Optimization of Aokang International Pavilion saleschannel took effect as sales improved. In 9M15, the company’s revenue was Rmb2.352bn, up 12.13% YoY;net profit attributable to the parent company hit Rmb270m, up45.52% YoY, with EPS of Rmb0.67. Revenue growth was mainly dueto the company’s network restructuring gradually taking effect,enhanced store efficiency due to delicacy management. Net profitgrowth outpaced revenue with improving structure of accountsreceivables. Write-off of Impairment losses on asset pushed upprofits for the period. Excluding extraordinary items, net profit growthwas 60.5%. In 3Q15, revenue amounted to Rmb725m, up 12.16% YoY, and netprofit was Rmb51.8366m, up 89.27% YoY. Company revenue continued to improve. In 4Q14-3Q15, revenuegrowth was 8.84%, 22.17%, 13.46%, 10.71% and 12.16%respectively. Optimization of sales channel took effect. AokangInternational and Leisure Pavilions will become new growth driver. As of the end of 3Q15, the number of Aokang International Pavilionreached 320, which showed significant improvement in storeefficiency. Gross profit margin and expense-to-sales ratio decreased,inventory level becoming reasonable. Gross profit margin: 9M15 gross profit margin fell 1.24% YoY to34.49%. 3Q15 gross profit margin was 31.37%, staying flat from ayear back. Expense ratio: 9M15 expense-to-sales ratio shed by 1.82% to13.46%, administrative expenses ratio increased by 0.61% to 7.78%,and financial expense ratio rose 0.11% to -0.38%. In 3Q15, the threeratios stood at 12.86%, 8.78% and -0.35% respectively. Other financial indicators: 1) Inventories increased by 2.53% toRmb900m as compared with the beginning of the period, or upRmb53.92m as compared with 2Q15. 2) Accounts receivables weredown by 14.22% to Rmb948m as compared with the beginning of theyear. 3) Non-operating income shrank by 48.83% YoY to Rmb111m,mainly due to less government subsidies received by the company. 4) Net operating cash flow increased to Rmb105m from -Rmb104mfor the same period last year. Strategic cooperation with international sports brand Skechers faredwell. The company signed a long-term strategic partnership agreement withSkechers on 5 August, planning to open 1,000 Skechers-branded stores inChina in the next five years. Skechers is the second largest sports shoes brandin the U.S. Combining its product strength with the company's sales anddistribution channels and terminal management may drive earnings up. Currently, more than a dozen shops have been opened, and sales beatexpectation with sell-through rate of 75%-80%. Most of the newly-openedstores are located at shopping centers. Rental cost is fixed and improved storeefficiency will boost profit margin. The number of newly-opened stores isexpected to exceed 30 by end-2015, and climb to 200 next year. Skechers isexpected to contribute revenue of about Rmb200m in 2016. Increase stake in wholly owned subsidiary Redess, and formallybecome the largest shareholder of Lightinthebox. Aokang Shoes increased stake in its wholly owned subsidiary Redess forRmb40m, which reported net profit of Rmb51.7784m and Rmb56.568m in 2014and 1H15, on turnover of Rmb211m and Rmb114m respectively. Redess’results witnessed sound growth, with its turnover up 41% YoY in 1H15,outpacing that of Aokang brand and Kanglong brand by 31 ppts and 15 pptsrespectively. However, Redness contributed only 4.16% of Aokang Shoes’overall revenue, vs. 16.37% from Aokang and 79.47% from Kanglong. Aokang Shoes disclosed in June 2015 that it’s on track to buy stake ofLightinthebox. On 23 July 2015, the company formally became Lightinthebox’slargest shareholder holding interest of 25.66%, although it was still not theactual controller of the latter. Aokang Shoes is teaming up with Lightinthebox topromote cross-border e-commerce product branding projects and O2Oschemes, in a bid to integrate resource advantages of both sides to develop theInternet Plus strategy in the traditional industry and enhance the company’soverall competitiveness. Maintain Buy as excellent channel operating capability bodes wellfor its multi-brand and multi-category strategy. Aokang Shoes expects its full year net profit growth will be above 50% this year. The company will work to enrich its product category and brand mix, carry outthe strategy of replacing large stores with smaller ones, upgrade the AokangInternational Pavilion, and accelerate external acquisitions. We believe 1) thecompany’s multi-brand and multi-category development strategy will hopefullyresult in growing economies of scale. Its cooperation with Skechers in thesportswear segment enjoys promising prospect with desirable profit margin,while other brands, such as Kanglong and Redess, are also growing steadily, 2)the company’s channel optimization efforts have had obvious effects, andfuture upside will heavily depend on increase in operating area and yield persquare meter from large stores, 3) its cooperation with Lightinthebox bodes wellfor sales growth in overseas markets and cleanup of inventories. Althoughprofitability of Lightinthebox is currently fluctuating amid the businesstransformation, which is expected to have some negative impact on Aokang’sinvestment return, cooperation between the two parties is proceeding smoothly. Lightinthebox is going to formally launch its international leftover sale platform,which, according to our estimates, will not only help Aokang liquidateinventories, but also build brands for Aokang in global markets in the mid tolong-term, laying solid foundation for the development of Aokang’s prospectivecross-border export business, and 4) the purchase of Aokang’s EmployeeStock Ownership Plan completed on 12 December 2014 with a lockup period ofone year. We revise up our EPS forecasts for Aokang to Rmb0.98, Rmb1.23and Rmb1.38 respectively over 2015-17. Maintain Buy.

