Earnings expected to drop 8% YoY

The firm preannounced 2016 operating earnings to rise 80.87%YoY to Rmb2.726bn, net profit attributable to shareholders to fall8.01% YoY to Rmb174mn. Company revenue keeps fast growth,and net profit is below market consensus.

Trends to watch

Better-than-expected revenue driven by robot andmotion control systems. ADTECH, Show-Kyoel and Bitpass,which have been acquired by the firm, deliveredbetter-than-expected performance in 2016, and there’s a bigprobability of completing earnings promise.

Profit dragged by shrinking GM of elevator biz.

Disappointing net profit is mainly attributable to: 1） decliningelevator motion control systems and shrinking GM （we expectGM to gradually stabilize going forward）； 2） unpaid privateplacement proceeds resulting in large current interest expenseand hurting company earnings.

An integrator of smart manufacturing industry. Throughacquisition, the firm has operated a robot business covering theentire value chain of core parts, robots and integration.

Valuation and recommendation

Due to disappointing elevator business, we trim 2016/17e netprofit forecast by 13.4%/10.8% to Rmb174mn/201mn.

Introduce 2018e earnings forecast at Rmb237mn. Thecompany is trading at 38.6x 2017e P/E. We are upbeat on thefirm’s motion control system and robot business. MaintainBUY. Considering revision to earnings forecast, we cutTP by 11% to Rmb16, implying 50x 2017e P/E. （As abellwether in the sector of robot and motion controlsystem, the firm enjoys valuation premium.）

Risks

Integration of M&A targets disappoints; negative impacts ofelevatior output declines beat expectations.