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　　机构：摩根士丹利

　　January's profit warning sets a low base, which we believe will enable the company to achieve the financial requirements of share option scheme in 2018. 78% dividend payout ratio confirms the company's ability to boost the share price given its cash rich balance sheet.

　　Setting a low base for 2018. The company gave a profit warning in January, expecting earnings to drop 25%-35% yoy in 2017. The final annual EPS came in at Rmb0.26 per share, down 32% yoy. Revenue was Rmb36.2bn, 6% below our estimate. Gross margin remained stable at 11% in 2017 vs. 10.8% in 2016, while operating margin decreased by 1.8PPt to 3.1% due to higher than expected administration expense.

　　78% dividend payout. The company announced a higher dividend payout ratio for 2017 at 78% vs. 40% annual payout ratio in 2014-2016. Despite 2017 yield of only 3.4%, applying this high payout ratio to our 2018 earnings forecast implies a high dividend yield of above 7%. As of end 2017, cash in hand was Rmb31.5bn, 121% of the company's current market cap. We think this can be utilized to boost the share price.

　　Zhongke new contract announced. The company announced a new contract from Zhongke project's chemical section, with total value of Rmb10.9bn, or 30% of 2017 revenue. With this new project contribution, we think the company should be able to achieve the financial requirements for share option scheme in 2018 - 14.3% yoy revenue growth and 10% ROE.

　　Analyst Briefing: Salon I-IV, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong, 12:15 p.m.-1:30 p.m. , 19 March 2018

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