Investment positives

We initiate coverage with a HOLD rating and a TP ofRmb20.69, or 7.7% projected upside; its current valuation isrelatively high.

Why a HOLD rating

Expanding into AFV sector based on operatinglogistics vehicles. Demand for electric logistics vehiclesshould deliver solid growth, due to the 27% lower costadvantage. Besides, Cooltech will continue strengthening itspresence along the AFV industry value chain. However,there are uncertainties due to potential decline in subsidy.

Diesel power generator: leading position stable;expanding overseas. High growth in data center sectorstrengthened Cooltech's presence in domestic market. Theadvantageous position of its Singaporean subsidiary helpedCooltech build its overseas distribution channels. Also, itacquired Tide Power to expand overseas, which maycontribute >Rmb10mn to annual net profit.

External expansion merits attention but limitednear-term contributions to earnings. Zhiguang's——40% earnings growth brought stable investment returns.

Cooltech expanded into hybrid & gas-fired generators, andwill expand into upstream engine sector. The deals are notfinal and we believe near-term contributions are limited.

How do we differ from the marketCooltech will continueexpanding its presence along the AFV value chain.

Potential catalysts: AFV subsidy policies; progress in logisticsvehicle leasing; M&A opportunities in AFV sector.

Financials and valuation

EPS is expected to be Rmb0.15/0.22/0.31 in 2016——18, a CAGRof 46.0%. Based on SOTP valuation, target market cap isRmb6.62bn and TP is Rmb20.69; its valuation is relativelyhigh; initiate coverage with a HOLD rating.

Risks

Plunging AFV subsidies; overseas expansion disappoints.