LONGi realized 3Q20 net profit of RMB2,240mn; beat our expectation. TheCompany continued to deliver outstanding GPM from wafer and module at above30%/20% respectively, despite the fact that poly-si and PV glass priceexperienced substantial hike during the quarter. We think LONGi’s supply chainmanagement and insight to the market helped sustain its leading profitability. Looking ahead, we expect LONGi to accelerate wafer and module sales to 2.6bnpiece and 5.8GW respectively. We raise FY20-22E EPS forecast by 8.2%-30.0%to RMB2.25/3.10/4.06, respectively. Our TP is lifted to RMB90.0 based on29.0x FY21E PER. Maintain BUY. 3Q20 results beat again. 3Q external wafer/module shipment surged 23.7%/114.6% respectively to 1.57bn piece/5.91GW. Major expenses weremaintained stable, while net financial turned negative as LONGi employedhigher debt. Operating cash flow exhibited strong rebound as bills receivablesaccumulated in 1H20 were released during the quarter, and advancedcustomer payment from domestic clients were mostly paid in cash due totightened module supply. 3Q20 net profit was RMB2,240mn, up 51.9% YoYand largely flat QoQ. In 9M20, LONGi realized net profit of RMB6,357mn, up82.4% YoY, accounting for 81% of our previous 2020E earnings estimates. Supply chain management was a key highlight in 3Q20. Poly-si priceexperienced a sharp hike from Jul after supply disruption in Xinjiang. LONGiwas able to manage supply shortage impacts through building low costs poly-si inventories in 1H20, and signing long term purchasing as well as upstreaminvestments contracts to secure poly-si supply. For PV glass, we think LONGitook similar measures as poly-si, and the Company also intends to developmore new suppliers with incentives such as large-scale order or directinvestments. Mgmt. disclosed 3Q20 GPM of wafer/module were above30%/20% respectively, which were higher than our expectation. GPM guidance to remain stable in 4Q20. LONGi had lifted wafer price forseveral times in view of poly-si price hike. Mgmt. remained confident tomaintain wafer sales profitability with pricing adjustments as low costsinventories were consumed. For module end, we think LONGi will be able topass through majority of poly-si and PV glass costs change to downstream PVfarm developers. Overall, we think LONGi will be able to sustain its profitability.

Net profit gained 3%% in 9M20. Revenue and net profit slightly increased by 5.1% to RMB117.4bn and 2.9% to RMB13.2bn in 9M20, respectively. Gross margin slightly retreated by 1.9ppts to 34.0% in the period but stood at the high level among peers. The Company managed cost well. Selling expenses declined by 3.6% to RMB3.3bn and administrative expenses only gained by 2.0% to RMB3.2bn in the period. So net profit margin only lost 0.2ppts to 11.2% in 9M20. Outperformed contracted sales. Contracted sales amount and area increased by 5.9% to RMB367.4bn and 6.6% to 24.44mn sq m in 9M20, respectively. It is better than the national property sales performance of 3.7% (in amount) and -1.8% (in area), respectively. We believe the leading brand name would support its sales job. And we expect it to achieve another record high contracted sales in 2020, compared with RMB461.8bn in 2019. Healthy balance sheet secures long term growth. Poly Development is a SOE and enjoys a lower funding cost. In addition, it has a healthy balance sheet. Net gearing ratio and cash/ST debt were 71% and 1.9x as of 30 Sep 2020, respectively. Furthermore, total liabilities/total assets (after deduction of contract liabilities) was 0.67x as of 30 Sep 2020. So Poly Development passes the recent new capital test. The Company gains advantage for its long-term growth because it can be better utilitizing debt financing. 211m sq m attributable land bank. The Company acquired 88 projects with total GFA of 19.82mn sq m with total considerations of RMB131.4bn in 9M20. In the same period, New starts GFA amounted to 38.39mn sq m. As of 30 Sep 2020, GFA under development and for future development were 140.2mn sq m and 70.8mn sq m. So total attributable land bank of 211mn sq m is sufficient for next five years development. Maintain TP and forecast unchanged. We maintain our earnings forecast unchanged. We forecast net profit to be RMB33.0bn in 2020 and RMB38.4bn in 2021. Our target price is RMB22.16, based on 8.0x 2020E P/E. Maintain BUY recommendation.

