Harbin Electric

Table of Contents
Rpt. 18371835 04-Nov-2011
HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO
6-9
Rpt. 18358808 03-Nov-2011
HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK
10 - 13
Rpt. 18342293 01-Nov-2011
14 - 22
Rpt. 18343519 31-Oct-2011
23 - 26
Rpt. 18315784 27-Oct-2011
HARBIN ELECTRIC INC DISCLOSURE INSIGHT - DISCLOSURE INSIGHT INC
27 - 31
Rpt. 17883103 14-Oct-2011
HARBIN ELECTRIC INC VALIDEA - REESE, JOHN
32 - 43
Rpt. 18234798 13-Oct-2011
HARBIN ELECTRIC INC WRIGHT INVESTORS SERVICE - WRIGHT REPORTS
44 - 83
Rpt. 16571234 10-Oct-2011
HARBIN ELECTRIC INC VALUENGINE, INC. - ANON
84 - 94
Rpt. 18221692 10-Oct-2011
HARBIN ELECTRIC INC SADIF-INVESTMENT ANALYTICS SA - RESEARCH SADIF
95 - 104
Rpt. 18214475 07-Oct-2011
HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - RESEARCH DEPARTMENT
105 - 114
These reports were compiled using a product of Thomson Reuters
www.thomsonreuters.com
Table of Contents
Rpt. 18211261 06-Oct-2011
115 - 119
Rpt. 16690175 01-Oct-2011
HARBIN ELECTRIC INC NEW CONSTRUCTS LLC - NEW CONSTRUCTS
120 - 132
Rpt. 18185070 30-Sep-2011
133 - 136
Rpt. 18187396 30-Sep-2011
137 - 142
Rpt. 18168312 26-Sep-2011
HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK, ET AL
143 - 150
Rpt. 18127034 14-Sep-2011
151 - 156
Rpt. 18066684 25-Aug-2011
157 - 162
Rpt. 18056665 23-Aug-2011
163 - 166
Rpt. 18001866 10-Aug-2011
167 - 170
Rpt. 18005012 10-Aug-2011
171 - 178
Table of Contents
Rpt. 18005873 10-Aug-2011
179 - 184
Rpt. 18006037 10-Aug-2011
HARBIN ELECTRIC INC THOMSON REUTERS STREETEVENTS - ANON
185 - 197
Rpt. 17975367 04-Aug-2011
198 - 203
Rpt. 17881429 19-Jul-2011
204 - 211
Rpt. 17865338 15-Jul-2011
HARBIN ELECTRIC INC WRIGHT INVESTORS SERVICE - WRIGHT REPORTS
212 - 251
Rpt. 17862912 14-Jul-2011
252 - 257
Rpt. 17844540 11-Jul-2011
HARBIN ELECTRIC INC DATAMONITOR - COMPANY RESEARCH - DATAMONITOR INDEPENDENT RESEARCH
258 - 286
Rpt. 17817547 05-Jul-2011
287 - 301
Rpt. 17808159 01-Jul-2011
302 - 311
Rpt. 17786481 28-Jun-2011
312 - 317
Table of Contents
Rpt. 17759182 22-Jun-2011
318 - 345
Rpt. 17749707 21-Jun-2011
346 - 351
Rpt. 17750090 21-Jun-2011
352 - 355
Rpt. 17744724 20-Jun-2011
356 - 359
Rpt. 17710799 10-Jun-2011
360 - 365
Rpt. 17667080 27-May-2011
366 - 371
Rpt. 17592608 12-May-2011
HARBIN ELECTRIC INC THOMSON STREETEVENTS - ANON
372 - 386
Rpt. 17590364 11-May-2011
387 - 390
Rpt. 17590905 11-May-2011
391 - 398
Rpt. 17604204 11-May-2011
399 - 403
Table of Contents
Rpt. 17544115 03-May-2011
404 - 409
Rpt. 17538157 02-May-2011
410 - 413
Rpt. 17537903 02-May-2011
HARBIN ELECTRIC INC WILLIAM BLAIR & COMPANY - DRAB, BRIAN
414 - 416
Rpt. 17491377 20-Apr-2011
417 - 422
Rpt. 17470953 14-Apr-2011
423 - 428
Rpt. 17460602 12-Apr-2011
HARBIN ELECTRIC INC DISCLOSURE INSIGHT - DISCLOSURE INSIGHT INC
429 - 433
Rpt. 17421681 30-Mar-2011
434 - 443
Rpt. 17402259 24-Mar-2011
444 - 448
Rpt. 17384201 18-Mar-2011
HARBIN ELECTRIC INC WILLIAM BLAIR & COMPANY - DRAB, BRIAN
449 - 455
Rpt. 17378264 17-Mar-2011
456 - 459
EQUITY RESEARCH
TERMINATION
China November 4, 2011
Closing Price (11/1/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q $23.30 NA $5.82 - $23.72 $731.6 31.4 14.5 8.3 2,340 $20.70 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $131.4A $157.4 $136.1 $155.3 $134.5 $153.8
Harbin Electric, Inc.

(HRBN Nasdaq $23.30) Termination of Coverage
We are terminating coverage of Harbin Electric, Inc. due to the companys delisting from the Nasdaq stock exchange and becoming a privately-held company after a successful management buy-out (MBO) transaction that was closed yesterday, November 3, 2011. Trading of HRBNs stocks stopped earlier on Tuesday, November 1, after the Market close. A retrospective summary of the MBO process. On October 11, 2010, HRBNs Chairman and CEO Tianfu Yang (who owned 31% of HRBN at the time) announced a proposal to acquire the remaining outstanding shares at $24/share, along with Baring Private Equity Asia (Baring). However, on November 23, 2010, Yang and Baring terminated their exclusive agreement on the buyout, stirring concerns on the deal financing. On January 10, 2011, Abax Global Capital (Abax), a Hong Kong private equity firm, announced 5.4% equity ownership of HRBN and entered into a Standstill Agreement with the company, suggesting its active roll in the buyout. After going through Ernst & Young-conducted financial due diligence and advisor (Morgan Stanley and Lazard)-conducted operation due diligence, the buyout partners received approval of a $400M term loan from China Development Bank on June 9, 2011 and reached a definitive merger agreement with HRBNs board on June 21, 2011. Subsequently, the company filed a preliminary proxy statement with the SEC on July 13, 2011, for a special shareholder meeting to vote on the merger; and on September 29, 2011, HRBN filed a definitive proxy statement, indicating SECs green light on the deal. A month later (on October 29, 2011), 90.6% of the total outstanding shares and 84.2% of the unaffiliated shares voted approval of the buyout. During the year-long-plus MBO process, HRBNs shares were uncommonly volatile, with an average of 30%-40% below the announced buyout price of $24/share. In our view, this reflected (1) the mistrust of U.S. investors in Chinese companies in general, and (2) the lack of capital market experience and transparency of Chinese management, both were exaggerated by significant amount of market misinformation. Company description. Harbin Electric, Inc. (HRBN) is a diversified electric motor manufacturer and marketer in China. Its main product lines include industrial rotary motors, specialty linear motors, and specialty micro motors. About 80%-90% of the companys sales derive from the Chinese domestic market, with the remainder from the international market. Please refer to our previous reports, from July 13, 2010 to September 30, 2011, for further details on our investment thesis. Our last recommendation was a Buy with a price target of $24/share.
$505.9 $588.6 FY Maxim Group Current Current FYE: December EPS P/E 2009A: GAAP $0.77 30.3 2010A: GAAP $2.46 9.5 2011E: GAAP $2.05 11.3 2012E: GAAP $2.49 9.4 LT Earnings Growth 10% - 15% GAAP Quarterly EPS Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com Current 2011E $0.34A $0.55A $0.59 $0.57 $2.05 Current 2012E $0.51 $0.70 $0.67 $0.60 $2.49
GAAP Quarterly EPS 2011E 2012E $0.34A $0.51 $0.55A $0.70 $0.57 $0.67 $0.57 $0.60 $2.03 $2.57 (212) 895-3718
Maxim Group LLC 405 Lexington Avenue New York, NY 10174 www.maximgrp.com
SEE PAGES 2-4 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS 6
Harbin Electric, Inc. (HRBN)
DISCLOSURES
Source: Investars.com
Maxim Group LLC Stock Rating System As of:
% of Coverage Universe Expected Performance* Buy Hold Sell Expected total return of 15% or more over next 12 months Expected total return of plus or minus 14% over next 12 months Expected total negative return of at least 15% over next 12 months with Rating 61.8% 32.9% 5.3%
11/4/2011
% of Ratings for which Firm provided Banking Services in the last 12 months 51.1% 0.0% 0.0%
* Relative to Nasdaq Composite. An Under Review (UR) rating represents a stock that the Firm has temporarily placed under review due to a material change.
Maxim Group makes a market in Harbin Electric, Inc. Maxim Group expects to receive or intends to seek compensation for investment banking services from Harbin Electric, Inc. in the next 3 months.
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: Our Harbin Electric, Inc. valuation is based on the announced $24 per share price in the leverage buyout proposal. It is also supported by our comparable company analysis and discount cash flow method.
Maxim Group LLC
Price Target and Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
RISK RATINGS
Risk ratings take into account both fundamental criteria and price volatility. Speculative Fundamental Criteria: This is a risk rating assigned to early-stage companies with minimal to no revenues, lack of earnings, balance sheet concerns, and/or a short operating history. Accordingly, fundamental risk is expected to be significantly above the industry. Price Volatility: Because of the inherent fundamental criteria of the companies falling within this risk category, the price volatility is expected to be significant with the possibility that the investment could eventually be worthless. Speculative stocks may not be suitable for a significant class of individual investors. High Fundamental Criteria: This is a risk rating assigned to companies having below-average revenue and earnings visibility, negative cash flow, and low market cap or public float. Accordingly, fundamental risk is expected to be above the industry. Price volatility: The price volatility of companies falling within this category is expected to be above the industry. High-risk stocks may not be suitable for a significant class of individual investors. Medium Fundamental Criteria: This is a risk rating assigned to companies that may have average revenue and earnings visibility, positive cash flow, and is fairly liquid. Accordingly, both price volatility and fundamental risk are expected to approximate the industry average. Low Fundamental Criteria: This is a risk rating assigned to companies that may have above-average revenue and earnings visibility, positive cash flow, and is fairly liquid. Accordingly, both price volatility and fundamental risk are expected to be below the industry.
Maxim Group LLC
DISCLAIMERS
Some companies that Maxim Group LLC follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Maxim Group LLC research reports may not be suitable for some investors. Investors must make their own determination as to the appropriateness of an investment in any securities referred to herein, based on their specific investment objectives, financial status and risk tolerance. This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or disclosed to another party, without the prior written consent of Maxim Group, LLC (Maxim). Information and opinions presented in this report have been obtained or derived from sources believed by Maxim to be reliable, but Maxim makes no representation as to their accuracy or completeness. The aforementioned sentence does not apply to the disclosures required by NASD Rule 2711. Maxim accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Maxim. This report is not to be relied upon in substitution for the exercise of independent judgment. Maxim may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and Maxim is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by Maxim and are subject to change without notice. The price, value of and income from any of the securities mentioned in this report can fall as well as rise. The value of securities is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Securities recommended, offered or sold by Maxim: (1) are not insured by the Federal Deposit Insurance Company; (2) are not deposits or other obligations of any insured depository institution; and 3) are subject to investment risks, including the possible loss of principal invested. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support these losses.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Maxim Group LLC
Mark Tobin, (949) 720-5775 mtobin@roth.com Emma Jia Zhao, CFA, ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
COMPANY NOTE | CHINA RESEARCH | November 3, 2011
Global Energy & Industrials: China
| HRBN - $23.30 - NASDAQ | Non-Covered
Dropping Coverage Estimates Changed, Rating Changed, Target Price Changed

Stock Data 52-Week Low - High Shares Out. (mil) Mkt. Cap.(mil) 3-Mo. Avg. Vol. 12-Mo.Price Target Cash (mil) Tot. Debt (mil) Est. 3Yr. EPS Growth
Auditor: FRAZER FROST LLP EPS $ Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 0.66A 0.79A 0.65A 0.62A 2.72A 2011E Curr 0.41A 0.53A NA NA NA 2012E Curr NA NA NA NA NA
$5.82 - $23.72 31.43 $732.4 1,645,344 NA $87.6 $87.4 NA
HRBN: Dropping Coverage Due to Previously Announced Privatization

We are dropping coverage of HRBN given the closing of the going-private transaction. The company has filed the articles of merger with the Nevada Secretary of State. Trading of the company's common stock was suspended on Nasdaq after the yesterday's close.
Prior to dropping coverage, we had assigned shares of HRBN a NEUTRAL rating and $24.00 PT. Effective with this note, prior estimates, ratings, and price target should not be relied upon.
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 103.8A 131.4A NA NA NA 2012E Curr NA NA NA NA NA
20.0 16.0 12.0 8.0 4.0 0.0
HRBN One-Year Price and Volume History
30 25 20 15 10 5 Price
May-11
Aug-11
Sep-11
Dec-10
Important Disclosures & Regulation AC Certification(s) are located on page 3 to 4 of this report.
Roth Capital Partners, LLC | 888 San Clemente Drive | Newport Beach CA 92660 | 949 720 5700 | Member FINRA/SIPC
Nov-11
Feb-11
Mar-11
Jan-11
Jun-11
Apr-11
Oct-11
Jul-11
10
HARBIN ELECTRIC, INC.
China Company Note - November 3, 2011
VALUATION
NA
RISKS
NA
COMPANY DESCRIPTION
Harbin Electric, Inc. develops, engineers, manufactures and sells an array of industrial electric motors, customized linear motors, controller automation systems, automobile specialty micro-motors, and other special motors. The Company operates, through its indirect wholly owned subsidiary, Harbin Tech Full Electric Co., Ltd (HTFE). The Company offers three key product lines: industrial electric motors, linear motors and their integrated application systems, and automobile specialty micro-motors.
Page 2 of 4
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Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures:
ROTH makes a market in shares of Harbin Electric, Inc. and as such, buys and sells from customers on a principal basis. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 11/02/11 Count Percent 53 28.0 9 13.0 0 0 4 28.6
Rating Buy [B] Neutral [N] Sell [S] Under Review [UR]
Count 189 69 0 14
Percent 69.2 25.3 0.0 5.1
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts
Page 3 of 4
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discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
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INDUSTRY NOTE | CHINA MACRO | November 1, 2011
China
U.S.-Listed China - Privatization, PE Investment, & Dual-Listing (8th Edition)
This report provides an update on the activity within the U.S.-listed China sector related to privatization, re-listing, PE investment, and duallisting. It includes a table with details for each company pursuing privatization. PRIVATIZATION UPDATE Since our last update (dated Sept 26, 2011), HRBN's going-private deal was approved by shareholder vote, CADC announced board approval and signing of a definitive agreement (which we believe as one of the major meaningful milestones in privatization activities), plus two new privatization/buy-out announcements (SNDA and CRIC). Furthermore, CCCL's shareholders (former SPAC founders) approached the board with a suggestion to take the company private, with tentative financial support from Macquarie. The proposal was later declined by the board. We view the imminent closing of HRBN's buy-out (expected within one week) as a key catalyst for other privatization candidates, given its relatively large size and high profile. This, combined with several other privatizations that have closed within the past several months, have established a definitive process and timeline for these transactions. We anticipate future deals will trade at narrower discounts to the proposed buy-out prices, particularly after a definitive agreement is signed. Key events over the past month include:
s
Sep 27- CCCL's shareholders owning 13.4% of the company disclosed the submission of initial take-private proposal to company board via a 13D filing; on Oct 4, the group filed an updated 13D stating that the board had declined such option, but the group would continue to have discussions with the board on possible strategic alternatives to maximize shareholder value. Oct 17 - SNDA announced the receipt of a preliminary non-binding proposal letter from Chairman/CEO to take the company private for US $41.35 per ADS in cash. The buyer group controlled approximately 68.4% of the company. Oct 24 - CADC announced entering into a definitive agreement and plan of merger with the buyer group led by company's Chairman/CEO and COO; offer price remained at $2.65 per share in cash. Oct 28 - CRIC announced receipt of non-binding proposal from E-House (NYSE: EJ), currently the largest shareholder owning 54.1% stake, to acquire all outstanding shares of the company. Each CRIC share would be exchanged for $1.60 cash and 0.6 E-House shares. Oct 29 - HRBN shareholders approved privatization; the company expects deal completion within one week.
TAKE-AWAYS FROM BEIJING VC/PE CONFERENCE Last week, ROTH co-hosted the ROTH Capital - ChinaVenture Investment Conference in Beijing, which was attended by over 800 people, including PE and VC funds, private and public companies, and service providers. Our discussions with PEs, companies, and service providers indicate that interest in privatizations remains high, particularly with several successful transactions. We view China's credit markets as a key pacing item for the next wave of privatizations. We continue to view the Hong Kong stock exchange as the likely exit for most of these privatizations, but look to SNDA's privatization to provide an indication of the prospects for re-listing on mainland exchanges.
14
CHINA
Summary of On-going Deals
China Advanced Construction Materials China Natural Gas CADC CHNG Chairman & CEO, Vice Chairman & CEO Chairman & COO China Real Estate (4) Fushi Copperweld China Fire & Security Information Corp CFSG CRIC FSIN Bain Capital E-House (China) Chariman & CEO, Abax Holdings Limited (NYSE: Global Capital (Management's 59.1% stake already agreed to EJ) vote for the agreement) Mar-07-2011 59.1% $9.00 43.8% --17.3x 16.4x $8.86 (1.6%) Oct-28-2011 54.1% $6.62 22.5% --50.9x 14.5x $5.95 (10.1%) Nov-03-2010 29.2% $11.50 26.4% --8.8x 8.2x $6.36 (44.7%) Under board review Harbin Electric HRBN Chairman & CEO, Abax Global Capital
China Macro - November 1, 2011
Buyers (as announced)
Puda Coal PUDA Chairman
Shanda Interactive SNDA Family of Chairman & CEO
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Premium over previous day close Price Revision Date Revised Price P/E (TTM) (2) P/E (NTM)
(2) (1)
Jul-26-2011 49.5% $2.65 15.2% --2.7x 3.6x $2.26 (14.7%) Board approved
Jun-30-2011 14.0% $4.25 22.8% --5.8x 5.2x $1.60 (62.4%) Board informed; (exclusive partnership with Theme Investment terminated on Sept 2; Shares halted since Sept 21 at a last price of $1.60) Pending N/A N/A $91.2M
Oct-11-2010 40.6% $24.00 20.2% --8.8x 7.3x $23.49 (2.1%) Shareholder meeting approved deal on Oct 29, 2011; Expected to close within a week
Apr-29-2011 31.6% $12.00 100.0% --10.9x 10.1x $0.30 (97.5%)
Oct-17-2011 68.4% $41.35 23.5% --49.2x 36.0x $39.75 (3.9%)
Current Price (10/31/2011) Current Discount to Bid Price Status
Shareholder meeting Under board review approved deal on Sept 22, 2011; Expected to close in Q4' 2011
Under board review Under board review; Shares halted starting Apr 11, 2011, later delisted from NYSE Amex and moved to OTC on August 18, 2011 Pending N/A N/A $360.0M Pending N/A N/A $2,262.8M
Board Approval / Definitive Agreement Initial Filing of SC 13E3 Voting Requirement Implied Equity Value (3)
Pending N/A N/A $47.1M
May-20-2011 Jun-10-2011 >75% total & >50% of disinterested shares $257.8M (1) Debt: $60M; (2) Equity: Bain$160.7M, Mgmt rollover$51.3M BofA, Citi, HSBC US$ 60M 75.8% Barclays Capital Shearman & Sterling LLP
Jun-20-2011 Jul-13-2011 >50% total & >50% of disinterested shares $750.0M (1) Debt: CDB-$400M, Abax note-$25M; (2) Equity: Abax cash$38.8M, Mgmt rollover$264.1M, Abax rollover$40.6M China Development Bank: US$ 400M Abax: US$25M 23.2% Morgan Stanley & Co. / Lazard Freres & Co. LLC
Source of funding
N/A
N/A
N/A
N/A
N/A
Intended to be financed by debt
Debt Financing Detail Post-deal Private Equity Ownership Board Financial Advisor Board Legal Advisor
(1)
N/A N/A N/A Skadden, Arps, Slate, Meagher & Flom, LLP
N/A N/A N/A N/A
N/A N/A N/A N/A
N/A N/A BofA Merrill Lynch
N/A N/A Cowen and Company, LLC / Morgan Joseph TriArtisan LLC Not disclosed
Preliminary discussions with J.P. Morgan No plan to involve N/A N/A
Gibson, Dunn & Crutcher Gibson, Dunn & Crutcher LLP LLP
Premium of bid price above the closing price on previous trading day before announcement (2) Valuation multiples are based on bid price over TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; N/A indicates not available, N/M indicates not meaningful (3) Implied Equity Value is calculated based on latest available bid price and shares outstanding number as disclosed (4) The offer price is 0.6 shares of EJ common stock plus $1.6 in cash, we convert to dollar value using EJ's closing price on Oct-27-2011 Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 2 of 9
15
CHINA
Summary of Completed or Abandoned Deals
BMP Sunstone BJGP Sanofi-Aventis China Security & Chemspec Surveillance China Ceramics CNinsure International Technology Funtalk China CCCL CISG CPC CSR FTLK Group of TPG Asia, Chairman & CEO, Chairman & CEO Chairman & CEO shareholders Chairman & CEO, Primavera (key mgmt), (original SPAC CDH Inservice ARCH, Capital Ally, GM founders) Investment Sep-27-2011 13.4% N/A $2.52 N/A --N/A N/A May-16-2011 34.3% $19.00 $13.16 44.4% --15.0x 13.3x Nov-11-2010 55.8% $8.00 $6.32 26.6% Mar-21-2011 $8.10 9.0x 8.2x Mar-08-2011 20.9% $6.50 $4.10 58.5% --6.8x 5.9x Mar-25-2011 77.1% $7.10 $6.15 15.4% May-31-2011 $7.20 8.4x 8.7x Qiao Xing Mobile
(2)
QXM Parent Company Qiao Xing Universal Resources, Inc. (Nasdaq: XING) Sep-09-2010 61.0% $3.92 $3.55 10.3% --N/M N/A
Sinoenergy SNEN Skywide Capital Management (owned by management)
SOKO Fitness & Spa Group SOKF Chairman & CEO (key mgmt) together with several existing institutional investors Jul-25-2011 90.8% $4.50 $3.70 21.6% --8.3x 7.9x
Tiens Biotech Group Tongjitang Chinese Medicines TCM TBV TIENS (USA) Hanmax CEO & Director Investment (controlled by (owned by CEO) / Fosun Chairman & CEO)
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Price 1-Day Prior to Announcement Premium over previous day close (1) Price Revision Date Revised Price P/E (TTM) P/E (NTM) Status
(3)
Oct-28-2010 23.0% $10.00 $7.66 30.5% --125.0x 90.9x
Oct-12-2009 39.1% $1.90 $1.28 48.4% --N/M N/A
Jun-27-2011 95.1% $1.72 $1.03 67.0% --28.7x NA
Apr-08-2010 83.0% $4.50 $3.78 19.0% --N/M 18.0x
Mar-10-2008 39.2% $10.20 $6.60 54.5% --N/M 11.3x
(3)
Completed on Feb Board declined the Withdrawn on option 24, 2011 Sept 15, 2011 Macquarie has proposed to provide the financing N/A N/A
Completed on Aug Completed on 19, 2011. Sept 16, 2011 Standard Chartered US$ 70M Mar-21-2011 May-03-2011 China Development Bank US$ 500M Apr-20-2011 May-31-2011
Completed on Aug Abandoned due to Completed on Sep Completed on July Completed on Aug Completed on Apr Withdrawn on Jun 25, 2011 11, 2011. Shortlack of quorum on 29, 2010 27, 2011. Short15, 2011 27, 2008 Apr 7, 2011 form merger. form merger. Not involved Not involved Not involved Not involved Not involved CITIC Bank US$ 25M Nov-01-2010 Nov-26-2010 N/A
Debt Financing Detail Board Approval/Definitive Initial Filing of SC 13E3
Not involved
Not involved
Oct-28-2010 N/A
N/A N/A
May-31-2011 Jun-14-2011
Jan-03-2011 Oct-22-2010 >50% of disinterested voting shareholders representing >75% of voting disinterested shares Not involved Not disclosed
Oct-12-2009 Nov-13-2009
N/A N/A
N/A Jun-27-2011
N/A N/A
Voting Requirement
>50% of toal shares
N/A
N/A
>50% of disinterested shares
>50% total & >50% of disinterested shares
>2/3 of voting shares at EGM
>50% of total shares
N/A
N/A
>50% of shareholders representing >75% of voting shares
N/A
Post-deal Private Equity Ownership Board Financial Advisor Board Legal Advisor
(1) (2)
Not involved Stephens Inc. Morgan, Lewis & Bockius LLP
N/A N/A
N/A Duff & Phelps, LLC O'Melveny & Myers LLP and Walkers
27.2% Houlihan Lokey Shearman & Sterling LLP / Maples and Calder
Not involved Imperial Capital, LLC Shearman & Sterling LLP
77.7% Bank of America Merrill Lynch Skadden, Arps, Slate, Meagher & Flom LLP / Maples and Calder
Not involved Brean Murray, Carret & Co. Arent Fox LLP
Not involved N/A
Not involved N/A
Not involved Morgan Stanley Asia Limited Sheppard, Mullin, Richter & Hampton LLP / Thorp Alberga
N/A Morgan Stanley Asia Limited NA
N/A
Not disclosed
N/A
N/A
Premium of bid price above the closing price on previous trading day before announcement The offer price is 1.9 shares of XING common stock plus $0.8 in cash, we convert to dollar value using XING's closing price on Sept-8-2010 (3) Valuation multiples are based on bid price over TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; N/A indicates not available, N/M indicates not meaningful Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 3 of 9
16
CHINA
China Ceramics Co., Ltd.

VALUATION
We maintain our BUY rating and $16.00 PT - Our $16.00 target is based on 6.6x our FY11 EPS estimate, a discount to peers in the U.S and in China.
Factors that may impede share price from reaching the target include usage limitation due to safety and high energy consumption concerns, substituted by other external wall decorative materials, increasing competition, potential slowdown of new housing construction and failure to complete and integrate acquisitions or capacity expansion.
RISKS
Safety concerns and high energy consumption may limit the use of exterior ceramic tiles
Exterior ceramic tiles may be substituted by other external wall decorative materials
Increased competition may reduce profitability - With over 300 manufacturers, the exterior ceramic tile industry is highly fragmented. Given product similarities, increasing competition will lower industry's selling price, thus decrease the company's profitability.
Potential slowdown of new housing construction - The exterior ceramic tiles industry is directly impacted by new housing construction. Government's policies with the intention to push down housing price might adversely affect developers' confidence, which in turn, slower the pace of new housing construction.
The increase of coal price may adversely affect the cost structure - Coal is a key input of ceramic tiles production and accounts for 20% of COGS. From 2009 to 2010, average coal price increased 15%, from RMB 936 per ton to RMB 1,081 per ton. Inability to transfer the coal price increase will narrow the profitability in the future.
Failure to complete and integrate acquisitions or capacity expansion - Capacity expansion through internal build or acquisition are the main driver of the company's growth. Failure to successfully integrate acquisitions could significantly impact the company's growth prospects.
China Fire & Security Group, Inc.

VALUATION
Our $9.00 price target is based on the going private offer price. Factors that may impede CFSG shares from reaching price target include a buyout process does not materialize or substantial weakness in the company's fundamentals.
RISKS
Change in macro policies. CFSG's major revenues come from the iron and steel industry, and significant changes in the steel industry can impact the company business prospect. Concerns on over-capacity, horizontal consolidations, accompanied with imposed tariffs on steel exports, have placed the industry under close monitoring by the central government. Concentration risk. The company's revenue recognition and profit generation is currently highly relied upon its recently signed $92M total solution contract with Wuhan Iron and Steel, accounting for more than half of quarterly revenue. Any unexpected changes or progress delay in project execution will significantly impact CFSG's financial performance. Extended customer payment period. Depressed steel prices and continuous market consolidation have caused many steel makers facing challenging market conditions. Accordingly, extended customer payment period may have led to recent CFSG decrease in cash and increasing A/R balance.
Fushi Copperweld, Inc.

Page 4 of 9
17
CHINA
VALUATION

Our $10.50 price target is based on a 6.0x multiple applied to our 2011 EPS estimate of $1.13 and adding back $3.70/share in cash. We note that our target is slightly below the proposed Fu/Abax going private bid price of $11.50. Factors that may impede FSIN shares from reaching price target include failure of completion of the going private buy-out, unsuccessful ramping up of CCS facilities in China, and rapid decline in copper prices.
RISKS
Volatile raw material prices. Fushi's selling prices are highly dependent on copper, aluminum and steel prices. Changes in these prices may adversely impact demand for FSIN's bi-metallic products and its operational results. Execution/integration risk. FSIN continues to integrate its acquired operations, including Copperweld, Shanghai Hongtai, and Dalian Jinchuan. Its overall global expansion strategy faces execution risk due to a variety of factors. Going private transaction risk. In November 2010, FSIN's Board of Directors received a going private proposal from its Chairman (Mr. Fu) and Abax Global Capital to acquire all of the outstanding shares of common stock for $11.50 per share. The inability to complete this transaction could negatively impact share performance. Management turnover. The company's current CFO, Craig Studwell, was appointed in October 2010. While we view Mr. Studwell as highly experienced and capable, we note that his tenure with FSIN is limited and he has yet to oversee the filing of an audited annual report for the company. Litigation risk. Associated with its going private proposal, a shareholder class action lawsuit was filed against the Company and certain officers and directors. This lawsuit could consume financial and management resources, presenting financial and business risk.

VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. A slow-down in China''s economic growth and continued inflation could impact sales and compress margins.
RISKS
Change in macro policies in China. Two of HRBN's major catalysts, oil pump for oilfield and linear motors for urban metro lines, can be largely affected by central and local government policies. The development of urban railways can experience delays that out of control of HRBN, such as delay in construction. Volatile raw materials costs. HRBN is subject to market fluctuations and volatility of two major raw materials, copper and steel respectively.
Shanda Interactive Entertainment

VALUATION
Our $41 price-target is based on the preliminary non-binding proposal offer of $ 41.35 per ADS from a 'Buyer Group', which is led by Shanda's Chairman & CEO. Factors that may impeded shares of SNDA from achieving our price target include: 1) Shanda's Board of Directors not accepting takeout offer 2) Inability for 'Buyer Group' to finance the transaction and 3) 'Buyer Group' withdrawing privatization offer.
RISKS
The investment in shares of Shanda Interactive involves various risks that could adversely affect the company's operations; these risks include the following:
Page 5 of 9
18
CHINA

Revenue dependency. The majority of SNDA's revenues come from its two oldest games MirII and Woool (70% of its net revenues in 2008). Should players lose interest in these games or if pirated versions of these games become more rampant, it would negatively impact the company's earnings. Uncertainty in pipeline. SNDA has an expansive game portfolio however the company has enjoyed only limited success with its newest releases. If new games do not meet our expectations, the company could miss our earnings estimates. Increasing government regulation. The online game industry is regulated by various ministry departments of China, which restrict certain content, player usage time, and minors from entering internet cafs. Should the government decide to increase regulation and enforcement of any existing laws or introduce new regulation it would likely have an adverse impact on both the potential growth of the industry and SNDA. Change in strategy. Shanda's mgt has a track record of drastically changing company strategy, such as trying to enter the TV content market, which was then banned by the state TV regulators, and changing its revenue model from pay-to-play to free-to-play. While this reflects mgt's ambitions and some of their past reforms have proved successful, their willingness to take bold risks it may cause near-term earnings uncertainty. Increasing competition. Competition in China's online game market is fierce, with hundreds of new games being introduced each year and new operators entering the market. Increased competition forces companies to increase spending on sales and marketing expenses to keep and gain players. Further increases in sales and marketing expenses could negatively impact operating margins.
Page 6 of 9
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CHINA

Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. For important disclosure information regarding the companies in this summary report, please contact: The Director of Research at (800) 678-9147 or write to: ROTH Capital Partners, LLC, Attention: Director of Research, 888 San Clemente Drive, Newport Beach, CA 92660
Disclosures:
ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Fushi Copperweld, Inc. stock. Within the last twelve months, ROTH has received compensation for investment banking services from China Ceramics Co., Ltd.. ROTH makes a market in shares of China Ceramics Co., Ltd., China Fire & Security Group, Inc., Fushi Copperweld, Inc., Harbin Electric, Inc. and Shanda Interactive Entertainment and as such, buys and sells from customers on a principal basis. Within the last twelve months, ROTH has managed or co-managed a public offering for China Ceramics Co., Ltd.. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
Page 7 of 9
20
CHINA
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month.
Page 8 of 9
21
CHINA
Distribution of IB Services Firmwide
Count 190 68 0 14
Percent 69.6 24.9 0.0 5.1
IB Serv./Past 12 Mos. as of 11/01/11 Count Percent 53 27.9 9 13.2 0 0 4 28.6
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
Page 9 of 9
22
CHINA FLASH NOTE | EQUITY RESEARCH | October 31, 2011

Company Update
Auditor: FRAZER FROST LLP EPS $ Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 8.3x 2011E Curr 0.41A 0.53A 0.54E 0.57E 2.05E 11.0x
| HRBN - $22.55 - NASDAQ | Neutral HRBN: Shareholders Approve Privatization; Deal Expected to Close Within a Week
HRBN's shareholders voted to approve its privatization transaction. The company expects the deal to be completed in the following week. Upon closing, the stock will be de-listed from NASDAQ. HRBN announced on Oct 29th that shareholders voted in favor of the merger to take the company private. Approximately 90.7% of the company's total outstanding shares of common stock participated in the vote. ~90.6% of common shares outstanding (~84.2% of unaffiliated shares) voted in favor of the proposal. The company expects the transaction to be completed within the following week with letters of transmittal mailed within two business days of the effective date of the merger.
$5.82 - $23.20 31.43 $708.8 1,681,406 $24.00 $87.6 $87.4 15%
2012E Curr 2.64E 8.5x
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 103.8A 131.4A 125.1E 130.2E 490.5E 2012E Curr 568.9E
20.0 16.0 12.0 8.0 4.0 0.0
30 25 20 15 10 5
May-11
Nov-10
Dec-10
Aug-11
Sep-11
Feb-11
Mar-11
Jan-11
Jun-11
Apr-11
Oct-11
Jul-11
Price
23
October 31, 2011
VALUATION
Our $24 price target is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s A slow-down in China's economic growth and continued inflation could impact sales and compress margins.
RISKS
Change in macro policies in China. Two of HRBN's major catalysts, oil pump for oilfield and linear motors for urban metro lines, can be largely affected by central and local government policies. The development of urban railways can experience delays that out of control of HRBN, such as delay in construction. Volatile raw materials costs HRBN is subject to market fluctuations and volatility of two major raw materials, copper and steel respectively.
COMPANY DESCRIPTION
Page 2 of 4
24
October 31, 2011

Disclosures:
Count 189 68 0 14
Percent 69.5 25.0 0.0 5.1
Page 3 of 4
25
October 31, 2011

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26
D.I. REPORT
HRBN $22.98 Mkt. Cap.

$722 million
O c t o b e r 2 7 , 2 0 11
Our Process and D.I. Rating Our process is simple. We consistently research the same 100 risk factors on each company, harvested from 5 years of SEC filings, across the following major categories: SEC activity; accounting/auditor issues; capital markets events; stability of the board and executives, and non-SEC investigative activity. Each D.I. Report identifies and summarizes those risk factors that we believe hold the potential to destabilize a company, distract its management, and/or interfere with underlying fundamentals. Our reports otherwise take no view on a public companys fundamental outlook or whether you should buy, sell, or hold its securities. D.I. Ratings, range from Low to High Risk. They are based on the number, nature, and timing of the risk factors we found among the 100 we research over the most recent 5 years. Detailed, well-organized, and in-depth analyst notes are available to subscribers for each D.I. Report we publish. High Risk It is our opinion that companies with a High Risk rating carry so much risk as to hold the potential to overwhelm underlying fundamentals. Required Disclosure - Please see http://www.disclosureinsight.com/legal for certain disclosures regarding ITG Inc. (a member of FINRA and SIPC) required under NASD Rule 2711(h).
D.I. RATING
High Risk
D.I. PROFILE Insider ownership; an upcoming transaction that would take HRBN private; the appointment of a non-top tier auditor; acquisition activity; a related party transaction; and the chairman and CEO positions being held by one person support our opinion of a High Risk rating for HRBN. Tianfu Yang has served as Chairman & CEO since Jan-05 and owned 31.1% of the companys outstanding common shares as of 18-Jun-11. In Jun-11, HRBN entered into a definitive agreement and plan of merger with Tech Full Electric Company Limited, a company wholly owned indirectly by CEO Yang. Pursuant to the agreement, HRBN will become a wholly-owned subsidiary of Tech Full Electric Company. Immediately prior to the merger, each share of HRBN common stock will be converted into the right to receive $24.00 in cash without interest, except for shares owned by Tech Full Electric Company and certain of HRBNs employees and officers. The merger is expected to close in the fourth quarter of the current fiscal year and if completed, HRBN will be a privately-held company. In Dec-06, HRBN appointed Moore Stephens Wurth Frazer and Torbet, LLP as its new auditor. In Jan-10, Moore Stephens Wurth Frazer and Torbet, LLP and Frost, PLLC formed a new partnership firm named Frazer Frost, LLP. Frazer Frost was just outside of the top 50 accounting firms by revenue in 2010. HRBN reported 7 acquisitions for $204 million, of which over $54 million was allocated to goodwill. On 28Dec-10, HRBN made an advance of $1.5 million to an entity (Tai Fu Industrial, Co., Ltd.) owned by CEO Yang. HRBN stated that the "purpose of the advance was to accommodate an urgent cash need of a transaction for this related entity." As of 31Dec-10, the advance had been repaid to HRBN. CEO Yang is also the brother of VP Tianli Yang. SEC Activity: A response we received from the SEC to a Freedom of Information Act request indicated no investigative activity as of 19-Oct-11. Comment letters are available from 5 SEC reviews. The first review (20-Jan-06 to 8-Feb-07) pertained to the registration statement on Form SB-2 filed 13-Jan-06 and its various amendments. This review lasted longer than 6 months, which is atypical in our experience. The second review (9-Nov-07 to 7-Jan-08) pertained to the 2006 10-KSB and raised issues including disclosure regarding the 395% increase in SG&A expenses in 2006; classification of the change in the fair value of warrants with the income statement; revenue recognition policy for certain services including after-sales services; disclosure regarding construction in progress; accounting for transactions related to a joint research and development agreement with IEECAS; the companys eligibility to file on Form 10-QSB beginning with the quarter ended 31-Mar-07; disclosure regarding grant income received from the government; and accounting for payments in connection with a development agreement with
763-595-0900 direports@disclosureinsight.com www.disclosureinsight.com 2011 Disclosure Insight, Inc. All Rights Reserved. Additional legal and patent notices apply.
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D.I. Report

October 27, 2011
Shelton Technology. The third review (21-Jul-08 to 27-Oct-08) pertained to the 2007 10-KSB, 2007 10-K/A, and the registration statement on Form S-3 filed 24-Jul-08. The review pertained to managements assessment of internal control. The fourth review (20-Aug-09 to 30-Sep-09) pertained to the 2008 10-K and raised the following issues: inclusion of certain contractual obligation amounts in the contractual obligations table; effectiveness of internal controls; disclosure regarding a significant increase in inventory; accounting for an income tax rebate; and clarification regarding the use of an independent appraiser to determine the fair value of the acquired assets of Hengda. The fifth review (28-Apr-10 to 14-May-10) pertained to the registration statement on Form S-3 filed 20-Apr-10 and the amendment filed 30-Apr-10. Accounting/Auditor: In Dec-06, HRBN dismissed Kabani & Company, Inc. as its auditor and appointed Moore Stephens Wurth Frazer and Torbet, LLP as the replacement. No disagreements were disclosed between HRBN and Kabani & Company. In Jan-10, Moore Stephens Wurth Frazer and Torbet, LLP and Frost, PLLC formed a new partnership firm named Frazer Frost, LLP. This firm was subsequently approved as the companys new auditor. HRBN's disclosure controls and procedures were not effective as of 31-Dec-07, due to the companys failure to include managements report on internal control over financial reporting in its 2007 10-KSB. Disclosure controls and procedures were subsequently declared effective as of 30-Sep-08. In Mar-11, HRBN disclosed the discovery of 5 material weaknesses in internal control that existed as of 31-Dec-10 at Xian Simo, a former state-owned-enterprise acquired in Oct-09. These material weaknesses rendered HRBNs internal control ineffective on the consolidated level. The 5 material weaknesses related to: bank reconciliation, reconciliation and classification of notes receivable, calculation of provision of income tax, valuation of inventory allowance, and inventory recording. HRBN reported that its disclosure controls and procedures were effective as of 30-Jun-11. The 2007 10-KSB was amended 3 times (Jul-08, Aug-08, and Oct-08) to restate a variety of disclosures relating to controls and procedures, exhibits, signatures, and the exhibit index. HRBN filed an amended 2010 10-K on 29-Sep-11 for the purpose of amending and supplementing the statements of cash flows, exhibits, disclosure regarding risk factors, and disclosure regarding controls and procedures. The changes to the statements of cash flows were insignificant. Executive Suite: Stable. Tianfu Yang has served as CEO since 24-Jan-05. Zedong Xu has served as CFO and Principal Accounting Officer since 24-Jan-05. The Board: There have been 5 departures. In Dec-06, Christopher Chung-Yi Hsu (then age 25) resigned in connection with his resignation from Citadel Equity Fund, Ltd (CEF), a majority holder of HRBNs guaranteed senior secured floating rate notes. In Mar-07, Oliver Weisberg (then age 34) resigned. At the time, Weisberg was a managing Director and Head of the Special Situations - Asia Group at CEF. Suofei Xu (then age 43) was last listed as a director in the S-3 filed 24-Jul-08. There was no disclosure regarding the details of his departure. In Aug-09, Feng Bai (then age 39, a member of the audit and compensation committees) did not stand for re-election at the annual meeting. In Jul-09, Patrick McManus (then age 55, Chair of the audit committee, a member of the nominating and compensation committees) passed away. CEO Yang has been Chairman since 24-Jan-05. Capital Markets: HRBN reported 7 acquisitions for $204 million, of which over $54 million was allocated to goodwill. The largest acquisition was the Oct-09 purchase of Xian Simo for $112 million, of which $42 million was allocated to goodwill. In Jun-11, HRBN entered into a definitive agreement and plan of merger with Tech Full Electric Company Limited, a company wholly owned indirectly by CEO Yang. Pursuant to the agreement, HRBN will become a wholly-owned subsidiary of Tech Full Electric Company. Immediately prior to the merger, each share of HRBN common stock will be converted into the right to receive $24.00 in cash without interest, except for shares owned by Tech Full Electric Company and certain of HRBNs employees and officers. If the agreement is terminated under certain circumstances, HRBN will be required to pay a $23 million termination fee. The merger is expected to close in the fourth quarter of the current fiscal year and if completed, HRBN will be a privatelyheld company. On 29-Sep-11, HRBN announced that it had filed definitive proxy materials with the SEC in connection with the merger and that mailing of such proxy materials to shareholders was expected to begin immediately. A special shareholder meeting will be held on 29-Oct-11 to vote on the matter. On 27-Aug-09, HRBN received a letter from NASDAQ stating that, as a result of the departure of director Feng Bai and the death of director Patrick McManus (both audit committee members), the company was not in compliance with listing standards related to audit committee composition. Dr. Ching Chuen Chan and Yunyue Ye were subsequently appointed to the board and audit committee, at which point HRBN regained compliance on 31-Aug-09. HRBN has been on NASDAQs list of threshold securities for months. A threshold security is any equity security of any issuer that is registered under Section 12 of the
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D.I. Report

October 27, 2011
Exchange Act, or that is required to file reports under Section 15(d) of the Exchange Act, where, for 5 consecutive settlement days: i) there are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security, ii) the level of fails is equal to at least 0.5% of the issuers total shares outstanding, and iii) the security is included on a list published by a self-regulatory organization. A security ceases to be a threshold security if it does not exceed the specified level of fails for 5 consecutive settlement days. There were 6 instances of stock price volatility >10% in the past year. As of 18-Jun-11, directors and executive officers as a group owned 35.20% of HRBNs outstanding stock, of which 31.10% was held by CEO Yang. On 28-Dec-10, HRBN made an advance of $1.5 million to an entity (Tai Fu Industrial, Co., Ltd.) owned by CEO Yang. HRBN stated that the "purpose of the advance was to accommodate an urgent cash need of a transaction for this related entity." As of 31-Dec-10, the advance had been repaid to HRBN. We also note that CEO Tianfu Yang and VP Tianli Yang are brothers. Non-SEC Investigative Activity and Reviews: Nothing of note. Are conference calls routinely held? Are there multiple classes of stock? Is this a controlled company? Yes No No Is there a small float? (<50% of shares outstanding.) Is revenue concentrated/otherwise not meaningful? Were noteworthy related party transactions found? No No Yes
This D.I. Report represents the summation of 100 separate risk factors we analyzed over a 5-year period. The in-depth analyst notes used to produce this report are available to clients on our website.
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Disclosures:
The following are the D.I. Ratings we may assign: High Risk: It is our opinion that companies with a High Risk rating carry so much risk as to hold the potential to overwhelm underlying fundamentals. Medium Risk - Negative Bias: Companies with a Medium Risk rating have at least one risk factor that concerns us. We assign a Negative Bias to the Medium Risk rating to those companies that in our opinion carry sufficient risk that the rating could deteriorate to High Risk. The Medium Risk - Negative Bias rating can also be assigned to those companies previously rated as High Risk that have shown some improvement, albeit not enough to yet warrant a lower risk rating as they could just as easily become High Risk again. Medium Risk - Positive Bias: Companies with a Medium Risk rating have at least one risk factor that concerns us. We assign a Positive Bias to the Medium Risk rating for those companies that in our opinion carry at least one risk factor that could potentially deteriorate into a higher risk challenge. The Medium Risk - Positive Bias rating can also be assigned to those companies previously rated as carrying higher risk, but have shown sufficient improvement. Low Risk: Companies with a Low Risk rating carry a low risk profile. In our opinion, the nature and timing of the risk factors we found do not concern us at the time of report publication. Intellectual Property This material is copyrighted 2000 to 2011 by Disclosure Insight, Inc. All rights reserved. The works of authorship contained in the accompanying material, including but not limited to all data, design, text, images, charts and other data compilations or collective works are owned by Disclosure Insight, Inc. or one of its affiliates and may not be copied, reproduced, transmitted, displayed, performed, distributed, rented, sublicensed, altered, or stored for subsequent use, in whole or in part in any manner, without the prior written consent of Disclosure Insight, Inc. Photocopying or electronic distribution of any of the accompanying material or contents without the prior written consent of Disclosure Insight, Inc. violates U.S. copyright law, and may be punishable by statutory damages of up to $150,000 per infringement, plus attorneys fees (17 USC 504 et. seq.). Without advance permission, illegal copying includes regular photocopying, faxing, excerpting, forwarding electronically, and sharing of online access. Disclosure Insight, D.I., D.I. Score, D.I. Rating, D.I. Profile, D.I. Database, D.I. Report, D.I. Watch List, D.I. Focus List, D.I. Mailbox, Better Disclosure for Better Decisions, 5 Years of Due Diligence in One Report, Assess the Risk. Achieve the Return., D.I. Favorites, and Just Because its Public Information Doesnt Mean its Public Knowledge are service/trademarks of Disclosure Insight, Inc. and are proprietary. Potential Conflicts of Interest Disclosure Insight, Inc. requires its employees and principals to adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct regarding potential conflicts of interest. This includes prohibiting its employees and principals from trading in their own accounts in any manner which might be deemed in conflict with client subscribers. Further, and with few exceptions, Disclosure Insight, Inc. prohibits its employees and principals from trading of any kind in any individual public company securities, or derivatives thereof, on any company on which production of a new D.I. Report has commenced. Such prohibitions shall remain in place until either 5 days after the individual D.I. Report has been published or its production otherwise ceases. In addition, Disclosure Insight, Inc. prohibits its employees and principals from trading of any kind in any individual public company securities, or derivatives thereof, on any company on which we have received a response from the United States Securities and Exchange Commission (or other regulatory authority) to one of our Freedom of Information Act (FOIA) requests which suggests the presence of an undisclosed SEC or other governmental investigation and/ or law enforcement activity. Such prohibitions on newly received FOIA data shall remain in place from when the material is received until either 5 days after it has been published or production on the data point otherwise ceases. On a severely limited basis, we will permit employees to engage in trading of the sort that would be deemed in conflict with this policy such as extreme financial hardship as defined by the CFA Institute Code of Ethics. Disclosure Insight, Inc. otherwise permits, and encourages, its employees to freely trade in any securities so long as such trading is not deemed as in conflict with this policy or client subscribers. We similarly place no holding period limits or restrictions
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on such personal trading. This could, and often does, include trading in mutual funds, exchange traded funds (ETFs), and derivatives thereof which may include covered names as components of the overall funds and/or ETFs. Disclosure Insight, Inc. does not engage in investment banking activities or take any security positions, except those necessary for routine corporate treasury functions. ADDITIONAL DISCLOSURES ARE AVAILABLE AT www.disclosureinsight.com
31
Guru Stock Report

