Pre-announced Q1-Q316 net profit up 330-350% YoY Longi pre-announced Q1-Q3 net profit attributable to shareholders rose 330-350%YoY to Rmb1.06-1.10bn (91-95% and 86-89% of our and consensus full-yearestimates), once again reporting a significantly better than expected performance afterits semi-annual results. Q3 net profit was Rmb200-240m, up 55-86% YoY. Sustained rapid growth suggests end of H1 rush has limited impact There was an unprecedented rush to install capacity in China's solar market in H1before the tariff cuts kicked in on 30 June, driving newly installed capacity to hit arecord high of 22GW in the period, which boosted Longi's H1 net profit 634% YoY toRmb860m. However, after 30 June, when the capacity-installation rush ended, themarket was generally worried about a sharp decline in Longi's earnings. As a result, themarket consensus for its H2 net profit was only Rmb370m. As the pre-announced Q3net profit equals c60% of consensus H2 earnings and the pre-announced Q3 grossmargin rose YoY, the end of the H1 capacity-installation rush appears to have had alimited impact on Longi. Therefore, we believe the company's market share continuedto rise in Q3, which supports our view that demand is shifting from multi to mono, aswe stressed in our previous note. Market share expansion to continue as a rush in new installation approaches The NDRC recently issued a draft to seek views on 2017's solar tariff cuts. We expect anew rush in capacity installation before 30 June 2017 on the proposed big cuts. As theworld's largest mono-based solar product maker, we believe Longi will keep benefittingfrom its high capacity, low costs and high product conversion efficiency as well as thefuture mono products-based Solar Leaders Program and demand for distributed solarinstallation, which will help it grab more solar market share. Meanwhile, after falling38%/35% since 30 June, mono/multi wafer prices saw their first widespread reboundthis week, rising 3.0%/5.8% from last week. We believe solar product prices have hitbottom with the end of the H1 capacity-installation rush and may rise in the next 1-2quarters, which should benefit tier-1 solar product makers. Valuation: Reiterate Buy and Rmb19.00 PT The share price has pulled back 14% since its peak after the strong H1 results,suggesting the market is concerned about Longi's Q316 earnings. We reiterate our Buyrating, as we believe the sharp growth in Q316 earnings will support its valuation. OurDCF-based PT of Rmb19.00 assumes 7.8% WACC.

Initiating coverage with Buy rating We initiate coverage on GCL System Integration (GCL), one of the largest solar cell/module manufacturers in China, with a Buy rating. We believe the company willleverage its parent GCL Group's advantages along the entire solar value chain andbenefit from expanding into new businesses like energy storage and electric vehiclecharging pile manufacturing. We expect GCL to post a 2015-18 earnings CAGR of46%. However, we don't think the market has fully priced in its supply chainadvantages and new earnings growth drivers, which is why our 2017/18 EPS estimatesare 14%/33% higher than consensus. Leveraging supply chain advantages to capture the solar installation boom Parent GCL Group is the first company in the world to own an entire solar supply chain,including: 1) Upstream: GCL-Poly (3800.HK), the world's largest global polysilicon/wafermanufacturer; 2) Midstream: GCL System Integration (002506.SZ), a cell/modulemanufacturer; 3) Downstream: GCL New Energy (0451.HK), one of the largestdomestic solar power plant developers. We believe the company will benefit from GCLPoly'sability to fully supply it with high-quality, low-cost wafers and from orders fromGCL New Energy. GCL targets 6GW of solar module shipments in 2017 and enteringthe global top 3 in terms of shipments. Expanding from solar manufacturer into new areas In addition to its core solar cell/module manufacturing, GCL also targets expanding GCLGroup's presence along the value chain in new-energy-related areas, including: 1) onestopsolar service; 2) supply chain financing services; 3) energy storage products; and4) charging pile manufacturing. We estimate its new businesses will contributeRmb110/300/550m in revenue in 2016/17/18. Valuation: DCF-based price target of Rmb8.1 The company is currently trading at 25.7x 2017E PE, in line with the A-share listed solarcompany average of 25.1x, while we forecast its 2018 EPS growth at 33%, above thesector average of 27%. We estimate its 2017-18 PEG ratio at 0.8, lower than the sectoraverage of 1.2. Our DCF-based price target is Rmb8.1 (WACC = 7.9%), implying2017/18E PE of 34.2x/25.6x vs. the sector average of 25.1x/18.7x.

