China High Speed Transmission:Downgrading to Neutral and terminating coverage

Current view

We believe CHST is well positioned to benefit from robust export salesgrowth in the coming years, thanks to potential customer acquisitions inEurope and India, as well as growing orders from GE. CHST expects salesto GE will exceed Rmb3.0bn in 2016, vs. Rmb2.0bn in 2015. Meanwhile, itaims to ramp up sales in India in 2H16 and in Europe from 2017, withcombined non-US export sales targeted to reach Rmb1.0bn by 2018.Weexpect the company to gain market share in the US maintenancereplacement market, in addition to new installations. However, we arecautious on wind installation outlook in China as the government has set210GW cumulative installation target by 2020, which implies 14.5GW newcapacity addition per year, vs. 23GW in 2016. Moreover, we see limitedsynergy from the share swap with Fullshare (607.HK) due to Fullshare’slimited experience in managing a renewable energy business.

Valuation: We fine-tune our 2016E/17E/18E earnings by 2.3%/0.4%/-0.7%to factor in higher export sales in 2016E-17E, but lower installations inChina in 2018E. Our P/B vs. ROE-based 12m target price remainsunchanged at HK$7.70 (sector return multiple of 9.54x).

Risks: New customer acquisition from export (upside); lower selling priceand shipment in China (downside).