Revenue and profit grew swiftly in H1, beating expectationsH115 revenue was Rmb1.9bn (+24.7% YoY), net profit attributable to shareholders ofthe listed company was Rmb178m (+32.4% YoY) and EPS were Rmb0.12. H1's strongtop- and bottom-line growth beat consensus and UBS-S expectations.

Strong growth in LED lighting offset losses in energy-efficient lightingH1 LED lighting revenue was Rmb1.25bn (+92% YoY), or 66% of total revenue.

Underlying these forecast-beating results, sales volume surged nearly 200% even asLED prices fell c30%, resulting in faster growth than H114 despite a high base. Weattribute that to strong growth at long-standing customers such as Phillips and Lowe's,combined with successful inroads at new clients such as GE and Toshiba. LED lightinghas been enjoying a robust business climate as LED lighting prices fall into the sweetspot for replacing energy-efficient lighting (<2x of energy-efficient lighting prices).

Noting Yankon's early-mover advantage, as well as industry-leading technology andquality, we expect its LED lighting segment to continue posting rapid growth. On theother hand, H1 energy-efficient lighting revenue fell 27% YoY to Rmb630m, in linewith expectations. We see this segment declining in importance as time passes.

Product mix boosted margin; Rmb devaluation + government subsidy tailwindsH1 gross margin inched up 1ppt to 23.9% on new LED lightning products and astronger product mix tilt toward LED lightning, and we see Yankon continuing tobenefit from product mix improvement. H1 administrative expenses soared +53% asthe company stepped up its R&D outlay, which we think is positive for the company toremain competitive in LED lighting over the long haul. Yankon is likely to benefit fromthe Rmb devaluation, given its high share of exports (84% of sales in H1), although thiswill be limited by the short order cycles of about one month used for exports. Finally,we expect H2 results to be lifted by an Rmb91.88m government subsidy for highefficiency lighting received in July.

Valuation: Maintain earnings forecast, Buy rating and Rmb13.75 PTWe maintain our 2015-17E EPS at Rmb0.30/0.38/0.47. We derive our price target ofRmb13.75 from DCF-based methodology and explicitly forecast long-term valuationdrivers using UBS's VCAM tool, assuming a WACC of 6.2%. With Yankon set tocontinue benefitting from a strong business climate in the LED lighting segment overthe next three years, we maintain our Buy rating.