Tongfang 1206HK has adjusted the department's revenue and focused on the EMC model of smart transportation, smart buildings and heat grid energy efficiency. Tongfang Ted began to transform from the traditional sales of smart devices to a full-service leader in the energy-saving market.

Intelligent Transportation under the EMC Model the Chinese government encourages the development of urban rail transit networks in first-and second-tier cities. The country now has a long 2723km transportation network and the government plans to achieve the 6000km target by 2020E. Tongfang Ted, whose transport business grew 167 per cent from the EPC model in 2015, recently announced new contracts for the EMC project on Beijing Metro lines 8 and 9, with a total of 28 subway stations. Under the EMC contract, the company will save about 60 per cent of energy for subway stations, of which 80 per cent of the energy savings will be shared by Ted. We have learned from management that Tongfang Ted plans to win contracts for 200-300 subway stations in 2018E, and we believe that the profit margin of the company's smart transportation sector will also increase with the number of contracts.

Urban heating potential growth companies hold more than 50% of the market share of regulatory control systems in urban heating networks, covering about 800 million square meters of heating systems in northern and northeastern China. After the injection of the company's assets last year, we expect the company to profit from the privatization of China's heating market. Tongfang's business model, which usually uses design, procurement, construction (EPC) and EMC models, will generate a gross profit of about 30 per cent for the company.

Steady profit margins in the smart construction industry rose due to falling demand in the housing industry, profit margins in the SBB sector fell from 23.4 per cent to 19.5 per cent, while operating revenue fell from 63 per cent to 40.7 per cent. However, Ted plans to implement projects that are more profitable and easy to replicate, such as high-end hotels, smart facilities and data centers. At the same time, compared with the green building penetration rate of developed countries (50%), China's green building penetration rate remains at a low level (about 10%). With the implementation of China's green building standards, Tongfang Ted, as one of the participants in the standard-setting of energy-efficient buildings, will benefit from the rising market scale of green buildings.

To maintain the buying rating based on the declining demand for real estate and Ted's new strategic plan, we adjusted the net profit per share of 16e from 0.29 yuan to 0.28 yuan (down 71% from the same period last year) and 17e from 0.38 yuan to 0.34 yuan (up 19% from the same period last year). The company is now valued at 12 times 2016 earnings, which is significantly undervalued. As the Shenzhen-Hong Kong Stock Connect is approaching, we maintain our target price at HK $6.5, implying a price-to-earnings ratio of 18 times 2016. With 60% room to rise, we maintain our buy rating.