投资要点 2季度经营业绩大幅下滑,因各板块经营均承压。上半年,公司实现营业收入11010.96亿元(同比+5.2‰下同),归属母公司股东净利655.21亿元(+5.6%),每股收益0.36元,扣除西部管道合资等非经损益后,实现经营性净利495.03亿元(-22.0%),每股收益0.26元;2季度,实现营收5608.33亿元(+7.6%,环比+3.6%),归属母公司股东净利295.05亿元(+29.0‰环比-18.1%),每股收益0.16元,扣非后实现归属母公司股东净利160.18亿元(一30.0%,环比-55.5%),每股收益0.09元。公司上半年经营业绩较差,毛利率同比下滑1.9个百分点至13.2%,主要因2季度公司勘探与生产、销售板块经营利润分别环比下滑26.6%和38.5‰炼油和化工板块环比增亏63.75亿元,天然气与管道板块仍然受到进口亏损拖累。 对外合作显著改善现金流,预计未来将出现更多合作。上半年,西部管道资产合资收益贡献营业外收入,使公司经营性现金流环比+30.9‰货币现金环比+103.7%。未来公司有望继续坚持对外合资合作的战略,缓解资奉支出和经营现金流压力。 勘探与生产利润受油价下滑拖累。上半年,公司生产原油464.2百万桶(+2.6%),可销售天然气395.8亿立方米(+8.1%),油气当量产量697.2百万桶(+4.4%),其中海外当量产量67.5百万桶(+8.0%)。价格方面,公亩J上半年原油平均实现价格100.5美元/干甬(一6.9%,跌幅度持平国际油价),天然气实现价格1.15元/立方米(+3.9%)。原油实现价格下滑及油气操作成本上升(上半年为12.29美元/桶,剔除汇率+7.9%)导致板块经营利润下滑l3.2%至988.1亿元,2季度,板块经营利润418.2亿元(-21.7%,环比-26.6%)。 炼油与化工亏损均扩大。上半年,公司加工原油499.0百万桶(+1.9%),受定价机制改革利好,炼油亏损77.65亿元,同比减亏155.4亿元(每桶亏损约2.5美元)。受化工市场持续低迷影响,化工业务经营亏损80.9亿元,同比增亏25.5亿元。2季度,公司加工原油245.5百万桶,炼油亏损62.1亿元(每桶亏损约4.08美元,环比扩大3美元),化工业务亏损49.1亿元,环比增亏17.3亿元。我们判断上半年炼油亏损护大因原油进口成本下降幅度(-0.3%)低于国内成品油价格下降幅度(汽、柴油分别降4.1%、4.8%)。 销售业务遭遇难题,天然气与管道板块经营亏损扩大。上半年,公司销售板块实现经营利润34.28亿元(-65.7%),2季度实现经营利润13.1亿元(-66.8%环比-38.5%)。在国内成品油消费明显分化(汽油上半年消费+12.2%,柴油-1.7%)背景下,公司销售柴汽比2季度不降反升,拖累盈利。公司天然气及管道板块实现营业利润218.8亿元,但扣除西部管道资产合资收益248.22亿后实际经营亏损29.4亿元。上半年,公刮进口气共亏损235亿元,管道和LNG分别每方亏损1.25元和2.91元,LNG。了损同比降10.2%,但进口量增加扩大了亏损幅度。 下半年炼化、上游及天然气与管道板块盈利有望改善。6月底,在欧美良好的经济数据、美国持续下降的原油库存及中东动荡局势支撑下,国际油价迅速反弹并持续高位震荡,7月份涨至年内新高。油价上涨带动炼油、石化产品价格回升,公司勘探生产及炼化板块盈利有望明显改善。天然气定价机制改革后,各地7月下旬陆续开始落实,我们综合测算调价全年可为公司贡献利润约100亿无。国内成品油库存较高,炼厂扩能改造仍有增加,下半年成品油库存不降,则公司销售板块压力难减。 风险提示。国际油价大幅下降;天然气价格改革进度低于预期;成品油销售压力增大;海外投资受地缘因素影响。 盈利预测及估值。维持公司2013/14/15年EPS预测0.71/0.82/0.96元,港股股价8.70港元(折合人民币6.87元),对应2013/14/15年PE10/8/7倍。我们认为公司股价已反映较差的盈利预期,维持“增持”评级。

盈利预测、估值及投资建议 基于对区域水泥景气走势的判断,我们预测公司2013/2014/2015年EPS分别为0.70元/1.00元/1.27元。考虑到西部水泥企业具有较大需求增长空间,给予公司2013年18~20倍PE,对应目标价13~14元,维持“买入”评级。

事项: 中联重科于2013年1月9日发布澄清公告,针对香港明报刊登的题为《匿名信指中联重科夸大盈利》的报道,逐一否认;同时,公司于2013年1月10日召开了分析师电话会议。对此,我们评论如下: 评论: 公司过去十年超越行业发展,是经过历史考验的。回顾历史数据,受益于中国经济的快速发展和固定资产投资的快速增长,在2001年到2011年十年间,中国工程机械行业销售收入年均增长率为26.5%,而在此期间,公司销售收入年均增长率达67.1%,为行业增速的2.66倍。此外,公司年报须经过审计,特别是近两年公司发行H股和美元债券均须经过会计师事务所的严格审计。 公司2012年超越行业发展主要源于公司竞争力的提升。以公司混凝土机械业务为例,公司收购CIFA后,其混凝土机械的产品性能提升很快,特别是在长臂架泵车方面,而受益于市场对于长臂架泵车的需求占比提升,公司混凝土泵车的市场占有率从2011年的39.4%升至50.2%。同时,公司原来竞争力较弱的产品在2012年也取得了长足进步,如挖掘机等。 公司2012年超越行业发展,除了公司固有的竞争力之外,也与公司现金充足有关。公司相比主要竞争对手在资本市场上融资更多,现金充足,从而有助于其加大信用销售力度,这也是公司2012年超越行业发展的重要因素之一。因为在工程机械行业销售中,70%以上采用信用销售(分期、按揭和融资租赁),而能够提供信用销售也应属于公司的服务优势,特别是在客户资金比较紧缺的背景下。信用销售帮助提升公司市场占有率,也是公司竞争力的体现。 部分产品市场占有率还有很大提升空间,预期公司未来仍将稳步前行。公司混凝土泵送机械和汽车起熏机械在保持当前较高市场占有率并稳步发展的同时,公司混凝土搅拌机械、塔式起重机和土方机械也还有很大提升空间,料将快速发展。同时,考虑到公司是行业中的优秀企业代表,我们认为依托其知名品牌、管理和技术优势以及过去整合并购的成功经验,未来仍将稳步前行。 风险因素:宏观调控风险和海外投资风险。 维持盈利预测,维持“买入”评级:维持公司2012/2013/2014年EPS1.18/1.37/1.58元的盈利预测。考虑到行业发展前景和公司竞争力,同时参考当前二级市场估值水平,维持公司“买入”评级。我们认为,近日股价有所回调,正是介入的良机。