HARBIN ELECTRIC, INC. (NASD: HRBN)
INDUSTRY: Electronic Instr. & Controls
Bas e d on 10/13/2011 Clos e Price of $22.03
SECTOR: Technology
Current Rating: Buy
Reiterate B on 10/14/2011.
OVERVIEW
This stock receives a fundamental grade of "B" based on Validea's Guru Analysis system. "B" rated stocks pass the fundamental tests of at least one of our guru strategies, although they do not pass the top performing strategies required to receive an "A" grade. Stocks that receive this grade typically have mostly favorable fundamental attributes, although there are typically some minor flaws. For further details on our scoring system, please see the FAQ section at the end of this report. Validea's Guru System classifies this stock as both a growth and value stock given its PE Ratio of 11.8 and its historical EPS growth rate of 31.3%. This stock passes Validea's P/E Growth Investor strategy based on our interpretation of the published criteria of Peter Lynch with a score of 93%. The strategy looks for stocks that trade at a discount to their long-term earnings growth rates, which also show signs of financial strength.
ANALYSIS SUMMARY
Strategy Name Contrarian Investor Book/Market Investor Growth Investor Growth/Value Investor Low PE Investor P/E Growth Investor Value Investor Price/Sales Investor Patient Investor Momentum Investor
Based On Book By/About David Dreman Joseph Piotroski Martin Zweig James O'Shaughnessy John Neff Peter Lynch Benjamin Graham Kenneth Fisher Warren Buffett Validea
Score 29% 0% 46% 25% 40% 93% 57% 48% 0% 50%
* Overall fundamental grade is based on a w eighted scoring system in w hich the strategies at the top of the table are more significant than those at the bottom (the strategies used to determine our "A" rated stocks are above the dividing line in the table and the strategies used to determine the "B" rated stocks are below ). Although all the strategies used in this report have exhibited market outperformance on a risk-adjusted basis, strategies at the top of the table have displayed superior historical risk-adjusted performance in our testing to those at the bottom.
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COMPANY PROFILE
Harbin Electric, Inc. (Harbin Electric) is a holding company. It designs, develops, manufactures, supplies and services a range of electric motors, including linear motors, specialty micro-motors and industrial rotary motors. It sells its products in China, but also to certain international markets. The Company operates four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full) and Xi'an Tech Full Simo Motor Co., Ltd. (Xi'an Tech Full Simo). The Company offers three product lines: linear motors (LMs) and integrated systems, specialty micro-motors and industrial rotary motors. The Company offers a range of industrial rotary motors, including small, medium, and large-sized motors and some specialized motors, such as high/low voltage motors and speed control motors. The Company acquired Xi'an Tech Full Simo in October 2009.
RATING HISTORY
Date 4/4/2008 4/17/2009 7/10/2009 8/21/2009 3/18/2011
Action Upgrade Downgrade Upgrade Downgrade Upgrade
Old Rating C B C B C
New Rating B C B C B
METHODOLOGY
This report provides a detailed analysis of HRBN based on the publicly disclosed methodologies of Wall Street legends. Validea is a premier online independent research provider. The firm's Guru Stock Report unites the quantitative strategies of the world's most successful investors, including names like Peter Lynch, Warren Buffett, Ben Graham, Martin Zweig and many others. Rooted in fundamental analysis and built on core investing principles, each report contains an in-depth description of the guru methodologies, as interpreted by Validea, and examines the stock using multiple approaches (i.e. value, growth, momentum). Using these strategies, Validea has created a ratings scale that is dynamic and weights more heavily the best performing approaches as identified and tracked by Validea. Each stock is scored using a five point rating system that assesses the security's investment prospects. Ratings range from A to F (correlates to Strong Buy to Sell), with A and B stocks having the best potential for long-term market outperformance. Stocks that score highly based on the best performing riskadjusted guru strategies or are favored by multiple top performing guru strategies are given a higher rating versus their counterparts. Validea's ratings are limited to companies that exhibit profitability. Reports are updated every two weeks, or sooner in the event of an earnings report, other significant news, or a major stock price change, in an effort to provide timely and valuable analysis and coverage.
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GURU ANALYSIS OF: HARBIN ELECTRIC, INC. (HRBN) P/E GROWTH INVESTOR
BASED ON: Peter Lynch SCORE:
93%
STYLE: Growth/Value
Perhaps the greatest mutual fund manager of all-time, Lynch guided Fidelity Investment's Magellan Fund to a 29.2 percent average annual return from 1977 until his retirement in 1990, almost doubling the S&P 500's 15.8 percent yearly return over that time. Lynch's common sense approach and quick wit made him one of the most quoted investors on Wall Street. ("Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it," is one of his many pearls of wisdom.) Lynch's bestseller One Up on Wall Street is something of a "stocks for the everyman/everywoman", breaking his approach down into easy-to-understand concepts. Investment Strategy Lynch's approach centers on a variable that he is famous for developing: The price/earnings/growth ratio, or "PEG". The PEG divides a stock's price/earnings ratio by its historic growth rate to find growth stocks selling on the cheap. Lynch's rationale: The faster a firm is growing, the higher the P/E multiple you should be willing to pay for its stock. Lynch is known for saying that investors can get a leg up on Wall Street by "buying what they know", but that's really just a starting point for him; his strategy goes far beyond investing in a restaurant chain you like or a retailer whose clothes you buy. Along with the PEG, he focused on fundamental variables like the debt/equity ratio, earnings per share growth rate, inventory/sales ratio, and free cash flow. It's important to note that Lynch used different criteria for different categories of stocks, with the three main categories being "fast-growers" (stocks with EPS growth rates of at least 20 percent per year); "stalwarts" (stocks with growth rates between 10 and 20 percent and multi-billiondollar sales); and "slow-growers" (those with single-digit growth rates and high dividend payouts). He also used special criteria for financial stocks.
DETERMINE THE CLASSIFICATION: This methodology would consider HRBN a "fast-grower".
P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.78) relative to the growth rate (31.29%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for HRBN (0.38) is very favorable.
SALES AND P/E RATIO: [NEUTRAL] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. HRBN, whose sales are $450.8 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.
INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for HRBN was 33.56% last year, while for this year it is 14.73%. Since inventory to sales has decreased from last year by -18.82%, HRBN passes this test.
EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for HRBN is 31.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for HRBN (27.17%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company.
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FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for HRBN (10.53%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for HRBN (7.07%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
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VALUE INVESTOR
BASED ON: Benjamin Graham
SCORE:
57%
STYLE: Deep Value
The Value Investor strategy is based on the book "The Intelligent Investor" by Benjamin Graham. Widely recognized as the father of securities analysis, Benjamin Graham argued for investing in stocks that were significantly undervalued relative to their intrinsic worth, which he measured principally by their future earnings potential. Defensive investors who followed his advice, he said, would enjoy an invaluable "margin of safety" in their investment activities. Graham's defensive investor strategy is considered by many to be the ultimate value strategy and has stood the test of time more than perhaps any strategy ever created.
SECTOR: [FAIL] HRBN is in the Technology sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published. At that time they were not the driving force of the market as they are today. Although this methodology would avoid HRBN, we will provide the rest of the analysis, as we feel times have changed.
SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. HRBN's sales of $450.8 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. HRBN's current ratio of 2.18 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for HRBN is $50.5 million, while the net current assets are $163.7 million. HRBN passes this test.
LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. We have data for 9 years, and have adjusted this requirement to be a 27% gain over the 9 year period. Companies with this type of growth tend to be financially secure and have proven themselves over time. HRBN's EPS growth over that period of 1,197.1% passes the EPS growth test.
P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. HRBN's P/E of 15.00 (using the 3 year PE) fails this test.
PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. HRBN's Price/Book ratio is 1.50, while the P/E is 15.00. HRBN fails the Price/Book test.
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MOMENTUM INVESTOR
BASED ON: Validea
SCORE:
50%
STYLE: Growth/Momentum
The Momentum Investor strategy is based on the book "How To Make Money In Stocks". In that book, a massive study was described that identified the common fundamental, technical and chart pattern characteristics of the 500 best growth stocks over the past 30 years. The Momentum Investor strategy seeks to identify the "very best" companies that have high Relative Strength and buy them at the "right" time. This methodology is based on the general principal that stocks are priced at what they are worth at the time. Low priced stocks and stocks selling at their low are low for a reason, and you want to avoid them. Instead, you want to pick stocks that are selling near or at their high.
QUARTERLY EPS CHANGE (THIS QUARTER VS. SAME QUARTER LAST YEAR): [PASS] Although HRBN's EPS growth for this quarter relative to the same quarter a year earlier (-32.93%) is below the minimum 18% that this methodology likes to see, earnings have been accelerating over the past 4 quarters. This is a very positive sign, and therefore HRBN passes the first requirement.
ANNUAL EARNINGS GROWTH: [PASS] This methodology looks for annual earnings growth above 18%, but prefers higher than 25%. HRBN's annual earnings growth rate over the past five years of 30.04% passes this test.
EARNINGS CONSISTENCY: [FAIL] According to this methodology, each year's EPS numbers should be better than the previous year's. One dip is allowed, but the following year's earnings should be a new high. HRBN, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.01, 0.91, 1.19, 0.76, 2.46, fails this criterion, as more than 1 dip is unacceptable to the methodology.
LONG-TERM EPS GROWTH RATE RELATIVE TO GROWTH IN THE LATEST 2 QUARTERS: [FAIL] This methodology looks unfavorably at any company whose earnings growth in the latest 2 quarters has been less than half of the long-term earnings growth rate. HRBN fails this criterion, as earnings growth in the 2 most recent quarters (-48.5% for Q6 to Q2 and -32.9% for Q5 to Q1) have slowed substantially to a point less than its long-term growth rate of 30.0%.
CURRENT PRICE LEVEL: [PASS] Investors should keep an eye open for stocks that are trading within 15% of their 52-week highs, as the stock price is potentially close to breaking out to a new high on above average volume. HRBN's current stock price ($22.03) is within 15% of the 52-week high ($23.46). This a positive sign.
4 MONTH S&P RELATIVE STRENGTH LINE: [PASS] This methodology likes to see confirmation from this indicator when buying as a sign of a company's recently strong momentum. It shows a company's weekly performance in comparison to the overall market, as measured by the S&P 500. Look for a general upward trend in weekly relative strength, as the best stocks usually act better than the overall market. HRBN's relative strength trend has been increasing over the last 4 months. This type of price action is favorable.
PRICE PERFORMANCE COMPARED TO ALL OTHER STOCKS: [FAIL] A company's weighted relative strength, which is the stock's price performance compared with the overall market over the past year, should be no less than 80, although above 90 is preferred. As long as all the other numbers are in check, these companies should continue to perform well over the next 3 months. HRBN's relative strength of 54 is too low to pass the test.
CONFIRM AT LEAST ONE OTHER LEADING STOCK IN THE INDUSTRY: [PASS]
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Make sure that a company's industry is attractive by confirming that at least one other company in the industry has a relative strength above 80. There is confirmation in HRBN's industry (Electronic Instr. & Controls), as there are 22 companies that have a relative strength at or above 80.
LOOK FOR LEADING INDUSTRIES: [PASS] Investors should consider stocks in top performing industries. Look at the number of companies within an industry that have a weighted relative strength above 80, and choose only the top 30% of those industries from which to select stocks. In another method, look for industries with the most stocks making new 52-week highs. HRBN's industry (Electronic Instr. & Controls) is currently one of the top performing industries, thus passing the criterion.
DECREASING LONG-TERM DEBT/EQUITY: [PASS] Companies who have consistently cut debt over the last 3 years, or who have a Debt/Equity ratio less than 2, are looked at favorably. HRBN, which has a Debt/Equity ratio of 0.11, passes this test.
RETURN ON EQUITY: [FAIL] Preferred companies must have a ROE of at least 17%. HRBN's ROE of 14.1% is below the minimum 17% that this methodology likes to see, and therefore fails the criterion.
SHARES OUTSTANDING: [NEUTRAL] Shares outstanding should be less than 30 million, as fewer shares mean bigger price jumps when demand surges. However, there is no penalty for a large number of shares outstanding as long as all the other parameters are met. Although HRBN exceeds the preferred level with shares outstanding of 31 million, the stock still passes the test.
INSIDER OWNERSHIP: [PASS] Companies with the best prospects have strong insider ownership, which we define as 15% or more. When there is strong insider ownership, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 34.38% of HRBN's stock. Management's representation is large enough and passes this test.
INSTITUTIONAL OWNERSHIP: [PASS] Some institutional ownership is preferred, but there is no indication that a large number of institutions is too many. Institutions own 37.05% of HRBN's stock. Because there is some institutional ownership present, HRBN passes this test.
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PRICE/SALES INVESTOR
BASED ON: Kenneth Fisher
SCORE:
48%
STYLE: Growth/Value
The Price/Sales Investor strategy is based on the book "Super Stocks" written by Kenneth Fisher. Fisher is a money manager, best-selling author and long-time Forbes columnist who wowed Wall Street in the early 1980s when his book first popularized the idea of analyzing price-to-sales ratios (PSR) as a means of identifying attractive stocks. The strategy looks for stocks whose low price-to-sales ratios are accompanied by strong earnings growth, little debt, and positive free cash flow.
PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. Non-cyclical companies with Price/Sales ratios greater than 1.5 and less than 3 should not be purchased. HRBN's P/S ratio of 1.54 based on trailing 12 month sales, is above 1.5. If you are currently holding this stock, the P/S ratio is O.K., but if you are thinking about purchasing it, the stock would fail this methodology's first criterion.
TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. HRBN's Debt/Equity of 27.17% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: [FAIL] This methodology considers Technology and Medical companies with low Price/Research ratios to be attractive. This ratio indicates how much a market values a company's Research and Development (R&D). Companies with Price/Research ratios greater than 15 should never be purchased, because they either spend too little on R&D or are extremely overvalued. HRBN's Price/Research ratio of 202.34 is considered extremely unfavorable.
PRELIMINARY GRADE: No Interest in HRBN At this Point Is HRBN a "Super Stock"? NO
Price/Sales Ratio: [FAIL] The Price/Sales ratio is the most important variable according to this methodology. The prospective company should have a low Price/Sales ratio. HRBN's Price/Sales ratio of 1.54 does not pass this criterion.
LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. HRBN's inflation adjusted EPS growth rate of 28.97% passes this test.
FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. HRBN's free cash per share of 2.32 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. HRBN's three year net profit margin, which averages 15.94%, passes this criterion.
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GROWTH INVESTOR
BASED ON: Martin Zweig
SCORE:
46%
STYLE: Growth
The Growth Investor strategy is based on the book "Winning on Wall Street", by Martin Zweig. Zweig is a renowned money manager, newsletter writer and frequent guest on the PBS television series "Wall Street Week." The strategy searches for stocks that meet a long host of earnings criteria. Quarterly earnings, for example, should be positive and growing faster than they were (a) a year ago, (b) in the preceding three quarters, and (c) over the preceding three years. Annual earnings should be up for at least the past five years. And sales should be growing as fast as or faster than earnings, since cost-cutting and other non-revenue-producing measures alone can't support earnings growth forever.
P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. HRBN's P/E is 11.78, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. HRBN's revenue growth is 81.41%, while it's earnings growth rate is 31.29%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, HRBN passes this criterion.
SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (24.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-1.6%) of the current year. Sales growth for the prior must be greater than the latter. For HRBN this criterion has been met.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. HRBN's EPS ($0.55) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. HRBN's EPS for this quarter last year ($0.82) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [FAIL] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. HRBN's growth rate of -32.93% fails this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the past four quarters with long-term EPS growth rate. Earnings growth in the past 4 quarters should be at least half of the long-term EPS growth rate. A stock should not be considered if it posted several quarters of skimpy earnings. HRBN had 3 quarters of skimpy growth in the last 2 years.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
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EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [FAIL] If the growth rate of the prior three quarter's earnings, 11.86%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, -32.93%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for HRBN is -32.9%, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [FAIL] The EPS growth rate for the current quarter, -32.93% must be greater than or equal to the historical growth which is 31.29%. Since this is not the case HRBN would therefore fail this test.
EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. HRBN, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.01, 0.91, 1.19, 0.76, and 2.46, fails this test.
LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. HRBN's long-term growth rate of 31.29%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. HRBN's Debt/Equity (27.17%) is not considered high relative to its industry (46.62%) and passes this test.
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Frequently Asked Questions

What is Validea's Guru Analysis? Guru Analysis provides an in depth analysis of any stock using Validea's interpretation of published writings by or about 10 of history's best investors including Peter Lynch, Benjamin Graham, Warren Buffett, James P. O'Shaughnessy, the Motley Fool, David Dreman, John Neff, Kenneth Fisher and Martin Zweig. With Guru Analysis you can analyze any stock step by step using any one of these strategies and can see exactly why the stock passes or fails each methodology. What type of investors can use Validea's Guru Stock Reports? Validea's Guru Stock reports are geared toward long and medium-term investors. The vast majority of the investors that our guru strategies are based upon were long term investors. The reports can be utilized by both value and growth investors because there are multiple methodologies within the report that appeal to each investment style and several that combine both. What does the Validea Rating overall letter grade indicate? The Validea Rating indicates how well the stock meets the investment criteria of the 10 strategies in this report. The strategies with the best historical risk-adjusted performance are weighted more heavily in determining the letter grade. The letter grades are determined as follows.
A - "A" rated stocks receive a score of 90% from at least one of our top tier guru strategies. Our top tier
strategies are based on our interpretation of the published writings of David Dreman, Joseph Piotroski, James P. O'Shaughnessy, John Neff and Martin Zweig. Stocks in this category exhibit the fundamental criteria that have proven most predictive of future stock performance in our historical testing.
B - "B" rated stocks receive a score of 90% from at least one of our second tier guru strategies. Our second
tier strategies are based on our interpretation of the published writings of Peter Lynch, Warren Buffett, Kenneth Fisher and Benjamin Graham. Stocks in this category exhibit the fundamental criteria that is sought by these strategies. These strategies have all exhibited strong risk-adjusted performance in our historical testing.
C - "C" rated stocks have an average score from all of our strategies of at least 25%. Stocks in this category
typically exhibit elements of fundamental strength, but also have some noticeable weaknesses.
D - "D" rated stocks have an average score from all of our strategies between 20% and 25%. Stocks in this
grouping typically have several major fundamental weaknesses that would not be looked upon favorably by both value and growth investors.
F - "F" rated stocks have an average guru score from all of our strategies below 20%. Stocks in this grouping
typically have many major fundamental weaknesses that would eliminate them from any consideration by our guru strategies.
What do the individual guru scores mean? The scores for each strategy represent a weighted percentage of how well a particular stock meets a guru's criteria. Not all criteria are weighted equally and some of our strategies have criteria that are important enough to automatically result in a 0% score if they are failed. For example, in the Patient Investor strategy based on Warren Buffett, a stock will automatically fail if it does not meet the requirement of consistent earnings over the past 10 years. Is there any affiliation between Validea and the gurus that the strategies are based on? No, the names of individual investment advisors (i.e., the 'gurus') appearing in this report are for identification purposes of his/her methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with our reports personally by such gurus, or any knowledge or approval by such persons of the content of this report.
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DISCLAIMER:
The use of the name of a financial analyst, identified as a "guru" represents the interpretation by Validea of that person's key investment analysis principles, as derived from published sources. The use of a guru's name does not mean that he personally endorses, or even agrees with any of the representations made with respect to specific securities as derived by Validea from its interpretation of his or her investment methodology. Validea IS an information service for financial institutions, investors and traders. Validea IS NOT an investment advisor, hence it does not endorse or recommend any securities or other investments. The information in this report is not intended as a recommendation to buy or sell securities. Market prices and certain other information in this report have been carefully compiled from publicly available sources believed to be reliable and are for general informational purposes only. Accuracy or completeness of the information contained herein is not guaranteed and is not intended to be relied upon for transactional purposes. Neither Validea, its publishers, owners, investors, nor any of its data or content providers shall be liable for any errors or delays in the content, or for any actions, losses or damages, monetary or otherwise, taken in reliance of such information, judgments and opinions thereon. Fundamental data provided by Reuters Validea does not make markets in any of the securities mentioned in this report. Validea does not have investment banking relationships with the firm whose security is mentioned in this report, and in general, does not engage in Investment Banking activities/services. Validea and its employees may have long/short positions or holdings in the securities or other related investments of companies mentioned herein (if so, the holdings may, or may not be fully disclosed herein). Officers or Directors of Validea are not Directors or Officers of covered companies, and no-one at a covered company sits on the board of Validea. Neither Validea nor any of its employees own shares equal to one percent or more of the company, or any companies mentioned in this report. Contact Info: Validea.com For More Information: http://www.validea.com Email: info@validea.com
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Company FundamentalsCompany Fundamentals\Company Profile
A Wright Investors' Service Research Report:

COMPANY PROFILE
Figures in U.S. Dollars
Wright Quality Rating:CAA20
440 Wheelers Farms Road Milford, CT 06461 U.S.A.
Key Data Ticker: HRBN 2010 Sales: 426,481,250 Major Industry: Machinery & Equipment Sub Industry: Miscellaneous Machinery & Equipment Country: United States Currency: U.S. Dollars Fiscal Year Ends: December Employees 4,430 Exchanges: NAS Share Type: Common
Harbin Electric, Inc. (Harbin Electric) is a holding company. It designs, develops, manufactures, supplies and services a range of electric motors, including linear motors, specialty micro-motors and industrial rotary motors. It sells its products in China, but also to certain international markets. The Company operates four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full) and Xi'an Tech Full Simo Motor Co., Ltd. (Xi'an Tech Full Simo). The Company offers three product lines: linear motors (LMs) and integrated systems, specialty micro-motors and industrial rotary motors. The Company offers a range of industrial rotary motors, including small, medium, and large-sized motors and some specialized motors, such as high/low voltage motors and speed control motors. The Company acquired Xi'an Tech Full Simo in October 2009. Stock Chart Officers Chairman & Chief Executive Tianfu Yang Chief Financial Officer Zedong Xu Executive Vice President & Secretary Christy Young Shue
Stock Price (9/23/2011): 19.90 Recent stock performance 1 Week -1.9% 4 Weeks 32.0% 13 Weeks 33.1% 52 Weeks 14.4% Earnings / Dividends (as of 6/30/2011) Earnings 0.55 1.88 Ratio Analysis Dividends 0.00 0.00
Market Capitalization: 625,539,943 Total Shares Outstanding: 31,434,168 Closely Held Shares: 10,642,882
Most Recent Qtr Last 12 Months
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Price / Earnings Ratio 10.59 Dividend Yield Price / Sales Ratio Price / Book Ratio 1.47 Payout Ratio
0.00% 0.00%
1.45 % Held by Insiders 33.86% Address Phone +86 86 451-8611-6757 Home Page http://www.harbinelectric.com
Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu, Harbin 150060 UNITED STATES
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45
Company Fundamentals\Comparative Business Analysis

Provided By CorporateInformation.com
Wright Comparative Business Analysis Report

Report Date: 9/23/2011 Company Description Harbin Electric, Inc. (Harbin Electric) is a holding company. It designs, develops, manufactures, supplies and services a range of electric motors, including linear motors, specialty micro-motors and industrial rotary motors. It sells its products in China, but also to certain international markets. The Company operates four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full) and Xi'an Tech Full Simo Motor Co., Ltd. (Xi'an Tech Full Simo). The Company offers three product lines: linear motors (LMs) and integrated systems, specialty micro-motors and industrial rotary motors. The Company offers a range of industrial rotary motors, including small, medium, and large-sized motors and some specialized motors, such as high/low voltage motors and speed control motors. The Company acquired Xi'an Tech Full Simo in October 2009. Competitor Analysis Harbin Electric, Inc. operates in the Motors and generators sector. This analysis compares Harbin Electric with three other companies: Kulicke And Soffa Industries, Inc. (2010 sales of $762.78 million of which 91% was Equipment), American Railcar Industries, Inc. ($273.56 million of which 75% was Manufacturing Operations), and Cascade Corporation ($409.86 million of which 56% was North America). Sales Analysis Harbin Electric reported sales of $426.48 million for the year ending December of 2010. This represents an increase of 91.0% versus 2009, when the company's sales were $223.23 million. Sales at Harbin Electric have increased during each of the previous five years (and since 2005, sales have increased a total of 1,704%).
Recent Sales at Harbin Electric 426
223 121 24 40 65
2005 2006 2007 2008 2009 2010 (Figures in Millions of U.S. Dollars)
Harbin Electric currently has 4,430 employees. With sales of $426.48 million , this equates to sales of US$96,271 per employee. This is a great deal lower than the three comparable companies, which had sales between US$171,191 and US$258,571 per employee. Note that some of the figures stated herein could be distorted based on exact classification of employees and subcontractors. Sales Comparisons (Fiscal Year ending 2010) Company Harbin Electric American Railcar Industries, Inc. Year Ended Sales Sales Sales/ (mlns) Growth Emp (US$) Largest Region 91.0% 96,271 the United States (100.0%) 258,571 Taiwan (29.2%) 171,191 the United States (100.0%)
Dec 2010 426.481
Kulicke And Soffa Industries, Inc. Sep 2010 762.784 238.7% Dec 2010 273.563 -35.4%
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Cascade Corporation
Jan 2011 409.858
30.4%
227,699 the United States (43.5%)
Recent Stock Performance For the 52 weeks ending 9/23/2011, the stock of this company was up 14.4% to $19.90. During the past 13 weeks, the stock has increased 33.1%. During the 12 months ending 6/30/2011, earnings per share totalled $1.88 per share. Thus, the Price / Earnings ratio is 10.59. These 12 month earnings are lower than the earnings per share achieved during the calendar year ending last December, when the company reported earnings of 2.46 per share. Earnings per share rose 219.5% in 2010 from 2009. Note that the earnings number Includes Or Excludes Extraordinary Charge Or Credit. This company is currently trading at 1.47 times sales. This is at a higher ratio than all three comparable companies, which are trading between 0.78 and 1.18 times sales. Harbin Electric is trading at 1.45 times book value. The company's price to book ratio is higher than that of all three comparable companies, which are trading between 1.07 and 1.36 times book value. Summary of company valuations (as of 9/23/2011). Company Harbin Electric Kulicke And Soffa Industries, Inc. American Railcar Industries, Inc. Cascade Corporation P/E 10.6 3.3 N/A 8.8 Price/ Price/ 52 Wk Book Sales Pr Chg 1.45 1.30 1.07 1.36 1.47 14.40% 0.78 37.12% 1.18 10.42% 0.91 7.20%
The market capitalization of this company is $625.54 million . The capitalization of the floating stock (i.e., that which is not closely held) is $413.75 million . Dividend Analysis This company has paid no dividends during the last 12 months. The company has not paid any dividends during the previous 6 calendar years. Profitability Analysis On the $426.48 million in sales reported by the company in 2010, the cost of goods sold totalled $281.10 million, or 65.9% of sales (i.e., the gross profit was 34.1% of sales). This gross profit margin is lower than the company achieved in 2009, when cost of goods sold totalled 63.6% of sales. The gross margin in 2010 was the lowest of the previous five years (in 2007, the gross margin had been as high as 51.2%). There was a wide variation in the gross profit margins at the three comparable companies, from 11.9% of sales to 46.3% of sales. The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were $102.98 million, or 24.1% of sales. This EBITDA margin is worse than the company achieved in 2009, when the EBITDA margin was equal to 27.1% of sales. The three comparable companies had EBITDA margins that were all less (between 2.5% and 22.0%) than that achieved by Harbin Electric. In 2010, earnings before extraordinary items at Harbin Electric were $76.82 million, or 18.0% of sales. This profit margin is an improvement over the level the company achieved in 2009, when the profit margin was 8.8% of sales. The company's return on equity in 2010 was 23.3%. This was significantly better than the 11.2% return the company achieved in 2009. (Extraordinary items have been excluded). Profitability Comparison Gross Earns Profit EBITDA bef. Year Margin Margin extra 2010 2009 34.1% 36.4% 46.3% 11.9% 32.4% 24.1% 18.0% 27.1% 8.8% 22.0% 18.5% 2.5% -9.9% 13.8% 5.2%
Company Harbin Electric Harbin Electric
Kulicke And Soffa Industries, Inc. 2010 American Railcar Industries, Inc. 2010 Cascade Corporation 2011
Inventory Analysis As of December 2010, the value of the company's inventory totalled $62.84 million. Since the cost of goods sold was $281.10 million for the year, the company had 82 days of inventory on hand (another way to look at this is to say that the company turned over its inventory 4.5 times per year). In terms of inventory turnover, this is a
47
significant improvement over December 2009, when the company's inventory was $74.91 million, equivalent to 193 days in inventory. Research and Development Research and Development Expenses at Harbin Electric in 2010 were $3.42 million, which is equivalent to 0.8% of sales. In 2009, Harbin Electric spent $2.09 million on R&D, which was 0.9% of sales. During each of the previous 3 years, the company has increased the amount of money it has spent on Research and Development (in 2007, Harbin Electric spent $1.06 million versus $3.42 million in 2010). Financial Position As of December 2010, the company's long term debt was $50.07 million and total liabilities (i.e., all monies owed) were $151.61 million. The long term debt to equity ratio of the company is 0.12. As of December 2010, the accounts receivable for the company were $87.75 million, which is equivalent to 75 days of sales. This is an improvement over the end of 2009, when Harbin Electric had 164 days of sales in accounts receivable. Financial Positions Company Harbin Electric LT Debt/ Days Days R&D/ Year Equity AR Inv. Sales 2010 0.12 0.31 0.89 0.17 75 94 55 59 82 0.8% 66 7.4% 76 0.0% 88 0.6%
Copyright 2001-2011 The Winthrop Corporation Distributed by Wright Investors' Service, Inc. All Rights Reserved Important Legal Notice
THIS REPORT IS PROVIDED FOR GENERAL INFORMATION ONLY, IS NOT TO BE CONSIDERED AS INVESTMENT ADVICE AND SHOULD NOT BE RELIED UPON FOR INVESTMENT DECISIONS. NO REPRESENTATION OR WARRANTY IS MADE REGARDING THE ACCURACY, RELIABILITY OR TIMELINESS OF THE CONTENT. THE REPORTS ARE COMPUTER GENERATED AND MAY BE SUBJECT TO PROGRAMMATIC AND/OR CONTENT ERRORS. VISITORS SHOULD VERIFY INFORMATION WITH OTHER RELIABLE SOURCES. THIS REPORT IS PROVIDED AS IS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. IN NO EVENT WILL THE WINTHROP CORPORATION, WRIGHT INVESTORS' SERVICE, INC. OR ANY OF THEIR DATA PROVIDERS BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, NO MATTER WHAT THE CAUSE. THE CONTENT OF THIS REPORT IS PROTECTED BY APPLICABLE COPYRIGHT LAWS. CONTENT MAY NOT BE REPRODUCED, DISTRIBUTED, MODIFIED OR FRAMED WITHOUT PRIOR WRITTEN PERMISSION.
48
Company Fundamentals\Summary Analysis
SUMMARY ANALYSIS:
Per Share- U.S. Dollars
Price

Equity Capital Earnings 12 Book Month Value Earnings Begin Per % Yr Share Change n/a 1.48 2.65 4.50 7.77
D AD D AD AD AD
Year
Value Ratios
Dividends
Calendar Year 2005 2006 2007 2008 2009 2010 9/23/2011
Market Price/ Price/ Price Earnings Book Dividend Last Ratio Ratio Yield 8.10 8.05 25.94 7.99 20.54 17.35 19.90 12.3 8.0 28.5 6.7 26.7 7.1 10.6 n/c 5.4 9.8 1.8 2.6 1.7 1.5
% Earned Growth
% Profit Rate (ROE)
12 Month % Dividends Payout Per Ratio Share 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.0% 10,280.4% 10,280.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 68.1% 34.4% 26.5% 9.9% 23.8% n/a 68.1% 34.4% 26.5% 9.9%
0.66 1.01 0.91 1.19
n/c 53.0% -9.9% 30.8%
0.77 -35.3% 2.46 219.5% 1.88 n/c
23.8% 10.34 n/a 13.38
(A): INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT - INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT, INCLS $.26 PRETAX CR & $.97 PRETAX CHG IN 2009 ($.04 PRETAX CHG DEC, $.16 PRETAX CR & $.38 PRETAX CHG SEP, $.55 PRETAX CHG JUN & $.10 PRETAX CR MAR), INCLS $.02 PRETAX CR & $.04 PRETAX CHG IN 2008 ($.04 PRETAX CHG DEC, $.01PRETAX CR SEP, NOM PRETAX CR JUN & $.01 PRETAX CR MAR), INCLS$.03 PRETAX CR IN DEC 2006 (B): YEAR END CHANGED FROM JUL IN 2004 (C): NAME CHANGED FROM TORCH EXECUTIVE SERVICES LTD (D): BASED ON FULLY DILUTED SHARES (E): A DEVELOPMENT STAGE COMPANY, A DEVELOPMENT STAGE COMPANY REFLECTS 1 MONTH OF DATA
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Company Fundamentals\Sales Analysis
SALES ANALYSIS:
Figures in thousands of U.S. Dollars

Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) Amount in thousands
Sales Amount in thousands 23,644 40,416 65,403 120,820 223,234 426,481
Cost of Goods Sold
After Tax Income before Extraordinary Charges and Credits Amount in thousands
Employees After Tax Sales Income Per Per Number Employee Employee 180 270 490 2,000 4,900 4,430 131,354 149,688 133,475 60,410 45,558 96,271 55,556 68,291 34,495 12,689 4,010 17,340
Year 2005 2006 2007 2008 2009 2010
YearAmount to-year in Growth thousands n/c 70.9% 61.8% 84.7% 84.8% 91.0%
% of Sales
% of Sales
% of Sales
11,728 49.6% 20,089 49.7% 31,891 48.8% 70,702 58.5% 141,892 63.6% 281,102 65.9%
10,357 43.8% 21,554 53.3% 24,600 37.6% 38,899 32.2% 48,809 21.9% 109,030 25.6%
10,000 42.3% 18,439 45.6% 16,903 25.8% 25,379 21.0% 19,647 8.8%
76,815 18.0%
50
Company Fundamentals\Price Analysis
PRICE ANALYSIS:

High Price 4.000 3.920 4.650 8.750 11.740 13.480 12.000 9.900 13.700 Low Price 2.850 3.000 2.800 4.000 7.250 9.250 8.300 7.150 8.010 Closing Quarterly 12 months Price %Change %Change 3.450 3.180 4.250 8.100 11.500 11.000 9.500 8.050 12.550 16.500 16.250 25.940 13.100 14.210 11.850 7.990 6.150 15.640 16.880 20.540 21.590 16.650 17.890 17.350 20.690 15.120 19.900 n/a -7.8% 33.6% 90.6% 42.0% -4.3% -13.6% -15.3% 55.9% 31.5% -1.5% 59.6% -49.5% 8.5% -16.6% -32.6% -23.0% 154.3% 7.9% 21.7% 5.1% -22.9% 7.4% -3.0% 19.3% -26.9% 33.1% n/a n/a n/a n/a 233.3% 245.9% 123.5% -0.6% 9.1% 50.0% 71.1% 222.2% 4.4% -13.9% -27.1% -69.2% -53.1% 10.1% 42.4% 157.1% 251.1% 6.5% 6.0% -15.5% -4.2% -9.2% 14.4%
Quarter 2005 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2006 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2007 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2009 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2010 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2011 Jan - Mar Apr - Jun 9/23/2011
17.700 12.060 16.960 11.700 27.650 14.760 28.000 12.900 19.250 12.910 16.910 11.030 12.440 8.900 16.890 4.700 4.250 6.000
18.550 12.110 22.910 15.361 26.000 16.790 24.280 15.460 20.500 15.260 25.050 14.950 20.840 16.000 21.500 5.820
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52
Company Fundamentals\Earnings & Dividends Analysis
EARNINGS AND DIVIDENDS ANALYSIS:

Per Share- U.S. Dollars Fiscal Year Ends in December
Earnings Per Share 12 Months Calendar % Years Earnings Change 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (A):
E BCE
Dividends Per Share 12 Months % Dividends Change n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c Quarterly Reported Dividends Q1 Mar. n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Q2 Jun. n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a Q3 Sep. n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a Q4 Dec. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a % Payout n/c 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 0.0% n/c
Quarterly Reported Earnings Q1 Mar. n/a n/a n/a 0.12 0.21 0.20 0.27 0.34 0.66 0.34 Q2 Jun. n/a n/a n/a 0.18 0.20 0.24 0.31 -0.21 0.82 0.55 Q3 Sep. n/a n/a n/a 0.19 0.23 0.26 0.34 -0.07 0.57 n/a Q4 Dec. n/a n/a 0.12 0.17 0.37 0.21 0.27 0.71 0.41 n/a
n/a n/a n/a D 0.66 AD 1.01 D 0.91 AD 1.19
n/c n/c n/c n/c 53.0% -9.9% 30.8%
AD 0.77 -35.3% AD 2.46 219.5% n/a n/c
INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT - INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT, INCLS $.26 PRETAX CR & $.97 PRETAX CHG IN 2009 ($.04 PRETAX CHG DEC, $.16 PRETAX CR & $.38 PRETAX CHG SEP, $.55 PRETAX CHG JUN & $.10 PRETAX CR MAR), INCLS $.02 PRETAX CR & $.04 PRETAX CHG IN 2008 ($.04 PRETAX CHG DEC, $.01PRETAX CR SEP, NOM PRETAX CR JUN & $.01 PRETAX CR MAR), INCLS$.03 PRETAX CR IN DEC 2006
(B): (C): (D): (E):
YEAR END CHANGED FROM JUL IN 2004 NAME CHANGED FROM TORCH EXECUTIVE SERVICES LTD BASED ON FULLY DILUTED SHARES A DEVELOPMENT STAGE COMPANY, A DEVELOPMENT STAGE COMPANY REFLECTS 1 MONTH OF DATA
53
Financial Statement AnalysesFinancial Statement Analyses\Balance Sheet - Common Size
Balance Sheet - (Common Size): Harbin
Electric, Inc.
2009 2008 2007 2006
Figures are expressed as Percent of Total Assets. Total Assets are in millions of U.S. Dollars.
Fiscal Year Fiscal Year End Date Assets Total Assets Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Inventories -Total Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investment in Associated Companies Other Investments Property Plant and Equipment - Gross Accumulated Depreciation Property Plant and Equipment Net Other Assets Deferred Charges
2010
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006
574.3 17.4%
531.0 18.2%
235.5 20.8%
132.6 34.3%
93.0 72.4%
15.3% 10.9% 1.5% 3.6% 6.2% -0.4% 2.8% 0.4% 46.8% 0.0% 0.0% 0.0% 32.2% 2.1% 30.1% 23.1% 0.1%
18.9% 14.1% 2.2% 5.4% 8.2% -1.7% 2.2% 0.0% 53.4% 0.0% 0.0%
13.6% 9.3% 1.1% 3.4% 4.8% 0.0% 1.5% 0.0% 45.2% 0.0% 0.0% 0.4%
17.7% 1.9% 0.7% 0.6% 0.6% 0.0% 1.3% 0.0% 55.3% 0.1% 0.0% 0.8% 19.1% 1.1% 18.0% 25.8% 1.7%
9.6% 0.6% 0.5% 0.1% 0.0% 0.0% 0.9% 0.0% 83.5% 0.0% 0.0% 0.0% 10.8% 0.9% 9.9% 6.6% 3.0%
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30.6% 1.1% 29.4% 17.2% 0.1%
41.5% 1.2% 40.3% 14.1% 0.7%
Tangible Other Assets Intangible Other Assets Total Assets Liabilities & Shareholders' Equity Total Liabilities & Shareholders' Equity Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision for Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Deferred Tax Liability in Untaxed Reserves Other Liabilities Total Liabilities Non-Equity Reserves Minority Interest
9.4% 13.6% 100.0%
2.9% 14.2% 100.0%
5.4% 7.9% 100.0%
19.7% 4.4% 100.0%
2.9% 0.7% 100.0%
574.3 4.7% 5.5%
531.0 10.5% 10.7%
235.5 3.6% 2.2%
132.6 1.3% 0.0%
93.0 0.7% 0.0%
1.4% 0.0% 5.8% 17.4% 8.7% 8.7% 0.0%
1.6% 0.0% 9.5% 32.3% 0.8% 0.8% 0.0%
0.9% 0.0% 2.1% 8.8% 14.3% 14.3% 0.0%
0.6% 0.0% 1.2% 3.1% 25.0% 25.0% 0.0%
0.6% 0.0% 1.7% 3.0% 30.8% 30.8% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.3% 26.4% 0.0% 0.5%
0.9% 34.0% 0.0% 4.0%
2.8% 25.8% 0.0% 0.0%
8.2% 36.2% 0.0% 0.0%
17.8% 51.6% 0.0% 0.0%

55
Preferred Stock Preferred Stock Issued for ESOP ESOP Guarantees Preferred Issued Common Equity Total Liabilities & Shareholders' Equity
0.0% 0.0% 0.0% 73.1% 100.0%
0.0% 0.0% 0.0% 62.0% 100.0%
0.0% 0.0% 0.0% 74.2% 100.0%
0.0% 0.0% 0.0% 63.8% 100.0%
0.0% 0.0% 0.0% 48.4% 100.0%
56
Financial Statement Analyses\Balance Sheet - Year-Year % Change
Balance Sheet - (Year to Year Percent Change): Harbin

Figures are the Percent Changes from the Prior Year.
Electric, Inc.
2007 2006
2010
2009
2008
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006
8.2% 3.5%
125.5% 97.1%
77.5% 7.4%
42.7% -32.4%
274.9% 898.0%
-12.5% -16.1% -26.7% -26.8% -18.1%
213.4% 241.1% 337.6% 256.4% 286.1%
35.9% 754.2% 192.1% 906.2% 1,222.4%
164.5% 340.8% 113.6% 558.7% 2,750.5%
3.7% -56.6% 336.5% -35.8% -97.2%
35.6%
232.0%
99.2%
112.3% 20,275.7%
-5.1%
166.3%
44.9% -100.0%
-5.4%
365.5%
0.0% 13.8% 94.6% 10.7% 45.1% 38.3% 66.0% 109.4% 64.7% 175.3% -78.5% 286.6% 101.1% 297.9% -3.1% -24.5% 152.8% 83.0% 158.8% 460.5% -19.7% 21.6% 76.5% 18.5% 1,722.6%
57
250.1% 3.3% 8.2%
20.4% 303.9% 125.5%
-51.1% 217.0% 77.5%
863.8% 821.4% 42.7% 91.1% 274.9%
8.2% -52.0% -44.2%
125.5% 565.3% 987.5%
77.5% 398.3%
42.7% 153.8%
274.9% 252.0%
-0.3%
292.7%
149.8%
50.7%
-34.1% -41.7% 1,037.7% 1,037.7%
909.2% 726.9% -86.9% -86.9%
225.8% 409.8% 1.5% 1.5%
-0.7% 48,170.7% 46.8% 15.9% 15.9% 1,341.4%
-67.0% -16.0%
-28.8% 196.6%
-40.1% 26.7%
-34.5% 0.2% 24,832.0%
-86.6%
58
Preferred Stock Preferred Stock Issued for ESOP ESOP Guarantees Preferred Issued Common Equity Total Liabilities & Shareholders' Equity 27.5% 8.2% 88.5% 125.5% 106.4% 77.5% 87.9% 42.7% 83.0% 274.9%
59
Financial Statement Analyses\Balance Sheet - Five-Year Averages
Balance Sheet - (5 Year Averages): Harbin

Figures in millions of U.S. Dollars.
Electric, Inc.
2008 2007 2006
2010
2009
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006
313.3 71.6
203.4 53.0
97.2 33.7
50.1 23.9
50.5 32.6 4.9 11.6 18.3 -2.2 6.7 0.5 161.9 0.0 0.0
34.7 20.3 3.2 7.5 11.4 -1.8 3.6 0.0 111.5 0.0 0.0
14.6 5.3 0.8 1.8 2.6 0.0 1.2 0.0 54.8 0.0 0.0 0.4
8.2 0.9 0.3 0.2 0.4 0.0 0.5 0.0 33.6 0.0 0.0 0.2 8.7 0.5 8.2 8.1 1.0
96.1 4.6 91.5 59.4 1.5
60.8 2.3 58.4 33.0 1.4
28.3 1.1 27.2 14.8 1.3
60
22.2 35.8 313.3
11.4 20.2 203.4
8.3 5.1 97.2
5.8 1.4 50.1
313.3 18.7 18.7
203.4 13.4 12.4
97.2 2.2
50.1 0.5
4.0 0.0 18.4 59.8 30.0 30.0 0.0
2.3 0.0 11.7 39.8 19.9 19.9 0.0
0.7 0.0 1.6 5.6 19.1 19.1
0.3 0.0 0.6 1.4 12.3 12.3
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
8.0 97.8 0.0 4.8
7.7 67.5 0.0 4.3
6.8 31.4 0.0 0.0
5.5 19.2 0.0 0.0

