Investment Highlights

Revenue and profit surged YoY. The Company posted revenue andnet profit of Rmb631mn (+215% YoY) and Rmb205mn (+1,235% YoY)for 1H15, translating into an EPS of Rmb0.7721 (EPS of Rmb0.53 for2Q15 alone). The results were in line with its earlier announcement andmarket expectations. Its gross margin stood at 48.71% during thereporting period, up 20ppts YoY. This surge in gross margin mainlycame from the rising proportion of machinery equipment (specialtysmelting equipment as well as equipment for waste heat & pressurepower stations), which carries a high gross margin of 50.84%, from itsoverall sales. Meanwhile, the Company also announced its dividendproposal for 1H15 which comprise of: (i) cash dividend ofRmb0.05/share; (ii) five bonus shares for every ten shares held; plus (iii)paying out bonus shares converted from capital reserve on a 1:1 basis.

Overseas expansion in full swing after successful strategictransformation. Since 2014, the Company has actively engaged intransforming/expanding its business from power equipmentmanufacturing to: (i) power system infrastructure; (ii) mining operations;(iii) investment and operations of industrial parks. Meanwhile, theCompany also actively expanded overseas. Leveraging on itsIndonesian ferronickel project, the Company kicked off overseas salesof its power system and specialty smelting equipment, whichsignificantly boosted the revenue of its core businesses. Its revenuefrom overseas sales of machinery equipment hit Rmb594mn in 1H15,accounting for 94% of total revenue for its core businesses. Newoverseas orders for machinery equipment worth US$100mn received bythe Company during 1H15 will be progressively delivered throughout theyear. Meanwhile, a portion of orders carried over from 2014 (amountingto US$146mn) will also be delivered this year. As such, we anticipateoverseas sales will continue to contribute handsomely to its overallrevenue going forward.

Forging a new “going out” development model for Chinesecompanies. With a focus on power system infrastructure, the Companyhas looked to conduct intensive processing of mineral resources bysetting up industrial parks locally in Indonesia after acquiring mines. Assuch, the Company is able to forge an extensive business presencewhich stretches across the entire industry chain. At present, theCompany has acquired a number of mines in Indonesia including coal,manganese and nickel. It is also building up infrastructure facilitiesincluding ports, roads and power plants. Hence, the Company is able toexport its domestic production capacity, technology, capital andmanagement expertise to overseas, establishing a channel that allowsoverseas demand to drive activities in the domestic market. By pressingforward global cooperation on production capacity via exporting itsentire industry chain, the Company has literally created a new model foroverseas expansion by Chinese companies. This also represents actively exploring practical means forthe OBOR strategy.

Risks associated with investing in the Company: (i) risks surrounding the operating environment ofthe overseas market; (ii) pace of construction for its Indonesian industrial park falling short ofexpectations; (iii) foreign currency risks.

Earnings forecast, valuation and investing rating. Based on its current orders in hand, we forecast its2015-17E revenue to be Rmb1.08bn/1.39bn/1.73bn, including net profit (attributable to shareholders ofthe parent company) of Rmb389mn/552mn/638mn, equivalent to 2015-17E EPS of Rmb1.27/1.80/2.08(excluding dilution effects from its private placement and bonus share payments). Its latest closing ofRmb79.49 implies prospective 2015-17E PER of 63/44/38x. Based on comparables’ average valuationmultiple of 45x 2016E PER, the Company’s current share price is largely consistent with the relativevaluation of its existing assets. We initiate coverage with an OVERWEIGHT rating. As its trading is stillsuspended due to the pending announcement of a major event, we do not apply a target price to theCompany for the time being.