e h atpg o icamr disclaimer for page last the See

年结 Year End Source: the Company, the Source: GuotaiInternational. Junan 52 (HK$) high/low 52 Weeks 3 vol. average 3 month m) (HK$ cap. Market (m) issue in Shares FY17F FY16F FY15F FY14A FY13A 3112/ 中国 C of “Accumulate” with Initiate Platform Sector, Oversea Unique A 公司报告 CompanyAviChina Report: HK)(02357

h peim s any u t 1 rc cs position cash rich 1) to due mainly is premium the glo to premium 166.6% and peers A-share to discount PER FY15F AviChina’s Moreover, valuation. SOTP our tradi is price share AviChina’s 59.6x. of PER FY15F aircrafts madein China are made byAVIC. military and aircraft civil (both industry Aviation domina has which AVIC, parent, its by backed China, ge leading a and trainer and helicopter of producer rating.“Accumulate” an AviChina with initiate We its four subsidiaries.four its A-Sto largelydiscountedis priceshare AviChina‘s aero systems & equipments will be the key growth dr growth key the be will equipments & systems aero i growth revenue the believe we and period FY14-17F rev 21.5% of CAGR a record to Company the expect We 大的生产商和领先的通用飞机制造商 空工业集团公司生产 飞机和军用飞机制造工业都具有主导地位 长率为 在在在 injections 中航科工的股价大 中航科工的股价大 access betweenaccess Hong andKong A-Share market. 和航空系统及设备 和航空系统及设备 我们首次覆盖中航科工并给予 我们首次覆盖中航科工并给予 net profitnet recorda to CAGR of 22.6% in FY14-17F. 59.6 此外 中国较快增长飞机市场 166.6% 在 中航科工的股价大 中航科工的股价大 和航空系统及设备 和航空系统及设备 我们首次覆盖中航科工并给予 我们首次覆盖中航科工并给予

航空航天和国防领域的独特海外平台 FY14-17F ：中航科工 ，中航科工的 倍 FY15F 22.6% 的溢价 RB m)(RMB ； Turnover 3) faster growth of aircraft market in China and 4) and China in market aircraft of growth faster 3) 46,131 46,131 38,026 31,160 25,710 25,710 22,193 期间 期间 期间 期间 。 总股数 。我们相信 市值 收入 市盈率

个月平均成交股数 (02357HK) ，，，我们预计公司收入 ， 幅幅幅折让 的收入增长将成为主要增长动力 的收入增长将成为主要增长动力 幅 的收入增长将成为主要增长动力 的收入增长将成为主要增长动力 FY15F

(HK$ m) (HK$ m) 我们预计公司收入 我们预计公司收入 我们预计公司收入 。 折让 折让 折让 (m) (m)

。目前中 和

周高 于于于其四家子公司的 于 Our targetHK$13.50 of price translates into anim 4 ，溢价主要是由于 ）香港和 / 其四家子公司的 其四家子公司的 其四家子公司的 Net Profit 市盈率目前较 低 (RMB m) 股东净利 “““收集 “

航科工的股价 1,439 1,196 收集 收集 收集 977 977 781 713 (‘000) (‘000) ，其母公司 A ”””的投资评级

”

股市场之间的 将录得 将录得 将录得 将录得 的投资评级 的投资评级 的投资评级 ；几乎所有类型在中国制造的飞机都 A 每股净利 A 1 46.1% 股同业有 (RMB) ）丰富的现金状况 21.5% 股股股市场价值 股 0.263 0.218 0.178 0.143 0.131 EPS ，中航工业集团在中国航空无论是在民用

市场价值 市场价值 市场价值

。。。我们预测 。 。。。中航科工是中国直升机和教练机的最 。 折让于我们的分类加总估值法的估值 互通。 互通。

的复合年增长率 的复合年增长率 的复合年增长率 的复合年增长率

每股净利变动 icat; lot l tps of types all almost aircraft); 74.0% 10.400 / 4.125 / 10.400 。。。我们的目标价 。

neral aircraft producer in producer aircraft neral ng at 46.1% discount to discount 46.1% at ng ( ，首次给予 FY14-17F 的折让 △ 29,630.6 29,630.6 55,620.2 AviChina is the largest the is AviChina EPS 20.4 20.4 22.4 25.0 hare market value ofvalue market hare bal peers. We believe We peers. bal ； 5,574.4 5,574.4 ； 9.3 5.6 %) t oiin n China in position nt ) oeta assets potential 2) 2 s rdn t 74.0% at trading is

）潜在资产注入 eiotr and helicopter n iver. ，我们相信在

， enue growth in growth enue 我们相信在 我们相信在 我们相信在 mutual market mutual

而较全球同业有 净利润复合年增 13.50 We forecast We

市盈率 PER 是由中国航 30.5 30.5 36.8 45.0 54.8 60.8 SOTP (HK$)SOTP 15 (%) gearing Net FY15 (%) Free float Major shareholder (x) 港元对应 “收集

直升机 直升机 直升机 直升机 plied

； hina Aerospace & Defense Defense & Aerospace hina 3 ） 每股净资产 。

(RMB) ”评级 分类加总估值法 2. 2.326 2.134 1.976 1.855 BPS 自由流通比率 556 556

100.0 120.0

Source: Bloomberg, Guotai Junan International. International. Junan Guotai Bloomberg, Source: 20.0)( 20.0 40.0 60.0 80.0 股价表现 Stock performance

大股东 0.0 平均股价 price(HK$) Avg. share 相对恒指变动 HS % to index Rel. 绝对变动 % Abs. 股价变动 Share Price in Change Shareprice 6-18m TP 评级 Rating: a-3Ag1 o-3Fb1 May-14 Feb-14 Nov-13 Aug-13 May-13 % of return

： 年净负债

（港元 %

市净率 (%) (%) PBR

(HK$) 3.1 3.5 3.8 4.0 4.3 % (x) ） 目标价

股价 / Page 1 of 21 of 1 Page

股东资金

每股股息 ： HSI (RMB) :

0.039 0.033 0.027 0.021 0.020

DPS

(%) 1 61 06 72.6 91.9 70.6 82.6 16.1 14.8 [email protected] 个月 8.4 6.4 5.3 5.3 6.4 8.4 1 M 1

Angus Chan Chan Angus

股息率 AviChina 3 Yield Accumulate 个月 +8522509 2665 (%) 3 M 3 0.4 0.3 0.3 0.2 0.2 收集 收集 收集 收集 7 a 21 2015 May 27

HK$

HK$10.160

VC 54.6%AVIC 净资产收益率 ( 首次研究 e cashNet 3.5013 陈 庆 陈 1 Initial 1 1 Y 年 ROE 18.9 40.2 10.8 10.8

(%) 9.8 8.7 7.5 7.0

)

Company Report AviChina 中航科工 (02357 HK) GTJA Research 国泰君安研究

e tels aefr icamr disclaimer for page last the See

Civil Market Opportunity for Commercial Commercial Opportunity Civilfor Market Aircraft Low-altitude Opening Airspace CompanyBackground Investment Risks Investment Valuation Financial Forecasts AnalysisEarnings & Potential Assets Injections from AVIC SpendingDefense China Boost Uptrend & Systems Aero ......

TableContentof ...... Equipments Demand ...... 11 ...... 16 ...... 14 Page 2 of 21 of 2 Page ...... 19 ...... 7 ...... 10 ...... 3 ...... 4

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 of AVICaircraft operating is businessrelated which different assets injection restructuring,and AviCh aircra military and aircraft civil in both industry back China, producer aircraft general leading a and 2 since maker product aviation an into restructured AviC mid-2008, Before stake. 5.1% a with shareholder Company Space and Defence Aeronautic European 54.6%. AVICinto merged II (Aviation o Industry Corporation and listed in Hong Kong in the same year. Its parent aerospa State-ownedChina’s of platform overseas An CompanyBackground e tels aefr icamr disclaimer for page last the See aviation aviation parts and components, avionics and electri CH). 002179 (41.57%, Optronic Jonhon and CH) 600372 Ho CH), 600038 stake, (35.10% AVICHelicopter namely Source: the Company. the Source: iue1 vCiaOgnzto hr Chart Organization AviChina Figure-1: Shenyang Xinghua 28%10 0%10 67%10 100% 100% 86.74% 100% 100% 100% 62.87% Forstar Xi’an 81%100% 58.18% (SZ002179) Optronic JONHON Qianshan 15%4.2 36%10 0%53.63% 100% 100% 43.63% 43.22% 41.57% Avionics Shaanxi Huayan opn EADS N.V.Company – European Aeronautic eec and SpaceDefence 80% Baocheng Shaanxi Instrument 5.02% AVIC AvionicsAVIC Taiyuan (SH600372) Shanghai Aviation Electric Aviation Lanzhou Electric

100% oguAviationHongdu t ams al ye o arrfs ae n hn are China in made aircrafts of types all almost ft; (SH600316) ina ina has inholdings controlling four A-share listed Kaitian AviChina Industry Industry & TechnologyAviChina AVIC . c c Moreover,connectors. AviChina is also the only o company used to be AVIC-II, owned by SASAC. In 2008, AVI 008. AviChina has become the largest producer of he of producer largest the become has AviChina 008. f China). f Currently, AviChina’sshareholder largest Company Limited d y t prn, VC hc hs oiat oiin i position dominant has which AVIC parent, its by ed Lanfei hina mainly operated auto business while the Compan the while business auto operated mainly hina AVIC AviChina ngdu Aviation (43.63%, 600316 CH), AVIC Avionics (43 AVICAvionics CH), 600316 (43.63%, Aviation ngdu 100% 54.61% ce & defense company. defense & ce Instrument vCia s lo nae i dvlpet n manufa and development in engaged also is AviChina Oriental ED) te aet f ibs n Ercte, s strat a is Eurocotper, and Airbus of parent the (EADS), Instrument Keeven 100% Aviation GroupAviation Changfeng Avionics Harbin 13.51% 6.45% 40.37% Composite Materials Airbus AviChina was founded in China in 2003 2003 in China in founded was AviChina Others 60% 0%100% 100% AVIC HelicopterAVIC 10% Changhe Aviation Changhe Aviation Agusta (SH600038) Tianjin 28.65% Components Page 3 of 21 of 3 Page Parts and Changfei aviation related companies, ae y VC Through AVIC. by made 100% Huiyang verseas listed company AVIC is AVIC,is with a stake of Jingdezhen Helicopter CAPMC licopter and trainer and licopter Helicopter Tianjin Cia aviation China n y has gradually has y 24.50% 100% C-I C-I and AVIC Embraer Harbin .22% stake, .22% cture of of cture 24.50% egic