61
0.0 0.0 0.0 210.7 313.3
0.0 0.0 0.0 131.6 203.4
0.0 0.0 0.0 65.8 97.2
0.0 0.0 0.0 30.9 50.1
62
Financial Statement Analyses\Income Statement - Common Size
Income Statement - (Common Size): Harbin
Electric, Inc.
2010 426.5 2009 223.2 2008 120.8 2007 65.4 2006 40.4
Figures are expressed as Percent of Net Sales or Revenues. Net Sales or Revenues are in millions of U.S. Dollars.
Fiscal Year Net Sales or Revenues Cost of Goods Sold Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Reserves - Increase/Decrease Pretax Equity in Earnings Other Income/Expense - Net Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) Earnings before Interest & Taxes(EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Minority Interest Equity in Earnings After Tax Other Income/Expense Discontinued Operations Net Income before Extraordinary Items/Preferred Dividends
65.9% 63.6% 58.5% 48.8% 49.7% 2.3% 2.1% 2.2% 1.6% 1.6%
31.8% 34.3% 39.3% 49.6% 48.6% 9.9% 0.0% 9.2% 10.8% 13.3% 14.0% 0.1% 0.0% 0.0% 0.0%
78.1% 75.0% 71.5% 63.7% 65.4% 21.9% 25.0% 28.5% 36.3% 34.6% 0.1% 0.1% 0.2% 0.0% 0.0% 1.9% 5.9% 0.4% 0.0% 0.0% 0.0% 0.4% 0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
1.3% -1.6%
1.3% -0.3% 17.1%
25.6% 21.9% 32.2% 37.6% 53.3% 23.3% 19.7% 30.0% 36.0% 51.7% 1.2% 0.0% 5.9% 0.0% 5.3% 10.1% 0.0% 0.0% 6.1% 0.0%
22.1% 13.9% 24.7% 25.8% 45.6% 3.5% 0.6% 0.0% 0.0% 0.0% 18.0% 3.5% 1.6% 0.0% 0.0% 0.0% 3.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
8.8% 21.0% 25.8% 45.6%

63
Extraordinary Items & Gain/Loss Sale of Assets Preferred Dividend Requirements Net Income after Preferred Dividends - available to Common
0.0% 0.0% 18.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
8.8% 21.0% 25.8% 45.6%
64
Financial Statement Analyses\Income Statement - Year-Year % Change
Income Statement - (Year to Year Percent Change): Harbin

Electric, Inc.
2008 84.7% 2007 61.8% 58.7% 62.0% 65.0% 2006 70.9% 71.3% 86.6% 70.1%
Fiscal Year Net Sales or Revenues Cost of Goods Sold Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Reserves - Increase/Decrease Pretax Equity in Earnings Other Income/Expense - Net Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) Earnings before Interest & Taxes(EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Minority Interest Equity in Earnings After Tax Other Income/Expense Discontinued Operations
2010 91.0% 98.1% 104.4% 77.1% 105.6% 100.0% 99.0% 67.1% -86.2%
2009 84.8%
100.7% 121.7% 79.1% 145.2% 61.4% 57.6% 46.4% 50.0%
53.9% 255.2% 100.0%
93.7% 107.3% 62.4% 45.0%
57.8% 69.4%
93.1% 40.4%
-95.3% 2,342.5% -21.7% 10.5% 100.0%
-330.2% 123.4% 125.4% -60.4% 25.5% 21.6% 106.8% 58.1% 54.1%
102.7% 14.1% 108.1% 12.6% 108.9%
-4.0% 170.2%
204.4% 91.3% -30.3%
3.5% 72.3%
76.9%
-8.3%
84.4%
65
Net Income before Extraordinary Items/Preferred Dividends Extraordinary Items & Gain/Loss Sale of Assets Preferred Dividend Requirements Net Income after Preferred Dividends available to Common
291.0%
-22.6%
50.1%
-8.3%
84.4%
291.0%
-22.6%
50.1%
-8.3%
84.4%
66
Financial Statement Analyses\Income Statement - Five-Year Averages
Income Statement - (5 Year Averages): Harbin

Electric, Inc.
2010 2009 2008 2007 2006 175.3 94.7 50.1 25.9 109.1 55.3 26.9 12.7 3.8 1.9 0.9 0.4
Fiscal Year Net Sales or Revenues Cost of Goods Sold Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Reserves - Increase/Decrease Pretax Equity in Earnings Other Income/Expense - Net Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) Earnings before Interest & Taxes(EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Minority Interest Equity in Earnings After Tax Other Income/Expense Discontinued Operations Net Income before Extraordinary Items/Preferred Dividends Extraordinary Items & Gain/Loss Sale of Assets
62.4 37.5 22.2 12.7 18.1 0.0 9.9 0.0 5.8 0.0 3.2 0.0
131.0 67.1 33.6 16.4 44.3 27.6 16.4 0.9 2.9 0.5 0.0 0.0 2.0 0.8 2.8 0.4 0.0 0.0 0.9 0.0 0.1 0.2 0.0 0.0 1.7 0.0 0.0 0.0 1.3 9.5
48.6 28.8 44.8 26.9 6.8 0.0 5.7 0.0 0.0 0.0 9.1 0.0 0.0 0.0 0.0 0.0 9.1 0.0
67
38.1 21.2 15.0 5.4 1.2 0.0 0.0 0.0 2.5 0.7 0.0 0.0 0.0 0.9 0.0 0.0 0.0 0.0
31.4 18.1 14.1 0.0 0.0 0.0
Preferred Dividend Requirements Net Income after Preferred Dividends - available to Common
0.0
0.0
0.0
0.0 9.1
31.4 18.1 14.1
68
Financial Statement Analyses\Sources of Capital - Net Change
Sources of Capital: Harbin
Electric, Inc.
2010 2009 2008 2007 2006
Currency figures are in millions of U.S. Dollars. Year to year % changes pertain to reported Balance Sheet values.
Fiscal Year Fiscal Year End Date Total Capital Percent of Total Capital Short Term Debt Long Term Debt Other Liabilities Total Liabilities Minority Interest Preferred Stock Retained Earnings Common Equity Total Capital Year to Year Net Changes Short Term Debt Long Term Debt Other Liabilities Total Liabilities Minority Interest Preferred Stock Retained Earnings Common Equity Total Capital Year to Year Percent Changes Short Term Debt Long Term Debt
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 472.8 354.9 208.3 117.7 73.6
6.7% 10.6% 0.3% 32.1% 0.6% 0.0% 28.8% 88.8% 100.0%
16.0% 1.2% 1.3% 50.8% 6.0% 0.0% 19.6% 92.8% 100.0%
2.5% 16.1% 3.1% 29.2% 0.0% 0.0% 25.0% 83.9% 100.0%
0.0% 28.1% 9.2% 40.8% 0.0% 0.0% 27.4% 71.9% 100.0%
0.0% 38.8% 22.5% 65.1% 0.0% 0.0% 35.6% 61.2% 100.0%
-2.5 4.6 -0.3 -2.9 -1.8 0.0 6.7 9.1 11.8
5.1 -2.9 -0.2 12.0 2.1 0.0 1.7 15.5 14.7
0.5 0.0 -0.4 1.3 0.0 0.0 2.0 9.0 9.1
0.0 0.5 -0.6 0.0 0.0 0.0 0.6 4.0 4.4
0.0 2.9 1.7 4.8 0.0 0.0 1.6 2.0 4.9
-44.2% 1,037.7%
987.5% -86.9% 1.5% 15.9%

69
Other Liabilities Total Liabilities Minority Interest Preferred Stock Retained Earnings Common Equity Total Capital Total Liabilities & Common Equity Total Liabilities Net Change in Liabilities as % of Total Liabilities Common Equity Net Change in Common Equity as % of Common Equity Cash Flow Operating Activities Financing Activities Investing Activities
-67.0% -16.0% -86.6%
-28.8% 196.6%
-40.1% 26.7%
-34.5% 0.2% 24,832.0%
95.6% 27.5% 33.2%
33.6% 88.5% 70.4%
61.4% 106.4% 76.9%
23.1% 87.9% 59.9%
150.7% 83.0% 199.2%
151.6 -19.0% 419.9 21.6%
180.5 66.3% 329.2 46.9%
60.8 21.0% 174.6 51.6%
48.0 0.2% 84.6 46.8%
47.9 99.6% 45.0 45.4%
93.3 22.8 111.5
62.5 71.2 89.1
42.3 39.2 81.1
9.1 0.7 36.0
16.9 47.1 4.5
70
Financial Ratio AnalysesFinancial Ratio Analyses\Accounting Ratios
Accounting Ratios: Harbin Fiscal Year Fiscal Year End Date Receivables Turnover Receivables - Number of Days Inventory Turnover Inventory - Number of Days Gross Property, Plant & Equipment Turnover Net Property, Plant & Equipment Turnover Depreciation, Depletion & Amortization % of Gross Property, Plant & Equipment Depreciation, Depletion & Amortization Year to Year Change Depreciation, Depletion & Amortization Year to Year % Change
Electric, Inc.
2010 2009 2008 2007 2006 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 4.9 80.4 4.1 89.4 2.3 2.5 2.2 108.1 2.9 124.6 1.4 1.4 3.8 83.9 5.8 63.3 1.2 1.3 2.8 90.5 20.2 18.1 2.6 2.7 4.5 79.0 20.9 17.5 4.0 4.4
5.2%
2.9%
2.7%
4.3%
6.6%
0.5
0.2
0.2
0.0
0.0
104.4%
79.1%
145.2%
62.0%
86.6%
71
Financial Ratio Analyses\Asset Utilization
Asset Utilization: Harbin
Electric, Inc.
2010 2009 2008 2007 2006
Figures are expressed as the ratio of Net Sales. Net Sales are in millions of U.S. Dollars.
Fiscal Year Fiscal Year End Date Net Sales Cash & Cash Equivalents Short-Term Investments Accounts Receivable Inventories Other Current Assets Total Current Assets Total Long Term Receivables & Investments Long Term Receivables Investments in Associated Companies Other Investments Property, Plant & Equipment Gross Accumulated Depreciation Property Plant & Equipment Net Other Assets Total Assets
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 426.5 23.4% 223.2 43.2% 120.8 40.5% 65.4 69.6% 40.4 166.6%
20.6% 14.7% 0.6% 63.0% 0.0% 0.0% 0.0% 0.0% 43.4% 2.8% 40.6% 31.1% 134.7%
44.9% 33.6% 0.0% 126.9% 0.0% 0.0% 0.0%
26.5% 18.2% 0.0% 88.1% 0.8% 0.0% 0.0% 0.8%
36.0% 3.9% 0.0% 112.3% 1.8% 0.2% 0.0% 1.5% 38.7% 2.2% 36.5% 52.3% 202.8%
22.0% 1.4% 0.0% 192.1% 0.0% 0.0% 0.0% 0.0% 24.8% 2.0% 22.8% 15.1% 230.0%
72.8% 2.7% 70.0% 40.9% 237.8%
81.0% 2.4% 78.6% 27.4% 194.9%
72
Financial Ratio Analyses\Fixed Charges Coverage
Fixed Charges Coverage: Harbin Fiscal Year Fiscal Year End Date EBIT/Total Interest Expense EBIT/Net Interest EBIT/(Total Interest Exp + Pfd Div) EBIT/Dividends on Common Shares EBIT/(Dividends on Common + Pfd) EBITDA/Total Interest Expense EBITDA/Net Interest EBITDA/(Total Interest Exp + Pfd Div) EBITDA/Dividends on Com Shares EBITDA/(Dividends on Com + Pfd)
Electric, Inc.
2009 2008 2007 2006
2010
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 19.1 22.2 19.1 3.4 3.6 3.4 293.7 293.7 21.0 24.3 21.0 3.7 4.0 3.7 325.2 325.2 6.1 7.0 6.1 3.7 3.7 3.7 8.8 8.8 8.8 5.7 6.6 5.7 3.6 3.6 3.6 8.5 8.5 8.5
73
Financial Ratio Analyses\Leverage Analysis
Leverage Analysis: Harbin Fiscal Year Fiscal Year End Date Long Term Debt % of EBIT Long Term Debt % of EBITDA Long Term Debt % of Total Assets Long Term Debt % of Total Capital Long Term Debt % of Com Equity Total Debt % of EBIT Total Debt % of EBITDA Total Debt % of Total Assets Total Debt % of Total Capital Total Debt % of Total Capital & Short Term Debt Total Debt % of Common Equity Minority Interest % of EBIT Minority Interest % of EBITDA Minority Interest % of Total Assets Minority Interest % of Total Capital Minority Interest % of Com Equity Preferred Stock % of EBIT Preferred Stock % of EDITDA Preferred Stock % of Total Assets
Electric, Inc.
2010 2009 2008 2007 2006 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 50.4% 45.9% 8.7% 10.6% 11.9% 82.2% 74.9% 14.2% 17.3% 16.2% 19.5% 2.9% 2.6% 0.5% 0.6% 0.7% 0.0% 0.0% 0.0% 10.0% 9.0% 0.8% 1.2% 1.3% 138.5% 125.0% 11.5% 17.2% 14.8% 18.5% 48.3% 43.6% 4.0% 6.0% 6.5% 0.0% 0.0% 0.0% 92.7% 86.4% 14.3% 16.1% 19.2% 107.1% 99.8% 16.5% 18.6% 18.2% 22.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 140.8% 134.6% 25.0% 28.1% 39.1% 140.8% 134.6% 25.0% 28.1% 28.1% 39.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 136.9% 132.6% 30.8% 38.8% 63.5% 136.9% 132.6% 30.8% 38.8% 38.8% 63.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
74
Preferred Stock % of Total Capital Preferred Stock % of Total Equity Common Equity % of Total Assets Common Equity % of Total Capital Total Capital % of Total Assets Capital Expenditure % of Sales Fixed Assets % of Common Equity Working Capital % of Total Capital Dividend Payout Funds From Operations % of Total Debt
0.0% 0.0% 73.1% 88.8% 82.3% 4.6% 41.2% 35.7% 0.0% 124.0%
0.0% 0.0% 62.0% 92.8% 66.8% 3.8% 47.5% 31.5% 0.8% 98.6%
0.0% 0.0% 74.2% 83.9% 88.4% 13.3% 54.4% 41.1% 0.0% 91.1%
0.0% 0.0% 63.8% 71.9% 88.8% 18.6% 28.2% 58.9% 0.0% 72.5%
0.0% 0.0% 48.4% 61.2% 79.2% 3.9% 20.5% 101.7% 0.0% 51.1%
75
Financial Ratio Analyses\Liquidity Analysis
Liquidity Analysis: Harbin Fiscal Year Fiscal Year End Date Total Current Assets % Net Sales Cash % of Current Assets Cash & Equivalents % of Current Assets Quick Ratio Receivables % of Current Assets Receivable Turnover number of days Inventories % of Current Assets Inventory Turnover - number of days Inventory to Cash & Equivalents - number of days Receivables % of Total Assets Current Ratio Total Debt % of Total Capital Funds from Operations % of Current Liabilities Funds from Operations % of Long Term Debt Funds from Operations % of Total Debt Funds from Operations % of Total Capital Cash Flow (in milllions of U.S. Dollars) Operating Activities
Electric, Inc.
2010 2009 2008 2007 2006 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 63.0% 126.9% 88.1% 112.3% 192.1%
37.1% 1.9 32.6% 80.4 23.4% 89.4 571.8 15.3% 2.7 16.2% 101.3% 202.3% 124.0% 21.4%
34.0% 1.1 35.4% 108.1 26.4% 124.6 463.4 18.9% 1.7 14.8% 35.1% 1,367.4% 98.6% 17.0%
46.0% 3.9 30.1% 83.9 20.6% 63.3 802.1 13.6% 5.1 18.2% 170.6% 105.2% 91.1% 17.0%
62.0% 17.0 32.1% 90.5 3.5% 18.1 6,376.0 17.7% 18.1 28.1% 590.3% 72.5% 72.5% 20.4%
86.7% 27.5 11.5% 79.0 0.8% 17.5 41,545.6 9.6% 28.0 38.8% 527.4% 51.1% 51.1% 19.9%
93.3
62.5
42.3
9.1
16.9
76
Financing Activities Investing Activities
22.8 111.5
71.2 89.1
39.2 81.1
0.7 36.0
47.1 4.5
77
Financial Ratio Analyses\Per-Share Ratios
Per Share Data: Harbin
Electric, Inc.
2010 2009 2008 2007 2006
Figures are expressed as per unit of respective shares. Figures are in U.S. Dollars.
Fiscal Year Fiscal Year End Date Sales Operating Income Pre-tax Income Net Income (Continuing Operations) Net Income Before Extra Items Extraordinary Items Net Income After Extraordinary Items Net Income Available to Common Shares Fully Diluted Earnings Common Dividends Cash Earnings Book Value Retained Earnings Assets
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 13.65 2.99 3.01 2.46 2.46 0.00 2.46 2.46 2.46 0.00 3.24 13.38 4.36 18.38 7.19 1.80 1.00 0.63 0.63 0.00 0.63 0.77 0.77 0.00 2.35 10.34 2.24 17.09 5.47 1.56 1.35 1.15 1.15 0.00 1.15 1.19 1.19 0.00 1.66 7.77 2.36 10.65 3.60 1.31 0.93 0.93 0.93 0.00 0.93 0.91 0.91 0.00 1.29 4.50 1.78 7.31 2.43 0.84 1.11 1.11 1.11 0.00 1.11 1.01 1.01 0.00 0.80 2.65 1.58 5.60
78
Financial Ratio Analyses\Profitability Growth
Profitability Analysis: Harbin

Currency figures are in U.S. Dollars.
Electric, Inc.
2010 2009 2008 2007 2006
Fiscal Year Fiscal Year End Date Gross Income Margin Operating Income Margin Pretax Income Margin EBIT Margin Net Income Margin Return on Equity - Total Return on Invested Capital Return on Assets Asset Turnover Financial Leverage Interest Expense on Debt Effective Tax Rate Cash Flow % Sales Selling, General & Administrative Expenses % of Sales Research & Development Expense Operating Income Return On Total Capital
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 31.8% 21.9% 22.1% 23.3% 18.0% 20.5% 17.5% 14.5% 0.7 19.5% 34.3% 25.0% 13.9% 19.7% 8.8% 7.8% 9.0% 7.4% 0.4 18.5% 39.3% 28.5% 24.7% 30.0% 21.0% 19.6% 17.8% 16.0% 0.5 22.2% 6,355,334 15.1% 29.3% 10.8% 49.6% 36.3% 25.8% 36.0% 25.8% 26.1% 22.2% 18.8% 0.5 39.1% 6,619,954 0.0% 36.7% 13.3% 48.6% 34.6% 45.6% 51.7% 45.6% 53.0% 40.8% 34.0% 0.4 63.5% 2,450,248 0.0% 36.2% 14.0%
5,200,833 13,144,382 15.8% 23.8% 9.9% 25.2% 27.0% 9.2%
0.8% 33.2%
0.9% 70.4%
1.0% 76.9%
1.6% 59.9%
3.7% 199.2%
79
Wright Quality Rating AnalysesWright Quality Rating Analyses\Investment Acceptance
Wright Quality Rating - Investment Acceptance: Harbin

Currency figures are in millions of U.S. Dollars.
Wright Quality Rating
Electric, Inc.
CAA20 CAA20
508 626 336 414 2,271 5,312 447.5% 849.2% NAS 118 34 33.9%
Investment Acceptance Rating Total Market Value of Shares Outstanding - Three Year Average - Current Year Public Market Value (Excludes Closely Held) - Three Year Average - Current Year Trading Volume - Three Year Average - Current Year Turnover Rate - Three Year Average - Current Year Stock Exchange Listings Number of Institutional Investors Number of Shareholders Closely Held Shares as % of Total Shares Outstanding
80
Wright Quality Rating Analyses\Financial Strength
Wright Quality Rating - Financial Strength: Harbin Wright Quality Rating Financial Strength Rating Total Shareholders' Equity (Millions of U.S. Dollars) Total Shareholders' Equity as % Total Capital Preferred Stock as % of Total Capital Long Term Debt as % of Total Capital Long Term Debt (Millions of U.S. Dollars) Lease Obligations (Millions of U.S. Dollars)
Electric, Inc.
C C
AA20 AA20
458 89.6% 0.0% 9.9% 50 0 50 21.3% 19.1 22.2 1.6 2.2
Long Term Debt including Leases (Millions of U.S. Dollars) Total Debt as % of Total Capital Fixed Charge Coverage Ratio: Pretax Income to Interest Expense & Preferred Dividends Fixed Charge Coverage Ratio: Pretax Income to Net Interest Income & Preferred Dividends Quick Ratio (Cash & Receivables / Current Liabilities) Current Ratio (Current Assets / Current Liabilities)
81
Wright Quality Rating Analyses\Profitability & Stability
Wright Quality Rating - Profitability & Stability: Harbin Wright Quality Rating Profitability & Stability Rating
Electric, Inc.
CA CA
A20 A20
20.6% -4.0% 32.5% -4.0% 89.8% 99.0% 16.7% 17.6%
Profit Rate of Earnings on Equity Capital - Time-Weighted Normal - Basic Trend Cash Earnings Return on Equity - Time-Weighted Average - Basic Trend Cash Earnings Return on Equity - Stability Index Return On Assets (Time-Weighted Average) Pre-Tax Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Capital (Adjusted Rate) Pre-Tax Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Capital (Adjusted Rate)
1,657.2% 16.7% 17.6% 1,657.2%
82
Wright Quality Rating Analyses\Corporate Growth
Wright Quality Rating - Corporate Growth: Harbin

Figures are expressed on a Per Share Basis.
Electric, Inc.
CAA CAA
Wright Quality Rating Growth Rating Normal Earnings Growth Cash Earnings Growth Cash Earnings Stability Index Earned Equity Growth Dividend Growth Operating Income Growth Assets Growth Sales/Revenues Growth
20 20
20.0% 25.0% 91.3% 20.6% 0.0% 25.0% 25.0% 25.0%
83
VgluEngine
TM
The Leader in Stock Valuation and Forecasting
DETAILED STOCK VALUATION REPORT
HARBIN ELEC INC Ticker: HRBN

Oct. 10, 2011
CONTENTS
Valuation Snapshot Forecast Target Prices -1, 3, 6, and 12 Month Time Horizons Historical Price and Recommendation Chart Business Summary Optimal Buy-Sell Levels Overall Rankings Alternate Valuation Figures -PEG and Comparables' PEG Detailed Financials - Annual and Quarterly
ValuEngine's fundamentally-based, quant-derived research is now available to private investors. ValuEngine's research will enhance your ability to evaluate individual stocks, manage your portfolio, and allocate capital for maximum returns. ValuEngine currently covers @5500 US equities as well as @500 ADRs and foreign stocks that trade on US markets. In addition, the firm covers most major Canadian stocks and can provide coverage of Tokyo markets on an as needed basis.
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PO Box 399 Melbourne, FL 32902 support@ValuEngine.com (800)381-5576
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VgluEngine
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DETAILED RESEARCH REPORT

Oct. 10, 2011
HARBIN ELEC INC(HRBN)

VALUENGINE RECOMMENDATION & BASIC INFORMATION
ValuEngine.com 2011
RECOMMENDATION NEGATIVE underperform NEUTRAL match POSITIVE outperform
25 22 20
10
Volume (million)
VALUENGINE RATING
Price
18 15 12 10 2 8 5
RECOMMENDATION FACTORS Value Overall Rank Fair Value 1Yr Target Price P/E Ratio Last 1-Y Return Market Cap(bil) $17.93 $20.42 10.83 9.01% $0.66 Rank btm 31% btm 4% btm 26% top 26% top 26% top 38%
5 2007 Close Price 2008 2009 2010 Volume Sell 2011 Hold Buy
Target Price
VALUENGINE RECOMMENDATION
ValuEngine has issued a HOLD recommendation for HARBIN ELEC INC on Oct. 10, 2011. Based on the information we have gathered and our resulting research, we feel that HARBIN ELEC INC has the probability to ROUGHLY MATCH average market performance for the next year. The company exhibits ATTRACTIVE 5-year annualized return and risk, but UNATTRACTIVE market valuation and volatility.
BASIC INFORMATION Last Trade Trade Date Market Cap(bil) Trailing P/E Forward P/E PEG Ratio P/S Ratio M/B Ratio Sharpe Ratio 5-Y Avg Ann Return Volatility EPS Growth Annual Dividend Dividend Yield LT Debt/Equity Beta VALUATION ANALYSIS HRBN Industry Sector Today's Fair value: $17.93 18.06% overvalued Machinery-electrical 29.57% undervalued Industrial Products 28.36% undervalued $21.17 10/07/11 $0.661584 10.83 8.25 0.35 1.47 1.87 0.31 19.79% 64.83% 31.20% n/a n/a 0.14 2.05
RECOMMENDATION OVERVIEW
ValuEngine's stock recommendations are based on the proprietary ValuEngine one-year forecast return (1YFR) model output for each individual equity. A stock is rated Strong Buy, Buy, Hold, Sell, Strong Sell based on the Forecast One Year Return. The breakdown for each rating is as follows: Strong Buy: More than +12% 1YFR Buy: Between +5% and +12% 1YFR Hold: Between -5% and +5% 1YFR Sell: Between -12% and -5% 1YFR Strong Sell: Less than -12% 1YFR ValuEngine's Strong Buy-rated stocks have an averaged annual return of 19% since 2001. For more details on the ValuEngine One Year Forecast Target price and its components, please go HERE.
FAIR MARKET VALUATION PRICE

Based on available data as of Oct. 10, 2011, we believe that HRBN should be trading at $17.93. This makes HRBN 18.06% overvalued. Fair Value indicates what we believe the stock should be trading at today if the stock market were perfectly efficient and everything traded at its true worth. For HRBN, we base this on actual earnings per share (EPS) for the previous four quarters of $1.96, forecasted EPS for the next four quarters of $2.57, and correlations to the 30year Treasury bond yield of 3.02%. There are an additional 10 firm specific and interest rate related parameters, each playing a role in the valuation analysis. For more details on ValuEngine's Fair Value Model, please go HERE.
FORECAST ANALYSIS 1-Month 3-Month 6-Month 1-Year 2-Year 3-Year Target Price $21.10 $20.81 $20.53 $20.42 $19.49 $20.19 Exp. Return -0.34% -1.72% -3.00% -3.55% -7.93% -4.65%
FORECASTED TARGET PRICES

The predictive variables used in Valuengine's forecast target price models include both proprietary and well-established forecasting variables derived from credible financial research studies and publications. Our forecasting models capture, among other things, several important tendencies that stock prices consistently exhibit: Short-term price reversals, Intermediate-term momentum continuation, and Long-term price reversals. We use a distinct forecasting model for each time horizon and for every industry. We then apply the most advanced statistical/econometric techniques to ensure that our stock return forecasts are as reliable as possible. For more details on ValuEngine's Forecast Model, please click HERE.
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VgluEngine
BUSINESS SUMMARY
TM

BUSINESS SUMMARY, DATA SUMMARY & MARKET RATIO BASED VALUATION MARKET RATIO BASED VALUATION
Portfolio managers and professionals traditionally rely on market ratios to gauge whether a stock is fair valued or overvalued. On this page, we present such a valuation based on one of three market ratios: PEG (price to trailing 4 quarter earnings ratio, divided by the consensus analyst forecasted next year EPS growth), P/E (price to forward 4 quarter earnings ratio), and P/S ratio (price to trailing 4 quarter sales). Among the three, PEG is the most informative as it reflects both the price/earnings ratio and expected future EPS growth, while P/E is better than P/S. For each given stock, we apply the PEG to give a fair value assessment if both its trailing 4 quarter EPS and forecasted EPS growth rate are positive. If its forecasted EPS growth is negative but its forward 4 quarter EPS is positive, we apply the P/E to give a fair value for the stock as of today. Otherwise, we resort to the P/S to assess its fair value. To establish a valuation standard, we use both (i) the average historical market ratio of the stock over the past 10 years (or however long there is data available for the stock), and (ii) the average market ratio today of five comparable stocks in the same sector and from companies of similar size. These two alternative perspectives should give you a good idea about where this stock's valuation stands today.
Harbin Electric, Inc. designs, develops and manufactures linear motors and special electric motors. With proprietary technology and core patents, the Company builds a wide array of customized linear motors and other special motor for a variety of applications and industries. The Company currently designs and supplies its motor products and systems to numerous end users throughout the Chinese domestic market, as well as, to other industrial OEM customers overseas. Industry applications for linear motors include oilfield services, conveyor systems, factory automation, packaging equipment, as well as mass transportation systems. The Company is based in Harbin, China along with its wholly owned subsidiaries.
OPTIMAL BUY-SELL
Based solely on the Historical Mispricing of HRBN, the best time to buy would be below $17.39 (or valuation below 3.00%). The best time to sell would be above $18.65 (or valuation above 4.00%).
EVALUATION & RANKINGS

Valuation 12-Month Return 5-Y Avg Ann Rtn Volatility EPS Growth Market Cap(bill) Sharpe Ratio P/S Ratio M/B Ratio P/E Ratio Value 18.06% 9.01% 19.79% 64.83% 31.20% 0.66 0.31 1.47 1.87 10.83 Rank 4 75 96 33 62 63 90 43 45 75
1. Valuation Based on HRBN's Past P/S

Over the past 5 years, HRBN's average P/S is n/a. HRBN earned $1.96 per share in its recent 4 quarters. The analyst consensus estimate is $2.57 for its 4 quarter forward EPS. HRBN's current price sales ratio is 1.47. The following assessment is based on multiplying the historical P/S with recent 4 quarter sales per share for HRBN. Fair Value
Historical Average P/S P/S-Based Fair Value n/a $0.00
EVALUATION & RANKINGS SUMMARY

Just as important as the percentages shown for our ten predictive variables for each stock is the way they are ranked against the 7000 plus stocks in our database. This is sometimes confusing to newcomers to ValuEngine. Each of these quantitative measurements is ranked on a scale of 1 to 100. Generally the higher the ranking, the more positive the influence each measurement has on the overall attractiveness of the stock. In other words a high rank is always better. Let's take them one by one: Valuation rank 4: 96% of stocks are more undervalued Momentum rank 75: 25% of stocks have higher momentum Sharpe Ratio rank 90: 10% of stocks have a higher Sharpe Ratio 5-Year Average Annual Return 96: 4% of stocks have higher average annual return Volatility rank 33: 67% of stocks have less volatility EPS growth rank 62: 38% of stocks have greater projected EPS growth Size rank 63: 37% of companies have higher market capitalization P/E rank 75: 25% of stocks have lower P/E ratios Price/Sales rank 43: 57% of stocks have lower price/sales ratios Market/Book rank 45: 55% of stocks have lower market/book value ratios
2. Valuation Based on Comparables' P/S

HRBN's comparables are CPST, FELE, HEAT, PLUG and UQM. The current P/S average of these comparables is 2.52. HRBN earned $1.96 per share in its recent 4 quarters. The analyst consensus estimate is $2.57 for its 4-quarterforward EPS. HRBN's current price sales ratio is 1.47. The following assessment is based on multiplying comparable stocks' average P/S today with HRBN's recent 4 quarter sales per share . Comparables' P/S
Comparables CPST FELE HEAT PLUG UQM Current P/S 2.93 1.14 0.24 1.07 7.22
Fair Value
Comparable Stocks' Avg P/S Comparable P/S-Based Fair Value 2.52 $36.36
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VALUENGINE RANKINGS
Just as important as the percentages shown for our ten predictive variables for each stock is the way they are ranked against the 7000 plus stocks in our database. Each of these quantitative measurements is ranked on a scale of 1 to 100. Generally the higher the ranking, the more positive the influence each measurement has on the overall attractiveness of the stock. In other words a high rank is always better. The below data points show how the rank for each data point for HRBN relates to the overall industry, sector, and S&P 500 averages.
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Valuation
Rank
The ValuEngine Valuation Rank measures the relationship between a
HRBN 18.06% 4 company's stock price and its Fair Value. The higher the Valuation rank, Industry -29.57% 55 the more undervalued the stock. With a Valuation Rank of 4, HRBN is Sector -28.36% 55 substantially lower than the average of its industry group, which carries S&P 500 n/a n/a a Valuation Rank of 55. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
12-Month Return
Rank
The ValuEngine 12-Month Return Rank reflects the relative stock
HRBN 9.01% 75 performance of a stock over the recent 12 months. On a scale of 1 to Industry -23.13% 39 100, a higher 12-Month Return rank indicates a stronger performance. Sector -1.95% 50 With a 12-Month Return Rank of 75, HRBN is significantly higher than S&P 500 -0.22% 61 the industry's rank score of 39. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5-Y Avg Ann Rtn
Rank
The ValuEngine 5-Years Average Return Rank reflects a stock's
HRBN 19.79% 96 average annual return over the last 5 years, in comparison with the Industry -12.64% 58 coverage universe. A higher rank indicates a better return performance. Sector -11.08% 54 With a rank of 96, HRBN is significantly higher than the industry, which S&P 500 -3.52% 61 has a rank of 58. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Volatility
Rank
The ValuEngine Volatility Rank reflects the volatility associated with the
HRBN 64.83% 33 stock. A higher Volatility Rank indicates a lower volatile percentile of Industry 52.09% 54 stocks. HRBN has a Volatility Rank of 33, which is moderately lower Sector 60.34% 47 than the industry Rank of 54. S&P 500 18.72% 97 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
EPS Growth
Rank
The ValuEngine EPS Growth Rank indicates a stock's expected EPS
HRBN 31.20% 62 growth rate. A high rank indicates a high growth rate expectation. HRBN Industry 27.44% 56 has an EPS Growth Rank of 62.This is in line with the industry rank of Sector 53.72% 52 56. S&P 500 n/a n/a --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Market Cap(bill)
Rank
The ValuEngine Size rank signifies the company's size in terms of
HRBN 0.66 63 market capitalization. A higher rank denotes a larger market Industry 9.23 57 capitalization within ValuEngine's stock universe. With a Size rank of 63, Sector 2.09 46 HRBN is in line with the industry, which has a rank of 57. S&P 500 n/a n/a --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sharpe Ratio
Rank
The ValuEngine Sharpe Ratio Rank measures the risk return tradeoff
HRBN 0.31 90 offered by a stock. Sharpe ratio is the stock's average annual return Industry -0.15 58 (over the last five years) divided by its annualized volatility over the Sector -0.18 53 same 5 years. With a rank of 90, HRBN is significantly higher than the S&P 500 -0.19 50 industry, which has a rank of 58. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
P/S Ratio
Rank
The ValuEngine Price/Sales rank signifies the relative position of the
HRBN 1.47 43 company based on its P/S ratio. Stocks with the lowest P/S ratio are Industry 1.7 51 assigned a rank of 100 while stocks with the highest P/S ratio are Sector 1.76 65 ranked 1. At a Price/Sales rank of 43, HRBN is in line with the industry S&P 500 n/a n/a rank of 51. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
M/B Ratio
Rank
The Market/Book Rank is a measure of a stock's market to book ratio
HRBN 1.87 45 relative to the stock universe. A higher rank corresponds to a lower Industry 3.01 44 market book value. HRBN has a Market/Book rank of 45, which is in line Sector 4.08 47 with the industry rank of 44. S&P 500 n/a n/a --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
P/E Ratio
HRBN Industry Sector S&P 500 10.83 n/a 16.97 n/a
Rank
75 48 56 n/a
The ValuEngine P/E Rank signifies the relative standing of a company on its P/E ratio, relative to the universe. Stocks in the top P/E percentile are each assigned a rank of 1(highest P/E stocks) while those in the bottom P/E percentile are assigned a rank of 100 (traditional value stocks). With a P/E rank of 75, HRBN is moderately higher than the industry P/E rank of 48.
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Valuation
HRBN FELE CPST UQM HEAT 18.06% -21.70% -48.62% -56.66% -31.09%
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COMPARISON OF SIMILAR STOCKS* & RISk ASSESSMENT
Rank
4 44 83 89 61
FORECAST COMPARISONS
RETURN FORECAST: EXPECTED RETURN CPST One-Month Three-Month Six-Month One-Year Two-Year Three-Year 1.42% 1.47% 1.17% -0.16% -1.48% 3.39% FELE 1.04% 0.96% 0.70% 0.80% -1.42% 2.96% HEAT 2.84% 6.60% 13.71% 37.43% 36.21% 25.09% HRBN -0.34% -1.72% -3.00% -3.55% -7.93% -4.65% UQM -1.17% -5.92% -11.02% -21.05% -26.53% -30.74%
12-Month Return Rank

HRBN FELE CPST UQM HEAT 9.01% 10.75% 27.50% -41.06% -88.55% 75 77 88 17 1
RISK ASSESSMENT: CHANCE OF GAIN
5-Y Avg Ann Rtn Rank

HRBN FELE CPST UQM HEAT 19.79% -7.10% -9.55% 1.35% -78.67% 96 53 48 74 5 One-Month Three-Month Six-Month One-Year Two-Year Three-Year
CPST 52.65% 51.58% 50.89% 49.92% 49.44% 51.05%
FELE 54.52% 52.42% 51.25% 51.01% 48.73% 52.15%
HEAT 54.85% 56.50% 59.50% 67.88% 62.46% 57.13%
HRBN 49.27% 47.88% 47.39% 47.81% 46.56% 48.35%
UQM 47.76% 43.49% 41.46% 38.55% 39.76% 40.30%
Volatility
HRBN FELE CPST UQM HEAT 64.83% 31.62% 74.18% 72.29% 80.60%
Rank
33 82 25 26 20
RISK ASSESSMENT: CHANCE OF LOSS CPST One-Month Three-Month Six-Month One-Year Two-Year Three-Year 47.35% 48.42% 49.11% 50.08% 50.56% 48.95% FELE 45.48% 47.58% 48.75% 48.99% 51.27% 47.85% HEAT 45.15% 43.50% 40.50% 32.12% 37.54% 42.87% HRBN 50.73% 52.12% 52.61% 52.19% 53.44% 51.65% UQM 52.24% 56.51% 58.54% 61.45% 60.24% 59.70%
EPS Growth
HRBN FELE CPST UQM HEAT 0.31 0.14 0.88 0.77 -1.29
Rank
62 39 81 79 2
Market Cap(bill)
HRBN FELE CPST UQM HEAT 0.66 0.88 0.26 0.06 0.03
Rank
63 67 48 25 16
* Comparables are companies in the same Sector and Industry and of approximately similar market capitalization value.
Sharpe Ratio
HRBN FELE CPST UQM HEAT 0.31 -0.22 -0.13 0.02 -0.98
Rank
90 46 56 72 5
P/S Ratio
Rank
43 51 24 11 88
M/B Ratio
Rank
45 18 9 53 97
P/E Ratio
HRBN FELE CPST UQM HEAT 10.83 14.98 n/a n/a n/a
Rank
75 58 13 20 12
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BALANCE SHEET Cash Marketable Securities Receivables Inventory Raw Materials Work in Progress Finished Goods Notes Receivable Other Current Assets Total Current Assets Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Investment & Advances Other non-current Assets Deferred Charges Intangibles Deposits & other assets TOTAL ASSETS Notes Payable Accounts Payable
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ANNUAL FINANCIALS (All items in Millions)
201012 99.8 1.8 85.9 62.8 8.7 20.8 35.7 0 18.4 268.8 184.9 11.9 173.1 0 0 0 81.7 50.7 574.3 2.1 26.9 29.5 0 17.9 8.2 15.4 100 0 0 0 50.1 0 1.5 0 151.6 0 0 218.2 136.1 0 68.3 422.7 574.3 200912 96.4 0 99.2 74.9 11.8 28.4 43.5 1.1 11.7 283.3 162.4 6.1 156.4 0 0 0 75.5 15.7 531 12.2 47.1 44.4 0 3.4 8.2 56 171.4 0 0 0 4.4 0 4.6 0 180.4 0 0 218.1 69.6 0 62.8 350.5 531 200812 48.9 0 30.5 22 2.7 8 11.3 1.5 3.5 106.4 97.8 2.9 94.9 0 0 0 20.6 13.6 235.5 1 8.4 4.2 0 0 2.1 5 20.7 0 0 0 33.6 0 6.5 0 60.8 0 0 95 52.1 0 27.5 174.6 235.5 200712 45.5 0 23.5 2.6 ---0 1.8 73.4 --23.9 0 0.1 2.2 5.9 27.1 132.6 0 0.3 0 0 2 0 1.8 4.1 0 0 0 33.1 0 10.8 0 48 0 0 45 41.3 0 -1.6 84.6 132.6 200612 67.3 0 8.9 0.6 ---0 0.9 77.6 --9.2 0 0 2.8 0.6 2.7 92.9 0 0.2 0 0 1.8 0 0.7 2.8 0 0 0 28.6 0 16.6 0 47.9 0 0 12.2 30.7 0 2 45 92.9 200512 5.7 1 5.8 1.3 ---0 2.7 16.7 --7.8 0 0 0 0.3 0 24.8 0 0.2 0 0 0 0 0 0.2 0 0 0 0 0 0 0 0.2 0 0 11.3 12.3 0 1 24.6 24.8
Current Portion of Long-term Debt Current Portion of Capital Leases Accrued Expenses Income Taxes Payable Other Current Liabilities Total Current Liabilities Mortgages Deferred Charges (taxes/income) Convertible Debt Long Term Debt Non-Current Capital Leases Other Long-Term Liabilities Minority Interest (liabilities) Total Liabilities Preferred Stock Common Stock, Net Capital Surplus Retained Earnings Treasury Stock Other Equity Total Shareholders' Equity Total Liabilites & Shareholders Equity
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INCOME STATEMENT Net Sales or Revenues Cost of Goods Sold Gross Profit
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ANNUAL FINANCIALS (All items in Millions)
201012 426.5 290.8 135.7 3.4 39.6 92.7 0 6.1 4.6 94.2 14.9 2.4 0 0 79.2 0 76.8 31.3 31.1 82.7 -5.9 2.5 2.5 2.6 -0 0 200912 223.2 146.6 76.6 2.1 18.7 55.8 0 -12.6 12.3 30.9 7.8 3.5 0 0 23.1 0 19.6 25.7 25.6 43.8 -24.2 0.8 0.8 1.7 -0 0 200812 120.8 73.3 47.5 1.2 11.9 34.4 0 1.6 6.1 29.9 4.5 0 0 0 25.4 0 25.4 21.3 20.2 25.4 0 1.2 1.2 1.2 -0 0 200712 65.4 33 32.4 1.1 7.7 23.7 0 -0.2 6.6 16.9 0 0 0 0 16.9 0 16.9 18.6 17.1 16.9 0 1 0.9 0.9 -0 0 200612 40.4 20.8 19.7 1.5 4.2 14 0 6.9 2.5 18.4 0 0 0 0 18.4 0 18.4 18.3 16.6 18.4 0 1.1 1 1 -0 0 200512 23.6 12.1 11.6 0 1.6 10 0 0 0 10 0 0 0 0 10 0 10 15.1 14.9 10 0 0.7 0.7 0.7 -0 0
Research & Development Expense Selling, General & Admin. Expense Income Before Depr., Depl., Amort. Depreciation, Depletion, Amort. Non-Operating Income Interest Expense Pretax Income Provision for Income Taxes Minority Interest Investment Gains (Losses) Other Income Income Before Extraordinaries & Disc Extraordinary Items & Discontinued Net Income Average Shares used for Diluted EPS Average Shares used for Basic EPS Income Before Non-Recurring Items Income From Non-Recurring Items EPS - Basic, net EPS - Diluted, net EPS - Diluted, before non-recurring Preferred Dividends - Acc & Pd Dividends (common) Dividend per share (common) CASH FLOW STATEMENT Net Income (Cash Flow) Depreciation, Depletion, Amortization-CF Net Increase(decrease) in Cash from(used in) Discontinued Oper. Other Adjustments - Net Net Cash from (used by) Operating Act. Increase/Decrease in Prop, Plant, & Equ. Acquisition/Disposition of Subsidiaires Increase (decrease) in Investments Other Cash inflow from Investment Act. Net Cash from (used by) Invesment Act. Issuance (purchase) of Equity Shares Issuance (repayment) of Debt Securities Increase (decrease) in Bank & Other Payment of Dividends & Other Cash Other Cash from (used by) Financing Net Cash from (used by) Financing Act. Net Change in Cash & Cash Equivalents Copyright 1998 - 2011 ValuEngine Inc
79.2 11.5 -8 0 10.6 93.3 -57.3 -27.2 0 -26.9 -111.4 2 40.5 -22.2 0 2.5 22.8 5.8
23.1 17 2.3 0 20 62.5 -11.9 -72.9 0 -4.3 -89.1 119.4 -34.2 -2.8 -0.2 -11 71.2 44.5
25.4 7.7 6.9 0 2.3 42.3 -32.4 -48.3 0 -0.4 -81.1 48.3 -4 -4.3 0 -0.7 39.2 2.9
16.9 6.2 -14.9 0 0.9 9.1 -12.1 0 0 -23.9 -36 1.7 0 0 0 -1 0.7 -21.8
18.4 2.2 -4.1 0 0.3 16.9 -1.6 0 1.1 -4 -4.5 0 47 0 0 0 47.1 61.6
10 0.3 -9.5 0 0 0.9 -2.3 0 0 -0.3 -2.5 4.8 0 0 0 -0.2 4.6 3.5 6
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BALANCE SHEET Cash Marketable Securities Receivables Inventory Raw Materials Work in Progress Finished Goods Notes Receivable Other Current Assets Total Current Assets Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Investment & Advances Other non-current Assets Deferred Charges Intangibles Deposits & other assets TOTAL ASSETS Notes Payable Accounts Payable
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QUARTERLY FINANCIALS (All items in Millions)
201106 105.1 0 100.2 61.8 ---9.9 24.9 301.9 --201.9 0 0 0 105.9 40.8 650.4 36.9 23.9 36.9 0 16.5 10.7 13.2 138.1 0 0 0 50.5 0 1.4 0 190 0 0 218.4 160.4 0 81.6 460.4 650.4 201103 138.3 0 80.4 55.9 9.1 20.6 29.1 8.7 25.7 309 198.2 14.3 183.9 0 0 0 81.9 40.3 615.2 31 21.6 30.6 0 0 9.9 33.7 126.8 0 0 0 50.2 0 2 0 179.1 0 0 218.3 145.5 0 72.3 436.1 615.2 201012 99.8 1.8 85.9 62.8 8.7 20.8 35.7 0 18.4 268.8 184.9 11.9 173.1 0 0 0 81.7 50.7 574.3 2.1 26.9 29.5 0 17.9 8.2 15.4 100 0 0 0 50.1 0 1.5 0 151.6 0 0 218.2 136.1 0 68.3 422.7 574.3 201009 58.5 0 92.9 73.9 11 25.8 46.8 4.7 13.6 243.7 212.5 11.8 200.7 0 0 0 99 1.1 544.5 4 53.8 52.9 0 9.8 6.6 15.4 142.5 0 0 0 0 0 3.5 0 146 0 0 213.5 128.4 0 56.6 398.5 544.5 201006 45.4 0 98.9 80.9 13.7 26.1 49.5 0.3 13.2 238.7 191.2 9.1 182.1 0 0 0 73.7 25.5 520 10.8 55.8 46.2 0 7.2 9 15.9 144.9 0 0 0 0 0 3.2 0 148.1 0 0 213.2 110.8 0 47.9 371.9 520 201003 80.8 0 109.7 75.6 9.6 27.9 45.6 1.3 11 278.4 163.3 7.8 155.5 0 0 0 75.2 15.2 524.4 8.3 49 50 0 10.7 9.4 18.4 145.8 0 0 0 0 0 4.8 0 150.6 0 0 218.3 87.8 0 67.6 373.7 524.4 200912 96.4 0 99.2 74.9 11.8 28.4 43.5 1.1 11.7 283.3 162.4 6.1 156.4 0 0 0 75.5 15.7 531 12.2 47.1 44.4 0 3.4 8.2 56 171.4 0 0 0 4.4 0 4.6 0 180.4 0 0 218.1 69.6 0 62.8 350.5 531 200909 155.9 0 36.4 12.6 4 3.8 4.8 0.6 3.1 208.6 104.6 4.9 99.7 0 0 0 22.1 12.1 342.6 9 9 4.2 0 0 2.8 3.4 28.5 0 0 0 0 0 4.3 0 32.8 0 0 216.9 56.2 0 36.6 309.8 342.6
Current Portion of Long-term Debt Current Portion of Capital Leases Accrued Expenses Income Taxes Payable Other Current Liabilities Total Current Liabilities Mortgages Deferred Charges (taxes/income) Convertible Debt Long Term Debt Non-Current Capital Leases Other Long-Term Liabilities Minority Interest (liabilities) Total Liabilities Preferred Stock Common Stock, Net Capital Surplus Retained Earnings Treasury Stock Other Equity Total Shareholders' Equity Total Liabilites & Shareholders Equity
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INCOME STATEMENT Net Sales or Revenues Cost of Goods Sold Gross Profit
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QUARTERLY FINANCIALS (All items in Millions)
201106 131.4 95.2 36.2 0.9 13.8 21.5 0 3 1.2 23.1 6 0 0 0 17.2 0 17.2 31.4 31.3 16.6 0.6 0.6 0.6 0.5 -0 0 201103 103.8 73.6 30.2 3.9 10.1 16.2 0 0.7 1.9 15 4.2 0 0 0 10.8 0 10.8 31.4 31.3 10.8 0 0.3 0.3 0.3 -0 0 201012 106.2 75.2 31.1 0.8 14.6 15.6 0 1.8 0.9 16.6 3.8 0.1 0 0 12.7 0 12.7 28.9 28.9 14.4 -1.7 0.4 0.4 0.5 -0 0 201009 109.4 75.8 33.6 1.7 10.1 21.9 0 0.4 1.1 21.1 3.3 -0 0 0 17.9 0 17.9 31.3 31.1 20.2 -2.3 0.6 0.6 0.6 -0 0 201006 105.4 70.1 35.3 0.4 7.5 27.5 0 3 1 29.5 3.8 0 0 0 25.7 0 25.7 31.3 31.1 24 1.7 0.8 0.8 0.8 -0 0 201003 105.5 69.7 35.7 0.6 7.4 27.7 0 0.9 1.6 27 4.1 2.3 0 0 20.5 0 20.5 31.4 31.1 20.8 -0.2 0.7 0.7 0.7 -0 0 200912 107.2 71.2 36.1 0.8 0.3 35 0 -8.3 1.6 25.1 3.3 3.5 0 0 18.3 0 18.3 31 31 19.4 -1 0.6 0.6 0.6 -0 0 200909 46.9 30.2 16.8 0.5 12.2 4 0 4.5 8.5 0 2 0 0 0 -1.9 0 -1.9 27.3 27.3 10.9 -12.9 -0.1 -0.1 0.4 -0 0
Research & Development Expense Selling, General & Admin. Expense Income Before Depr., Depl., Amort. Depreciation, Depletion, Amort. Non-Operating Income Interest Expense Pretax Income Provision for Income Taxes Minority Interest Investment Gains (Losses) Other Income Income Before Extraordinaries & Disc Extraordinary Items & Discontinued Net Income Average Shares used for Diluted EPS Average Shares used for Basic EPS Income Before Non-Recurring Items Income From Non-Recurring Items EPS - Basic, net EPS - Diluted, net EPS - Diluted, before non-recurring Preferred Dividends - Acc & Pd Dividends (common) Dividend per share (common) CASH FLOW STATEMENT Net Income (Cash Flow) Depreciation, Depletion, Amortization-CF Net Increase(decrease) in Cash from(used in) Discontinued Oper. Other Adjustments - Net Net Cash from (used by) Operating Act. Increase/Decrease in Prop, Plant, & Equ. Acquisition/Disposition of Subsidiaires Increase (decrease) in Investments Other Cash inflow from Investment Act. Net Cash from (used by) Invesment Act. Issuance (purchase) of Equity Shares Issuance (repayment) of Debt Securities Increase (decrease) in Bank & Other Payment of Dividends & Other Cash Other Cash from (used by) Financing Net Cash from (used by) Financing Act. Net Change in Cash & Cash Equivalents Copyright 1998 - 2011 ValuEngine Inc
28 6 -21.2 0 5.6 18.4 -17.7 0 0 -23.2 -40.9 0 -0.6 26 0 -16.3 9.1 -11.2
10.8 2.9 -8.1 0 3.1 8.7 -0.3 0 0 -0.2 -0.6 0 0 29.9 0 -14.4 15.5 24.1
79.2 11.5 -8 0 10.6 93.3 -57.3 -27.2 0 -26.9 -111.4 2 40.5 -22.2 0 2.5 22.8 5.8
66.4 9.2 0.4 0 3.1 79.2 -57.2 -27.9 0 -26.5 -111.7 0 -9.1 2.6 0 0.6 -5.9 -37.4
48.6 6.1 -4.9 0 -0.6 49.1 -40.5 -27.9 0 -26.5 -95 0 -3.8 -1.6 0 -1.5 -6.9 -52.6
22.9 3.3 -9.4 0 0.6 17.3 -1.3 -27.9 0 -0.1 -29.3 0 -3.8 0.2 0 0.5 -3.1 -15.1
23.1 17 2.3 0 20 62.5 -11.9 -72.9 0 -4.3 -89.1 119.4 -34.2 -2.8 -0.2 -11 71.2 44.5
1.3 14.1 3.6 0 18.4 37.5 -7.1 0 0 -2.3 -9.4 118.6 -32.7 1.1 0 -8.5 78.5 106.5 8
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VALUENGINE SERVICE DESCRIPTIONS
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Report Date
2011-10-06 Basics Pages 1 to 3 .Highlights .StockMarks .Profile .Rating determinants Benchmarks Pages 3 to 5 .Sector .Competitors .Peers .Pairs Quality Drivers Pages 5 to 7 .Business .Management .Price Valuation Pages 7 to 8 .Attractiveness .Nominal Rates .Fair value rates Market Pages 8 to 9 .Risk .Sentiment
Summary Due Diligence Report