GWD’s 9M20 earnings reached RMB2,069mn, with earnings growth acceleratedfrom 7.6% in 1H20 to 30.1%. Well performed earnings release was mainlyattributable to WTG sales of 4,216MW during 3Q20. 9M20 WTG sales reached8.3GW, on track to 10-12GW external shipment guidance. For GPM of WTGsegment, mgmt. express some improvement from costs saving measures, andmaintained full year target to improve GPM to ~15% unchanged. We think GWDwas largely on track to our projection of GPM rebound. We lift TP by 18.4% toRMB13.58 based on 14x FY21E P/E multiple. Upgrade to BUY rating. 9M20 earnings surged 30.1% YoY. Strong 9M20 results were mainlyboosted by accelerating WTG shipment, which brought a 3Q20 revenuegrowth of 95.6% YoY. Major expense to revenue ratios remained steady,while investment income was read high comparing with 3Q19. Quarterearnings was RMB794mn, up 95.5% YoY. In 9M20, the Companyrecognized RMB549mn impairment losses mainly from provisions forreceivables and inventories in 9M20, yet earnings was still readRMB2,069mn, up 30.1% YoY. WTG shipment on track, guiding 10GW shipment in 2021E. WTGexternal shipments were 8,316MW in 9M20, up 58.6% YoY and implying2Q20 WTG shipment of 4,216MW. We think GWD’s sales pace is on trackto 12-14GW shipments in 2020E. For 2021E WTG demand outlook in China,mgmt. thought 30GW market size would be reasonable based oncommunications with major wind farm developers. GWD expected to seize30% market shares, implying a shipment target of 10GW in 2021E. Improving product mix to drive further GPM recovery. The Companywas on a graduate pace in margin recovery based on improving price/coststructure in 9M20. Looking ahead, as WTG tender prices are declining in thegrid-parity era, we think product mix upgrade towards larger scale productwill be the key driver leading to further GPM recovery. With reference toGWD’s 3Q20 WTG shipment and order backlog, we observed significantchange product mix. We think GWD still has potential to improve its WTGprofitability despite pressures from tender prices. Raise TP to RMB13.50 based on 14x P/E roll over to FY21E. We liftedGWD’s FY20E EPS forecast by 13.5% to RMB0.74 based on revision oninvestment income. Our outlook for FY21-22E remains largely unchanged. Given recent strong market sentiment longing for supportive renewablesdevelopment policies in 14th FYP period, we lifted GWD’s target P/E multiplefrom 12x to 14x and rolled over valuation to FY21E. Our TP is lifted 18.4%to RMB13.50. Upgrade to BUY rating.

3Q20 NP +24% YoY to RMB2,289mn, 9% above consensus due toRMB94mn/82mn YoY increase of fair value gain/other income. The 10% shareprice drop last Friday was partly because share price already ran ahead of 3Q20results release. Share price jumped 9% from 23 to 29 Oct (vs MN’s 1% drop). Wethink Yili will implement four measures to offset raw milk pressure, and thereforewe kept FY21/22E NP estimates unchanged. We expect Yili would continue tobenefit from industry consolidation. Maintain Buy. 3Q20 NP beat but GPM missed. Revenue rose 11% YoY in 3Q20, which isin line with consensus and our expectation, led by 19%/10%/1% growth ofmilk powder/liquid milk/ice-cream segments. GPM fell 1.3ppt to 34.7%because of 6-7% raw milk price growth (RMB4.5kg in 3Q20 vs China ModernDairy’s ASP ~RMB4.2/kg) and dilution by Westland. That said, sellingexpenses ratio fell 1.4ppt to 20.5%, offsetting the impact of GPM decline. Four measures to offset raw milk pressure. Management expects raw milkprice to grow by high single-digit in 2H20E and increase further in FY21E. (1)Reduce discount promotion: Our sources of channel check found retailprices of Satine rose to RMB65 in second