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 business flights, emergency rescue, fire fighting, fighting, fire rescue, emergency i flights, place business taking are activities GA T of Most Changchun, Chongqing. Hainan, Guangzhou, Shenyang, including low-altitude airspace. low-altitude e GA, of demand the boost will airspace low-altitude vain oto aes y 05 Crety te expe the Currently, 2015. by areas control aviation progressivel to guides reform the 2010, in Guidance Control Airspace military.China’s the by controlled Opening Low-altitude AirspaceLow-altitude Opening e tels aefr icamr disclaimer for page last the See ai general boost will airspace low-altitude Opening Source: the Company. the Source: in FY14 Revenue Breakdown AviChina Figure-3: Company. the Source: Milestone AviChina Figure-2: Corporation II (61.06%)Corporation Industry Aviation per share,HK$1.21 China shares 1,600mn at issued Exchange, HK public offering in Initial AviChina shareholder of controlling the AVIC and became tookwhich company, the name companies. subsidiary The new ten aerospacewith unit one CVIC creating II, business entities, CVICaerospace I and China's merged large two 2003 The central government The central 2008 Aero systems & Aero equipments equipments 56.1% 2009 H Share and raised H 1.038 and Share raised bn of Price HK$3.40Placing per at H placement Shares the had The 334.6 company mn to RMB2,536 mnRMB2,536 to amountingshare placement had Aviation new A Hongdu LANFEI mnRMB 327 interest AVIC equity in and 100% RMBmn 581 in for AVIC Kaitian interest from AVICequity 86.74% Company acquiredthe Shares to Shares AVICto assets Consideration.Issued of disposal automobile Auto from AVIC and the assets by aviation Changhe the acquisitionCompleted of mn. (10% of(10% mn. registered capital) and Airbus contributed USD 15 componentproducing s for in and Harbin Aviation Heli China, Airbus HafeiGroup, with Harbin venture Aircraft enteredCompany The a joint RMB mn1 at the Automobile price of Group toAutomobile AVIC equity interest100% Harbin in disposed ofCompany The

Commission (CACC) issued Low-altitude Airspace Manag Airspace Low-altitude issued (CACC) Commission 2010 prs etranet n seig t. e eiv t believe We etc. seeding and entertainment sports, iet ra hv be crid u i pr o te f the of part in out carried been have areas riment oe lwattd arpc o blw ,0m o the to 4,000m below of airspace low-altitude open y blw ,0m icuig i srie, oet prot forest services, oil including 4,000m, below n pcal hlcpes n fxdwn arrf which aircraft fixed-wing and helicopters specially AV IC from Optronic Jonhon 43.34% and acquired Motor AVICto Dongan (54.51% )interest in the all equity Disposed aircraft aircraft 5.3% Other entire entire Other rcraft (GA) demand. demand. (GA) rcraft nsa, in Qndo Hnzo, igo Knig an Kunming Ningbo, Hangzhou, Qingdao, Xian, angshan, 2011 a total RMB 807 mn. 807 a RMB total share placement. new JO raised ’s Optronic ofshares Jonhon subscribed The company 18.6 mn interest 2.28%to equityequal mn, A shares of ZEMIC for RMB 52.85 subscribed The company 44.6 mn mn AVIC RMB1,106 and Hafei, raised A new shares AVICto Helicopter, Aviation placed Hafei Subsidiary, mil. for RMB768Aviation of acquisition Tianjin Shares AMESto for the new Domestic mn 183 issued The company bn1.214 Share, raisedPlacing of HK$3.55 Price per Shares Placing at the H 342 placement: mn ,HK shareFeb.2012 mn into CAPMC into mn RMBNews injected 33 and Aviation China Institute Technology and Economy AVIC Company, Injection: Capital the omdHae Aircraft Huabei formed and Investment Aviation Hebei and AVIC, AVIC Tongfei with venture a joint enteredThe company Helicopter Helicopter 38.6% 2012 n hn, o-liue isae s mainly is airspace low-altitude China, In 2013

vnc SystemsAvonics from AVIC RMBbn 1.4 for Avionics Changfeng Instrument and Keeven equity interest100% of AVICacquired Avionics AviationHanzhong Instrument Oriental for equity interest100% of acquired AVIC Avionic, mnRMB 235 of aggregate amount an in Xinghua Shenyang capital into injected JONHON OPTRONIC RMB176 mn from from mn RMB176 Chang he, Huiyang and and Huiyang Chang he, Asset transfer to Hafeito Asset transfer Page 4 of 21 of 4 Page Aviation: 100% equity Aviation: Tian jin corporations. corporations. jin Tian interest of Chang interest fei, 2014 Systems Systems of AVIC operation Avionics manufacture on the right and for the full decisionentitled AVICSystems, Avionics AviChina managing interestequity its in from entrustment AVIC on accept the AVIC Avionics r msl ue in use mostly are e ul pnn of opening full he ih cnrl zone, control light ection, helicopter helicopter ection, country’s major major country’s ement Reform ement

d

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 terms of GA on a per-capita basis. In countries lik countries In basis. per-capita GA a on of terms co the and 2013, GAin of units 220,000 around were years. ownership aircraft general of level low very Given e tels aefr icamr disclaimer for page last the See growth growth in China, 1) regulatory restrictions; 2) res agricultural, and better infrastructure development infrastructure better and agricultural, capab transportation enhanced example, for society, GDP and aviation-related employment opportunities. opportunities. employment aviation-related and GDP airspace to be the major catalyst to boost GA boost deman to catalyst major the be to airspace isae n loeig f otos n i rue co routes air on controls of loosening and airspace earlier. submitted to days working seven from flights GA of time lead Moreover, 2013-2020. in 17.7% of CAGRa representing Source: the Company. Guotai Junan International. Company. the Source: International. Junan Guotai iue4 a nOeigU fLwAttd Up Altitude Opening Low on of Map Figure-4: In China, there were around 1,654 units of GA by 20 by GA of units 1,654 around were there China, In

trictive trictive air space and 3) poor infrastructure. We s e USA, the developed GA sector has significantly cont significantly GA has sector developed the USA, e missions etc. At this moment, we see several factor several see we moment, this At etc. missions less than three days, and no prior approval is need is approval prior no and days, three than less d in coming years. Based on our forecast, the openin the forecast, our on Based years. coming in d ilities, improved rescue and emergency medical care medical emergency and rescue improved ilities, untry’s population was around 0.3 billion. China wa China billion. 0.3 around was population untry’s haty A etr hud fe iprat intangib important offer should sector GA healthy A l lf u onrhp f A o ec aon 500 u 5,000 around reach to GA of ownership up lift uld level in China, we expect substantial demand upside demand substantial expect we China, in level the opening up of low-altitude airspace will also will airspace low-altitude of up opening the 13, much lower than other developed countries. In U In countries. developed other than lower much 13, Page 5 of 21 of 5 Page ee ee opening up of low-altitude s constraining the GAthe constraining s ributed to its national its to ributed ed if flight plans are are plans flight if ed reduce the approval the reduce s lagging behind in behind lagging s g up of low-altitude of up g 500 km 300 300 mi e eeis o the to benefits le missions, better missions, is y 2020, by nits

in coming in SA, there there SA,

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 e tels aefr icamr disclaimer for page last the See International. International. Aviatio General China on Report Development Source: Ch Aircraft Units in of Ownership General Figure-6: Company. the Source: International. Junan Guotai t TakenAviationGeneral in Place are Most Figure-5: 1,000 1,000 2,000 3,000 4,000 5,000 6,000 Unit 3000 m 1000 m 0 0 500 m 0420 0620 0820 0021 0221 2020F 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

n 2013, Guotai Junan Junan Guotai 2013, n

ina Figure-7: Sales China AircraftGeneral New in of Sales Figure-7: ina heAltitude Low 10% 15% 20% 25% 0% 5%

International. International. Aviatio General China on Report Development Source: 100 100 200 300 400 500 600 700 800 900 nitU 0 0 0420 0620 0820 0021 0221 2020F 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Page 6 of 21 of 6 Page entertainment, entertainment, fighting, sports, fire rescue, Emergency seeding aero-photography aero-photography & flights business airlines, Commercial business flights business helicopterprotection, forest services, Oil n 2013, Guotai Junan Junan Guotai 2013, n