Event: On 24 Jun 2011, some of ZTE’s senior executives purchased a total of 1,066,100 ZTE A-shares in thesecondary market. A vote of confidence. The move indicates management’s confidence in the Company’s future. Advancing into a new phase of globalization and all-around business development. Thanks toChina’s 3G construction, ZTE has built up a solid base in the Mainland. Its optical fiber communication, handsetand GSM operations have also made impressive headway. The huge home market provides a welcome platformfor ZTE to gain experience and try out new products for its overseas business, creating synergy between itsdomestic and international arms. In recent years, the Company has quickly expanded or broken into markets inthe Middle East and even Europe. In 2010, ZTE’s overseas sales grew 27% YoY, despite the weak recovery inglobal telecom investment and the adverse impact of the India incident. Currently, ZTE enjoys increasing synergybetween its regional markets and different products. It has come to embrace a highly promising opportunity forsolid growth. Poised to capture a larger slice of the global market. “Base station” is no longer considered arepresentative business for ZTE, as the Company has gradually developed from a single-product wirelessmanufacturer to an all-around provider covering handset + transmission + exchange + wired access + wirelessaccess. Thus far in 2011E, contributions from wireless products have dropped to an estimated 1/3 of ZTE’s total2011E income. The Company has expanded its investment beyond wireless and thereby stepped from aUS$100bn market for network equipment to a US$400bn market for network equipment + handset + operation,maintenance and application services. In 2010, ZTE posted total income of ~US$10.5bn. Making full play of itsadvantages in technology, capital and cost, ZTE has grown into a major force in global telecom reconsolidation. Market growth has been accelerating across its product spectrum. We forecast that in the next three years, ZTE’sglobal market share will increase from the current 2.5% to 4-5%. Relatively strong earnings growth in 2011E. Telecom CAPEX has markedly rebounded thus far in 2011. We estimate total industry CAPEX will rise 11.7% YoY in full-year 2011E. As a comprehensive telecom equipmentprovider, ZTE is bound to benefit from increased sector investment. Meanwhile, the Company’s overseasoperations are running smoothly. We believe ZTE’s earnings growth will pick up in 2H11E with the launch andconclusion of bidding for the following contracts: (i) China Mobile’s GSM, (ii) China Unicom’s WCDMA upgradingand PTN construction projects, and (iii) China Telecom’s PON. Reiterate BUY on visible growth prospects and undemanding valuation. ZTE has entered a newstage of development and is growing at an unprecedentedly rapid rate. Strong scale expansion will lead to robustand sustainable earnings growth. In terms of valuation, the share is trading at a projected 2011E PER of 19x andP/B of 0.9x only (A-shares). We believe it is undervalued for its sustainable growth outlook. We forecast 2011-13EEPS of Rmb1.40/1.75/2.21. All in all, the counter remains a BUY, with 6-M A/H TP of Rmb35.00/HK$34.70 and12-M A/H TP of Rmb44.00/HK$43.0. Potential risks associated with investing in ZTE: (i) Global market regulation; (ii) slower-than-expectedgrowth in overseas markets; and (iii) adverse impact of exchange rates.

