Renewable energy is expected to increase its share in global primaryenergy consumption. Forecasts from BP suggest that the share of renewableenergy in global primary energy is set to rise to 5.4% by 2025 from the 2.8% in2015. GWEC also predicted that newly installed global wind capacity will reach359 GW from 2016 to 2020, implying circa 72 GW of annual installations.
　　China High Speed Transmission is a dominant wind gearbox supplierdomestically in China. With more than 60% of domestic wind gearbox marketshare in 2015, China High Speed Transmission is also eyeing the offshoremarket as the domestic market is getting saturated. Overseas sales grew YoYby 58.4% and 69.5% in 2015 and 1H16, respectively.
　　Revenue, operating profit and net profit are expected to grow at a CAGRof 9.1%, 10.1% and 11.3%, respectively, from FY15 to FY18. Given thecontinued global wind power investment and the expected decrease in gearinglevel, we expect sales and earnings of the Company to experience stablegrowth from 2016 to 2018. Net gearing is forecast to be 60.5% / 52.3% / 46.0%,respectively, from FY16 to FY18.
　　We initiate coverage on China High Speed Transmission with a TP of HKD8.80 and an investment rating of “Accumulate”. Our TP corresponds to10.9x / 10.0x / 8.9x FY16 to FY18 PER or 1.2x / 1.1x / 1.0x FY16 to FY18 PBR,respectively.