-60% -40% -20% 20% 40% 60% 80% 100% 120% 140% 0%

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 orders, mostly from the PRC airlines and aircraft-le and airlines PRC the from mostly orders, twin-engine C929 and C939 are proposed, offering 30 offering proposed, are C939 and C929 twin-engine around 65%, will be within China. About 16% of the of 16% About China. within be will 65%, around to increase 6.9% and air cargo traffic is expected gr major the be will China that projected has Boeing bac supply will AviChina AVIC,of subsidiaries major parts (cabin door, tailpieces, wing ribs, access do access ribs, door,wing (cabin partstailpieces, bo from manufacturers aircraft Chinese for activity view,o our demand Ingrowing billion. the USD870 at interna long-haul be will 19% remaining The region. n is eieisaeshdldfrlt 08 2018. for late are first scheduled deliveries and next 10-20 years. 10-20 next AviChina is one of the major suppliers of C919 and narrow- against compete to intended is aircraft the is aircraft commercial C919 The China. in built and nar seat 170 around an ( is which aircraft China commercial of Corporation Aircraft Commercial and 2008, Th market. aircraft commercial growing from benefit aircraft Commercial market huge upsidehas in the l Aircraft Opportunity forCommercial Market Civil growi from most the benefit to expected is AviChina 2013. Report General Development Source: Aviation Table-1:Overseas’ BetweenChina's Gap and The Gene e tels aefr icamr disclaimer for page last the See systems and equipment business. Moreover, AviChina Moreover, business. equipment and systems belie are C919 of orders The C919. to etc and racks ead f omril icat ie ta is parent its that given aircraft commercial of demand AVIC, AviChina offer servicescan better maintenance AVIC China. in group industry types all almost made Compared with foreign leading GAAviChin leading producers, foreign with Compared dem boost could airspace low-altitude of up opening ( low very is margin gross the and government, from will be benefit the most given their vertical takeo 40% of FY14F revenue, is expected to see notable gr the in contractor major the is AviChina injections, opn. company. FBO –Fixed FBO Operator Base Transportaviation aircraft andaircraft navigation aircraft GA in flighthours (Yearly) ofNumber GAaircraft Population(Billion) Area(thousand square kilometers) Pilot ubro eea vainarot 70(Temporaryla ofNumber general aviation airports

AVIC is the major shareholder of COMAC, therefore AVIC therefore COMAC, of shareholder majorAVIC the is proportion

ff and landing ability. Currently, over 90% of AviC to to increase 6.7% annually over the next 20 years. T ors, flaps etc), we see AviChina is one of the majo the of one is AviChina see we etc), flaps ors, GA sector. AviChina’s helicopter business, which i which business, helicopter AviChina’sGAsector. th Boeing and Airbus. China is one of the major subco major the of one is China Airbus. and Boeing th China’s long term goal to compete with Airbus and Bo and Airbus with compete to goal term long China’s asing companies. The C919‘s first flight is expecte is flight first C919‘s The companies. asing owth driver of commercial aircraft given that passethat givenaircraft commercial of driver owth tional. Boeing estimates that China will need 6,020 6,020 need will China that estimates Boeing tional. oy ilnr ie ibs 30 n oig 3. s for As 737. Boeing and A320 Airbus like airliners body below 10%). We think there is upside for its helico its for upside is there think We 10%). below of aircraft military.and of civil domestic-made both

owth after the opening up of low-altitude airspace. e PRC Government decided to enter the commercial air commercial the enter to decided Government PRC e row-body airliner and it will be the largest commer largest the be will it and airliner row-body k sections, doors, lighting systems, cockpits, and cockpits, systems, lighting doors, sections, k ved to be high enough to ensure stable order growth order stable ensure to enough high be to ved f commercial aircrafts should offer huge opportunit hugeaircraftsoffer should commercial f adsrn upr. strongand support. growth will be international traffic to destination to traffic international be will growth a’s GA offers similar quality and lower prices. Mor prices. lower and qualityGA a’s similar offers VC s h bget hns saeond eopc a aerospace state-owned Chinese biggest the is AVIC n fo piae etr ad h mri i hge f higher is margin the and sector, private from and we we see growth of commercial aircraft is likely to c ong run. -0 sas A te n o 21,tee ee40 outs 430 were there 2014, of end the At seats. 0-400 could also benefit from solid growth of commercial commercial of growth solid from benefit also could OA) a fre fr hs ups. OA wl build will COMAC purpose. this for formed was COMAC) ng GA demand. demand. GA ng a vainSco ral Aviation Sector 0,0 26,000,000 600,000 AviChina’s systems is aero business equipment and l :.7 :2 :1 :4 1:24 1:34 1:61 1:32 1:0.67 hn China ,5 220,000 1,654 ,2 510,000 2,124 6 93 ,0 70 851 770 1,000 963 960 . 02 00 00 0.19 0.02 0.03 0.23 1.3 3,500 4 ndingpoint 329) vCias aet AI, s h lret aviation largest the is AVIC, parent, AviChina’s is a guaranteed supplier of C919. As one of the of one As C919. of supplier guaranteed a is

993 ,0 41 2,498 461 1,700 19,983 USA

4,500,000 Canada Page 7 of 21 of 7 Page 31,018 hina’s helicopter orders come

r beneficiaries of growing of beneficiaries r he he majority of the growth,

Through different Through assets s accounting for around for accounting s d to take place in 2015, 2015, in place taketo d

Its helicopter business s with the Asia Pacific Asia the with s nger trafficexpectedis nger

pter margin given that given margin pter ies for subcontracting subcontracting for ies 1,695,000 new airplanes valued valued airplanes new E-E cabin equipment equipment cabin E-E eover, on the back of back eover,the on cial airliner designed airliner cial Australia 11,117 eing’s duopoly,eing’s and ntractors of aircraft of ntractors for AviChina aero aero AviChina for ontinue over ontinue the r rvt sector. private or

aircraft in China. in aircraft og em plan, term long

craft market in market craft

adn C919 tanding

1,500,000 d defense nd 10,310 Brazil

ikely to C919

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 Source: AVIC. Total Airlines Sichuan Services) CapitalAviation Electric GECAS(General Air Joy Airlines Hebei Airlines Hainan China Air SouthernAirlines China EasternAirlines China Leasing CMBFinancial Leasing Financial Bank Industrial CCBLeasing Aircraft Leasing China Leasing Financial ABC BOCAviation Leasing of Financial Communications Bank Leasing ICBC CDBLeasing C919 Order Table-2:Orders C919 e tels aefr icamr disclaimer for page last the See Source: the Company. Guotai Junan International. Company. the Source: International. Junan Guotai A. Project C919 Figure-8: F. E. B. D. D. C. Hafei. Fuselage-to-wing fairing; Vertical fairing; Fuselage-to-wing Hafei. stabilize Jonhon. Optical and connectors electrical Optical and Jonhon. AVIC Avionics: Airdatareference and inertial Hongdu: Fwd fuselage, Mid-aft Fwd fuselagefuselage, Hongdu: Tianjin.Fire detection system trailing edge flap Leading and Changhe:

r; Nose & Main landing gear doorr; gear & Nose Mainlanding Page 8 of 21 of 8 Page re ubr Number Order 430 20 20 20 20 20 20 20 20 30 20 50 20 45 20 30 45 10

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 al-:MjrCvlArrf nCia Table-3:Civil Major Aircraft China in e tels aefr icamr disclaimer for page last the See stage, T=Testing D=Development Note: P=Pr and stage Source: AVIC International. Junan Guotai ,

eiotrA30AVIC Company Helicopter AC310 Helicopter ye oe MainContractor Xi'anCorp Aircraft Industrial MA60/MA600 Model Commercial Type Z-9/H425 Harbin Aircraft Corporation Harbin Manufacturing Z-9/H425 HC120 C1 AVIC Company Helicopter AC313 AVIC Company Helicopter AC352 AC312 Harbin Aircraft Corporation Harbin Manufacturing AC312 AVIC Company Helicopter AC311 AVIC Company Helicopter AC301 MA700 Xi'an Aircraft Industrial Xi'anCorporation Aircraft Industrial MA700 ARJ21 C919 Commercial Aircraft Corporation of ChinaAircraft Corporation Commercial C919 Z-11 Helicopter Design and Research Institute Research and Design Helicopter China and Corporation Aircraft Industries Changhe Helicopter CorporationHelicopter Europe and Aircraft Harbin Industry Corporation Antonov Aircraft(ACAC)AVIC Company and I Commercial oduction stage.oduction

oration Harbin Z-8Harbin on based design Updated helicopter. civilian premium easy-driving comfortable, safe, currently sized, mostMedium AS350French on based helicopter Multirole seat light helicopter light seat 5 EU120, Eurocopter with Same helicopter civilian advanced most Z-9, on currently Multirole, based design based on the earlier Z-9 earlier the on based design updated an helicopter, Civilian 11 Z- earlier the on based design updated an helicopter, Civilian 11 Z- earlier the on based design updated an helicopter, Civilian Z-8Harbin earlierthe on based design updated an helicopter, Civilian designed and built in Chinain built and designed airliner commercial largest the jet airliner, Narrow-body wnegn einljtT jet regional Twin-engine oe D/T/P fuselage mid-the on high mounted wing tapered non-swept a with configuration, Conventional capability. landing take-off and short has and support ground limited with conditions rugged in Operate Notes Page 9 of 21 of 9 Page D D

P T P P P P P P P P

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 complex technological equipment and China is definiis China and equipment technological complex sh could western countries other and Russia between a parts of lot a and world, the in spending defense is Ukraine USAthe regarding and Russia EU with clash countries western Tensionsother and Russia between butof aircraft, its& some systems aero equipments’ China and Japan in Diaoyu Island and East China Sea arewhich seas near the in disputes sovereignty the are are growing. Against such backdrop, China is eager of 10.1% YoY.increase Ch 2014. believe thedefense spend We in 2.9% around was average world the while 2.0% SIPPI (around muchthanestimate),lower develope average. world of terms in behind an grow, to room large has spending defense China‘s & AeroBoostSpending Uptrend Systems Defense China e h atpg o icamr disclaimer for page last the See to grow, with potential upside in the next ten year Source: National Bureau of Statistics SIP China, of of Bureau National Source: %Defense Spending, China GDP Figure-10: of Statistics Guo China, of of Bureau National Source: Spending CAGR& Defense China Growth Figure-9:

10,000 10,000 20,000 30,000 40,000 50,000 60,000 70,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 M bnRMB RMB mnRMB 500,000 0 0 0 1952 onl for accounted spending defense official China’s RI, Guotai Junan International. International. Junan Guotai RI, tai Junan International. International. tai Junan 1956 GDP 1990 90-0015.2% 1960 1992

