1H17 earnings declined 56.7% YoY, in lineHiconics Eco-energy Technology announced its 1H17results: revenue was Rmb609mn （-3.6% YoY） and net profitattributable to shareholders was Rmb43.99mn （-56.7% YoY） orRmb0.04/share. Excluding non-recurring items net profit fell36.9% YoY. The main reasons for the decline in earnings werethe Rmb43mn equity disposal gain in 1H16 and AFV powertrains’

drops in sales volume and prices. Gross margin declined14.2ppt, mainly as the depreciation amount for Chang Deevehicles was large and the GM of powertrain declined.

Selling/admin. expense ratios rose 1.5/2.5ppt, mainly asAFV business revenue was low in 1H and staff expenses fixed.

Trends to watch

AFV powertrain may recover in 2H.

Hiconics may retreat from its electric vehicle leasingand charging operation businesses.

Demand for the industrial control segmentrecovered; growth beat expectations.

Energy saving/environmental protection recordedhigh growth.

Earnings forecast

As the AFV business missed expectations, we cut our 2017EPS forecast by 7% from Rmb0.16 to Rmb0.15.

Valuation and recommendation

The stock is trading at 34/27x 2017/18e P/E. We maintain ourBUY rating and target price of Rmb6.28 （33x 2018e P/E），implying 25.35% upside room.

Risks

AFV sales volume lower than expected; slowdown in promotionof leasing business; decline in gross margin of VFDs.