Will acquire 25% stake in Aebell to enter video surveillance business On Feb 21, GRG announced plans to acquire a 25% stake in Aebell, a New ThirdBoard-listed video surveillance technology vendor, for Rmb48m. Aebell reportedRmb156m of revenue and Rmb11m of earnings in 2015. GRG states that theinvestment will enhance its position in the security industry. GRG already has a largearmed escort business, and we believe adding video surveillance fits its long-termstrategy. Wins equipment contract from ICBC for the first time On Feb 18, GRG announced winning two cash sorter bids from ICBC. The officialcontract will be signed later. This is the first time GRG has won any equipment contractfrom ICBC; it has already built partnerships with almost all other large-scale commercialbanks in China. The value of the cash sorter contracts has not yet been disclosed, butwe view it as a positive sign that demonstrates GRG's market leadership. Hardware and IT service businesses developing neck and neck The two positive announcements underscore our point that GRG's two business lines,financial equipment (mainly ATMs) and IT service, both have good growth potential. Although ATM market growth has decelerated, GRG continues to gain market share. Meanwhile, it is actively expanding into software and IT service sector through strategicinvestment and acquisitions. Valuation: maintain Buy, PT Rmb18.00 The stock trades at 16.5x/14.1x 2017E/2018E P/E, significant discounts compared tothe A-share IT peer group average. We believe the market has underestimated thecompany's growth perspective in the long run. Our price target of Rmb18.00 is derivedfrom DCF assuming WACC of 8.1% and implies 22.6x 2017E P/E. Maintain Buy.

Proprietary analysis identifies China as region with high risk to water resources In a recent UBS Q-Series report, UBS Evidence Lab’s geospatial and hydrology teamsdeveloped a watershed risk index that allows equity analysts to assess the level of waterrisk in China, and it identifies China as a high-risk region from the perspective of waterresources. According to the report, water risk in China is likely high enough to disrupteconomic growth, and according to the World Resources Institute Water Risk Index,major economic zones in China (Beijing-Tianjin-Hebei, Shandong, Shanghai-Jiangsu-Zhejiang, Guangdong-Fujian, etc.) are categorized as medium- to high- or evenextremely high-risk regions in terms of water, with some of the south-eastern provincesexpected to shift into the high-risk category. Water shortage and pollution require better treatment solutions China’s water shortage and pollution have become increasingly concerning and riskdisrupting economic growth. The government and corporates are investing moreresources to tackle the issue. The government has been raising water treatmentstandards, and some leading cities (eg, Beijing) have started to promote waterrecycling. These higher standards require better and more advanced water treatmentsolutions. Beijing Originwater, as the leading membrane-based solution provider, is wellpositioned to benefit from the structural trend, in our view. Originwater – well positioned; strong growth momentum in Q1-Q316O riginwater is the dominant membrane-based solution provider for China’s wastewatertreatment industry, with over a 50% market share, leveraging its strong R&D capabilityand complete product offering covering the full value chain. In 2015, ChinaDevelopment Bank, the leading policy bank in China, became a major shareholder ofOriginwater, which could support its PPP development, in our view. In Q1-Q316,Originwater’s revenue and NPAT grew 88%/74% YoY, respectively, and with Rmb20bnin new orders signed in Q3alone, we expect the strong momentum to be sustained. Valuation: Reiterate Buy rating with PT of Rmb21.50 We derive our price target of Rmb21.50from a three-stage DCF model with a WACCof 6.9%. Originwater is trading at 20x 2017E PE, close to its historical trough, but withan expected 35% EPS CAGR in 2015-18. We see upside from the current valuation andreiterate our Buy rating.