half of Oct (highest level since Feb)and so did MN’s Milk Deluxe (Figure 4 & 5). Management expects the sectorwould be more disciplined in promotions. (2) Control raw milk source: Yilibecame the largest shareholder of Zhongdi (1492 HK) in Sep and its associatecompany, Youran, bought two farms from Fonterra China in Oct. (3) Productinnovation: For example, Ambrosial launched a high-end 5G protein in Augand Satine will launch a high-end 4.0g UHT milk in 1Q21. The retail price/gramof 5G protein is more than double of Ambrosial original favour (Figure 6 & 7). (4)Improve efficiency of selling expenses: Selling expenses ratio fell 0.9ppt to22.7% in 9M20 through more precise marketing such as online advertising. It’s12.3% A&P exp. ratio in FY19 was higher than many major consumer names(Figure 9). As dairy sector leader, we think Yili has room to improve efficiency. Management expects slight drop of selling expenses ratio in FY21E. To become global top three dairy company in 2025. The Company targetsto become global top 3 dairy players in 2025 and the largest player in 2030. In the 14th five year period, Yili will strengthen its leadership and growth indairy sector, while sales contribution by non-dairy products and overseasmarket will not be significant. At a 10% sales CAGR in 2019-25, we believeYili could reach top 3 in 2025 (Figure 8). Maintain Buy. We lifted FY20E NP by 4% to reflect strong 3Q20 results andmaintain our NP estimates in FY21/22E. Our TP is kept at RMB45.90, stillbased on 32x FY21E P/E. Catalysts: better-than-expecte

Weichai’s 3Q20 net profit came at RMB2.4bn, up 37% YoY. The results areencouraging as (1) revenue surged 48% YoY which is above expectation, (2)gross margin rebounded 1.7ppt QoQ which should ease market concerns. Wesee several positive drivers going forward: (1) Management is confident ofachieving sequential gross margin improvement in 4Q20E; (2) Latest guidanceof KION (KGX GR) offers improved visibility; (3) New business growth is on goodtrack. We raised our earnings forecast in 2020E-22E by 2-5%, due mainly tohigher sales volume assumptions. Our SOTP is lifted from RMB16.8 to RMB17.9,after rolling over the base year to 2021E. Maintain BUY. Key highlights on 3Q20 financials. Weichai’s revenue surged 48% YoY toRMB52.9bn. Based on our calculation, Weichai’s revenue from core business(ex-KION) surged 90% YoY to ~RMB36bn, while KION’s revenue slightlydropped 4% YoY to EUR2.07bn. Blended gross margin in 3Q was 19.3%,down 3.5ppt YoY but up 1.7ppt QoQ. Weichai maintained good expensecontrol with SG&A ratio continued to reduce YoY. Net profit grew 37% YoY toRMB2.4bn. It’s worth noting that KION reported adjusted EBIT/net profit ofEUR159mn / EUR82mn in 3Q20, representing a significant recovery from anet loss of EUR17mn in 2Q20. Engine sales volume +90% YoY in 3Q20. In 3Q20, total engine sales volumegrew 90% YoY to 260k units. Among this, HDT engine surged 100% YoY to120k units, with market share increasing 2.5ppt YoY and 4ppt QoQ. LDTengine surged 2x YoY. New business on good track. In 9M20, large-bore engine, mainly installedfor data centers, grew 30% YoY to 2.5k units. Revenue from hydrauliccomponent grew 40% YoY in 9M20. Positive management guidance: (1) Volume of gas engine model with lessusage of precious metals will further increase in 4Q20E, which will drive grossmargin sequentially; (2) Sales volume of engine to Sinotruk (3808 HK, BUY)is expected to accelerate; (3) Amid the latest city lockdown in Europe, KIONis still expected to deliver EUR101-181mn of adjusted EBIT in 4Q20E. Inparticular, KION’s supply chain solutions will continue to benefit from e-commerce project growth.

