The Company kept fast growth in 1H15. It forecast its 1-3Q15 netprofit to grow 0~30% YoY.

1H15 turnover/net profit grew 33%/15% YoY to Rmb407mn/Rmb19.53mn, respectively, thanks to rapid development of thesubstation automation (Rmb138mn, +47%) and distribution automation(Rmb163mn, +70%) businesses.

Recurring net profit attributable to shareholders grew 23.45%, lowerthan growth in turnover. This is mainly because of the increases in tax(+311%) and financial (+285%) expenses.

The Company forecast its 1-3Q15 to reach Rmb630.1bn~Rmb819.2bn,up 0%~30% YoY.

Core business registered impressive growth; and the Companyvigorously developed energy informatization business.

During 1H15, the Company signed Rmb518mn worth of powerautomation contracts, accounting for 46.71% of its 2014 turnover.Besides, it won many smart water management projects and had thelargest share in the smart water meter market.

In terms of energy informatization, the Company won the contract tobuild an energy utilization monitoring system from NDRC, and it set upthe first regional smart energy service cloud platform in China.Currently, the platform acquires data on gas, water and industrialenergy conservation from over 26k points. It also set up an energycompany to explore the smart micro-grid and distributed energy systemmarkets.

Benefiting from power grid investment, the Company’s earningsare forecast to continue growing in 2H15.

The Company’s turnover mainly stems from the power automationprojects it won from State Grid and China Southern Power Grid. Inmid-2015, State Grid and China Southern Power Grid raised theirannual investment target from Rmb439.6bn/Rmb70bn toRmb467.9bn/Rmb83.4bn, respectively. We expect their power gridinvestment to grow significantly in 2H15E (1H15: Rmb163.6bn). Thisstands to benefit the Company.

Besides, the Company set up a wholly-owned software company andacquired a controlling stake in Fujian Automation Electric PowerTechnology (focuses on production of distribution automation systems).This improved its presence along the distribution automation industrychain, and allowed it to enter the alternative energy and smartmicro-grid fields.

Expand public utilities automation business, and foray into thedefence and 3D printing markets.

In 1H15, the Company increased its investment in Jiangsu LekeThermal Technology and set up a JV with Henan Hanwei Electronics,consolidating its strength in the public utilities automation business.

It also entered a strategic cooperation agreement with Beijing Jiuyuan Trade (a subsidiary of ChinaAcademy of Engineering Physics), and invested Rmb30mn in CAEP-LITUO AMD Materials (a leadingsuperfine metal powder processer in China). Given robust growth of the defense market and promisingoutlook of the 3D printing sector, the above initiatives are forecast to drive ahead the Company’s growthin future.

Risks: Low investment in power grid construction and upgrade; failure of external expansion.

Earnings forecast and valuation. We are upbeat on steady growth in the Company’s core business aswell as its fast development in the public utilities automation field. 2015/16/17E EPS of the Company isprojected to be Rmb0.49/0.63/0.84. Factoring in the external expansion, we value the Company at 30x2016E PE, yielding a TP of Rmb18.90. Initiate OVERWEIGHT.