Strongest growth yet cheapest valuation in DB A-share A&D coverage universe. We believe JONHON's strong 2015 result (+67% yoy) was not just a one-time boost from the new capacity roll-out, but more importantly was a reflection of genuinely strong demand as evidenced by continued growth momentum in the last two quarters, when comparison bases began to normalise. With a small cut in earnings, we now project a 34% EPS CAGR in 2016-17. JONHON remains our preferred pick in the A-share A&D sector because of its exposure to multiple growth drivers. Currently trading at 27x 2016 P/E (vs. 75x avg. for A-share A&D names), the stock is a cheaper way to play China's defence build-up theme. Our new TP implies 28% upside potential from the current level. 2016 off to a strong start - 1Q16 NP to increase by 40-80% yoy. In addition to sustained strong momentum seen in 4Q15 (+42% yoy), robust order intake from new markets including NEVs (+2x yoy) and overseas markets (+34% yoy) is another key highlight of JONHON’s 2015 results, which should strengthen its NT earnings visibility. The company also issued a positive profit alert, expecting its 1Q16 NPAT to surge by 40-80% yoy, which would imply an achieved ratio of 15-19% vs. revised 2016DBe (five-year avg. of 14% for Q1). Proposed capacity expansion project to enhance long-term growth prospect. The company also said that it plans to launch a new-technology industrial base located in Luoyang with capex of c.Rmb1bn, covering a total area of 114mu (vs. the current 330mu). Construction is expected to be started by the year-end and to be completed by 2019. This project is aimed at strengthening its manufacturing capabilities in various new business areas (mostly connector-related). JONHON expects that the new production base will contribute annual sales of Rmb1.4bn and a pre-tax profit of Rmb217mn upon completion. Revisions, valuation and risks. Incorporating 2015 results and slower connector sales to the telecom sector, we trim our estimates by 7%/8% for 2016/17 and introduced our 2018 forecasts. Correspondingly, we lower our P/E based TP to Rmb45.5. Our slightly lowered target 2016 P/E of 35x is largely in line with the average of its A-share listed connector peers. Key downside risks include an unexpected delay in military orders and slower-than-expected civil market penetration.

USD693m for 80% stake in Toshiba white goods business Midea announced on 30 March that it has reached an agreement with Toshiba(6502.T, NR) whereby Midea will acquire an 80.1% stake in Toshiba Lifestyle(TLSC) for a total consideration of USD693m in cash (USD473m for the equityand USD220m for debt repayment). TLSC will continue to develop,manufacture and sell white goods products such as refrigerators, washingmachines, vacuum cleaners and small appliances under the Toshiba brand. Midea will be granted the right to use the Toshiba brand globally for 40 years. Procedures for closing the deal This deal does not need SGM approval, but is pending approval from the JapanFair Trade Commission and needs to be registered with China’s Ministry ofCommerce and State Administration of Foreign Exchange. Midea expects tocomplete the deal by 30 June 2016. About TLSCToshiba is one of the largest white goods brands in Japan. Its washingmachines and refrigerators are ranked in the top three in Japan, according toEuromonitor, with a market share of 20%/15%. It also has a presence in SoutheastAsia and the Middle East. By region, 70% of its revenue is from Japan andthe remaining 30% is from other regions. By product, refrigerators, washingmachines and home air conditioners account for 26%/23%/15% of totalrevenue. It has nine production bases located in Japan, China and Thailand. Deutsche Bank comments We believe this is an important milestone for Midea in its exploration of theglobal market and is positive for Midea in the long term. We expect Midea to1) upgrade its R&D and automated manufacturing capability, leveragingToshiba’s R&D resources; 2) introduce Midea products to the Japanese andSoutheast Asian markets, leveraging Toshiba’s distribution network; and 3)turn around Toshiba’s white goods performance by improving operatingefficiency and controlling costs. We believe the target witnessed a net loss ofJPY8.2bn in 1HFY15 (deduced from the reduction in net assets), or 6% ofMidea’s NP for the same period, so we calculate that dilution is about 5% forMidea in 1HFY15. The sales revenue of the target was USD3.6bn in FY15(ending March 2015), or 16% of Midea’s revenue. This includes USD1.6bnrevenue from the distribution of Toshiba’s non-white goods products (TV sets,PCs and lighting products). We believe that the consideration implies 0.2x PSof the target, or 0.4x PS of Toshiba’s white goods business in FY15. Webelieve this is reasonable when compared with Qingdao Haier’s GE deal (0.9xPS). Midea had net cash of RMB8bn as of end-2015. We maintain our Buyrecommendation.