Event: On 6 Jun 2011, Shenhua announced that in accordance with the Circular on the Appropriate Adjustmentof Power Tariffs ([2011] No. 1101 Document) recently issued by the NDRC, the tariffs for coal-fired power plantssubject to unified adjustment in the areas where Shenhua’s major power generation business is located will berevised upwards. Following the tariff hike, Shenhua’s 2011E tariff is forecast to increase by ~Rmb3.78/MWhcompared with that prior to the price adjustment. Mild earnings growth fuelled by the uplift in power tariff. 2010 sales tariff stood at ~Rmb345.99/MWh. Following the adjustment, Shenhua’s 2011E sales tariff is forecast to be Rmb349.77/MWh. Its recurring incomefrom power generation is forecast to grow 16.94% YoY (to Rmb53.17bn). Revenue contribution from the increasein tariff is estimated at Rmb574.56m, or 7.46% of total growth in power revenue. We believe the tariff hike willmildly boost Shenhua’s earnings, pushing 2011E EPS up by ~Rmb0.03/share. Steady growth in coal production and sales. In 2010, Shenhua’s coal output tallied ~225m tonnes. InApr 2011, production stood at 21.70m tonnes (+25.4% YoY), representing a sustained high growth. Given theasset acquisition plans announced at end-2010 and the technical upgrade of existing coalmines, 2011E coaloutput is forecast to grow 15%-plus YoY. Both production and sales are growing steadily. Additionally, newlyacquired coalmines and the expansion of existing mining pits will provide long-term support for earnings growth. An improved sales structure and rising coal prices in a slow season could partly offset thenegative impact of the price cap policy. Despite the NDRC’s anticipated price intervention, we believeShenhua’s 2011E coal prices will still grow at least 5% YoY, given: (i) the increase in the proportion of spot coal in2011E (to ~53% of the total); and (ii) Shenhua’s announcement of its intention to set coal prices on a weeklybasis according to the Bohai Rim Thermal Coal Price Index with effect from 2Q11E. The potential upside inShenhua’s commercial coal ASP could partly offset the negative impact brought about by the price cap policy ofthe Mainland Government, implying enhanced earnings elasticity. New railways provide assurance for future transport capacity, and port expansion couldreduce future operating costs. Currently, Shenhua has 4 proprietary railways (Shenmu-Shuozhou,Shuohuang-Huangwan, Datong-Zhungeer, Baotou-Shenmu) with an aggregate length of 1,367km and transportcapacity of 445m tonne-kms. It plans to upgrade the railway section between Datong and Zhungeer fromsingle-track to double-track, in addition to laying new rails to connect the Datong-Zhungeer Railway andBaotou-Shenmu Railway. After the new railway projects become fully operational, its transport capacity couldsurge to 200m tonne-kms. The announced expansion of Huanghua Port will effectively secure its future coaltransport capacity in addition to further reducing its operating costs. Risks associated with investing in the counter. (i) Industry risks due to real estate control policy andstepped-up efforts in energy conservation and emissions reduction; (ii) uncertainties in overseas expansion andasset acquisition; and (iii) more-stringent-than-expected restrictions on coal prices may affect coal profits. BUY rating reiterated. Shenhua’s 2010 EPS stood at Rmb1.87/share. Taking into account the stable growthin various business segments and the increase in power tariffs, we have revised upwards our earnings forecastfor 2011E. 2011-13E EPS (based on existing assets) are forecast at Rmb2.30/2.91/3.49. Shenhua is now tradingat Rmb28.21, which corresponds to prospective 2011-13E PER (A-share) of 12x/10x/8x, respectively. Coupledwith its plans for asset injection and expansion of overseas/domestic resources, its A-share is valued at 18xprospective 2011E PER with a TP of Rmb40.86 (H-share: HK$50), implying an undemanding valuation. Our BUYrating remains intact.

Current development of CPIC Sichuan. The Sichuan branch tops all other branches of CPIC in terms ofbancassurance operations. The negative YoY growth in this line of business YTD in 2011 was mainly caused bythe tightening of China’s monetary policy. As banks are faced with tremendous pressure to increase deposits, thescale of bancassurance came under heavy pressure as well (by contrast, the negative impact from both the #90central document or the guidance jointly provided by China Banking Regulatory Commission and ChinaInsurance Regulatory Commission was less notable). We forecast that bancassurance premium growth willbottom in 2Q11E. In terms of personal life insurance, new business growth in the entire insurance industry inSichuan Province came to 13% YoY in Jan-Apr 2011, far below the 78% YoY growth achieved by CPIC Sichuan. This was mainly driven by an expanding number of agents and an improved utilization of human resources. Ourinvestigation shows that with regards to bancassurance, monetary policy has had a greater impact than industrypolicies and regulation. Although the competition among bancassurance players has not yet escalatedsubstantially, we see joint-stock banks making adjustments to their business plans and expect increasingcompetition among bancassurance operators going forward. P&C operations in CPIC Sichuan. CPIC had a P&C market of: (i) Rmb770m (6.6% of the national market)in 2008; (ii) Rmb1.05bn (6.8%) in 2009; and (iii) Rmb1.57bn (7.95%) in 2010. Its market share increased to9.21% in Jan-Apr 2011. In 2008/09/10, the CPIC’s P&C insurance premium rose by 20.3%, 36.4% and 49.5%YoY, respectively. In Jan-Apr 11, CPIC Sichuan logged growth in P&C insurance premium of 18% YoY (versus13.8% for the industry, 22% for Ping An and 12% for PICC). At present, the overall cost/income ratio of the P&Cinsurance sector stands at 92.9%. Our views on the P&C insurance operation of CPIC Sichuan. (1) As the growthof new car sales decelerates in Western China as well as the Mainland as a whole, insurers' success incompeting for the business of existing car owners will determine their performance in personal P&C insurancepremium. The telemarketing platform, size of telemarketing sales team and advertising expense will play crucialroles in the competition. (2) Some insurers are raising commission rates in a bid to come out ‘winners’ incompetition. We are of the opinion that competition via commission rates can only be used in recruiting owners ofnew cars. With slowing growth of new car sales, this method will incur excessive cost and achieve limited growth. (3) The commercial vehicle insurance information platform that was launched online in Sichuan in Jan 2011 willbring improvement in the cost/income ratio in 2011E. At the same time, due to the lagging effect of accounting aswell as the economies of scale generated from strong premium growth, we believe the overall cost/income ratiowill trend downwards steadily going forward. As such, we expect the comprehensive cost/income ratio will remainflat or even drop further in 2012E. (4) Market-based commission rates will be a long-term target. However, in viewof the current management of: (i) the online commercial vehicle insurance information platform and (ii) insurancesolvency, we believe industry regulators will insure that the marketization process is kept rational so as tomaintain reasonable margins for insurance companies. Shenzhen is just starting a pilot program in market-basedrates. We believe it will take some time before similar moves are made nationwide. CPIC remains our top pick in the Mainland Insurance industry. With the highest share of the P&Cmarket in the Mainland, CPIC has the most balanced operations in P&C and life insurance. On the back of highprofitability in the P&C insurance business, CPIC stands to benefit most given its strong presence in the market. We reiterate our BUY on the stock and set our A/H target prices at Rmb36.44/HK$52.9.