1964 1994 s. Moreover, the maritime disputes with the Philippi Defense Spending to GDP Ratio to GDP Spending Defense nd components are imported from other western count western other from imported are components nd the Yellow,the see Seas. China We South and China East

1996 to productsmilitary ultimately supplied are aircr 1968 to flex its military muscle. It is true that AviChi eyistpcoc. tely its topchoice. ift the purchase to China. Assuming that Russia is t is Russia that Assuming to China. ift the purchase ing is likely to post double-digit increase inthe likelyis ing double-digitto increase post

1998 matters remain the major factor for China defense s

1972 t ranked Russia China. benefit ultimately could sue 00-1016.0% n anucd dfne ugt f S11 ilo for million USD141 of budget defense a announced ina d d USA’s counties. was Russia’sand around 3.9% was a 2000 SpendingDefense

1976 products export. China’s raise A&Drelated could 2002 still is GDP of percentage a as spending defense d 1980 2004 1984 2006 1988 10-15F10.7% 2008 1992 2010 1996 2012 15F-20F15.2% 2000 Ratio SIPRI Estimated 2014 2004 2016F Demand Equipments 2008 2018F 2012 2020F 20F-25F12.4% 10.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 2022F

2024F 2014 in GDP of 1.3% around y Page 10 of 21 of 10 Page

na na does not produce military nes nes and Vietnam concerns f auatrn. aft manufacturing. next ten years given that nextyears that given ten o look for alternative for o look pending pending to continue he third in terms ofterms in third he ries. The tensions The ries. tensions betweentensions We think the think We round round 3.5%, 2015, an an 2015, lagging

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 potential assets of injection potential Avionicresea related manufacture and operation of the entrusted AVIC Avio Chin of injection involved which plan restructuring future. the in injection/restructuring Integratio Chengfei proposed the of termination The platform of AVIC, we think there are great potential efficiency, industry i startedasset thegovernment dual-listing with company industry-related military oper capital overseas only the is GSI Kejin. Yangzhou shipbui four acquired CH) (601989 (CSIC) Corporation helicopters) Z-11 Z-9, (Z-8, Helicopter Changhe/AVIC subs major Its fighters. major China‘s manufactures AviChina’s 2013. in 50% over of rate securitization ran AVIC defen 2013. in 30% ten around was top rate securitization China’s industry. defense China’s the viewed importantas foropportunities investment. T co to likely is restructuring and injections Assets AVICAssetsfrom Injections Potential e h atpg o icamr disclaimer for page last the See vi our In concerns. monopoly to due (SASTOMD), Defense Regulator, Security State the from approval receive asset military in involving company listed overseas AVIC subs its CH and AviChina (600372 Avionics deal, a defense inject to militarymanufacturers other of defen inject to startedmilitary China’s marine has industry.defense industry. see opportunity We that AVIC tois speed u (H- Aircraft Xi’an and trainers L-15 (K-8, Industry hpulig oprto (SC’ Hagu ecog Sh Wenchong Huangpu (CSSC)’s Corporation Shipbuilding Internat Shipyard Guangzhou Moreover, manufacturing. beco CSIC injection, asset the After billion. RMB17.46 vois o aae t eut itrss n VC Avio AVIC in interests equity its manage to Avionics platf capital overseas only the is Company the that A believe future. We the in injection/restructuring but fundamentals, AviChina’s on impact significant Note: China defense spending is based on SIPRI esti on SIPRI based is spending defense China Note: International. Junan Guotai SIPRI, Source: F %Spending,Top 15 Defense World GDP of Figure-11: 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

Saudi Arabia

UAE

USA

Russia

India

Turkey

France

South Korea

UK Average2.9%

In May 2014, AviChina’s parent, AVIC, announced an an announced AVIC, parent, AviChina’s 2014, May In China mation. mation. Italy

Australia c ntttsit vCiai h uue institutesrch into AviChina inthe future. viChina is likely to engage in AVIC’s in engage pr to alternative likely is viChina njection plans in itsindustry. defense inplans njection AviChinais status in Hong Kong and Shanghai. As to improve over improve to As Shanghai. and Kong Hong in status that its parent could inject military/ aero-space a’s major fighter jet assets into A-Share listed Che listed A-Share into assets jet fighter major a’s , H7 obr) r iprat ses n hn’ ai China’s in assets important are bombers) JH-7 6, he he market asset believes injections and restructuri

injection. However, the proposal was terminated, a terminated, was proposal However,the injection. Brazil p asset p injections asset and restructuring given thethat parent, AVIC, is the sole largest defense-aerospace largest sole the is AVIC, parent, we see opportunity for other AVIC-listed companies t companies AVIC-listed other for opportunity see we r farsae eae cmay Mroe, AviChin Moreover, company. related aerospace of orm ntinue in China’s defense industry. defense China’s in ntinue State Administration for Science, Technology and In Technologyand Science, for Administration State se assets into listed company, listed u assets into speed se should which nic nic Systems which include the five profitable resear dais nml Seyn Arrf (-, -1 J5 an J15 J-11, (J-8, Aircraft Shenyang namely idiaries, ssets into listed company. listed into ssets Germany ) was involved. Upon completion of this deal, AviCh deal, this of completion Upon involved. was ) me the first A-Share listed company with marine war marine with company listed A-Share first the me ked the first in terms of total assets of around RM around of assets total of terms in first the ked Cegu icat nuty J1, -0 ihes, H fighters), J-20 (J-10, Industry Aircraft Chengdu , to pafr o CS. fe teaqiiin GI beco GSI acquisition, the After CSSC. of platform ation e opne’ oa ast wr aon RB,0 bill RMB2,700 around were assets total companies’ se n (002190 CH) injection could open for other option other for open could injection CH) (002190 n is ytm. urnl, vCia a te ih t m to right the has AviChina Currently, Systems. nics dn cmais hog piae lcmn, t con a at placement, private through companies lding Japan oa (S) 037 K 608 C) curd t parent its acquired CH) 600685 HK, (00317 (GSI) ional

pulig opn, n rltd hpulig assets shipbuilding related and Company, ipbuilding w w se h triain f h pooa de not does proposal the of termination the see we ew, Note: China defense spending is based on SIPRI esti on SIPRI based is spending defense China Note: International. Junan Guotai SIPRI, Source: igure-12: World Top 15 Defense SpendingTop 15 Defense World igure-12: 100 200 300 400 500 600 700 D bnbn SD SD U U D bnbn SD SD U U 0

USA

China

Russia

In early 2014, China Shipbuilding Industry Shipbuilding China 2014, early In Saudi Arabia

France

UK China’ defense industry has been has industry defense China’ Germany Page 11 of 21 of 11 Page Japan eae sesit vCia related assets into AviChina. the major overseas capitaloverseas themajor oposals in the future given given future the in oposals India recent events in China’s ng ng likelyis to continue in ngfei Integration. In this In Integration. ngfei M 1 blin asset billion 16 RMB

s the proposal did not did proposal the s South Korea ch institutes. We see rspace and defense defense and rspace mation. mation. group. The Group The group. o involve in assets in involve o dustry for National for dustry ina will be theonly be will ina

all profitability and and profitability all Italy B600 billion, with billion, B600 J3 fighters), J-31 d a entrusts AVIC entrusts a ship equipment ship nd Aviation ongdu Brazil p the process the p ieain of sideration s of assets of s e h first the me Australia anage the the anage ed by held o, and ion, Turkey China have UAE

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 Table-4: China Fighters China Major Table-4: e h atpg o icamr disclaimer for page last the See stage, T=Testing D=Development Note: P=Pr and stage Source: AVIC International. Junan Guotai , yeMdlMi otatrNtsD/T/P Notes J-7 MainContractor Model Fighters Type obr H-6 Bombers eiotr Z-8 Helicopters riesK-8 Trainers purpose Special

J-11/Su-27 Y-8/Y-9 Shaanxi Aircraft Shaanxi Company Y-8/Y-9 oduction stage.oduction FC-1 JH-7 J-10 J-20 fight based Carrier Aircraft Corporation Chengdu J-15 J-31 Shenyang Aircraft Shenyang Corporation J-31 Z-10 Z-15 Z-11 Z-19 L-15 Y-20 Z-9

J-8 Shenyang Aircraft Corporation Second-generation f Second-generation Aircraft Shenyang Corporation J-8 and SUKHOIand AircraftShenyang Corporation Research InsituteResearch and Aircraft Design Chengdu CA TIC Aircraft Corporation, Chengdu Research InsituteResearch and Aircraft Design Chengdu Guizhou AircraftGuizhou Corporation and Chengdu Shenyang, Corporation Xian Aircraft Industry Corporation Xian Aircraft Industry Corporation Aircraft IndustryChanghe Research InstituteResearch Corporation Aircraft Harbin Industry Corporation Aircraft IndustriesChanghe Helicopter CorporationHelicopter Europe and Corporation Aircraft Harbin Industry Helicopter Design and Design Helicopter China and Corporation Aircraft IndustriesChanghe Corporation Aircraft Harbin Manufacturing Corporation Aviation IndustryHongdu Corporation Aviation IndustryHongdu Corporation Xi'an Aircraft Industrial

the the RussianSu-27SK on figthter based Multirole speed,all-weather,Multirole fighter,supersonic light Third-generation utrl ihe,l-ete P fighter,all-weather Multirole fighter heavy stealthDouble Lightning IILightning to USA F-35similar fighter,Fifth-generation 21 MiG- Russian the on based fighterThird-generation 16, twin engine jet bomberjet engine 16, twin Tu- Russian the on Based attack ground and sea speed, supersonicSelf-developed, with strong carrying ability strong with mid-sizedHornet, Super SA321French on Based multirole SA365,French on Based on French AS350French on based helicopter Multirole tank and air-to-air capability air-to-air tank and anti- Attackwith helicopter helicopter utility Medium EC175, Eurocopter as same of Z-9 variant improved helicopter, reconnaissance/attack Chinese aircraft aircraft designed attack light and trainer jet intermediate two-seat range transport aircraft transport range medium size Medium light attack aircraftlight and training Supersonic aircraft transport military Large Page 12 of 21 of 12 Page rT er gtrP ighter D P P T T P P P P P P P P P P P P