Key takeaways from Lianhua’s conference call Younghui’s associate Lianhua (0980.HK, CMP:HKD2.66, NR) released its FY15results and held a conference call on 31 March. Below are the key takeaways:Outlet development and store closure. LH plans to add 300+ new stores (204new stores added in 2015) in 2016, including 7-9 hypermarket stores, 150/150supermarket and CVS stores. In terms of store closure, it will cautiously closethe underperforming stores. The loss-making stores are mainly big stores. SSSg declined by 6.5% yoy in 2015, mainly due to traffic (-10%), while ASPincreased by 2-3%. By products, fresh goods, seasonal merchandise, andlaundry products outperformed. Sales performance in Jan-Feb 2016. Sales improved due to the efforts made in2H15, despite an intensive competition environment. Prepaid card sales improved in 1Q16. The decline in sales of prepaid cardsnarrowed by 3-5ppts in 2015 from that in 2013-14. Prepaid card sales in 1Q16were better than that in 2015. Prepaid card settlement is 25-30% of the totalsales. E-commerce. It plans to launch an omni-channel (on/offline plus mobile) inMay 2016, after a successful testing conducted in March in Shanghai. To continue to improve fresh food mix and GP margin. It plans to increase thesales mix of fresh food (30% currently) by efforts in the operationmanagement. It plans to improve GP margin from 12% in 2015 to the industrybenchmark level, by controlling shrinkage and logistics optimizations. Yonghui alliance update. Lianhua aims to lower procurement cost byleveraging Yonghui’s supply chain system and procurement platform. Fordirectly purchasing from Yonghui, the annual cap was set at RMB130m in2016 (0.5% of LH’s COGS in 2015). LH has improved its business operation ofits fresh food segment, by improving daily operations and training theoperation staff. The next step is to optimize non-fresh food operations by 1)centralized procurement for key items especially national procurementproducts, and 2) direct sourcing. YH has helped upgrade LH’s Zhuanqiao storein terms of optimizing shopping route, expanding gallery space, optimizingmerchandise mix and improving operating efficiency. It plans to renovate 13hypermarket stores and 13 supermarket stores in 2016. Deutsche Bank’s comments We believe Yonghui’s contribution in Lianhua’s turnaround is mainly focusedon the merchandise operations and store renovations. We expect Yonghui tobenefit from the joint procurement with Lianhua, which will lower theprocurement cost on economy of scale. LH was in a net loss of RMB146m in2015. YH holds 21% stake in LH and has nominated two of the 11 directors onLH’s board. This note marks the transfer of coverage for Yonghui to Richard Huang asprimary analyst, Anne Ling as the secondary analyst.

4Q15 results in line; expecting solid growth to continue Strong growth momentum across all three major business segments Aier Eye reported 4Q15 revenue/core EPS of RMB724m/0.09 respectively, representing 28%/52% YoY growth. We highlight the growth acceleration of excimer surgery with 38% growth in 2H15 vs. 24% in 1H15, with ASP growth being at low-teen level. Gross margin for cataract surgery improved, owing to economies of scale, despite ASP declining slightly. Additionally, volume growth of Aier Eye remained strong with 32%/29% for outpatients/surgeries performed in 2015. For 2016, management reiterated its focus on expansion in prefecture-level cities, market share gains and efficiency improvements. Strong growth momentum across all three major business segments Sales from excimer surgery achieved 38% growth in 2H15, vs. 24% in 1H15. We attribute the growth acceleration to a mix change to high-end services, as well as strong volume growth. Management indicated that the number of excimer surgeries performed was 65,000 in 2015, representing 18% growth, and we estimate ASP growth to have been at low-teen levels. For cataract surgery, sales growth in 2H15 was 39%, compared with 40% in 1H15. In 2015, around 160,000 cataract surgeries were performed, representing 49% growth. However, ASP declined by a mid-single digit level, as more mid-/low-end surgeries were performed. The company has indicated that it currently has 110-120 hospitals, with the listed company owning around 60 of these. Margin improvement continued The gross margin for excimer surgery increased to 56.8% in 2H15, from 55.6% in 2H14, driven by a mix change towards high-end services. For cataract surgery, the gross margin improved to 35.5% in 2H15, vs. 33.5% in 2H14. Management attributed the margin expansion to economies of scale. At the company level, the operating profit margin increased to 18.3% in 2H15, from 17.6% in 2H14. We continue to expect margins to improve, driven by the ramp-up of new hospitals, economies of scale, and ASP increases. Raising target price (TP) to RMB34.0, from RMB33.0; risks Our TP is based on 33x 2016E EV/EBITDA. The company’s Asia-listed peers are trading at 22x 2016E EV/EBITDA, with 6% EBITDA growth in 2016 (vs. 30% for Aier). We believe Aier deserves a significant premium because of its proven, replicable business model and strong earnings growth potential. Key risks: competition; expansion delays; slower ASP/volume growth.