Made in China 2025key technology focus released, topromote wide application of UAV The Advisory Committee of National Manufacturing Power-BuildingStrategy of the PRC (国家制造强国建设战略咨询委员会) recentlyreleased the key technology roadmap under the Made in China2025plan, which focuses on 10major high-end and strategicindustries including aerospace equipment, striving to excel or reachadvanced international standards by 2025. According to theroadmap, aerospace equipment worth approximately US$2tn will bein demand in 2025. Given China’s expanding airspace, domesticgeneral aircraft, market potential for helicopters and unmannedaerial vehicles (UAV) is huge. China targeted wide application ofUAV in the following areas by 2025: i) border patrol, ii) public orderand anti-terrorism, iii) agriculture, forestry, husbandry and fishing, iv)mapping, v) pipeline monitoring and maintenance, vi) emergencyand rescue, vii) photography and entertainment. We believe asChina is constantly making breakthrough in UAV technology, thegrowth prospect in areas such as patrol, search and rescue as wellas agricultural plant protection is rosy, with market size exceedingRmb100m. Strong forces join hands, leading technology in China Three core technologies of the company are flight control, rotarywing and engine-powered technology. Of which, the companyunderwent mass production of engine-powered model by modifyinghigh-capacity products, showing its state-of-the-art enginetechnology in China. A design team from Tsinghua Universityprovided the technologies for flight control and the fourth generationof rotary wing. Of which, the flight control technology is the mostimportant as it is deemed as the "brain" of UAV and the keybattlefield for future competition. Tsinghua University possessesleading edges in flight control technology for unmanned helicoptersin China, the control capacity of which is comparable to militarylevel. The pair’s collaboration will create synergy effect, whichenables the company to possess the most advanced UAVtechnology in China. Best choice in the area of UAV with its products enjoyingobvious competitive edges The XV series products of Loncin Motor cover areas such as borderpatrol, public security and anti-terrorism, agriculture, groundmapping, pipeline detection and maintenance, emergency rescue,etc. The UAV model XV-1, which is 5.2meters in length, 1.2metersin width and 1.3meters in height, is mainly adopted in specializedmarkets including investigation and search & rescue. With a maximumtake-off weight of 230kg, maximum task loading capacity of 50kg, maximumservice ceiling of over 3000m, maximum flight hours of over 3hours and acruising radius of over 100km, XV-1keeps pace with similar advanced modelsintroduced in global markets, and recently, its product information has becomeavailable on China’s military weapon equipment purchasing informationwebsite. The company’s specialized plant protection UAV model XV-2, which is4.88meters in length, 1.12meters in width and 1.4meters in height, isunrivalled in terms of flight accuracy control, drug loading capacity, and hovertime, taking a leading position in the domestic agricultural plant protectionmarket. Reiterate Buy. Maintain 6-month TP at Rmb30 2015marks the year of strategic business upgrade for Loncin, and we believere-rating of the company’s valuation has just begun, as UAV conforms to theagricultural informatization trend, while Loncin expands its electric vehiclebusiness into after-sale markets. We expect 2015-17E diluted EPS to beRmb0.97, Rmb1.08and Rmb1.22respectively. Reiterate Buy and maintain6-month TP at Rmb30, corresponding to 28x of 2016E PE. Risk factors China’s motorcycle sales slump. Development of strategic business may notprogress smoothly as expected.

