联美控股(600167)

Opens up new avenues of growth. Luenmei Quantum, a heat supplyspecialist, bought out rivals Guohui New Energy and Shenyang XinbeiThermoelectric in 2015, and in so doing, expands its heat supply areafrom 19.8mn sq. m to 40mn sq. m and branches out into clean andrenewable cogeneration and engineering.

Revenues and profits buoyed by M&A. Heat supply/heat networkconnection used to account for above 70%/20% of Luenmei Quantum’sannual revenue, which grew at a CAGR of 16.89% from RMB406mn in2011 to RMB758mn in 2015, and jumped 16% YoY to RMB2.044bn in2016 after integration of the acquired assets, continuing the momentuminto the first three quarters of 2017, up 18.87% YoY at RMB1.338bn.Accordingly, net profit attributable to the parent climbed from RMB82mnin 2011 to RMB177mn in 2015�Calbeit with slowing growth�Cand surged52.00% YoY to RMB699mn in 2016 before further leaping 56.83% YoY toRMB467mn in 1Q-3Q17, significantly boosted by high margin newbusinesses.

Strong balance sheet. Luenmei Quantum boasts a long-term record ofconsistent, above-average results, maintaining positive operatingrevenue/net profit growth rates during the 2011-2016 period, a rarity inthe industry. The company’s 2016 gross margin/net profit margin/ROEstood at 46.62%/35.01%/28.17%, far outperforming its peers.Selling/Administrative/Financial/Period expense ratio came in relativelylow compared to its competitors’ at 0.04%/6.50%/-5.50%/1.04% for thefirst three quarters of 2017, exhibiting effective cost control.

Earnings forecast. We estimate Luenmei Quantum to realize operatingrevenue of RMB2.726bn/3.285bn/3.764bn for 2017-2019,corresponding to RMB902mn/1.133bn/1.281bn in net profit attributableto the parent, and EPS of RMB1.33/1.67/1.88. Initiate coverage with Buy.