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 Table-6: AVIC'sto Institutes(Related Research Avio Internati Junan Guotai web sites, Companies Source: Table-5: Top Ten China’s Company Defense e h atpg o icamr disclaimer for page last the See Source: AVIC International. Junan Guotai ,

614 613 615 612 624 611 608 303 301 AVIC's Institutes Research 623 625 607 618 606 605 603 602 304 621 626 601 631 634 中航工业技术基础研究院 中航勘察设计研究院 中国航空工业规划设计研究院 中国航空工业第三设计研究院 中国航空工业经济技术研究院 633 648 630 637 原国防部第六研究院 vainIdsr opo hn (VC Arsae 28 Aerospace (CASC) Technology& Corp AerospaceScience China (AVIC) IndustryChina Corp of Aviation China North Industries Group Corp Armored vehicles a vehicles Armored Aerospace GroupNorth Industries Corp China Industry& Corp Aerospace Science (CASIC) China China State Shipbuilding Corp (CSSC) Shipbuilding 3 3 3 Shipbuilding Militaryengineering Shipbuilding and Hi-tech elect and Vehicles GroupNuclear Engineering China NuclearCorp National China ShipbuildingCorpState (CSSC) China Corp (CSIC)Shipbuilding Industry China Corp Electronics Technology Group China Group Industries South Corp China 所所所 所所所 所所所 所所所 所所所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所 所

洛阳电光设备研究所 洛阳电光设备研究所 中国航空无线电电子研究所 中国航空无线电电子研究所 中航雷达与电子设备研究院 中航雷达与电子设备研究院 西安飞行自动控制研究所 西安飞行自动控制研究所 中国航空计算技术研究所 中国航空计算技术研究所 中国空空导弹研究院 中国燃气涡轮研究院 成都飞机设计研究所 中国航空动力机械研究所 中国航空综合技术研究所 中国飞机强度研究所 中国直升机设计研究所 北京长城计量测试技术研究所 北京航空材料研究院 沈阳飞机设计研究所 上海航空测控技术研究所 中国飞行试验研究院 济南特种结构研究所 洛阳电光设备研究所 洛阳电光设备研究所 中国航空无线电电子研究所 中国航空无线电电子研究所 中航雷达与电子设备研究院 中航雷达与电子设备研究院 西安飞行自动控制研究所 西安飞行自动控制研究所 中国航空计算技术研究所 中国航空计算技术研究所 中国航空动力控制系统研究所 北京航空精密机械技术研究所 中国航空工业制造工程研究所 沈阳航空发动机研究所 中国特种飞行器研究所 中航工业第一飞机设计研究院 沈阳空气动力研究所 北京长城航空测控技术研究所 贵州飞机设计所

中国航空研究院 （贵阳 Name Name

（洛阳 （绵阳 （成都 （西安 （北京 （沈阳 （西安 （济南 （（（洛阳 （ （并入中国航空工业空气动力研究院

（景德镇 洛阳 洛阳 洛阳 （沈阳 （荆门 ）

（株洲 （北京 （上海 （（（西安 （（（西安 （ （

） / ） ） ） ） ） ） ））） （（（上海 西安 西安 （（（原雷华电子技术研究所 西安 西安 ） （ 西安 （ 西安 成都

（北京

上海 上海 原雷华电子技术研究所 原雷华电子技术研究所 上海 原雷华电子技术研究所 （无锡 （北京 （北京 （原西安飞机研究所 ） ） （北京 ） ） ） ） ））） ））） ） ）

）

onal.

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nics in Bold) nics ）（ ）（ ）（ ）（ ）（ 西安 苏州 苏州 苏州 苏州 ）（ ） Nuclear weapons 2 2 weapons Nuclear Product Range Product ））） ）

沈阳 Aerospace 9 9 Aerospace

） , nuclear nuclear , engineering

ndweapon systems IT systems 7 7 IT systems ootcsses 11 ro-optic systems 6 6

Page 13 of 21 of 13 Page

Number of Listed Listed of Number Companies 12 0 0

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 eoprsmnfcue. h eeu got i expe is growth revenue The manufacturer. aero-parts and period, that during restructuring and injection RMB25,710 million for FY14, representing a CAGR of 35 FY09 from phase growth fast a experienced AviChina AnalysisForecasts Earnings &Financial e h atpg o icamr disclaimer for page last the See systems & equipments to continue to experience solid experience to continue to equipments & systems account to segment business the expect and business three a forecast We respectively. FY14, in revenue FY14 in of revenue 40% about contributed aerospa Helicopter China’s in position dominated AVIC’s parent: a three forecast year CAGR of from 21.5% FY14-17F fo eaiey ih obe ii got rt die by driven rate growth digit double high relatively & FY14-17F. from growth equipments revenue systems in etc) (C919 projects aircraft commercial domestic d significant see we market, civil the in Moreover, whic upside potential with level high at keep would Source: Guotai Junan International. International. Junan Guotai Source: So FY15F Revenuein Breakdown AviChina Total Figure-15: Company, the Source: International. Junan Guotai iue1: vCia oa Rvne radw in Breakdown Revenue (Amount) FY12-17F Total AviChina Figure-13: 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 RMB mnRMB 5,000 0 02 03 04 05 06 2017F 2016F 2015F 2014A 2013A 2012A Aero systems & equipments equipments systems & Aero Other entire aircraft entire Other Aero systems & Aero equipments equipments 57.8%

Helicopter emand to come from commercial aircraft orders from from orders aircraft commercial from come to emand h should eventually increase the demand of aero sys aero of demand the increase eventually should h eiotr ae got ad eo ytm & equipment & systems aero and growth sales helicopter the mid to long run. We forecast a three year CAGR year three a forecast We run. long to mid the h Cmay eae laig ii arrf ad av and aircraft civil leading a became Company the er AR f 00 fo F1-7 fr h Cmays h Company’s the for FY14-17F from 10.0% of CAGR year growth in the future given that we believe China’s believe we that given future the in growth cted to slow down amid stable government orders but orders government stable amid down slow to cted for about 30% of total revenue in FY17F. Moreover,in revenue total of 30% about for r r the growth. revenue The Company was to able take ad eo ytm ad qimns otiue fr a for contributed equipments and systems aero and , .4%. .4%. The strong revenue growth was mainly due to a e dfne nuty Atr ses netos n re and injections assets After industry. defense & ce aircraft aircraft 7.2% Other entire entire Other

to FY14. FY14. to

iue1: vCia oa Rvne radw in Breakdown Revenue (%) FY12-17F Total AviChina Figure-14: 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% urce: the Company, Guotai Junan International. Company, the urce: International. Junan Guotai 0% Aero systems & equipments equipments systems & Aero Revenue grew from RMB5,654 million for FY09 to to FY09 for million RMB5,654 from grew Revenue 02 03 04 05 06 2017F 2016F 2015F 2014A 2013A 2012A Helicopter Helicopter 35.0%

Other entire aircraft entire Other Page 14 of 21 of 14 Page tems & equipments. & tems subcontracting and subcontracting defense spending defense of 22.5% of aero aero of 22.5% of we believe aero aero believe we iation tools and and tools iation advantage of its series series of assets s demand. We We demand. s remains at a a at remains ot 6 of 56% bout Helicopter structuring, elicopter

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 systems & equipments. AviChina’s entire aircraft gro aircraft entire AviChina’sequipments. & systems Operating margin Operating bottomwill out in FY15F and see s equipments& of systems aero i slightly will revenue equi and systems aero of growth we believe as FY16F FY15-17F.in level atsimilar remain bl forecast We high a enjoyed equipments & systems aero AviChina’s remain to aircraft entire its for margin gross the thei (price orders government for mechanism pricing AviChina years. three last in 20% around of margin upw trend and stable be to expected is margin Gross e h atpg o icamr disclaimer for page last the See aerospace and defense industry intends to improve e improve to intends industry defense and aerospace recove gradually will and FY15F, in out bottom will platformsof AVIC, AviChina s to is deliver believed Source: the Company, Guotai Junan International. Company, the Source: International. Junan Guotai So Company, the Source: International. Junan Guotai FY12-17F GM & Aircraft Entire of Revenue AviChina Figure-16: Figure-18: AviChina Margins in FY12-17F in AviChina Margins Figure-18: RMB mnRMB 1,000 1,000 1,200 1,400 1,600 200 200 400 600 800 0 0 02 03 04 05 06 2017F 2016F 2015F 2014A 2013A 2012A Entire Entire aircraft 10% 15% 20% 25% 0% 5% 02 03 04 05 06 2017F 2016F 2015F 2014A 2013A 2012A

GPM Gossmargin lderig rwhb fetv ot oto. growth olid earnings effectiveby costs control. ended gross margin will largely flat of 19.1% in FY in 19.1% of flat largely will grossmargin ended t iia lvl n Y51F u t te xsig co existing the to due FY15-17F in level similar at ces lne rs agn gross margin. ncrease blended 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0% 8.2% ss margin was only around 7-8% in the last three ye three last the in 7-8% around only was margin ss t 80 ad .% n Y61F u t eoois of economies to due FY16-17F in 8.0% and 8.0% to r a rltvl tbe rs mri i mil u to due mainly is margin gross stable relatively has pout a cs, ls % agn ad tbe orde stable and margin) 5% plus cost, at products r pmentsgrowthaircraft outpace entire to FY15-17 in fficiency and deliver solid growth. As one of the k the of one As growth. solid deliver and fficiency er gross margin in the past, and we also expect its expect also we and past, the in margin gross er light inuptrend FY15-16F. ard slightly in the coming years. coming the in slightly ard in