1H15 net profit up 31.79%, beating market expectation. Anhui Jianghuai Automobile announced its interim results. For the sixmonths ended June 2015, the company’s turnover totalledRmb23.517bn, up 14.55% YoY. Net profit attributable to parentamounted to Rmb537m, up 31.79% compared to a year back, andcorresponding to EPS of Rmb0.40 per share, exceeding marketexpectation. The revenue growth was mainly attributable to surge inSUV and new energy vehicle (NEV) sales. The reason why net profitgrew even faster than revenue was the substantial increase ingovernment subsidies amid rising NEV sales. A great pick with NEV concept; sales pure electric cars up4.7x. In the first half of 2015, Anhui Jianghuai Automobile sold 2,692 unitsof pure electric cars, up 470% from a year ago, and surpassing thethat for the full year of 2014. It’s noteworthy that sales volume forJune and July was 1,022 units and 982 units respectively, whichmeans there is a big chance the figure will be even moreencouraging for the second half. According to the company’sstrategic layout for the new energy segment, NEVs will account forover 30% of its production and sales by 2025. Jianghuai Automobileis planning a Rmb4.5bn private placement, from which the netproceeds will be invested in new energy passenger vehicle,commercial vehicle and related key component projects. After theconstruction period ends two years later, its production capacity ofnew energy passenger vehicles, high-end and pure electrical lighttrucks will both reach 100,000 units per year, which will be highlyconducive to the achievement of the company’s NEV strategicplanning, improvement in profitability and increase in valuation level. SUV sales keep booming, launch of new models worthanticipating. In the first half, Jianghuai Automobile’s SUV sales soared 536% YoYto 110,000 units, accounting for 38% of its overall complete vehiclesales, and playing a big part in fuelling revenue growth. The salesvolume of flagship model Ruifeng S3 was 92,000 units, skyrocketing891% YoY, and continuing to top all other compact SUV models. Inorder to further strengthen the company’s competitive edges in theSUV market, Ruifeng S2 will be launched soon. As the success ofRuifeng S3 consolidates the company’s brand image in the SUVsegment, we expect Ruifeng S2, which is highly similar to Ruifeng S3except for the smaller size, will win recognition from consumers andenjoy strong sales momentum. If so, Jianghuai Automobile’s marketshare in the SUV segment will expand further, which could guaranteethe swift growth in overall revenue. Initiate coverage with Buy, six-month TP at Rmb21. We expect Jianghuai Automobile to witness growth in both results and stockvaluation, given the gradual stabilization of the light truck business, theexplosive growth of SUV sales, and the remarkable development of the NEVbusiness. Excluding impact from the share placement, we expect thecompany’s net profit growth to be 108%, 37% and 32%, and EPS to beRmb0.75, Rmb1.03 and Rmb1.36 respectively over 2015-17. We initiatecoverage on the company with a Buy rating. Six-month TP is set at Rmb21,corresponding to 20x 2016 PE. Risk factor: SUV or NEV sales fall short of expectation.

Good company at good price amid overall market crash. Gehua CATV’s share price slumped 64% over 15 June to 9 July,approaching the price level before the trade suspensionannounced on 9 March 2015. In contrast, SSE Composite Indexretreated only 27.3% during the same period. We believe the stockhas been oversold amid market downturns caused by surgingmargin trading accounts. Gehua CATV’s strategic upgrade effortsand policy-driven fundamentals improvement are not reflected incurrent stock price. However, as market sentiment steadies, goodbuying opportunities gradually emerge, in our view. Starting from TV cinema to explore a Rmb100bn market. On 14 June 2015, Gehua CATV announced it will establish ChinaTV Cinema Operation Company jointly with China Film Group andAlibaba to tap into the aftermarket beyond cinemas. Gehua willtransfer the 62% stake it owns in the JV to 30 cable TV networkoperators across the country to form a cable network alliancecovering 200m users. We expect that starting from the area of TVcinema, the cable network alliance can also step into fields like bigdata, TV games, etc, to explore a new market with income of overRmb100m. Shanghai cultural reform ahead of Beijing, Gehua CATVmay benefit from favorable policies:Compared to Shanghai's cultural reform, Beijing as a pioneer in thecultural industry has taken no action. Anticipating Beijing will speedup cultural reform, Gehua CATV as a leading industry player islikely to benefit from favorable policies. We also expect proposedfees hike for cable TV after the price hike for Beijing subway andbus fares. The company’s net profit will grow by not less thanRmb275m, corresponding to EPS increasing by Rmb0.23. Initial coverage with a buy rating:We are optimistic about the company's strategic upgrade and thegovernment’s favorable policies. 2015-17E EPS is expected to beRmb0.70, Rmb0.94 and Rmb1.17 respectively, corresponding to2015-17E PE of 43/32/26x. Considering the market capitalization tobe boosted by the new cable network alliance business, we initiatewith a Buy rating at target price of Rmb45. Risk factors. Less-than-expected supportive policies. Risk arising from the development ofnew business.