First-ever share incentive plan: 17m restricted shares at Rmb13.47. Aisino announced its first-ever employee share incentive plan draft on 10 Nov: 17m ofrestricted shares, or ~0.9% of the company's current share base, will be issued atRmb13.47, 40% lower than the last close. This discount is in line with similar programsin listed SOEs. All shares are subject to a lock-up period of two years and will beunlocked in batches in the following three years. Share incentive plan implies ~16% revenue CAGR for 2016-19 In order to unlock all restricted shares, Aisino must deliver a 20% revenue CAGR in2016-19, based on average revenue of 2013-15. That translates into a ~16% revenueCAGR if 2015 is used as the basis year. As of now, we expect Aisino to deliver ~12%revenue growth for 2016-19. The plan also set up requirements on ROE and EVA butwe believe they are relatively easy to meet. The question is: Who is the "peer group" of enterprises? Aisino's share incentive plan requires the company's revenue growth and ROE level tobe no worse than at least 75% of "peer group" enterprises. If "peer group" meanslisted software peers or IT industry SOE peers, it seems like an ambitious target. However, the plan draft did not provide any details on the identity of "peer group"enterprises and we will wait for further disclosure. Valuation: Maintain Buy, PT of Rmb29.00 Aisino is trading at 21x/17x 2016E/2017E P/E, much lower than the A-share softwaresector average. However, we believe Aisino's growth momentum is in line with the Asharepeer average. The revenue target set in the share incentive plan is better than ourestimate but we need to wait for more details. Our price target of Rmb29.00 is derivedfrom DCF (7.1% WACC) and implies 22x 2017E P/E. We maintain our Buy rating.

Lower our 2016-18 earnings estimates on fiercer competition in ATM market. In Q1-Q316, GRG Banking Equipment's (GRG) revenue grew ~23% YoY, slightly belowour previous estimate of 25-28%. Management said China's ATM market growth hasdecelerated, and there is pressure from price competition. A major competitor,Cashway, is planning an A-share IPO, which may put new pressure on GRG's marketshare. Considering all these negative factors, we lower our 2016/2017/2018 EPSestimates by 9%/8%/9%. Q1-Q316 results not bad if tax impact is excluded. GRG's Q1-Q316 earnings only grew 6% YoY, but we think investors should not panic. It was mainly due to a YoY drop in the value-added tax (VAT) rebate and a rise in thecorporate tax rate. We expect such impact from taxes to be short-lived and corrected inend by 2017. Meanwhile, the company's Q1-Q3 operating profit rose ~20% YoY. Despite market headwinds, we still believe GRG can deliver a ~24% earnings CAGR in2016-18. Strategic cooperation with DCH could begin in 2017. During Digital China Holdings' (DCH) special shareholders' meeting on 25 October,GRG voted "Yes" to equity issuances for DCH's management and core employees. GRG said that after communication with DCH management, it believes such a planwould be positive for DCH's long-term growth. We think this may symbolise thebeginning of strategic cooperation with DCH and GRG. DCH's strength in bankingindustry IT solutions will be crucial for GRG's sustainable growth, and we expectsynergy in 2017 and beyond. Valuation: maintain Buy; lower price target from Rmb23.75 to Rmb21.40. Trading at 22x/16.9x 2016E/2017E PE, GRG's valuation is much lower than the A-sharepeer average. The stock has fallen ~27% YTD, in line with the A-share IT index. Webelieve the market is overly concerned about short-term industry headwinds. We baseour price target on DCF, assuming a WACC of 8.1%. We maintain a Buy rating.

Disappointing Q316 results, partially due to tax impact. Aisino's revenue increased 14% but net profit declined 23% in 9M16, partially due to a62% YoY decline of non-operating income (mainly VAT refunds), while the businessincome tax rate increased to 21.2% from 16.7% in 9M15, quite common among listedsoftware companies. The reason may have been because the tax regulator has beenbusy pushing for tax reform while overlooking implementation of certain preferentialtax policies. Since there have been no changes in the preferential tax policiesthemselves, we believe this situation could improve by end-2016. Excluding thesefactors, Aisino's 9M16 net profit would have remained flat YoY. Tax reform at a critical stage, with lots of work possibly delayed to 2017. This is a critical year for "business to value-added" tax reform and the State Councilrequested the completion of it by end-2016. However, this target will be difficult toachieve due to the many enterprises involved. As the largest VAT anti-fraud systemdeveloper in China, Aisino has been affected and the company is benefitting from taxreform slower than expected. However, we believe business growth driven by taxreform simply has been partially postponed to 2017, while its market position and longtermgrowth potential have not been affected. Strong software and system integration growth; acquisitions to be completed. Aisino's software and system integration revenue increased 55% YoY in H116 – weestimate Q316 revenue growth was also mainly driven by software and systemintegration. The company's acquisitions of Sinobest and Aerospace Golden Shield wereapproved by the CSRC on 19 Sept. If the acquisitions are completed in Q416, Aisino'ssoftware and system integration business will be significantly strengthened, which willensure its sustained growth despite tax reform progress uncertainties. Valuation: Maintain Buy rating and PT of Rmb29.00. Aisino is trading at 20.3x/16.7x 2016E/17E PE, significantly lower than the industryaverage and lower than its historical valuation. Our price target of Rmb29.00 is basedon DCF, assuming WACC of 7.1%, and implies 22.7x 2017E PE.

