We upgraded Coolpad's rating to buy from neutral, with a new target price of HK$5.45. We expect Coolpad to benefit from 1) the first-mover advantage of thousand yuan 4G smartphones, 2) the close cooperation with China Mobile, 3) the layout of e-commerce sales channels, and 4) the acceleration of the integration of domestic brands. Given China Mobile's aggressive 4G strategy and cool party experience with 4G phones, the company expects to ship 60 million units in 2014 (up 58 per cent from a year earlier), of which 40 million are higher-margin 4G models. We raised the 2013-15 EPS 19%, 56%, and 73%, to reflect higher shipments and a better average unit price and gross margin. Our EPS in 2013-15 was 18% higher than market forecast, 26% and 34% higher. We raised our target price to HK$5.45, based on a price-to-earnings ratio of 14.5e (a 10 per cent discount of 16 times the all-time high).

Close working relationship with China Mobile lays the foundation for 4G shipments as one of China Mobile's largest mobile phone partners in China, we expect Coolpad to benefit from China Mobile's aggressive terminal shipping plan in 2014 (TD-LTE: 100m units; TD:1.9-210 million units, up 27% and 40% year-on-year). With Coolpad's solid carrier channels and strong product reserves, the company aims to ship 40 million 4G handsets in 2014 (overall target: 60 million units, up 58% from a year earlier). We have noticed that the market response of its 4G model is very satisfactory at various trade fairs, and the domestic order of its 4G mobile phone is expected to reach 200 / 3 million units in January and February.

Kupai, the first advantage of thousand yuan 4G smartphones, is the first brand in China to launch two thousand yuan 4G phones, and it also belongs to the TD-LTE model released by China Mobile in December (8 high-end phones, 10 mid-end phones, 3 thousand yuan phones). Given that Coolpad's 4G handsets have been sold overseas since 2014, we believe that the company's R & D capabilities and extensive experience in 4G will strengthen its industry leadership and that an increased share of 4G handset shipments will help increase gross profit margins in the first half of 2010.

E-commerce model will enhance brand image and profitability since the launch of the new brand "Coolpad God" based on the e-commerce model in January, the company's two new models have received a great deal of attention in the market, with more than 10 million pre-orders currently. Through cost-effective product positioning and marketing model, Coolpad expects e-commerce channels to contribute 20% of overall shipments this year. We believe that this sales model similar to XIAOMI can enhance brand awareness and reduce marketing costs.

Up to buy, the target price is HK$5.45 we raised the 2013-15 EPS 19%, 56%, 56% and 73%, to reflect higher shipments and profit margins. Although the company's share price has risen 80% since the beginning of the year, based on the company's growth prospects and market leadership, we think the current valuation (13.7 times PE in 2014) is still attractive. Future catalysts include the growth of shipments through e-commerce channels and the launch of new products on MWC.