Results missed expectation

In 3Q15, revenue grew 47.4% to Rmb260mn and net profit fell 58.3% YoY to Rmb24.22mn; while, over 1~3Q15, revenue rose 35.8% YoY to Rmb730mn and net profit fell 20.5% YoY to Rmb175mn, implying EPS of Rmb0.16, lower than expected, mainly because: 1) in 3Q15, the company made ~Rmb55mn provisions for asset impairment (payments could not be recovered for already insolvent investment projects); and, 2) growth of financial expenses beat expectations.

Trends to watch

Toll road business likely to resume growth. Construction of the Tianjin section of the Beijing- Tianjin- Tangshan Expressway has been completed; traffic volume in 2H15 will likely return to historical levels and record YoY growth compared with 2H14’s low base. HBE might be subsidized for traffic flow losses due to construction; potential subsidies will be booked in end-2015.

Power generation of PV power plants didn’t improve in 3Q15; HBE will be subsidized for unmet parts ofpower generation target at end-2015. We expect power generation of PV power plants will still be lower thanexpected in 3Q15 (on-grid power output in 1H15 was 20% lower than expected). However, given the promise of annual on-grid power output targets, HBE will be compensated for the unmet parts at the end of the year . Therefore, PV power plant business will have a limited impact on full-year earnings.

PV power plant business to keep growing in 2016. In September 2015, the company signed a contract with Zhongli Talesun to acquire 326MW PV power plants. We expect the company will carry out the acquisition through leveraging-up. Assuming that all power plants are connected to the grid before end-2015, the acquisition could increase its 2016e earnings by ~Rmb100mn or ~22%.

Earnings forecast

Considering the provision for asset impairment and slightly higher-than-expected financial expenses, we trim 2015/16e EPS forecasts by 36.5%/20.7% to Rmb0.22/0.34 (without considering end-2015 subsidies), implying earnings growth of 5.6%/53.8%. We like its “toll road + PV power plant” business model,maintain BUY rating and TP of Rmb7.3.

Risks

Traffic flow or on-grid power output misses expectations.