Q3results maintained strong momentum Q3results came in largely above our and market expectations. Originwater achieved Q3revenue of Rmb858m, up 33% YoY; operating profit Rmb174m, up 43% YoY; NPATRmb169m, up 70% YoY. From Jan to Sep, Originwater's revenue and NPAT increasedby 88/74% respectively and accounted for 40/21% of our full year estimates. Incomparison, in 2015, the 9mo revenue/NPAT accounted for 33/19% of FY15results.The 9-month revenue growth outperformed UBS-Se/consensus FY growth of 52/57%,while the 9-month NPAT growth exceeded UBS-Se/consensus FY growth of 55/54%. GPM rebounded from 1H; Q3order inflow more than doubles 1H performance A: We think there are 2noteworthy areas. One, Originwater noticeably recovered itsGPM in Q3. Q3achieved GPM of 36%, a noticeable improvement from 26% in 1H. Wethink this due to more lower-margin construction revenue was recognized in 1H whilethe higher-margin equipment/solution revenue could be recognized in 2H. Two,significantly stronger order infow. In Q3, Originwater added 119EPC, BT, and BOTorders, with total consideration reaching Rmb20bn. This more than doubles the neworder inflow in 1H both by numbers and by total consideration. New policy to further anchor Originwater’s leading position The strong Q3results, especially the impressive new order inflows, once againsupported our positive view. With recent policy requiring new water treatment projectsto be in PPP business model, we think overall market is getting brighter for Originwater.Vs domestic membrane manufacturing peers, Originwater has one of the most solidbalance sheets to fund future PPP projects and technological advantage. Vs foreignpeers, the requirement for PPP model would make it increasingly difficult for them togain share in China's water treatment market. Vs other PPP investors that focus onproject construction, Originwater holds core MBR technology and could achieve highermargins from equipment sales and membrane replacement. Valuation: strong Q3results to drive further re-rating, reiterate Buy We believe the robust Q3results with strong new order inflow will give investors moreconfidence in future valuation re-rating. We think the sector has evolved in a directionthat favours Originwater. Thanks to technological advantage, strong balance sheet andbacking from CDB, Originwater could continue to achieve sustainable strong growth, inour view.

We have higher confidence in FPI's long-term prospects despite 1H weakness We are lifting our revenue/EPS estimates and remain constructive on the company'sgrowth potential for the next 3-5 years due to: 1) faster environmental monitoringrevenue growth from public-private partnership (PPP) projects; and 2) faster lab analysisrevenue growth from more import substitution (especially with RMB depreciation) andfurther industry consolidation. FPI recently won a PPP project on Huangshan City's PuxiRiver that could bring revenue of cRmb1.3bn in 10 years, according to a companyannouncement. Given the project's complexity and comprehensiveness, we think itcould serve as evidence for FPI to secure more PPP projects. We think the market is toofocused on its weak 1H results and underestimates a brighter sector outlook. We arelifting our PT to Rmb39.86 from Rmb32.50 and maintain our Buy rating. H2 growth has potential to be strong enough to shrug off a weak H1 FPI's H116 results came in below our estimates but we think that was due to the timingof revenue recognition rather than fundamental changes. Following strong Q3 results(net profit increasing 121% YoY) and management's guidance of a strong orderbacklog and delivery pipeline, our FY16 and long-term forecasts remain positive. Weexpect FPI's revenue to grow 31% in FY16, with stable gross margin of 48%. OurFY16E EPS are 9% above consensus. Non-public placement shows long-term commitment from founders FPI announced a revised non-public placement plan in late Aug 2016 to place no morethan 30m new shares to the founders' families (and major shareholders) atRmb24.45/share to raise no more than Rmb734m to fund FPI's working capital. Weassume this placement will be completed in early 2017 and we think it shows a longtermcommitment from the two founders/major shareholders and their confidence inFPI's growth prospects, which may alleviate investors' concerns, since they steppeddown from management positions in mid-2015. Valuation: Maintain Buy rating; raising PT to Rmb39.86 from Rmb32.5 Given our higher EPS forecasts, lower WACC of 5.7% (from 6.3%) due to a lower riskfreerate and beta, and as we roll over our three stage DCF model, we are raising ourPT to Rmb39.86 from Rmb32.5 and maintain our Buy rating. FPI trades at 28x FY17EPE, below its historical mean but with an accelerated growth profile. Our new PTimplies 32x FY17E PE, slightly above the historical mean. We think FPI deserves afurther re-rating.