4Q15 net profit beat, but EBIT in line Yili reported 2015 results with sales of Rmb59,863m and Rmb4,632m,representing 10.9%/11.8% yoy growth, respectively. By segment, in 2015, itsliquid milk/milk powder increased 11%/7.2% yoy, while ice cream declined4.3% yoy. 4Q15 net profit was 56% higher than our forecast mainly due tolower impairment costs, lower financial costs and higher non-operatingincome. EBIT was 3% lower than our forecast. What we like in the results Our key positives include the following: 1) a speeding up of sales growth in4Q15, at 17.7% yoy, compared to 8% yoy in 3Q15, helped by its increasingA&P (this indicates that it is gaining market share among the tough industryenvironment); 2) the product mix continues to move up – the sales portion ofhigh-end products (i.e. UHT yoghurt, high-end milk) has increased 5ppts; and3) inventory days have declined by six days yoy to 44 days. What we do not like in the results – increasing operating expense ratio in 4Q15 The selling expense/sales ratio increased 4.9ppts yoy to 24.8% in 4Q15, mainlydue to the 17% yoy increase in the A&P expense during the tough macroenvironment. Meanwhile, the G&A/sale ratio increased 1.0ppts to 8.8% in4Q15, mainly due to increasing deprecation in the period. 2016 outlook – target of 8.6% pre-tax profit growth The company guided total revenue of Rmb63bn and pre-tax profit ofRmb6.0bn, representing 4.3% and 8.6% yoy growth, respectively. Thecompany targets to achieve this through new product growth, a strengtheningof branding and improving channel penetrations. Reiterating Buy Yili is our top pick within the China Dairy sector. The results indicate that itcontinues to gain market share in 4Q15 through its intensive marketinginvestment. We expect the company to continue to drive its growth throughmarket share gains and mix upgrades; reiterating Buy.

Jan&Feb Hainan duty free sales up 17% yoy on ticket price expansionYesterday, Ministry of Commerce (MOFCOM) released February’s Hainan dutyfree sales. According to MOFCOM data, Hainan duty free sales (Sanya +Haikou) increased 24% yoy to RMB1.1bn in February 2016, compared to 6.2%yoy growth in January. Based on MOFCOM data, 2M2016 (January + February) duty free sales grew17% yoy to RMB1.7bn, and number of purchases increased 1.1% yoy to419,400. This implies a 15.7% yoy expansion in ticket price to RMB4,120. We believe the increase in ticket price can be attributed to the recently relaxedgovernment policy – effective on 1 February, the maximum duty free quota perpurchase has been lifted to RMB16,000 from RMB8,000. We expect the favorable policy to drive up ticket price throughout the year,and forecast Haitang Bay to benefit and grow its sales by 32% yoy in 2016.

Huace formed strategic cooperation with CJ E&M. Huace recently signed a strategic cooperation agreement with CJ E&M(130960.KQ, NR, CP KRW67,800), the leading Korean entertainment company,to jointly produce 3-4 premium TV dramas (to be broadcasted online as well ason satellite TV stations) over the next three years. About CJ E&M. CJ E&M is the No.1 entertainment company in Korea, producing TV dramas,films, music and live entertainment shows. The company operates 17 TVchannels, of which tvN generates one of the highest viewership in Korea (e.g.1.45 in January 2016). Huace has worked with CJ E&M on three movie productions, including “AWedding Invitation” (Box office: RMB195m), “Miss Granny” (Box officeRMB364m), and “The Peaceful Island” (scheduled to release in July 2016).

