Opens up new avenues of growth.Luenmei Quantum, a heat supply specialist,bought out rivals Guohui New Energy and Shenyang Xinbei Thermoelectricin 2015, and in so doing, expandsits heat supply area from 19.8mn sq. m to 40mn sq. mand branchesout into clean and renewable cogenerationand engineering. Revenues and profits buoyed byM&A. Heat supply/heat network connection used to account for above 70%/20% of Luenmei Quantum’s annual revenue, which grew at a CAGR of 16.89% from RMB406mn in 2011 to RMB758mn in 2015, and jumped 16% YoY to RMB2.044bn in 2016 after integration of the acquired assets, continuing the momentum into the first three quarters of 2017, up 18.87% YoY at RMB1.338bn.Accordingly,net profit attributable to the parent climbed from RMB82mn in 2011 to RMB177mn in 2015-albeitwithslowing growth-and surged52.00% YoY to RMB699mnin 2016beforefurther leaping56.83% YoY to RMB467mn in 1Q-3Q17, significantly boosted by highmargin new businesses. Strong balance sheet.Luenmei Quantumboasts a long-term record of consistent, above-average results, maintaining positive operating revenue/net profit growth ratesduring the 2011-2016period, a rarity in the industry. The company’s 2016gross margin/net profit margin/ROE stood at 46.62%/35.01%/28.17%, far outperforming its peers. Selling/Administrative/Financial/Period expense ratio came in relatively low comparedto its competitors’at 0.04%/6.50%/-5.50%/1.04%for the first three quarters of 2017, exhibiting effective cost control. Earnings forecast.We estimate Luenmei Quantumto realize operating revenue of RMB2.726bn/3.285bn/3.764bn for 2017-2019, corresponding to RMB902mn/1.133bn/1.281bn in net profit attributable to the parent, and EPS of RMB1.33/1.67/1.88. Initiate coverage withBuy.

Strong momentum. C&S Paper, one of the “Big Four” tissue papermanufacturers in China, has been enjoying brisk growth since 2015, withoperating revenue/net profit gaining 17.34%/30.66%, 28.74%/195.27%and 19.85%/47.81% in 2015, 2016 and 1H17, respectively. China tissue paper market. Tissue paper consumption in China grew at arobust CAGR of 10.53% from 390,000 tons in 1985 to 8.68mn tons in2016, with the percentage of toilet paper shrinking from above 90% toaround 60% while facial tissue quickly picking up the slack. The Chinesetissue paper market is currently worth around RMB90bn, and looks setto grow at a pace of 8%-10% going forward, with non-toilet tissue beatingthe broader industry advancing at an estimated 15%-20%. Looking ahead, C&S Paper’s sustainable growth hinges on four aspects. (1) Profitability. The company has raised the proportion of its high grossmargin non-toilet tissue products to 53.54%, with its deluxe “NaturalWood” series selling at a premium of 30-40%. (2) Capacity. On top of acurrent capacity of over 500,000 tons, some capacity expansion projectsare to kick off in the near future targeting the high-end segment. (3)Marketing. A more than 1,000-strong marketing team (many of thempoached from its rival GHY Paper) alongside over 1,700 dealers reach outto nearly 2,000 Chinese cities. (4) Incentives. Stock incentive plans areput in place to boost business performance. Peer comparison. C&S Paper focuses on tissue paper, targeting differentconsumer groups with different offerings. The company has created aretail fortress through strategic partnerships with supermarket chainssuch as Walmart, Carrefour and PARKnSHOP. Hengan (1044 HK) ispursuing a flattened operational model featuring full delegation anddecision-making autonomy. Vinda (3331 HK) is branching out into newareas such as paper diapers and sanitary towels. GHY Paper, a subsidiaryof APP, one of the world’s largest pulp and paper companies, enjoysstable raw material supply and strong sales channels throughout 160countries and regions on the back of its parent’s support. Investment guidance. C&S Paper provided a guidance of RMB217mn-272mn for net profit attributable to the parent for the first three quartersof 2017. We project the company to net a profit of RMB353mn/465mnfor 2017/2018, up 35.6%/31.7% YoY, corresponding to EPS ofRMB0.47/0.61 and 30x/23x PER. The company currently has a valuationof RMB10.6bn. Maintain Buy. Risk factors. Pulp price uptrend might carry forward while industrycompetition remains intense.

Broadband-Narrowband convergence and emerging markets major catalysts for global private network growth over the next seven years.Analog and digital communications respectively underpinned 55%and 41%of the global private network market in 2016, with analog expected to contract to 32%and digital expand to 61%by 2020, accordingto IHS. Theswitch from analog to digitalin recent yearshas boosted revenues for private network system and terminal providers, while the next seven years will see broadband-narrowband convergence and emerging markets pick up the baton todrive the next wave of growth, with global broadband private network market size anticipated to advance at a CAGR of over 23%to USD2.6bn by 2020, and emerging markets in regions likeSouth America, countries along the Belt and Road and Africa estimated to be worth an aggregate RMB150bn for years to come. Hytera, one of few companies in the world that can providea full suite of cutting-edge Professional Digital Trunking (PDT), digital mobile radio (DMR)and Terrestrial Trunked Radio (TETRA)products and solutions,is poised for solid growth over the next two yearson the back of: (1) its predominant position in the public safety field; (2) rising market shares in the metro transportation and commercial sectors thanks to its leading DMR/TETRA technologies; (3) continuously high input into R&D to shorten the gap with broadband system vendors; and (4) an extensive global sales network of nearly 1,000 dealers around the world.We thereby projectHytera to reach a revenue of RMB5.4bn/7.7bn in 2017/2018, up 58%/41% YoY. Recommenda Buy rating. Risk factors:(1) rivalslike Huawei and TD Techwill keepchipping away atHytera, in our view; (2) expansion in the European private network market may be held back by fiercecompetition; (3)Sepuramay continue to lose money if its integration misses expectations; and (4)Motorola Solutions’s ongoing patent actions against Hytera in the US, Germany and Australia expose Hyterato substantial claimsrisks.

A leading provider of smart operating system solutions. While mobile chips are headline-grabbing, mobile operating systems play an equally critical part in the mobile Internet industry chain. Thundersoft, a leading provider of smart operating system solutions, enjoys a clear advantage in terms of operating revenues and gross margins compared with its A-share competitors. Moreover, it counts global chip giants Qualcomm and Spreadtrum as its shareholders. The two currently contribute to more than 20% of Thundersoft’s total operating revenue. Sustainablegrowth on transformation.To preempt a revenue plateau, Thundersoft launched the Strategic 2.0 initiative in 2012, featuring stand-alone software products and standardized modules and starting to charge customers based on volume instead of projects to unlock smart hardware growth potential and improve gross margins. Smart hardware was responsible for RMB128mn of Thundersoft’s operating revenue in 2016, a massive YoY growth of 373.85%. Acquiring into the in-vehicle system industry. Thundersoft bought out APPSYS and Huichi Technology in Apr. 2016 for RMB102.6mn in cash-both are experts in pre-installed IVI systems, and pushed deeper into the in-vehicle system market by taking over Rightware, a world famous producer of in-vehicle digital instrument clusters. Thundersoft’s in-vehicle system business brought in an operating revenue of RMB46.2031mn in 2016, up 68.88% YoY. Profitability forecast. We estimate Thundersoft will notch up an operating revenue of RMB1.07bn/1.316bn for FY17/18, corresponding to a net profit of RMB138mn/175mn and EPS of RMB0.35/0.43. Recommend an Outperform rating. Risk factor. Smart hardware partners’ shipments may fall short of expectations.