Company Profile

Guangdong Chj Industry Co Limited (300196) operates within the Jewelry, precious metal sector.

Event

Kaidi Ecological and Environmental Technology Co., Ltd. announced on July 6 that the Companysigned strategic cooperation framework agreement with CMIG. The initial investment is CNY 20billion.

Comments

Operation of industry investment fund is expected to be further optimized, benefiting its overseasexpansion. (1) The Company invested in raw materials supply system to integrate resources ofmultiple channels, which will help further raise gross profit margin (up 36.64% in 2015). It workedwith agricultural organizations such as cooperatives consisting of poor households that enjoygovernment’s preferential policies.

(2) With 35 biomass power plants in operation and 27 biomass power plants under construction,Kaidi requires for large amount of investments. Due to insufficient capital as well as other reasons,opening of 8 biomass power plants was delayed, impacting Kaidi’s growth rate. Fund brought invia the transection helps Kaidi to fuel progress and improves future performance.

(3) The Company once participated in a USD 865 million Shenglong projest in Vietnam. It isexpected to expand beyond EPC mode and start exploiting and operating biomass power plantsfor its foreign business.

(1) Earlier constructed power plants were technically updated in 2015 to improve operatingefficiency, which reduced operation hours to 4055. (2) Using large amounts of yellow straw in2015 affected generating efficiency. The problem has been solved. (3) Fund raised is expected toexpedite construction of new plants as well as increase generating capacity.

Investment Recommendations: Reiterate OUTPERFORM. We expect net income of the Companyto be CNY 651 million in 2016, CNY 995 million in 2017 and 1.24 billion in 2018, implying30x/20x/16x PE. The private placement plan (CNY 9.3 per share which is close to market price)has been approved by CSRC. And major shareholders increase holdings at the price of CNY 10.63per share.

Potential Risks: Slower‐than‐expected business expansion.