FY2015 results in line with expectation. Baosteel announced its FY15 results on PRC GAAP after market close on Mar30. Baosteel recorded revenue of RMB164bn in FY2015, achieving 100%FY15DBe and 100% Bloomberg consensus. Baosteel’s NPAT attributable toshareholders was RMB1,013mn, achieving 105% FY15DBe and 105%Bloomberg consensus, in line with expectation. As the company has alreadyannounced profit alert on Jan.20th, 2016, we believe these results should benon-event to share price. Deteriorated profitability, significant non-recurring cost. Baosteel’s profitability was deteriorated in FY2015. Company’s average unitgross profit of major products fell from RMB540/t in FY2014 to RMB399/t inFY2015 (ASP declined by RMB943/t and unit cost declined by RMB802/t.) Nonrecurringcost including net financing cost (loss from foreign exchange) andimpairment loss on inventory was significant in FY2015. However, as Baosteelalready cut the US dollar debt in 2015 and current steel price is running at verylow level, we would not expect huge cost in these two items again in FY2016. Strong balance sheet and healthy cash flow from operation. Baosteel maintains a strong balance sheet and healthy cash flow fromoperation Baosteel successfully cut net gearing ratio from 32.1% as of 2014year end to 30.6% as of 2015 year end. Its AR days and inventory days weresteadily at 40 days and 61 days, respectively while its AP days increased to 61days in FY2015. Cash flow from operation kept at positive RMB21bn in FY2015Positive guidance on FY2016. With increasing steel sales volume to 27.11mt, Baosteel guidance its FY2016revenue at RMB160bn and operating cost at RMB149bn, implying a recurringPBT of c.RMB10bn, better than DBe of RMB8bn. Baosteel will invest CAPEX ofRMB14bn in FY2016, including RMB6.3bn for Zhanjiang project. We believethat with the ramp-up of Zhanjiang project, company’s profitability willgradually improve. Quality company with quality volume growth, Buy maintained. We remain a cautious view on China steel industry as we have not seen anysignificant improvements in supply/demand balance yet. However, as Baosteelhas been consistently outperforming its peers in term of profitability, andBaosteel is the only company under our coverage that we believe can benefitfrom quality volume growth in the coming two years. Buy reiterated.

A key beneficiary of air conditioner destocking; maintaining Buy We expect washing machine (WM) and refrigerator (RF) to continue theirgrowth momentum in 2016, while air conditioner (AC) should graduallyimprove due to the ASP pickup and low base in 2H15. We expect Midea to bea key beneficiary when AC destocking is completed by mid-2016. We expectMidea to keep developing the robot business and explore overseas businessvia M&As. It is trading at 9x FY17 PE and 4.5% dividend yield. Maintain Buy. 2016 – Washing machine and refrigerator to continue growth momentum Midea expects top line to grow in single digit for FY16, which is consistentwith its guidance during the 3Q15 analyst conference call. It believes WM andRF should continue their growth momentum (double-digit growth in 2015),while AC sales are likely to improve gradually, driven by the recovery in theproperty market and the low base due to output constraint in 2H15. We expectAC/RF/WM to grow at 4%/13%/16% yoy in 2016, respectively, and overall GPmargin to remain flattish yoy. We expect 7%/8% yoy growth in grosssales/EBIT to RMB149bn/RMB14bn for 2016, respectively. FY15 NP up 21% yoy to RMB12.7bn, in line with DB and market expectations NP grew by 21% yoy to RMB12.7bn, on a 2% decline in revenue to RMB139bnin 2015. NP and top line were in line with our and market expectations. WMand RF were the bright spots, with 17% and 20% yoy growth in sales,respectively, driven by the product upgrade and new products. For 4Q15, NPincreased by 9% on a 26% decline in EBIT. EBIT was in line with ourexpectation, while NP beat our expectation on a lower-than-expected ETR andhigher-than-expected subsidy income and associates. DPS was RMB1.2(flattish payout ratio at 40%). Target price fine-tuned to RMB33.25 from RMB34.09, on 10x FY17E PE; risks We lower our target price by 2% to reflect the AC output constraint ytd 2016.Our DCF (9.5% COE, 1.0 beta, 2% TGR) yields RMB33.25/share (old:RMB34.09), implying 11x/10x FY16/17E PE. Dividend yield is at 4.5% at currentprice. Key catalyst is the Toshiba M&A. Downside risks: global expansion;slower-than-expected destocking of AC; unfavorable weather; competition.

