Company Profile

El ion Clean Energy i s principally engaged in the manufacture and distribution of pharmaceuticals andchemical products. The Company involves in the manufacture of chemical products such as polyvinylchloride （PVC） and ionic membrane caustic soda, the manufacture and distribution ofpharmaceuticals, operation of electric power generation business, distribution of coal, as well asoperation of ecological and biotechnological businesses.

Investment Highlights

Event:

El i on Clean Energy's private placement scheme has re cently gained CSRC a pproval.

Comments:

The company aims to raise CNY 4.5 billion through private placement, which ahs gained regulatoryapproval from the CSRC. The funds raised will be invested in developing the projects on air-blastatomization of micronized coal slurries.

El ion Clean Energy will privately offer no more than CNY 650 mi llion shares raising funds of no morethan CNY 4.5 billion, of which CNY 3.9 billion will be used on to develop the projects on air-blastatomization of micronized coal slurries. The remaining CNY 600 mi llion wi ll be used to supplementworking capital. The offering price is fixed at 90% of the average price of the 20 trading days prior toi s suance day. The controlling shareholder Elion Group pledged to purchase no less than 9.87% oftota l shares. After the fund-raising completes, Elion Clean Energy will invest no more than CNY 3.9bi llion into Jieneng Electrical Appliance Technology, which is primarily engaged in developing theprojects on air-blast atomization of micronized coal slurries. We witnessed steady expansion of theproject capacity. 1） Two projects have been put into operation, greatly pushing up the net profit for16H1. The four projects in operation have a combined installed production capacity of 320T/H; thenine projects under construction have capacity of 600T/H; the projects to start have capacity of360T/H. The company has investigated into and backlogged 145 projects. Jieneng ElectricalAppl iance Te chnology made net profit of CNY 31.6 million in 16H1, almost equivalent with 2015'sCNY 33.25 mi llion.

The traditional coal heating may face headwinds. The clean coal utilization market presents highgrowth potential.

In 2014, Chi na's policymaker re leased and enacted the newly-revised Emission Standard for Boilers.

The Sta te Council underscored that by 2018, the total production capacity of high-efficiency boilersi s expected to reach 500,000 T/h. The market share of high-efficiency coal-fired boilers, whichcurrently s tands at 5%, would then increase to 40%. Currently China has around 5,000provincial-and-above level industrial parks, of which 1,400 parks do not have centralized heatingsystem. Given the 5% market share, the scale of the boiler construction and retrofitting market isexpected to reach CNY 80 bi llion.

The controlling shareholder, Elion Group has spent CNY 240 mi llion purchasing shares; i t may furtherspend CNY 400 mi llion to acquire more shares. Since February 2016, El ion Group has cumulativelyacquired 41.8 million shares with CNY 238 million; it plans to spend an additional CNY 600-700mi l lion purchasing shares via asset management schemes.

Earnings Forecast and Investment Grading:

Re i terate BUY RATING. We estimate that the company's net profit for 2016/2017/2018 will re achCNY 300 mi l lion/CNY 490 million/CNY 760 million respectively. Assume that the private offering scalewi l l reach 650 million shares and the market cap would hit CNY 17.4 billion, the company wouldtrade at 57x 16E PE, 32x 17E PE and 20x 18E PE. Reiterate BUY.

Potential Risk: The projects on air-blast atomization of micronized coal slurries may progress at as lower-than-expected pace.