Aokang announced setting up a Hong Kong subsidiarybuying 25.66% stake in Lightinthebox.com to be the majorshareholder. The company announced its intention to invest HK$20m to set upAokang International (Hong Kong) Co., Ltd.( 奧康國際(香港)有限公司) in Hong Kong to engage in investment and business activities. This could facilitate the company’s investment and mergers andacquisitions at home and abroad as well as cooperation withinternational brands, which helps expand its business scope andsale and distribution channels. According to the announcement, Aokang planned to acquire24,553,810 shares (including ordinary shares and Americandepository receipt), or 25.66% stake, in Lightinthebox.com at a totalconsideration of $480m in cash through its Hong Kong subsidiary tobecome the largest shareholder, without getting the de facto controlover Lightinthebox.com. Buy in Lightinthebox.com. Cross-border e-commercefacilitates Aokang’s Internet Plus transformation to expandoverseas market. Formed in 2007 and listed on the New York Stock Exchange in 2013,Lightinthebox.com focuses on cross-border export business, offeringthousands of multi-category commodities mainly in Europe andNorth America. The company's core products include clothing, homeaccessories and others. In 2014, Lightinthebox.com saw revenue and net profit of US$382mand US$-29.99m, while 1Q15 revenue and net profit wasUS$87.61m and US$-21.6m respectively. Revenue grew at 2012-14CAGR of 40%. The company attributed the loss to the depreciationof the euro and hefty investment in Internet technology(US$5m/quarter). Excluding the exchange rate factor, 4Q14 resultsbasically broke even, so the company may turn losses into profits in2Q15. From the operating data, the company’s repeat purchase rateis 45% (vs Globalegrow’s 38%), with the number of subscribersgrowing at 74%, and is a pioneer for e-commerce export. The acquisition is meaningful although Lightinthebox.com will makeno contribution to Aokang in the short term. Lightinthebox.com hasthe advantages in advanced Internet thinking, enriched Internettechnology and Internet marketing experience, with fast-growingtraffic and customer base. In contrast, Aokang has leading edges indistribution channel layout, supply chain management and network resources. The two will leverage their resources in traditional industry and theInternet to draw up the “Internet Plus” strategy for traditional industry, which willnot only expand Aokang’s overseas channels, but also create a new profitmodel through the Internet Plus concept. Government support for cross-border e-commerce operators,valuation on the rise due to business rarity and Internet Plustransformation. Premier Li said in a meeting held on 10 June 2015 that China will promote therapid and healthy development of cross-border e-commerce, and achieveoptimization of exports and imports through “Internet Plus Foreign Trade”. Thegovernment encourages optimization of custom clearance process, tax creditand exemption policies for cross-border e-commerce retail exports,cross-border electronic payment, provision of custom clearance, storage andfinancing services to e-commerce operators by foreign trade conglomerates,and expansion of marketing channels, e.g. overseas warehouses, experiencestores, etc, by e-commerce retail export companies. E-commerce operators areencouraged to establish self-owned brands and in-house platforms, and importsof consumption goods should reasonably increase, according to Li. At present, China’s cross-border e-commerce market is still a blue ocean withan estimated market size of approximately Rmb20bn, and with industry leaderscapturing a combined market share of only around 1%. Given the continuousintroduction of supportive policies, we expect the market to enjoy annual growthof 30% in the future. Given lack of cross-border e-commerce investment targets, Aokang’s move toacquire stake in cross-border e-commerce leader LITB (Lightinthebox.com) isindicative of its ambition in Internet Plus Transformation, and the establishmentof a Hong Kong subsidiary lays foundation for future acquisitions. Aokang hastaken the lead to survive the men footwear industry trough through directoperation and establishment of international outlets. Aokang’s self-operatedbusiness has begun to register positive SSSG since May 2014, and thecompany announced its employee stock ownership scheme last October. Materialization of the long-awaited acquisition scheme gives further boost tomarket confidence. We maintain our EPS estimates at Rmb0.87, Rmb1.02 andRmb1.2 over 2015-17, and our Buy rating on Aokang. Our first market captarget for Aokang comes in at Rmb25bn. Risk factor: Inadequate integration after acquisition.

