保利协鑫能源(03800) 　　3Q16 wafer shipments sequentially down following installationrush in China during 1H16; not a surprise 　　Pricing pressure prevailed in 3Q but management expectsslight uptrend in 4Q; Focus on cost reduction remains intact 　　Cut TP to HKD1.55 (from HKD1.65) on the back of earningsrevision and maintain Buy as risks seem already priced in 　　Pricing pressure in 3Q16: Poly’s external shipment was 1,398MT (-70% YoY) withASP at USD15.6/kg (-7% QoQ/+4% YoY or -6% QoQ/+10% YoY in RMB terms).Wafer sales, which is a key revenue driver came at 3,837MW (-4.6% YoY) with ASPat USD0.146/W (-20% QoQ/-19% YoY or -19% QoQ/-14% YoY in RMB terms). Weare not surprised by the sequential decline in poly/wafer shipments as the market isfully aware of the industry slowdown expected in 2H16 following the installation rushby solar developers to grid connect solar power plants before June 30, 2016 toqualify for higher feed in tariff (FIT). 　　Stable guidance: GCL-Poly expects wafer prices to rebound in 4Q16 and see someupside in 2017e also. GCL estimates full year wafer shipments to be 17-18GW in2016/17e respectively. GCL has achieved 5-10% YoY reduction in wafer processingcost in YTD 2016 and targets another 5-10% reduction in 2017e. We view this as apositive as the company’s focus on cost reduction remains intact, which should helpimprove profitability despite ASP weakness. GCL’s proposed acquisition of certainassets from SunEdison is still pending approval from the US (see our note “GCLPoly:Acquisition to bring long term benefits”, 30 August 2016). GCL reiterated thatGCL New Energy (451 HK, HKD0.43, not rated) remains on track with its new solarfarm capacity addition target of 2-2.5GW while no updates were provided on theprogress made in 3Q16 (1.1GW added in 1H16). 　　Positioned well to face the market risks: GCL’s stock price declined 7% in the pastweek following China’s 110GW of cumulative solar capacity target by end of 2020eset in the 13th Five Year Plan (FYP) which fell short of market expectations (150GW).For more details see: “The new Five Year Plan highlights some quality goals”, 7November 2016. We note that GCL’s two-thirds of product sales are in overseasmarkets and we believe any shortfall in China could be offset by the increasingdemand in other markets. Although we need to wait for an official announcementfrom the government on the final 2017e tariffs for solar power generation, anymeaningful tariff reduction could trigger another round of investment rush which couldprovide potential upside to volume/margins. 　　Downside risks are in price: We trim our ROE-implied-PB based TP to HKD1.55(from HKD1.65) on the back of our slight earnings revisions. Our TP implies 56.8%upside and we maintain our Buy rating as we believe the downside risks about thepotential solar tariff cut are fully priced in.