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.。