Investment positives

We initiate coverage of Beijing Bashi with a BUY ratingand a TP of Rmb15.85, or 40x 2017e P/E.

Why a BUY rating

Alternative-fuel vehicle （AFV） charging business haslarge growth room. By 2020, the company will havebuilt >2,000 new chargers to serve Beijing PublicTransport’s ~12,000 electric buses. We expect its chargingbusiness to see a 74% CAGR over the next four years andaccount for 34% of the company’s net profit in 2020,becoming its core profit source.

Monopolistic bus charging stations have bestinvestment value. Electric buses have high growthvisibility and regular charging needs; bus charging stationshave higher equipment utilization, higher net margin and ashorter payback period. Bashi will continue to enjoy BeijingPublic Transport’s monopolistic infrastructure and provideexclusive charging services for its electric buses.

Synergies between charging stations and traditionalbusinesses, and thus new business models. Withcharging stations as their core, the EV ecosystem providesan innovative growth environment for the company’straditional advertising and automotive service businesses.

How do we differ from the market More earnings modelsbased on charging stattions are likely to emerge in the future. Weexpect Bashi to become an industry benchmark.

Potential catalysts: accelerated promotion of electric buses;breakthroughs in chain maintenance business.

Financials and valuation

EPS is expected to be Rmb0.24/0.40/0.51 in 2016/17/18, aCAGR of 46.3%. We derive the company’s target market cap atRmb6.39bn using the SOTP method; thus, TP is Rmb15.85,implying 40x 2017e P/E and 21.42% upside potential from thecurrent price. We initiate coverage with a BUY rating.

Risks

Plunging AFV subsidies; slow license plate issuance; decline inadvertising GM; decrease in driving school enrollments.