Made in China:U/G UTour to Buy &D/G YUMC to Hold;Gas Utilities;Country Garden,Zhengtong

UTour has de-rated as much as 40% over the past year (vs. Shenzhen Index growth of 4%). The stock has also suffered as domestic investors have shifted away from the leisure and tourism sectors. We now upgrade the rating to Buy as the business is gaining from a more diversified product mix and is pushing ahead with a strategy to increase its retail distribution, as opposed to wholesale channels, which could lift margins. Profits rose 38% in 1Q17 and, even with a mild cut to forecasts to reflect terrorist concerns in Western Europe, could rise 35% this year. (Tallan Zhou - 852 2203 6464) .

    VAT reform from May 2016 has proved to be a major benefit for Yum China. One year on, the benefits remain but the base for comparison has been lifted, and further improvements in margins will be more muted. The competitive environment has also intensified and after reviewing our estimates and valuation post the 2Q results, we downgrade the stock to Hold with a revised USD36.61 target price. (Anne Ling - 852 2203 6177) .

    We attended a two-day trip in Hebei organized by ENN Energy (2688 HK, Buy), and visited Jinhong Energy (000669 CH, Not rated) and Jingneng Clean Energy (579 HK, Not rated) in Beijing. We visited two distributed energy projects in Langfang and Shijiazhuang in the Hebei province. In both the projects, ENN provides power, heating and cooling to end users, with an energy utilization rate of >80%. For the Junlebao project in Shijiazhuang (with annual gas consumption of 28.6mn cm), the total investment is c.Rmb80mn with a project IRR of >12%. (Continue to next page)