2016 results in line with expectation

Hiconics Eco-energy Technology announced its 2016 results:revenue was Rmb1.42bn, up 75.5% YoY; net profit attributableto shareholders was Rmb179mn, up 244.6% YoY, or Rmb0.23per share. Per ten shares, it proposed a Rmb0.5 cash dividendand four bonus shares. Gross margin fell 3.5ppt to 35.6%due to falling prices and gross margin for AFV powertrains.

Non-recurring gains of Rmb90.13mn boosted earningsgrowth （selling back a stake in Guodian Nanjing Automationand contingent gains from compensation for Dorna Technology）。

Trends to watch

Sales volume of AFV powertrains likely to maintain fastgrowth.

Stable progress in EV leasing and charging business.

Energy saving & environmental protection business tobecome a stable source of profit.

Earnings forecast

Considering the decline in AFV powertrains’ gross margin, welower our earnings forecast by 14% from Rmb0.3 toRmb0.26 per share for 2017, and by 15% from Rmb0.37to Rmb0.31 per share for 2018.

Valuation and recommendation

The stock is trading at 34x/28x 2017~18e P/E. Maintain BUY,but raise TP by 5.71% to Rmb11.10 （43x/36x 2017~18eP/E）， implying 26.42% upside room from the current price. It is arare play in AFV operation and may benefit from the Xiong’anNew Area.

Risks

AFV sales disappoint; slow progress in vehicle leasing business;GM of VFDs falls.