Share-swap takeover: As announced overnight, a subsidiary of FullshareHoldings （607 HK, Not Covered） has made a proposal to acquire the entireequity stake in China High Speed Transmission （CHS） through a share swapoffer. Specifically, every two existing shares of CHS will be swapped with fivenew Fullshare shares. The deal is subject to approval by Fullshare shareholders（EGM） and regulatory authorities （as it deemed a Very Substantial Acquisition），and is conditional upon successful acquisition of >50% equity stake in CHS.
　　Valuation: Based on Fullshare's closing price of HK$4.38 as of last Friday, thedeemed swap value of CHS shares amounted to HK$10.95/share, or a totalconsideration of HK$17.9B. The deemed valuation of the acquisition amountedto 12x/12x 2016E/17E P/E and 1.4x/1.3x 2016E/17E P/BV.
　　Fullshare Holdings is a real estate developer in China and has been active inexpanding to new business areas through M&A: Over the past 12 months,Fullshare has acquired property/healthcare assets for a total consideration ofRmb6.3B, and a total of 2.6B new shares were issued （17% of issued capital）。
　　Pros of the proposed takeover for CHS shareholders include strongershareholder support from Fullshare.
　　Cons of the proposed takeover for CHS shareholders include （1） uncertaintyof future business direction of CHS under the new shareholder management, （2）uncertainty in market perception （i.e. value） of a pro-forma conglomerate withdiverse businesses in new energy, property, healthcare and tourism, and （3）shareholders rejecting the proposal will face falling public float in CHS from63% now to potentially 25%.
　　We raise our FY16E/17E/18E earnings by 3%/6%/5% on the back of betterthan-expected wind gearbox margins （after interim results）。 As a result of thisand extending our timeframe to Jun-17 from Dec-16, our PT rises to HK$8.
　　Downgrade to Neutral: CHS has outperformed the market by >25% YTD and>10% since its suspension of trading. While we recognize the potential strengthFullshare brings to the table, on balance, the cons will far outweigh the pros, inour view. The current valuation （9x/9x 2016E/17E P/E） looks rich given therisks of （1） the proposed acquisition not going through, and （2） further downsidein CHS's conventional businesses. We thus downgrade CHS from OW to N.
　　Goldwind is our top pick in the renewable equipment space on cheaper valuation（8x 2017E P/E for the turbine business） and better growth from wind farms.