We upgrade STEP to Neutral from Sell as it has almost reached ourtarget price of Rmb8.0 （8% downside）。 We believe the market hasfully priced in the company’s elevator market share loss coupledwith the margin deterioration concerns. Since STEP was added tothe Sell List on September 9, 2016, the stock price is down 42% vs.

China A-share automation coverage average up 39% and CSI 300 up16%.

STEP has been losing elevator control market share to its localcompetitor Inovance since 2H15, and we expect the share losssituation to stabilize at 4% into 2020E vs. Inovance at 11%. Goingforward, we think it is unlikely the segment’s margin will see furthersubstantial price cut but rather a modest 0.5pp p.a. margin decline.On the other hand, we believe the company’s robotics segmentlacks drivers （e.g. active new products rollout/economy of scale） tooutperform.

Valuation

Our 12-month target price of Rmb8.0 is unchanged （based on 2018EEV/GCI vs. CROCI/WACC, with the sector cash return multipleunchanged at 3.10X, with a 20% discount）。 The company droppedinto the bottom quartile of our global automation CROCI league in2017 （9.8%）， and we see no signs of a turnaround into 2020E（8.6%）。 STEP is currently trading at 26X/25X 2018E/2019E P/Eagainst 7% EPS 2018-2020E CAGR, vs. 36X/25X and 30% for ourChina onshore automation coverage.

Key risks

Upside: better than expected robotics sales; regaining momentumto gain elevator control market share; downside: margins declinedue to competition and higher than expected interest expense.