Strong growth acceleration in 3Q20. WuXi AppTec reported third-quarter revenue of RMB4.58bn, up 35.4% YoY, Non-IFRS net profit was up 44.3% YoY to RMB958mn. Attributable net profit decreased 8.1% YoY to RMB651mn, mainly due to foreign exchange loss. Third-quarter has achieved significant growth compared to the first half of 2020, where China-based laboratory services, CDMO services, US - based laboratory services and Clinical research & other CRO services realized 38.9%/ 54.9%/ -13.5%/ 16.8% YoY change in revenue. CDMO and China-based lab service continue to be major growth driver. CDMO service and China-base lab service recorded a YoY growth of 54.9%/ 38.9% in 3Q20 and 36.5%/ 30.9% in 9M20. Such strong performance offset the challenges faced by the US-based laboratory services due to the COVID- 19 pandemic. Thanks to follow-the-molecule strategy, the Company added 440 new molecules into its CDMO pipeline YTD and total CDMO pipeline has grown to more than 1,100 active projects, including 26 commercialized projects, 42 Phase III projects. During the same period, WuXi AppTec has submitted IND filings for 18 new chemical entities (NCE) for its customers and obtained 20 CTAs in China. Cumulatively, WuXi AppTec has submitted 103 NCE IND filings with the NMPA and obtained 77 CTAs including 1 project in Phase III clinical trial, 9 projects in Phase II clinical trials, and 56 projects in Phase I clinical trials. Globalization strategy to enable innovation worldwide. YTD, WuXi AppTec added over 900 new customers and provided services to a wide range of over 4,100 active customers, including all the top 20 big pharma companies worldwide. In 9M20, overseas customers contributed 76.4% of total revenue, while China customers accounted for 23.6% of revenue, representing a YoY growth of 25.3% and 34.4%, respectively. Driven by the “long-tail” strategy, “Long-tail” & China customers 67.2% of total revenue, up 28.4% YoY in 9M20. We lifted SOTP-based TP from RMB131.98 to RMB139.05 to reflect strong long-term growth outlook for WuXi AppTec. We forecast WuXi AppTec’s adjusted Non-IFRS attributable net profit to grow by 35%/33%/32% YoY in FY20E/21E/22E respectively, and attributable net profit to increase 85%/22%/32% YoY in FY20E/21E/22E. Moreover, WuXi AppTec maintained a diversified investment portfolio which will bring significant investment gains over the long term.

SANY Heavy’s net profit in 3Q20 grew 57% YoY to RMB3.86bn, in line with ourexpectation. We feel comfortable with our full year estimate and we are stayingpositive on SANY Heavy due to the high visibility of machinery demand,continuous market share gain and on-track cost reduction driven by automationof production. We left our earnings forecast unchanged. Reiterate BUY with TPof RMB34.6 (based on 17x 2021E P/E). Key highlights on 3Q20 results. Revenue grew 55% YoY to RMB23.9bn in3Q20. Gross margin narrowed by 2.8ppt YoY to 30.4% but was more thanoffset by good expense control and operating leverage. Selling anddistribution expense ratio reduced 1.7ppt YoY to 5.1%. SANY boosted theR&D spending by 51% YoY to RMB1.28bn in 3Q and we believe thecontinuous spending growth will continue to help SANY widen its advantageover its competitors. Net profit margin slightly expanded 0.3ppt to 16.6%. In9M20, net profit grew 35% YoY to RMB12.4bn, accounting for 83% of our fullyear estimates (run rate in 9M19: 82%). Operating cash inflow increased by33% YoY to RMB11bn, largely in line with the net profit growth. Auto financing business consolidated in 3Q20 results. In Dec 2019,SANY announced to acquire 91.4% interest in SANY Capital (the autofinancing business) for a consideration of RMB3.38bn. The transaction wascompleted earlier and the auto financing business started consolidated inSANY’s financial statement in 3Q20. In 3Q20, the net interest income grew20% YoY to RMB104mn. We calculate that the net interest margin in 3Q20was 8.9% (annualized). That said, we do not expect the auto financingbusiness to be a profit driver as it serves the purpose of driving the machinerysales. Key risks: (1) Risk of overseas business due to pandemic; (2) Slowdown ofconstruction activities; (3) Risk of expanding to financing business.