DCH management made public its position on GRG's investment in the firm At its interim results briefing on 31 August, DCH (Digital China Holdings, 0861.HK)chairman Guo Wei said that the company is actively communicating with GRG, withthe management from the two companies meeting frequently. He added that thecooperation between both companies has been developing positively and he hasconfidence in the future. This is the first time DCH's management has made public itsposition on GRG's investment in the company, which is consistent with GRG's positiondisclosed in previous announcements: GRG is not carrying out a hostile takeover;rather, it has stated that it wants to collaborate with DCH to create synergies. Parties disagree on approaches to employee incentives/new businesses Mr. Guo said that GRG's investment in the company has to some extent disrupted itsplans, as it has been exploring bringing in strategic investors, introducing employeeincentives, and adjusting its corporate culture. Currently, the main differences betweenthe two parties lie in their approaches to employee equity incentives and nurturing newbusinesses (including smart cities and financial services). DCH wants to improveemployee efficiency by reducing basic salaries and increasing equity incentives, and it isactively exploring concrete solutions with GRG. Cooperation between GRG and DCH has promising outlook DCH's long-term plan is to make its software and information services business bigger,stronger and more hi-tech in order to take advantage of the opportunities arising fromthe shift towards made-in-China software, which is consistent with GRG's long-termstrategy. In our view, if the two parties achieve substantive cooperation, GRG will beable to capitalise on DCH's strong R&D capabilities to build its own software andinformation services business. GRG's experience and relationships with clients in thebanking sector could also help DCH develop in the field of financial software. Valuation: Maintain Buy rating, PT of Rmb23.75 We believe DCH's message is a positive one. The cooperation, if successful, should helpGRG's long-term development. GRG is trading on 20x/16x 2016E/17E PE, far below theA-share IT industry's average, which we think may be because investors have yet toconsider the synergies that could be produced between GRG and DCH. Our price targetof Rmb23.75 is based on a 3-stage DCF model (8.1% WACC) and implies 25x 2017EPE. We maintain our Buy rating.

H116 results below UBS-S and consensus expectations; GPM remains intact The company (FPI)'s H116 results turned out below expectations. FPI reported H1revenue of Rmb730m (up 12% YoY) and UBSS adjusted net income of Rmb97.2m (up10% YoY). This is below our full year revenue/net income growth of 29%/14% andfurther below the consensus of 49%/67%. H116 revenue/adjusted net income countedfor 31%/23% of our full year estimate, while H115 revenue/adjusted net incomecounted for 36%/22% of 2015FY results. Since the weight of H1 contribution hashistorically been relatively small, we think this underperformance could be lessindicative to the full year performance. Meanwhile, the company's profitabilityremained relatively intact, with GPM at 48.9%, slightly higher than UBSSe of 47.4%and consensus of 46.9%. Top line showed some strength and weakness; possible losses in market share We see strong top line growth (40% YoY) from the lab equipment biz, reflecting thecompany's strategic emphasis. The revenue from hydro biz declined by 19% YoY, dueto last year's high base and concentrated new orders, in our view. However, stagnantenvironmental monitoring revenue growth contradicted our positive view on FPI's goodprospects in China's fast growing environmental monitoring sector. We will seek toreach out to management for more information in that regard. Looking at FPI'scompetitors, we see mixed H116 results. While Sailhero reported 34% YoY revenuegrowth in H116, SDL had a 5% revenue decline. We think FPI could be losing marketshare in H1. Financial costs dragged bottom line The company's total borrowing increased by Rmb538m to Rmb872m in H116, a 161%increase from end-FY15. This led to a 3490% YoY increase in financial costs in H116We think this increase in borrowings was in response to the company's risingreceivables level (219bps higher than 2015 year-end) and the Rmb650m plannedinvestment in "Internet of Things" facilities. Valuation: Buy rating and PT of Rmb32.5 We derive our price target of Rmb32.5 from three-stage DCF model with a WACC of6.3%.

