What's new

Highsun announced: 1) plans to develop an AFV and chargingoperation project; and, 2) a joint operation of Highsun WeilanNew Energy Tech with Huaweilan (contract signed on August 24;Highsun put in Rmb10.20mn for a 51% stake).

Comments

Proactive transformation & upgrading to furtherboost ecosystem expansion. Its AFV & charging projectand alliance with Huaweilan aims to build the company intoa household & entertainment center operator amid sluggishphysical retail sales. It also echoes our previous call forbusiness model innovation and business expansion. As theHighsun ecosystem continues to improve, the company willpromote project progress and business synergies. Its futurecapital operations merit attention.

Beneficiary of AFV sector’s huge potential bybuilding triple play: auto leasing, AFV and chargingservice bases.

Conversion price for CBs determined; stock price torally. The conversion price for CBs is Rmb5.26/sh.Management has strong motive to drive the stockconversion (during the conversion, if the closing priceis >130% of the conversion price in 15 of any 30 continuoustrading days, it will indirectly trigger the conversion clause,i.e. Rmb6.84).

Valuation and recommendation

Maintain BUY. The ecosystem is starting to pay off while itsdeployment in AFV and charging operation will likely drivebetter-than-expected growth; watch progress of externalconsolidation project and business model innovation after the CBissuance. Keep TP of Rmb6.7, implying 51x 2017e P/E.

Risks

Slower-than-expected progress of commercial projects; volatilityin real estate settlement; cross-sector M&A consolidation risk.