Event: 1. Tongwei Co. said in an announcement that it plans to issue232m shares to original shareholders of Tongwei New Energyand Yongxiang Co. at Rmb8.84 per share in order to acquire100% interest of Tongwei New Energy from Tongwei Group, aswell as 99.9999% stake of Yongxiang Co. from 17 corporations,including Tongwei Group, Giastar Group, etc, and 29 naturalpersons, including Tang Guangyu, etc. After the transaction, thestake of Tongwei Group will fall from 57.35% to 43.72%, and LiuHanyuan, chairman of Tongwei Group, will continue to be theactual controller of Tongwei Co. 2. Tongwei Co. plans to issue 219m shares to 10 specific investorsthrough a private placement, and the majority of net proceeds ofapproximately Rmb2bn from the placement will be used topromote the development of various PV power generationschemes under Tongwei New Energy, such as the fishery + PVintegration project, the agriculture + PV complementationproject, and the roof-top power station project in rural areas, etc. The remaining proceeds will be used for cash flowreplenishment, capital operation maintenance, etc. Targeting leading players in the PV industryFounded at the end of last year, Tongwei New Energy is a subsidiaryspecialized at development of agricultural PV power stations with astrong PV power generation technological team. Yongxiang ownstwo segments, namely the new energy segment and the chlor alkalichemical segment, with annual polysilicon production capacity of15,000 tonnes. It takes a leading position in the industry measuredby comprehensive energy consumption of polysilicon unit product,thanks to the circular economy business model covering causticsoda, PVC, polysilicon and cement. Green business model integrating PV and agricultureTongwei Co. is a leader in the aquaculture feed market withabundant agricultural and land resources, such as fish ponds. Thecompany targets to explore new commercial cultivation models onthe basis of “smart fishery” and “fishery + PV integration”, in a bid toboost profitability through multilevel cultivation. To be specific,Tongwei New Energy will construct PV power stations on thecompany’s farmland assets to develop green energy-basedagriculture portfolio integrating PV power stations and fish farmingbusinesses. Meanwhile, the new power stations can help absorbpolysilicon production capacity of Yongxiang, boding well forone-stop operations throughout the industrial chain. Integration ofquality resources across different fields will enable the company toown obvious competitive edges. Earnings forecasts and valuation: We expect net profit attributable toparent of the company’s original agricultural business to be Rmb500m,Rmb630m and Rmb770m respectively over 2015-17, and promised netprofit of target PV assets is Rmb90m, Rmb220m and Rmb320mrespectively for the three years. We give the PV business and agriculturebusiness 2016E PE of 35x and 25x respectively, corresponding to areasonable market cap of Rmb23.5bn. Taking into account of the dilutioneffect of 1.268bn shares of capital stocks after the private placement, wegive Tongwei Co. a Buy rating with a TP of Rmb18.49. Risk factors: The private placement might not be approved.

Commentary on major asset restructuring proposal。 Event: The company announced on 4 May: 1) the valuationadjustment mechanism (VAM) for as business performanceindicator, guaranteeing its acquiree Jieer Medical’s cumulative netprofit will be no less than Rmb1.85bn from 2015 to 2020; 2) thechange in composition of the board of directors (the “Board”) byincreasing the number of directors from five to nine, with one newindependent and three non-independent directors. Jieer Medical’s VAM in force for six years。 Jieer Medical is committed to contributing a total net profit ofRmb1.85bn between 2015 and 2020, translating to Rmb130m,Rmb220m, Rmb300m, Rmb370m, Rmb410m and Rmb420m ineach of the six years respectively. In case the target profit asguaranteed is not met, it will pay a compensation equal to:(period-end guaranteed cumulative net profit - actual cumulative netprofit)*1.16. Of which, the factor of 1.16 = consideration(Rmb2.15bn)/ guaranteed net profit (Rmb1.85bn). We believe that although the Affiliated Hospitals of Chongqing ThirdMilitary Medical University under Jieer Medical was newly built, netprofits could be guaranteed under the VAM for the first six years,after which its business model will be well-developed, so profitabilitycan be secured. Homyear enlarged Board composition and integratedbusiness into four segments, aiming to develop as a group。 Homyear’s Board currently consists of a total of five directors,including two independent directors. After the expansion, the totalnumber of director will be increased to nine, including threeindependent directors. The enlarged Board composition favors thecompany’s business expansion. Homyear planned to develop as a health management group withinthree to five years to tap into the upstream and downstream medicalbusinesses. Through the acquisition of Jieer Medical, it will ownmidstream assets including hospitals and equipment distributionbusiness. The yet-to-inject assets of Chongqing Healthy Medicinewill be a highlight, which mainly include the pharmaceutical industry,pharmaceutical commerce and supply chain. The company’sexisting business segments lay a foundation for it to operate as agroup. Strongly optimistic: Annual general meeting (“AGM”) on 25 May tobe Homyear’s turning point。 Homyear will discuss the following key proposals at the AGM: 1) renaming ofthe company; 2) amendments of constitution; 3) assets restructuring plan; and4) approval of Haiso’s investment sum of Rmb5bn. We are upbeat about thecompany’s outlook once the proposals are approved at the AGM and in viewof the improved balance sheet due to the company’s new “health + finance”strategic layout. Taking into account Jieer Medical, we expect the company’s2015-17E EPS to be Rmb0.95/0.80/0.95 respectively, corresponding to2015-17E PE of 18/21/18 times. Risk factor:Asset consolidation may proceed slower-than-expected.