1H16 revenue grew 23% YoY, operating profit grew 22% YoY. GRG announced 1H16 results. Revenue and earnings grew 23% and 3% YoY,respectively. Although the earnings growth looks weak, this was mainly because of adrop in non-operating income, which mainly includes VAT (value-added tax) rebates. We believe the tax bureaus deferred payment of these rebates in 1H16. Operatingprofit grew by 22% YoY, in line with revenue growth. Services and accessories are the new growth engines. In 1H16, GRG's ATM equipment revenue grew only 5% YoY; meanwhile, its ATMservice and accessories revenue grew 52% and 83% YoY, respectively. Servicesaccounted for 27% of revenue in 1H16, up from 22% in 1H15. We like the company'seffort to shift its focus from equipment to services. Revenue from ATM services andaccessories is mostly recurring and stable, in our view. GRG seeking "industry cooperation and co-development" with DCH. GRG held a 19.05% stake in DCH (Digital China Holdings) as of 15 August. Thecompany indicated that it invested in DCH for "industry cooperation and codevelopment";it is optimistic about DCH's growth potential and will actively seek tobuild synergies between the two parties. However, it has provided no more details. Valuation: Maintain Buy rating, PT of Rmb23.75. Although 1H16 earnings growth of 3% seems low, the company's operating profitmaintained robust growth. We believe the VAT rebates will be paid in full in 2H16. Trading at 20x/16x 2016/17E PE, the stock looks cheap given its long-term growthpotential. Our price target of Rmb23.75 is based on DCF with WACC of 8.1% andimplies 25x 2017E PE. We maintain our Buy rating.

Cash sorter contract from CCB is a positive sign for the future. GRG announced that it has won the bidding for CCB's cash sorter contract for 2016-17. The contract value was not disclosed, but we estimate it could exceed Rmb100mbased on past contracts. This is the third cash sorter contract GRG has won this year,after one from Mingsheng Bank and one from BoCOMM. Due to the issuance of newRMB notes in 4Q15, many banks deferred cash sorter procurement. We see the CCBcontract as a positive sign and believe GRG will win more such contracts in 2H16. Guangdong SOE reform will possibly bring new opportunities. On Aug 8, Guangdong State-owned Asset Supervision and Administration Commission(SASAC) told Economic Information Daily that Guangdong will promote SOE reform byencouraging mixed ownership, improving R&D and restructuring. We believe this ispositive for GRG, a Guangdong SOE. After introducing an employee shareholdingprogram last year, GRG is actively exploring further reforms. Increased stake in Digital China Holdings. On Aug 6, GRG announced that at Jul 29, it owned an 18.33% stake in Digital ChinaHoldings (DCH, 0861.HK), up from 17.29% at Jul 27. In other words, GRG increased itsDCH stake by 1.04% in two trading days. This indicates GRG's determination to investin DCH and create synergy between the two parties, in our view. However, it isuncertain if any synergy can be created as GRG has not yet gained control of DCH. Maintain Buy, PT Rmb23.75. The stock is trading at 20x/16x 2016E/2017E P/E, much lower than A-share technologyhardware and software peers' average. We believe the market has underestimatedGRG's long-term growth potential. Our price target of Rmb23.75 is based on a DCFmodel and implies 24.7x 2017E P/E. Maintain Buy rating.