Multiple-business strategy starts to yield fruitful returns. Datang Power (DP) is the flagshipcompany of Datang Group (which holds a 36.1% equity stake in the listed play). Power generation/coalproduction/coal chemical operations account for 89.4%/4.7%/4.4% of its total 2010 turnover, respectively. DP in2010 had installed capacity of 36,300MW, nearly 1.9x over 2006. Its development strategy is to concentrate onelectricity generation as its core business while developing complementary operations. Currently, it has basicallycompleted building production bases in six locations. The proportion of clean energy in total capacity hasincreased from less than 1% at the time of A-share listing in 2006 to 11.8% in 2010. Its under-constructionhydropower capacity and equity stake in nuclear power capacity have reached 3,000MW and 2,160MW,respectively. Earnings growth has remained slow in recent years due to strategic investments, a risingasset/liability ratio, expanding project scale and increased financing costs. Along with the operation of severalnew facilities (such as a coal chemical facility) in 2011E, the Company’s multi-business investment will begin toyield fruit. Harvest time comes. The Duolun Project is scheduled to enter operation in 4Q11E. Additionally, the initialphases of the Keqi and Fuxin coal-gas facilities will begin production in 2012E and mid-2013E, respectively. Weestimate that in 2011/12/13E, the three major coal chemical plants will together contribute EPS ofRmb0.01/0.06/0.12, respectively. It has been well established that the supply/demand of power will remain tight inChina going forward and that 2011E is only the beginning of this “tight balance” cycle. About 74% of DatangPower’s attributable capacity is located in Eastern and Northern China, where the power shortage will be “rigid”. Therefore, the Company will see its capacity utilization rise on strong demand. In 2011/12/13E, we forecast thatits utilization hours will increase by 7%, 3% and 2% YoY, respectively. Initiate coverage with an OVERWEIGHT rating. DP has completed the building of its strategic structure,with coal chemical projects coming on line from 2011E onwards. Datang Group has pledged to consolidate itsthermal power assets using DP as its final platform, indicating scale expansion for DP going forward. With coalchemical projects mainly beginning to contribute in 2012E, we use 2012E as the basis for share valuation. Also,assuming: (i) estimated earnings growth of nearly 45%/37% YoY in 2012/13E; and (ii) continuously rising thermalpower profitability, we set our A-share TP at Rmb8.40 (H-share: HK$3.9) based on 2012E PER of 30x. Majorrisks include: (i) The majority of its power plants are coal-fired, so its earnings are affected by coal price volatility;and (ii) earnings will also be impacted by the progress of new coal-chemical projects and price swings in chemicalproducts.

Active development of urban markets through differentiated operation for personalinsurance. China Pacific Insurance Co. (CPIC) is seeking a change in its operations management mode bydividing the market covered by its personal insurance business into urban and county (non-urban) territories withthe setting up of posts of urban marketing directors and county marketing directors, who will report directly tosenior management of life insurance. Such market segmentation and structural changes are consistent with theMainland’s current drive to tackle the imbalance between urban and county areas, as well as in line with CPIC’soperating rationale of establishing a strong foothold in the county market while enhancing business developmentin cities. Focus on personal insurance and regular-premium businesses; targeting new policies and15%-20% growth in new business. Initially a P&C insurer, CPIC is a late starter in life insurance. With only5-6 years of history, its life insurance team lags considerably behind Ping An in terms of usage rate and per capitacapacity. In 2011E, CPIC refocuses its personal insurance business and advocated quality improvement andenhancement of its employee’s production capacity. Meanwhile, CPIC also focused on the sales development ofbancassurance and wealth management services, aiming at the high-end bancassurance market. On the back of a sustained edge in operations management, CPIC now has a window ofopportunity to reap P&C insurance underwriting profit. The auto insurance information sharingplatform mainly came online in 2010 in most regions. With remaining provinces accounting for ~37% share of theP&C market, potential still exists for the expansion of underwriting profit in commercial car insurance. GivenCPIC’s leading edge in human resources, claims and other aspects, the 2011E combined ratio of its P&Cinsurance (which contributes 35% of overall earnings) should be sustainable at ~95%. Risks associated with investing in the counter: (i) Significant market correction due to policy changesand funds movements, in turn affecting CPIC’s investment results; and (ii) slower-than-expected growth in newpersonal insurance policies. BUY rating remains intact. We forecast CPIC’s 2010-11E EV/share to be Rmb13.10 and Rmb15.10,respectively; and NBV/share to be Rmb0.70 and Rmb0.82, respectively. Current price (A-share) implies projected2010-11E P/EV of 1.7x and 1.5x, respectively, and new business multiples of 13.6x and 9.1x, respectively. On theback of personal insurance upside spurred by improved operations management, an edge in P&C insurance andabundant cash flow, our BUY rating for CPIC remains intact. A/H-share TP: Rmb37.7/HK$50.3.

