb10m in existing cash (bringing its final stake to 60%) andconsolidate Shanghai Lai'en into its books. After the equity transfer and capital increaseare completed, Shanghai Rabbit (32.4% stake) and five individual shareholders(combined 7.6% stake) have pledged that Shanghai Lai'en will deliver cumulativerevenue of at least Rmb120m in 2016-18. If this condition is not met but ShanghaiLai'en does not post a cumulative loss over the 3year period, the these parties willtransfer a total 5% stake in Lai'en to Inovance for nil consideration, or a maximumconsideration of Rmb1. According to unaudited financials, Shanghai Lai'en recordedRmb19.69m in revenue and Rmb2.59m in net profit in 2015. No material earnings impact, but should improve presence along value chainWe expect the acquisition to have no material impact on Inovance's 2016earnings.Shanghai Lai'en was founded in Feb 2006as a JV between Shanghai Rabbit CNCMachine Tools and NTN China, a wholly-owned subsidiary of NTN Japan. NTN Japan isone of the world's biggest manufacturers of bearings. Shanghai Lai'en mainly makeshigh-precision ball screws, a key mechanical drive component for industrial automationthat is used in CNC machine tools. China's ball screw market has long been dominatedby foreign brands. Shanghai Lai'an's production base will be relocated into Inovance'sSuzhou factory in the future. We believe this acquisition will improve Inovance'sproducts and overall solutions in the mechanical drive segment and advance itsindustrial automation strategy. We expect high growth to continue in 2016-18We forecast revenue growth at 24%/27%/20% and net profit growth at27%/20%/17% in 2016/17/18, implying a 21% net profit CAGR. This growth shouldbe mainly driven by policy support for the new-energy vehicle sector and rapid growthof the universal servo business. Valuation: Rmb23.40price target, maintain BuyOur price target is based on 36x 2016E PE. We view the current valuation as attractiveand maintain our Buy rating.