According to its 16Q1 preliminary earnings estimate, the company’s earnings for the firstquarter is estimated at CNY 113 million-CNY 121 million, up 50-60% YoY.

Comment

2015 is the off-peak period for IPhone sales. The company managed to maintain its revenuestable thanks to robust sales of high-power machines. In 2015, Apple launched iPhone 6S.

Since the marking, welding, cutting equipment used for iPhone 6S is primarily the same withthat for iPhone 6, there is limited demand for replacing old facilities with new ones. Thecompany’s revenue was thus affected. During the reporting period, the company’s sales oflow-power laser and automation machines increased 3.31% YoY to CNY 3.18 billion, whichremains flat as compared with the last year. Though the relatively weak sales of iPhone affectscompany revenue, sales of facilities used for manufacturing electronic products other thaniPhone increased, thus boosting the company’s revenue. Looking ahead, with new version ofiPhone expected to be released in 2016, we expect the low-power laser machine business togrow by 50%. The all-year revenue is expected to reach CNY 4.77 billion.

Sales of the high-power laser and automation machines reached CNY 990 million, up 9.56%YoY – hitting a record high. High-power laser and automation machines account for 60% of theglobal laser equipment market. Most of the laser-based products produced are used forcutting and welding industrial materials for the automobile, electronics and publictransportation industries. In 2013-2015, the high-power laser machine market increased by9%, 7.6% and 5% YoY respectively. As domestic self-owned brand cars become more popular,Laser Technology Industry Group will become a big beneficiary as more previously importedlow-power laser machine will be gradually replaced by domestic-made ones. We look forwardsto the company’s future development in the fields of integrated automation equipment andindustrial robot.

The private placement scheme secured approval, paving way for the company to expandbusinesses in the four key areas. On December 29, the company received the CSRC’s approvalon its private placement scheme. Specifically, the company has been approved to offer nomore than 205 million shares to raise a total of CNY 4.1 billion. The funds raised will beinvested into the high-power fiber laser cutting machines, high-fiber laser cutting and weldingautomated system, brittleness material processing and industrial robot R&D. We believe thecompany will gradually develop from a low-power laser machine producer to a high-power laser machine producer. It will gradually step up production of laser-based products used inthe automobile, aviation and shipbuilding fields. At the same time, the company will increaseits input into the development of robots and gradually transform itself into an integratedsolution provider. By doing so, the company looks to achieve more balanced business growth.

The company has entered several M&As, in a bid to expand presence in the automation andintegration businesses. On January 12, the company announced that it would set up an SPVwith AVIC International Aero-development Corporation and AVIC Capital. It plans to acquire95% stake in Aritex Cading through AVIC Capital. Aritex mainly provides airplane and carmanufacturers with automated plane and car assembly solutions, as well as many otherrelated products and services. In addition the company has acquired a 51% stake in ShenyangSetwin Industrial Equipment Co., Ltd., a domestic producer of automatic system integrationsolution for cars. The company shows strong optimism towards Shenyang Setwin’s futuregrowth prospects in developing robots and automation systems.

The company has rolled out clear business development strategy. 2015 is the off-peak periodfor IPhone sales. The company managed to maintain its revenue stable thanks to robust salesof high-power machines. In 2015, Apple launched iPhone 6S. Since the marking, welding,cutting equipment used for iPhone 6S is primarily the same with that for iPhone 6, there islimited demand for replacing old facilities with new ones. This slowed down the company’srevenue growth. Looking ahead, the huge demand for iPhone 7 will help push up the growthof smaller-power laser machines, which we expect will register a 50% growth. In the longerterm, the company will work harder to transform itself into an integrated solution providerand to further expand the high-power laser machines. Investing into Aritex and ShenyangSetwin will accelerate the company’s pace to expand into automobile and aircraft field. Wemade our EPS forecast for the company at CNY 0.92 in 2016, CNY 1.14 in 2017 and CNY 1.35 in2018, implying 24.88x 16E PE, 20.05x 17E PE and 16.96x 18E PE. Reiterate BUY.

Potential Risk: Lower-than-expected sales of iPhone 7, slower-than-expected progress inprivate placement, weaker-than-expected demand from the manufacturing industry 中国最大钣金展-锻压展-2017广州国际钣金、锻压工业展览会-巨浪展览- 2017(Guangzhou）Int’l Sheet metal machinery,Forging, Stamping and Setting Equipment Exhibition