Highlights
Conclusions Page 9
Harbin Electric, Inc. is an above average quality company with a neutral outlook. Harbin Electric, Inc. has medium business growth and is run by efficient management. The trend in Harbin Electric, Inc. fair value exchange rate against its closest rated-competitor, American Superconductor Corporation, has been appreciating over the past 2 weeks. When compared to its closest peer, Hydrogenics Corporation (USA), Harbin Electric, Inc. shows similar undervaluation and is more likely to outperform the market. StockMarks Ratings Total Quality Classical Business Management Price Volability Outperformance
SMT
SMC
SMB
SMM
SMP
SMV
SMO
Summary StockMarks Ratings for Harbin Electric, Inc. were calculated in relation to the entire population of 4206 United States-listed companies rated today, using a scale from 0 (worst) to 100 (best). For an explanation of each rating, see page 10.
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2009 Marques Mendes & Associados Lda (MM&A). All Rights Reserved. Please read disclaimer in page 10.
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Harbin Electric, Inc. Summary Due Diligence Report

Company Profile
Ticker Company Sector Industry Exchange
HRBN
Industrials
Electrical Components & Equipment
NASDAQ
Current Stock Price: 21.760 52-Week Range: 5.82 - 25.05
Market Capitalization (M): 684.0080 EPS: 1.8710
Data as of Market Close:
2011-10-06
Harbin Electric, Inc.'s registered activity is in the Electrical Components & Equipment industry. The table above gives a profile of the company.
The chart below shows the movements of the Total Quality StockMark (SMT)
and share price expressed as indexes since we began rating the company.
What determines Harbin Electric, Inc.s Quality StockMarks?

Harbin Electric, Inc.s long-term investment attractiveness rating (Total StockMark or SMT), depicted in the chart below, is driven by price attractiveness.
It is a mid-cap stock currently trading at a multiple of 11.63 times earnings. While Harbin Electric, Inc.'s share price has risen strongly in the last quarter, the company's long-term investment rating (chart above) remained unchanged over the same period.
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An important question to ask is whether Harbin Electric, Inc.s underlying long-term fundamentals justify the steep rise in the company's share price. We can examine this issue using the StockMarks framework. First, in the chart on the right, we compare the companys trend for each rating, followed by a comparison of the companys overall long-term investment attractiveness rating (Total StockMark or SMT) in relation to its sector (chart below).
Ratings showing a positive trend: Total; Business; Management; Ratings showing a negative trend: Price; Classic; Volatility; Outperformance;
Recent rating trends:
Harbin Electric, Inc. currently has an overall quality rating significantly above the average of its sector.
Harbin Electric, Inc. currently has an overall long-term investment attractiveness rating (Total StockMark or SMT) of 68, placing Harbin Electric, Inc. above the SMT average of 50.89 for United Stateslisted companies. This rating ranks Harbin Electric, Inc. third when compared to ten of its closest peers, selected because of similarity of business, financial and market-positioning factors such as size (see page 5).
How do the Harbin Electric, Inc.'s ratings rank among selected benchmark groups?
StockMarks ratings were calculated in relation to the total of 4206 United States-listed companies rated today. Although the scale from 0 to 100 is in itself meaningful, for benchmarking purposes we need to define a few relevant reference groups, namely competitors, correlated stocks and value investing peers.
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To quickly assess Harbin Electric, Inc.s relative position the following tables show the ratings of similar companies for these benchmark groups. Benchmark group: Industry Competitors
Ticker
Company
Company Name
Similarity Industry SMT SMB SMM % Share % 0.20 83.3 75.0 75.0 75.0 75.0 75.0 75.0 75.0 66.7 66.7 0.19 0.01 4.11 0.36 1.15 0.18 0.86 0.95 0.03 0.16 68 24 36 65 50 73 50 68 65 25 57 49 44 64 49 27 70 27 75 49 40 26 65 12 17 60 58 54 60 51 61 14 72
SMP 68 74 72 68 67 67 68 53 67 75 67
HRBN Harbin Electric, Inc.
Harbin Electric, Inc.s best rank among competitors is second for the Management Efficiency (SMM) rating.
The closest competitor, American Superconductor Corporation has a similarity index of 83.3% and a market share of 0.2% compared to Harbin Electric, Inc.s market share of 0.2% (See table on the right). Harbin Electric, Inc.s competitors were selected based on the registration industry, total revenue and market capitalization among rated companies. These do not include non-listed companies and foreign competitors, which may be more significant. Similarly, we calculated the industry market share only in relation to rated companies. Therefore, a 100% market share does not mean that the company has no competitors in the industry. China Ritar Power Corp. is the closest stock for pair trading with a similarity index of 75%, defined on the basis of market correlation, sector and trading volumes. To assess the recent convergence/divergence trend, readers should use a chart to compare the prices of the chosen pair. SADIF subscribers may draw such chart by choosing option 3 in the Due Diligence Section. In general, pair trading requires degrees of similarity above 70%.
American Superconductor Competitor 1 AMSC Cor...

Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitor 6 Competitor 7 Competitor 8 Competitor 9 Competitor 10
HYGS NJ
Hydrogenics Corporation (USA) Nidec Corporation (ADR)
FELE Franklin Electric Co. AOS A. O. Smith Corporation AZZ BEZ AZZ Incorporated Baldor Electric Company
JELC Johnson Electric Holdings Y (... HEV Ener1, Inc. AEIS Advanced Energy Industries,...
The success of pair trading strategies depends on the investors ability to forecast the convergence path. However, convergence itself may only happen if the two companies are not diverging in a fundamental way. Investors can evaluate this possibility by comparing the StockMarks quality ratings shown in the second table below.
In relation to its highest correlated stocks (for pair trading) Harbin Electric, Inc.s best rank is third for the Management Efficiency (SMM) rating. However, to assess pair trading convergence it is also important to consider Harbin Electric, Inc.s worst ranking, which is fourth for the Price Attractiveness (SMP) rating.
Benchmark group: Pair Trading

Ticker
Company Pair 1 Pair 2 Pair 3 Pair 4 Pair 5 Pair 6 Pair 7 Pair 8 Pair 9 Pair 10
Company Name
Similarity SMT SMB SMM SMP % 68 75.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0 75.0 57 32 54 78 44 73 49 65 68 58 49 39 20 37 79 25 53 38 67 33 49 65 59 43 53 54 49 69 44 43 78 49 68 66 68 70 68 69 68 69 68 67 69
HRBN Harbin Electric, Inc. CRTP China Ritar Power Corp. TEX Terex Corporation
GTLS Chart Industries, Inc. GNK TXT GTI MTW Genco Shipping & Trading Li... Textron Inc. GrafTech International Ltd. Manitowoc Company, Inc.
PLNR Planar Systems, Inc. PWER Power-One, Inc. MIC Macquarie Infrastructure Co...
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Likewise, we should note the lastmonth price divergence, which was 0.922 in relation to its closest pair. Peer Analysis
Ticker Company Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 HRBN HYGS AMSC FELE NJ AOS BEZ JELCY HEV MIC GLW
At this stage, some investors may find it useful to read the Due Diligence Reports for these peers or competitors.
How good is the Harbin Electric, Inc.s business?
Benchmark group: Investment Peers

Company Name Harbin Electric, Inc. Hydrogenics Corporation (USA) American Superconductor Corporation Franklin Electric Co. Nidec Corporation (ADR) A. O. Smith Corporation Baldor Electric Company Johnson Electric Holdings (ADR) Ener1, Inc. Macquarie Infrastructure Company LLC Corning Incorporated 56.3 51.0 51.0 50.0 50.0 50.0 50.0 43.8 42.7 41.7 Similarity % SMT SMB SMM SMP 68 36 24 50 65 73 68 65 25 58 68 49 64 44 27 49 70 75 49 40 49 42 65 17 12 58 60 54 51 61 14 49 72 68 72 74 67 68 67 53 67 75 69 67
The overall conclusion is that Harbin Electric, Inc. is an above average quality company with a neutral outlook. Nevertheless, we need to look further into its determinants by examining each quality rating separately. We selected also a group of investment peers in terms of longterm operational and financial similarities. Because of the stringency of the criteria used, not all companies have a degree of similarity greater than the minimum of 50% recommended for reliable benchmarking. Among this group shown in the table above on the right, Harbin Electric, Inc.s best rank is second for the Management Efficiency (SMM) rating. The radar chart above provides a synopsis of all of Harbin Electric, Inc.s ratings in comparison to its top two peers.
Harbin Electric, Inc. has medium business quality growth.

Harbin Electric, Inc. currently has a Business StockMark (SMB) of 49, indicating that the company's longterm business growth rates are similar to the sector average of United States-listed companies.
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99

This rating places Harbin Electric, Inc. fourth in terms of growth in relation to its ten closest peers. The previous chart shows the movements in the SMB and the ratings of the three indicators used in the calculation of the business rating. The SMB's recent rise was not primarily due to a decline in the rating of the company's sales elasticity. The sales elasticity indicator compares the long-term revenue growth of the company to other companies in its industry. The decline in the sales elasticity pushed this indicator below the average, suggesting that Harbin Electric, Inc. is growing at a slower pace than its industry. Harbin Electric, Inc.s business rating is 1.14 times higher than that of its closest competitor, American Superconductor Corporation. Harbin Electric, Inc. currently has a SMM of 65, the second highest of its quality sub-ratings. Management Classification Grid For a descriptive classification of management efficiency based on an interval scale, we use the following five categories: Category First Class Efficient Average Mediocre Inefficient SMM Rating 90-100 55-89 40-54 20-39 0-19 The assessment of the management efficiency trend needs to be qualified by taking into account how long the incumbent management has been The chart above shows the movements of the SMM and the rating's three determinants. Comparing the management efficiency of Harbin Electric, Inc. with that of its closest competitor, American Superconductor Corporation, reveals that Harbin Electric, Inc.s rating is 5.42 times higher. Finally, despite the importance of management efficiency, investors should not neglect other more subjective management attributes such as integrity and business savvy, which are beyond the scope of this report.
Based on its fundamentals,Harbin Electric, Inc. has efficient management

The Management StockMark (SMM) measures the ability of a company's management to transform gross margins into earnings per share.
in place as it takes a few quarters before its impact is shown in the company financials. Also, sometimes a small temporary decline or rise may not be attributed to a change in efficiency but are instead the result of large shifts in investment/disinvestment.
Is Harbin Electric, Inc. correctly priced?

With the recent steep rise in Harbin Electric, Inc.s share price, the possibility of the company's shares being overbought increases. We can assess whether the Harbin Electric, Inc. is in fact overvalued by looking at the company's Price Attractiveness StockMark (SMP).
6
100

The SMP takes into account both fundamental and technical indicators to arrive at a rating of the attractiveness of a company's stock to long term investors at its current price. Harbin Electric, Inc. currently has a Price StockMark of 68, indicating that the market is undervaluing Harbin Electric, Inc.s long-term fundamentals. On this count, we can observe that Harbin Electric, Inc. is already undervalued and with a trend towards more undervaluation. To see if this situation is unique to the company, we can check the exchange rate at which the stock is trading in relation to its top competitors and peers.
The fair value exchange rate of Harbin Electric, Inc.s stock in relation to its closest competitor American Superconductor Corporation is appreciating.
The valuation of stock-for-stock offers in M&A transactions is quite complex when shareholders of the acquirer and the target company hold significantly different views on the intrinsic value of their companies. The nominal stock exchange rate as given by current market prices (shown in the chart below) may be misleading if markets, as they often do, over-estimate or underestimate the premium/discount relative to intrinsic value.
A chart of the SMP and the ratings of some of the company's key price valuation multiples is shown above. Investors need to consider the most recent absolute value of the SMP and its determinants together with the SMP trend. First, to verify if the stock is caught at a stationary level, indicating that it may remain undervalued or overvalued for long periods. Second, investors should assess if it is diverging or converging in relation to a fair valuation (SMP between 4555).
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Warren Buffett popularized the idea that many air-for-assets risky acquisitions take place during bull markets because overvalued acquirers can afford to overpay because they are in effect using stock as if it was counterfeit money. The rates quoted give us the number of benchmark shares that we could buy with one share of Harbin Electric, Inc.. Therefore, an increase (decrease) in the rate of exchange means that Harbin Electric, Inc. is appreciating (depreciating). The chart on the left shows the evolution of the fair value exchange rates for Harbin Electric, Inc. measured in index form, in relation to some of its benchmark stocks. For instance, we can observe that in relation to the first competitor the trend during the last quarter has been towards appreciation.
The market risk

The analysis of market risk is done through the Volatility StockMark (SMV) rating. This rating combines the previous year price variance and price level with longterm market correlation in a way that we can interpret it in the usual scale of 0 (worst) to 100 (best). Comparing the volatility rating of the Harbin Electric, Inc., which is currently at 66, with its closest competitor, American Superconductor Corporation, we see that it is 0.83 times lower.
Unfortunately, the estimation of intrinsic values is a very challenging task. However, we may minimize the problem and bypass the need to estimate intrinsic values by adjusting the nominal stock exchange rates with our Price Attractiveness StockMark (SMP), which estimates the degree of over or undervaluation at any level of the market premium or discount. By adjusting the nominal rates by the relative SMPs we obtain the fair value exchange rate. Current nominal rates vs. fair value stock exchange rates are shown in the previous page:
The trend in the fair value exchange rates shown above is relevant not only to adjust valuations but also to assess the price outlook for Harbin Electric, Inc..
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Although relevant in itself, the rating is more useful when we compare its evolution to the trend in stock price. The chart on the previous page shows both in an index form. We can observe that Harbin Electric, Inc.s market risk outlook is mixed. It is also important to observe the trend in the volatility of SMV because this provides a good indication about the stickiness of short term price movements.
The market sentiment in relation to Harbin Electric, Inc. is positive and is deteriorating
No due diligence is complete without considering the market sentiment in relation to Harbin Electric, Inc., because this is paramount in determining the stock s performance in the short to medium-term.
For this, we use the Outperformance StockMark (SMO), which measures the likelihood of the company to outperform the market in the near term. This rating combines the company's past quarter price dynamics with its market risk and total quality, in a scale from 0 (worst) to 100 (best). Harbin Electric, Inc.s SMO is currently at 75. Looking at its trend in the chart on the left, we can see that it is deteriorating. When compared to its closest peer, Hydrogenics Corporation (USA), Harbin Electric, Inc. shows similar undervaluation and is more likely to outperform the market. While, if compared to its first competitor, American Superconductor Corporation, Harbin Electric, Inc. shows less undervaluation and is equally likely to outperform the market.
Conclusions The company's share price in the past year has been declining, but we believe that its underlying fundamentals will determine the stocks long-term performance. A StockMarks analysis of Harbin Electric, Inc. reveals a company with an above average quality and medium long-term business growth. The likelihood of Harbin Electric, Inc. stock to outperform the market as measured by the Outperformance StockMark (SMO) is well above average with a rating of 75 / 100. The risk associated with holding the shares as measured by the Volatility StockMark (SMV) is below average with a rating of 66 /100. Overall, we believe Harbin Electric, Inc. to be a good long-term investment.
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The StockMarks Ratings

Classical StockMark (SMC)
Short-medium term attractiveness rating combining SMT and SMP.
Total Quality StockMark (SMT)

The overall long-term investment-attractiveness of a company based on a combined three dimensional analysis of three sub-ratings: Business, Management and Price.
Business StockMark (SMB)

A company's business quality based on variables including: operating margin, sales elasticity and sales growth rate.
Price StockMark (SMP)

A company's price quality rating in terms of undervaluation reflected by valuation measures such as price to book, price to sales per share and price to earnings per share.
Management StockMark (SMM)

A company's management quality based on the following key indicators: return on assets, earnings per employee and the earnings growth rate.
Outperformance StockMark (SMO)

The likelihood of a stock to outperform the market based on the valuation of the company, the SMV and the SMT.
Volatility StockMark (SMV)

Risk of the stock based on numerous historical analyses of stock price and market correlation.
2009 Marques Mendes & Associados Lda (MM&A). All Rights Reserved. This report is for information purposes only and is not a solicitation or advice to buy or sell any security. The data contained within this report is not warranted to be accurate or complete. This report is only intended as a summary of SADIF's stock ratings and not a recommendation for stock purchase or sale. Redistribution of this report without explicit permission is strictly prohibited. All logos are the copyright property of their respective companies and are used here only to aid the reader in identification of the subject of the article. The author of this article does not hold a position in any of the companies featured within this report.
Marques Mendes & Associados Lda. Rua Domingos F. Pinto Basto, 17 3830-176 Ilhavo, Portugal, Ph: (+ 351)234 322 037 Email: research@sadifanalytics.com
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Sales (800) 933-6830, Trading (800) 933-6820 ROTHSales@roth.com
MORNING CALL SUMMARY | EQUITY RESEARCH | October 7, 2011
Rating Changes
Harbin Electric, Inc. (HRBN) HRBN: Privatization Appears On-Track; Downgrading to Neutral
Price Target Changes

The Buckle Inc. (BKE) BKE: September Comps Beat, Raising Estimates, Maintain Neutral Rating
Estimate Changes
Destination Maternity Corp. (DEST) DEST: September Comps Beat, Economic Headwinds Persist, Maintain Neutral Rating
Company Comments
bebe stores, inc. (BEBE) Unigene Labs Inc. (UGNE) Wet Seal, Inc., The (WTSLA) BEBE: Q1 Comps Beat; Merchandise Strategies Working; RT Buy UGNE: Continuing To Execute On Strategy With Nordic Deal Reiterate Buy WTSLA: September Comps Miss, Believe Issues are Fixable, Reiterate Buy
Industry Comments
Retail & Consumer Products Medical Technology September Comp Recap 3Q 2011: Quarterly Medical Technology Trading & Acquisition Valuation Update
Refer to important disclosure information and rating System Definition on page 10 of this report. Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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MORNING SUMMARY
EQUITY RESEARCH
October 7, 2011
Rating Changes
Harbin Electric, Inc. (NASDAQ: HRBN)
Mark Tobin (949) 720-5775 Price: $21.76 Mkt. Cap.(mil): $684.0
20.0 16.0 12.0 8.0 4.0
May-11
Downgrading to Neutral
Target: $24.00
HRBN: Privatization Appears On-Track; Downgrading to Neutral With the filing of its definitive proxy materials last week and the shareholder vote scheduled for October 29, we believe HRBN's buy-out is well on its way to completion and expect shares to continue to trend toward the $24 buy-out price. Given the ~10% upside from current levels, we are downgrading shares to Neutral (from Buy).
30 25 20 15 10 5
Oct-11
0.0
Feb-11 Nov-10 Dec-10 Mar-11 Jan-11 Apr-11
Aug-11
Sep-11
Jun-11
Jul-11
Price
Recall, on September 29 HRBN filed its definitive proxy materials and scheduled its shareholder vote for October 29. These announcement signified that HRBN had completed the final meaningful hurdle associated with its privatization, in our view. We believe the deal financing remains firmly in place. We consider the remaining steps in the transaction to be largely formalities. Since there is no change in majority ownership, there is no Chinese regulatory approval required to complete the transaction. The company has settled the class action lawsuits in 2 of 3 jurisdictions and we expect the final jurisdiction to also be settled in the near-term. Based on timelines from previous transactions, we project the HRBN deal will close in early November. In comparison, Chemspec closed 4 business days after its successful shareholder vote, Funtalk in 3 business days, and China Security and Surveillance in 2 business days.
2010A 2011E 2012E
EPS 2.72 2.05 2.64
P/E 8.0x 10.6x 8.2x
Page 2 of 10
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MORNING SUMMARY Price Target Changes

The Buckle Inc. (NYSE: BKE)
Elizabeth Pierce, CFA (949) 720-7130 Price: $41.85 Mkt. Cap.(mil): $1,981.7
3.0 2.62 2.25 1.88 1.5 1.12 0.75 0.38 0.0
EQUITY RESEARCH
October 7, 2011
Neutral
Target: Raising to $39.00
BKE: September Comps Beat, Raising Estimates, Maintain Neutral Rating September comps increased 10.3%, beating our/consensus estimate of a MSD increase and up over last years comp of 3%. This is the second month that results exceeded expectations and given that sequential compares got tougher speaks to the product offering and compelling value. That said, we continue to believe that long-term growth is limited and therefore, we maintain our Neutral rating. Net sales increased 13% to $98.4 million, with men's sales up 12% and representing 37.5% of sales. Strong categories included denim, woven and knit shirts, outerwear, footwear and accessories; price points were up 7.5% implying units were up 4.5%. Womens sales were up 13.5% from last year and represented 62.5% of sales. Strong categories included denim, woven and knit shirts, sweaters, outerwear and footwear; price points up 5.5%, implying units were up 8%. Within the mens and womens categories combined, accessories and footwear sales were up 6% and 10.5% respectively and accounted for 8% and 5.5% respectively of net sales. Average accessory prices were down slightly while average footwear prices were up 6.5%. UPTs were up slightly while the average transaction value was up 6%, implying volume or transactions were up about 4%. Based on the results of the past 2 months, we are raising our Q3 and FY2011 earnings estimate to $0.77 and $3.03 from $0.75 and $3.01 respectively. We are also raising our price target to $39 from $35. However, we maintain our Neutral stance on the stock as we believe the one-time special dividend of $2.25/share (payable October 27th) is already priced in the stock and organic growth is limited. Moreover, the compares become more difficult starting in Q4 and thus we believe the stock has limited upside from current levels. Intraday price: $43.46 3:20pm ET, 10/6/11
BKE One-Year Price and Volume History
May-11
Nov-10
Dec-10
Aug-11
Sep-11
60 55 50 45 40 35 30 25 20 Price
Feb-11
Mar-11
Jan-11
Jun-11
Apr-11
2010A 2011E 2012E
EPS 2.86 3.03 3.24
Prev. 3.01 3.22
Oct-11
Jul-11
P/E 14.6x 13.8x 12.9x
Page 3 of 10
107
MORNING SUMMARY Estimate Changes

Destination Maternity Corp. (NASDAQ: DEST)
Elizabeth Pierce, CFA (949) 720-7130 Price: $14.24 Mkt. Cap.(mil): $188.3
0.5 0.38 0.25 0.12
May-11
EQUITY RESEARCH
October 7, 2011
Neutral
Target: $15.00
DEST: September Comps Beat, Economic Headwinds Persist, Maintain Neutral Rating Comparable retail sales were +2.4%, above our/consensus estimate of negative LSD. By segment, comparable retail sales were +0.2% versus -2.2% last year while Internet sales were up 35.5% versus a 20.6% increase last year. While we are encouraged by September sales as we believe it more fully reflects the product, we remain cautious about business near-term given the various macro headwinds. September total sales increased 6.6% to $44.2 million driven by the Macys expansion and higher online sales offset by the ongoing closure of underperforming stores. We believe the catalog and consumers buying closer to need had a positive impact on September sales. However, as consumers remain cautious about spending, DEST increased its promotional activity and its markdowns in order to drive conversion, which hurt margins. On an adjusted basis due to calendar shifts, comparable retail sales increased 1.5% while comparable stores decreased 0.8% versus a negative 1.3% and negative 2.6% respectively. Q4 total sales were up 4.2% to $129.4 million with comparable retail sales down 1.7%, both toward the lower end of guidance. Comparable stores sales were down 4.1% while Internet net sales were up 34.9%. For the year, total sales increased 2.7% to $545.4 million with comparable retail sales up 0.1%, comparable store sales down 1.4% and Internet sales up 22%. Based on the margin impact stemming from the additional markdown and promotional activity, management updated is Q4 earnings guidance to be at or slight higher than the low end of its previously issued guidance of $0.18 to $0.28. We are lowering our GAAP Q4 and FY2011 estimate to $0.19 and $1.74 from $0.21 and $1.76. Although we believe DEST has several longer-term earnings catalysts including real estate rationalization, leased/licensed opportunities with domestic and international partners and a growing e-commerce platform, we believe these catalysts are not likely to have a materially impact on results until the 2H of FY2012. Furthermore, based on the slower than expected Macys ramp, merchandise issues and ongoing economic pressures, we expect the stock to remain range bound; accordingly, we are maintaining our Neutral rating and $15 price target.
DEST One-Year Price and Volume History
30 25 20 15
0.0
Aug-11
Sep-11
10
Oct-11
Jun-11
Jul-11
Price
2010A 2011E 2012E
EPS 1.33 1.74 1.76
Prev. 1.76 1.78
P/E 10.7x 8.2x 8.1x
Page 4 of 10
108
MORNING SUMMARY Company Comments

bebe stores, inc. (NASDAQ: BEBE)
4.0 3.2 2.4 1.6 0.8
May-11
EQUITY RESEARCH
October 7, 2011
Buy
Target: $10.00
BEBE: Q1 Comps Beat; Merchandise Strategies Working; RT Buy BEBE reported a Q1 comp of 7% (includes direct), beating our estimate/consensus estimate of MSD increase as well as exceeding guidance of a MSD increase. Based on recent channel checks, we see ongoing merchandise progress that we believe is resonating with shoppers. Moreover, we believe fashion trends are in BEBEs favor right now and therefore, we expect the momentum to continue. Total retail sales were up 7.1% to $116 million and comps, which now include direct, were up 7% versus -4.7% last year. It is important to note that last years comp does not include direct, but according to management, the online business was not meaningful last year, which we attribute to the product, and therefore would not have moved the needle. All regions were positive, with the Midwest being the weakest and the Southeast being the strongest; in addition, all months positive with July and September being better than August. September being better than August is an encouraging incoming trend and bodes well for Q2. Metrics for the 77 stores that have traffic counters were: traffic up flat, which we believe is better than the industry average, conversion up 7%, UPTs up 6% while AUR was down 6% due to a mix shift. Dresses, denim, knit tops, tubular and accessories were the better performing categories while woven tops and bottoms remain challenging. 2b bebe also continues to perform well. Inventory remains tightly managed with average finished goods inventory/square foot from continuing operations were flat, well below the current comp run rate. Management indicated Q1 earnings are expected to be at the high end of guidance of -$0.01 to $0.01 and expects to report Q1 earnings on November 3rd after market close. We are maintaining our Q4 estimate of $0.01. The ongoing improvement in comps reinforces our belief that the merchandise changes are resonating with shoppers. That said, we believe there are still additional opportunities for product improvement in key categories such as outerwear, wovens, shoes and logo. Moreover, we believe the solid balance sheet, ~$3 cash & investments/share, provides significant downside cushion to the stock and therefore, we are maintaining our Buy rating and our $10 price target. Intraday price: $6.77 2:40pm ET, 10/6/11
BEBE One-Year Price and Volume History
9 8 7 6 5 4
0.0
Aug-11
Sep-11
Jun-11
Oct-11
Jul-11
Price
2011A 2012E 2013E
EPS 0.05 0.18 0.28
P/E NM 38.8x 25.0x
Page 5 of 10
109
MORNING SUMMARY
EQUITY RESEARCH
October 7, 2011
Unigene Labs Inc. (OTC: UGNE)

David Moskowitz, RPh. (646) 358-1906 Price: $1.04 Mkt. Cap.(mil): $96.7
2.0 1.67 1.33 1.0 0.67 0.33 0.0
Buy
Target: $2.50
UGNE: Continuing To Execute On Strategy With Nordic Deal Reiterate Buy We believe UGNE has a unique asset base and several products in development to drive share value higher. UGNE has a patented manufacturing process that enables the cost-effective production of peptides, plus proprietary technologies that allow for oral and nasal delivery of peptides. UGNE continues to be active in its BD efforts, evidenced by the recent Nordic Bioscience announcement. Nordic Bioscience JV Adds Pipeline Assets. UGNE and Nordic Bioscience established a joint venture to advance up to 3 of the companys proprietary calcitonin analogs through Phase II proof-of-concept for the treatment of Type II diabetes, osteoarthritis, and osteoporosis. UGNE and Nordic will each own 50% of the JV, with the company contributing the compounds and their manufacture for preclinical and clinical trials. In exchange, Nordic will fully fund and conduct all preclinical and clinical development for the Type II diabetes indication through Phase II proof-of-concept. The companies will negotiate financial and development resources for the osteoarthritis and osteoporosis indications should they advance. Cash Infusion by Nordics Chairman Provides Validation, As Well As Capital. In conjunction with the JV news, UGNE announced that Dr. Claus Christiansen, Chairman of Nordic Bioscience, purchased $1.5M of UGNE common stock through his Danish foundation. The foundation took an option to purchase an additional $1.5M of stock before year end, and a second option to purchase up to $3M of UGNE common stock in 1H12. In addition to providing operating capital to the company, we believe the investment serves as a validation of UGNEs technology, given that Dr. Christiansen and his scientific team has had an opportunity to conduct substantial due diligence on the platform and its promise for making oral peptide delivery a reality. Several Exciting Catalysts Anticipated in 4Q. Mid and late-stage assets that could increase shareholder value near-term include an oral calcitonin candidate for osteoporosis with Tarsa Therapeutics (NDA filing by year-end), an oral PTH candidate, also for osteoporosis, with GlaxoSmithKline (Phase II results by year-end), and a separate oral calcitonin product being developed by Novartis (Phase III results by year-end). Reiterate Buy, $2.50 Price Target. Our $2.50 price target is based on a P/E multiple of 30x our 2018 EPS estimate of $0.27, discounted back 6 years at 30% to arrive at $1.70 per share. We then add $0.50/share for UGNEs 20% ownership in Tarsa plus $0.30 per share for UGNEs technology platform, intellectual property, its FDA-approved peptide manufacturing facility, and federal NOLs.
UGNE One-Year Price and Volume History
May-11
Nov-10
Dec-10
Aug-11
Sep-11
2 1 1 1 1 1 0 Price
Feb-11
Mar-11
Jan-11
Jun-11
Apr-11
2010A 2011E 2012E
EPS (0.30) (0.27) (0.21)
Oct-11
Jul-11
P/E NM NM NM
Page 6 of 10
110
MORNING SUMMARY
EQUITY RESEARCH
October 7, 2011
Wet Seal, Inc., The (NASDAQ: WTSLA)

25.0 21.43 17.86 14.29 10.71 7.14 3.57 0.0
Buy
Target: $7.00
WTSLA: September Comps Miss, Believe Issues are Fixable, Reiterate Buy Comps declined 0.3%, below the LSD/MSD estimates; flat at Wet Seal and -2.2% at Arden. We attribute the miss to a falloff in post-Labor Day traffic and the competitive environment; however, merchandise margins were up and earnings guidance maintained. After several months of consecutive positive comps, it is premature to overreact to the comp shortfall; accordingly, we reiterate our Buy rating. While the denim assortment at Wet Seal is not quite fixed, we believe the comp shortfall had more to do with a decline in mall traffic, which was consistent with our channel checks, as the BTS shopping season wound down. However, we also believe the promotional strategy, which the company has been tweaking for the past several months, played a part in the miss. As previously discussed, WTSLA has taken a more disciplined approach to its pricing and promotional strategy in order to present a clearer value message to customers. Specifically, they have consolidated price points and pulled-back on the number of promotions running at one time. In our opinion, this hurt results during the latter part of the month as the competitive landscape intensified. That said, comps have been solidly positive for the last 8 months and merchandise margins continue to move up in spite of rising costs pressure and therefore, we believe that directionally, these strategies still make sense. Comps were still negative at Arden, but improved over August on a 1-year and 2-year stacked basis. Results were stronger in the first part of the month, which we attribute to a better promotional cadence, but consistent with Wet Seal, sales softened during the latter part of the month as the BTS selling period ended. Nonetheless, merchandise margins improved over last years levels. Based on recent channel checks, category balance is work-in-progress but we remain optimistic about Ardens ability to take make share as its merchandise, pricing and promotional strategy improve. E-commerce sales were down 22% due to the change and we expect online sales will remain under pressure at least until the end of the year given tougher compares. However, as cross channel shopping has become more of the norm, we believe the site and stores should have a more unified voice While comps are expected to fall below the initial guidance of a MSD increase, given effective expense management and higher merchandise margins, earnings are still expected to be between $0.05 and $0.06; accordingly, we are maintaining our Q3 estimate of $0.06. Intraday price: $4.11 12:30pm ET, 10/6/11
WTSLA One-Year Price and Volume History
May-11
6 6 5 4 4 4 3 2 Price
Nov-10
Dec-10
Aug-11
Sep-11
Feb-11
Mar-11
Jan-11
Jun-11
Apr-11
2010A 2011E 2012E
EPS 0.12 0.23 0.32
Oct-11
Jul-11
P/E 38.6x 20.1x 14.5x
Page 7 of 10
111
MORNING SUMMARY Industry Comments

Retail & Consumer Products
Elizabeth Pierce, CFA (949) 720-7130 September Comp Recap
EQUITY RESEARCH
October 7, 2011
Promotional environment and late Back to School shopping fuel results. September same store sales results were generally better than expected, driven by a late Back to School push and a fairly promotional environment. In our universe, four of the companies reporting comps were better than expected (BEBE, BKE, DEST, ZUMZ), while only WTSLA reported comps that were below expectations. According to Retail Metrics, the consolidated comp for reporting retailers (excluding gasoline sales) was a 4.8% gain, better than the consensus of 4.0%. Of the companies tracked by Retail Metrics, 63% of the reporting companies beat expectations, with 37% below Street forecasts. With September and the Back to School period behind us, the focus turns to the holiday shopping season. October is traditionally a transitional, low-volume month, so most retailers have a good read on third quarter results. The National Retail Federation released its 2011 holiday season forecast today, with expectations it termed average. Specifically, the NRF forecasts November and December retail sales will be up 2.8% this year, versus a 5.2% increase in 2010. The NRF release stated that continued consumer uncertainty over the stock market, higher gas and food prices, fiscal policy and sputtering job growth will impact spending this holiday season. While retail stocks have been harder hit than the broader market in the past two months, we continue to be cautious regarding the sector as a whole. The RLX retail index is down 9% from its peak in July, but is still up 11% in the last year. Overall, we believe macroeconomic headwinds and conservative merchandising plans are likely to limit the upside for retail stocks as we head into the holiday season. As such, we believe investors with a long-term view should continue to focus on names that have strong franchises, legitimate organic growth, and clean balance sheets, including BEBE, CHS, CMRG, URBN, WTSLA and ZUMZ. .
Companies mentioned:
BEBE $6.71 Buy BKE $43.86 Neutral CHS $12.29 Buy CMRG $3.98 Buy DEST $14.24 Neutral PSUN $1.24 Neutral URBN $24.06 Buy WTSLA $4.05 Buy ZUMZ $21.06 Buy
Page 8 of 10
112
MORNING SUMMARY
EQUITY RESEARCH
October 7, 2011
Medical Technology
Matt Dolan (949) 720-5796 3Q 2011: Quarterly Medical Technology Trading & Acquisition Valuation Update In today's note, we provide our update on trading and acquisition valuations in the Medical Technology industry and our universe. As of the end of 3Q11, 206 Medical Technology stocks were trading with an average EV to sales multiple of 2.2x CY11 and 1.9x CY12 consensus revenue estimates. 155 small-cap Medical Technology stocks were trading with an EV to sales multiple of 2.0x and 1.7x CY11 and CY12 consensus estimates, respectively. P/E multiples stand at around 19x 2011 earnings for small cap stocks and 18x for all market caps. The companies in these two groups are demonstrating average 2-year sales growth and gross margins of 10% and 52% (all market cap) and 10% and 51% (<$2B market cap), respectively. The industry's EV to FTM sales multiple currently stands at 2.14x, down from 2.48x at 2Q11 but still well off the lows of 1Q09 of below 2x. The current multiple now sits in the lower quarter of the historic range (over the past 10 years) of between 2.0x-3.0x EV to FTM sales. Provided these valuation levels are sustained, a more normalized market environment should shift focus from concerns over the availability of capital and patient volumes toward specific growth opportunities in the med tech industry, a healthy sign in our opinion. For reference, historical averages for the industry have garnered a FTM high of around 3x, and the historic low of 1.8x was set in 1Q09 (lowest level in our 12-year historical analysis), with the prior historic low of roughly 2.2x in 2002. The average price to revenue multiple for acquisitions over the past 18 months is at roughly 3.3x TTM sales this period, staying consistent with 2Q11. Top line growth and margins were 9.2% and 63.6%, respectively, versus 9.6% and the gross margin was 65.7% for deals in 2Q11. With this background, we continue to believe the Medical Technology space offers select opportunities with attractive growth and profitability characteristics. Challenges to hospital spending will likely persist for the next few years (see our Sep 12 note), although the environment appears to be more stable sequentially. See Summary for discussion of individual stocks.
Companies mentioned:
ALGN $16.10 Buy ATEC $2.23 Neutral ATRC $10.49 Buy BABY $8.94 Buy BEAT $3.11 Buy CPTS $10.58 Buy CRY $4.37 Neutral DCTH $3.43 Buy ICUI $37.94 Buy INFU $0.99 Buy MASI $22.65 Buy MDCI $4.73 Neutral RTIX $3.43 Neutral SFE $15.01 Buy SYNO $17.55 Buy TRIB $8.92 Buy UPI $5.60 Neutral VOLC $30.32 Buy VRML $1.95 Buy
Page 9 of 10
113
MORNING SUMMARY
EQUITY RESEARCH
October 7, 2011
Disclosures
ROTH makes a market in shares of Harbin Electric, Inc., Wet Seal, Inc., The, bebe stores, inc. and Unigene Labs Inc. and as such, buys and sells from customers on a principal basis. Shares of Unigene Labs Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities. Shares of Unigene Labs Inc. may not be eligible for sale in one or more states. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 10/07/11 Count Percent 51 26.8 9 14.1 0 0 2 16.7
Count 190 64 1 12
Percent 70.9 23.9 0.4 4.5
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12-month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. For important disclosure information regarding the companies in this summary report, please contact: The Director of Research at (800) 678-9147 or write to: ROTH Capital Partners, LLC, Attention: Director of Research, 888 San Clemente Drive, Newport Beach, CA 92660 ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
Page 10 of 10
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COMPANY NOTE | CHINA RESEARCH | October 6, 2011

Company Update Rating Changed
| HRBN - $21.76 - NASDAQ | Neutral
$5.82 - $25.05 31.43 $684.0 1,781,325 $24.00 $87.6 $87.4 15%
HRBN: Privatization Appears On-Track; Downgrading to Neutral

