Nari Technology's (Nari) 1H17 core earnings grew by 22% YoY (for existing business before asset injection), higher than consensus full year forecast of 17% growth. 2Q17 earnings (+24% YoY) came in stronger than 1Q17 thanks to larger earnings contribution from new tenders.    Total revenue registered 10% expansion led by 17% growth from grid automation business thanks to accelerating distribution and substation automation growth. Gross margin remains defensive at 20% (flat YoY) with stable margin from grid automation (24%).    We see strong pick up of distribution equipment tenders YTD with 1H17 tender volume for both distribution terminal and master station higher than the full year amount of 2016, suggesting significant momentum in 2017E. Nari's leadership in grid automation could further enhance following the asset injection.    The stock is currently trading at 17x FY18E P/E (vs. historical average of 22x P/E) on the back of 23% EPS CAGR in FY17-19E. Our top picks in T&D sector are Nari and XJ Electric.

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