Event: The company announced the acquisition of 62.5% stake inBingjun Network at a consideration of Rmb125m and capital injection ofRmb50,000,000, after which the company shall hold 70% stake inBingjun Network. Bingjun Network, a pioneer in digital marketing:Bingjun Network is the first network service provider to focus on socialmedia. It provides clients, including small and medium enterprises in theworld and small and medium sized websites, with different kinds ofnetwork marketing plans. Products include Bingjun WeChat platform(with light applications on WeChat, such as customer relationshipmanagement, appointments, customer services, meetings and forums),micro hardware (routers, point of sales, receipts machines), marketingchannel agent and X-chuanbo (Weixin-operated service). After twoyears’ development, Bingjun serves more than 180,000 brandedenterprises in 325 cities through Bingjun WeChat platform. Internet strategy to derive more income from customers:2015 is a crucial year for the company to implement its “corporateInternet” strategy. Its 2-million clients will form the basis for it toimplement the strategy, so as to increase income sources by enhancingthe services provided to corporate clients through mergers andacquisitions (“M&A”). The company could combine the acquiree BingjunNetwork’s edges in digital marketing with its vast clientele, which canfurther promote its corporate Internet strategy. Recommendation:Users on the company’s Internet platform are highly-loyal active users. The company may derive additional income from the data accumulated. Evolving from a traditional software company, the company’s valuation isbe raised to that of the Internet companies. It set up a strategicinvestment department to speed up the implementation of its planthrough strategic M&A. We expect its 2015-17E EPS to be Rmb0.55,Rmb0.71 and Rmb0.95 respectively. Maintaining “Buy”. Risk factor:Slower-than-expected development of new business.

Event: The company published its 2014 annual report. Operatingincome was Rmb120.9bn, up 18.5% YoY. Net profit attributable toparent was Rmb2.51bn, down 6.9% YoY, which was due to theincrease in minority interests. The company’s supply chain and corereal estate business continue to improve. Main business continues to expand; results retreatmarginally due to increase in minority interests。 In 2014, the company’s supply chain business firstly recorded arevenue of more than Rmb100bn, up 16.3% YoY, leveraging on its’sound enterprise resource planning (ERP) system and supply chainmanagement. According to existing growth rate, the scale of itssupply chain business is expected to reach Rmb120bn in 2015.The slump in results was due to the increase in minority interests.However, taking into consideration main business only, net profit(including minority interests) was up by 2.8%, which is reasonable ascompared with the approximately 3% growth in the past. All and all,the company's main business still saw positive growth in 2014despite falling bulk commodities prices and the flagging propertymarket. The company actively engaged in Internet Plus, shifting tosupply chain operation from supply chain financeThe company's original supply chain business mainly involvesbusiness-to-business (B2B) transactions of bulk commodities. Italso strove to promote supply chain trade via supply chain finance.In the 13th five-year plan period, supply chain finance will beupgraded to supply chain operation. As such, the company willenhance its logistics management, e-commerce and cross-bordere-commerce. It is well prepared to cater for the impact of the Internet on traditional industries, and may expand into the relatedfields. As a Fujian-based landlord, the company’s property businessfocuses on online-to-offline (O2O) real estate aftermarket. Ourstatistics showed that GFA sold by the company has reached 6.66mcu m since 2009. Of which, each of Fortune Alliance Group and C&DReal Estate was among China’s top 100 property developers.Meanwhile, customers attain relatively high satisfaction, so a goodcustomer base can be formed. Based on the above, the companyunearths potential upstream and downstream value, aiming toprovide community services, and will make relevant investmentshould the opportunities arise. Champion of offline trading amid Internet Plus; raise TP to Rmb26.0on appealing Rmb120bn turnover。 Traditional industries require strong sales channels and financial support tosmoothen supply chain operation business. The company is an industry pioneerin this area, with strong core advantages as compared with its peers. Emergingindustries need to rely on the Internet to expand channels and financing withoutbeing restricted by geographical barrier. The company is most likely to succeedamong all Internet Plus trading companies given its proactive approach andgood fundamentals. We expect its 2015-17E EPS to beRmb1.00/Rmb1.23/Rmb1.37 respectively, corresponding to PE of 18x/14x/13x.Maintain Buy.n。 Risk factor: Business restructuring proceeds at a slower-than-expectedpace.

