Investment HighlightInvestment rating and valuation:

The Company possesses leading technology in large scale high-voltage converters,while its power electronics and component businesses are expected to improve theCompany’s performance. We expect the Company’s operating revenue to beRMB1.57bn /2.06bn/2.67bn for the years 2011 through 2013, and EPS to beRMB0.57/0.78/1.03 respectively (net profit CAGR of 35%). Furthermore, the Companyhas excess funds of RMB1bn for funding possible mergers and acquisitions. TheCompany is currently trading at PEs of 26X, 19X and 15X 2011-2013 earnings.

Maintaining “Buy” recommendation.

How we differ from consensus:

(1) The market considers the Company as a traditional switchgear manufacturerwith average power electronics technology. We believe that the Companypossesses leading technology in power electronics and is expected to realizethe substitution of imported large scale high-voltage inverters, which areapplied in the field of oil and gas pipeage, and has an average annual marketsize of over RMB2bn. The Company has developed the world’s leading large scalehigh-voltage 25MVA inverters, which have been verified by the National EnergyAdministration in January. According to estimates, the average size of the domesticmarket for high-end converters in the oil and gas field is RMB2bn per annumCurrently, demand is mostly met by imported foreign brands, such as ABB andSiemens. Thus, the Company is expected to compete with foreign brands to achieveimport substitution in the future.

(2) The market is of the view that the Company lacks sufficient potential growth inthe future. We believe that with the high-end low-voltage component market size ofup to RMB20bn and gross margins of 50%-60%, the Company’s future potentialgrowth is more than sufficient. High-end low-voltage components have a hightechnology barrier and are largely dominated by foreign brands such as Schneider andABB. Sales within the domestic market reached RMB20bn per annum. The Company hasjoint ventures with GE and has applied the latest low-voltage component technologydeveloped by GE to its products. Products will be localized by the end of this year and soldby next year, becoming the Company’s driving force for performance improvement.

(3) The Market may consider switchgear enterprises as having unstableperformances. We believe that complete power distribution switchgears havestable gross margins and a large market. As a result this segment’s futuresustainable growth is ensured. About 70% of the Company’s profit is derived fromcomplete switchgears, a segment which does not participate in centralized bidding,and has a stable gross margin. Its market scale grows along with the continuousgrowth of installed power generating capacity. The current complete switchgearmarket scale may be in excess of billions of RMB and is expected to maintain a 15%growth rate. As the leading enterprise in complete switchgears, the Company willbenefit from the growth of this industry and its future performance growth isguaranteed.

(4) The market is dubious of the Company’s sustainable growth, but we believethat the Company’s incentive plan for restricted shares is evident ofmanagement’s confidence. The Company’s incentive program (draft) requires thatits net profit CAGR reach over 30% in the next 5 years, showing the Company’sconfidence towards sustainable growth. In addition, the Company has excess funds ofRMB1bn to fund potential mergers and acquisitions, further enhancing itself andimproving its performance. Hence, results are likely to be better than expected.

Catalyst for share price performance:

Expansion of operations through mergers and acquisitions, and 2) componentindustrialization process speeds up.