Operating margin Operating Figure-17: AviChina Revenue of Aero Systems & & Systems Aero of in GM &FY12-17F Equipments Revenue AviChina Figure-17: RMB mnRMB urce: the Company, Guotai Junan International. Company, the urce: International. Junan Guotai 1,000 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 0 0 02 03 04 05 06 2017F 2016F 2015F 2014A 2013A 2012A Aero systems & equipments equipments systems & Aero Net marginNet We We forecast AviChina’s operating margin

AviChina showed stable gross stable showed AviChina Page 15 of 21 of 15 Page 15F and reach 19.3% in 19.3% reach and 15F sts-plus mechanism. mechanism. sts-plus ey overseas capital overseas ey ars, and we expect expect we and ars, F. in growth Higher xsig cost-plus existing gross margin to to margin gross s rm t aero its from rs cl. China’s scale. GPM 20.0% 22.0% 24.0% 26.0% 28.0% 30.0% 32.0% 34.0% 36.0% 38.0% 40.0%

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 in CAPEX over FY15-17F. The CAPEX is expected to spend mor spend to expected is CAPEX FY15-17F.The over CAPEX in in level similar at remain to CAPEXAviChina’s believe the stock’s current valuation is undemanding. Moreo undemanding. is valuation current stock’s the suc As 2014. late in assets defense marine injected b industry-related military China’s has firm listed 59.6x. of PER FY15F implied an into translates price AviChina‘sprice share to largely market v discount Valuation pa to position liquidity strong a in is Company The attr is which FY12, for 33.1% of growth significant 22.4 21.2%, of growth see to expected is profit Net e h atpg o icamr disclaimer for page last the See Company was in a net cash position as of end of FY1 of end of as position cash net a in was Company Moreover, we forecast dividend payout to remain at at remain to payout dividend forecast Moreover,we including etc), (C919 projects aircraft commercial in FY15-17F, position to str webe in a which think purpose. injections/restructuring assets potential valuation and valuation the discount was around 20% in 2009. SOTPcould theshare price undejustify is valuation militaryand aircraft Kong. Hong listed in As AviChi & equipmentsdemand. systems aircr decent 1) from come would FY15-17F in drivers FY15 for forecasts EPS Our control. expenses effective 25.0%, 22.4% and 20.4%, respectively. Net profit ma YoY 7.3% to down slowed w growth profit net the and Our comparable companies including global names whi names global including companies comparable Our parts and components. AviChina’s FY15F PER of 45.0x i four A-share subsidiaries, namely AVICnamely Helicopter,subsidiaries, H A-share four “Accumulate”. with Initiating faster growth of aircraft 4)and of growth mu China faster in market due mainly is premium the believe We peers. global sector given that its 46.1% discount to the market market the to discount 46.1% its that given sector AviC think we valuation, PER FY15F 173.3x of average basically cover the full value chain of helicopter Source: the Company, Guotai Junan International. Company, the Source: International. Junan Guotai Figure-19: AviChina Net Profit in FY12-17F in AviChina Profit Net Figure-19: RMB mnRMB AviChina is the only overseas listed company of Chi of company listed overseas only the is AviChina 1,000 1,000 1,200 1,400 1,600 200 200 400 600 800 0 0 02 03 04 05 06 2017F 2016F 2015F 2014A 2013A 2012A

manufacturing. manufacturing. Since the A-share defense sector is t usiness is Guangzhou Shipyard Int’l (00317 HK), while HK), (00317 Int’l Shipyard Guangzhou is usiness ong liquidity position to support potential to potential assets support liquidityong position na’s main itscome from profit contributors su four ibutable to the assets injection/restructuring. The injection/restructuring. assets the to ibutable h Cmays e gaig ais r epce t ma to expected are ratios gearing net Company’s The tual market access between Hong Kong and Kong betweenand Hong access market tual A-Share mar manding. manding. AviChina’sshare price attradingis 46.1% ibre esr peiin oto cmoet n co and component control precision sensor, airborne h, we think AviChina is a unique company with domin with company unique a is AviChina think we h, rgin rgin is expected to reach from 3.0% in FY14 to 3.1% around 15% in FY15-17F. The Company is likely to re to likely FY15-17F. is in Company The15% around Our Our target price is 28.4% discount to SOTP valuatio ver, we also pick global players as comparable comp comparable as players global pick also ver,we au o Aihn’ saeodns f t fu A-sha four its of shareholdings AviChina’s of value ongdu, AVIC Avionics and Jonhon Optronic, and these and Optronic, Jonhon AVIC and ongdu, Avionics as 9.6% YoY 9.6% as for F profit thenet expect FY14. in We Net profit Netprofit 4. We forecast operating cash flow of RMB2,092 mill RMB2,092 of flow cash operating forecast We 4. to 1) rich cash position and 2) potential assets in assets potential 2) and position cash rich 1) to FY15-17F. For entire aircraft segment, there is no is there FY15-17F.segment, aircraft entire For In H-share market, there are basically no comparabl no basically are there market, H-share In alue its of alue four subsidiaries. aft backlogs, 2) solid government orders outlook an outlook orders government solid 2) backlogs, aft /16/17 are RMB0.179/0.219/0.264, respectively. e RMB0.179/0.219/0.264, Theare /16/17 % and 20.4% over FY15-17F. over 20.4% and % s trading s at trading 74.0% todiscount A-share peers and 16 ch manufacture civil aircraft, military aircraft an aircraft military aircraft, civil manufacture ch hina is a good investment to ride on China’s fast g fast China’s on ride to investment good a is hina tcpt i ay oeta ast injection/restruc assets potential any in rticipate e on aero systems & equipments of which will be used be will which of equipments & systems aero on e YoY 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 0.0% 5.0% Our Our target price is HK$13.50. Our target na’s aerospace and defense that holds that defense and aerospace na’s The Company’s net profit reported a reported profit net Company’s The

Page 16 of 21 of 16 Page neto rrsrcuig restructuring. or injection net profit growth of FY13 of growth profit net rading rading at around weighted bsidiaries,that we believe discount todiscount ourSOTP n. Therefore we think in FY15F to factor in d aerospace related aerospace d jection and 3) much much 3) and jection significant increase significant Y15-17F to grow to by Y15-17F re subsidiaries. We We subsidiaries. re the Company was was Company the anies for AviChina. for anies ant position in civil civil in position ant tain more cash for cash more tain nan t e cash net at intain ntrol devices etc. etc. devices ntrol ion in FY15F.in ion We e firms. The only The firms. e ket. d 3) robust aero robust 3) d 6.6% 6.6% premium to four subsidiaries four rowing defense rowing arnings growth growth arnings

turing. The in in

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 Company, the Source: International. Junan Guotai opportunity see we AVIC, of platform overseas major thatgiven its parent AVIC theis Chinese biggest st develop aircraftcommercial development, and AviChina th is aircraft commercial from opportunity see we m orders. government of AviChina should from benefit Chi beneficiary major the also is AviChina believe e h atpg o icamr disclaimer for page last the See Table-11:SOTP Valuation of AviChina value its to and to assets add quality shareholders W restructuring. & injection assets in participation OPVleo vCia ValueSOTP of AviChina Valuation of unlisted HKD mn PE(X) Unlisted Assets FY15F earnings Sum JONHON Optronic Hongdu Aviation SubsidiariesListed RMB/HKD AVIC AVIC Avionics AVIC Helicopter AviChina share outstanding

Stock Stock code 600372 CH 600372 CH 002179 CH 600316 CH 600038 CH

Market Market Value (Rmb mn) 25,486 82,645 35,834

5,474.4 50,695 0.7 9 . ate-owned ate-owned aerospace and defense company. Moreover, e believe AviChina could acquire quality assets fro assets quality acquire could AviChina believe e e one e of one the of major growingbeneficiaries demand

na’s upgrading of fighters and military helicop use ltr sedn, s rud 0 o Aihn’ reven AviChina’s of 80% around as spending, ilitary

OPVlain ValuationSOTP et n hn. 99 rjc i js te is mills first the just is project C919 China. in ment f ute ast ijcin oeta. vCia has AviChina potential. injection assets further of Avichina Avichina Stake 35.10% 41.57% 43.22% 43.63%

22,524 Market Market value to AviChina (HKD mn) 100,939 19,790 13,411 45,214 Page 17 of 21 of 17 Page

,2 2,320 m AVIC to enhance its enhance to AVIC m ter. On the civil market, 00 10.0 3 232 of of aircraftcommercial

AviChina AviChina being the ln hsoy of history long a 18.86 oe f China’s of tone e oe from comes ue 2.45 8.26 3.62 4.11 0.42 18.44 Per sharePer value

Company Report AviChina 中航科工 (02357 HK) 27 May 2015

Table-12:Comparison Peers Table e h atpg o icamr disclaimer for page last the See Mtu Aero Engines Ag MTX GR MTX BZ EMBR3 CN BBD/B US HRS RHM GR Ag Engines Mtu Aero JT 7011 SS SAABB Inc-B Bombardier CACI US Sa Embraer Corp Harris LN BAB US OSK Industries Heavy Mitsubishi US CSC Inc A-Cl International Caci GE US Ag Rheinmetall Ab-B Saab Plc Intl Group Babcock US BAH Corp Sciences Computer Corp Oshkosh Co Electric General Holdings Hamilton Allen Booz Inc Exelis Ingalls Industrie Huntington Spa Finmeccanica Holdings Communications L-3 Sa Thales Inc Textron Systems Plc Bae Plc Holdings Rolls-Royce Sa Safran Company Raytheon Corp Grumman Northrop HON US Corp Dynamics General Martin Corp Lockheed Inc International Honeywell Co/The Boeing Corp Technologies United corporation defense Listed Gobal CH 600879 Average Weighted CH 002025 Average Simple Elec-ATimes Aerospace China Co-A Appliance Space Guizhou CH 601989 CH 002179 CH 600685 Industr-A Shipbuilding China Optical -A Aviation China E-A Marine And Offshore Cssc Co-A Optotech Up Changchun 6001 Tech-A Defense He Tian Xi'An Aviation-A Hongdu Jiangxi -A Ltd Co Spacesat China Avionics -A Systems Co China corporation defense Listed China HK 317 Average Weighted Average Simple Eng Marine And Offshore Cssc corporation defense - Listed HK Company Eaton Corp Plc ETN US ETN Plc Corp Eaton Airbus Group Nv Group Airbus CH 000901 CH 002013 CH 600765 Holdings-A Hi-Tech Aerospace CH 000738 Sy-A Electromechanical Avic Lt-ACo Machinery Heavy Avic Controls-A Aero-Engine Avic Ltd-A Co Helicopter Avic Corp-A Engine Aviation Avic Ltd-A Co Aircraft Avic HK 2357 Tech-H & Industry Avichina