Dingli’s net profit in 3Q20 grew 16% YoY RMB212mn. While the ramp-up of newcapacity, higher spending on R&D and FX loss partially offset the strong revenuegrowth of 63%, we believe Dingli’s growth trajectory remains solid. We expectproduction efficiency will be enhanced along with the rising output from the newproduction line. On the other hand, we understand that Dingli’s overseas sales atpresent is not disrupted by the latest city lockdown measures introduced inEurope. We continue to like Dingli as rising penetration of aerial working platform(AWP) in China remains a structural growth story. We left our earnings forecastunchanged. Maintain BUY with TP of RMB117 (42x 2021E P/E multiple). 3Q20 results highlight: Revenue surged 63% YoY to RMB212mn in 3Q20,suggesting strong demand for AWP. Gross margin contracted 4.1ppt YoY and1.9ppt QoQ to 35.5%, due to the ramp-up of new capacity of boom lift. Sellingand distribution expense ratio was maintained at 3.5%. While R&D expensesurged 107% YoY to RMB28mn, we believe R&D spending is essential for thecontinuous launch of new products in future. Finance expense of RMB13mnwas reported in 3Q20, versus finance income over the past few quarters, dueto the depreciation of US$ against RMB. In 9M20, net profit grew 40% YoY toRMB620mn, representing 64.6% of our full year estimates (run rate in 9M19:63.9%). Potential improvement of gross margin. Dingli’s new production line forboom lift (monthly capacity: 250 units) is currently at the ramp-up stage. Weexpect the operating leverage will be achieved with the gradual ramp-up ofproduction. We see potential improvement in gross margin over the comingquarters. Fast-growing AWP fleet size by Far East Horizon (3360 HK, NR). Far EastHorizon, the major customer of Dingli, owned a total of 50k units of AWP asat end-Sep 2020. The fleet size significantly increased from only 19k units in2019. We expect Far East Horizon’s AWP fleet size will continue to expand inthe foreseeable future, which will provide Dingli with consistent growthopportunity. Major risk factors: (1) Potential price competition due to more new entrants inthe AWP market; (2) prolonged impact of COVID-19 in overseas; (3) unexpectedslowdown of construction activities in China.

Results positives: 1) Loan growth was solid at 3.1% QoQ, mainly driven by retail loans (+5.7% QoQ). In particular, new mortgage (+7.5% QoQ) and auto loans (+10.4% QoQ) remained strong, and credit card resumed expansion (+3.0% QoQ) from 1H20 contraction. Proportion of retail loans increased to 58% of total loans as of 3Q20. 2) Asset quality improved notably. PAB accelerated NPL disposal in 3Q20. As a result, NPL ratio dropped 33bp QoQ to 1.32%, and provision coverage further climbed to 3.4ppt QoQ to 218%. NPLs still covered 104% of >60day overdue loans, indicating stringent loss recognition. 3) Net fee income was up 32.6% YoY, likely on strong bank card and agency services fees. 4) Cost-income ratio fell 1.4ppt YoY to 29% in 3Q20, suggesting better operating efficiency; 5) Stable expansion in retail client base. Number of retail/ wealth/ private banking client rose 1.9%/4.5%/8.2% QoQ. Retail AUM increased 7.2% QoQ to RMB2.49tn. Results negatives: 1) NIM declined 11bp QoQ to 2.48%. Loan yield slid 32bp QoQ, likely on write-off in retail loans past due and the Bank’s more prudent lending appetite. Lower deposit cost was partly offset by rising interbank funding cost, as market rates rebounded in 3Q20. 2) Trading and investment gain was down 72% YoY, likely due to bond yield hike in 3Q20. 3) Deposits rose 2.5% QoQ, slower than loan growth. LDR increased to 100.5%. 4) Capital position weakened, with 5bp/10bp QoQ decline in Tier1/total CAR. Maintain BUY and RMB22.8 TP. We keep earnings forecast unchanged, and our TP of RMB22.8 is derived from 1.5x target P/B and FY20E BVPS of RMB15.2.

Industry sales growth of excavator accelerated in Sep. According to thelatest figure from CCMA, excavator sales volume by major players in Chinasurged 65% YoY to 26k units in Sep, the highest growth rate since May. Large/ mid-size excavator sales growth reached 53%/106% YoY in Sep, whichsuggested strong demand from infrastructure and property constructionprojects. In 9M20, excavator sales growth reached 32% YoY.Raise industry sales projection. Based on Jiangsu Hengli’s (601100CH,BUY) latest production plan of hydraulic cylinders (see our latest note onHengli [link]), we foresee strong excavator demand growth with high visibilityin 4Q20E. We raise our industry excavator sales volume assumption in2020E/21E by 13%/10%. We expect 35%/3% YoY growth in 2020E/21E, withkey drivers coming from resilient construction activities, replacement of labourand stringent environmental policies.SANY continues to outpace industry growth. SANY’s excavator salesvolume in Sep surged 85% YoY, outpacing the industry growth of 65%.SANY’s market share reached 28.5%/26.3% in Sep / 9M20. SANY is one ofthe very few players that consistently delivers market share gain. We believeimport substitution and export market are two structural drivers for SANYgoing forward.3Q20E results preview: We forecast SANY to deliver 60% YoY net profitgrowth in 3Q20E, driven by 44% YoY increase in revenue and operatingleverage. SANY is scheduled to report on 29Oct.Key risks: (1) Risk of overseas business due to pandemic; (2) Slowdown ofconstruction activities; (3) Risk of expanding to financing business.