Headquartered in Wuhan, Hubei Province, Huaxin Cement is locatedfavourably in the heart of China. The company’s cement productioncapacity approaches 60m tonnes, out of which 54% comes fromHubei. It has stepped into areas with high profitability, including Tibetand Tajikistan. Leveraging on its core businesses, Huaxin Cement isaggressively developing environmental protection businesses,including urban household waste treatment, etc, and the continuousoperation and expansion of environmental protection services willhopefully give a boost to its profitability and valuation, in our view. Higher beta (β): South Central China and East Chinaintegrate into the Pan-Yangtze River Delta region, with theHubei market seeing huge upside。 Hubei Province, the major production area of Huaxin Cement, hasintegrated with various provinces along the Yangtze River into thePan-Yangtze River Delta region. Relationship between supply anddemand has gradually improved in East China. Supposing thepositive sentiment is maintained there, that will be conducive tomarket climate in South Central China. Given falling input thanks toimprovement in external environment, diminishing negative impactfrom capacity growth for several consecutive years in Hubei (zeroimpact in 2011, 2013 and 2014), high market shares of CR1 andCR3, and the company’s strong voice in setting market prices as anindustry leader will prop up prices and enlarge results upside for theHubei division. Higher alpha (α) 1: Stepping into Tibet and overseasmarkets, results boosted by high profitability。 Huaxin Cement has taken the initiative to expand into areas wherethe local cement market enjoys high margins, such as Tibet,Tajikistan in mid-Asia, Cambodia in Southeast Asia, etc. The Tibetsegment has contributed profits for the company on a long-termbasis, and we expect overseas expansion to bring projects withhigh-profitability and guarantee steady results growth in the long run. As the 2000T/D project in Shigatse, 3000T/D project in Phnom Penhand 3000T/D project in Khudzhand gradually come into operation,the company’s results growth will be lifted over 2015-16, in our view. Higher alpha (α) 2: Environmental protection business tobe the new growth engine。 The company is mainly engaged in cement production, withtechnology development capability for waste co-processing incement klin. By the end of 2013, the company has 16 inventionpatents and 51 utility model patents (or "petty patents"). Its scope ofbusiness covers urban household waste, municipal sludge, floater,hazardous waste, contaminated soil, medical waste and food waste. Despite the currently small business scale, the company plans to expand itsenvironmental protection business. At present, the company's marketcapitalization only reflects its cement business. Environmental protectionbusiness will continue to grow in the coming years and become a growth engine,which could significantly increase the company’s valuation!n Earnings forecasts and recommendations:With optimal β and α coefficients, the company is a good pick for the cementsector. We are optimistic about the industry. Most provinces and municipalitiesin Central and Southern China regions fuel up the growth in the Pan-YangtzeRiver basin. Cement price and market performance of companies in Hubei seegreater upside potential. Individual stocks outperform. The company’s layout inhigh profit areas (eg. Tibet, Cambodia and Tajikistan) and new investmentcontinued to spur on growth, with environmental protection business as its newgrowth engine. We expect the company’s 2015-17E EPS to be Rmb1.20,Rmb1.50 and Rmb1.91 respectively with target price of Rmb18.0,corresponding to 15x 2015E PE. Maintain Buy.

