9M16 operating revenue grew slower, total profit missed9M16 operating revenue rose 4.15% YoY to Rmb3.26bn, lower than UBS-S estimatesand market consensus, and 9M16 net profit attributable to parent company increased31.4% YoY to Rmb355m, with EPS at Rmb0.24, slightly missing our forecasts. Net cashflow from operations grew 79.4% YoY to Rmb765m.

Energy-efficient lights substituted faster, big client's LED lighting order lostQ316 operating revenue fell 7.85% YoY to Rmb1.13bn, the first quarterly decline sinceQ412, which we attribute to: 1） substitution of traditional energy-efficient lights wasfaster than we had expected; and 2） Yankon lost an LED lighting order from a bigNorth American client. With LED lighting ASP very close to that of energy-efficientlights, we think energy-efficient lights will be widely substituted at a quicker pace, andlower Yankon's 2016E energy-efficient light sales volume growth to -45% from -35%.

After losing the order, we trimmed the company's 2016E LED lighting sales volumegrowth to 40% from 70%. However, we do not think the revisions reflect long-termcompetition perspectives, and continue to expect Yankon's LED lighting segment willmaintain relatively fast growth. LED lighting prices were better than we thought in Q3,and we changed Yankon's LED lighting ASP growth estimate to -13% from -15%,along with recently bottoming out LED chip prices.

LED lighting had a higher share in sales, driving up overall gross marginGross margins of LED lighting are higher than that of traditional energy-efficient lights.

We estimate Yankon's 2016 overall gross margin will increase 2ppts to 27.3%, drivenby a higher share of LED lighting in sales and LED lighting client base optimization. Weexpect 2016 administrative and selling expenses will rise due to subsidiaries opened inGermany and France. As operating revenue grew slower, we think administrative andselling expense ratio will increase. In summary, we expect Yankon's 2016 net marginwill improve 1.5ppts to 10.3%.

Valuation: Trimming EPS and price target, maintain BuyAfter revising down Yankon's 2016 operating revenue growth to 4.5%, we aretrimming 2016-18E PES to Rmb0.32/0.40/0.47 from Rmb0.34/0.44/0.52. We arelowering WACC to 6.8% from 7.0% due to lower Beta, and thus revising down ourDCF-based price target to Rmb9.3 from Rmb10.0. We maintain a Buy rating.