FY15 NP up 21% yoy, to RMB12.7bn, in line with our and market expectations. Midea reported FY15 results on 25 March, after the market close. NP rose 21%yoy, to RMB12.7bn, on a 2% decline in sales revenue, to RMB139bn. NP andthe top line were in line with our and market expectations. Midea declared adividend of RMB1.2 per share, implying a payout of 40% (unchanged vs. 2014). By segment, washing machines and refrigerators were the bright spots,with 17%/20% yoy sales growth. This was offset by an 11% decline in AC salesdue to the output constraint. The GP margin improved 0.4ppts to 25.9% drivenby the product mix change and a lower raw material price, while the opex ratiorose 0.4ppts mainly due to the 16% yoy increase of R&D expense (3.8% ofrevenue in FY15). The EBIT margin was flat yoy, at 9.3%. 4Q15 EBIT in line with Deutsche Bank estimates. For 4Q15, NP rose 9%, on a 26%/17% decline in EBIT/sales revenue. EBIT wasin line with our expectations, while net profit beat our expectations, on alower-than-expected ETR and higher-than-expected associates. Key tasks in 2016. Midea plans to continue with its upgrade production capability, to streamlinethe supply chain, enforce a logistics platform, speed up its globalisationexpansion and implement a smart home and smart manufacturing strategy. Post-results conference call on 28 March. Midea will hold a conference call at 10-11 am on 28 March. We expect the keyfocus to be 1) the progress of AC de-stocking, 2) the update of the Toshiba(6502.T, NR) M&A, and 3) the outlook for 2016. The dial-in number is +86-25-68673555; meeting room: 9402; pass code: 5013.

23% revenue growth partially mitigated weak margins. Huayu Automotive released its FY15 results after market close today. Thecompany’s FY15 gross revenue edged up by 23.2% YoY to RMB91.1bn, likelydriven by 1) growth in passenger vehicle (PV) production volume in Chinaduring the period, especially in 4Q15 due to the government’s stimulus onsmall-engine car purchases, and 2) the surge in overseas interior trim sales. Meanwhile, Huayu’s FY15 gross profit grew 13.9% YoY to RMB12.8bn with1.1ppt YoY gross profit margin contraction. Together with 7.3% YoY growth inprofit contribution from its JVs/associates (attributable to PV productiongrowth in 4Q15 by Huayu’s customers, in our view), but partially offset by16.4% YoY increase in SG&A expenses, FY15 net profit increased by 7.4% YoYto RMB4.8bn. Huayu’s FY15 revenue and net profit was 7% and 5% above ourfull year expectation, respectively. On a quarterly basis, 4Q15 revenue surged by 48.6% YoY to RMB29.1bn andJVs/associates income also grew by 43.1% YoY to RMB723.6m, probably dueto OEM’s strong production rebound in 4Q15 after stimulus. As a result, 4Q15net profit also increased by 16.0% YoY to RMB1.1bn. Deutsche Bank view – favorable outlook with expanding overseas sales. We think that the stable sales growth outlook at SAIC (600104.SS, CNY19.88,Buy) will continue to ensure a solid revenue source for Huayu in FY16-17. Inaddition, the expanding overseas sales of Yanfeng – Huayu’s wholly ownedinterior trim subsidiary – after the set-up of the new interior trim JV withJohnson Controls (JCI.N, USD38.09, Hold), should provide an additionalgrowth driver for Huayu. We maintain our Buy recommendation given whatwe see as attractive FY16E P/E valuation of 8x. Key downside risks are weakerthan-expected auto sales volume, an inability to acquire new customers,market share loss, and an unexpected increase in raw material prices.

Preliminary results largely inline; strong growth profile underappreciated Jonhon Optronic released its preliminary results for 2015 after market close onFeb.25, with NPAT up 67% yoy, largely inline with our estimates and the streetconsensus estimates. The stock currently trades at a P/E of 22x/17x on2016/17, one standard deviation below its mid-cycle level, compelling againstan EPS CAGR of 35% over 2016-17. We reiterate Buy as we consider the stocka cheaper way to play the defense theme in the A-share market. Slower-than-expected top-line growth largely offset by margin surprise Sales revenue of Rmb4.7bn was up 35% yoy, 7% shy of our estimate. While nodetailed breakdown was provided, we believe this is likely due to slower-thanexpectedconnector sales related to telecommunication sector as competitionhas been intensifying. That said, net margin expanded by 2.3ppt yoy to 12% in2015, 20bps ahead of our estimates. This is likely driven by rising contributionsfrom military orders and EV connectors which yield higher margins, in additionto better cost control, according to the announcement As a result, NPAT of Rmb568mn was largely inline with DBe (5% lower). Solid 4Q15 growth against high base 4Q15 NPAT came in at Rmb146mn, up 42% yoy on a 15% yoy top-line growth. Although headline growth appears slower compared with the 78% NPATgrowth achieved in 9M15, we believe such growth is still impressive givenpositive impact from eased capacity was largely reflected in the base as thecompany’s new production facilities in Luoyang (c.4x the size of its old base)came into operation in May 2014.