With the filing of its definitive proxy materials last week and the shareholder vote scheduled for October 29, we believe HRBN's buy-out is well on its way to completion and expect shares to continue to trend toward the $24 buy-out price. Given the ~10% upside from current levels, we are downgrading shares to Neutral (from Buy). Recall, on September 29 HRBN filed its definitive proxy materials and scheduled its shareholder vote for October 29. These announcement signified that HRBN had completed the final meaningful hurdle associated with its privatization, in our view. We believe the deal financing remains firmly in place. We consider the remaining steps in the transaction to be largely formalities. Since there is no change in majority ownership, there is no Chinese regulatory approval required to complete the transaction. The company has settled the class action lawsuits in 2 of 3 jurisdictions and we expect the final jurisdiction to also be settled in the near-term. Based on timelines from previous transactions, we project the HRBN deal will close in early November. In comparison, Chemspec closed 4 business days after its successful shareholder vote, Funtalk in 3 business days, and China Security and Surveillance in 2 business days.
2012E Curr 2.64E 8.2x
20.0 16.0 12.0 8.0 4.0 0.0
30 25 20 15 10 5
May-11
Nov-10
Dec-10
Aug-11
Sep-11
Feb-11
Mar-11
Jan-11
Jun-11
Apr-11
Oct-11
Jul-11
Price
115
China Company Note - October 6, 2011
VALUATION
Our $24 price target is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s A slow-down in China's economic growth and continued inflation could impact sales and compress margins.
RISKS
COMPANY DESCRIPTION
Page 2 of 5
116
HRBN - Income Statement
FY07
Revenue Linear Motors Automobile specialty micro-motors Controllers and other special motors Rotary industrial motors (Weihai Hengda) Simo Motor Total Revenue yoy growth % Cost of Sales Gross Profit gross margin% Operating Expenses Selling, General and Administrative Expenses as % of revenue Research and Development Expenses as % of revenue Income From Operations operating margin yoy growth % Other Income(Expenses) Interest Income/expense-net Realized Gain/loss on Sale of Marketable Securities Non-operating Income/expense, Net Other Income/expense-net Loss on cross currency hedge settlement Gain on debt extinguishment Change in Fair Value of Warrants Loss from disposal of subdivision Earnings before Taxes Provision for Income Tax effective tax rate Minority Interest Net Income (Loss) net margin % yoy growth % Non GAAP Net Income* net margin % yoy growth % Diluted EPS yoy growth % Non GAAP EPS yoy growth % Diluted weighted average shares outstanding EBITDA 36,626 10,464 18,313 0 0 65,403 62% (32,968) 32,435 49.6%
FY08
46,950 34,628 11,664 27,578 0 120,820 85% (73,343) 47,477 39.3%
Q1'09A
12,382 6,114 1,383 10,846 0 30,725 36.8% (19,801) 10,924 35.6%
Q2'09A
11,547 8,555 1,343 16,918 0 38,363 60.1% (25,500) 12,863 33.5%
Q3'09A
16,426 8,448 1,408 20,650 0 46,932 18.3% (30,171) 16,761 35.7%
Q4'09A
20,371 18,441 643 23,694 44,065 107,214 208.6% (71,150) 36,064 33.6%
FY09
60,726 41,558 4,777 72,109 44,065 223,234 84.8% (146,622) 76,612 34.3%
Q1'10A
19,831 16,245 1,899 22,468 45,042 105,485 243.3% (69,743) 35,742 33.9%
Q2'10A
20,138 15,183 2,003 23,512 44,599 105,436 174.8% (70,104) 35,332 33.5%
Q3'10A
19,356 15,310 2,296 23,511 48,881 109,355 133.0% (75,780) 33,575 30.7%
Q4'10A
17,009 14,030 1,468 23,757 49,942 106,206 -0.9% (75,142) 31,064 29.2%
FY10A
76,334 60,767 7,666 93,249 188,465 426,481 91.0% (290,768) 135,713 31.8%
Q1'11A
19,261 15,532 961 21,770 46,305 103,829 -1.6% (73,626) 30,204 29.1%
Q2'11A
24,662 18,210 1,313 29,201 58,016 131,402 24.6% (95,198) 36,204 27.6%
Q3'11E
22,118 20,475 1,378 25,862 55,236 125,069 14.4% (90,110) 34,959 28.0%
Q4'11E
21,426 22,050 1,468 27,321 57,932 130,198 22.6% (93,528) 36,670 28.2%
FY11E
87,467 76,267 5,120 104,154 217,490 490,498 15.0% (352,461) 138,037 28.1%
FY12E
101,165 97,020 5,352 121,523 243,820 568,879 16.0% (407,641) 161,238 28.3%
(7,660) 11.7% (1,064) 1.6% 23,711 36.3% 69%
(11,913) 9.9% (1,170) 1.0% 34,393 28.5% 45%
(2,505) 8.2% (393) 1.3% 8,026 26.1% -7%
(3,639) 9.5% (409) 1.1% 8,816 23.0% 7%
(3,249) 6.9% (468) 1.0% 13,044 27.8% 24%
(9,278) 8.7% (823) 0.8% 25,962 24.2% 270%
(18,672) 8.4% (2,093) 0.9% 55,847 25.0% 62%
(7,417) 7.0% (594) 0.6% 27,731 26.3% 246%
(6,886) 6.5% (363) 0.3% 28,083 26.6% 219%
(10,059) 9.2% (1,663) 1.5% 21,853 20.0% 68%
(14,613) 13.8% (803) 0.8% 15,648 14.7% -40%
(38,974) 9.1% (3,423) 0.8% 93,315 21.9% 67%
(10,073) 9.7% (3,879) 3.7% 16,252 15.7% -41%
(13,799) 10.5% (948) 0.7% 21,458 16.3% -24%
(10,756) 8.6% (1,251) 1.0% 22,953 18.4% 5%
(10,806) 8.3% (1,302) 1.0% 24,561 18.9% 57%
(45,434) 9.3% (7,379) 1.5% 85,224 17.4% -9%
(41,056) 7.2% (6,199) 1.1% 113,983 20.0% 34%
(6,620) 0 (189) 0 0 0 0 0 16,903 0 0.0% 16,903 25.8% -8% 16,903 25.8% 40% $0.91 -10% $0.91 37% 18,635 29,863
(6,066) 0 218 1,358 0 0 0 0 29,903 (4,524) 15.1% 25,379 21.0% 50% 25,379 21.0% 50% $1.19 31% $1.19 31% 21,324 42,066
(1,441) 0 0 539 0 0 2,573 0 9,697 (1,043) 10.8% 8,654 28.2% 62% 6,081 19.8% 14% $0.39 46% $0.27 2% 22,159 10,245
(843) 0 0 2,101 0 0 (14,015) 0 (3,941) (1,479) -37.5% (5,419) -14.1% -187% 7,423 19.3% 19% -$0.24 -178% $0.33 7% 22,341 10,688
(8,478) 0 0 1,063 (9,000) 4,155 (737) 0 46 (1,954) 4209.2% (1,908) -4.1% -125% 10,953 23.3% 41% -$0.07 -121% $0.40 20% 27,077 23,101
(1,553) 0 0 1,759 0 0 (1,037) 0 25,131 (3,320) 13.2% (3,491) 18,320 17.1% 203% 19,356 18.1% 220% $0.59 114% $0.62 127% 31,240 28,806
(12,316) 0 0 5,462 (9,000) 4,155 (13,215) 0 30,934 (7,796) 25.2% (3,491) 19,647 8.8% -23% 43,813 19.6% 73% $0.77 -36% $1.71 43% 25,672 72,840
(1,647) 0 0 1,119 0 0 (234) 0 26,969 (4,063) 15.1% (2,352) 20,554 19.5% 137% 20,788 19.7% 242% $0.66 68% $0.66 142% 31,354 31,037
(978) 0 0 1,327 0 0 1,657 (623) 29,466 (3,791) 12.9% (1) 25,675 24.4% -574% 24,641 23.4% 232% $0.82 N/A $0.79 137% 31,343 30,866
(1,133) 0 0 740 0 0 (302) 0 21,158 (3,296) 15.6% 11 17,873 16.3% -1037% 20,208 18.5% 85% $0.57 N/A $0.65 60% 31,282 24,943
(836) 0 0 2,304 0 0 (547) 0 16,569 (3,765) 22.7% (91) 12,714 12.0% -31% 19,603 18.5% 1% $0.41 -31% $0.62 1% 31,376 17,938
(4,593) 0 0 5,490 0 0 574 (623) 94,163 (14,915) 15.8% (2,432) 76,815 18.0% 291% 85,240 20.0% 95% $2.46 221% $2.72 60% 31,282 104,784
(1,924) 0 0 1,121 0 0 (434) 0 15,015 (4,195) 27.9% (14) 10,806 10.4% -47% 12,939 12.5% -38% $0.34 -47% $0.41 -38% 31,364 19,097
(1,259) 0 0 2,390 0 0 566 0 23,154 (5,986) 25.9% (6) 17,162 13.1% -33% 16,596 12.6% -33% $0.55 -33% $0.53 -33% 31,351 24,572
(1,500) 0 0 1,000 0 0 0 0 22,453 (5,613) 25.0% 0 16,839 13.5% -6% 16,839 13.5% -17% $0.54 -6% $0.54 -17% 31,445 26,153
(1,500) 0 0 1,000 0 0 0 0 24,061 (6,015) 25.0% 0 18,046 13.9% 42% 18,046 13.9% -8% $0.57 41% $0.57 -8% 31,540 27,761
(6,183) 0 0 5,511 0 0 132 0 84,683 (21,810) 25.8% (20) 62,853 12.8% -18% 64,421 13.1% -24% $2.00 -19% $2.05 -25% 31,425 97,583
(6,000) 0 0 4,000 0 0 0 0 111,983 (27,996) 25.0% 0 83,987 14.8% 34% 83,987 14.8% 30% $2.64 32% $2.64 29% 31,777 127,983
*Pro-forma net income excludes stock compensation, derivative valuation, and one-time items Source: Company reports, Roth Capital Partners estimates Mark Tobin (949) 720-5775 mtobin@roth.com
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Disclosures:
Count 190 63 1 12
Percent 71.2 23.6 0.4 4.5
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Page 5 of 5
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RED FLAG & VALUATION

09/30/2011 Closing Stock Price as of 09/30/2011: $20.65

Attractive Risk/Reward Rating
Trust
We deliver the whole truth by incorporating critical data from the Financial Footnotes and MD&A that other firms miss.
HRBN has an Overall Risk/Reward Rating of Attractive because the stock offers more upside potential than downside risk. Figure 1 summarizes the five factors that drive our Overall Risk/Reward Rating for HRBN. Each factor offers insights into the profitability and valuation of HRBN. Positive EE means that economic EPS are positive because the company's ROIC is greater than WACC. The biggest adjustment that lowers economic EPS and is not captured in Reported EPS is Reported Net Assets. The combination of positive economic EPS with a cheap stock valuation drives a Risk/Reward Rating of Attractive for HRBN.
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Our Risk/Reward Rating system identifies disconnects between the market's expectations for future cash flows and current cash flows. This report provides a detailed explanation of each diagnostic criterion and each rating for HRBN. Appendices highlight Red Flags and explain our Risk/Reward Rating system.
Figure 1: New Constructs' Risk/Reward Rating
Overall Risk/Reward Rating

Very Dangerous Dangerous Neutral Attractive Very Attractive Actual Values S&P 500 Russell 2000
Quality of Earnings
Economic vs Reported EPS Misleading Trend False Positive Neutral EE Positive EE Rising EE $1.36 vs. $2.46 Positive EE Neutral EE Return on Invested Capital (ROIC) Bottom Quintile 4th Quintile 3rd Quintile 2nd Quintile Top Quintile 21.0% 18.4% 8.7% FCF Yield <-5% -5%<-1% -1%<3% 3%<10% >10% 1.0% 2.1% -1.2%
Valuation
Price-to-EBV Ratio > 3.5 or -1 < 0 2.4 < 3.5 or < -1 1.6 < 2.4 1.1 < 1.6 0 < 1.1 0.80 2.0 4.2
Growth Appreciation Period (yrs)
> 50 20 < 50 10 < 20 3 < 10 0<3 < 1 year 22 years 53 years
Source: New Constructs, LLC. Page 1 Important Disclosure Information is contained on the last (two) page(s) of this report. The recipient of this report is directed to read these disclosures.
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Economic vs Reported Earnings

Why Economic Earnings Matter
Economic earnings are almost always meaningfully different than GAAP earnings. We believe economic earnings provide a truer measure of profitability and shareholder value creation than offered by GAAP earnings. Investors should beware investing in companies that report profits meaningfully different than their economic earnings. Figure 2 highlights the differences between the reported and economic earnings for HRBN. Positive EP reflects the improving economic performance of the business.
New Constructs rectifies accounting distortions in GAAP financial statements.
During the last Fiscal Year, the biggest driver of the difference between reported and economic EPS is Reported Net Assets.
Figure 2: Economic Earnings Per Share vs Reported EPS
Source: New Constructs, LLC.
Economic earnings and return on capital metrics are significantly more accurate when as-reported financial statements have been adjusted to reverse accounting distortions and Red Flags. The majority of the data required to reverse accounting distortions is available only in the Notes to the Financial Statements, which we analyze rigorously. Our core competency is gathering and analyzing all relevant financial data (from Financial Statements and the Notes) so that we can deliver earnings analyses that best represent the true profitability of businesses. See Figure 3 for a list of the Red Flag adjustments we make to a company's reported GAAP profits in order to reverse accounting distortions and arrive at a better measure of a firm's profits.
Figure 3: Accounting Issues and Red Flags that Distort GAAP
- Employee Stock Options - Pension Over/Under Funding - Excess Cash - Restructuring charges - Pooling Goodwill - Minority Interests
Source: New Constructs, LLC.
- Off-Balance-Sheet Financing - LIFO Reserve - Unrealized Gains/Losses - Goodwill Amortization - Unconsolidated Subsidiaries - Capitalized Expenses
Page 2: Economic vs Reported Earnings
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09/30/2011 Figure 4 compares HRBN's Return on Invested Capital (ROIC) to its Weighted-Average Cost of Capital (WACC). This company's ROIC during its last fiscal year ranks in the Top Quintile.
Figure 4: Return on Invested Capital vs Weighted Average Cost of Capital
Source: New Constructs, LLC. Note: If average invested capital is negative, ROIC is not calculated.
How We Measure Economic Earnings

The metrics we use to measure the economic performance of companies are Economic Earnings Margin and Economic Earnings. The Economic Earnings Margin for a company equals its Return on Invested Capital (ROIC) minus its Weighted-Average Cost of Capital (WACC). The Economic Earnings of a company equal its Economic Earnings Margin multiplied by its average Invested Capital. Economic Earnings per Share equal Economic Earnings divided by Basic Shares Outstanding. ROIC equals Net Operating Profit After Tax (NOPAT) divided by Invested Capital. We believe our measures of economic performance are substantially more accurate than accounting metrics because we make adjustments for all the issues listed in Figure 3. Appendix 3 provides a line item by line item reconciliation of Net Income to Economic Earnings.
Page 3: Economic vs Reported Earnings
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09/30/2011
Free Cash Flow Yield

Rigorous back-testing shows that stocks with a Free Cash Flow Yield of at least 10% significantly out-performed both the S&P 500 and a survivor-bias-adjusted index. For more detail on Free Cash Flow Yield and our backtesting, see our report "Cash Is King," which was published November 30th, 2004. Using Free-Cash-Flow Yields to pick stocks is not a new strategy. However, our strategy yields superior results because we use a better measure of Free Cash Flow (FCF), in our opinion. In the same way our economic EPS are better measures of profitability than reported EPS, our measure of FCF is better than traditional accounting-based FCF. We measure Free Cash Flow by subtracting the change in Invested Capital from NOPAT.
Figure 5: Free Cash Flow Yield
Source: New Constructs, LLC. Note: Dot on the line(s) in the chart marks the current value(s).
Figure 5 shows HRBN's FCF Yield over the past several years. HRBN's current FCF Yield is 1.0%. Free Cash Flow Yield equals unlevered FCF divided by enterprise value. The level of FCF does not always reflect the health of a business or its prospects. For example, a large amount of FCF can be a sign that a company has limited investment opportunities and, hence, limited growth prospects. On the other hand, negative FCF can be an attractive indication that a company has more investment opportunities than it can fund with cash from operations. Zero FCF could mean that the company generates just enough cash to internally fund its growth opportunities.
Page 4: Free Cash Flow Yield
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Price-to-EBV Per Share

Figure 6 shows the differences between the stock market price and Economic Book Value (EBV) per share of HRBN. These differences reflect the portion of the stock price that is entirely dependent on future cash flow growth.
The lower the stock price is versus EBV, the lower the potential risk of investing in the stock. The higher the stock price is versus EBV, the greater the potential risk of investing in the stock.
When stock prices are much higher than EBVs, the market predicts the economic profitability (as distinct from accounting profitability) of the company will meaningfully increase. When stock prices are much lower than EBVs, the market predicts the economic profitability of the company will meaningfully decrease. If the stock price equals the EBV, the market predicts the company's economic profitability will not change.
Figure 6: Economic Book Value Per Share vs Market Price
Source: New Constructs, LLC. Note: Dot on the line(s) in the chart marks the current value(s).
EBV measures the no-growth value of the company based on the current economic cash flows generated by the business. It is also known as the "pre-strategy value" of the company because it ignores the value attributable to future cash flows, which are, in theory, what business strategies should aim to improve. The Formula for EBV is: (NOPAT / WACC) + Excess Cash + Unconsolidated Subsidiary Assets + Net Assets from Discontinued Operations - Debt (incl. Operating Leases) Value of Outstanding Stock Options - Under (Over) funded Pensions - Preferred Capital Minority Interests. EBV per share equals EBV divided by shares outstanding.
Page 5: Price-to-EBV Per Share
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Quantifying Market Expectations

Stock prices reflect the markets expectations for the present value of future cash promised to the owner.
We believe this stock has an Attractive Risk/Reward Rating because there is a relatively small difference between the expected financial performance implied by its market price and the company's historical performance. Figure 7 compares the future performance required to justify the company's stock market price to its historical performance. Specifically, Figure 7 shows: the current stock price of $20.65 implies that HRBN will not generate any growth in economic earnings.
Figure 7: Future Performance Required to Justify Valuation Performance Hurdles Historical Performance Market Expectations Default
based on current price
5 Yr
Comparing the required future performance to historical performance positions investors to asses the feasibility of market expectations and valuations. Stock Price Revenue CAGR Avg Economic Earnings Margin Growth Appreciation Period
3Yr $7.99 87.9% 10.9% -
Last FY $17.35 91.0% 11.7% -
$20.65 < 1 year
Source: New Constructs, LLC Note: The Default Scenario is Based on the forecast set by the New Constructs analytical team, this scenario represents a likely financial performance path the company may follow to justify the current market price. Subscribers to our services may create alternate forecast scenarios based on their own estimates.
Historically, HRBN has generated a Revenue CAGR of -, 87.9%, and 91.0% and Economic Earnings Margins of -, 10.9%, and 11.7% over the past 5, 3 and 1 year(s). The market does not expect HRBN to achieve any future profit growth. See the Price-toEBV Per Share analysis for more detail. GAP measures the number of years implied by the stock price over which the company must maintain an edge over its current and future competitors. Specifically, GAP measures the number of years a company will earn returns on invested capital greater than its cost of capital on new investments. The law of competition dictates that a company can only grow its economic earnings for the finite period over which it can maintain a competitive advantage.
See Appendix 4 for the specific estimates used in this company's valuation model.
The Market-implied GAP of the S&P 500 is 20 years. For the Russell 1000, it is 23 years. HRBN has a GAP of < 1 year, which is much less than the indices. Based on this criterion, HRBN has a much greater chance of seeing price appreciation versus the indices. Our Overall Rating is Attractive. Other criteria (per pages above) in our rating system also indicate HRBN is an Attractive investment. GAP analysis comes from our dynamic discounted cash flow model, a multi-stage DCF model that values companies across multiple forecast horizons. Each forecast horizon (i.e., Growth AppreciationPeriod - GAP), assumes the company cannot grow profits beyond the GAP period. Our model exclusively uses no-growth terminal value assumptions for calculating the value of the stock for each GAP. The forecast drivers for our DCF model are: (1) Revenue Growth; (2) NOPBT Margin, (i.e. EBIT Margin with Adjustments*), (3) Cash Tax Rate, (4) Incremental Net Working and Fixed Capital needs. See Appendix 4 for the forecasts that drive our DCF model for this company.
Appendix 2 details each Adjustment made to this company's reported financial results.
Page 6: Qualifying Market Expectations
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09/30/2011 Our Company Models value stocks based on the present value of expected free cash flows, with that free cash flow measured according to our economic (as distinct from conventional accounting) methodology. Website subscribers forecast economic free cash flow by assigning estimates to three value drivers: 1. Revenue Growth Compounded over the indicated time frame. 2. Economic Earnings Margin The Return On Invested Capital minus the weighted-average cost of capital. 3. Growth Appreciation Period Number of years the company can earn a positive Economic Earnings Margin on incremental investments, i.e. the number of years it can create economic value. An alternative way to conceptualize the three value drivers is: 1. "How fast will the company grow?" 2. "How profitable will the company be?" 3. "For how many years will the company grow economic earnings or create incremental value?"
Page 7: Qualifying Market Expectations
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09/30/2011
Appendix 1: Explanation of New Constructs' Stock Ratings Scale

Our Risk/Reward Rating (Figure 1) system grades every stock under our coverage according to what we believe are the 5 most important criteria for assessing the risk versus reward of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our Risk/Reward analysis results in the 5 ratings described below. Most Attractive corresponds to a "Buy" rating, Most Dangerous corresponds to a "Sell" rating, and everything in-between corresponds to a "Hold" rating.
Overall Risk/Reward Rating

The Overall Risk/Reward Rating provides a final rating based on the equal-weighted average rating of each criterion. Very Dangerous Dangerous Neutral Attractive Very Attractive All criteria are equal-weighted in the average calculation except 2yr FCF Yield is excluded. All criteria are equal-weighted in the average calculation except 2yr FCF Yield is excluded. All criteria are equal-weighted in the average calculation. All criteria are equal-weighted in the average calculation. All criteria are equal-weighted in the average calculation.
Economic vs Reported EPS

Ranks stocks based on how their Economic Earnings compare their Reported Earnings. Values based on Latest Fiscal Year. Very Dangerous = negative and declining Economic Earnings despite positive and rising Reported Earnings Misleading Trend False Positive Neutral EE Positive EE Rising EE Dangerous = same as above except Reported EPS are not positive or are not rising Neutral = Negative Economic and Reported Earnings Attractive = Economic Earnings are positive Very Attractive = Economic Earnings are positive and rising
Return on Invested Capital (ROIC)

Ranks stocks based on their ROIC. Values based on Latest Fiscal Year. Bottom Quintile 4th Quintile 3rd Quintile 2nd Quintile Top Quintile Very Dangerous = in the bottom 20% of all companies Dangerous = in the bottom 40% of all companies Neutral = in the middle 20% of all companies Attractive = in the top 40% of all companies Very Attractive = in the top 20% of all companies
FCF Yield
Ranks stocks based on their Free Cash Flow Yield. Values based on Latest Closing Stock price and Latest Fiscal Year. < -5% Very Dangerous = less than or equal to -5% -5% < -1% -1% < 3% 3% < 10% > 10% Dangerous = more than -5% but less than or equal to -1% Neutral = more than -1% but less than or equal to +3% Attractive = more than +3% but less than or equal to +10% Very Attractive = more than +10%
Price-to-EBV Ratio
Ranks stocks based on their Price-to-Economic Book Value Ratio. Values based on Latest Closing Stock price and Latest Fiscal Year. > 3.5 or -1 < 0 2.4 < 3.5 or < -1 1.6 < 2.4 1.1 < 1.6 0 < 1.1 Very Dangerous = greater than or equal to 3.5 or less than 0 but greater than -1 Dangerous = greater than or equal to 2.4 but less than 3.5 and less than or equal to -1 Neutral = greater than or equal to 1.6 but less than 2.4 Attractive = greater than or equal to 1.1 but less than 1.6 Very Attractive = greater than or equal to 0 but less than 1.1
Growth Appreciation Period (yrs)

Ranks stocks based on their Market-Implied Growth Appreciation Period. Values based on Latest Closing Stock price and Default Forecast Scenario. > 50 20 < 50 10 < 20 3 < 10 0<3 Very Dangerous = greater than or equal to 50 years Dangerous = greater than or equal to 20 years but less than 50 Neutral = greater than or equal to 10 years but less than 20 Attractive = greater than or equal to 3 years but less than 10 Very Attractive = greater than or equal to 0 years but less than 3 Harbin Electric, Inc. (HRBN)
Page 8: New Constructs' Risk/Reward Rating
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Appendix 2: Red Flag and Economic Adjustments Summary

Values in millions except per share amounts
2008 $25.38 $4.51 $0.00 ($0.00) $0.00 ($0.68) $0.00 $29.20
2009 $19.65 $25.69 $8.90 $0.00 ($0.00) $0.00 ($6.47) $3.49 $51.25
2010 $76.82 ($0.06) $1.60 $0.00 ($0.00) $0.00 ($5.13) $2.43 $75.66
NOPAT Adjustments - Impact Analysis

GAAP Net Income Net Non-Operating Items Pre-Tax Change in Total Reserves Goodwill Amortization ESO Expense (Employee Stock Options) Implied Interest for PV of Operating Leases Non-Operating Tax Adjustment Net After-Tax Non-Operating Items NOPAT (Net Operating Profit After Tax)
Invested Capital Adjustments - Impact Analysis

Reported Net Assets Excess Cash Total Reserves Deferred Tax Liability Unconsolidated Subsidiary Assets (non-operating) Net Assets from Discontinued Operations Off-Balance-Sheet Operating Leases Accumulated Unrecorded Goodwill Accumulated Goodwill Amortization Accumulated Asset Write-Downs After-Tax Accumulated OCI (Other Comprehensive Income) Invested Capital $219.96 ($46.00) $0.00 $0.00 ($0.00) ($0.00) $0.00 $0.00 $0.00 $0.30 ($12.95) $161.33 $416.15 ($88.44) $8.90 $0.00 ($0.00) ($0.00) $0.00 $0.00 $0.00 $1.35 ($18.64) $319.32 $505.92 ($90.22) $2.32 $0.00 ($0.00) ($0.00) $0.00 $0.00 $0.00 $2.77 ($32.36) $388.42
Net Non-Operating Items Pre-tax - Detail

Non-Operating Items Hidden in Operating Items Asset Write-Downs Hidden in Operating Items Income from Recurring Net Periodic Benefit Costs Non-Recurring Net Periodic Benefit Costs in Operating Items Other Net Non-Operating Items Net Non-Operating Items Pre-Tax $0.01 $0.00 $0.00 $0.00 $4.49 $4.51 ($0.53) $1.31 $0.00 $0.00 $24.91 $25.69 $0.00 $0.79 $0.00 $0.00 ($0.85) ($0.06)
More information and detail on our adjustments is provided in our Company Valuation Models.
Page 9: Economic Adjustments Summary
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Appendix 3: Red Flag Impact: Reconciling Net Income to Economic Earnings

NOPAT = Net Income with Adjustments as per below

GAAP Net Income Net Non-Operating Items Pre-Tax As a % of Revenue Change in Total Reserves As a % of Revenue Goodwill Amortization As a % of Revenue ESO Expense (Employee Stock Options) As a % of Revenue Implied Interest for PV of Operating Leases As a % of Revenue Non-Operating Tax Adjustment As a % of Revenue Net After-Tax Non-Operating Items As a % of Revenue NOPAT (Net Operating Profit After Tax) -
2008
$25.38 4.5 3.7% 0.0 0.0% (0.0) (0.0%) 0.0 0.0% (0.7) (0.6%) $0.00 0.0% $29.20
2009
$19.65 25.7 11.5% 8.9 4.0% 0.0 0.0% (0.0) (0.0%) 0.0 0.0% (6.5) (2.9%) $3.49 1.6% $51.25
2010
$76.82 (0.1) (0.0%) 1.6 0.4% 0.0 0.0% (0.0) (0.0%) 0.0 0.0% (5.1) (1.2%) $2.43 0.6% $75.66
Capital Charge = WACC * Average Invested Capital as detailed below

Capital Charge for Average Reported Net Assets As a % of Revenue Capital Charge for Average Excess Cash As a % of Revenue Capital Charge for Average Total Reserves As a % of Revenue Capital Charge for Average Deferred Tax Liability As a % of Revenue Capital Charge for Average Unconsol Sub Assets (non-operating) As a % of Revenue Capital Charge for Average Net Assets from Discontinued Operations As a % of Revenue Capital Charge for Average Off-Balance-Sheet Operating Leases As a % of Revenue Capital Charge for Average Unrecorded Goodwill As a % of Revenue Capital Charge for Average Accumulated Goodwill Amortization As a % of Revenue Capital Charge for Average Cumulative Asset Write-Offs After Tax As a % of Revenue Capital Charge for Average Accumulated OCI Capital Charge As a % of Revenue Mid-Year Acquisition Capital Charge Adjustment As a % of Revenue Capital Charge for Average Invested Capital 20.1 16.6% (4.2) (3.5%) 0.0 0.0% 0.0 0.0% (0.0) (0.0%) (0.0) (0.0%) 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% (1.2) (1.0%) 0.0 0.0% $14.73 29.6 13.3% (6.3) (2.8%) 0.4 0.2% 0.0 0.0% (0.0) (0.0%) (0.0) (0.0%) 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.1 0.0% (1.5) (0.7%) 0.0 0.0% $22.39 42.8 10.0% (8.3) (1.9%) 0.5 0.1% 0.0 0.0% (0.0) (0.0%) (0.0) (0.0%) 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.2 0.0% (2.4) (0.6%) 0.6 0.2% $33.47
Economic Earnings = NOPAT minus Capital Charge

Economic Earnings Economic Earnings per Share Basic EPS $14.48 $0.72 $1.25 $28.86 $1.13 $0.77 $42.19 $1.36 $2.47
Page 10: Reconciling Net Income to Economic Earnings
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Appendix 4: DCF Forecast Drivers Summary

Historical
2008 2009 2010 EY 1 EY 2 EY 3 EY 4
DCF Forecast Drivers

EY 6 EY 11 EY 16 EY 21 EY 26 EY 51
Total Operating Revenue Growth

28.5% 15.1% 84.8% 29.4% 25.2% 43.0% 111.2% 91.0% 22.4% 21.3% 11.6% 22.4% 16.8% 25.8% 21.3% 25.0% 60.0% 16.2% 25.8% 21.3% 25.0% 60.0% 12.0% 25.8% 21.3% 25.0% 60.0% 10.0% 25.8% 21.3% 25.0% 60.0% 8.0% 25.8% 21.3% 25.0% 60.0% 7.0% 25.8% 21.3% 25.0% 60.0% 6.5% 25.8% 21.3% 25.0% 60.0% 6.5% 25.8% 21.3% 25.0% 60.0% 6.5% 25.8% 21.3% 25.0% 60.0% 6.0% 25.8% 21.3% 25.0% 60.0%
NOPBT Margin Cash Tax Rate Net Working Capital Delta as % of Revenue Delta Fixed Adjusted Assets Delta as % of Revenue Delta
Page 11: DCF Forecast Drivers Summary
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New Constructs - Profile

How New Constructs Creates Value for Clients
1. Superior Recommendations - Our stock picks consistently outperform. See our track record in our stock-picking accolades and Proof Is In Performance reports. 2. More Accurate Research - Our patented Research Platform for reversing accounting distortions and discounted cash flow analysis leverages better data to deliver smarter research. 3. Time Savings - We check the fine print in thousands of corporate filings so you don't have to. As reported by Barron's, our expertise in analyzing SEC filings delivers Hidden Gems and Red Flags that drive long-term stock-picking success. 4. Transparency - We are proud to share the results of our analysis of over 50,000 10-Ks. See the Corporate Disclosure Transgressions report we provided to the SEC. Our reports details all data and assumptions. Company Models enable users to change them. 5. Objectivity - New Constructs is an independent research firm, not tied to Wall Street or investment banking services. Our models are driven by comprehensive high-quality data not stories. See our presentation to the Senate Banking Committee, the SEC and many others in DC.
Our Philosophy About Research

Accounting data is not designed for equity investors, but for debt investors. Accounting data must be translated into economic earnings to understand the profitability and valuation relevant to equity investors. Respected investors (e.g. Adam Smith, Warren Buffett and Ben Graham) have repeatedly emphasized that accounting results should not be used to value stocks. Economic earnings are what matter because they are: 1. Based on the complete set of financial information available. 2. Standard for all companies. 3. A more accurate representation of the true underling cash flows of the business
Additional Information
Incorporated in July 2002, New Constructs is an independent publisher of investment research that provides clients with consulting, advisory and research services. We specialize in quality-of-earnings, forensic accounting and discounted cash flow valuation analyses for all U.S. public companies. We translate accounting data from 10Ks into economic financial statements, i.e. NOPAT, Invested Capital, and WACC, to create economic earnings models, which are necessary to understand the true profitability and valuation of companies. Visit the Free Archive to download samples of our research. New Constructs is a BBB accredited business and a member of the Investorside Research Association.
Page 12: New Constructs Profile
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DISCLOSURES
New Constructs, LLC (together with any subsidiaries and/or affiliates, 'New Constructs') is an independent organization with no management ties to the companies it covers. None of the members of New Constructs' management team or the management team of any New Constructs' affiliate holds a seat on the Board of Directors of any of the companies New Constructs covers. New Constructs does not perform any investment or merchant banking functions and does not operate a trading desk. New Constructs' Stock Ownership Policy prevents any of its employees or managers from engaging in Insider Trading and restricts any trading whereby an employee may exploit inside information regarding our stock research. In addition, employees and managers of the company are bound by a code of ethics that restricts them from purchasing or selling a security that they know or should have known was under consideration for inclusion in a New Constructs report nor may they purchase or sell a security for the first 15 days after New Constructs issues a report on that security. New Constructs is affiliated with Novo Capital Management, LLC, the general partner of a hedge fund. At any particular time, New Constructs' research recommendations may not coincide with the hedge fund's holdings. However, in no event will the hedge fund receive any research information or recommendations in advance of the information that New Constructs provides to its other clients.
DISCLAIMERS
The information and opinions presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. New Constructs has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your individual circumstance, financial situation or needs, nor does it represent a personal recommendation to you. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investments or investment services. Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness. New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by New Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and New Constructs is under no obligation to insure that such other reports are brought to the attention of any recipient of this report. New Constructs' reports are intended for distribution to its professional and institutional investor customers. Recipients who are not professionals or institutional investor customers of New Constructs should seek the advice of their independent financial advisor prior to making any investment decision or for any necessary explanation of its contents. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would be subject New Constructs to any registration or licensing requirement within such jurisdiction. This report may provide the addresses of websites. Except to the extent to which the report refers to New Constructs own website material, New Constructs has not reviewed the linked site and takes no responsibility for the content therein. Such address or hyperlink (including addresses or hyperlinks to New Constructs own website material) is provided solely for your convenience and the information and content of the linked site do not in any way form part of this report. Accessing such websites or following such hyperlink through this report shall be at your own risk. All material in this report is the property of, and under copyright, of New Constructs. None of the contents, nor any copy of it, may be altered in any way, copied, or distributed or transmitted to any other party without the prior express written consent of New Constructs. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of New Constructs. Copyright New Constructs, LLC 2003 through the present date. All rights reserved.
Page 13: Legal Disclaimers
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CHINA FLASH NOTE | EQUITY RESEARCH | September 30, 2011

Company Update
| HRBN - $19.20 - NASDAQ | Buy HRBN: Sets Shareholder Vote; Privatization Appears On-Track for Completion
With Thursday afternoon's filing of its definitive proxy materials and the scheduling of the shareholder vote, we believe HRBN's privatization deal is on-track for completion. We expect shares will trade toward the $24 offer price as the Oct 29 vote date approaches. Thursday, after the market close, HRBN filed definitive proxy materials with the SEC, signifying that it has completed the SEC review process, which we viewed as the final meaningful hurdle associated with the buy-out process. The company has scheduled a special meeting of shareholders for Oct 29, during which shareholders can vote on the proposal to adopt the merger agreement. Based on the timelines of previous privatization transactions, we project the transaction will close within one week after a successful vote (est. Nov 5), after which Harbin Electric will become a privately-held company and its common stock will no longer be listed on Nasdaq.
$5.82 - $25.05 31.43 $603.5 1,797,825 $24.00 $87.6 $87.4 15%
2012E Curr 2.64E 7.3x
20.0 16.0 12.0 8.0 4.0 0.0
30 25 20 15 10 5 Price
May-11
Nov-10
Dec-10
Aug-11
Sep-11
Feb-11
Mar-11
Jan-11
Oct-10
Jun-11
Apr-11
Jul-11
133
September 30, 2011
VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s A slow-down in China''s economic growth and continued inflation could impact sales and compress margins.
RISKS
COMPANY DESCRIPTION
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September 30, 2011

Disclosures:
Count 188 61 1 14
Percent 70.9 23.0 0.4 5.3
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September 30, 2011

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EQUITY RESEARCH
COMPANY UPDATE
China September 30, 2011
Closing Price (9/13/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com $19.20 $24 $5.82 - $25.05 $602.9 31.4 14.5 8.3 2,340 $20.70 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $131.4A $157.4 $136.1 $155.3 $134.5 $153.8 $505.9 $588.6 Current Current EPS P/E $0.77 24.9 $2.46 7.8 $2.05 9.4 $2.49 7.7 10% - 15% GAAP Quarterly EPS Current 2011E $0.34A $0.55A $0.59 $0.57 Current 2012E $0.51 $0.70 $0.67 $0.60

(HRBN Nasdaq $19.20)
Buy
Definitive proxy statement filed with a voting date set; Significant upside remains; Reiterate Buy and $24 price target
The SEC has approved HRBNs LBO. Yesterday after the Market close, HRBN filed a definitive proxy statement with the SEC for a special shareholder meeting, which now has been set up for October 29 at 9:00am EDT at 345 Park Avenue in New York. Shareholders will vote on the merger agreement into which HRBN entered on June 19, 2011, and in which a small group of management led by Chairman Tianfu Yang and a Hong Kongbased private equity firm, Abax, are buying out HRBN at $24/share. Shareholders on record as of the close of the market on September 13, 2011, are entitled to vote at the special meeting. The filing symbolizes the SECs approval of HRBNs LBO, the fourth such transaction that is likely to be successful during the recent wave of Chinese companies leaving the U.S. public market (mainly due to concerns of depressed valuation). The three onceU.S.-listed Chinese companies that have already concluded a successful LBO are Chemspec International Limited, Funtalk China Holdings Limited, and China Security and Surveillance Technology, Inc. It seems that the amended 10-K has served the purpose of satisfying the SEC for approval and the SEC did not find any material issues that could block HRBNs LBO. Together with the definitive proxy statement, HRBN also filed an amended 2010 10-K, the annual financial statement. Per our checks, all income statement and balance sheet line items remained unchanged. In the cash flow statement, there was a decrease in Change of Account Receivable, Change of Inventories, and Provision for Account Receivable but an increase in Provision for Inventory Reserve in 2009 and 2010. Regardless, there was no change in net cash flow and cash positions. These changes seem to be a result of reclassifications. We believe the majority of HRBNs voting shareholders are likely to vote for the merger transaction, realizing values of HRBNs shares at $24/share. However, the risk of high volatility on the name still exists in the month leading to the special meeting, because of the persistent misinformation on Chinese companies in general, as well as HRBN. That said, such volatility provides investors significant upside to the stock. We recommend a Buy on HRBN at current levels. We also recommend investors seek knowledgeable advice and make logical judgment.
$2.05 $2.49 GAAP Quarterly EPS 2011E 2012E $0.34A $0.51 $0.55A $0.70 $0.57 $0.67 $0.57 $0.60 $2.03 $2.57 (212) 895-3718

Exhibit 1. HRBN Comparable Companies
9/29 Company Harbin Electric TKR HRBN Price $ 19.20 LAST $ $ $ $ $ $ 4.86 4.62 4.48 1.03 2.93 3.36 MktCap (mm) $ 602 EPS 11E $ 2.05 12E $ 2.49 P/E 11E 9.4x 12E 7.7x
Chinese Industrial Companies China Automotive CAAS FushiCopperweld FSIN Lihua International LIWA Wonder Auto WATG China Gerui Adv. Materia CHOP SORL Auto Parts SORL Average HK Listed China Motor Companies Harbin Power Equipment 1133-HK Shanghai Electric Group 2727-HK Dongfang Electric Group 1072-HK Chongqing Machinery & E2722-HK Shanghai Prime Machine 2345-HK Average
$ $ $ $ $ $
136 177 135 35 174 65
$ $ $ -$ $
0.74 1.16 1.86 1.02 0.93
$ $ $ -$ $
0.86 1.39 2.57 -1.53 1.08
6.6x 4.0x 2.4x -2.9x 3.6x 3.9x
5.7x 3.3x 1.7x 1.9x 3.1x 3.2x
$ $ $ $ $
0.91 0.38 2.69 0.15 0.15
$ $ $ $ $
616 1,135 915 169 114
$ $ $ $ $
0.12 0.04 0.24 0.03 0.02
$ $ $ $ $
0.13 0.04 0.27 0.04 0.03
7.8x 10.2x 11.1x 4.9x 6.4x 8.1x
7.0x 9.1x 9.9x 4.4x 5.9x 7.2x
China Mainland Listed China Motor Companies Xiangtan Electric 600416-SH $ 1.43 Zhejiang Founder Motor 002196-SZ $ 2.26 BroadOcean 002249-SZ $ 2.37 Jiangte Electric Motor 002176-SZ $ 3.01 Shanghai Electric Group 601727-SH $ 0.91 Dongfang Electric Group 600875-SH $ 3.38 Average
$ $ $ $ $ $
873 245 1,130 326 8,999 5,628
$ $ $ $ $ $
0.08 0.05 0.11 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.15 0.17 0.07 0.29
18.8x 41.3x 21.2x 60.2x 22.3x -13.8x 23.5x
12.4x 15.3x 13.8x 41.8x 11.8x 19.0x
US/International Motor Companies Siemens SI $ 94.57 $ 82,156 ABB ABB $ 17.95 $ 41,106 Emerson Electric EMR $ 43.79 $ 32,981 Illinois Tool Works ITW $ 43.20 $ 21,707 Cummins CMI $ 86.45 $ 17,083 Magna International MGA $ 34.03 $ 3,837 Rockwell Automation ROK $ 57.45 $ 8,192 Lear Corporation LEA $ 44.08 $ 2,058 Regal Beloit RBC $ 49.04 $ 1,888 Smith AO AOS $ 34.22 $ 1,044 Franklin Electric FELE $ 37.35 $ 869 Average Source: Thomson One, Bloomberg and Maxim Group estimates.
$ 10.33 $ 1.56 $ 3.24 $ 3.79 $ 8.88 $ 4.61 $ 4.63 $ 5.44 n/a $ 2.15 $ 2.68
$ 10.54 $ 1.91 $ 3.66 $ 4.29 $ 10.12 $ 4.97 $ 5.29 $ 5.74 n/a -$ 2.93 $ 3.08
9.2x 11.5x 13.5x 11.4x 9.7x 7.4x 12.4x 8.1x -15.9x 13.9x 11.3x
9.0x 9.4x 12.0x 10.1x 8.5x 6.9x 10.9x 7.7x 11.7x 12.1x 9.8x
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Exhibit 2. HRBN-Income Statement
(In millions except per shr) Revenue Drivers: Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Total other income (expense) Income before income taxes Provision for income taxes Tax Rate Net income before noncontrolling intere Minority interests As % of net income Net income Y/Y Growth Net Margin Foreign currency translation adjustmen Comprehensive income Weighted average shares outstanding Basic Diluted EPS (to controlling interest) Basic Diluted Y/Y Growth D&A Share-based compensation EBITDA EBITDA margin Exchange Rate (RMB/US$) $ $ 2004 Full Yr 2005 Full Yr 2006 Full Yr 2007 Full Yr 36.6 2008 Full Yr 49.5 35% 41% 33.8 85% 28% 27.8 2009 Full Yr 1Q10 31-Mar 2Q10 30-Jun 3Q10 30-Sep 4Q10 31-Dec 2010 Full Yr 1Q11 31-Mar 2Q11 30-Jun 3Q11E 30-Sep 4Q11E 31-Dec 2011E Full Yr 2012E Full Yr
4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
19.8 20.1 19.3 17.0 76.3 19.3 24.7 23.2 22.1 89.3 100.5 60% 74% 18% -14% 27% -3% 22% 20% 30% 17% 13% 56% 19% 19% 18% 16% 18% 19% 19% 17% 16% 18% 17% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 18.2 18.4 16.8 68.9 75.8 166% 78% 81% -18% 51% -4% 20% 20% 20% 13% 10% 28% 15% 14% 14% 13% 14% 15% 14% 13% 13% 14% 13% 22.5 23.6 23.5 23.7 93.2 21.8 29.2 29.4 29.7 110.0 131.0 107% 39% 14% 3% 31% -3% 24% 25% 25% 18% 19% 0% 21% 22% 21% 22% 22% 21% 22% 22% 22% 22% 22% 45.0 44.6 48.9 49.9 188.5 46.3 58.0 63.6 64.9 232.8 275.9 13% 6% 11% 12% 11% 3% 30% 30% 30% 24% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 44% 47% 48% 46% 47% 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 131.4 $ 136.1 $ 134.5 $ 505.9 $ 588.6 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 25% 25% 27% 19% 16% (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (95.2) (98.8) (98.1) (365.7) (430.7) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 36.2 2% 27.6% (0.9) 0.7% (13.8) 10.5% (14.7) 21.5 (24%) 16.3% 2.4 (1.3) 1.7 23.2 (6.0) 25.9% 17.2 (0.0) 0.0% 17.2 (33.2%) 13.1% 7.0 24.2 31.3 31.4 37.3 11% 27.4% (1.1) 0.8% (13.6) 10.0% (14.7) 22.6 4% 16.6% 2.6 (1.3) 1.9 24.6 (6.1) 25.0% 18.4 0.0% 18.4 3% 13.5% 18.4 31.3 31.4 0.59 $ 0.59 $ 3% 2.9 0.1 25.6 6.51 36.5 17% 27.1% (1.1) 0.8% (13.5) 10.0% (14.5) 21.9 40% 16.3% 2.9 (1.3) 2.2 24.1 (6.0) 25.0% 18.1 0.0% 18.1 42% 13.4% 18.1 31.4 31.5 140.2 3% 27.7% (7.0) 1.4% (50.9) 10.1% (57.9) 82.3 -12% 16.3% 9.0 (5.7) 4.6 86.9 (22.4) 25.7% 64.5 (0.0) 0.0% 64.5 -16% 12.7% 64.5 31.3 31.4 157.9 13% 26.8% (5.0) 0.9% (52.2) 8.9% (57.2) 100.7 22% 17.1% 6.9 (5.0) 4.2 104.9 (26.2) 25.0% 78.6 0.0% 78.6 22% 13.4% 78.6 31.5 31.6 2.49 2.49 21% 14.7 1.3 116.7 19.8% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.55 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.55 $ NM -25% 221% (47.4%) (33.2%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 24.5 6.54
0.58 $ 2.06 $ 0.57 $ 2.05 $ 31% -16% 2.9 11.5 0.1 0.4 24.9 6.48 94.3 18.6% 6.48
Source: Company reports and Maxim Group estimates.
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Harbin Electric, Inc. (HRBN) DISCLOSURES
Maxim Group LLC Stock Rating System
As of:
% of Coverage Universe
9/30/2011
Expected Performance* Buy Hold Sell Expected total return of 15% or more over next 12 months Expected total return of plus or minus 14% over next 12 months Expected total negative return of at least 15% over next 12 months
with Rating 67.0% 27.5% 5.5%
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: Our Harbin Electric, Inc. valuation is based on the announced $24 per share price in the leverage buyout proposal. It is also supported by our comparable company analysis and discount cash flow method. Price Target and Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of
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Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
RISK RATINGS
DISCLAIMERS
Some companies that Maxim Group LLC follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Maxim Group LLC research reports may not be suitable for some investors. Investors must make their own determination as to the appropriateness of an investment in any securities referred to herein, based on their specific investment objectives, financial status and risk tolerance.
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This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or disclosed to another party, without the prior written consent of Maxim Group, LLC (Maxim). Information and opinions presented in this report have been obtained or derived from sources believed by Maxim to be reliable, but Maxim makes no representation as to their accuracy or completeness. The aforementioned sentence does not apply to the disclosures required by NASD Rule 2711. Maxim accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Maxim. This report is not to be relied upon in substitution for the exercise of independent judgment. Maxim may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and Maxim is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by Maxim and are subject to change without notice. The price, value of and income from any of the securities mentioned in this report can fall as well as rise. The value of securities is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Securities recommended, offered or sold by Maxim: (1) are not insured by the Federal Deposit Insurance Company; (2) are not deposits or other obligations of any insured depository institution; and 3) are subject to investment risks, including the possible loss of principal invested. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support these losses.
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Mark Tobin, (949) 720-5775 mtobin@roth.com Kun Tao, CFA, (949) 720-7149 ktao@roth.com Emma Jia Zhao, CFA, ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
INDUSTRY NOTE | CHINA MACRO | September 26, 2011
China
This report provides an update on the activity within the U.S.-listed China sector related to privatization, re-listing, PE investment, and duallisting. It includes a table with details for each company pursuing privatization. PRIVATIZATION UPDATE Activity has been mixed since our last edition (dated August 23, 2011). Two going-private deals (FTLK and CSR) were successfully completed; plus CFSG's merger was approved by its shareholders. Meanwhile, CISG announced the withdrawal of going-private proposal, citing unfavorable market conditions; and CHNG's deal also hit a snag on funding issues and a stock halt. Currently, there are six active privatization transactions within the U.S.-listed China sector. Since our initiation of this research series in March, six deals have successfully completed (TCM, SOKF TBV, FTLK, CSR, CPC), and two deals have been abandoned or withdrawn (QXM, CISG). With the successful transactions, , we believe interest among companies has increased and expect additional privatization announcements; likely paced by eventual loosening of China's credit markets. Meaningful progress in transactions continue to serves as major catalyst for price appreciation (or stability) under volatile market environment. Below are some major updates.
s s s
s s s
Aug 25 - FTLK announced completion of its going-private transaction (shareholder meeting approved the deal on Aug 22). Aug 29 - CADC announced that Special Committee retained William Blair & Company, L.L.C. as its financial advisor. Sep 02 - CHNG's Chairman & CEO announced the termination of exclusive agreement with private equity consortium while the goingprivate discussions continued. On Sep 21, the company filed an 8-K announcing non-reliance on previously issued financials due to findings of unauthorized related party loans. Stock has been halted by NASDAQ since. Sep 14 - CSR shareholders approved the privatization; deal closed on Sep 16. Sep 15 - CISG announced withdrawal of going-private proposal. Sep 22 - CFSG shareholders approved privatization.
POST-PRIVATIZATION RE-LISTING ACTIVITIES With Hongguo International's Hongkong IPO completed on Sep 23, we now have a good reference case on post-privatization activities. Hongguo International, a manufacturer and retailer of female footwear in China, raised HK$1.15 billion (~US$147.4 million) in its Hongkong IPO, which valued the company at HK$4.6 billion (~US$589.7 million). Citi and DBS acted as joint bookrunner. The company, previously listed on Singapore Stock Exchange, was taken private by its directors in May last year at the price of approximately US$130 million. The restructuring of business and "homecoming" listing offered a ~5 times expansion of company value. PRIVATE EQUITY INVESTMENT In mid August, China TMK Battery Systems Inc., a Shenzhen-based and OTCBB-listed battery manufacturer, completed a $16 million preferred stock equity financing agreement with China Development Industrial Bank (headquartered in Taiwan) and ZTE Energy Limited.
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CHINA
China Advanced Construction Materials CADC Chairman & CEO, Vice Chairman & COO Jul-26-2011 49.5% $2.65
(1)
China Macro - September 26, 2011
China Natural Gas (4) CHNG Chairman & CEO
China Fire & Security CFSG Bain Capital (Management's 59.1% stake already agreed to vote for the agreement) Mar-07-2011 59.1% $9.00 43.8% --17.3x 16.4x $8.75 (2.8%)
Fushi Copperweld FSIN Chariman & CEO, Abax Global Capital Nov-03-2010 29.2% $11.50 26.4% --8.8x 8.2x $5.65 (50.9%)
Harbin Electric HRBN Chairman & CEO, Abax Global Capital Oct-11-2010 40.6% $24.00 20.2% --8.8x 7.3x $20.32 (15.3%) Board approved, pending shareholder vote; Expected to close in Q4' 2011; Shareholder record date was set as Sept 13, 2011 Jun-20-2011 Jul-13-2011 >50% total & >50% of disinterested shares $750.0M (1) Debt: CDB-$400M, Abax note-$25M; (2) Equity: Abax cash-$38.8M, Mgmt rollover-$264.1M, Abax rollover-$40.6M China Development Bank: US$ 400M Abax: US$25M 23.2% Morgan Stanley & Co. / Lazard Freres & Co. LLC
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Premium over previous day close Price Revision Date Revised Price P/E (TTM) P/E (NTM)
(2)
Jun-30-2011 14.0% $4.25 22.8% --5.8x 5.2x $1.60 (62.4%) Board informed; (exclusive partnership with Theme Investment terminated on Sept 2)
Apr-29-2011 31.6% $12.00 100.0% --10.9x 10.1x $0.60 (95.0%) Under board review; Shares halted starting Apr 11, 2011, later delisted from NYSE Amex and moved to OTC on August 18, 2011 Pending N/A N/A $360.0M
15.2% --2.7x 3.6x $1.81 (31.7%) Under board review
(2)
Shareholder meeting Under board review approved deal on Sept 22, 2011; Expected to close in Q4' 2011
May-20-2011 Jun-10-2011 >75% total & >50% of disinterested shares $257.8M
Source of funding
N/A
N/A
(1) Debt: $60M; (2) Equity: Bain-$160.7M, Mgmt rollover-$51.3M
N/A
N/A
Debt Financing Detail Post-deal Private Equity Ownership Board Financial Advisor Board Legal Advisor
(1)
N/A N/A N/A Skadden, Arps, Slate, Meagher & Flom, LLP
N/A N/A N/A N/A
BofA, Citi, HSBC US$ 60M 75.8% Barclays Capital Shearman & Sterling LLP
N/A N/A BofA Merrill Lynch
Gibson, Dunn & Crutcher LLP Gibson, Dunn & Crutcher LLP
Premium of bid price above the closing price on previous trading day before announcement (2) Valuation multiples are based on bid price over TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful (3) Implied Equity Value is calculated based on latest available bid price and shares outstanding number as disclosed (4) NASDAQ halted trading of CHNG stocks at a last price of $1.60 on Sept 21, 2011 Source: Company Filings, Bloomberg, ROTH Capital Partners
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CHINA