Stock Stock Code 002338 CH 002338 CH 300397 CH 600316 CH 600038 CH 600372 CH 600893 CH 000768 NOC US RTN US RTN US LMT US US LMT US UTX XLS US US XLS TXT US US TXT SAF FP FP SAF FNC FNC IM LLL US US LLL RR/ LN AIR FP AIR FP BA/ LN LN BA/ GD US HO FP BA US US BA HII US 18 CH

Currency HKD USD EUR USD EUR USD USD EUR USD USD USD USD USD CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY CNY HKD USD EUR CAD USD USD EUR USD USD USD USD USD USD EUR SEK GBp GBp GBp BRL JPY

1,010.000 1,120.000 Last priceLast 518.000 105.520 158.470 137.990 190.510 104.840 142.800 121.420 789.600 220.500 122.330 117.730 116.870 10.160 72.010 86.550 24.410 79.090 85.640 48.970 67.480 53.870 27.520 24.450 24.690 56.800 45.700 66.210 63.540 24.500 43.500 78.550 47.280 30.760 42.500 18.800 53.380 70.420 92.900 49.970 86.000 78.040 46.980 77.960 43.600 39.150 11.630 2.460

654.6 654.6 153.8 263.2 144.6 479.0 189.6 157.7 363.2 152.8 260.1 138.2 155.9 328.8 154.5 134.0 1 274.5 230.7 242.4 103.4 211.6 89.2 89.2 73.1 56.4 19.1 19.1 22.5 22.5 15.7 16.5 14.8 04.2 20.3 22.4 14.8 14.7 18.2 15.1 18.7 17.7 15.1 16.3 21.3 22.1 14.7 16.0 21.3 18.3 16.7 19.4 19.1 16.9 70.2 14A n.a. n.a. n.a.

PE (fiscal year) (fiscal PE 348.6 348.6 105.6 318.3 221.7 106.8 141.7 214.8 173.3 173.3 178.3 116.2 111.9 80.1 80.1 61.5 88.3 51.4 83.7 88.9 80.7 49.6 15.1 15.1 16.5 18.2 15.6 24.0 16.5 14.1 18.2 21.2 13.4 19.2 15.5 19.1 14.3 17.7 15.8 16.1 18.3 13.3 16.9 19.3 15.5 16.5 18.9 16.1 17.1 17.2 16.7 16.7 69.4 70.2 15F n.a. n.a. n.a. 8.8 8.8

135.4 135.4 208.2 198.1 155.7 131.5 131.5 134.3 117.9 113.0 69.5 69.5 41.0 83.6 39.0 91.4 87.3 43.9 43.4 45.4 41.3 13.7 13.7 15.3 12.3 13.7 15.5 17.1 15.4 14.9 14.6 13. 12.0 16.8 14.8 18.1 13.2 15.2 14.1 14.4 15.4 12.6 15.6 17.7 14.8 14.9 18.3 14.9 15.3 15.7 15.4 15.3 48.0 61.3 11.2 16F n.a. n.a. n.a. 8 8

19 180.2 109.0 117.4 64.8 64.8 28.9 92.7 78.5 70.9 84.7 36.0 35.7 36.9 34.4 12.8 12.8 13.2 14.8 12.8 12.5 15.0 14.6 13.4 13.1 12.7 15.1 13.8 16.7 12.7 12.5 12.8 13.3 13.8 14.3 16.2 13.4 13.1 14.2 14.0 13.8 14.1 14.0 14.1 95.2 96.9 11.5 11.9 17F n.a. n.a. n.a. n.a. n.a. n.a. n.a. 9.9 9.9 9.5 9.5

(12.1) 19.0 19.0 10.7 12.9 15.7 21.4 16.0 10.7 21.3 21.3 17.6 10.2 10.2 11.3 11.6 14A 7.3 7.3 6.8 5.7 8.6 7.3 8.2 9.7 5.1 4.9 5.7 4.1 2.2 2.2 3.7 1.8 4.6 1.7 1.5 1.7 2.1 4.0 2.5 2.2 2.2 3.7 4.3 1.9 1.8 3.1 3.0 8.9 3.0 4.4 3.4 4.4 7.1 3.9 4.6 3.4 4.9 8.0

Page 18 of 21 of 18 Page PB (fiscal year) (fiscal PB 263.6 263.6 12.4 12.4 10.3 19.8 14.2 1 17.1 12.4 15F n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6.0 6.0 7.5 7.1 7.8 9.7 8.9 4.0 4.0 4.1 3.9 2.1 2.1 3.0 5.3 1.5 1.5 1.4 1.4 2.0 2.6 3.2 2.1 2.3 9.5 3.3 3.8 1.8 1.9 2.8 2.6 6.8 2.9 3.8 3.2 5.1 5.6 3.9 4.1 3.2 9.4 9.3

18.3 18.3 12.5 14.4 14.4 13.7 11.5 16F n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5.9 5.9 6.5 9.6 7.0 7.3 8.9 8.5 3.7 3.7 3.8 3.6 1.9 1.9 2.7 3.9 1.4 5.4 1.4 1.3 1.3 1.8 2.4 3.2 1.8 2.3 9.5 2.9 3.4 1.7 1.9 2.5 2.3 5.9 2.6 3.4 2.9 4.9 4.8 3.8 3.7 3.0 8.7 8.7

16.8 16.8 10.7 15. 16.9 17F n.a. n.a. n.a. n.a. n.a. n.a. n.a. 7.7 7.7 5.4 9.1 8.9 6.8 6.9 8.2 7.9 3.5 3.4 3.5 3.4 1.8 1.8 2.5 3.3 1.3 4.0 1.3 1.2 1.3 1.7 2.2 2.8 1.6 2.8 6.7 2.5 3.1 1.5 1.9 2.2 2.1 5.9 2.3 3.1 3.0 4.1 4.1 3.5 3.4 2.8 8.1 8.1 1 1

ROE(%) 129.9 129.9 111 .1 (0.2) 13.4 13.4 19.0 44.0 10.8 10.3 16.3 15.5 19.2 28.5 17.4 15.4 51.4 17.1 20.9 21.3 27.5 30.9 23.8 95.4 25.4 64.6 20.1 15.0 15.1 11.4 11.5 15F n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 8.8 8.8 6.6 9.0 9.9 6.0 5.8 5.3 4.7 2.4 6.7 8.8 7.2 4.4 8.1 8.1 8.1

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 limited. is Disclosure purchase. government from come Anygover in slowdown orders. government expected than Lower demandlowercould anydelays the further therefore airspace. low-altitude of opening full in Delay InvestmentRisks International. Junan Guotai Bloomberg, Source: e h atpg o icamr disclaimer for page last the See small namely, comparedto peers small global Helico Airbus small. very still is size Operational Cobham Plc COB COB LN CN CAE LN ULE COL US Average Weighted Average Simple Plc Hldgs Electronics Ultra Plc Cobham Inc Cae Inc Collins Rockwell Disclosure is limited on limited is Disclosure AviChinamilita and orders

CAD USD GBp GBp AviChina is the largest helicopter manufacturer in in manufacturer helicopter largest the is AviChina

1,825.000 AviChina heavily relies on the government orders, a orders, government the on heavilyrelies AviChina 298.300 15.170 96.700

h akt s xetn afl oeig f low-altit of opening full a expecting is market The

o ii icat ofaircraft. civil pters, Sikorsky and Bell etc, in terms of revenue and revenue interms etc, pters,of Bell and Sikorsky 114.7 30.6 30.6 37.8 61.2 20.8 21.6 nment orders will reducewill nmentorders AviChina’s earnings signif 16.9 16.9 16.7 15.1 14.2 20.0 18.5 ry related ryproductsrelated to due its mainly sensitiveness 15.5 15.5 15.3 14.5 13.0 17.5 16.9 13.9 13.9 13.8 13.7 12.3 15.7 15.5

China. However, its size is still very still is size However, its China. 6.8 6.8 5.7 4.0 3.1 2.8 7.0 Page 19 of 21 of 19 Page nd around 80% of its ordersitsof 80% around nd 6.6 6.6 5.4 3.8 3.0 2.5 6.4 ude airspace in 2015; 2015; in airspace ude sz. size. 6.2 6.2 5.0 3.5 3.0 2.3 5.0 cnl. icantly. 6.6 6.6 5.0 3.3 2.7 2.1 4.3

37.5 37.5 31.6 24.1 17.3 13.2 35.5 .

