Net profit +100% YoY, in line with expectationsZhixin Electric announced its 1~3Q16 results: operatingrevenue +15.8% YoY to Rmb4.48bn and net profit attributable toshareholders +100% YoY to Rmb274mn, implying EPS ofRmb0.20; the results are largely in line with expectations.

Earnings delivered high growth, mainly thanks to: 1） 2015’s lowbase; 2） rapid revenue growth of Wuhan Nari and energy-savingservices; and, 3） the 1.98ppt decline in expense ratio; thecompany’s selling expense and G&A expense ratios fell 0. 62pptand 0.81ppt, respectively, mainly because it strengthenedexpense controls. Operating cash flows rose by Rmb440mn YoY,implying that the company’s operations kept improving.

Trends to watch

Carbon-related investment themes heat ing up;first-mover advantages in carbon market to boostvaluation.

Electric distribution network investments toaccelerate; earnings growth to be secured.

Energy-saving business to maintain high growth andbecome a new earnings growth driver.

Earnings forecast

Maintain 2016/17 EPS forecasts unchanged atRmb0.40/0.49, implying +23.5%/21.4% YoY growth.

Valuation and recommendation

The stock is trading at 27x/23x 2016/17e P/E. Maintain BUYand TP of Rmb14, implying 26.7% upside potential. Thestock’s current price is slightly higher than its price during assetinjections and thus enjoys some safety margin.

Risks

Electric distribution network investments disappoints; carbonmarket starts later than expected.