During 1H2015, the Company turnover dipped while its loss narrowedYoY.

During 1H2015, the Company registered turnover and net profitattributable to shareholders of listed company of Rmb1,777mn andRmb-119mn (-1.05% YoY and narrowed relative to that during 1H2014).The decline in its 1H2015 turnover was mainly due to decline of 3% and18% in its revenue from power grid automation products and smartprimary equipment.

Over the same period, the Company’s gross margin came in at 24.30%(+3.09pcts from the level during 1H2014). Due to more input into R&D,depreciation of fixed assets and amortization of intangible assets, theCompany’s administrative expense ratio rose by 2.69 pcts to 14.85%,weighing down on its profit.

Smart power grid business grew steadily; the Company stands tobenefit from accelerated investment by power grid operators in midterm.

During 1H2015, the Company registered turnover of Rmb834mn fromsmart power grid business with orders at hand totaling Rmb1.72bn. Itssubstation automation business maintained steady growth, it madebreakthroughs in distribution automation business in some markets andit won the bid for transmission line protection products and breakerprotection used in UHV project for the first time, making it the bid winnerfor all kinds of secondary equipment products in AC UHV projects.

The Company is expected to benefit from accelerated/increasedinvestment by power grid operators since 2H2015 and thus boost itsprofit. In addition, with smart power grid construction accelerating, theCompany’s smart micro grid equipment and pre-installed substationproducts will directly benefit from accelerating smart power griddevelopment in China.

Foray into industrial automation from power plant automation throughtechnological breakthrough. During 1H2015, the Company recordedRmb453mn in turnover from power plant and industrial automation businesswith orders at hand totaling Rmb451mn. The Company is technologicallywell-positioned in many automation segments, including power plantautomation, orbit transit, coal mine automation etc. Its wide range of productofferings or winning bids for many types of automation projects reflect itsbeing versatile in these segments.

Promising new businesses (security, information security, alternativeenergy and environment protection) expected to turn into long-termrevenue growth drivers amid major breakthroughs in these businesses.

During 1H2015, the Company registered turnover of ~Rmb57mn frominformation security and service industry, had orders at hand worth of~Rmb91mn and won bids for three projects.

It posted turnover of Rmb398mn from alternative energy and environment protection industry, had ordersat hand worth of ~Rmb897mn and won bids for a PV power generation project and a wind farm EPCproject.

Potential risks: 1) Worse than expected order delivery; 2) intensifying competition in distribution automationproduct market.

Earnings forecast and valuation. We forecast the Company’s 2015/16/17E EPS to be Rmb0.03/0.15/0.22.Although trading at relatively demanding valuation, we anticipate it to have clearer strategy and higheradministrative efficiency in future, we set its target market cap at Rmb7bn, TP at Rmb11 and initiateOVERWEIGHT.