IA: a strong 2017; high growth likely to be sustained in 2018

General IA products (i.e., inverter and servo): Total new orders forgeneral inverter were up around 50% YoY in 2017 and managementexpects 40% revenue growth in 2018. Meanwhile, new orders for generalservo rose >100% YoY in 2017 and the company is guiding for a YoYrevenue growth range of 50-60% in 2018. Key growth drivers include: 1)broad-based manufacturing upgrades in China that require higher energyefficiency and precision, benefiting the demand for inverter and servos;and 2) continued market share gains through its "vertical-based" salesstrategy, coupled with customization.

Specialized IA products (i.e., integrated elevator drive and PIMMservo): Total new orders for integrated elevator drive were up 15%YoY (revenue recognition likely in a range of 10-15%) as Inovance startsto increase its penetration in foreign brands (European and US brandsin particular) while further strengthening its dominant position in localbrands (70% market share). Revenue growth for this product is expectedto remain at double digits in 2018. For PIMM servo, new orders wereup 40% YoY, mainly driven by the additional contribution from servomotors, which the company started to sell in 2017. Growth would havebeen single digit on a like-for-like basis (i.e., excluding motors). For 2018,management is guiding for revenue growth of 20-30% YoY for PIMMservo (vs. projected industry growth of single digits).NEV: logistics NEV to become the key growth driver in 2018

Logistics NEV: Inovance estimates that its market share in China'slogistics NEV drive market reached 40% in 2017, with customers coveringeight out of the top 10 logistics NEV producers in China. For 2018,management expects sales of logistics NEV to reach 150,000 units from2017's 80,000 units (c.+90% YoY). On top of this, the company expectsits share in the drive market to continue increasing in 2018.

NEV bus: The revenue contribution from NEV bus drive is estimated tohave dropped to 60% of the NEV segment in 2017 vs. 90% in 2016.Moreover, the exclusive supply agreement with Yutong is due to be renewed by end-2018 and management expects the negotiation to kickoff soon with results likely coming out in 1H18, along with a price cut for2018. Preliminary assessment of the current situation suggests Inovanceis inclined to renew the agreement. Overall, management expects therevenue contribution from NEV bus to remain steady in 2018, with theaddition of motor products likely offsetting the drop in controller products.

Passenger NEV: Inovance invested half of its R&D expenses in the NEVsegment, with 70-80% allocated to the development of passenger NEVdrive products. Based on the current progress (i.e., it has secured 4-5 NEVmodels from tier-2 OEMs and 1 tier-1 OEM in 2017), management expectstotal new orders for passenger NEV drives to reach around Rmb100m.The target for 2018 is to secure more NEV models from tier-1 OEMs.

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