Zoomlion released a positive profit alert last night, stating that the net profit in 3Q20E would surge 64-97% YoY to RMB1.48-1.78bn. The high-end of the range is above our expectation. We expect Zoomlion’s growth will continue to be driven by both the upcycle of existing products (concrete, crane and agricultural machinery) and the Company’s expansion in new products. Besides, we believe the subscription of new shares by management team in the upcoming fund-raising exercise will further enhance market confidence. Maintain BUY with TP of RMB10.2 (12x 2020E P/E). 9M20E net profit up 58%-67% YoY. Zoomlion estimated the net profit in 9M20E to be in the range of RMB5.5-5.8bn. This would represent 76%-80% of our above-consensus full year estimate, and we see potential upside to the consensus forecast. The growth in 9M20E was driven by the infrastructure, new energy and agricultural machinery. Besides, new business such as aerial working platform (AWP) and excavator continued to achieve breakthrough in the market. Upcoming catalysts: The stock is trading at only 9x 2021E P/E, which we believe has yet to reflect the Company’s structural growth potential. We expect strong machinery sales datapoint in 4Q20E and the completion of share placement in early 2021E will serve as share price catalysts. Besides, the potential upside on China’s wind power installation target in the 14th FYP will lift the demand for truck crane. Risk factors: (1) Unexpected weakness on infrastructure spending; (2) Slow recovery of property construction; (3) Risks of new business expansion.

BYD announced that total auto sales volume achieved 42K units in Sep, an increase of 3.6% YoY. Among these, NEPV achieved 20K units, an increase of 42.5% YoY/ 32.8% MoM. The Company raised its 3Q20E earnings guidance with a new bottom-line range of RMB 3.4-3.6bn in the first three quarters of 2020E. We have confidence in BYD’s sales volume in the 4Q20E and remain optimistic about its performance in 2021E given its new product cycle. We raise our bottom-line forecast by 7% to RMB 4.2bn in 2020E. Reiterate BUY rating and raise TP to RMB155.7. Benefited from the recovery of China's overall NEV market, BYD achieved rapid growth in its NEV segment in Sep. BYD sold 42K units (ICE+NEV) of auto in Sep, an increase of 3.6%YoY. Its NEV business has rebounded back to a high growth path with a total sales volume of 20K units, an increase of 45.3% YoY. Among these, NEPV achieved 19K units (+42.5%YoY) whereas NECV achieved 1.3K units (+32.8%YoY). We believe that the total delivery of model Han is in line with our expectations, with a total volume of 5,612 units in Sep. We expect that the sales volume of Han will continue to rise in 4Q20E as the production of the blade battery is ramping up. In terms of ICE, sales reached 22K units in Sep, down 17.6%YoY. Sales volume of NEPV in 4Q20E is expected to be doubled YoY. Given the cut-off day of NEV subsidy, 4Q is the traditional sales peak season for commercial-used NEVs. Affected by COVID-19, NEV demand from the to-B side was postponed to 2H20E. As a result, we expect to-B side demand may exceed market expectations in 4Q20E. On the to-C end, BYD has launched its new model Tang DM and Song Plus since Aug. It is expected that the blade battery version of Tang EV, e2, e3, together with Yuan EV (facelift version), will be launched in the 4Q20E. We believe that a series of new models, underpinned by production ramp-up of blade battery, will bring BYD’s NEV sales back to the high growth path in 4Q20E. We expect BYD will achieve total NEPV sales of 67K units in 4Q20E, an increase of 102%YoY. BYDE (285 HK) is expected to beat market expectations. For Apple business, the iPad/Watch assembly components are on track. We believe