On 31 Jan 2011, Yanzhou Coal announced that its wholly-owned subsidiary Yanzhou Coal Ordos Neng Hua Co. Ltd. (YCONH) had obtained mining rights to the Zhuanlongwan coal mine zone (part of the Dongsheng coal field in Ordos,Inner Mongolia) through a successful bid for a consideration of Rmb7.8bn. The Company has entered into aConfirmation Agreement with the Department of Land and Resources of the Inner Mongolia Autonomous Region. According to the announcement, following the successful bid, the Company still needs to prepare registration andapplication documents for the concerned mining rights before being granted delimitation of the mining area and miningregistration with the Ministry of Land and Resources in line with relevant laws. YCONH also needs to reach furtheragreements with relevant stakeholders, as some railway lines and high voltage lines traverse the Zhuanlongwan coalmine zone and the new mining rights overlap with the oil and gas exploration rights thereto owned by China NationalPetroleum Corporation. Comment:The deal marks another of the Company’s resource expansion drives in the Ordos regionfollowing the acquisition of a stake in Inner Mongolia Haosheng Coal Mining Ltd. in Sep 2010. This highlights management’s proactive approach and strategic intention to enlarge the Company’s presence inthe northern autonomous region. We believe the Company to actively participate in the integration of coalresources in Inner Mongolia with YCONH as its vehicle, thereby building up resource reserves for longer-termdevelopment. Meanwhile, as the new mining rights come with no mandatory requirement for any supportingproject for coal resource conversion, the Company can control costs and build up profitability. Impact on earnings: Forecasting the project to increase EPS (pro forma) by Rmb0.10 when itenters operation in 2014E. As the approval for the construction of the mine has not yet been obtained andthe construction will also take some time, it is unlikely that the project will contribute to earnings in the short-term. We expect the construction of the mine to be completed around 2013E. The mine is expected to reach fullproduction capacity by 2014E. In the long run, Yanzhou Coal’s performance will be bolstered by the project. TheCompany did not disclose any forecast data with regards to the operations of the mine. Based on current figures,we project the net profit from of 5,500 kcal/kg thermal coal to be ~Rmb100/tonne by 2014E. Assuming annualcapacity of 5.0m tonnes, we estimate that the mine will contribute Rmb500m to pro forma net profit in the yearafter entering full-year operation, or pro forma EPS of Rmb0.10. Potential risks associated with investing in Yanzhou Coal: (i) Disputes revolving around mining rightsthat may overlap with the exploration rights of other companies; (ii) uncertainty surrounding follow-up approvalsand coal mine construction; and (iii) the impact on short-term profitability of fluctuations in the RMB-AUDexchange rate. Earnings forecast based on the Company’s existing assets: We affirm our earlier earningsforecast and reiterate our BUY rating for the stock. We maintain our forecast that the 2010-12E EPSof existing assets will reach Rmb1.64/1.95/2.40, respectively, which is equivalent to respective PERs of15x/13x/10x based on the current A-share price of Rmb24.63. Factoring in its continued expansion of resourcesand high growth potential, we estimate ‘fair value’ for the Company at a projected 2011E A-share PER of 18x,implying a target price of Rmb35.10 (H-share: HK$29.1). Our BUY rating remains intact.

On 6 Dec 2010, Goldwind announced that it had submitted winning bids for two wind power concession projects inBashang, Zhangjiakou and Hami, Xinjiang with a total contract value of Rmb4.77bn. Total capacity commissioned was1,100.50MW, comprised of 1.5MW wind turbines generating 400MW (unit price: Rmb3,852/kW) and 2.5MW windturbines generating 700MW (unit price: Rmb4,617/kW). The date of delivery will be 2011-12E. We have summarizedour views below following today’s on-site visit (please refer to our full report for details):I. The substantial new orders reflect the technical strength of Goldwind’s permanent magnet direct-drivetechnologies. II. With the price war nearing an end, new 2.5MW wind turbines will become the new battlefield for competition. III. In the context of accelerated vertical integration, the increased proportion of ‘in-house’ supply of parts andcomponents will boost the gross margin of integrated equipments. IV. Spurred by accelerated internationalization, Goldwind may achieve a great leap forward in coming years. V. With the rapid sales progress of wind farms, there lies a vast horizon ahead for wind power services. VI. The conversion of non-tradable shares of major shareholders will result in little pressure on Goldwind. VII. Goldwind is set to enter an upbeat cycle following internationalization as its perseverance is set to pay off. VIII. BUY rating reiterated. We forecast that the Company’s 2010/11/12E EPS will amount to Rmb1.02/1.50/2.02. Based on the current A-share price of Rmb22.09, this corresponds to 2010/11/12E PERs of only 22x/15x/11x andif a markedly undemanding valuation compared with listed alternative energy peers. We strongly recommendbuying the counter based on a target projected 2011E PER of 20x. Our target price is Rmb30 (H-share: HK$22.8)and our BUY rating remains intact.

