Made in China:D/g Pinggao/XJ Electric to Hold;Internet tour takeaways,Education,Alibaba

China A-share T&D equipment - Emerging UHV risks, shrinking upside; d/g Pinggao and XJ Electric (Luka Zhu)

    We see increasing uncertainty over the outlook for China’s UHV investment. Project approvals are likely to be affected by persisting power oversupply and rising distributed energy investment. Nearly halfway through the year, we observe signs of UHV project delay and tenders falling shy of expectations. For UHV suppliers, potential UHV order contractions would make the product mix less favorable and point to a weaker earnings growth profile in FY18-19 (2-9%). With modest and less visible growth ahead, valuations (13-14x FY17E) offer limited upside. We downgrade Pinggao and XJ Electric to Hold; we prefer XJ for its more defensive DC investment outlook and higher distribution exposure. (Luka Zhu - 852 2203 6173)