What’s new
　　Chaowei Power attended our Beijing conference and providedupdates to its investors.
　　Comments
　　Higher ASP and volume in 4Q16. Chaowei raised the pricesof its batteries three times this October and November by a totalof 11~15% due to higher lead costs. Although 4Q is typicallythe slow season, distributors are actively accumulatinginventory on expectations of higher battery prices in thefuture.
　　Lithium batteries to see rapid growth. Managementexpects its total capacity for lithium batteries to reach 1GWh byend-2016. Being consistently committed to R&D, Chaowei’slithium batteries adopt a pouch-type technique and featureexcellent safety-in-use and size flexibility. We expect its sales oflithium batteries to see rapid growth from this year onwards onthe back of its solid backlog in orders.
　　Its start-and-stop battery business to kick off in 4Q16.
　　Chaowei’s capacity for start-and-stop batteries could commenceoperations in 4Q16. The company has been working withAkkumulatorenfabrik MOLL GmbH & Co. KG in the developmentof start-and-stop batteries since 2014. With the demand forhigh-quality energy-saving products being strong, managementsees enormous opportunities in this segment.
　　Valuation and recommendation
　　To factor in the higher ASP and volume, we raise our2016/17e earnings forecast by 14%/16% to Rmb650/842mn and lift TP by 25% to HK$8.8, based on13x 2016 P/E. We reiterate our BUY rating.
　　Risks
　　Raw material prices becoming more volatile than expected.