Incident: Keliyuan Changan Automobile Yunnei Power increases its shares in CHS Company Announcement: Keliyuan, Changan Automobile and Yunnei Power have jointly increased their shares in CHS. Among them, Keliyuan used RMB 200 million in cash, Changan Automobile used technology and cash for a total of RMB 200 million (of which the technology investment was 0.8-100 million yuan; at the same time, in principle, it also supports the simultaneous dispatch or transfer of technology-related technicians involved in this investment to CHS), and Yunnei Dynamics used RMB 60 million in cash, and the three parties simultaneously increased the capital of CHS with a total of RMB 46 million. Geely Automobile (including Huapu) reserves the right to increase capital this time, but the amount of the capital increase is not higher than 200 million yuan, and the specific method and amount of the capital increase is specified in the capital increase and stock expansion agreement. Based on the principles of joint participation, co-construction and sharing, all parties are determined to build CHS into a national hybrid powertrain system technology platform, support technological breakthroughs and progress in the Chinese automobile industry, and play a joint role in the development of China's energy-saving and new energy vehicle industry. After this capital increase, CHS will reduce unit production costs and R&D costs and improve product competitiveness through modularization, standardization, and batch procurement. Comment: National hybrid powertrain technology platforms are becoming more and more perfect. Before CHS officially entered the national level after central enterprises and state-owned enterprises invested in shares, CHS had world-advanced hybrid powertrain technology, covering all fields of oil-electric hybrid technology and plug-in hybrid technology, but the two major shareholders, Keliyuan and Geely Automobile, were private enterprises. Changan Automobile was the sales champion for own-brand passenger cars in 2015, and took a stake in CHS as a central enterprise; Yunnei Power, a leading domestic diesel engine company, took a stake in CHS as a local state-owned enterprise. Since then, CHS has officially become a national hybrid powertrain technology platform jointly built by large central enterprises, local state-owned enterprises, and high-quality private enterprises. It has more than 500 technical talents of various types, greatly enhancing the talent pool, industry position and appeal of CHS, and is expected to receive comprehensive support from national policies, support funds, etc. Openness and collaboration help CHS accelerate development We believe that openness and collaboration are important genes of CHS and will help CHS accelerate its development. Among the four major shareholders, Keli Yuan has deep technical reserves and advanced production experience in the field of power batteries, and has become the core supplier of Toyota hybrid models; Geely has advanced by leaps and bounds in powertrain technology accumulation and vehicle integration through the acquisition of Volvo passenger cars and DSI transmission companies, and has an advanced global perspective. Its Borui model has become a benchmark for its own brand B-class cars; Changan Automobile has long attached importance to technology research and development, and has many years of exploration experience in the field of hybrids; Yunnei Power has a unique advantage in the field of diesel engines. The areas of strength of the four major shareholders have strong synergy and complementarity, and the open cooperative attitude of all parties will be a booster for the rapid development of CHS. Market promotion of CHS hybrid assemblies is speeding up across the board. According to Changan Automobile's strategic plan, 30% of Changan Automobile's own brands will be oil-electric hybrid models or plug-in hybrid models in the future. After investing in CHS, this strategic plan will be completed at an accelerated pace. Based on Changan's independent brand sales volume of one million vehicles in 2015 alone, its annual sales volume of oil-electric hybrid models and plug-in hybrid models is at least 300,000 units. On the other hand, according to Geely Automobile's “Operation Blue Geely” plan, its plug-in hybrid and oil-electric hybrid vehicles will account for more than 60% of the annual sales volume, which is also over 300,000 units. The two major shareholders can bring CHS's hybrid powertrain sales of 600,000 units a year. Furthermore, CHS has cooperated with many car companies, and the development of several models has already entered the product stage. The market promotion of CHS hybrid assemblies has been accelerated across the board. Keliyuan has become a leading enterprise in the field of energy-saving and new energy vehicles manufactured in China in 2015. We believe that through cooperation with Toyota, Keliyuan has fully entered the field of automotive power batteries. As Toyota Hybrid surpasses expectations in China and accelerates promotion globally, the company's importance in the Toyota supply chain will rapidly increase, while at the same time bringing stable cash flow, advanced technology accumulation, and rich production experience to the company. At the same time, through CHS, the company has built the only deep hybrid assembly technology platform in China, covering the two major fields of energy-saving vehicles and new energy vehicles, and has become a leading enterprise in the field of energy-saving and new energy vehicles manufactured in China in 2015. The company upgraded to a “buy” rating company has transformed from a leading enterprise in the field of civil nickel-metal hydride batteries in China to a leading enterprise in the field of energy-saving and new energy vehicles manufactured in China in 2015. The company has formed a full industry chain layout with HEV raw materials, battery electrodes, batteries, battery energy packs, and powertrain systems. The company will become an important partner for the industrialization development of Toyota's HEV market in China, and has built a national hybrid powertrain platform with Geely Automobile, Changan Automobile, and Yunnei Power. Future output value and profitability are expected to increase dramatically. Although the short-term valuation is high, we are optimistic about the future development prospects of the company supplying domestic hybrid models of NiMH batteries to Toyota and supplying hybrid powertrains to automakers such as Geely and Changan. The company's future performance is expected to grow rapidly with the increase in Toyota hybrid models and hybrid models of other brands. It is predicted that the EPS from 2015 to 2017 will be 0.01 yuan, 0.14 yuan, and 0.23 yuan, respectively, and the corresponding PE will be 1205.0 times, 116.6 times, and 71.6 times. Upgraded to a “buy” rating. Risk warning: The macroeconomic economy continues to decline; sales of supporting models fall short of expectations; and the pace of new product development falls short of expectations.