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　　机构：中金公司

　　评级：买入

　　目标价：18.00 港元

　　First step of market-oriented debt-to-equity swap completed. Nineinvestors completed the capital increase transactions for GSI andHuangpu Wenchong. According to our estimates, the asset/liabilityratio can be reduced from 3Q17’s 73.77% to 62.99%, and Rmb159mnof interest could be reduced annually.

　　Key is moving the holding level of nine investors upward. Uponcompletion of the transaction, CSSC’s stake will reduce from 60.0% to52.6% but it will remain controlling. The conversion of nine investors’shares in the company’s subsidiaries into company shares could helpfurther optimize COMEC’s corporate governance structure.

　　Positive trends: China navy equipment upgrading, upgrading of theshipbuilding industry, and SOE reform. 1) GSI, the largestmanufacturer of military auxiliary ships in China, and HuangpuWenchong, the major construction base for military ships in SouthernChina, both benefit from China’s continuous investment in upgradingits navy equipment. 2) High value-added high-tech vessels make upabout 70% of COMEC’s revenue /orders;COMEC has taken the lead in the transformation and upgrading ofChina's shipbuilding industry. 3) As the asset securitization rate ofCSSC is about 40% , watch for SOE reform in the 13thFYP.

　　Valuation and recommendation We maintain our earnings forecast, BUY ratings and Rmb36/HK$18target prices for COMEC-A/-H.

　　Risks

　　Uncertainty in the progress of non-public offering.

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