Growth accelerating in H116: 123% revenue and 76% adjusted NPAT growth Originwater's H116 revenue came in at Rmb2,347m, up 123% YoY, and accounted for30% of UBS-S FY16E (H115 revenue accounted for 20% of FY15). GPM was 26% inH116, down substantially from H115's 37%, due to the consolidation of JiuAn (asubsidiary in the E&C business with a lower margin) and increased contribution weightof PPP projects. Reported NPAT was Rmb270m in H116, up 76.2% YoY, and adjustedNPAT was Rmb267m, up 75.5% YoY, more than the UBS-S/consensus forecast of 41%YoY growth for FY16. H116 NPAT accounted for 13% of UBS-S/consensus FY16E,more than H115's 10% contribution. EPS was Rmb0.09 in H116, up 80% YoY. Strong new order momentum continued in H116; expecting stronger H216 In H116, Originwater won Rmb9.3bn in new orders (PPP orders accounted for 71% ofthe total), which equals 1.2x UBS-S FY16E revenue and 52% of total new orders wonin FY15 (Rmb17.7bn). As a result of the strong new order inflow, Originwater's orderbacklog reached Rmb18.5bn in H116, or 2.3x order/revenue coverage in FY16E. Giventhe business's seasonality, we expect new order growth in H216 to be even stronger. Inour view, the strong new order inflow and order backlog will likely supportOriginwater's growth in the next 2-3 years and testify to its competitive advantages:robust R&D, complete product lines, reputable brand with a successful track record andstrong balance sheet with China Development Bank's endorsement and support. Rising penetration of MBR technology and Originwater's expanding mkt share According to the PPP Research Centre, there were 126 new water treatment PPPprojects in Feb-Jun 2016 totalling Rmb39.2bn. In H116, Originwater won Rmb6.7bn innew PPP orders, suggesting rising penetration of MBR technology and Originwater'smarket share in H116, compared with only 8-10% penetration of MBR technology inChina's water treatment market in 2015. This supports our view that MBR couldbecome the go-to technology in China's water treatment market given higherenvironmental standards and stricter enforcement, along with our view thatOriginwater is well-positioned to ride the rapid growth in China's MBR market. Valuation: Maintain Buy rating and price target of Rmb21.50 We derive our DCF-based PT of Rmb21.50 from a three-stage DCF model with a WACCof 6.9%. Originwater is trading at 25x 2016E PE, close to its 5-year trough and 1 SDbelow its mean in the past 5 years. Our PT implies 31x 2016E PE, similar to its historicalmean in the past 5 years, or below 1x PEG. We forecast a 35% EPS CAGR in 2015-18.

55-85% YoY net profit growth in 1H16affirmed strong momentum Originwater pre-announced that net profit grew 55-85% YoY to Rmb238-284m in1H16vs. Rmb153m in 1H15. The pre-announced 1H net profit growth was higher thanour 2016E adjusted net profit YoY growth of 41%. The pre-announced 1H16resultsequate to 11-13% of our 2016E net profit. In comparison, 1H15earnings equated to11% of 2015net profit. Management credited the strong growth to the risingpenetration of membrane-base water treatment technology and the company'stechnological strength in this market. Technological advantage combined with… Given rising environmental standards and stricter government enforcement, we thinkmembrane-based technology will become a go-to solution in China's water treatmentsector (see initiation for details). We believe Originwater's clear technology advantage(ranked in the top 2among major global membrane suppliers by H2O China) andcomplete product offering could help it continue its successful track record and secureits dominant market share. …capital strength: Recipe for success; could benefit from SZ-HK Stock Connect PPP has been gaining strong momentum in the water treatment sector. According toPPP Research Center, as of June 2016, the number of water treatment PPP projectsreached 740, representing 23% of all municipal PPP projects and a 14% growth rateover the past 3months. Given this larger trend, capital strength is becomingincreasingly important, in our view. We think the endorsement and capital support ofChina Development Bank (unique in the water treatment sector) and strongtechnological advantages could help Originwater outperform peers and maintain itsdominant position. With the upcoming launch of SZ-HK Stock Connect, our strategyteam believes Originwater is among the quality stocks to meet international investors'preferences. We view this as a potential re-rating catalyst. Valuation: Maintain Buy rating and price target of Rmb21.50 We derive our PT of Rmb21.50from a three-stage DCF model with a WACC of 6.9%.Originwater is trading at 24x 2016E PE, close to its 5-year trough and 1SD below itsmean in the past five years. Our PT implies 31x 2016E PE, similar to its historical mean31x PE of the past 5years, around 0.8x PEG. We forecast a 35% EPS CAGR in 2015-18.