Slowing output growth in Oct-17 and YTD.In October, the on-grid volume of LYP’s wind power in China recorded a 10.4% YoY increase (vs. +27.8% YoY in Sep-16). In contrast, HNR recorded a 4.4% YoY decrease (vs. +47.6% YoY in Sep-16). For the 10M17, the on-grid volume growth of wind power in China slowed down to 13.8% YoY (LYP) and 13.3% (HNR) from 14.3% YoY (LYP) and 15.7% (HNR) for the 9M17. We think this is mainly due to the seasonabledecline in the wind speed in Northern China (e.g.: Hebei, Shanxi, Shandong) in October, which showed a large decrease in the on-grid volume.    LYP registered major growth in Eastern and Southern China, which accounted for c.28% and c.9% of its Octoberwind power output, up 23.5% and 19.6% YoY, respectively.Growth inEastern China was in particular substantial compared toa 13.0% YoY decrease in September. Meanwhile, the on-grid volume growth inNorthwest and Central China recorded 26.0% YoY and 35.5% YoY growth, respectively, slowing down from September. And withNorthern China recordinga 10.5% YoY decrease followinga sustainingincrease in 3Q, increases in other regions werepartially offset. According to LYP’smanagement,the overall curtailment rate has dropped by 4.5ppt YoY to 5.9%(vs. 10.3% in Oct-16).    HNR saw solidgrowth insixprovinces (namely, Inner Mongolia, Guangxi, Guangdong, Zhejiang, Jilin and Xinjiang). Inner Mongolia, accounting for c.23% of itstotal on-grid volume in October, recorded a 6.8% YoY increase.However, Yuannan, accounting for c.8% of itsmonthly volume, recorded a 28.4% YoY decrease. In contract, LYP’s wind farms in Yunnan grew by 14.1% YoY in October. In our view, this is due to the different wind speeds inEastern and Western Yunnan wherethe wind farms ofLYP and HNR are respectively located. According to HNR’s management, the overall curtailment ratehasdropped 4.0ppt YoY to 6.0% (vs. 10.0% in Oct-16).    SurgingARdays hurt valuation. Share prices of LYP and HNR have declined 9-10% since the last week of October when both of them reported their 3Q results. Againstthe backdrop of a continuous decline in monthly curtailment rate, we think that the weak performance is mainly due to rising market concern that the accelerating ARs of both companies have largely outpaced their underlying revenue growth inthe wind power sector, which according to our channel check will hardly reversetillthe end of this year. We maintain our BUY rating on LYP and HNR for the time being, andwould like to see if the government will take further actions to mitigate a shortage of renewable energy fund thatpays for the ARs of the wind farms.

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