Wasion (3393 HK, HK$4.98) – Smart grid caught eyesight

Highlights.Wasion’s share price surged 24.5% yesterday to HK$4.98. Meanwhile other peer stocks in A-share market also recorded substantial price gains, such as Shenzhen Clou (002121 CH), up 9.6%, and Star Power (000676 CH), up 10.0%.

Our view. We reckon it could be due to a speech from Mr. Liu Zhenyao, general manager of State Grid Corporation of China (SGCC), made on 21 May about construction of smart grid in China. SGCC reportedly will build a nationwide smart grid in three steps:

• 2009 – 2010: planning and standard making
• 2011 – 2015: mass construction
• 2016 – 2020: optimization

Despite lacking of concrete data of potential investment scale on the smart grid, we agree it will definitely benefit grid equipment manufacturers, especially those related to control system like Wasion, which create a catalyst for the share price. Nevertheless, with experience from China’s 3G mobile network, we reckon the real impact will take years to come into force, which might cool down market enthusiasm gradually towards the sector. Hence, we will remove Wasion from fundamental call to trading call without a fixed target price to capture the recent momentum. Based an earlier sensitivity test (refer to our initial coverage report, “Powered by the stimulus package”, dated 18 Mar 09), the fair value of the stock could be HK$6.01 in our best scenario.