BMP Sunstone BJGP Sanofi-Aventis CNinsure CISG TPG Asia, Chairman & CEO, CDH Inservice Chemspec International CPC Chairman & CEO, Primavera China Security & Surveillance Technology Funtalk China CSR FTLK Chairman & CEO Chairman & CEO (key mgmt), ARCH, Capital Ally, GM Investment Qiao Xing Mobile Sinoenergy QXM SNEN Parent Company Skywide Capital Qiao Xing Universal Management Resources, Inc. (owned by (Nasdaq: XING) management)
(2)
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Price 1-Day Prior to Announcement Premium over previous day close (1) Price Revision Date Revised Price P/E (TTM) (3) P/E (NTM) Status
(3)
Oct-28-2010 23.0% $10.00 $7.66 31% --125.0x 90.9x Completed on Feb 24, 2011
May-16-2011 34.3% $19.00 $13.16 44.4% --15.0x 13.3x
Nov-11-2010 55.8% $8.00 $6.32 27% Mar-21-2011 $8.10 9.0x 8.2x
Mar-08-2011 20.9% $6.50 $4.10 58.5% --6.8x 5.9x
Mar-25-2011 77.1% $7.10 $6.15 15.4% May-31-2011 $7.20 8.4x 8.7x
Sep-09-2010 61.0% $3.92 $3.55 10% --NM NA
Oct-12-2009 39.1% $1.90 $1.28 48% --NM NA
SOKO Fitness & Spa Group SOKF Chairman & CEO (key mgmt) together with several existing institutional investors Jul-25-2011 90.8% $4.50 $3.70 22% --8.3x 7.9x
Tiens Biotech Group Tongjitang Chinese Medicines TCM TBV TIENS (USA) Hanmax (controlled CEO & Director Investment (owned by CEO) / Fosun by Chairman & CEO)
Jun-27-2011 95.1% $1.72 $1.03 67% --28.7x NA
Apr-08-2010 83.0% $4.50 $3.78 19% --NM 18.0x
Mar-10-2008 39.2% $10.20 $6.60 55% --NM 11.3x Withdrawn on Jun 27, 2008
Withdrawn on Sept Completed on Aug Completed on Sept Completed on Aug Abandoned due to 15, 2011 19, 2011. 16, 2011 25, 2011 lack of quorum on Apr 7, 2011 Not involved Standard Chartered US$ 70M Mar-21-2011 May-03-2011 China Development Bank US$ 500M Apr-20-2011 May-31-2011 Not involved Not involved
Completed on Sep Completed on July Completed on Aug Completed on Apr 29, 2010 27, 2011. Short11, 2011. Short15, 2011 form merger. form merger. Not involved Not involved Not involved CITIC Bank US$ 25M Nov-01-2010 Nov-26-2010
Debt Financing Detail Board Approval/Definitive Agreement Initial Filing of SC 13E3
Not involved
N/A
Oct-28-2010 N/A
N/A N/A
May-31-2011 Jun-14-2011
Jan-03-2011 Oct-22-2010 >50% of disinterested voting shareholders representing >75% of voting disinterested shares Not involved Not disclosed
Oct-12-2009 Nov-13-2009
N/A N/A
N/A Jun-27-2011
N/A N/A
Voting Requirement
>50% of toal shares
N/A
>50% total & >50% of disinterested shares
>2/3 of voting shares at EGM
N/A
N/A
>50% of shareholders representing >75% of voting shares
N/A
Post-deal Private Equity Ownership Board Financial Advisor
Not involved Stephens Inc.
N/A Duff & Phelps, LLC
Not involved Imperial Capital, LLC Shearman & Sterling LLP
77.7% Bank of America Merrill Lynch Skadden, Arps, Slate, Meagher & Flom LLP / Maples and Calder
Not involved Brean Murray, Carret & Co.
Not involved N/A
Not involved N/A
Not involved Morgan Stanley Asia Limited Sheppard, Mullin, Richter & Hampton LLP / Thorp Alberga
N/A Morgan Stanley Asia Limited
Board Legal Advisor
Morgan, Lewis & Bockius LLP
O'Melveny & Myers LLP and Walkers
Not disclosed
Arent Fox LLP
N/A
N/A
NA
(1) (2) (3)
Premium of bid price above the closing price on previous trading day before announcement The offer price is 1.9 shares of XING common stock plus $0.8 in cash, we convert to dollar value using XING's closing price on Sept-8-2010 Valuation multiples are based on bid price over TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful Source: Company Filings, Bloomberg, ROTH Capital Partners
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CHINA
China Advanced Construction Materials

VALUATION
The $2.65 bid represents 3.5x/3.2x of our FY11/FY12 EPS estimates. As we do not anticipate a competing bid and therefore lower our price target to $2.65 from $4.00 and downgrade CADC from BUY to NEUTRAL.
Factors that may impede share prices from reaching the target include the buyout process does not materializes for various reasons and substantial weakness in the companys fundamentals.
RISKS
Competition and oversupply in Beijing area: As a result of the strong economic growth and higher demand for construction in other areas of China, the company could face increased competition in its principal market, Beijing. This could result in an oversupply of concrete in the company''s principal market, which could result in reduced revenues and profitability.
Expansion failure due to lack of additional capital: The company may be unable to obtain the financing necessary to undertake and complete additional plant constructions or acquisitions.
Elimination of tax benefits: As a result of the company''s use of recycled raw materials to manufacture its products, the State Administration of Taxation granted the company VAT (6%) exemption from August 2009 until August 2011. In addition, the company has been awarded the Enterprise High-Tech Certificate, based on the company''s involvement in producing high-tech products, its research and development and technical services. As a result of this certification, the company''s effective tax rate has been reduced from 25% to 15%. Changes to these current tax policies could negative impact the company''s cash flow and earnings.
Government policy changes to affect industry consolidation: The company''s ability to operate successfully in China depends on acquisitions and new plants associated with construction projects. While it''s highly unlikely, any government policy change in consolidation requirement that discourages private companies'' expansion in construction material segment could negatively impacts the company''s survivability and growth strategy.
General country risks. Some of the general risks related to doing business in China include governmental interference with the economy, foreign currency control, international trade restrictions, co-existence of state-owned and private companies, and governmental control of important natural resources. From time to time, the government may enact new laws or issue administrative regulations to encourage or discourage the development of a particular industry.

VALUATION
RISKS
Page 4 of 8
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CHINA

VALUATION
Our $10.50 price target is based on a 6.0x multiple applied to our 2011 EPS estimate of $1.13 and adding back $3.70/share in cash. We note that our target is slightly below the proposed Fu/Abax going private bid price of $11.50. Factors that may impede FSIN shares from reaching price target include failure of completion of the going private buy-out, unsuccessful ramping up of CCS facilities in China, and rapid decline in copper prices.
RISKS
Volatile raw material prices. Fushi's selling prices are highly dependent on copper, aluminum and steel prices. Changes in these prices may adversely impact demand for FSIN's bi-metallic products and its operational results. Execution/integration risk. FSIN continues to integrate its acquired operations, including Copperweld, Shanghai Hongtai, and Dalian Jinchuan. Its overall global expansion strategy faces execution risk due to a variety of factors. Going private transaction risk. In November 2010, FSIN's Board of Directors received a going private proposal from its Chairman (Mr. Fu) and Abax Global Capital to acquire all of the outstanding shares of common stock for $11.50 per share. The inability to complete this transaction could negatively impact share performance. Management turnover. The company's current CFO, Craig Studwell, was appointed in October 2010. While we view Mr. Studwell as highly experienced and capable, we note that his tenure with FSIN is limited and he has yet to oversee the filing of an audited annual report for the company. Litigation risk. Associated with its going private proposal, a shareholder class action lawsuit was filed against the Company and certain officers and directors. This lawsuit could consume financial and management resources, presenting financial and business risk.

VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. A slow-down in China''s economic growth and continued inflation could impact sales and compress margins.
RISKS
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CHINA

Disclosures:
ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Fushi Copperweld, Inc. stock. ROTH makes a market in shares of China Advanced Construction Materials, China Fire & Security Group, Inc., Fushi Copperweld, Inc. and Harbin Electric, Inc. and as such, buys and sells from customers on a principal basis. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
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CHINA
Count 186 62 1 16
Percent 69.9 23.3 0.4 6.0
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months.
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CHINA

Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
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EQUITY RESEARCH
COMPANY UPDATE
China September 14, 2011
Closing Price (9/13/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com $19.70 $24 $5.82 - $25.05 $618.6 31.4 14.5 8.3 2,340 $20.70 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $131.4A $157.4 $136.1 $155.3 $134.5 $153.8 $505.9 $588.6 Current Current EPS P/E $0.77 25.6 $2.46 8.0 $2.05 9.6 $2.49 7.9 10% - 15% GAAP Quarterly EPS Current 2011E $0.34A $0.55A $0.59 $0.57 Current 2012E $0.51 $0.70 $0.67 $0.60

Buy
There is still money to make after the record date; Reiterate Buy and $24 price target
The company is likely very close to receiving the SEC approval of the LBO. Yesterday HRBN filed its third amendment of 13E-3 with the SEC, together with another revised version of the preliminary proxy statement for a special shareholder meeting. Since its original 13E-3 filed on July 13, 2011, HRBN filed the first and second amendment on August 15 and 29, respectively. We believe the definitive proxy statement could be filed in the near future. A voting date announcement is within reach. Meanwhile, yesterday was also HRBNs record date for stockholders entitled to vote for the Merger Agreement in the special shareholder meeting. The company has not yet announced the date of the special shareholder meeting. However, it could announce it together with a definitive filing of 13E-3. Another U.S. listed Chinese company becomes private. Today, China Security and Surveillance Technology, Inc. (CSR NR) announced that a majority (69.3%) of its shareholders voted in favor of the definitive agreement to go private it entered on May 3, 2011. This is another successful example of a going private transaction among U.S. listed Chinese companies, following Chemspec International Limited and Funtalk China Holdings Limited, which already closed their going private transactions on August 19 and September 1, 2011, respectively. There is still money to make out of the trading gap between HRBNs current price and its LBO offer price of $24/share. In our view, HRBNs going private transaction is not materially different from those of other Chinese companies, except that HRBN is perhaps the company that has received the most public attention. It is possible that the overflow of information has resulted in considerable misjudgment on HRBNs case; meanwhile, investors could still take advantage of the market inefficiency. As the SEC approval process is moving forward, we are increasingly leaning to a successful outcome of the companys going private transaction. We reiterate our Buy rating and $24 price target.
$2.05 $2.49 GAAP Quarterly EPS 2011E 2012E $0.34A $0.51 $0.55A $0.70 $0.57 $0.67 $0.57 $0.60 $2.03 $2.57 (212) 895-3718

9/14 Company Harbin Electric TKR HRBN Price $ 19.70 LAST $ $ $ $ $ $ 4.95 6.74 5.62 1.85 3.60 3.67 MktCap (mm) $ 618 EPS P/E __________________________________________________ 10A 11E 12E 10A 11E 12E $ 2.46 $ 2.05 $ 2.49 8.0x 9.6x 7.9x
$ $ $ $ $ $
139 257 169 63 214 71
$ $ $ $ $ $
1.10 1.30 1.40 0.96 1.01 1.06
$ $ $ -$ $
0.83 1.16 1.86 1.02 0.93
$ $ $ -$ $
0.88 1.39 2.57 1.53 1.08
4.5x 5.2x 4.0x 1.9x -3.6x 3.5x 3.8x
5.9x 5.8x 3.0x -3.5x 3.9x 4.4x
5.6x 4.8x 2.2x 2.4x 3.4x 3.7x
$ $ $ $ $
1.09 0.38 2.87 0.21 0.17
$ $ $ $ $
734 1,116 976 230 125
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.12 0.04 0.24 0.03 0.02
$ $ $ $ $
0.13 0.04 0.27 0.04 0.03
9.6x 11.3x 14.6x 7.3x 8.6x 10.3x
9.3x 10.0x 11.9x 6.7x 7.0x 9.0x
8.4x 9.0x 10.5x 6.0x 6.5x 8.1x
$ $ $ $ $ $
818 254 1,311 336 8,595 5,678
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.11 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.15 0.16 0.07 0.29
22.7x 61.8x 34.2x 68.1x 26.3x 17.4x 38.4x
17.6x 42.9x 24.4x 62.1x 21.3x -14.0x 24.0x
11.6x 15.9x 16.8x 43.1x 11.9x 19.9x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 10.46 $ 1.58 $ 3.24 $ 3.79 $ 8.90 $ 4.65 $ 4.63 $ 5.47 n/a $ 2.15 $ 2.68
$ 10.68 $ 1.93 $ 3.69 $ 4.35 $ 10.36 $ 5.05 $ 5.36 $ 5.82 n/a -$ 2.92 $ 3.08
14.8x 14.4x 16.6x 14.1x 17.8x 8.3x 19.1x 9.7x -12.5x 19.9x 14.7x
8.6x 11.4x 13.8x 11.5x 10.4x 7.8x 12.6x 7.8x -16.8x 14.4x 11.5x
8.4x 9.4x 12.1x 10.0x 8.9x 7.1x 10.8x 7.3x 12.3x 12.5x 9.9x
Maxim Group LLC
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19.8 20.1 19.3 17.0 76.3 19.3 24.7 23.2 22.1 89.3 100.5 60% 74% 18% -14% 27% -3% 22% 20% 30% 17% 13% 56% 19% 19% 18% 16% 18% 19% 19% 17% 16% 18% 17% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 18.2 18.4 16.8 68.9 75.8 166% 78% 81% -18% 51% -4% 20% 20% 20% 13% 10% 28% 15% 14% 14% 13% 14% 15% 14% 13% 13% 14% 13% 22.5 23.6 23.5 23.7 93.2 21.8 29.2 29.4 29.7 110.0 131.0 107% 39% 14% 3% 31% -3% 24% 25% 25% 18% 19% 0% 21% 22% 21% 22% 22% 21% 22% 22% 22% 22% 22% 45.0 44.6 48.9 49.9 188.5 46.3 58.0 63.6 64.9 232.8 275.9 13% 6% 11% 12% 11% 3% 30% 30% 30% 24% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 44% 47% 48% 46% 47% 4.9 $ 23.6 $ 40.4 $ 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 131.4 $ 136.1 $ 134.5 $ 505.9 $ 588.6 387% 71% 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 25% 25% 27% 19% 16% (2.3) (12.1) (20.8) (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (95.2) (98.8) (98.1) (365.7) (430.7) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28 $ $ 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1 0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 36.2 2% 27.6% (0.9) 0.7% (13.8) 10.5% (14.7) 21.5 (24%) 16.3% 2.4 (1.3) 1.7 23.2 (6.0) 25.9% 17.2 (0.0) 0.0% 17.2 (33.2%) 13.1% 7.0 24.2 31.3 31.4 37.3 11% 27.4% (1.1) 0.8% (13.6) 10.0% (14.7) 22.6 4% 16.6% 2.6 (1.3) 1.9 24.6 (6.1) 25.0% 18.4 0.0% 18.4 3% 13.5% 18.4 31.3 31.4 0.59 $ 0.59 $ 3% 2.9 0.1 25.6 6.51 36.5 17% 27.1% (1.1) 0.8% (13.5) 10.0% (14.5) 21.9 40% 16.3% 2.9 (1.3) 2.2 24.1 (6.0) 25.0% 18.1 0.0% 18.1 42% 13.4% 18.1 31.4 31.5 140.2 3% 27.7% (7.0) 1.4% (50.9) 10.1% (57.9) 82.3 -12% 16.3% 9.0 (5.7) 4.6 86.9 (22.4) 25.7% 64.5 (0.0) 0.0% 64.5 -16% 12.7% 64.5 31.3 31.4 157.9 13% 26.8% (5.0) 0.9% (52.2) 8.9% (57.2) 100.7 22% 17.1% 6.9 (5.0) 4.2 104.9 (26.2) 25.0% 78.6 0.0% 78.6 22% 13.4% 78.6 31.5 31.6 2.49 2.49 21% 14.7 1.3 116.7 19.8% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.55 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.55 $ NM -25% 221% (47.4%) (33.2%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 24.5 6.54
0.58 $ 2.06 $ 0.57 $ 2.05 $ 31% -16% 2.9 11.5 0.1 0.4 24.9 6.48 94.3 18.6% 6.48
Maxim Group LLC
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As of:
9/14/2011
with Rating 65.3% 29.3% 5.3%
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: Our Harbin Electric, Inc. valuation is based on the announced $24 per share price in the leverage buyout proposal. It is also supported by our comparable company analysis and discount cash flow method. Price Target and Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
Maxim Group LLC
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RISK RATINGS
DISCLAIMERS
Some companies that Maxim Group LLC follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Maxim Group LLC research reports may not be suitable for some investors. Investors must make their own determination as to the appropriateness of an investment in any securities referred to herein, based on their specific investment objectives, financial status and risk tolerance. This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or disclosed to another party, without the prior written consent of Maxim Group, LLC (Maxim).
Maxim Group LLC
155

Information and opinions presented in this report have been obtained or derived from sources believed by Maxim to be reliable, but Maxim makes no representation as to their accuracy or completeness. The aforementioned sentence does not apply to the disclosures required by NASD Rule 2711. Maxim accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Maxim. This report is not to be relied upon in substitution for the exercise of independent judgment. Maxim may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and Maxim is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by Maxim and are subject to change without notice. The price, value of and income from any of the securities mentioned in this report can fall as well as rise. The value of securities is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Securities recommended, offered or sold by Maxim: (1) are not insured by the Federal Deposit Insurance Company; (2) are not deposits or other obligations of any insured depository institution; and 3) are subject to investment risks, including the possible loss of principal invested. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support these losses.
Maxim Group LLC
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EQUITY RESEARCH
COMPANY UPDATE
China August 25, 2011
Closing Price (8/24/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth $17.20 $24 $5.82 - $25.05 $540.1 31.4 17.6 7.2 2,180 $20.70 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $131.4A $157.4 $136.1 $155.3 $134.5 $153.8 $505.9 $588.6 Current Prior Current EPS EPS P/E $0.77 22.3 $2.46 7.0 $2.05 8.4 $2.49 6.9 10% - 15% GAAP Quarterly EPS Current 2012E $0.51 $0.70 $0.67 $0.60 $2.49 2012E $0.51 $0.70 $0.67 $0.60 $2.57 (212) 895-3718

Buy
The LBO process will likely close sooner than we expected; Reiterate Buy and $24 price target
Where is HRBN on its regulatory approval process of going private transaction? On July 13, 2011, HRBN filed its original 13E-3 together with a Preliminary Proxy Statement with the SEC. A month later on August 15, the company filed an amended 13E-3 with the SEC, with more supporting documents from its advisors, Morgan Stanley and Lazard. On the same day, HRBN set a record date for stockholders entitled to vote for the Merger Agreement at September 13, 2011. An example of a successful going private transaction. On August 22, 2011, another U.S.-listed Chinese company, Funtalk China Holdings Limited (FTLK NR), announced that a majority of its shareholders voted in favor of the definitive agreement of going private it entered on May 31, 2011. From FTLKs first filing of 13E-3 on June 14, 2011, it took the SEC about a month and a half, with four rounds of questioning, to grant an approval. The swift move of FTLKs process may be partially due to the buying parties, mainly top management, already owning 77% of the outstanding shares. City Group and Bank of America Merrill Lynch served as the advisor for the buying consortium and independent committee, respectively.
Other Chinese companies moved forward too. On August 19, 2011, Chemspec International Limited, a Chinese company previously listed on NYSE, announced the close of its going private transaction and it was subsequently delisted from the public exchange. It took Chemspec three and a half months to close the transaction from the first filing of 13E-3. In addition, on August 11, 2011, China Security and Surveillance Technology, Inc. (CSR NR) announced the filing of a definitive proxy statement in connection with its going private merger agreement. Currently CSR already passed its record date of August 5, 2011 and is scheduled to vote for the merger on September 14, 2011.
Maxim Group Current FYE: December 2011E 1Q $0.34A 2Q $0.55A 3Q $0.59 4Q $0.57 FY $2.05 Consensus-First Call FYE: December 2011E 1Q $0.34A 2Q $0.55A 3Q $0.57 4Q $0.57 $2.03 FY Echo He, MD, PhD ehe@maximgrp.com
In our view, HRBNs going private transaction is not materially different from those of other Chinese companies. HRBN has most likely fulfilled requirements for the transaction and is moving forward with the SEC approval process. Based on the speed of its progress, we believe the closing of the transaction could be sooner than we previously estimated, which was towards the end of 2011. Our Buy rating and $24 price target are mainly based on a favorable outcome of HRBNs LBO, which has an established offer price of $24/share. We believe the persistent gap, currently ~28%, to the LBO offering price creates buying opportunities.

8/24 Company Harbin Electric TKR HRBN Price $ 17.20 LAST $ $ $ $ $ $ 4.48 6.37 6.99 5.42 3.58 3.40 MktCap (mm) $ 539 EPS P/E __________________________________________________ 10A 11E 12E 10A 11E 12E $ 2.46 $ 2.05 $ 2.49 7.0x 8.4x 6.9x
$ $ $ $ $ $
126 243 210 184 213 66
$ $ $ $ $ $
1.10 1.30 1.40 0.96 1.01 1.06
$ $ $ $ $ $
0.83 1.16 1.86 1.28 1.02 0.93
$ $ $ $ $ $
0.88 1.39 2.57 1.57 1.53 1.08
4.1x 4.9x 5.0x 5.6x 3.5x 3.2x 4.4x
5.4x 5.5x 3.8x 4.2x 3.5x 3.6x 4.3x
5.1x 4.6x 2.7x 3.5x 2.3x 3.2x 3.6x
$ $ $ $ $
1.18 0.44 3.39 0.21 0.17
$ $ $ $ $
798 1,308 1,154 231 132
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.12 0.04 0.23 0.03 0.02
$ $ $ $ $
0.13 0.04 0.27 0.04 0.03
10.5x 13.2x 17.2x 7.3x 9.1x 11.5x
10.1x 11.8x 14.7x 6.6x 7.4x 10.1x
9.2x 10.5x 12.7x 5.8x 6.8x 9.0x
$ $ $ $ $ $
929 272 1,492 386 8,849 6,042
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.13 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.15 0.19 0.07 0.28
25.8x 66.2x 38.9x 78.1x 27.0x 18.6x 42.4x
20.0x 46.0x 24.8x 71.2x 21.9x -15.1x 25.6x
13.2x 17.1x 16.9x 49.5x 12.9x 21.9x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 10.46 $ 1.58 $ 3.24 $ 3.81 $ 8.89 $ 4.65 $ 4.64 $ 5.46 n/a $ 2.18 $ 2.68
$ 10.66 $ 1.91 $ 3.70 $ 4.39 $ 10.53 $ 5.09 $ 5.37 $ 5.83 n/a -$ 2.97 $ 3.08
17.0x 16.5x 17.0x 14.5x 16.7x 8.4x 19.3x 9.9x -12.7x 21.4x 15.3x
9.9x 13.1x 14.1x 11.7x 9.7x 7.8x 12.7x 8.0x -16.6x 15.5x 11.9x
9.7x 10.8x 12.4x 10.2x 8.2x 7.2x 11.0x 7.5x 12.2x 13.5x 10.3x
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19.8 20.1 19.3 17.0 76.3 19.3 24.7 23.2 22.1 89.3 100.5 60% 74% 18% -14% 27% -3% 22% 20% 30% 17% 13% 56% 19% 19% 18% 16% 18% 19% 19% 17% 16% 18% 17% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 18.2 18.4 16.8 68.9 75.8 166% 78% 81% -18% 51% -4% 20% 20% 20% 13% 10% 28% 15% 14% 14% 13% 14% 15% 14% 13% 13% 14% 13% 22.5 23.6 23.5 23.7 93.2 21.8 29.2 29.4 29.7 110.0 131.0 107% 39% 14% 3% 31% -3% 24% 25% 25% 18% 19% 0% 21% 22% 21% 22% 22% 21% 22% 22% 22% 22% 22% 45.0 44.6 48.9 49.9 188.5 46.3 58.0 63.6 64.9 232.8 275.9 13% 6% 11% 12% 11% 3% 30% 30% 30% 24% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 44% 47% 48% 46% 47% 4.9 $ 23.6 $ 40.4 $ 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 131.4 $ 136.1 $ 134.5 $ 505.9 $ 588.6 387% 71% 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 25% 25% 27% 19% 16% (2.3) (12.1) (20.8) (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (95.2) (98.8) (98.1) (365.7) (430.7) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28 $ $ 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1 0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 36.2 2% 27.6% (0.9) 0.7% (13.8) 10.5% (14.7) 21.5 (24%) 16.3% 2.4 (1.3) 1.7 23.2 (6.0) 25.9% 17.2 (0.0) 0.0% 17.2 (33.2%) 13.1% 7.0 24.2 31.3 31.4 37.3 11% 27.4% (1.1) 0.8% (13.6) 10.0% (14.7) 22.6 4% 16.6% 2.6 (1.3) 1.9 24.6 (6.1) 25.0% 18.4 0.0% 18.4 3% 13.5% 18.4 31.3 31.4 0.59 $ 0.59 $ 3% 2.9 0.1 25.6 6.51 36.5 17% 27.1% (1.1) 0.8% (13.5) 10.0% (14.5) 21.9 40% 16.3% 2.9 (1.3) 2.2 24.1 (6.0) 25.0% 18.1 0.0% 18.1 42% 13.4% 18.1 31.4 31.5 140.2 3% 27.7% (7.0) 1.4% (50.9) 10.1% (57.9) 82.3 -12% 16.3% 9.0 (5.7) 4.6 86.9 (22.4) 25.7% 64.5 (0.0) 0.0% 64.5 -16% 12.7% 64.5 31.3 31.4 157.9 13% 26.8% (5.0) 0.9% (52.2) 8.9% (57.2) 100.7 22% 17.1% 6.9 (5.0) 4.2 104.9 (26.2) 25.0% 78.6 0.0% 78.6 22% 13.4% 78.6 31.5 31.6 2.49 2.49 21% 14.7 1.3 116.7 19.8% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.55 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.55 $ NM -25% 221% (47.4%) (33.2%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 24.5 6.54
0.58 $ 2.06 $ 0.57 $ 2.05 $ 31% -16% 2.9 11.5 0.1 0.4 24.9 6.48 94.3 18.6% 6.48
Maxim Group LLC
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As of:
8/25/2011
with Rating 65.3% 29.3% 5.3%
Maxim Group LLC
160

RISK RATINGS
DISCLAIMERS
Maxim Group LLC
161

Maxim Group LLC
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INDUSTRY NOTE | CHINA EQUITY RESEARCH | August 23, 2011
China
This report provides an update on the activity within the U.S.-listed China sector related to privatization, PE investment, and dual-listing. It includes a table with details for each company pursuing privatization. PRIVATIZATION UPDATE Since our last edition (dated July 19, 2011), three going-private deals (CPC, SOKF and TBV) , have completed; plus FTLK's merger was approved during its shareholder meeting. One company (CADC) made a going-private announcement. Currently there are nine active privatization transactions within the U.S.-listed China sector. Please refer to the attached tables for relevant details. Below are some major updates. The average discounts to respective offer prices have widened slightly over the past month, which we view as related to market volatility. Performance of privatization stocks suggests that the official transaction kick-off (marked by signing of definitive agreement followed by initial filing of SC 13E3) serves as the most meaningful catalyst for price appreciation.
s s
Reason for Report:

Industry Update
Roth Covered Companies Mentioned in this Report:

CADC CFSG COGO FSIN FTLK HRBN $1.76 $8.35 $2.60 $6.22 $7.00 $18.28 Neutral Neutral Neutral Buy Neutral Buy
Stock prices are as of previous day's close, if not otherwise specified
s s s s s s s
July 25 - SOKF announced short-form merger at $4.50; deal closed on Jul 27. July 25 - CADC received privatization offer at $2.65 per share, the deal is currently under board review, board legal adviser has been retained. Aug 11 - CSR filed definitive proxy statement, shareholder meeting scheduled for Sep 14. Aug 11 - TBV short-form merger completed. Aug 12 - CFSG filed definitive proxy statement, shareholder meeting scheduled for Sep 22. Aug 15 - HRBN set shareholder record date as Sep 13. Aug 15 - CPC shareholder meeting approved privatization; deal closed on Aug 19. Aug 18 - PUDA shares were delisted from NYSE Amex and moved to trade on OTC. Aug 22 - FTLK shareholder meeting approved privatization.
PRIVATE EQUITY INVESTMENT We continue to view PE investments in U.S.-listed Chinese companies as positive catalysts for the space and believe there is still ample interest. On Aug 15, China XD Plastics (CXDC) announced that Morgan Stanley Private Equity Asia (MSPEA) agreed to invest $100M for a significant minority stake in the company, in the form of redeemable convertible preferred shares. MSPEA will take two seats (total of nine members) on the company's board. Recall, in June 2011 MSPEA also made a $50M investment in YONG. HONG KONG DUAL-LISTING On Aug 3, COGO announced completion of its redomicile to Cayman Islands. This change will provide the company with the option to dual-list on HK exchange while continuing to trade its shares on Nasdaq.
163
CHINA
China Advanced Construction Materials China Natural Gas CNinsure CADC CHNG CISG TPG Asia, Chairman Chairman & CEO, Vice Chairman & CEO, Chairman & COO consortium backed by & CEO, CDH Themes Investment Inservice Partners Jul-26-2011 49.5% $2.65
(1)
China Industry Note - August 23, 2011
China Security & China Fire & Surveillance Security Technology CFSG CSR Bain Capital Chairman & CEO (Management's 59.1% stake already agreed to vote for the agreement) Mar-07-2011 59.1% $9.00 43.8% --17.3x 16.4x $8.35 (7.2%) Mar-08-2011 20.9% $6.50 58.5% --6.8x 5.9x $5.78 (11.1%)
Funtalk China Fushi Copperweld FTLK FSIN Chairman & CEO (key Chariman & CEO, mgmt), ARCH, Capital Abax Global Capital Ally, GM Investment
Harbin Electric HRBN Chairman & CEO, Abax Global Capital
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Premium over previous day close Price Revision Date Revised Price P/E (TTM) (2) P/E (NTM) (2) Current Price (08/22/2011) Current Discount to Bid Price Status
Jun-30-2011 14.0% $4.25 22.8% --5.8x 5.2x $2.35 (44.7%) Board informed; (buyers formulating proposal)
May-16-2011 34.3% $19.00 44.4% --15.0x 13.3x $12.52 (34.1%) Under board review
Mar-25-2011 77.1% $7.10 15.4% May-31-2011 $7.20 8.4x 8.7x $7.00 (2.8%) Approved by shareholder EGM on Aug 22, 2011; Expected to close by the end of Aug 2011
Nov-03-2010 29.2% $11.50 26.4% --8.8x 8.2x $6.22 (45.9%) Under board review
Oct-11-2010 40.6% $24.00 20.2% --8.8x 7.3x $18.28 (23.8%) Board approved, pending shareholder vote; Expected to close in Q4' 2011; Shareholder record date was set as Sept 13, 2011 Jun-20-2011 Jul-13-2011 >50% total & >50% of disinterested shares $750.0M (1) Debt: CDB-$400M, Abax note-$25M; (2) Equity: Abax cash$38.8M, Mgmt rollover$264.1M, Abax rollover-$40.6M China Development Bank: US$ 400M Abax: US$25M 23.2% Morgan Stanley & Co. / Lazard Freres & Co. LLC Gibson, Dunn & Crutcher LLP
Apr-29-2011 31.6% $12.00 100.0% --10.9x 10.1x $3.23 (73.1%) Under board review; Shares halted starting Apr 11, 2011, later delisted from NYSE Amex and moved to OTC on August 18, 2011 Pending N/A N/A $360.0M
15.2% --2.7x 3.6x $1.76 (33.6%) Under board review
Shareholder EGM Shareholder EGM scheduled on Sept 22, scheduled on Sept 14, 2011; 2011; Expected to close by Nov 15, 2011
May-20-2011 Jun-10-2011
Apr-20-2011 May-31-2011
May-31-2011 Jun-14-2011
>75% total & >50% total & >2/3 of voting shares >50% of disinterested >50% of disinterested at EGM shares shares $257.8M $583.2M $433.9M (1) Debt: None; (2) Equity: PAG Asia Capital-$150M (4) , PE rollover-$223.5M , Mgmt rollover$111.1M None 77.7% Bank of America Merrill Lynch
Source of funding
N/A
N/A
The Acquisition will be funded by equity capital from buyer group
(1) Debt: $60M; (2) Equity: Bain$160.7M, Mgmt rollover-$51.3M
(1) Debt: $500M; (2) Equity: Mgmt rollover-$141.1M
N/A
N/A
Debt Financing Detail Post-deal Private Equity Ownership
N/A N/A
N/A N/A
None N/A
BofA, Citi, HSBC US$ 60M 75.8%
China Development Bank US$ 500M PE not involved
N/A N/A
Board Financial Advisor
N/A
N/A
Duff & Phelps, LLC
Barclays Capital
Imperial Capital, LLC
BofA Merrill Lynch
Board Legal Advisor

(1) (2) (3) (4)
Skadden, Arps, Slate, Meagher & Flom, LLP
N/A
Shearman & Sterling LLP
Skadden, Arps, Slate, Shearman & Sterling Meagher & Flom LLP / LLP Maples and Calder
Gibson, Dunn & Crutcher LLP
Premium of bid price above the closing price on previous trading day before announcement Valuation multiples are based on bid price over TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful Implied Equity Value is calculated based on latest available bid price and shares outstanding number as disclosed US$ 150M investment in convertible preferred shares
Source: Company Filings, Bloomberg, ROTH Capital Partners
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CHINA

BMP Sunstone BJGP Sanofi-Aventis Chemspec International CPC Chairman & CEO, Primavera Qiao Xing Mobile (2) QXM Parent Company Qiao Xing Universal Resources, Inc. (Nasdaq: XING) Sep-09-2010 61.0% $3.92 $3.55 10% --NM NA Sinoenergy SNEN Skywide Capital Management (owned by management) Oct-12-2009 39.1% $1.90 $1.28 48% --NM NA SOKO Fitness & Spa Group SOKF Chairman & CEO (key mgmt) together with several existing institutional investors Jul-25-2011 90.8% $4.50 $3.70 22% --8.3x 7.9x Completed on July 27, 2011. Short-form merger. Not involved N/A N/A Tiens Biotech Group Tongjitang Chinese Medicines TCM TBV Hanmax (controlled by CEO & Director TIENS (USA) Investment Holdings CEO) / Fosun Group Overseas Limited (owned by Chairman & CEO) Jun-27-2011 95.1% $1.72 $1.03 67% --28.7x NA Completed on Aug 11, 2011. Short-form merger. Not involved N/A Jun-27-2011 Apr-08-2010 83.0% $4.50 $3.78 19% --NM 18.0x Completed on Apr 15, 2011 Mar-10-2008 39.2% $10.20 $6.60 55% --NM 11.3x Withdrawn on Jun 27, 2008
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Price 1-Day Prior to Announcement Premium over previous day close (1) Price Revision Date Revised Price P/E (TTM) P/E (NTM) Status
(3)
Oct-28-2010 23.0% $10.00 $7.66 31% --125.0x 90.9x Completed on Feb 24, 2011
Nov-11-2010 55.8% $8.00 $6.32 27% Mar-21-2011 $8.10 9.0x 8.2x Completed on Aug 19, 2011.
(3)
Abandoned due to lack Completed on Sep 29, of quorum in 2010 shareholder meeting on Apr 7, 2011 Not involved Jan-03-2011 Oct-22-2010 >50% of disinterested voting shareholders representing >75% of voting disinterested shares Not involved Not disclosed Not disclosed Not involved Oct-12-2009 Nov-13-2009
Debt Financing Detail Board Approval/Definitive Agreement Initial Filing of SC 13E3
Not involved Oct-28-2010 N/A
Standard Chartered US$ 70M Mar-21-2011 May-03-2011
CITIC Bank US$ 25M Nov-01-2010 Nov-26-2010 >50% of shareholders representing >75% of voting shares Not involved Morgan Stanley Asia Limited Sheppard, Mullin, Richter & Hampton LLP / Thorp Alberga
N/A N/A N/A
Voting Requirement
>50% of toal shares
N/A
N/A
N/A
Post-deal Private Equity Ownership Board Financial Advisor Board Legal Advisor
(1) (2) (3)
Not involved N/A N/A
Not involved N/A N/A
Premium of bid price above the closing price on previous trading day before announcement The offer price is 1.9 shares of XING common stock plus $0.8 in cash, we convert to dollar value using XING's closing price on Sept-8-2010 Valuation multiples are based on bid price over TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 3 of 4
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CHINA

Disclosures:
ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Fushi Copperweld, Inc. stock. Within the last twelve months, ROTH has received compensation for investment banking services from Funtalk China Holdings Limited. ROTH makes a market in shares of China Advanced Construction Materials, China Fire & Security Group, Inc., Cogo Group, Inc., Fushi Copperweld, Inc., Funtalk China Holdings Limited, Harbin Electric, Inc., SOKO Fitness & Spa Group and Yongye International, Inc. and as such, buys and sells from customers on a principal basis. Within the last twelve months, ROTH has managed or co-managed a public offering for Funtalk China Holdings Limited. Shares of SOKO Fitness & Spa Group may not be eligible for sale in one or more states. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 08/23/11 Count Percent 49 24.9 7 11.9 0 0 2 22.2
Count 197 59 1 9
Percent 73.8 22.1 0.4 3.4
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CHINA FLASH NOTE | EQUITY RESEARCH | August 10, 2011

Analysis of Sales/Earnings
Auditor: FRAZER FROST LLP EPS $ Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 5.7x 2011E Curr 0.41A 0.51E 0.61E 0.64E 2.17E 7.1x
| HRBN - $15.45 - NASDAQ | Buy HRBN: First Take - 2Q11 Results Beat Est.; Conf Call Wed 9am ET
HRBN reported 2Q11 results that exceeded our revenue and EPS estimates. Sales growth of 24.6% was driven primarily by strength in linear and rotary motors. Further earnings upside was limited by continued margin pressure associated with inflated material and labor costs, which we expect will persist for the next several quarters. We view the pending privatization as the primary value driver for shares of HRBN. Management will host a conference call Wednesday at 9am ET.
$5.82 - $25.05 31.25 $482.8 2,158,310 $24.00 $122.8 $80.9 15%
2012E Curr 2.89E 5.3x
2Q11 results. Revenue equaled $131.4M vs. ROTH/Consensus est. $115.3M/ $113.8M. EBIT equaled $21.5M, largely in-line with our est. $21.2M. NonGAAP EPS equaled $0.53 vs. ROTH/Consensus est. $0.51/$0.50. Non-GAAP EPS excludes 2c benefit from a gain in fair value of warrants. Earnings upside was limited by lower than expected gross margins (27.6% vs. est. 29.5%; sharp y/y declines in linear motor margins) and higher than expected SG&A expenses (includes ~$3.3M, or 10c, in privatization-related expenses). Balance sheet. HRBN ended with 2Q11 with $87.6M in cash, vs. $122.8m at the end of 1Q10. The decrease in cash is primarily associated with capital expenditures for equipment purchase and plant construction. Privatization remains the focus. HRBN filed its Form SC13E3 on July 13, 2011, which we believe is a substantial step forward in its going-private process. The documents will undergo SEC review and the company will respond to comments by filing amended documents in an iterative process. We continue to view the pending privatization as the major value-driver for shares of HRBN. Conference call. Management will host a conference call on Wednesday at 9am ET. Dial in: 877-317-6789.
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 103.8A 115.3E 126.7E 131.1E 476.8E 2012E Curr 578.3E
20.0 16.0 12.0 8.0 4.0 0.0
30 25 20 15 10 5 Price
May-11
Sep-10
Nov-10
Dec-10
Aug-11
Feb-11
Mar-11
Jan-11
Oct-10
Jun-11
Apr-11
Jul-11
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VALUATION
RISKS
COMPANY DESCRIPTION
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August 10, 2011

Disclosures:
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 08/09/11 Count Percent 51 24.9 7 11.9 0 0 0 0
Count 205 59 2 0
Percent 75.9 21.9 0.7 0.0
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August 10, 2011

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EQUITY RESEARCH
COMPANY UPDATE

Closing Price (8/9/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY $15.45 $24 $5.82 - $25.05 $485.1 31.4 16.8 7.7 2,180 $20.70 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $131.4A $157.4 $136.1 $155.3 $134.5 $153.8 $505.9 $588.6 Current Prior Current EPS EPS P/E $0.77 20.1 $2.46 6.3 $2.05 $2.14 7.5 $2.49 $2.67 6.2 10% - 15% GAAP Quarterly EPS Current Prior Current 2011E 2011E 2012E $0.34A $0.51 $0.55A $0.70 $0.59 $0.63 $0.67 $0.57 $0.68 $0.60 $2.05 $2.14 $2.49 Quarterly EPS 2011E 2012E $0.34A $0.58 $0.55A $0.66 $0.62 $0.70 $0.66 $0.74 $2.12 $2.78
Buy
(HRBN Nasdaq $15.45) Better than Expected 2Q11; Progress of SEC approval is a near-term catalyst; Reiterate Buy and $24 price target
Yesterday, HRBN reported 2Q11 financial results. Revenue was $131.4M, 16% and 17% higher than consensus and our estimate, respectively, representing 25% y/y and 27% q/q growth. GAAP EPS of $0.55 also beat our estimate of $0.48 and consensus of $0.50. Gross margin was 27.6% vs. 33.5% in 2Q10 and 29.1% in 1Q11, representing both y/y and q/q decline.
The strong growth was driven by both production volume and ASP increase. During the quarter, all segments recorded higher sales y/y, with linear motor, micro motor, Weihai and Xian rotary motor subsidiary achieving 22%, 20%, 24% and 30% y/y growth, respectively. Chinas across the board inflation enabled HRBN to sell at higher ASPs. Meanwhile, gradual capacity expansion and new customer sign-ups drove volume growth. As expected, margin pressure was significant during 2Q11. Increased raw material and labor cost, mix shift to lower-margin products and new product launches combined to lead to a 1.5 ppt sequential reduction of the gross margin. Expenses of $3.3M related to the going private process and higher tax rate, 25.9% in 2Q11 vs. 15.8% in 2010, were the reasons that further lowered operating and net margin, respectively. Going forward, we believe margin pressure is likely to continue given that Chinas CPI rose to 6.5% in July, the highest in three years. Revising estimates. We are raising our 2011 and 2012 revenue estimates by 7% to reflect likely stronger than expected revenue growth. Meanwhile, we adjusted margins lower to reflect rising cost/expenses. As a result, our 2011 and 2012 GAAP EPS estimates are reduced to $2.05 and $2.49, respectively, from our prior estimates of $2.14 and $2.67, respectively. According to the recent case of the going private process of China Security and Surveillance Technology, Inc. (CSR NR), we estimate HRBN could have a revised schedule 13E-3 and preliminary proxy filed as early as late August. Our $24 price target is mainly based on a favorable outcome of HRBNs LBO, which has an established offer price of $24 per share. We reiterate our Buy rating and believe the persistent gap, currently ~36%, to the LBO offering price creates buying opportunities.