that BYDE has obtained a 20-30% share of the latest 2H20E iPad models, and it will reach 30-40% of all iPad products by 2021E. As Apple will accelerate the diversification of suppliers, we expect BYDE will expand to iPad metal casing and gain share in iPhone/watch ceramic products in 2021E. In terms of headset EMS, Xiaomi will offset the negative impact of Huawei in 2021E. In order to mitigate the downside risks brought about by the Huawei ban, we expect BYDE to expand EMS capacity for Xiaomi with share allocation to 40% in FY21E (vs. 10-20% in FY20E). In addition, backed by Samsung/Xiaomi’s promising outlook in 2021, we expect strong demand for glass/ceramic casing given rapid 5G adoption. The Company revised up its 3Q20E earnings guidance. BYD revised its performance guidance for the first three quarters from the previous RMB2.8- 3.0bn to RMB3.4-3.6bn, representing an increase of 116-129% YoY. It implies the net profit will achieve RMB1.4-1.9bn in 3Q20E, an increase of 1352% to 1519% YoY. We believe it was mainly due to the recovery of the auto industry and the introduction of new business in BYDE. We slightly lowered our full-year revenue forecast by 3% to RMB 157bn to reflect the revenue adjustment of BYDE. In the meanwhile, we raised our bottom-line forecast by 7% to RMB 4.2bn in 2020E to reflect the rise in profitability of the auto and BYDE business. The Company plans to release 3Q quarterly reports on 29 Oct. Continuous valuation boost from NEV segment; raise TP by 37.6% to RMB155.7. BYD’s share price has surged more than 37% since our previous update (8 Sep). We think BYD’s strong share price momentum reflects re-rating on the NEV segment, as we expect current valuation indicates ~2.5x FY21E P/S on forward-looking NEV sales. Based on the rapid sales growth of BYD’s flagship Han EV comparing with major NEV rivals, we think the NEV segment’s re-rating is not yet done. We lift our NEV P/S multiple from 2.0x to 4.0x (vs. 7.0x from emerging NEV names) and boost our NEV segment valuation by 89.1%. Our SOTP TP is raised by 37.6% to RMB155.7. Maintain BUY.

Reiterate BUY. We expect Hengli’s share price momentum to continue driven by several near-term catalysts: (1) We forecast Hengli to report an impressive net profit growth of 95% YoY in 3Q20E; (2) Hengli’s production plan in Oct suggests robust demand to continue across major products; (3) improvement in construction activities will continue to offer strong support to the demand for excavators and other machinery going forward. We revised up our earnings forecast in 2020E-22E by 3-6% (9-10% above consensus). Our TP is lifted to RMB87from RMB82, based on unchanged multiple of 45x 2021E P/E (historical average).3Q20E results preview. We estimate that Hengli’s hydraulic cylinder volume reached 170k units (for excavators) and 34k units (for non-standardized products) in 3Q20E. Fast growing products such as valves and motors saw sequential monthly sales increase in 3Q. We forecast Hengli to deliver revenue growth of 50% YoY with gross margin expansion YoY, thanks to higher utilization rate. We estimate net profit to grow 95% YoY to RMB481mn in 3Q. Hengli is scheduled to report the results on 27Oct.Production volume to stay high in Oct. Based on our understanding, excavator cylinder monthly production volume reached 63k units in Sep, suggesting sequential growth. According to the production plan in Oct, excavator cylinder volume is expected to stay at similar level. Besides, the production plan for pump and valves implies sequential growth in Oct. We expect robust demand throughout 4Q, on the back of strong construction activities.Key risks: (1) Slowdown of construction activities; (2) risk of overseas expansion; (3) increase in raw materials cost.