Event In the evening of 12 Feb 2015, JCET announced it plans to establisha JV named Xinzhilian Science & Technology with Xinchao Groupand Jiangyin Xinzhilian Investment for the incubation of MIS newmaterial projects. JCET will hold 51% of the JV’s stake. MIS technology is an important part of the company’shigh-tech production capability The adoption of MIS packaging technology in gold-plated ballwelding features short distance, high electrical performance andstable quality. MIS packaging technology can achieve high-densityand multi-pin input and output, being an easy replacement to BGApackaging technology under the form of output pin outside the plasticpackage body, and being able to cut costs by over 30% comparedwith BGA packaging. MIS material is a core link in the MIStechnology chain. The establishment of Xinzhilian Science & Technology can facilitatethe industrialization of JCET’s new MIS packaging materials andbring a new profit point for the company. We believe JCETtemporarily chooses to cooperate with other parties to set up the JVin a bid to cut capital expenditure, and we don’t exclude thepossibility Xinzhilian Science & Technology would be fully injectedinto the listed company after the business becomes profitable. Positive impact from the STATS ChipPAC acquisition After completion of the STATS ChipPAC acquisition, consolidatedrevenue of JCET and STATS ChipPAC in 2014 will reachapproximately Rmb15bn, which is neck-to-neck with Taiwanesecompany SPIL. Their customer base and technical level are gettingclose. Market cap of JCET shall increase to between Rmb15bn andRmb20bn with reference to comparable companies. Acquisition ofSTATS ChipPAC, JV company BUMPING with SMIC, and jointlyownership of MIS with parent company and management have bettergovernance structure, which helps improve results. Maintain Buy with TP of Rmb16.00 We believe as integrated circuit segment is the cornerstone ofdevelopment of the whole electronics sector and a pillar industryrelated to national security and economic transformation, moreaggressive supportive policies will be introduced, boding well forcompanies across the industry chain. As an IC packaging and testingindustry leader, JCET’s acquisition of STATS ChipPAC featuresreasonable valuation and high synergy, which could optimizecapacity utilization with economies of scale. Exponential growth isexpected. We expect JCET’s net profit to be Rmb200m, Rmb397m and Rmb539m, orRmb0.20, Rmb0.40 and Rmb0.55 per share respectively for 2014-16. Maintain“Buy” with a TP of Rmb16.00. Risk factors Tepid macroeconomic environment. Lacklustre downstream demand. Weakerthan expected synergy after the acquisition. Mismatch of management stylesafter cross-border M&A scheme.

Event: The company announced that 60% stake in Jiangsu Sanming New Energywere transferred to and held by it through equity transfer and capital injectionat a consideration of Rmb177m. The transferor guaranteed sales volume ofsteam and after-tax net profit to be not less than 800,000 tons/year andRmb30m/year in 2015 and 2016. Expanding target market for pulverized fine coal business:The company announced earlier the construction of new steam (heat)centers at Guangrao and Yishui. The acquiree Jiangsu Sanming operatesestablished heat supply centers in industrial zones, with steam volumeassured after boiler replacement and upgrading. We expect targets of itspulverized fine coal business to be steam centers in new industrial zones,heat supply in mature industrial zones and boiler upgrading in existing heatsupply centers. n Jiangsu Sanming’s performance to improve:After the acquisition, Jiangsu Sanming’s existing boilers will be retooled topulverized coal-fired boilers. Operating efficiency will improve in thepresence of Yili’s management. As industrial zones expand and steamconsumption increases, Jiangsu Sanming may expand capacity afterupgrading existing boilers, and its earnings may go up. n Acquisition of Jiangsu Sanming: Prelude of 2015 projects:“Two Policy Shifts” expedited upgrading of industrial coal-fired boilers in2015, and pulverized coal-fired boilers are the best option to reduceemissions from industrial boilers. Yili Energy has edges in terms ofresources, technology and financing. Its clear positioning as operatorenables it to stand out from the crowd. Pulverized coal-fired projects providestable profitability, which will open up great room for growth. Maintaining Buy: We are optimistic about the market potential and policies tightening ofpulverized coal-fired projects in the long-term. Projects getting off the groundwill be Yili’s short-term catalyst. We expects its 2014-16E EPS to beRmb0.19, Rmb0.20 and Rmb0.51 respectively. Maintain Buy. Risk factors Slower-than-expected project progress; lower-than-expected operatingefficiency of steam centers; adverse impact on the development of cleancoal utilization business due to sharp plunge in prices of alternative energysuch as natural gas.。