Company preannounces 1–3Q17 earnings will likely fall -70.42% YoY

Zhixin Electric preannounced its 1–3Q17 net profit will likely fall70.42% YoY to Rmb81.10mn, mainly due to rising copper and ironprices, low order prices and increased costs caused by higher qualityrequirements.

Trends to watch

Distribution network equipment still under pressure; watchprice recovery and tender growth.

Carbon trading market to be launched in 2017; a boost tovaluation.

Steady progress in energy conservation; earnings contributionfrom Wuhan Nari.

Valuation and recommendation

We trim our 2017/18e earnings forecasts by 21.2%/11.53% toRmb375mn/482mn or EPS of Rmb0.28/0.36. Maintain BUY and TPof Rmb8.50, implying 24x 2018e P/E.

Risks

Major volatility in raw material prices; investment in distributionnetwork and progress in carbon market disappoint.