Exhibit 1. Actual vs. Maxim and Consensus
Maxim 2Q11 Total Rev ($M) GAAP EPS ($) $ $ Actual 131.4 0.55 $ $ Est 112.2 0.48 $ $ Consensus Actual vs. Actual vs. Est 113.8 0.50 Maxim 17% 14% Consensus 16% 9%
Source: Company Reports and Maxim Group estimates.
Exhibit 2. Detail Comparison

(In millions except per shr) Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Loss on cross currency hedge settlement Gain on debt repurchase Change in fair value of warrant Total other income (expense) Income before income taxes Provision for income taxes 2Q10 Actual 20.1 74% 19% 15.2 78% 14% 23.6 39% 22% 44.6 6% 42% $ 105.4 175% (70.1) 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) (0.6) 1.7 1.4 29.5 (3.8) 2Q11E Expected 18.1 -10% 16% 14.7 -3% 13% 25.9 10% 23% 51.3 15% 46% $ 112.2 6% (80.4) 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 -28% 18.0% 1.2 (1.9) (0.4) (1.2) 19.1 (3.8) 2Q11A Actual 24.7 22% 19% 18.2 20% 14% 29.2 24% 22% 58.0 30% 44% $ 131.4 25% (95.2) 36.2 2% 27.6% (0.9) 0.7% (13.8) 10.5% (14.7) 21.5 -24% 16.3% 2.4 (1.3) 0.6 1.7 23.2 (6.0) -230% -246% 22% 57% 585 bps 13% 3 bps 13% (52) bps Actual vs. Expected 36% 3,246 262 24% 2,280 72 13% 1,394 (87) 13% 1,517 17% 1,817 bps 18% 14% 1,221 -30% (48) bps 34% 130 26% 6% 442 100% -35% bps (168) bps bps bps (86) bps
bps bps bps bps bps bps bps
(151) bps
Tax Rate 12.9% 20.0% 25.9% Net income before noncontrolling interest 25.7 15.2 17.2 Minority interests (0.0) (0.0) As % of net income 0.0% 0.0% 0.0% Net income 25.7 15.2 17.2 Y/Y Growth NM -41% -33% Net Margin 24.4% 13.6% 13.1% Foreign currency translation adjustment 1.3 7.0 Change in fair value of derivative instrument (or Reclassification adjustment for gain on sales of m Comprehensive income 27.0 15.2 24.2 Weighted average shares outstanding Basic 31.1 31.3 31.3 Diluted 31.3 31.4 31.4 EPS (to controlling interest) Basic $ 0.83 $ 0.49 $ 0.55 Diluted $ 0.82 $ 0.48 $ 0.55 Y/Y Growth NM -41% -33% Exchange Rate (RMB/US$) 6.84 6.54 6.54
59%
13% 13%
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Exhibit 3. Estimate Revision
3Q11E ($'s in millions, except EPS) Total net revenues y/y Growth Gross Profit y/y Growth Gross margin Income from operations y/y Growth Operating Margin Net Income y/y Growth Net Margin Diluted GAAP EPS y/y Growth $ $ Old 123.0 $ 12% 35.4 5% 29% 25.2 15% 20% 19.8 11% 16% 0.63 $ 10% 2011E ($'s in millions, except EPS) Total net revenues y/y Growth Gross Profit y/y Growth Gross margin Income from operations y/y Growth Operating Margin EBITDA y/y Growth EBITDA Margin Net Income y/y Growth Net Margin Diluted GAAP EPS y/y Growth $ $ Old 470.7 10% 135.0 -1% 29% 88.4 -5% 19% 100.4 -5% 21% 67.3 -12% 14% 2.14 -13% $ $ New 505.9 19% 140.2 3% 28% 82.3 -12% 16% 94.3 -11% 19% 64.5 -16% 13% 2.05 -16% -4% $ -4% -6% -7% 4% New 136.1 25% 37.3 11% 27% 22.6 4% 17% 18.4 3% 14% 0.59 3% -7% $ New vs. Old 11% 6% $ 4Q11E Old 131.6 $ 24% 37.5 21% 29% 26.7 71% 20% 21.4 69% 16% 0.68 $ 54% 2012E Old $ 547.6 16% 155.7 15% 28% 109.9 24% 20% 125.9 25% 23% 84.8 26% 15% 2.67 25% $ $ New 588.6 16% 157.9 13% 27% 100.7 22% 17% 116.7 24% 20% 78.6 22% 13% 2.49 21% -7% -7% -7% -8% 1% New 134.5 27% 36.5 17% 27% 21.9 40% 16% 18.1 42% 13% 0.57 31% -15% New vs. Old 2% -3%
-10%
-18%
-7%
-16%
New vs. Old 7%
New vs. Old 7%
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8/10 Company Harbin Electric TKR HRBN Price $ 15.45 LAST $ $ $ $ $ $ $ $ $ 5.49 1.67 5.70 6.59 0.65 5.42 7.54 3.47 4.22 MktCap (mm) $ 484 EPS P/E __________________________________________________ 10A 11E 12E 10A 11E 12E $ 2.46 $ 2.05 $ 2.49 6.3x 7.5x 6.2x
Chinese Industrial Companies China Automotive CAAS A-Power APWR FushiCopperweld FSIN Lihua International LIWA Shengdatech SDTH Wonder Auto WATG ChemSpec CPC China Gerui Adv. Materia CHOP SORL Auto Parts SORL Average HK Listed China Motor Companies Harbin Power Equipment 1133-HK Shanghai Electric Group 2727-HK Dongfang Electric Group 1072-HK Chongqing Machinery & E2722-HK Shanghai Prime Machine 2345-HK Average
$ $ $ $ $ $ $ $ $
149 76 212 252 35 184 272 145 81
$ -$ $ $ $ $ $ $
1.10 1.30 1.40 0.49 0.96 0.95 1.01 1.06
$ -$ $ -$ $ $ $
1.19 1.16 1.89 1.28 1.05 1.08 1.10
$ -$ $ -$ $ $ $
1.25 -1.39 1.80 1.57 1.21 1.34 1.26
5.0x -4.4x 4.7x 1.3x -5.6x 7.9x 3.4x 4.0x 4.5x
4.6x -4.9x 3.5x -4.2x 7.1x 3.2x 3.8x 4.5x
4.4x 4.1x 3.7x 3.5x 6.2x 2.6x 3.3x 4.0x
$ $ $ $ $
1.07 0.46 2.99 0.24 0.17
$ $ $ $ $
723 1,369 1,018 261 132
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.11 0.04 0.23 0.03 0.02
$ $ $ $ $
0.12 0.04 0.27 0.04 0.02
9.5x 13.9x 15.2x 8.2x 9.1x 11.2x
9.9x 12.4x 13.0x 7.4x 8.2x 10.2x
9.0x 11.1x 11.2x 6.5x 7.3x 9.0x
$ $ $ $ $ $
965 272 1,467 390 8,939 6,017
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.12 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.15 0.18 0.07 0.28
26.8x 66.2x 38.2x 78.9x 27.3x 18.5x 42.7x
19.0x 46.0x 24.9x 74.3x 22.1x -15.1x 25.4x
12.8x 16.9x 16.7x 50.0x 12.8x 21.8x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 10.77 $ 1.58 $ 3.23 $ 3.83 $ 8.90 $ 4.94 $ 4.64 $ 5.46 n/a $ 2.18 $ 2.68
$ 10.71 $ 1.93 $ 3.74 $ 4.46 $ 10.63 $ 5.35 $ 5.41 $ 6.04 n/a -$ 2.97 $ 3.08
17.8x 17.5x 16.5x 14.4x 17.6x 9.1x 20.0x 9.8x -13.0x 21.6x 15.7x
10.0x 13.9x 13.7x 11.6x 10.2x 8.0x 13.1x 7.9x -17.1x 15.6x 12.1x
10.1x 11.3x 11.9x 9.9x 8.6x 7.4x 11.2x 7.1x 12.5x 13.6x 10.4x
Maxim Group LLC
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19.8 20.1 19.3 17.0 76.3 19.3 24.7 23.2 22.1 89.3 100.5 60% 74% 18% -14% 27% -3% 22% 20% 30% 17% 13% 56% 19% 19% 18% 16% 18% 19% 19% 17% 16% 18% 17% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 18.2 18.4 16.8 68.9 75.8 166% 78% 81% -18% 51% -4% 20% 20% 20% 13% 10% 28% 15% 14% 14% 13% 14% 15% 14% 13% 13% 14% 13% 22.5 23.6 23.5 23.7 93.2 21.8 29.2 29.4 29.7 110.0 131.0 107% 39% 14% 3% 31% -3% 24% 25% 25% 18% 19% 0% 21% 22% 21% 22% 22% 21% 22% 22% 22% 22% 22% 45.0 44.6 48.9 49.9 188.5 46.3 58.0 63.6 64.9 232.8 275.9 13% 6% 11% 12% 11% 3% 30% 30% 30% 24% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 44% 47% 48% 46% 47% 4.9 $ 23.6 $ 40.4 $ 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 131.4 $ 136.1 $ 134.5 $ 505.9 $ 588.6 387% 71% 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 25% 25% 27% 19% 16% (2.3) (12.1) (20.8) (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (95.2) (98.8) (98.1) (365.7) (430.7) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28 $ $ 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1 0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 36.2 2% 27.6% (0.9) 0.7% (13.8) 10.5% (14.7) 21.5 (24%) 16.3% 2.4 (1.3) 1.7 23.2 (6.0) 25.9% 17.2 (0.0) 0.0% 17.2 (33.2%) 13.1% 7.0 24.2 31.3 31.4 37.3 11% 27.4% (1.1) 0.8% (13.6) 10.0% (14.7) 22.6 4% 16.6% 2.6 (1.3) 1.9 24.6 (6.1) 25.0% 18.4 0.0% 18.4 3% 13.5% 18.4 31.3 31.4 0.59 $ 0.59 $ 3% 2.9 0.1 25.6 6.51 36.5 17% 27.1% (1.1) 0.8% (13.5) 10.0% (14.5) 21.9 40% 16.3% 2.9 (1.3) 2.2 24.1 (6.0) 25.0% 18.1 0.0% 18.1 42% 13.4% 18.1 31.4 31.5 140.2 3% 27.7% (7.0) 1.4% (50.9) 10.1% (57.9) 82.3 -12% 16.3% 9.0 (5.7) 4.6 86.9 (22.4) 25.7% 64.5 (0.0) 0.0% 64.5 -16% 12.7% 64.5 31.3 31.4 157.9 13% 26.8% (5.0) 0.9% (52.2) 8.9% (57.2) 100.7 22% 17.1% 6.9 (5.0) 4.2 104.9 (26.2) 25.0% 78.6 0.0% 78.6 22% 13.4% 78.6 31.5 31.6 2.49 2.49 21% 14.7 1.3 116.7 19.8% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.55 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.55 $ NM -25% 221% (47.4%) (33.2%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 24.5 6.54
0.58 $ 2.06 $ 0.57 $ 2.05 $ 31% -16% 2.9 11.5 0.1 0.4 24.9 6.48 94.3 18.6% 6.48
Maxim Group LLC
175
As of:
8/10/2011
with Rating 65.3% 26.7% 8.0%
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RISK RATINGS
DISCLAIMERS
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COMPANY NOTE | CHINA RESEARCH | August 10, 2011

Quarterly Update Estimates Changed
Auditor: FRAZER FROST LLP EPS $ Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 5.7x 2011E Curr Prev 0.41A 0.41A 0.53A 0.51E 0.54E 0.61E 0.57E 0.64E 2.05E 2.17E 7.5x 7.1x
| HRBN - $15.45 - NASDAQ | Buy
$5.82 - $25.05 31.25 $482.8 2,158,310 $24.00 $87.6 $87.4 15%
HRBN: Q2 Results Beat; Lowering Est on Margin Contraction; Focus on Buy-out

Recovery of rotary motors and strong linear motors sales drove Q2 revenue upside. We are lowering estimates to reflect continued margin pressure associated with inflated material/labor costs, privatization-related Opex and full tax rate. We believe the pending privatization remains the primary value driver for shares of HRBN. We maintain our BUY rating and $24 price target, based on buy-out price. 2Q11 revenue upbeat, but earnings upside limited by margin contraction. Revenue equaled $131.4M vs. ROTH/Consensus est. $115.3M/$113.8M, primarily driven by a strong recovery of rotary motors (Weihai and Xian) and better-than-expected linear motors sales. Non-GAAP EPS equaled $0.53 (excludes 2c benefit from a gain in fair value of warrants) vs. ROTH/Consensus est. $0.51/$0.50. Earnings upside was limited by lower than expected gross margins (27.6% vs. est. 29.5%; sharp y/y declines in linear motor margins) and higher than expected SG&A expenses (includes ~$3.3M, or 10c, in privatization-related expenses). Capacity expansion. HRBN invested a total of ~$41M in CapEx during 1H11, roughly consistent with investment during 1H10. The company plans to invest a total of $100M during 2011. It is expanding capacity at Weihai and Xi'an, which are currently operating at high utilization levels (Xi'an Simo shipments were constrained during Q2). Lowering est. to reflect margin pressure. We are tempering our estimates to reflect: (1) capacity constraints. particularly in Xi'an SIMO; (2) continued gross margin pressure (which we believe would last for next several quarters) on rising material and labor costs coupled with cost reductions in certain segments to drive volume; (3) elevated SG&A primarily related to the privatization; (4) higher effective tax rate (25% vs. prior 20%). Privatization. During the conference call, Mr. Yang reiterated commitment to the deal and the $24 price and indicated that he is in regular communication with Abax and CDB. We consider HRBNs filing of SC13E3 on July 13 as an important step in its privatization process. The SEC will review and comment on these filings. The company will respond to comments by filing amended documents in an iterative process. The next key milestone, in our view, is the announcement of the extraordinary shareholder meeting to vote on the buyout. Intraday Price: $16.40 at 12:08PM ET
2012E Curr Prev 2.64E 2.89E 5.9x 5.3x
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr Prev 103.8A 103.8A 131.4A 115.3E 125.1E 126.7E 130.2E 131.1E 490.5E 476.8E 2012E Curr Prev 568.9E 578.3E
20.0 16.0 12.0 8.0 4.0 0.0
30 25 20 15 10 5 Price
May-11
Sep-10
Nov-10
Dec-10
Aug-11
Feb-11
Mar-11
Jan-11
Oct-10
Jun-11
Apr-11
Jul-11
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China Company Note - August 10, 2011
SUMMARY
Financial results, key operating metrics, and estimate revisions:
Operating Results & Segment Detail Total Revenue Linear Motors Automobile specialty micro-motors Controllers and other special motors Rotary industrial motors (Weihai Hengda) Simo Motor Gross profit margin Linear Motors Automobile specialty micro-motors Controllers and other special motors Rotary industrial motors (Weihai Hengda) Simo Motor Operating Income Net Income (non-GAAP) Effective tax rate EPS (non-GAAP) Act 131,402 24,662 18,210 1,313 29,201 58,016 27.6% 41.3% 33.9% 35.4% 11.4% 27.7% 21,458 16,596 25.9% $0.53 Est 115,263 19,918 17,325 2,043 24,688 51,289 29.5% 50.0% 41.0% 33.0% 11.5% 28.5% 21,176 16,141 20.0% $0.51 Var ($) 16,139 4,744 885 (730) 4,513 6,727 (195) (874) (710) 239 (12) (80) 282 455 590 0.02 Var (%) 14.0% 23.8% 5.1% -35.7% 18.3% 13.1% -6.6% -17.5% -17.3% 7.3% -1.1% -2.8% 1.3% 2.8% 29.5% 3.9% Comments Primarily driven by strong linear and rotary motors segments Higher volume outplayed declining ASP
Driven by both higher volume and higher pricing Driven by both higher volume and higher pricing Rising material & labor cost plus certain segment-specific reasons: Higher volume in lower margin products/lowering ASP to gain market Higher volume in lower margin products/launch of new products Higher pricing partially offsetting rising cost Higher pricing partially offsetting rising cost Higher revenue offset by dropping GP margin and higher SG&A Higher revenue offset by dropping GP margin and higher SG&A
Excluding 2c benefit from a gain in fair value of warrants EPS includes ~10c in privatization-related expenses
Act Performance Statistics Gross margin Y/Y Change (in bps) Q/Q Change (in bps) Accounts Payable Turnover DSOs Inventory Turnover Operating Cash Flow (in MM) Cash (in MM) (w/o restricted cash) Cash per share Debt (in MM) Debt per share 2Q11 27.6% -595 -155 16.7x 63 6.5x $9.7 $87.6 $2.79 $87.4 $2.79 Current Estimate Revisions Revenue Gross Margin Operating Margin EPS (non-GAAP) 125,069 28.0% 18.4% $0.54
Est 29.5%
Prv Q 1Q11 29.1%
Yr Ago Q 2Q10 33.5%
12.1x 73 5.0x $8.7 $122.8 $3.92 $80.9 $2.58 Previous Var ($) 3Q11 126,676 (1,607) 29.9% -195 19.7% -135 $0.61 (0.07) Fiscal Year 2011 476,847 13,651 29.6% -146 18.6% -123 $2.17 (0.12) Fiscal Year 2012 578,326 (9,447) 30.0% -169 20.6% -60 $2.89 (0.25)
5.4x 87 3.6x $31.8 $40.3 $1.28 $57.0 $1.82 Var (%) -1.3% -6.5% -6.8% -11.5%
Operating cash cycle shortened to 97 days in Q2'11 vs. 116 days in 1Q'11 and 121 days in 2Q'10
Cash usage primarily associated with CapEx
Expecting margin pressure to continue for next several quarters Gross margin pressure plus elevated expense related to privatization Lower gross margin/higher Opex/elevated tax rate
Revenue Gross Margin Operating Margin EPS (non-GAAP)
490,498 28.1% 17.4% $2.05
2.9% -4.9% -6.6% -5.5%
Primarily on upbeat reported Q2 results Expecting margin pressure to continue for next several quarters Gross margin pressure plus elevated expense related to privatization Lower gross margin/higher opex/elevated tax rate
Revenue Gross Margin Operating Margin EPS (non-GAAP)
568,879 28.3% 20.0% $2.64
-1.6% -5.6% -2.9% -8.7%
Considering capacity constaints particularly in Xi'an SIMO Expecting margin pressure to continue for next several quarters Gross margin pressure Lower gross margin/elevated tax rate
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VALUATION
RISKS
COMPANY DESCRIPTION
Page 3 of 6
181
FY07
FY08
46,950 34,628 11,664 27,578 0 120,820 85% (73,343) 47,477 39.3%
Q1'09A
12,382 6,114 1,383 10,846 0 30,725 36.8% (19,801) 10,924 35.6%
Q2'09A
11,547 8,555 1,343 16,918 0 38,363 60.1% (25,500) 12,863 33.5%
Q3'09A
16,426 8,448 1,408 20,650 0 46,932 18.3% (30,171) 16,761 35.7%
Q4'09A
20,371 18,441 643 23,694 44,065 107,214 208.6% (71,150) 36,064 33.6%
FY09
60,726 41,558 4,777 72,109 44,065 223,234 84.8% (146,622) 76,612 34.3%
Q1'10A
19,831 16,245 1,899 22,468 45,042 105,485 243.3% (69,743) 35,742 33.9%
Q2'10A
20,138 15,183 2,003 23,512 44,599 105,436 174.8% (70,104) 35,332 33.5%
Q3'10A
19,356 15,310 2,296 23,511 48,881 109,355 133.0% (75,780) 33,575 30.7%
Q4'10A
17,009 14,030 1,468 23,757 49,942 106,206 -0.9% (75,142) 31,064 29.2%
FY10A
76,334 60,767 7,666 93,249 188,465 426,481 91.0% (290,768) 135,713 31.8%
Q1'11A
19,261 15,532 961 21,770 46,305 103,829 -1.6% (73,626) 30,204 29.1%
Q2'11A
24,662 18,210 1,313 29,201 58,016 131,402 24.6% (95,198) 36,204 27.6%
Q3'11E
22,118 20,475 1,378 25,862 55,236 125,069 14.4% (90,110) 34,959 28.0%
Q4'11E
21,426 22,050 1,468 27,321 57,932 130,198 22.6% (93,528) 36,670 28.2%
FY11E
87,467 76,267 5,120 104,154 217,490 490,498 15.0% (352,461) 138,037 28.1%
FY12E
101,165 97,020 5,352 121,523 243,820 568,879 16.0% (407,641) 161,238 28.3%
(7,660) 11.7% (1,064) 1.6% 23,711 36.3% 69%
(11,913) 9.9% (1,170) 1.0% 34,393 28.5% 45%
(2,505) 8.2% (393) 1.3% 8,026 26.1% -7%
(3,639) 9.5% (409) 1.1% 8,816 23.0% 7%
(3,249) 6.9% (468) 1.0% 13,044 27.8% 24%
(9,278) 8.7% (823) 0.8% 25,962 24.2% 270%
(18,672) 8.4% (2,093) 0.9% 55,847 25.0% 62%
(7,417) 7.0% (594) 0.6% 27,731 26.3% 246%
(6,886) 6.5% (363) 0.3% 28,083 26.6% 219%
(10,059) 9.2% (1,663) 1.5% 21,853 20.0% 68%
(14,613) 13.8% (803) 0.8% 15,648 14.7% -40%
(38,974) 9.1% (3,423) 0.8% 93,315 21.9% 67%
(10,073) 9.7% (3,879) 3.7% 16,252 15.7% -41%
(13,799) 10.5% (948) 0.7% 21,458 16.3% -24%
(10,756) 8.6% (1,251) 1.0% 22,953 18.4% 5%
(10,806) 8.3% (1,302) 1.0% 24,561 18.9% 57%
(45,434) 9.3% (7,379) 1.5% 85,224 17.4% -9%
(41,056) 7.2% (6,199) 1.1% 113,983 20.0% 34%
(6,620) 0 (189) 0 0 0 0 0 16,903 0 0.0% 16,903 25.8% -8% 16,903 25.8% 40% $0.91 -10% $0.91 37% 18,635 29,863
(6,066) 0 218 1,358 0 0 0 0 29,903 (4,524) 15.1% 25,379 21.0% 50% 25,379 21.0% 50% $1.19 31% $1.19 31% 21,324 42,066
(1,441) 0 0 539 0 0 2,573 0 9,697 (1,043) 10.8% 8,654 28.2% 62% 6,081 19.8% 14% $0.39 46% $0.27 2% 22,159 10,245
(843) 0 0 2,101 0 0 (14,015) 0 (3,941) (1,479) -37.5% (5,419) -14.1% -187% 7,423 19.3% 19% -$0.24 -178% $0.33 7% 22,341 10,688
(8,478) 0 0 1,063 (9,000) 4,155 (737) 0 46 (1,954) 4209.2% (1,908) -4.1% -125% 10,953 23.3% 41% -$0.07 -121% $0.40 20% 27,077 23,101
(1,553) 0 0 1,759 0 0 (1,037) 0 25,131 (3,320) 13.2% (3,491) 18,320 17.1% 203% 19,356 18.1% 220% $0.59 114% $0.62 127% 31,240 28,806
(12,316) 0 0 5,462 (9,000) 4,155 (13,215) 0 30,934 (7,796) 25.2% (3,491) 19,647 8.8% -23% 43,813 19.6% 73% $0.77 -36% $1.71 43% 25,672 72,840
(1,647) 0 0 1,119 0 0 (234) 0 26,969 (4,063) 15.1% (2,352) 20,554 19.5% 137% 20,788 19.7% 242% $0.66 68% $0.66 142% 31,354 31,037
(978) 0 0 1,327 0 0 1,657 (623) 29,466 (3,791) 12.9% (1) 25,675 24.4% -574% 24,641 23.4% 232% $0.82 N/A $0.79 137% 31,343 30,866
(1,133) 0 0 740 0 0 (302) 0 21,158 (3,296) 15.6% 11 17,873 16.3% -1037% 20,208 18.5% 85% $0.57 N/A $0.65 60% 31,282 24,943
(836) 0 0 2,304 0 0 (547) 0 16,569 (3,765) 22.7% (91) 12,714 12.0% -31% 19,603 18.5% 1% $0.41 -31% $0.62 1% 31,376 17,938
(4,593) 0 0 5,490 0 0 574 (623) 94,163 (14,915) 15.8% (2,432) 76,815 18.0% 291% 85,240 20.0% 95% $2.46 221% $2.72 60% 31,282 104,784
(1,924) 0 0 1,121 0 0 (434) 0 15,015 (4,195) 27.9% (14) 10,806 10.4% -47% 12,939 12.5% -38% $0.34 -47% $0.41 -38% 31,364 19,097
(1,259) 0 0 2,390 0 0 566 0 23,154 (5,986) 25.9% (6) 17,162 13.1% -33% 16,596 12.6% -33% $0.55 -33% $0.53 -33% 31,351 24,572
(1,500) 0 0 1,000 0 0 0 0 22,453 (5,613) 25.0% 0 16,839 13.5% -6% 16,839 13.5% -17% $0.54 -6% $0.54 -17% 31,445 26,153
(1,500) 0 0 1,000 0 0 0 0 24,061 (6,015) 25.0% 0 18,046 13.9% 42% 18,046 13.9% -8% $0.57 41% $0.57 -8% 31,540 27,761
(6,183) 0 0 5,511 0 0 132 0 84,683 (21,810) 25.8% (20) 62,853 12.8% -18% 64,421 13.1% -24% $2.00 -19% $2.05 -25% 31,425 97,583
(6,000) 0 0 4,000 0 0 0 0 111,983 (27,996) 25.0% 0 83,987 14.8% 34% 83,987 14.8% 30% $2.64 32% $2.64 29% 31,777 127,983
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Disclosures:
Count 204 60 2 0
Percent 76.4 22.5 0.7 0.0
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FINAL TRANSCRIPT
HRBN - Q2 2011 Harbin Electric Inc Earnings Conference Call
Event Date/Time: Aug. 10. 2011 / 1:00PM GMT
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Aug. 10. 2011 / 1:00PM, HRBN - Q2 2011 Harbin Electric Inc Earnings Conference Call
CORPORATE PARTICIPANTS
Christy Shue Harbin Electric Inc - EVP Finance & IR Tianfu Yang Harbin Electric Inc - Chairman and CEO Zedong Xu Harbin Electric Inc - CFO
CONFERENCE CALL PARTICIPANTS

Mark Tobin Roth Capital Markets - Analyst Echo He Maxim Group - Analyst Justin Lumiere CGFI Group - Analyst Jonathan Hui Senrigan Capital - Analyst Max Tsung Cutler Group - Analyst
PRESENTATION
Operator Good morning and welcome to the Harbin Electric second quarter 2011 financial results conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be a possibility to ask questions. (Operator Instructions). Please not this event is being recorded. I would now like to turn the conference over to Christy Shue, Executive Vice President of Finance and Investor Relations. Please go ahead.
Christy Shue - Harbin Electric Inc - EVP Finance & IR Good morning, everyone. Welcome to Harbin Electric's second quarter 2011 earnings conference call. I am joined by our Chairman and the Chief Executive Officer, Mr. Tianfu Yang, and the Chief Financial Officer, Mr. Zedong Xu, on the call. Before we begin I would like to remind you that our discussion this morning may include forward-looking statements. These forward-looking statements reflect the Company's current expectations concerning future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially. A detailed discussion of these factors and uncertainties is contained in the Company's filings with the SEC. We filed our quarterly report on the Form 10-Q for the three months ended June 30, 2011 yesterday after market close and we issued a press release, following the filing yesterday, to highlight our second quarter financial results. Regarding our revenue, in the second quarter total revenues were $131m, up $26m or 25% compared with $105m in the second quarter of last year. This significant sales growth was mainly the result of higher sales across all major product lines.
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In Linear Motors and Related Systems sales were up about $4.5m year-over-year, slightly lower sales volume in our oil pumps and in propulsion systems for coal transportation trains were more than offset by higher volumes in other linear motors and sales of new motors. In Specialty Micro Motors, sales increased by $3m driven by higher volume of existing products and sales of new products. Rotary Motor sales were up $13m and $5.6m at Xi'an Tech Full Simo and at our Weihai facility, respectively, driven primarily by higher volumes and higher pricing. Our gross profit margin declined to 27.6% in the second quarter from 33.5% in the same period last year. This is primarily due to higher raw material cost and the labor costs across all product lines. Changes in product mix and selling price are also the contributors. If you look at the market, the market price of copper has gone up approximately 30% in the second quarter versus the same time last year. The market price of rare earth permanent magnetic material more than tripled. Copper, steel and the rare earth permanent magnetic material are major raw materials for our products. We were able to raise the price on most of our rotary motors this year, which helped to offset some inflationary costs. Although the Company anticipates passing on a portion of the higher costs of raw materials to increase the selling prices, it is expected that higher raw material price will continue to pressure gross margin. Additionally, an increase of $0.4m in depreciation expense in the cost of sales also hurt the overall gross margin. We anticipate that the depreciation expense will continue to go up as many of our capital investments, such as new equipment, machinery and plant construction are put to operation and will start to depreciate the capital investment. In the Linear Motor and Related Systems product line gross margin declined, mainly due to product mix. The product mix in the linear motors has changed compared to last year in a big way. Volumes of higher margin products, oil pumps and propulsion systems, declined while sales volumes of lower margin products increased significantly. Also, in order to expand our customer base and gain market share, we have lowered selling prices for certain of our linear motors. So combine those factors and also add in the other raw material cost inflation and labor cost inflation you have seen a bigger dramatic decline the gross margin in the Linear Motors. In Specialty Micro Motors gross margin declined to 33.9% in the second quarter from 37.1% last year. In addition to higher raw materials and the labor costs, lower gross margin was mainly a result of change in product mix and additional costs and reduced production efficiency associated with the new product launch, which generally experience higher manufacturing costs during the start-up stage due to more workforce training, additional test runs and smaller initial orders. In both Linear Motors and Specialty Micro Motors product lines, our continuing launch of new customized products, although some may have lower margins, help us continue to capture new opportunities in the market and are essential for our growth in top line and bottom line. In Rotary Motors, gross margin declined mainly due to higher raw material and labor cost partially offset by higher selling price. In operating expense we incurred significantly higher SG&A this quarter, at a total of $13.8m compared to only $6.9m in the second quarter last year. As a percentage of total sales, the SG&A is 10.5% versus 6.5% last year. The higher SG&A included a $2.5m write-off of advances on inventory purchases due to vendors going out of business. Also, expenses in the second quarter of 2011 related to going private process totaled $3.3m. This amount included the legal fees associated with the class action lawsuits, fees associated with legal and financial advisors for the Special Committee of the Board of Directors and some other related expenses. The Company expects to recover some of the legal expenses related to the class action lawsuits pursuant to its insurance policy.
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If we exclude these two items that were not in the quarter last year and do a more apples-to-apples comparison, our SG&A would have been roughly in line with last year, actually indicating improved management efficiency given we achieved higher revenues this quarter. Our operating profits were $21.5m this quarter versus $28.1m in the same quarter of last year. One other point I would like to highlight is the income tax, we had a higher provision for income tax, $6.0m this quarter compared to $3.8m in the same quarter of last year. And the average corporate income tax rate is higher, because of the preferential tax rate of 10% granted to our subsidiary Harbin Tech Full expired at the end of 2010. Harbin Tech Full is in the process of applying for a new preferential income tax rate from the Chinese government. However, since the new rate is due pending approval, management opted for caution and used a 25% standard income tax rate to calculate the provision for income tax. So the higher income tax rate, the 25% standard rate that we used, has caused the provision for income tax at Harbin Tech Full to be significantly higher in this quarter versus the same quarter last year. The Company recorded a net income attributable to controlling interest of 17.2m, or $0.55 per diluted share in this quarter, compared with a net income attributable to controlling interest of $25.7m, or $0.82 per diluted share in the same quarter of last year. The net income to attribute to controlling interest was 33% lower in the second quarter, primarily due to lower gross profit margin, higher R&D expenses, higher SG&A expenses as we discussed earlier and also the higher income tax rate hurt our net margin and net income. In terms of our balance sheet, we had -- at the end of June we had cash and cash equivalent of $87.6m and we believe our liquidity remains adequate. And in terms of capital expenditure, you probably see when you look at our first quarter, because there was a seasonally winter quarter we did not start capital investments, but a total of about $41m capital expenditure all incurred in the second quarter as we -- after the Chinese New Year we started to execute our investment plan. In terms of the outlook, we expect to deliver for both the top and bottom line. A capacity expansion is under way at our Rotary Motor facilities in Xi'an and Weihai and we believe in the rest of the year we still will maintain solid revenues for the rest of the year. With regard to the Company's going private process, I would like just to comment -- to say a few words. There is a recent events section in the press release and in the 10-Q that provided the current standards of this event. To remind you, on Jun 19, 2011, the Company entered into an Agreement and Plan of Merger for the Company to go private. On July 13, 2011, the Company filed a Preliminary Proxy Statement together with a Schedule 13E-3 with the SEC indicating its intention to call a special meeting of its shareholders to vote on the Merger Agreement for the Company to go private. After SEC completes its review of this document, the Company will schedule the special shareholder meeting. The Company will make an announcement regarding the special shareholder meeting when information is available. Please stay tuned. Last but not least, we would like to express our appreciation to our loyal shareholders who have supported us and stood by the Company in the past. We surely will need your support in the days ahead of us and we want to thank you in advance. So in the past more than 10 years of the Company's growth path, born and grew up in China and immigrated to the US, the Company has dealt with many challenges on the way. Obviously nowadays the management continues to deal with challenges including some short-sellers' vicious attacks by using speculations, unfounded accusations and outright lies. In the internet age anyone could write a blog and attack anyone else. In our opinion the freedom has been abused by some short-sellers with the motivation to hurt our shareholders and benefit a few. We advise our shareholders and interested investors to be vigilant and intelligent when review any outside information that may be disseminated about the Company, including the source of such information.
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Management understands that many challenges, including absurd short-sellers attacks such as the one we saw today, may still lie ahead of us but we assure our shareholders that management of this Company always faces challenges without fear. These are the Company's prepared remarks, now we're ready to take questions. And please I'd like to remind the question -the people who ask the questions, please limit your questions to only two questions, not exceeding two questions, so that many people will have the chance to ask a question.
QUESTIONS AND ANSWERS

Operator We will now begin the question and answer session. (Operator Instructions). Our first question comes from Mark Tobin of Roth Capital Markets.
Mark Tobin - Roth Capital Markets - Analyst Hi, thanks for taking my question.
Christy Shue - Harbin Electric Inc - EVP Finance & IR Hi, Mark, good morning.
Mark Tobin - Roth Capital Markets - Analyst Could you offer a little more color on your current utilization rates at your various facilities and then a little more detail on the capacity expansion projects?
Christy Shue - Harbin Electric Inc - EVP Finance & IR Okay, let me turn the question to Mr. Yang.
Tianfu Yang - Harbin Electric Inc - Chairman and CEO (spoken in Mandarin)
Christy Shue - Harbin Electric Inc - EVP Finance & IR As you most are aware, we have four manufacturing facilities. At our Harbin manufacturing facility our current capacity, normal capacity, we run about 80%. And for the Linear Motors and also due to a new product we have launched, it's called alternate frequency permanent magnetic material motor, that's a more technical term, I don't know how to translate exactly into English. Chinese means (spoken in Chinese) something like that. So we have a plan to also continue to expand the capacity at Harbin and we are planning by next year -- later part of next year the Harbin capacity could be filled up to 100% and after that we may need to add more capacity by then. At Shanghai the design capacity actually right now we only need 30% to 40% because we're still actually moving -- receiving even more equipment and production lines, then we need to install them at the facility -- at the factory. The construction part

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-- the first phase, the construction part, has completed and the second phase and third phase are also near completion where just some power station -- we're still working on the power supply station there in Shanghai. And so (technical difficulty) with a lot of machinery and equipment not installed and received yet we're running about 30% to 40%. Within two to three years we're hoping that the capacity can be maximized to 100%. Okay, at Weihai factory the capacity is saturated and we started to build -- construct a new factory but the main construction won't be completed by the end of the year. But once we've completed the construction and we've started to move in our major production line there, I think the new factory is 50,000 square meters. And then by later next year we probably can hope to get an additional 50% of the capacity at Weihai. At Xi'an actually the most urgent thing is at Xi'an and at Xi'an Simo we are planning to actually combine -- consolidate some of the subsidiaries together at one site so that we can improve the manufacturing efficiency. So there are some subsidiaries in the process of moving to the same site, but however we are also short on the space and the capacity and a lot of things happening there we have to deal with. So the capacity constraint is mostly severe at Xi'an. For example, in second quarter we did not really complete all the orders on hand. Actually, he was saying that in July -- July is not second -- July that there were some orders that we did not really complete, we had to delay that, postpone that into the next month. Mr. Yang quoted about CNY10m of orders on hand that have to be postponed to the next month. So right now we're actually just trying being innovative, trying every means to complete our orders on hand and have to contract out -- not contract but source some of the parts to other subsidiaries like Harbin and like Weihai to complete all our orders. So just by being innovative and find the means to do that we were able to reach this quarter's achievements. So our plan is achievement and it's urgent that we really need to expand capacity and start building new factory to expand the capacity there.
Mark Tobin - Roth Capital Markets - Analyst That's helpful, what is your CapEx target for the remainder of 2011?
Christy Shue - Harbin Electric Inc - EVP Finance & IR In terms of capital expenditure, our forecast when they have indicated in the past has not changed, it's approximately $100m he mentioned, and will mainly be used to construct the Weihai new factory and purchasing equipment and production lines. And at Xi'an we may not be able to start right away because the Xi'an facility is -- for some of the investors who have visited our facility you know that it is in the economic development zone and, however, that area has become a residential area because the Xi'an Municipal Government has moved in and we are the neighbor to the Xi'an Municipal Town Hall and there is no space for us to expand at the same location. So right now we are working with the government, the government has allocated us new land so we will have to plan building that new factory on the new land. So the Xi'an factory building new construction may not start at the same location. He mentioned that the land that we need will be not at the same place and we are working with the Xi'an government to get a new piece of land and then the land used right would cost us approximately $30m.

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Mark Tobin - Roth Capital Markets - Analyst Okay, that's helpful. Thank you very much.
Christy Shue - Harbin Electric Inc - EVP Finance & IR We actually made some pre-payments to the government to secure that land in the second quarter with this (inaudible) in the 10-Q.
Operator (Operator Instructions). The next question comes from Echo He of Maxim Group. Please go ahead.
Echo He - Maxim Group - Analyst Oh hi, thank you for taking my questions. My first question is about your average selling price. Could you give me a range about your rotary motors that the selling price increase percentage wise year-over-year?
Christy Shue - Harbin Electric Inc - EVP Finance & IR Let me translate, okay. The question is what's the average selling price, how much higher this year than last year? And as you know that it is common practice in the marketplace that when the raw material price gone up and the manufacturers usually raise the selling price of the product to compensate for some of the inflationary cost and we also did that. As you know, the copper, steel and the price on those raw materials has gone up quite significantly. So we also adjusted our selling price, most of our rotary motors at Xi'an and Weihai. But the price adjustment usually have to go according to the raw material price, and also you have to watch the market acceptance. So those are the criteria that we use -- and when the raw material price goes down and sometimes we adjust back. So those are the common practice. So far, we have adjusted three times of the price of the Simo, and at Weihai we adjust the price two times. Approximately, compared to last year, our price -- for the ones that we raised the price, we had about 20% -- raised the price about 20%. So the next step, whether we can continue to raise the price, we don't know for sure, we will have to look at the reaction from the market and how the customers accept those price -- higher price. Okay.
Echo He - Maxim Group - Analyst Yes, I do have a second question. There are some negative reports out there in the market recently, especially in the past few days, one message sent out from Twitter stating that some positive evidence to prove certain allegations to the Company. Well, likely [you will release it] in the immediate future. Regarding this and related issues, what comments do you have?
Tianfu Yang - Harbin Electric Inc - Chairman and CEO (Spoken in Mandarin).

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Christy Shue - Harbin Electric Inc - EVP Finance & IR Mr. Yang thinks that this question gives him an opportunity to comment and share some of his thoughts with his shareholders. As the Company actually has grown up so fast and, from a very small company, grown to such a large company, -- in the sense large but probably still small, and we -- at the year we do acquisitions to grow the Company. So we really have done -- dealt with many challenges on the oppositional side, and all we wanted is to be responsible for our shareholders and also for our clients, for our customers. We have thousands of our workers and staff and employees working really hard to deliver values to our Shareholders. So that's also that I, last year, proposed to acquire the Company. And the reason he wants to share is it seems -- from our Company growth really rapidly, and we're given several acquisitions among the road, and so we have really dealt many challenges. For our Company we do need a platform, because we focus on technology and -- but the capital investment is also very important factor for the Company to continue to grow, because, as I just discussed earlier, we needed to advance further, expand our capacity. We see many opportunities in the marketplace and, without the capital, without the technology, we won't be able to capture all these opportunities out there in the marketplace in China. And so, in light of that, the Company, right now, in the US, do see our capital market here as -- the capital markets are to be very difficult for Chinese companies last year, and after -- particularly after a number of tax on Chinese companies. So the Company -- in order for the Company to continue to grow, and for the benefit of our Company and our customers and all that, he believes that privatization is the choice for the Company to continue to be on the healthy path. And during this privatization process, we -- the Company has followed every requirement and regulatory requirement and the laws, and we have the special -- independent special committee working on behalf of the minority shareholders. And each --they use very prominent investment advisors -- financial advisors to advise each party's work, and following exactly what the laws and regulations required, and did many, many months of work, very detailed and to have come this far. It's very long, so I have to see -- but, however, during this process, and we also see some -- encountered the short seller attacks, and they use the internet to use some unfounded --- made up, manufactured documents and some of the outright lies to attack the Company. And particularly the scheme is designed in a way that it particularly benefit short sellers, for example. They do this at a particular time, and then they attack the Company. So there's several times that it happened, and -- but you probably can see that this is very vicious and a very planned attack on the Company. And the main purpose is just to hurt our shareholders and to hurt our -- and to benefit to the -- for the benefit of a few of the short sellers. And, following the regulations and the laws under the special committee's evaluation process, the Company has signed the agreement to -- signed the merger agreement, in term of merger, in June. And also, and you can see -- sorry there, because he has said a lot of stuff. I wasn't able to write down all of them, so I was just trying to translate from memory. And the proposal that they made to acquire the shares -- outstanding shares in the marketplace, $24 is what I believe is protected the shareholders' interest and benefit, and also what you can see that the short sellers attack -- the (inaudible) attack, the [eBanks]. And actually he does communicate with the China Development Bank and the eBanks. And, for the Chinese Development Bank, they had about three to four months of rigorous due diligence of the Company, and they have finally approved the plan to support Mr. Yang and lend the money for him to acquire the shares. So this, all whole process that took long and really reflect that not only he feels responsible executing judicial duty to protect the shareholders' interest. And our special committee has also gone through many months of assessment and their work, with the responsibility for our shareholders. But the short sellers used the outright lies and the manufactured stories to attack the Company, so I would really encourage -advise our shareholders that you really need to see what's their real purpose, and you need to use your intelligence and analyze the information out there in the internet, because the internet age is just information overflow and the many false information would be floating around and people just make up stories, make up information that is floating on the internet and just are

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trying to scare and hurt our shareholders. So what we have done for the last few months is we tried our -- made every effort to protect our shareholders' benefit. Okay. All right, any other questions?
Operator (Operator Instructions). Our next question comes from Justin Lumiere of [CGFI] Group. Please go ahead.
Justin Lumiere - CGFI Group - Analyst Hello?
Christy Shue - Harbin Electric Inc - EVP Finance & IR Hi, Justin.
Justin Lumiere - CGFI Group - Analyst Hi. How are you doing?
Christy Shue - Harbin Electric Inc - EVP Finance & IR Hi.
Justin Lumiere - CGFI Group - Analyst Yes. I just saw that you expanded the liquidity and capital resources section, the overview, and I know that you discussed about tapping the Chinese capital markets just because -- with the difficulty with the US capital markets. But in there it's disclosed that there is a consulting agreement where they paid $3m for a five-year agreement to help tap into the Chinese capital markets. Can you just shed a little light on what that is, and why you use a consultant?
Christy Shue - Harbin Electric Inc - EVP Finance & IR Okay. Let me elaborate the rationale behind that consulting agreement. First of all, there was large striking, last year mainly. Obviously, our management has continued to communicate and continued to expect and plan that the Company will continue to grow rapidly in the next few years, organically, or through acquisitions. And probably you can see that, in the past few years, we needed the capital, and our growth -- some from organic growth but largely also from acquisitions. So acquisition is a very important role to fuel the Company's continued growth, particularly in the China market where consolidation continues. And you can also learn from the capital market in the US, in capitalism. So that's our expectations, for the Company to continue to grow organically or through acquisitions. To support the planned growth, Management believes it is critical to maintain adequate access to capital and to have flexibility to deploy funds in areas needed, in a timely fashion, when opportunity arises. So we have identified the many domestic business opportunities, given the rapid economic growth in China and believe that an adequate access to capital could allow us to capture these business opportunities. However, in the past that you know well, understand and the Company relied, to a large extent, on the US capital markets to provide the funds for our large capital injection project and acquisitions, and for the repayment of certain debts.