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 Cash balance change change balance Cash financing from Cash flow Others paid Dividends bank loans in Increase from investing Cash flow Others CAPEX operation from Cash flow paid Tax & Interest change capital Working Other items cost Net finance amortisation & Depreciation tax before Profit m) (RMB Dec end Year (RMB) DPS (RMB) EPS Net profit interest Minority year the Profit for Taxation tax before Profit asso/JV of profits of Share cost Net financial profit Operating expenses Selling net income Other Other revenue profit Gross sales of Cost revenue Total aircraft Entire m) (RMB Dec end Year statements Financial ratios& e h atpg o icamr disclaimer for page last the See International. Junan Guotai Company, the Source: end year at balances Cash changes FX of Effect begin year at balances Cash

Administrative expenses expenses Administrative equipments & Aero systems

Cash flow Statement Statement Cash flow Income Statement Statement Income

(17,885) (3,409) (2,862) (1,436) (2,386)

10,198 22,193 11,995

013A20 13A20

1,761 1,761 0.020 0.131 1,511 1,761 1,758 4,308 6,726 6,726 5,606 1,140 3,976 2,693 1,506 (223) (546) (275) (266) (798) (250) (415) (74) (20) 572 735 713 193 53 77 58

(20,812) (1,470) (1,831) (2,696) (2,750)

25,710 14,435 11,275

014A20 014A20

2,003 2,003 0.021 0.1 1,736 2,003 1,995 4,899 5,798 5,798 6,726 1,274 (954) (387) (392) (388) (249) (954) (267) (136) (470) 907 362 119 820 781 144 203 113 43 43 27 21

(25,200) (1,554) (1,729) (1,194) (3,334)

31,160 17,996 13,164

2015F 2015F

6,597 6,597 5,798 2 2,496 0.027 0.178 2,171 2,496 2,439 5,960 (329) (876) (141) (324) (561) (109) ,092 ,092 (85) 799 261 371 174 857 977 141 280 85 93 0 0

(30,685)

(1,524) (1,702) (2,114) (1,461) (4,069)

15,744 38,026 22,282

2016F 2016F

1,406 1,406 3,072 0.033 0.218 1,196 2,657 3,072 3,044 7,341 6,721 6,721 6,597 (147) (450) (151) (415) (124) (684) 178 124 926 151 342 114 125 243 389 0 0

(37,243) (1,472) (1,647) (2,953) (1,759) (4,936)

19,565 46,131 26,565

2017F 2017F

1,173 1,173 3,698 0.039 0.263 1,439 3,199 3,698 3,675 8,888 6,652 6,652 6,721 (179) (539) (160) (499) (137) (830) (69) 230 409 175 137 991 160 415 138 0 0

Non-current liabilities liabilities Non-current Others Bank loans liabilities Current Others payables Other payables bill and Trade overdrafts and Bank loans Assets Total assets Current Others hand and in bank at Cash Deposits Other receivables receivables other and Trade Inventories assets Non-current Others asso/JV in Interests assets Fixed m) (RMB Dec end Year Dividend payout ratio (%) (%) ratio payout Dividend (x) coverage Interest (%) Net gearing (x) Ratio Quick (x) Ratio Current Solvency & Liquidity ROE ROA Net margin margin Operating Gross margin (%): Profitability Net profit profit Operating profit Gross Revenue Growth (%): m) (RMB Dec end Year (RMB) BPS Equity and Liabilities Total equity Shareholders' interest Minority Liabilities Total Available-for-sale financial assets assets financial Available-for-sale

net cash Financial Ratios Ratios Financial aac he Sheet Balance 26,428 1 4,0 50,928 37,559 14,780 13,369 10,803 50,928 10,123 11,684 29,121 013A20 013A20 1.855 1.855 2,693 2,693 1,911 4,449 3,740 4,207 1,220 6,726 4,692 1,183 8,958 1,152 1,093 1 5.4 19.4 13.5 20.8 783 321 5.9 0.4 1.4 7.0 1.4 3.2 7.9 7.3 9.8 32

net cash Page 20 of 21 of 20 Page 28,721 15,050 54,722 40,035 10,974 16,593 14,687 12,150 54,722 10,815 12,486 31,420 014A20 014A20 1.976 1.976 2,699 2,699 1,785 4,227 3,810 5,633 1,050 5,798 3,849 1,772 1,238 1 5.0 19.1 13.5 13.7 15.9 915 422 876 5.4 0.3 1.4 7.5 1.4 3.0 7.8 9.6

net cash 29,922 15,189 58,165 42,627 11,098 17,950 15,539 12,710 58,165 13,680 32,802 11,683 2015F 2015F 2.134 2.134 2,880 2,880 1,006 1,874 4,627 4,191 5,915 1,1 6,597 3,878 1,949 1,362 1,003 1 5.0 19.1 25.0 22.3 21.7 21.2 464 6.9 0.4 1.4 8.7 1.7 3.1 7.8 54 54

net cash 34,382 18,495 65,329 49,024 13,543 21,437 16,306 13,150 65,329 12,732 15,141 37,456 2016F 2016F 2.326 2.326 3,074 3,074 1,107 1,968 5,065 4,611 6,211 1,270 6,721 3,908 2,144 1,498 1,148 1 5.0 19.3 22.4 24.8 23.2 22.0 510 8.3 0.3 1.4 9.8 1.8 3.1 8.0

net cash 72,743 13,992 16,901 41,850 38,567 21,428 72,743 55,774 16,430 24,999 16,969 13 2017F 2017F 2.556 2.556 3,283 3,283 1,217 2,066 5,547 5,072 6,521 1,397 6,652 3,938 2,358 1,648 1,314 1 5.0 10.8 19.3 20.4 20.7 21.1 21.3 ,445 561 9.5 0.3 1.4 2.0 3.1 8.0

Company Report AviChina 中航科工 (02357 HK) 27 May 2015 eerh eot, nldn ivsmn bnig inv banking, investment including reports, research Junan Guotai Junan"). ("Guotai Limited Kong) (Hong mutable situation, so uncertainty may contain. Inve contain. uncertaintymay so situation, mutable assumption the from derived forecasts and estimates the of completenessand accuracy the guarantee not Thoughbesteffort has been ensure madeto the accu becontrary to opinions orinvestment decisions mad professionalexecutivesotherdealers and persons, Any opinions expressed in this report may differ or underwriterproprietarily).or invest invitat an constitute not does Report Research This DISCLAIMER 4 Guotai Junan and its group companies have not h (4) in any jurisdiction where such distribution, public distribution, such where jurisdiction any in Research This Report notis directed at,orintende andwhere consultnecessary their own financialadv Website:www.gtja.com.hk Fax:(852) 2509-7793 Tel.:(852) 2509-9118 27/F.,Low Block, GrandMillennium Plaza, 181Queen 2015© Guotai Junan Securities(Hong Kong)Limited. Guotaisubject Junanand group its companies any to 3 Ecp fr hn Al ces Hlig) Limited (Holdings) Access All China for Except (3) 1 The Analystsandtheir associates (1) DISCLOSURE OF INTERESTS Horizon: Time to6 18 months Benchmark:The Hong HangKong Seng Index RatingSector Definition Horizon: Time to6 18 months Benchmark:The Hong HangKong Seng Index CompanyDefinitionRating e h atpg o icamr disclaimer for page last the See 2 The Analystsandtheir associates havedonot a (2) el RelativePerformance <-15%; RelativePerformance -5%is to -15%; RelativePerformance -5%is to 5%; Sell RelativePerformance >15%; RelativePerformance 5%isto 15%; Reduce Neutral Accumulate Buy Rating eta RelativePerformance -5%is to 5%; RelativePerformance <-5%; RelativePerformance >5%; Underperform Neutral Outperform Rating withinprecedingthe 12 months. holdequal to or more 1%thanof theissued sharec International Holdings Limited (01788) and Binhai I Binhaiand (01788) HoldingsLimitedInternational or the fundamentalorthe outlook of the companyor sector fundamentalorthe outlook of the companyor sector fundamentalorthe outlook of the companyor sector fundamentalorthe outlook of the companyor sector fundamentalorthe outlook of the companyor sector Definition or the fundamentalorthe outlook of the unfavorissector fundamentalorthe outlook of the neutralissector fundamentalorthe outlook of the issector favorab Definition

donot serveasan officer of the issuer mentioned ation, availability or use would be contrary to app to contrary be would use or availability ation, be contrary to opinions or investment strategies e

d distributionfor toby, or use any personor enti stors should understand and comprehend the investme the comprehendandunderstand should stors of Guotai Junan group of companies. Any opinions exopinionsAnycompanies. of JunangroupGuotai of e bye assetthe managementand investment banking gr isers priorisers to any investment decision. ion or offer to acquire, purchase or subscribe for subscribe or purchase acquire, to offer or ion nyfinancial interests relationin to the issuer me smn srie ad t. fr xml, h placing the example, (for etc. and services estment registration or licensingrequirement within such racyof the information anddata incontained this information and data herein. This Research Report m ReportResearch This herein. data andinformation AllRights Reserved. ’sRoad Central, Hong Kong. ad investment banking relationships with the issuer o te uue oiia ad cnmc odtos w conditions economic and political future the of s 063, unse Riwy opn LmtdH shares Limited-H Company Railway Guangshen (00633), nvestment Company Limited (02886), Guotai Junan andnvestmentGuotaiCompanyJunan(02886),Limited n is ru cmais a d bsns ta relate that business do may companies group its and apitalof newthe applicantlisting mentionedin th

. able. le. is unfavorable.is unfavorable.is neutral.is is favorable. is favorable. in Researchthis Report. tywhoa isor resident citizen or of located xpressed orally or in written form by sales licable law or regulation or which would which or regulation or law licable ntionedin Researchthis Report. jurisdiction. securities by Guotai Junan Securities Junan Guotai by securities ResearchReport, Guotai Junandoes mentioned in this Research Report is ResearchReport. pressed in this report may differ or differor report may this in pressed Page 21 of 21 of 21 Page nt objectives and its related risks,related its andobjectives nt uso utiJnn ofoups Guotai Junan. gn, ed aae, sponsor, manager, lead agent, ay contain some forward-lookingsome contain ay ith inherently unpredictable and and unpredictable inherently ith its group companies do notcompaniesgroupdo its t cmais oee in covered companies to s 055, uti Junan Guotai (00525),

Company Report AviChina 中航科工 (02357 HK) 27 May 2015