More arrival duty free stores in China. Effective from 18 Feb 2016, the government permits the set up additionalduty free shops at the arrival points of c.19 airports and ports. The list of permitted airports includes international airports in tier 2 andcore tier 3 cities such as Guangzhou, Hangzhou, Chengdu, Qingdao, Dalian,Shenyang, Xi’an, and Urumqi. The overseas duty free quota remains unchanged at RMB5,000. However,a customer who has not used up the RMB5,000 at overseas duty freeshops, can carry the unused amount and spend it within China up to atotal of RMB8,000. At airports or ports which have both departure and arrivals duty free shops,passengers travel abroad can also make purchases at the departure dutyfree shops and deposit the products for pick up when return to China.

High-return defense play with restructuring potential; Buy ahead of 3 catalysts Glaruntech is a leading radar supplier in China, with a dominant position inboth civil and military markets. We project an earnings CAGR of 30% over2016-2018, driven by strong radar-related sales, and expect its ROE to expandto 26% by 2018, the highest within our defense coverage universe. Strongorganic growth and returns, along with three catalysts that could potentiallylead to significant asset restructuring and an enhanced long-term growthoutlook, lead us to initiate coverage with a Buy rating and a TP of Rmb62. Strong organic growth powered by rising radar demand We project a sales CAGR of 30% over 2016-18 for Glaruntech’s radar-relatedbusiness (c.70% of its sales), with the air traffic management (ATM) radarbusiness emerging as a significant growth driver on the back of acceleratingimport substitutions. We are also positive on its weather radar business withthe successful development of its indigenous meteorological system andextended areas of applications. We expect PLA’s ongoing weapon upgradecycle to drive a 32% CAGR in its military radar component sales over 2016-18. Substantial asset restructuring potential Glaruntech’s current operations only represent 15% of its parentco’s total netprofit. Our analysis suggests a full injection of the parentco’s unlisted assetswould boost the listco’s 2017 EPS by 129%. Moreover, we believe thecompany could potentially consolidate the radar business of Anhui Sun-Create– its sister listco, which competes against Glaruntech in the radar segment. Valuation, catalysts and risks We base our target price of Rmb62 on a 2016 P/E of 65x, one standarddeviation above its mid-cycle level, supported by its accelerating growth. Thismultiple is in line with the average for its A-share peers but more significantlyis a reflection of the potential from asset injections. If implemented, thesewould reduce our target P/E to 22x. We see three near-term catalysts: 1) theannouncement of policy initiatives on research institute reform; 2) potentialconsolidation of CETC Group’s listed radar business; and 3) the unveiling ofChina’s 13th Five-Year Plan for the general aviation industry. Key risks includeweaker-than-expected radar demand and unfavorable asset restructuring.

Midea has become the second-largest shareholder of KUKA According to KUKA’s (KU2G.D, Sell) press release, Midea has increased itsstake to 10.22% from 5.43% in KUKA as of 3 February 2016. Midea thus hasbecome the second-largest shareholder of KUKA. KUKA, headquartered inAugsburg, is one of the world’s leading suppliers of robotics, automation andsystems engineering. Deutsche Bank’s comments We believe this is consistent with Midea’s strategy to develop the robotsmanufacturing as a new business. We talked with management that itsintention is to have further cooperation with KUKA in R&D and manufacturingof the industrial robots through equity investment. Midea has M&A plans fordeveloping the new businesses. Please refer to our notes “Access ChinaConference Highlight” published on 11 January 2016. To recap, it acquired 5.43% stake in KUKA in August 2015. We believe Mideahas established a good relationship with KUKA’s senior management teamafter its initial share purchase. Besides that Midea has established two jointventures with Yaskawa (6506.T, NR) to manufacture industrial and servicerobots in China since last August. During its 3Q15 conference call, Midea’s management had guided that it plansto install 1,700 industrial robots to enhance its manufacturing automation witha capex of RMB1bn for 2016.