1H20E results slight beat. Midea sales/ net profit att. declined by 10%/ 8% YoY to RMB 136.1bn/ 13.9bn in 1H20, above BBG’s est. by 2%/ 9%. We attributed the beat to better-than-expected exports and cost control in 2Q20. 3.9ppt reduction of GP margin to 25.6% in 1H20 was due to: 1) change in accounting standard and 2) relocating of installation fees to COGS (from selling expenses). GP margin would have fallen by only 1ppt after adjustments. Rapid turnaround in 2Q20, where A.C. and fridge outperformed. Midea resumed a 3% YoY sale growth in 2Q20, from 23% drop in 1Q20. A healthy pick up in domestic and resilient overseas was also seen in 2Q20, where sales growth for both A.C./ fridge accelerated to 8%/ 15% in 2Q20 (vs -10%/ 3% in 1Q20) and sales decline for washing machines/ small appliances also narrowed to 8%/ 5% in 2Q20 (vs -15%/ -10% in 1Q20). A better domestic as price war reverses with decent weather. We reckon that ASP for A.C. had been climbing since Apr 2020 as Midea and Haier changed their focus from market shares to profitability (push for premium) while Gree is still being held back by its high channel inventory. Moreover, thanks to: 1) exceptionally hot weather during summer, 2) introduction of new energy-saving standard and 3) flexibly inventory level (powered by the efficient T+3 model), we believe ASP is likely to trend up from 2H20E onwards. Overseas to bottom out with an at least stable GP margin. According to the management, overseas sales growth rebounded to 15% YoY in Jul-Aug 2020, much better than guidance of 0% growth in FY20E. Also, we believe more premium product sales and easing of raw material costs can more than offset CNY appreciation and driving an at least stable GP margin in 2H20E. Guiding for a flattish sales/ NP att. growth in FY20E. We find this target reasonable as Midea is effectively gaining shares in both the recovering domestic and overseas markets, while the only let down is KUKA, as various clients are still conservative or reluctant to spend capex in near term. Maintain BUY but raised TP to RMB 86.57 (21% upside). We reiterate BUY because of: 1) industry leading sales and inventory management, and 2) sector turnaround and potential re-rating. We fine-tuned FY20E/ 21E/ 22E NP by 1%/ 1%/ 2% to factor in better export and weaker KUKA. Our new TP is based on 20x FY21E P/E (up from 17x FY20E). The counter now trades at 17x 21E P/E (vs China peers’ avg. of 22x) or 1.9x PEG (vs China peers’ 2.1x).

BYD aouced its 1H20 results. 1H20 top-lie dropped by 3% YoY to RMB60.5b while NP icreased by 14% YoY to RMB1.7b, implyig 2Q20 bottom-lie recorded a YoY icrease of 120%. We thik 1H20 results were excellet o stroger-tha-expected auto segmet performace ad mask busiess from BYDE. The Compay guided bottom-lie growth of 850%-1017% YoY i 3Q20E, implyig the good mometum to sustai i 2H20. We revised up FY20-22E EPS by 114%/53%/43% to reflect the strog earigs reboud. TP is lifted slightly to RMB113.09. Maitai BUY. 1H20 excellet results. I 1H20, reveue from auto ad related products decreased by 6% YoY to RMB32.0b, whereas reveue from hadset compoets ad assembly services remaied flat at RMB23.3b. GPM from auto ad related products icreased by 0.7ppt to 23.93% while GPM from HCAS busiess icreased by 5.0ppt to 13.6%. Reveue from rechargeable batteries ad photovoltaic icreased 8% YoY to RMB4.8b, whereas reveue from other busiesses decreased by 39% YoY to RMB260m. Strog 2Q20 results were supported by BYD’s mask busiess uder BYDE (285 HK). It ca be partially cofirmed as the GPM for HCAS icreased by 5ppt. I 1H20, operatig cash iflow was RMB15.5b with a OCF/Core profit ratio of 5.2. Advace receipt of good/service icreased by RMB3.7b compared with the begiig of the year, partially reflectig strog order o had. Oe otable item was that BYD has a total of RMB658m asset impairmet (AR /ivetory/ Itagible asset, etc.). We believe BYD was flashig out all historical burdes uder the disguise of COVID-19, which will provide a healthier balace sheet i the future. Auto segmet beat our expectatios i 1H20. Give sales volume slashed i 1H20, the auto segmet achieved reveue of RMB32b i 1H20 with a decrease of oly 6% YoY. Eve though sales volume fell by 30.4% YoY i 1H20, the uit reveue icreased by 36% YoY to RMB202K, ad GPM from auto sales also icreased by 0.7ppt YoY to 23.9%. We believe it was maily drive by higher proportio (+2ppt YoY) of CV sales withi the NEV segmet i 1H20, ad that comes from strog NEV bus delivery with higher ASP both i the domestic market ad abroad.