Action

While the share price rallied significantly on the proposal of highstock dividend, Guangdong East Power's fundamentalsmaintained stable with steady business progress. Consideringthe share price is now within a rational range, we downgradeto HOLD and raise our TP to Rmb44.50.

What's changed

Strong rally fueled by high stock dividend. OnNovember 29, East Power preannounced its profitdistribution plan for 2016 – Rmb0.9 cash dividend and 30bonus shares per 10 shares. This drove the share priceabove the target price.

Steady business progress in line. Revenue fromPV-system integration products will likely see >70% growththanks to the booming PV sector.

Limited S-T earnings contribution on transformationtowards the operation service. Focusing on PVgeneration, data center and charging service is aimed atdeveloping smart energy and smart city business. Despite alimited near-term contribution, the operation service shouldbecome the key earnings driver in the future.

How do we differ from the marketWe are more prudentwith the earnings forecasts given the uncertainties in thetransformation towards operation service Potential catalysts:

1） The data center operation planning; 2） new subsidy policy forAFV; 3） acquisition/transfer of PV stations.

See page 3 for details.

Financials and valuation

Considering the intact fundamentals and steady businessprogress, we keep our 2016/17e EPS forecast ofRmb0.71/Rmb0.89 unchanged. Considering the share priceis already above the previous target price and the valuation isnow rational, we downgrade to HOLD rating and roll over to50x 2017e P/E. Lift TP to Rmb44.50, implying 6.90%downside room from current share price.

Risks

Subsidy cut for the PV sector; delayed introduction of the subsidypolicy for AFV sector.