We met SDIC Power at dbAccess China 2016, and below are the keytakeaways: Power reform and direct power supply Management believes the government will actively push the execution of thepower reform in the next few years, and market competition will become morefierce in the future. The total percentage of direct power supply of SDIC Powerin 2015was less than 10%. The average tariff discount for the direct powersupply is at Rmb3-4cents/kWh, and there is no hydro power involved in thedirect power supply yet. Utilization/coal price/tariff Hydro: Although SDIC has recorded a poor waterflow of Yalong River in Julyand August 2015, its waterlow level in the fourth quarter reached multi-yearaverage. There is no water abandon in Yalong River this year. Thermal: thecompany’s thermal utilization decreased by 10% yoy in 2015. Management advised an average standard coal cost of c.Rmb460/ton for 2015with a further 10% yoy decline in 2016. According to the management,whether the company’s cross-provincial hydro tariff will be adjustedaccordingly has yet to be decided, and the average thermal tariff impact on thecompany is less than Rmb3cent/kWh as some of the company’s thermal tariffsare already lower than the previous benchmark thermal tariff. Capacity addition plan Hydro: while Tongzilin unit 4is expected to start operation in 1Q15, thescheduled operational dates of the remaining hydro power plants are beyond2020. Thermal: there are 6GW thermal projects currently under construction with thescheduled commissioning time in 2016and 2017including: Beijing Phase II(2x1,000MW), Qinzhou Phase II (2x1,000MW), Meizhouwan Phase II(2x1,000mw). Financial cost/dividend/non-public share issuance Thanks to the interest cut, management expects the company could saveRmb450m financial cost in 2016. Management has also guided it will maintainits dividend payout ratio of 35% in 2016. Management suggests that the finaltiming of the non-public A-share issuance remains uncertain.

Buy the leading Chinese magnets producer with high growth. Zhong Ke San Huan is a leading global NdFeB magnets producer with 16ktNdFeB magnets capacity at end-2014 (ranked No.1 globally). High-end NdFeBaccounts for 13kt of this, equivalent to ~30% of total high-end NdFeB magnetscapacity in China. Given its leading technology, improving sales mix towardshigher-margin auto motors and emerging demand from hybrid/electricvehicles, we expect San Huan’s net margin to increase to ~10% in 2017 from~7% in 2015 leading to a two-year EPS CAGR of ~37%. We initiate coverageon with a Buy and a target price of RMB17.0, implying 43% upside potential. A leading player in NdFeB magnets with improving revenue mix. Zhong Ke San Huan, with its 16kt NdFeB magnets capacity and high-endtechnology, leads in magnet supply in, for example, electric power steering(EPS) motor, voice coil motors (VCM) and electronic motors. We also likemanagement’s increasing focus on auto motors with higher margins (~30%GM vs. others ranging from ~15-25% in 2014). We expect supply of magnetsto auto motors to account for ~63% of total sales in 2017 from ~48% in 2014,and gross margin to improve to ~26% in 2017 from 24% in 2014. Robust hybrid/electric vehicle growth supports mid-to-long-term earnings. We expect hybrid/electric vehicles to be the major driver of magnet demand inthe coming years with a ~30% CAGR from 2014-18. Therefore, we are positiveon the company’s entry into hybrid/electric vehicles and expect HEV/EV-relatedsales to enjoy robust growth from a low base of hundreds of tonnes in 2014. Zhong Ke San Huan’s recent JV with Hitachi Metal focusing on magnets inHEV/EV will further improve its technology and cement its leading position. Initiating with Buy; risks: weaker magnets demand and intense competition. We use DCF to derive our target price of RMB17.0 (WACC: 8.8%, tgr: 2%). Ourtarget price translates into ~50x/34x 2016/17E EPS (net cash PE at ~46x/31x2016/17E EPS). The stock currently trades at ~35x/24x 2016/17E EPS (net cashPE at 31x/23x 2016/17E EPS), lower than its domestic peers’ c.39x 2016E EPS. Considering its leading position in the magnets industry and robust growth inthe magnets market, we are initiating Zhong Ke San Huan with a Buy rating. Risks: weaker magnet demand and intense competition.

Lowering TP by 16.7% on stock dividendsWe cut Bank of Beijing (BOBJ)'s target price by 16.6% to Rmb12.00(Rmb14.39 prior) to reflect the bank's stock dividends of two bonus shares perevery 10 shares with the ex-dividend date of 17 July 2015, which increase itsnumber of outstanding shares from 10,560mn to 12,672mn. We do not expectsignificant changes on the bank's fundamentals. Maintain Buy and top pick among A-share banksWe remain our Buy rating on the stock and mark it our top pick among A-sharebanks, given its solid MSE lending and deposit franchise in home market,prudent risk management and initiatives in internet finance (cooperation withXiaomi and Tencent). We value BOBJ based on full growth 3-stage Gordon-Growth Model (GGM) with a target price of Rmb12.00 (1.4x 2015E P/B),implying 34% upside. On our estimates, BOBJ is trading at 1.0x 2015E P/B and6.5x 2015E P/E.