3Q10 earnings growth of 1,180% fell short of consensus forecast. In 1-3Q10, China Southern Airlines(CSA) posted: (i) turnover of Rmb57.84bn (+42% YoY); (ii) operating costs of Rmb45.52bn (+28% YoY); (iii) netprofit of Rmb5.12bn; and (iv) EPS of Rmb0.64 (+1,180% YoY, vs. our forecast of Rmb0.70). Pre-tax profit wasbasically in line with our expectations, but the effective tax rate and minority shareholders’ interest came out aboveour estimates. The effective income tax rate for 3Q10 was 24.2%, 8.6ppts higher than that in 1H10. Additionally,affiliate Xiamen Airlines also posted slightly higher-than-expected profit in 3Q10. Advantageous route structure. In 1-3Q10, CSA posted: (i) ASK: 9,706m tonne-km (+32.9% YoY; 4pptsabove industry average); (ii) passenger turnover: 83,546m passenger-km (+22.3% YoY; 0.6ppt above industryaverage); (iii) cargo and postal turnover: 2,285m tonne-km (+86% YoY; 39.1ppts above industry average);(iv) load factor: 68.3% (+4ppts YoY); (v) passenger load factor: 79.2% (+4.3ppts YoY). The business climate forthe domestic airline industry in 3Q10 rose to a historic high. Thanks to its focus on domestic flights (with domesticRPK accounting for 85%), CSA succeeded in taking full advantage of the buoyant up cycle and recordedabove-average readings in most aspects, including the growth of business volume. Private placement of shares. The carrier’s share placement, which received regulatory approval on 16 Sep 10,raised ~Rmb10bn. The proceeds will be used to repay debt, which will cut back financial expense and improve theCompany’s financial health. The huge disparity between the placement price and market price was highly attractive toinvestors. Its global roadshow also effectively facilitated communication between the carrier and investors, boostingmarket confidence in China’s airline industry. Short-term catalysts and a promising quarter ahead. CSA’s earnings are highly sensitive to the RMBexchange rate. We estimate that a 1% appreciation of the RMB will add Rmb0.036 to EPS. We see potential forthe RMB to rise further in the near term. The Guangzhou Trade Fair and Asian Games will continue to boostdemand and results in 4Q10E. In 2011E, we expect sector supply-demand to improve further and CSA’s earningsgrowth to be sustained. However, the airline’s plan to purchase A380 planes may pose substantial operationalchallenges. Potential risks associated with investing in CSA: (i) Challenge of substitute transport posed by expressrailways; (ii) volatility of international oil prices and exchange rates; and (iii) price wars between carriers. BUY rating remains intact. We project 2010/11E EPS of Rmb0.78/0.62 (diluted), respectively, implying 2010/11EPER of 16x/20x, respectively. The stock is trading at Rmb12.11 at the moment. Our A-share price target is Rmb15.56(H-share: HK$7.26). We believe earnings will remain elastic in the short-term. The counter remains a BUY.

A better than expected set of 3Q10 results. For Jan-Sep 10, Weichai Power (Weichai) delivered thefollowing results: (i) consensus-beating EPS of Rmb5.76 (incl. Rmb1.88 in 3Q10); (ii) revenue of Rmb46.92bn(+84% YoY); and (iii) net profit of Rmb4.80bn (+102% YoY). The substantial improvement in results was mainlydriven by the sustainable boom in the downstream heavy-duty truck market. Upbeat 2010E earnings guidance. Weichai forecasts 2010E EPS of ~Rmb7.16-8.38 (up 75%-105%). Inview of Weichai benefiting from the flourishing heavy-duty truck market and based on the seasonal sales rhythmof heavy-duty trucks, we project that Weichai’s 4Q10E sales will slightly surpass that in 3Q10. 2010E sales ofengines will likely hit 560,000 units (+72% YoY) and the sales volume of Shaanxi Heavy Truck could reach112,000 units. For full-year 2010E, Weichai’s revenue and net profit could reach Rmb60.6bn (+71% YoY) andRmb6.46bn (+90%), respectively. Promising industry outlook. We believe that the heavy-duty truck segment will see sales of over 950,000units in full-year 2010E. Benefiting from the macro economic recovery, a pickup in investment and logisticsdemand, etc., the Mainland heavy-duty truck market has flourished YTD, with total sales volume in Jan-Sep 10hitting 788,000 units (+75% YoY). Barring any significant plunge in the macro economy going forward, we believe4Q10E sales of heavy-duty trucks will remain flat with (or slightly surpass) that in 3Q10, with full-year 2010E saleslikely hitting 950,000 units. The combination of a sustained boom in the heavy-duty truck market and continuouslydeclining raw material prices will drive solid earnings growth at Weichai. Robust growth ahead. The Mainland heavy-duty truck market will continue its robust growth going forward,and Weichai’s profitability and earnings will likely be sustained. Despite market concerns as to whether growth inthe heavy-duty truck segment could continue to be propelled by the rapid growth of Mainland economy, it haslogged annual growth of 20%-plus in the past several years and Weichai’s earnings have surged at a rate of50%-plus YoY. Barring any significant plunge in the macro economy going forward, we believe the Mainlandheavy-duty truck market will maintain its robust growth and Weichai’s profitability and earnings will continue totrend upwards. Anticipating a better product mix. In adherence to its development strategy with ‘engines as the core andwhole-vehicle/machine as the direction’, Weichai’s overall competitiveness is set to improve further. TheCompany is capable of designing and manufacturing engines, gear-boxes and drive axles. It is capable ofsupplying integrated systems, with its model range extending (from 10-12 liters being its mainstream products inthe past) to 5, 7, 16 and 33 liters, and gearboxes covering 8-16 gears. The increased variety and improvement ofproduct lines will further boost its overall competitiveness. Risks associated with investing in the sector: (i) Decline in downstream engine demand on slowingmacro growth; (ii) rapid increase in raw material prices to squeeze margins; and (iii) loss of major clients. Raising 2010/11/12E earnings and TP. Taking into account Weichai’s continually rising market positionand profitability, we revise upwards our 2010/11/12E EPS forecasts by 9%/7%/15% to Rmb7.76/8.56/9.85,respectively. The counter is currently trading at Rmb106.90/HK$95.7, implying projected 2010/11/12E A-sharePERs of 14x/12x/11x (H-share: 11x/10x/8x), respectively. Considering its improving range of products, leadingmarket position, future revenue growth and the undemanding valuation of the industry, we believe Weichai’s fairvaluation should stand at a projected 2010E PER (A-share) of 20x and maintain our BUY rating. Our A/H targetprices have also been raised to Rmb155/HK$135. BUY.

