According to the latest data released by the Energy Administration, the newly installed power generation capacity officially put into production in the first 11 months of 2016 was 85.6 gigawatts, down 5.4% from the same period last year. Of the new installed capacity during the period, thermal power, hydropower, wind power and nuclear power contributed 33.5 gigawatts, 9.0 gigawatts, 12.0 gigawatts and 7.2 gigawatts respectively. Among them, the new installed capacity of thermal power and hydropower decreased by 29.6% and 32.6% respectively compared with the same period last year. National power investment in the first 11 months of 2016 was 268.9 billion yuan, down 12.7 percent from the same period last year, while grid investment was 476.8 billion yuan, up 23.8 percent from the same period last year. During the period, the national investment in power supply showed a downward trend, while the investment in the power grid reached a new high. In view of the country's current efforts to improve domestic environmental problems, we believe that investment in clean and renewable energy will maintain an upward trend in the medium to long term, while investment in traditional thermal power generation will continue to shrink. According to the current 13th five-year Plan for wind power development (at least 210GW of cumulative wind power installed capacity by 2020), we believe that wind power will lead all types of clean and renewable energy generation at a faster speed and is expected to increase by 25 gigawatts per year during the 13th five-year Plan period (2016-2020).

China's high-speed transmission has more than 60% of the domestic fan gearbox market, and the company is the largest fan gearbox supplier in China. The company delivered 15 gigawatts of fan gearboxes in 2015 and is expected to deliver 17 gigawatts of fan gearboxes to customers at home and abroad in 2016. The company's predecessor is one of the leading industrial transmission equipment manufacturers in China, but with the successful transformation of the enterprise, wind power transmission equipment has become the core business segment of the company. Sales of wind power transmission equipment contributed 79.3 per cent of total revenue in 2016, while that proportion rose further to 85.2 per cent in the first half of 2015. The newly installed wind power in China reached an all-time high in 2015 (about 30.8 gigawatts), mainly due to the rush to install wind power in that year, and the new installed capacity is expected to fall back to 25 gigawatts this year. Looking at 2017, we believe that driven by a new round of wind power rush, we are expected to return to the high installed capacity in 2015. In addition, according to the forecast of the Global Wind Energy Association, overseas markets will also shine and are expected to develop with an additional wind power capacity of between 40 and 50 gigawatts per year between 2016 and 2020. The overseas market revenue of China's high-speed transmission recorded 58.4% and 69.5% in 2015 and the first half of 2016, respectively. The company's guidelines will make greater efforts to develop overseas markets in the future to pry new profit growth points, and the expected devaluation of the RMB will also make the company's overseas strategy more smooth.

The company recorded strong growth in 2015, with revenue and net profit growing by 20.8% and 395.7%, respectively. In the first half of 2016, the company's net profit increased by a further 9.9% year-on-year. We expect income and experience to grow at a compound annual rate of 9.1% and 14.4% between 2015 and 2018, respectively. Fengsheng Holdings (607.HK) recently completed the acquisition of 80 per cent of China High Speed Transmission and has become the company's controlling shareholder. Management revealed that the acquisition will not change China's independent listing status of high-speed transmission, and we believe that the rich ownership will enable the company to have more resources to quickly open overseas markets. Looking forward, we believe that the company will continue to benefit from the global installed wind power of not less than 70 gigawatts per year during the 13th five-year Plan period, the benefit improvement brought about by optimal management (through efficiency reduction and resource integration, etc.), the increase in gross profit margin caused by the devaluation of RMB, and the expected decline in debt ratio in the future will also gradually reduce the company's financing costs. Our current view on China's high-speed transmission is positive, and our investment rating on the company is "Collection".