Investment Summary

The fluctuation of NEV bus sector affected the Company`s 2017 result, But we expect that in 2018, the trend of high growth in China`s industrial control industry will continue and the Company`s industrial automation services are expected to continue growing rapidly. Meanwhile, the rail transit business will enter a cashing period. As for valuation, we expected diluted EPS of the Company to RMB 0.80 and 0.97 of 2018/2019. And we accordingly gave the target price to RMB32.55, respectively 40.5/33.5x P/E for 2018/2019. “Accumulate” rating. (Closing price as at 4 July 2018)

With a Rapid Growth of Revenue, a Good Situation of Steady Improvement of Net Profits Ongoing

Inovance Technology, with a revenue of RMB4.777 billion in 2017, up 30.5% yoy, with net profits attributable to shareholders up 13.8% yoy to RMB1.06 billion, with EPS RMB0.64 reported, has a result slightly less than our expectation, mainly due to a higher degree of impact on the market of new energy buses by policy adjustment than expectation; the integrated gross margin is 45.12%, down 3 ppts yoy, mainly attributable to such reasons as change in business structure, intensified market competition and rise in prices for part of raw materials. Period cost rate rises 2.3 ppts, mainly due to enhancing the R&D construction for new business.

In the first quarter of 2018, the Company`s revenue has risen by 24.7% yoy to RMB975 million, with net interests attributable to shareholders up 13.9% to RMB196.5 million, EPS RMB0.12 reported. In respect of gross margin, the Company, through constantly strengthening R&D of core technology, continues to launch new products with high gross margin rate as well as in-depth solutions to the industry, so as to keep a steady integrated gross margin for products from the Company and make the decrease of gross margin slow down by 1 ppts to 45.54%.