1-3Q10 EPS of Rmb0.35 and lower-than-expected 3Q10 recurring profit. In 1Q-3Q10, HisenseKelon (Kelon) posted revenue of Rmb14.38bn (+92.7% YoY). In 1-3Q10, net profit attributable to shareholdersamounted to Rmb469m (+156.6% YoY) and EPS was Rmb0.35 (including Rmb130m from sale of equity interestin Huayi Compressor, which boosted profit by Rmb0.10/share). 3Q10 revenue surged 80.3% and EPS wasRmb0.10. The Company’s 3Q10 recurring EPS of Rmb0.06 came in slightly lower than expected due to delayedsynergy effects from the integration of Hisense assets. Enhanced strength and rapid revenue growth post-integration. In 1H10, Kelon completed theintegration of Hisense’s white goods assets and became the Hisense Group’s listed platform for its white goodsoperations. With enhanced strength following the integration, the market shares of its refrigerators and airconditioners have both risen (Aug 10 combined market share: (i) refrigerators: 14.12% (Rong Sheng + Hisense);(ii) air conditioners: 7.42% (Kelon + Hisense)). Based on assumptions in last year’s merger model, 1-3Q10revenue growth reached 33.1%, reflecting the synergy effect on sales revenue following the merger of Hisense’swhite goods with Kelon’s sales channels. Raw materials continued to drag down gross margin, and cost/income ratios declined lessthan expected. 3Q10 gross margin shrank 2.25ppts (to 19.21%), mainly due to rising raw material costs. However, gross margin rose compared with 1H10 (16.63%), mainly driven by rising prices of air conditioners. 4Q10E gross margin is forecast to remain flat on a QoQ basis. In the long run, the increasing proportion of inverterair conditioners will help boost gross margin. Due to the expanding scale of revenue, the management fee ratioand sales expense ratio edged down 0.6% and 0.4%, respectively. The synergy effect from integration was not aslarge as expected and has yet to be fully played out. Investment gains from equity sales plus contributions from Hisense Hitachi. Recognition ofinvestment gains of Rmb130m from sale of 14.9m shares in Huayi Compressor in 1-3Q10 contributed ~25% of netprofit. As at end-3Q10, Kelon still holds 44.41m shares in Huayi Compressor with a market value of ~Rmb420m,which will be sold at an appropriate time in the future. Other recurring investment gains of Rmb60m mainly camefrom Hisense Hitachi (mainly engages in commercial air conditioners), thanks to the latter’s rapid revenue growthand remarkable profitability. Potential risks associated with investing in the counter: (i) Unsmooth integration progress followingthe asset injection; (ii) real estate controls in China impacts the demand for household appliances; (iii) rising rawmaterial prices; and (iv) reduction of shareholding by Huarong Asset, the Company’s second largest shareholder. OVERWEIGHT rating remains intact. Kelon’s recurring profit (incl. household subsidies) for 1-3Q10delivered EPS of Rmb0.25. Due to the slower-than-expected improvement of corporate integration of Hisenseassets in 3Q10, we have revised slightly downwards our forecast for Kelon’s 2010E recurring EPS to Rmb0.32. Additionally, we have boosted our forecast of investment gains to Rmb0.13. Its EPS for the 2010-2012E periodare forecast to be Rmb0.45/0.50/0.59, with EPS from its core businesses of Rmb0.33/0.42/0.53. We believe itsfair valuation should stand at 20x projected 2011E recurring EPS and maintain our OVERWEIGHT rating on thecounter. Our A-share target price is Rmb8.40 (H-share: HK$6.3 based on 13x 2011E recurring EPS, which is a10% discount to its peer Haier Electronics (01169.HK)).

