Company Profile

Nanfeng Ventilator Co., Ltd. is principally engaged in the development, manufacturing anddistribution of fan products and air treatment systems. The Company mainly offers ventilators;air valves and fire protection valves; air purification products, including air filters, dust catchersand iodine absorbers; air conditioning end products, including fan coils, air outlets, electricheaters and surface coolers; wind power generation blades, as well as other auxiliaries,including drying equipment, air pipechannels, electric cabinets, current-collecting devices,muffler devices and soft connection devices. The Company's products are primarily used innuclear power, subway, tunnels, wind power generation, as well as major industrial and civilianconstruction.

Event

Nanfeng Addictive Manufacturer, the holding subsidiary of Nanfeng Ventilator Co., Ltd recentlycompleted R&D and examination of materials for simulated penetrating piece. Tested by athird party authority, all properties of the materials meet the standard specified in the latesttechnical specification.

Comment

Development of materials used in 3D printing witnessed a breakthrough, facilitatingindustrialization of 3D printing business. Electro-fusion-processed precise molding technologyapplied in heavy-metal hardware (also called 3D printing technology of heavy metal),represents an innovation globally. As a newly revolutionary technology, it features shortprocessing, lower cost, digitalization and near-final shape. Improvement on physicochemicalproperties of heavy metal hardware depends on adjustment of microelement in special metalmaterials. Similarly, rational proportioning of microelements constitutes a key factor inindustrialization of this new technology. As the results of material tests meet the requirementsspecified in the latest technical specification, the company’s strengths in supplying 3D printingmaterials have become quite evident. That will lay a solid foundation for industrialization of 3Dprinting business.

Mr. Wang Huaming, Academician of Chinese Academy of Engineering, having 31% stake inthe subsidiary (the company holds a 51% stake in the company), will leverage his pastexperience into this industrialization program. And his team is in charge of the coretechnology of this program. Academician Wang has made lots of accomplishments since 1998,committed to advanced aerial-metal-structural materials (including titanium alloy, hightemperature alloy, heat-resisting high-strength steel, ultra-high strength steel, intermetalliccompound alloy) and applied technologies (FDM, suite equipment and engineering-appliedcore technology included). Academician Wang was awarded as the member of ChineseAcademy of Engineering in 2015. We believe Academician Wang’s team has outstanding R&Dstrengths and will bring his rich and successful R&D experience into 3D printing program.

3D printing industrialization will shortly come underway in the nuclear power industry. Thedownstream applications will extend to other fields. The company has obtained satisfactoryR&D results since it began to take the program in 2012. Now 3D printing equipment is readyfor manufacturing in nuclear power industry. No more than 50 manufacturers in domesticmarket own product licenses of nuclear power, and none of them uses 3D printing technology.Once industrialization of 3D printing technology is realized, core components in nuclearreactors (pressure vessel, steam generator and voltage regulator) are able to be producedthough 3D printing. Additionally, with 3D heavy metal printing technologies, the company isexpected to develop other businesses deriving from 3D printing, such as coat repair and rapidmanufacturing. The company will gradually set up extensive businesses based on 3D printing,as part of the efforts to develop an industrial-level ecosystem.

Earnings Forecast and Investment Recommendations: We made our EPS forecast for thecompany at CNY 0.21 in 2016, CNY 0.24 in 2017 and CNY 0.27 in 2018, implying 87x 16E PE,75x 17E PE and 65x 18E PE. We give OUTPERFORM rating for the company.

Potential risks: 3D printing industrialization may fail. Development in the nuclear powerindustry may undershoot expectations.