Key takeaways

On January 19, we organized fieldtrip to Laibao Hi-techduring which Chairman Secretary Wang Xingchendiscussed business deployment and future outlook.

Product mix adjustment paid off; steady earningsgrowth expected. In 2015, Laibao shut down the small-sizeOGS touch panel capacity to focus more on medium/large-sizeOGS. As the adjustment paid off in 2016, Chongqing Laibaocontributed 87% revenue in 1H16 with net margin of 10.1% (vs.overall 5.2%). With continued YoY rise in April~November,orders for medium/large-size OGS improved YoY in 4Q16 and theYoY momentum will likely continue in 1Q17, thus driving upsidein both revenue and earnings.

2-in-1 & touch-panel NB to drive OGS growth; improvedcompetition pattern. We expect the medium/large-size OGSprice to be more stable this year with 5~10% drop.

Proactive management with effective cost control. 1)Higher added value brought by OGM & AR new products and newclient expansion (Microsoft); 2) Parentco to narrow losses witheffective cost control; 3) To explore more flexible incentives.

Shareholding in CIGS to contribute in 2019. Laibaoinvested Rmb125mn in Chongqing Shenhua (10% stake); the JVplatform brought CIGS technologies and helped Laibao enter thesolar market quickly. It is one of Laibao’s innovative explorationsto fuel future growth, while the company would still concentrateon medium/large-size OGS.

Recommendation

We slightly lift 2016/17e EPS forecast by 5%/5% toRmb0.28/Rmb0.35 and introduce 2018e of Rmb0.43(+22% YoY). The stock is trading at 42.6x/33.3x/27.3x2016/17/18e P/E. Maintain BUY and TP of Rmb15.3.

Risks

Demand for 2-in-1 and touch NB disappoints; sharper-thanexpecteddecline in medium/large-size OGS price; FX losses.