News Zoomlion announced two A-share stock incentive plans today after theclose (this announcement is why trading has been suspended sinceFebruary 22). The company plans to grant stock options equivalent to157.2mn shares (2.04% of current share base, through issuing new shares)to 1,549 employees, including senior management, key R&D experts, andtop performers, with an exercise price of Rmb9.30/share (vs Zoomlion(A)’slatest closing price of Rmb9.19). The company also plans to issue 74.0mnrestricted shares (0.96% of current share base) to 121 key management andR&D employees at Rmb4.77/share. The plans are valid for five years andare pending approval at the shareholder meeting. In order to exercise theplans, growth for 2013/14/15 net profits post-extraordinary items will needto be higher than 12% each year, and 2013/14/15 net profits postextraordinaryitems will need to be 12%/25.4%/40.5% above the 2012 level. Analysis We expect the plans to provide incentives to the broad key employees thatare covered. In addition, the plans require 12% net profit growth for2013/14/15, or 17% incl. the estimated amortization cost of Rmb441.5mn in2013 with regards to the stock option plans (calculated by the company onFeb 25 using Black-Scholes model), much higher than our 9% growthforecast. Any punishment from CSRC or adverse opinions from auditorsduring the period in which the plans are valid would trigger the terminationof the plans, which we believe may reassure investors after recentaccusations of Zoomlion falsifying its accounting that the company hasdenied (see our Jan. 8 Commentary: Zoomlion issues clarificationregarding press report; keep estimates unchanged). Implications We maintain our Buy ratings for Zoomlion(A)/(H) with 12-m Director’s CutbasedTPs of Rmb11.7/HKD13.3, implying 27%/30% potential upside vs Feb22 close. Key downside risks include: lower-than-expected concretemachinery/crane revenue growth and higher-than-expected material costs. INVESTMENT LIST MEMBERSHIP Asia Pacific Buy List