What happened

The State Council issued the government work plan forgreenhouse gas emissions control over the 13th Five-Year Plan（FYP） period, offering guidelines for fighting climate change andpromoting low-carbon development. It highlighted the majortasks for controlling greenhouse gas emissions from eightperspectives. In particular, the State Council made it clear that anationwide carbon credits trading market would be established.

We believe Zhixin Electric will benefit.

http://www.gov.cn/zhengce/content/2016-11/04/content_5128619.htm

Comments

To launch a nationwide carbon market in 2017; establisha properly functioning nationwide carbon market by2020. The government will take three steps to build thenationwide carbon market: 1） establish a nationwide carboncredits trading system; 2） launch a nationwide carbon creditstrading market; and 3） strengthen infrastructure support fornationwide carbon credits trading.。

Carbon-related investment themes heating up;first-mover advantages in carbon market to benefitZhixin. 1） International market: The Paris Agreement has beenratified by 72 countries and is set to take effect, signaling thatcontrol over carbon emissions will be strengthened. 2. Domesticmarket: the State Council made it clear that a nationwide carboncredits trading market would be launched in 2017.

We maintain our 2016/2017e earnings forecasts, expecting EPSto grow 23.5% and 21.3% YoY to Rmb0.40 and Rmb0.49,respectively, implying 28x 2016e P/E and 23x 2017e P/E.

Maintain BUY and TP of Rmb14.00.

See page 3 for details.

Risks

Electric distribution network investment disappoints;slower-than-expected launch of carbon market.