How is supply-demand for the solar market and mono products in H2. 1) ASP of solar products has fallen 20% in the 2 months since the solar installation rushended on 30 June, incl. a 17% drop for mono-crystalline silicon products. The co. believes its price cuts were on-the-mark, with the impact of the recent tariff cutcompletely absorbed post adjustment. As a result, Longi expects ASP to stabilize afterSept. 2) Solar demand is set to overshoot market expectations in H2, as the last 2months' drop in installation costs has rekindled appeal for power plant developers. Inthe long term, per kWh cost of solar could fall to Rmb0.32 in 5 years and Rmb0.20 in 7years, vs. Rmb0.60 currently, making inexpensive on-grid prices a reality. 3) Monosupply-demand: Longi expects global mono market share to increase to 50% in 2018from 18% in 2015. Capacity expansion is limited among mono wafer producers. Globally, apart from Longi, only Zhonghuan Semiconductor/GCL-Poly plan to increasetheir mono wafer capacity, by 8GW/10GW. However, these plans are still in the earlystages, and whether post-expansion costs will be competitive remains unknown. Longiforecasts its share of mono wafers to rise to 40% globally in 2018 from 30% in 2015. How will Longi maintain its competitive edge. 1) Maintaining cost advantages: Longi's mono wafer production costs are currentlyUS$0.12/W (US$0.05 in non-silicon production costs and US$0.07 for silicon materials),the lowest level among wafer manufacturers worldwide. In the next 1-2 years, the co. estimates it can cut non-silicon manufacturing costs another 30% via technicalchanges. 2) Flexible pricing: Leveraging its cost advantage, the company's pricing tracksmulti-crystalline silicon (multi) products, with mono modules priced Rmb0.10/W abovemainstream multi modules. However, as mono modules can also bring savings ofRmb0.10/W due to lower land & support frame costs, actual installation costs areroughly even. Meanwhile, per-watt power generation volume of mono modules is 5%higher than multi modules, giving them an advantage. 3) Expanding conversionefficiency advantage: Currently Longi's mono cell conversion efficiency is 20% (rising to21%+ w/ PERC technology), well above the 18% of leading multi products. The higherconversion efficiency helps Longi's mono cells get much higher power per piece (290W)than leading multi cells (260W) and mono cells (275W). Valuation: Maintain Buy rating and Rmb19.0 price target

H1 net profit ex. one-offs fell 16% YoY due to declines in volume/tariffs. SDIC Power announced its H116 results: net profit fell 39% YoY to Rmb1.49bn, mainlydue to the company's provision of Rmb530m for expected liabilities on subsidiary SDICQujing's overdue debt. Net profit excluding one-offs fell 16% YoY to Rmb2.03bn,mainly caused by declines in power generation volume and on-grid tariffs. Steady growth for hydropower but sharp decline for coal-fired business. SDIC Power expanded its installed capacity 5% YoY and generated power of 51.1bnkWh in H116 (-2.0% YoY; -4.2% YoY in Q216), mainly due to maintenance of theJinping-Sunan DC transmission line (outbound transmission channel for Yalong River) inApril. Hydro power generation increased 4.3% YoY, with Yalong River hydro power up7.3% YoY. Coal-fired power generation declined 12.4% YoY in H116, mainly due toweak demand for electricity and good water inflow for hydropower, although thedecline was smaller in Q216 (-5.3% YoY). The company's hydro/coal-fired powercapacity utilisation hours were 1,995/1,914 in H116 (+24 hours/-276 hours YoY), 337higher/50 lower, respectively, than the national average. Due to coal-fired tariff cuts,the company's average on-grid tariff fell Rmb0.033/kWh YoY to Rmb0.306/kWh inH116. Coal-fired transfer to help profitability; focus on tariff cut/overseas expansion. On 27 Aug, SDIC Power announced a transfer of the coal-fired plant of SDIC Nanyang,in which it has a 51% stake, to Zhongyu Guoxin. The coal-fired plant has plannedinstalled capacity of 2GW and is scheduled to come on-stream in 2017. The companycould realise a gain of Rm88.18m from the transfer. In our view, the downsizing ofcoal-fired installed capacity will help the company reduce exposure risk for its coal-firedbusiness and increase the weighting and profitability of its clean energy business. As atend-H116, non-coal-fired installed capacity accounted for 64% of the company's totalinstalled capacity, the highest among independent power producers. We believeinvestors need to focus on the following: 1) the magnitude of the on-grid tariff cut oninter-regional transmission for hydropower stations on the Yalong River: the company islooking for an average cut of below Rmb0.03/kwh; and 2) the progress of overseasexpansion. Valuation: Maintain Buy rating. We maintain our Buy rating and sum-of-the-parts based PT of Rmb9.50.

H116/Q216 power generation down 2%/4% YoY According to SDIC Power's interim results, subsidiaries controlled by the companygenerated power of 51.1bn kWh on an accumulated basis in H116 (-1.97% YoY, -4.2% YoY in Q216), accounting for c43% of our full-year power generation forecast,largely in line with our expectation. Stable hydro power growth but coal-fired power declined considerably The company's hydro power generation increased 4.3% YoY in H116, with YalongRiver hydro power up 7.3% YoY (+3.9% YoY excluding the impact of new powergenerating sets). Hydro power generation increased 1.3% YoY in Q216, lower than13.3% in Q116, mainly due to the maintenance of Jinping-Sunan DC transmission line(outbound transmission channel for Yalong River) in April. Coal-fired power generationdeclined 12.4% YoY in H116 (-5.3% YoY in Q216). We estimate the company's H116implied annualized coal-fired capacity utilization hours are lower than 3,600,significantly lower than the average in 2015 (4,100 hours). Incremental capacity and overseas projects to contribute earnings The company's coal-fired power projects that are under construction are not affectedby the national policy to delay the addition of coal-fired power capacity; we expect atotal of 6GW coal-fired power capacity to be put in operation in 2016/17. In terms ofoverseas projects, the 660MW coal-fired power project in Indonesia will get on line in2017 and the first 588MW offshore wind farm project in UK will get on line in 2018.We believe these projects will significantly boost the company's earnings growthpotential and offset the downside risks of utilization hours. Valuation: Maintain Buy rating We maintain our Buy rating and sum-of-the-parts based PT of Rmb9.5.