Action

We upgrade to BUY and keep TP of Rmb24 for Weifu-Aand HK$24 for Weifu-B. In 2015, revenue -9.6% YoY toRmb5.74bn; net profit attributable to shareholders -1.6% YoY toRmb1.52bn, largely in line with our expectations. Weifu proposedRmb5 cash dividend per 10 shares with a dividend yield of 2.5%.

Reasoning

In 4Q15, actual net profit increased; administrativeexpense climbed significantly. In 4Q15, revenue dropped7.2% YoY to Rmb1.24bn while gross margin was at 27.6%, flatYoY and +4.5ppt QoQ; expense ratio increased and especiallyadministrative expense ratio rose to 27.2%. Excluding thisimpact, the actual profit in 4Q15 almost posted positive growth.

Steady growth in after-treatment business andinvestment returns; HQ fuel injection business underpressure. In 2015, investment return rose 27.9% YoY toRmb1.33bn （associate: +19.1% YoY to Rmb1.05bn）。 On theback of the strong growth of POC/DOC and the gasoline-engineafter-treatment business, Weifu Lida’s net profit climbed 24.5%YoY to Rmb203mn in 2015.

Benefit from recovering HDT in the near term; businesstransformation underway. We expect the recent recovery ofHDT sector to boost the fuel injection system business. Moreover,Weifu plans to invest another Rmb120mn/Rmb150mn in WeifuMashan/Weifu Chang’an to further expand its presence inprecision manufacturing and castings.

Earnings forecast and valuation

We maintain our 2016 earnings forecast and introduce 2017forecast of Rmb2bn.

Risks

Recovery of HDT sector disappoints.