On 15 Oct 10, China Coal Energy (CCE) announced operating data for Sep 10, including raw coal production of10.15m tonnes (+10.9% YoY, +4.1% MoM) and coal sales of 9.35m tonnes (-2.3% YoY). In Jan-Sep 10, coal outputand sales hit 92.08m tonnes (+20.2% YoY) and 87.93m tonnes (+30.2% YoY), respectively. Both production and salesare trending up, but at a decelerating pace. Coke production tallied 150k tonnes (excluding output attributable to its45% interest of China Coal and Coke Xuyang Ltd. held by CCE). In Sep 10, exports of self-produced coal were 130ktonnes (flat YoY). Imported coal amounted to 50k tonnes (-80% YoY from the 250k tonnes in Sep 09). It is noteworthythat the Company’s domestic coal trade had been rising briskly for several months, with the Sep 10 figure reaching1.71m tonnes (+34.6% YoY). Also in Sep 10, the value of CCE’s output of mining equipment was Rmb559m (+10.8%YoY), extending the robust upward trend. BUY rating reiterated. Given: (i) CCE’s enhanced potential for capacity growth in recent years; (ii) increasingexpectations of rising coal prices of late; (iii) accelerating growth of the Company’s coal mining equipmentbusiness, and (iv) the recent rapid earnings growth of Shanghai Energy (which holds a 62% stake in CCE) wemaintain our 2010-12E earnings forecasts for CCE as follows: Rmb0.75/0.89/1.09, respectively, with projectedassociated A-share PERs of 17x/14x/11x, respectively. The counter is trading at Rmb12.45. We set our A-sharetarget price at Rmb16.02 (H-share TP: HK$19.00), corresponding to a projected A-share 2011E PER of 18x. Reiterate our BUY rating.

2010E is a good year. Demand for Weichai Power’s (Weichai) products is believed to remain high in 3Q10E,with 2010E sales of engines likely hitting 560,000 units (+72% YoY). Sales volume of Shaanxi Heavy Truck couldreach 112,000 units (+66% YoY). Benefitting from rebounding investment and logistics demand, the heavy-dutytruck market continued to flourish in 1H10 with sales of 584,000 units (+113% YoY). The upbeat season extendedinto the third quarter (a traditionally low season for heavy-duty trucks) with 204,000 units (+16% YoY) sold. Demand for Weichai’s products remained high in 3Q10E, with engine sales expected to reach 135,000 units. Based on current market demand and the seasonal characteristics of the heavy-duty truck market, we forecastthat Weichai’s engine sales will likely tap 560,000 units (+72% YoY) and that sales volume of Shaanxi HeavyTruck could reach 112,000 units (+66% YoY) in 2010E. Bullish stance remains unchanged. We are relatively optimistic on the heavy-duty truck segment andbelieve its sales could exceed 950,000 units for full-year 2010E. Boosted by macroeconomic recovery, recovery offixed asset investment (FAI) and logistics demand, the heavy-duty truck market sustained its hot sales since thestart of the year with 788,000 units (-75% YoY) sold during Jan-Sep 2010. Going forward, barring any drasticdownturn in macro economy, 4Q10E sales of heavy-duty trucks will remain flat versus (or even slightly surpass)that in 3Q10E, driving total sales to exceed 950,000 units for full-year 2010E. We believe a combination ofsustainable booming industry climate and low raw material costs will drive the solid growth of Weichai’sprofitability. An up-trending industry. We believe Weichai’s revenue and profitability will continue to rise driven by thesustainable solid growth of the heavy-duty truck market in China. Despite market concern over such sustainability,propelled by the Mainland’s rapid economic growth in recent years, the heavy-duty truck industry posted 20%-plusannual growth in market size and Weichai’s earnings even surged at a spectacular rate of 50%-plus YoY. Barringany significant plunge in macro economy and FAI going forward, we believe the heavy-duty truck market in Chinawill continue its robust growth, and Weichai’s revenue and earnings will continue to trend upwards. Expecting a more diversified product range. In adherence to its development strategy with ‘engine asthe core and whole-vehicle/machine as the direction’, the Company prudently develops other domains andmarkets. Its overall competitiveness is set to improve further. Weichai is capable of designing and manufacturingthe entire powertrain system from engines to gear-boxes and drive axles. It is capable of supplying integratedsystems, with model range extending (from 10-12 litres being its mainstream products in the past) to 5, 7, 16 and33 litres, and gearboxes covering 8-16 gears. Additionally, it is developing the engineering equipment, powergenerator, farm machine and ship-use diesel engine markets. The increased variety and improvement of productlines will further boost its overall competitiveness in the long run. Risks associated with investing in Weichai: (i) Decline in downstream engine demand on slowing macrogrowth and drastic fall of FAI growth, (ii) rapid increase in raw material prices to squeeze margins; and (iii) loss ofmajor clients. Upgrading our EPS forecast and TP. Taking into account Weichai’s market position and promisingearnings prospects, we slightly revise upwards its EPS forecasts to Rmb7.13/8.00/8.60 for 2010/11/12E,respectively. The counter is currently trading at Rmb80.65 (A-share)/HK$92.65 (H-share), implying projectedA-share 2010/11/12E PER of 11x/10x/9x (H-share: 11.3x/10.1x/9.4x), respectively. Considering its promisingearnings outlook, improving production mix, market lead, future revenue growth and undemanding valuation, webelieve Weichai’s fair valuation should stand at 15x 2010E PER and maintain our BUY rating for the counter. A/Htarget price: Rmb106/HK$110.