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You might remember, last year, the Company filed $100m self-registration statement -- that's public information -- to give the Management the ability to further access the US capital markets provide the Management with some comfort and flexibility with respect to future financing when making growth plans and business decisions. But however, everybody knows, starting in the middle of 2010, that we perceived that the US capital markets had become hostile, or very difficult, to US-listed Chinese companies, particularly those companies that became public in the US through a reverse merger process. So, funding opportunities we believe for all Chinese companies seemed to dwindle rapidly after short seller attacks on Chinese companies. A number of them later become of a more, not just a few, a number of Chinese companies in the middle of last year. So our Management quickly assessed the situation and believe that, in the near term, it wouldn't seem possible to raise capital from the US capital markets on the favorable terms, or possibly at all. So we believed that we needed to take quick action before opportunities to obtain financing deteriorated any further. Also, in October, the Company had received ongoing private buyout proposal submitted by the Chairman, Mr. Yang. So, given that the Management expects, once the Company -- should it go private, the Company would completely lose access to the US capital markets, so we needed to -- the Management needed to be vigilant about the next few years' capital needs. And if we will want to continue to grow the Company, obviously, the -- like Mr. Yang has just mentioned, the technology and the capital are a critical part to the Company's future. And the Management has ambitions to build the Company into a world-class and comparable -- competing with the global companies. And so, under these circumstances, we strongly believe that we'll need -- the Company will need to seek alternative source of financing for the next few years, in order to execute our business plan, especially if the Company is taken private. So the Company has the most -- since, the Company has most of its operations in China, and funding supply in China has been growing rapidly. The private equity funds and the government funds and all that, really has grown rapidly in China, so it is natural that the Company would target financial institutions in China. So we worked out a agreement with a third party that committed to provide an assistance to act in an advisory role to help the Company to raise capital in the next few years.
Justin Lumiere - CGFI Group - Analyst Yes. I guess what I wanted to know also, is this something that's necessary in China, doing business there, that you would require the assistance of a third-party advisor to tap the capital markets? Couldn't you go directly to banks?
Christy Shue - Harbin Electric Inc - EVP Finance & IR Well, you should know that China is not as mature market -- capital market as in the US. Although you started to develop a lot of advisory companies like the investment bankers, like in the US, any investment bankers that arrange a loan, arrange something that would take a commission a lot higher than that. But in China, there is a lot of --mechanisms, systems have not established sophisticatedly and maturely and, although it's growing, it's developing. So you do have to consider, there are some common practices in China, what's good -- best for the business. So this is the decision that the Management made for the future of the Company.
Justin Lumiere - CGFI Group - Analyst Okay, very good.
Christy Shue - Harbin Electric Inc - EVP Finance & IR Yes, okay.

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Justin Lumiere - CGFI Group - Analyst All right, thank you very much.
Operator The next question comes from Jonathan Hui of Senrigan Capital. Please go ahead.
Jonathan Hui - Senrigan Capital - Analyst Hi. I just had one question. You mentioned earlier that a number of the short sellers had actually been making outright lies about the Company. Now have you considered, or has the Management considered, seeking legal action against these short sellers, if that's the case?
Christy Shue - Harbin Electric Inc - EVP Finance & IR We have stated in our press release the Company reserves the right to take legal actions against anyone who uses false information and attack the Company.
Jonathan Hui - Senrigan Capital - Analyst Do you know what legal rights you have in this kind of situation, and could you provide some details?
Christy Shue - Harbin Electric Inc - EVP Finance & IR We do not have any details to provide. At this point, we are not at the point to provide any details regarding that.
Jonathan Hui - Senrigan Capital - Analyst Okay, I see. Thank you.
Christy Shue - Harbin Electric Inc - EVP Finance & IR Yes. If information that would be -- that we believe it's appropriate to disclose, we'll disclose. But at this time, we are not -- we don't feel it's appropriate to disclose those information yet. Okay, any other questions?
Operator The next question comes from [Max Tsung of Cutler Group]. Please go ahead.
Max Tsung - Cutler Group - Analyst Hi. Thank you for taking my question. I was wondering if you have any kind of timeline or deadline for the SEC review regarding the management-led buyout, and if you have any idea of what kind of questions they're asking, if you've met with their lawyers or if you know what kind of information they're considering for their review?

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Christy Shue - Harbin Electric Inc - EVP Finance & IR We do not have those details available. The SEC review process is a standard procedure, and the SEC will take their time. And we will work with SEC to -- if they have any comments, we will work with SEC to respond to any comments they have. But, obviously, we do not have control on the time, how long SEC will take. So we will just work with them and will, on our part, -we will ensure that the process goes as smoothly as possible, from our part.
Max Tsung - Cutler Group - Analyst Okay, thanks. And then one other question. One of the allegations that the short sellers have made is that the internal controls of the auditing that you have might not be sufficient. And, looking at your last 10K, it said that Frazer Frost was your current auditor. I was wondering, given that they've been involved in some questionable accounting practices at other firms, I was wondering if you still find they are sufficient or if you've considered finding an alternative auditor for your finances?
Christy Shue - Harbin Electric Inc - EVP Finance & IR As far as the material weaknesses that the short sellers are accusing, actually we disclosed that fully in our 10K and we did also made some explanations in the 10K that -- what are the material weaknesses, what are the -- particularly we mentioned that it's mainly associated with our Xi'an Simo facility, which was a state-owned company that we acquired in 2009. So we are -- the Company, the Management, has been working rigorously to enhance the internal control procedure at Xi'an Simo since the day that we acquired them. But however, such a big company, a large former state-owned company, you really need a lot of work. So we realize that, and so, at the end of the year we realized that still material weaknesses existed, but we will continue to deal with that and enhance in full our Company. And so we don't hide those. If we have weaknesses, we will disclose, and we follow the SEC regulations and the laws to disclosure area. Well, last year (inaudible), we know where we are weak and where we need to improve, and that's all our intention as to for the best of the Company and also be responsible for our shareholders. Regarding to Frazer Frost question, I don't think it's appropriate to say that one company had a problem or the company audited by this auditor had a problem. Or maybe alleged the problem, accused the problem, does not mean that every other company audited by the same auditor would have problems or the auditor would have -- make mistakes or any -- for all the other companies. So I don't think that it's appropriate to say that, and so that -- I will just close my comments on that point. Okay.
Max Tsung - Cutler Group - Analyst Okay, thank you very much.
Christy Shue - Harbin Electric Inc - EVP Finance & IR Okay, we have -- we run out of the time, and we will just close the conference now. But I would like to -- before we turn off the conference, I would like to pass this call to Mr. Yang, to see if he has any closing remarks before we call off. (Spoken in Mandarin).
Tianfu Yang - Harbin Electric Inc - Chairman and CEO (Spoken in Mandarin).

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Christy Shue - Harbin Electric Inc - EVP Finance & IR Okay, Mr. Yang wants to say a few words. First of all, he was very happy that he has the chance to share with our shareholders the achievements that the Company has made so far. And also, the whole -- entire employees of the Company has worked so hard to add value to our shareholders. So and we appreciate for shareholders, and we also appreciate the shareholders, and it matters for our support. And obviously, the Company has -- or is in a very complex situation right -- critical, I should say, very critical point at this moment. And we did get a lot of attention from the marketplace from our shareholders and from interested investors. And the Company, and the Management, I believe our responsibility, one of the responsibility is to make to -- create value for our shareholders and to protect our shareholders' value. And this is what I actually believe, and we will work every effort to continue to do so, to create value for our shareholders and to protect our shareholders' interest and benefit. And, in the past, our shareholders have supported the Company -- loyal shareholders have supported the Company, have given Mr. Yang and the Company a lot of support, which he fully appreciate. And I truly think that those are my asset and those are the best part, that I really had -- that we really have had the shareholders' support, and this is the best part of my life. I so [badly], truly want to thank you, at this moment. Okay, that's the close for the conference today. And, if anyone has further questions, please feel free to call me at 61 312 8612. And thank you, have a nice day. Bye-bye.
Operator The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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EQUITY RESEARCH
COMPANY UPDATE
Closing Price (8/3/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com $17.68 $24 $5.82 - $25.05 $555.2 31.4 16.8 7.7 2,040 $19.60 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $470.7 $547.6 Current Current EPS P/E $0.77 23.0 $2.46 7.2 $2.14 8.3 $2.67 6.6 10% - 15% GAAP Quarterly EPS Current 2011E $0.34A $0.48 $0.63 $0.68 Current 2012E $0.58 $0.66 $0.70 $0.74

Buy
Expecting margin pressure in 2Q11; Progress of SEC approval is a near-term catalyst; Reiterate Buy and $24 price target
HRBN is scheduled to report 2Q11 financial results on Tuesday, August 9, after the Market closes. A conference call is scheduled for 9:00am EDT the next day (Wednesday, August 10), with a dial-in number of (877) 317-6789 and the ID Harbin Electric.
We expect HRBN to report revenue inline or higher than consensus and our estimates, mainly driven by gradual capacity expansion in its rotary motor facilities. However, its EPS may come below consensus and our estimate, mainly due to an increase in raw material prices. Chinese manufacturers across the board are experiencing margin pressure. On one hand, prices of basic raw materials (steel and copper are specific to HRBN), labor, utilities and transportations are mostly higher than last year; on the other hand, governments price control on key manufacturing products prevents them from raising ASP. Our channel checks show that steel and copper prices increased in 2Q11 by 3% and 24% y/y, respectively. The SEC approval process of HRBNs LBO may be shorter than previously expected. Recently, another Chinese company, China Security and Surveillance Technology, Inc. (CSR NR) received SEC approval on its LBO proposal, announcing on July 29 a record date and a meeting date for its annual shareholders meeting to vote on the LBO proposal. CSR filed its first draft of 13E-3 and preliminary proxy on May 31, 2011, and followed with three amended versions thereafter. Based on CSRs timeline, HRBN may be able to receive SEC approval by the end of September, about two months after its first filing of schedule 13E-3 and preliminary proxy on July 13. 2011. We reiterate our Buy rating. Our $24 price target is mainly based on a favorable outcome of HRBNs LBO. In our opinion, the persistent gap, currently ~30% between the share price and the LBO offering price at $24 per share, creates buying opportunities.
$2.14 $2.67 Quarterly EPS 2011E 2012E $0.34A $0.58 $0.50 $0.66 $0.62 $0.70 $0.66 $0.74 $2.12 $2.78 (212) 895-3718

Exhibit 1. Maxim Estimates vs. Consensus
2Q11E Total Rev ($M) GAAP EPS ($) Maxim Consensus Est Est $ 112.2 $ 113.8 $ 0.48 $ 0.50 Maxim Consensus Est Est $ 470.7 $ 473.8 $ 2.14 $ 2.12 Maxim vs. Consensus -1% -3% Maxim vs. Consensus -1% 1%
2011E Total Rev ($M) GAAP EPS ($)

$ $ $ $ $ $ $ $ $
180 76 238 244 32 184 276 158 93
$ -$ $ $ $ $ $ $
1.10 1.30 1.40 0.49 0.96 0.95 1.01 1.06
$ -$ $ -$ $ $ $
1.19 1.18 1.78 1.28 1.05 1.08 1.10
$ -$ $ -$ $ $ $
1.25 -1.37 1.80 1.57 1.21 1.34 1.26
6.1x -4.9x 4.6x 1.2x -5.6x 8.1x 3.7x 4.5x 4.8x
5.6x -5.4x 3.6x -4.2x 7.3x 3.5x 4.4x 4.9x
5.3x 4.7x 3.6x 3.5x 6.3x 2.8x 3.8x 4.3x
$ $ $ $ $
1.23 0.51 3.51 0.28 0.21
$ $ $ $ $
833 1,527 1,193 308 158
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.11 0.04 0.23 0.03 0.02
$ $ $ $ $
0.12 0.04 0.27 0.04 0.02
10.9x 15.5x 17.8x 9.7x 10.9x 13.0x
11.4x 13.8x 15.3x 8.8x 9.8x 11.8x
10.4x 12.4x 13.2x 7.7x 8.7x 10.4x
$ $ $ $ $ $
1,059 288 1,467 436 9,881 6,317
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.12 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.15 0.18 0.07 0.28
29.4x 69.9x 38.2x 88.4x 30.2x 19.4x 45.9x
20.9x 48.6x 24.9x 83.2x 24.5x -15.8x 26.9x
14.1x 17.8x 16.7x 55.9x 13.4x 23.6x
US/International Motor Companies Siemens SI $ 117.51 $ 102,084 ABB ABB $ 23.13 $ 52,968 Emerson Electric EMR $ 48.46 $ 36,499 Illinois Tool Works ITW $ 48.87 $ 24,556 Cummins CMI $ 101.54 $ 20,064 Magna International MGA $ 46.98 $ 5,297 Rockwell Automation ROK $ 70.82 $ 10,099 Lear Corporation LEA $ 47.05 $ 2,197 Regal Beloit RBC $ 57.99 $ 2,233 Smith AO AOS $ 40.69 $ 1,242 Franklin Electric FELE $ 44.51 $ 1,035 Average Source: Thomson One, Bloomberg and Maxim Group estimates.
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.30 $ 1.58 $ 3.26 $ 3.82 $ 8.93 $ 5.16 $ 4.64 $ 5.30 n/a $ 2.18 $ 2.54
$ 10.94 $ 1.94 $ 3.83 $ 4.47 $ 10.63 $ 5.59 $ 5.43 $ 6.00 n/a -$ 2.97 $ 2.96
19.3x 18.5x 18.0x 15.9x 19.6x 10.8x 23.2x 10.7x -14.2x 22.9x 17.3x
10.4x 14.6x 14.9x 12.8x 11.4x 9.1x 15.3x 8.9x -18.6x 17.6x 13.4x
10.7x 11.9x 12.7x 10.9x 9.5x 8.4x 13.0x 7.8x 13.7x 15.1x 11.4x
Maxim Group LLC
199

(In millions except per shr) Revenue Drivers: Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Total other income (expense) Income before income taxes Provision for income taxes Tax Rate Net income before noncontrolling intere Minority interests As % of net income Net income Y/Y Growth Net Margin Foreign currency translation adjustmen Comprehensive income Weighted average shares outstanding Basic Diluted EPS (to controlling interest) Basic Diluted Y/Y Growth D&A Share-based compensation EBITDA EBITDA margin Exchange Rate (RMB/US$) $ $ 2004 Full Yr 2005 Full Yr 2006 Full Yr 2007 Full Yr 36.6 2008 Full Yr 49.5 35% 41% 33.8 85% 28% 27.8 2009 Full Yr 2010 Full Yr 1Q11 31-Mar 2Q11E 30-Jun 3Q11E 30-Sep 4Q11E 31-Dec 2011E Full Yr 1Q12E 31-Mar 2Q121E 30-Jun 3Q12E 30-Sep 4Q12E 31-Dec 2012E Full Yr
4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
76.3 19.3 18.1 19.3 20.4 77.2 21.2 20.8 21.3 23.5 86.8 27% -3% -10% 0% 20% 1% 10% 15% 10% 15% 12% 56% 18% 19% 16% 16% 16% 16% 17% 15% 15% 16% 16% 18.3 60.8 15.5 14.7 15.3 16.1 61.7 17.1 16.2 16.8 17.7 67.9 51% -4% (3.0%) 0% 15% 2% 10% 10% 10% 10% 10% 28% 14% 15% 13% 12% 12% 13% 14% 12% 12% 12% 12% 93.2 21.8 25.9 27.0 30.8 105.5 27.2 31.1 31.9 35.5 125.7 31% -3% 10% 15% 30% 13% 25% 20% 18% 15% 19% 0% 22% 21% 23% 22% 23% 22% 22% 23% 23% 24% 23% 188.5 46.3 51.3 58.7 62.4 218.7 55.6 64.1 67.5 71.8 258.9 11% 3% 15% 20% 25% 16% 20% 25% 15% 15% 18% 0% 0% 20% 44% 45% 46% 48% 47% 46% 46% 48% 48% 48% 47% 40.4 $ 65.4 $ 120.8 $ 223.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 122.1 $ 134.7 $ 140.4 $ 150.4 $ 547.6 71% 62% 85% 85% 91% (1.6%) 6% 12% 24% 10% 18% 20% 14% 14% 16% (20.8) (33.0) (73.3) (146.6) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (87.0) (96.5) (100.5) (107.9) (391.9) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 35.1 16% 28.8% (1.0) 0.8% (10.0) 8.2% (11.0) 24.1 48% 19.8% 1.2 (1.9) (1.1) 23.0 (4.6) 20.0% 18.4 0.0% 18.4 70% 15.1% 18.4 31.5 31.6 0.58 $ 0.58 $ 69% 38.2 20% 28.4% (1.1) 0.8% (10.1) 7.5% (11.2) 27.0 34% 20.1% 1.5 (1.9) (0.9) 26.2 (5.2) 20.0% 20.9 0.0% 20.9 37% 15.5% 20.9 31.6 31.7 0.66 $ 0.66 $ 36% 39.9 13% 28.4% (1.1) 0.8% (10.2) 7.3% (11.4) 28.5 13% 20.3% 1.4 (1.9) (0.9) 27.6 (5.5) 20.0% 22.1 0.0% 22.1 12% 15.7% 22.1 31.6 31.7 0.70 $ 0.70 $ 11% 42.5 13% 28.2% (1.2) 0.8% (11.0) 7.3% (12.2) 30.3 13% 20.1% 1.3 (1.9) (1.1) 29.2 (5.8) 20.0% 23.4 0.0% 23.4 9% 15.5% 23.4 31.7 31.8 0.74 $ 0.74 $ 8% 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 2.47 $ 0.35 $ 0.49 $ 1.19 $ 0.77 $ 2.46 $ 0.34 $ 0.48 $ 31% (35.7%) 221% (47.4%) (40.8%) 7.7 17.0 11.5 2.9 2.9 1.8 1.2 1.0 0.1 0.1 43.8 36.3% 6.83 74.1 33.2% 6.84 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
6.45
6.42
6.39
6.36
Maxim Group LLC
200
As of:
8/4/2011
with Rating 65.3% 26.7% 8.0%
Maxim Group LLC
201

RISK RATINGS
DISCLAIMERS
Maxim Group LLC
202

Maxim Group LLC
203
INDUSTRY NOTE | CHINA EQUITY RESEARCH | July 19, 2011
China
This report provides an update on the activity within the U.S.-listed China sector related to privatization, PE investment, and dual-listing. It includes a table providing details for each company pursuing privatization. PRIVATIZATION UPDATE Since our last edition (dated June 21, 2011), two more companies (CHNG, TBV) made goingprivate announcements, bringing the total number of active privatization transactions within the U.S.-listed China sector to ten. Please refer to the attached tables for relevant details. We have once again expanded our tables to include more information as deals proceed. Below are some updates since our last edition, including the official filing of HRBN's SC 13E3 together with a preliminary proxy document. We believe this event was noteworthy, bolstering confidence in many of the ongoing privatizations. This confidence was reflected in stock prices, with discounts to respective offer prices narrowing by more than 10 percentage points on average over the past month.
s
Reason for Report:

Industry Update

CFSG FSIN FTLK HRBN $8.31 $7.86 $6.71 $19.09 Neutral Buy Buy Buy
s s
June 27, 2011 - TBV filed SC 13E3 announcing its Chairman & CEO, who currently owns 95.1% stake, is to take the company private for $1.72 per share. As this is deemed short-form merger under Section 253 of the Delaware General Corporation Law, no board approval or shareholder vote is required. June 30, 2011 - CHNG announced that its Chairman & CEO (owns ~14% of the company) is working with a consortium backed by Themes Investment Partners to formulate a proposal to take the company private. July 5, 2011 - CSR announced expiration of Go-shop period. July 11, 2011 - CPC announced that shareholder extraordinary general meeting of shareholders to consider and vote on the going-private proposal would be held on Aug 15, 2011 in Shanghai. July 13, 2011 - HRBN officially filed SC13E3 together with preliminary proxy document.
ATV's TENDER OFFER Related to this activity, on July 12th, Acorn International's (ATV) co-founders (Chairman and CEO) successfully completed a tender offer, purchasing 20M ordinary shares and regaining a 52% controlling stake in the company. Of note, the board recommended shareholders reject the tender offer based on a number of factors; however, a tender offer is not subject to board approval and nonetheless was executed (oversubscribed). We view tender offers as an alternative method (vs. privatization) for Chairmen/management to increase ownership.
Roth Capital Partners, LLC | 24 Corporate Plaza | Newport Beach CA 92660 | 949 720 5700 | Member FINRA/SIPC
204
CHINA
China Natural Gas CNinsure CHNG CISG Chairman & CEO, TPG Asia, Chairman consortium backed by & CEO, CDH Themes Investment Inservice Partners Jun-30-2011 14.0% $4.25
(1)
China Industry Note - July 19, 2011

Chemspec International CPC Chairman & CEO, Primavera China Security & China Fire & Surveillance Security Technology CFSG CSR Bain Capital Chairman & CEO (Management's 59.1% stake already agreed to vote for the agreement) Mar-07-2011 59.1% $9.00 43.8% --17.3x 16.4x $8.31 (7.7%) Board approved, pending shareholder vote; Expected to close by Nov 15, 2011 May-20-2011 Jun-10-2011 Mar-08-2011 20.9% $6.50 58.5% --6.8x 5.9x $5.32 (18.2%) Board approved, pending shareholder vote
Funtalk China Fushi Copperweld FTLK FSIN Chairman & CEO (key Chariman & CEO, mgt), ARCH, Capital Abax Global Capital Ally, GM Investment
(4)
Tiens Biotech Group TBV TIENS (USA) Investment Holdings Group (owned by Chairman & CEO) Jun-27-2011 95.1% $1.72 67.0% --28.7x NA $1.60 (7.0%) Short-form merger. No need for board approval nor shareholder vote N/A Jun-27-2011 N/A $122.7M
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Premium over previous day close Price Revision Date Revised Price P/E (TTM) P/E (NTM)
(2) (2)
May-16-2011 34.3% $19.00 44.4% --15.0x 13.3x $14.81 (22.1%) Under board review
Nov-11-2010 55.8% $8.00 26.6% Mar-21-2011 $8.10 9.0x 8.2x $7.80 (3.7%) Shareholder EGM scheduled on Aug 15, 2011; Expected to close by the end of Q3'11 Mar-21-2011 May-03-2011
Mar-25-2011 77.1% $7.10 15.4% May-31-2011 $7.20 8.4x 8.7x $6.71 (6.8%) Board approved, pending shareholder vote; Expected to close by the end of Q3' 2011 May-31-2011 Jun-14-2011
Nov-03-2010 29.2% $11.50 26.4% --8.8x 8.2x $7.86 (31.7%) Under board review
Oct-11-2010 40.6% $24.00 20.2% --8.8x 7.3x $19.09 (20.5%) Board approved, pending shareholder vote; Expected to close in Q4' 2011 Jun-20-2011 Jul-13-2011 >50% total & >50% of disinterested shares $750.0M (1) Debt: CDB-$400M, Abax note-$25M; (2) Equity: Abax cash$38.8M, Mgmt rollover$264.1M, Abax rollover-$40.6M China Development Bank: US$ 400M Abax: US$25M 23.2% Morgan Stanley & Co. / Lazard Freres & Co. LLC Gibson, Dunn & Crutcher LLP
Apr-29-2011 31.6% $12.00 100.0% --10.9x 10.1x $6.00 (50.0%) Under board review; Shares halted since Apr 11, 2011
22.8% --5.8x 5.2x $3.41 (19.8%) Board informed; (buyers formulating proposal)
Apr-20-2011 May-31-2011
>50% total & >75% total & >50% of disinterested >2/3 of voting shares >50% of disinterested >50% of disinterested shares at EGM shares shares $292.0M $257.8M $583.2M $433.9M (1) Debt: None; (2) Equity: PAG Asia Capital-$150M (5) , PE rollover-$223.5M , Mgmt rollover$111.1M None 77.7% Bank of America Merrill Lynch
Source of funding
N/A
The Acquisition will be funded by equity capital from buyer group
(1) Debt: $70M; (2) Equity: Primavera$65M, Mgmt-$6M, Mgmt rollover- $168M
(1) Debt: $60M; (2) Equity: Bain$160.7M, Mgmt rollover-$51.3M
(1) Debt: $500M; (2) Equity: Mgmt rollover-$141.1M
N/A
N/A
(1) Debt:None; (2) Equity: Buyer$6.6M; Mgmt rollover116.7M
Debt Financing Detail Post-deal Private Equity Ownership
N/A N/A
None N/A
Standard Chartered US$ 70M 27.2%
BofA, Citi, HSBC US$ 60M 75.8%
China Development Bank US$ 500M PE not involved
N/A N/A
None PE Not involved
N/A
Duff & Phelps, LLC
Houlihan Lokey
Barclays Capital
Imperial Capital, LLC
BofA Merrill Lynch
N/A
Board Legal Advisor

(1) (2) (3) (4) (5)
N/A
Shearman & Sterling LLP / Maples and Calder
Skadden, Arps, Slate, Shearman & Sterling Meagher & Flom LLP / LLP Maples and Calder
N/A
Premium of bid price above the closing price on previous trading day before announcement Valuation multiples are based on TTM and NTM EPS as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful Implied Equity Value is calculated based on latest available bid price and shares outstanding number as disclosed PUDA stock halted since April 11, 2011, lastest available close price is $6.00 US$ 150M investment in convertible preferred shares
Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 2 of 8
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CHINA
Summary of Completed or Abandoned Deals BMP Sunstone BJGP Sanofi-Aventis Buyers (as announced)
Announcement Date Pre-deal Buyer/mgmt Ownership % Bid Price per Share or ADS Price 1-Day Prior to Announcement Premium (1) P/E (TTM) (3) P/E (NTM) (3) Status
Oct-28-2010 23.0% $10.00 $7.66 31% 125.0x 90.9x Completed on Feb 24, 2011
Qiao Xing Mobile (2) QXM Parent Company Qiao Xing Universal Resources, Inc. (Nasdaq: XING) Sep-09-2010 61.0% $3.92 $3.55 10% NM NA Abandoned due to lack of quorum in shareholder meeting on Apr 7, 2011 Not involved Jan-03-2011 Oct-22-2010 >50% of disinterested voting shareholders representing >75% of voting disinterested shares Not involved Not disclosed Not disclosed
Tongjitang Chinese Medicines Sinoenergy TCM SNEN Skywide Capital Management Hanmax (controlled by CEO) / CEO & Director (owned by management) Fosun Oct-12-2009 39.1% $1.90 $1.28 48% NM NA Completed on Sep 29, 2010 Apr-08-2010 83.0% $4.50 $3.78 19% NM 18.0x Completed on Apr 15, 2011 Mar-10-2008 39.2% $10.20 $6.60 55% NM 11.3x Withdrawn on Jun 27, 2008
Debt/Convertible Financing Board Approval/Signing Definitive Agreement Initial Filing of SC 13E3 Voting Threshold Post-deal Private Equity Ownership Board Financial Advisor Board Legal Advisor
(1) (2)
Not involved Oct-28-2010 N/A >50% of toal shares
Not involved Oct-12-2009 Nov-13-2009 >50% of total shares
N/A N/A N/A N/A
Premium of bid price above the closing price on previous trading day before announcement The offer price is 1.9 shares of XING common stock plus $0.8 in cash, we convert to dollar value using XING's closing price on Sept-8-2010 (3) Valuation multiples are calculated as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 3 of 8
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CHINA

VALUATION
RISKS
Going private risk. There are still numerous steps remaining in the privatization process. The failure to complete this transaction in a timely manner could negatively impact share price. Change in macro policies. CFSG's major revenues come from the iron and steel industry, and significant changes in the steel industry can impact the company business prospect. Concerns on over-capacity, horizontal consolidations, accompanied with imposed tariffs on steel exports, have placed the industry under close monitoring by the central government. Concentration risk. The company's revenue recognition and profit generation relies on large projects. Any unexpected changes or progress delay in project execution will significantly impact CFSG's financial performance. Extended customer payment period. Depressed steel prices and continuous market consolidation have caused many steel makers facing challenging market conditions. Accordingly, extended customer payment period may have led to recent CFSG decrease in cash and increasing A/R balance.
Funtalk China Holdings Limted

VALUATION
Our $7.20 price target is in line with the takeout offer, and represents 9.2x our 2011 EPS of $0.78. Factors that may impede share price from reaching the target include a buyout process does not materializes for various reasons, substantial weakness in the company's fundamentals, or unexpected management shake-up.
RISKS
FTLK may need to raise additional capital to support CapEx requirements Dependence on Samsung as principal supplier - Samsung has been the major supplier of Funtalk''s wholesale distribution business since inception. We believe such dependence exposes Funtalk to significant risk in the event of a downturn in Samsung''s business prospects, as well as any deterioration of its strategic relationship with Samsung. Dominating market power of mobile communication carriers - Funtalk may have limited bargaining power and flexibility when negotiating with carriers in both wholesale and retail operations. Short product life cycle of mobile communication devices: rapidly changing customer preference and demand Potential downturn of overall mobile communication market - On a macro level, we believe Funtalk will be impacted by the overall progress of the mobile communication market, 3G spending and customer demand as well as IT infrastructure/network technology advancements. Changes in the regulatory environment could alter the market/competitive landscape - The Chinese regulatory body (namely MIIT) has the ability to significant influence the industry.
Page 4 of 8
207
CHINA

VALUATION
Our $11.50 price target reflects the proposed Fu/Abax going private bid price. This price reflects a P/E multiple of 10x our FY11 EPS estimate. Factors that may impede FSIN shares from reaching price target include failure of completion of the going private buyout, unsuccessful ramping up of CCS facilities in China, and rapid decline in copper prices.
RISKS
Volatile raw material prices. Fushi's selling prices are highly dependent on copper, aluminum and steel prices. Changes in these prices may adversely impact demand for FSIN's bi-metallic products and its operational results. Execution/integration risk. FSIN continues to integrate its acquired operations, including Copperweld, Shanghai Hongtai, and Dalian Jinchuan. Its overall global expansion strategy faces execution risk due to a variety of factors. Going private transaction risk. In November 2010, FSIN's Board of Directors received a going private proposal from its Chairman (Mr. Fu) and Abax Global Capital to acquire all of the outstanding shares of common stock for $11.50 per share. The inability to complete this transaction could negatively impact share performance. Management turnover. The company's current CFO, Craig Studwell, was appointed in October 2010. While we view Mr. Studwell as highly experienced and capable, we note that his tenure with FSIN is limited.

VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: there are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction or a slow-down in China's economic growth and continued inflation could impact sales and compress margins.
RISKS
Page 5 of 8
208
CHINA

Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. For important disclosure information regarding the companies in this summary report, please contact: The Director of Research at (800) 678-9147 or write to: ROTH Capital Partners, LLC, Attention: Director of Research, 24 Corporate Plaza, Newport Beach, CA 92660.
Disclosures:
ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Fushi Copperweld, Inc. stock. Within the last twelve months, ROTH has received compensation for investment banking services from Funtalk China Holdings Limited. ROTH makes a market in shares of China Fire & Security Group, Inc., Fushi Copperweld, Inc., Funtalk China Holdings Limited and Harbin Electric, Inc. and as such, buys and sells from customers on a principal basis. Within the last twelve months, ROTH has managed or co-managed a public offering for Funtalk China Holdings Limited. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
Page 6 of 8
209
CHINA
Count 209 57 2 0
Percent 77.7 21.2 0.7 0.0
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months.
Page 7 of 8
210
CHINA

Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
Page 8 of 8
211
Company FundamentalsCompany Fundamentals\Company Profile

COMPANY PROFILE
Figures in U.S. Dollars
Wright Quality Rating:CAA20
Key Data Ticker: HRBN 2010 Sales: 426,481,250 Major Industry: Machinery & Equipment Sub Industry: Miscellaneous Machinery & Equipment Country: United States Currency: U.S. Dollars Fiscal Year Ends: December Employees 4,430 Exchanges: NAS Share Type: Common
Harbin Electric, Inc. (Harbin Electric) is a holding company. It designs, develops, manufactures, supplies and services a range of electric motors, including linear motors, specialty micro-motors and industrial rotary motors. It sells its products in China, but also to certain international markets. The Company operates four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full) and Xi'an Tech Full Simo Motor Co., Ltd. (Xi'an Tech Full Simo). The Company offers three product lines: linear motors (LMs) and integrated systems, specialty micro-motors and industrial rotary motors. The Company offers a range of industrial rotary motors, including small, medium, and large-sized motors and some specialized motors, such as high/low voltage motors and speed control motors. The Company acquired Xi'an Tech Full Simo in October 2009. Stock Chart Officers Chairman & Chief Executive Tianfu Yang Chief Financial Officer Zedong Xu Executive Vice President & Secretary Christy Young Shue
Stock Price (7/8/2011): 16.91 Recent stock performance 1 Week 3.7% 4 Weeks 3.9% 13 Weeks -11.8% 52 Weeks -3.0% Earnings / Dividends (as of 3/31/2011) Earnings 0.34 2.14 Ratio Analysis Dividends 0.00 0.00
Market Capitalization: 528,451,366 Total Shares Outstanding: 31,250,820 Closely Held Shares: 10,642,882
Most Recent Qtr Last 12 Months
212
Price / Earnings Ratio 7.90 Dividend Yield Price / Sales Ratio Price / Book Ratio 1.24 Payout Ratio
0.00% 0.00%
1.23 % Held by Insiders 34.06% Address Phone +86 86 451-8611-6757 Home Page http://www.harbinelectric.com
Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu, Harbin 150060 UNITED STATES
213
Company Fundamentals\Comparative Business Analysis

Provided By CorporateInformation.com
Wright Comparative Business Analysis Report

Report Date: 7/8/2011 Company Description Harbin Electric, Inc. (Harbin Electric) is a holding company. It designs, develops, manufactures, supplies and services a range of electric motors, including linear motors, specialty micro-motors and industrial rotary motors. It sells its products in China, but also to certain international markets. The Company operates four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full) and Xi'an Tech Full Simo Motor Co., Ltd. (Xi'an Tech Full Simo). The Company offers three product lines: linear motors (LMs) and integrated systems, specialty micro-motors and industrial rotary motors. The Company offers a range of industrial rotary motors, including small, medium, and large-sized motors and some specialized motors, such as high/low voltage motors and speed control motors. The Company acquired Xi'an Tech Full Simo in October 2009. Competitor Analysis Harbin Electric, Inc. operates in the Motors and generators sector. This analysis compares Harbin Electric with three other companies: Kulicke And Soffa Industries, Inc. (2010 sales of $762.78 million of which 91% was Equipment), American Railcar Industries, Inc. ($273.56 million of which 75% was Manufacturing Operations), and Cascade Corporation ($409.86 million of which 56% was North America). Sales Analysis Harbin Electric reported sales of $426.48 million for the year ending December of 2010. This represents an increase of 91.0% versus 2009, when the company's sales were $223.23 million. Sales at Harbin Electric have increased during each of the previous five years (and since 2005, sales have increased a total of 1,704%).
Recent Sales at Harbin Electric 426
223 121 24 40 65
2005 2006 2007 2008 2009 2010 (Figures in Millions of U.S. Dollars)
Harbin Electric currently has 4,430 employees. With sales of $426.48 million , this equates to sales of US$96,271 per employee. This is a great deal lower than the three comparable companies, which had sales between US$171,191 and US$258,571 per employee. Note that some of the figures stated herein could be distorted based on exact classification of employees and subcontractors. Sales Comparisons (Fiscal Year ending 2010) Company Harbin Electric American Railcar Industries, Inc. Year Ended Sales Sales Sales/ (mlns) Growth Emp (US$) Largest Region 91.0% 96,271 the United States (100.0%) 258,571 Taiwan (29.2%) 171,191 the United States (100.0%)
Dec 2010 426.481
Kulicke And Soffa Industries, Inc. Sep 2010 762.784 238.7% Dec 2010 273.563 -35.4%
214
Cascade Corporation
Jan 2011 409.858
30.4%
227,699 the United States (43.5%)
Recent Stock Performance For the 52 weeks ending 7/8/2011, the stock of this company was down 3.0% to $16.91. During the past 13 weeks, the stock has fallen 11.8%. During the past 52 weeks, the stock of Harbin Electric has performed significantly worse than the three comparable companies, which saw gains between 36.3% and 117.7%. During the 12 months ending 3/31/2011, earnings per share totalled $2.14 per share. Thus, the Price / Earnings ratio is 7.90. These 12 month earnings are lower than the earnings per share achieved during the calendar year ending last December, when the company reported earnings of 2.46 per share. Earnings per share rose 219.5% in 2010 from 2009. Note that the earnings number Includes Or Excludes Extraordinary Charge Or Credit. This company is currently trading at 1.24 times sales. Harbin Electric is trading at 1.23 times book value. The company's price to book ratio is lower than that of all three comparable companies, which are trading between 1.81 and 2.23 times book value. Summary of company valuations (as of 7/8/2011). Company Harbin Electric Kulicke And Soffa Industries, Inc. American Railcar Industries, Inc. Cascade Corporation P/E 7.9 5.2 N/A 18.4 Price/ Price/ Book Sales 1.23 2.12 1.81 2.23 1.24 1.07 1.42 52 Wk Pr Chg -3.00% 36.30% 54.86%
2.00 117.66%
The market capitalization of this company is $528.45 million . The capitalization of the floating stock (i.e., that which is not closely held) is $348.48 million . Dividend Analysis This company has paid no dividends during the last 12 months. The company has not paid any dividends during the previous 6 calendar years. Profitability Analysis On the $426.48 million in sales reported by the company in 2010, the cost of goods sold totalled $281.10 million, or 65.9% of sales (i.e., the gross profit was 34.1% of sales). This gross profit margin is lower than the company achieved in 2009, when cost of goods sold totalled 63.6% of sales. The gross margin in 2010 was the lowest of the previous five years (in 2007, the gross margin had been as high as 51.2%). There was a wide variation in the gross profit margins at the three comparable companies, from 11.9% of sales to 46.3% of sales. The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were $102.98 million, or 24.1% of sales. This EBITDA margin is worse than the company achieved in 2009, when the EBITDA margin was equal to 27.1% of sales. The three comparable companies had EBITDA margins that were all less (between 2.5% and 22.0%) than that achieved by Harbin Electric. In 2010, earnings before extraordinary items at Harbin Electric were $76.82 million, or 18.0% of sales. This profit margin is an improvement over the level the company achieved in 2009, when the profit margin was 8.8% of sales. The company's return on equity in 2010 was 23.3%. This was significantly better than the 11.2% return the company achieved in 2009. (Extraordinary items have been excluded). Profitability Comparison Gross Earns Profit EBITDA bef. Year Margin Margin extra 2010 2009 34.1% 36.4% 46.3% 11.9% 32.4% 24.1% 18.0% 27.1% 8.8% 22.0% 18.5% 2.5% -9.9% 13.8% 5.2%
Company Harbin Electric Harbin Electric
Inventory Analysis As of December 2010, the value of the company's inventory totalled $62.84 million. Since the cost of goods sold was $281.10 million for the year, the company had 82 days of inventory on hand (another way to look at this is
215
to say that the company turned over its inventory 4.5 times per year). In terms of inventory turnover, this is a significant improvement over December 2009, when the company's inventory was $74.91 million, equivalent to 193 days in inventory. Research and Development Research and Development Expenses at Harbin Electric in 2010 were $3.42 million, which is equivalent to 0.8% of sales. In 2009, Harbin Electric spent $2.09 million on R&D, which was 0.9% of sales. During each of the previous 3 years, the company has increased the amount of money it has spent on Research and Development (in 2007, Harbin Electric spent $1.06 million versus $3.42 million in 2010). Financial Position As of December 2010, the company's long term debt was $50.07 million and total liabilities (i.e., all monies owed) were $151.61 million. The long term debt to equity ratio of the company is 0.12. As of December 2010, the accounts receivable for the company were $87.75 million, which is equivalent to 75 days of sales. This is an improvement over the end of 2009, when Harbin Electric had 164 days of sales in accounts receivable. Financial Positions Company Harbin Electric LT Debt/ Days Days R&D/ Year Equity AR Inv. Sales 2010 0.12 0.31 0.89 0.17 75 94 55 59 82 0.8% 66 7.4% 76 0.0% 88 0.6%
Copyright 2001-2011 The Winthrop Corporation Distributed by Wright Investors' Service, Inc. All Rights Reserved Important Legal Notice
THIS REPORT IS PROVIDED FOR GENERAL INFORMATION ONLY, IS NOT TO BE CONSIDERED AS INVESTMENT ADVICE AND SHOULD NOT BE RELIED UPON FOR INVESTMENT DECISIONS. NO REPRESENTATION OR WARRANTY IS MADE REGARDING THE ACCURACY, RELIABILITY OR TIMELINESS OF THE CONTENT. THE REPORTS ARE COMPUTER GENERATED AND MAY BE SUBJECT TO PROGRAMMATIC AND/OR CONTENT ERRORS. VISITORS SHOULD VERIFY INFORMATION WITH OTHER RELIABLE SOURCES. THIS REPORT IS PROVIDED AS IS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. IN NO EVENT WILL THE WINTHROP CORPORATION, WRIGHT INVESTORS' SERVICE, INC. OR ANY OF THEIR DATA PROVIDERS BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, NO MATTER WHAT THE CAUSE. THE CONTENT OF THIS REPORT IS PROTECTED BY APPLICABLE COPYRIGHT LAWS. CONTENT MAY NOT BE REPRODUCED, DISTRIBUTED, MODIFIED OR FRAMED WITHOUT PRIOR WRITTEN PERMISSION.
216
Company Fundamentals\Summary Analysis
SUMMARY ANALYSIS:
Price

Equity Capital Earnings 12 Month Earnings Per % Share Change
D AD D AD AD AD
Year
Value Ratios
Dividends
Calendar Year 2005 2006 2007 2008 2009 2010 7/8/2011
Market Price/ Price/ Price Earnings Book Dividend Last Ratio Ratio Yield 8.10 8.05 25.94 7.99 20.54 17.35 16.91 12.3 8.0 28.5 6.7 26.7 7.1 7.9 n/c 5.4 9.8 1.8 2.6 1.7 1.2
% Earned Growth
% Profit Rate (ROE)
Book Value Begin Yr n/a 1.48 2.65 4.50 7.77
12 Month % Dividends Payout Per Ratio Share 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.0% 10,280.4% 10,280.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 68.1% 34.4% 26.5% 9.9% 23.8% n/a 68.1% 34.4% 26.5% 9.9%
0.66 1.01 0.91 1.19
n/c 53.0% -9.9% 30.8%
0.77 -35.3% 2.46 219.5% 2.14 n/c
23.8% 10.34 n/a 13.38
(A): INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT - INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT, INCLS $.26 PRETAX CR & $.97 PRETAX CHG IN 2009 ($.04 PRETAX CHG DEC, $.16 PRETAX CR & $.38 PRETAX CHG SEP, $.55 PRETAX CHG JUN & $.10 PRETAX CR MAR), INCLS $.02 PRETAX CR & $.04 PRETAX CHG IN 2008 ($.04 PRETAX CHG DEC, $.01PRETAX CR SEP, NOM PRETAX CR JUN & $.01 PRETAX CR MAR), INCLS$.03 PRETAX CR IN DEC 2006 (B): YEAR END CHANGED FROM JUL IN 2004 (C): NAME CHANGED FROM TORCH EXECUTIVE SERVICES LTD (D): BASED ON FULLY DILUTED SHARES (E): A DEVELOPMENT STAGE COMPANY, A DEVELOPMENT STAGE COMPANY REFLECTS 1 MONTH OF DATA
217
Company Fundamentals\Sales Analysis
SALES ANALYSIS:
Figures in thousands of U.S. Dollars

Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) Amount in thousands
Sales Amount in thousands 23,644 40,416 65,403 120,820 223,234 426,481
Cost of Goods Sold
After Tax Income before Extraordinary Charges and Credits Amount in thousands
Employees After Tax Sales Income Per Per Number Employee Employee 180 270 490 2,000 4,900 4,430 131,354 149,688 133,475 60,410 45,558 96,271 55,556 68,291 34,495 12,689 4,010 17,340
Year 2005 2006 2007 2008 2009 2010
YearAmount to-year in Growth thousands n/c 70.9% 61.8% 84.7% 84.8% 91.0%
% of Sales
% of Sales
% of Sales
11,728 49.6% 20,089 49.7% 31,891 48.8% 70,702 58.5% 141,892 63.6% 281,102 65.9%
10,357 43.8% 21,554 53.3% 24,600 37.6% 38,899 32.2% 48,809 21.9% 109,030 25.6%
10,000 42.3% 18,439 45.6% 16,903 25.8% 25,379 21.0% 19,647 8.8%
76,815 18.0%
218
Company Fundamentals\Price Analysis
PRICE ANALYSIS:

High Price 4.000 3.920 4.650 8.750 11.740 13.480 12.000 9.900 13.700 Low Price 2.850 3.000 2.800 4.000 7.250 9.250 8.300 7.150 8.010 Closing Quarterly 12 months Price %Change %Change 3.450 3.180 4.250 8.100 11.500 11.000 9.500 8.050 12.550 16.500 16.250 25.940 13.100 14.210 11.850 7.990 6.150 15.640 16.880 20.540 21.590 16.650 17.890 17.350 20.690 15.120 16.910 n/a -7.8% 33.6% 90.6% 42.0% -4.3% -13.6% -15.3% 55.9% 31.5% -1.5% 59.6% -49.5% 8.5% -16.6% -32.6% -23.0% 154.3% 7.9% 21.7% 5.1% -22.9% 7.4% -3.0% 19.3% -26.9% -11.8% n/a n/a n/a n/a 233.3% 245.9% 123.5% -0.6% 9.1% 50.0% 71.1% 222.2% 4.4% -13.9% -27.1% -69.2% -53.1% 10.1% 42.4% 157.1% 251.1% 6.5% 6.0% -15.5% -4.2% -9.2% -3.0%
Quarter 2005 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2006 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2007 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2009 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2010 Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2011 Jan - Mar Apr - Jun 7/8/2011
17.700 12.060 16.960 11.700 27.650 14.760 28.000 12.900 19.250 12.910 16.910 11.030 12.440 8.900 16.890 4.700 4.250 6.000
18.550 12.110 22.910 15.361 26.000 16.790 24.280 15.460 20.500 15.260 25.050 14.950 20.840 16.000 21.500 5.820
219
220
Company Fundamentals\Earnings & Dividends Analysis
EARNINGS AND DIVIDENDS ANALYSIS:

Per Share- U.S. Dollars Fiscal Year Ends in December
Earnings Per Share 12 Months Calendar % Years Earnings Change 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (A):
E BCE
Dividends Per Share 12 Months % Dividends Change n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c Quarterly Reported Dividends Q1 Mar. n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Q2 Jun. n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a Q3 Sep. n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a Q4 Dec. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a % Payout n/c 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 0.0% n/c
Quarterly Reported Earnings Q1 Mar. n/a n/a n/a 0.12 0.21 0.20 0.27 0.34 0.66 0.34 Q2 Jun. n/a n/a n/a 0.18 0.20 0.24 0.31 -0.21 0.82 n/a Q3 Sep. n/a n/a n/a 0.19 0.23 0.26 0.34 -0.07 0.57 n/a Q4 Dec. n/a n/a 0.12 0.17 0.37 0.21 0.27 0.71 0.41 n/a
n/a n/a n/a D 0.66 AD 1.01 D 0.91 AD 1.19
n/c n/c n/c n/c 53.0% -9.9% 30.8%
AD 0.77 -35.3% AD 2.46 219.5% n/a n/c
INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT - INCLUDES OR EXCLUDES EXTRAORDINARY CHARGE OR CREDIT, INCLS $.26 PRETAX CR & $.97 PRETAX CHG IN 2009 ($.04 PRETAX CHG DEC, $.16 PRETAX CR & $.38 PRETAX CHG SEP, $.55 PRETAX CHG JUN & $.10 PRETAX CR MAR), INCLS $.02 PRETAX CR & $.04 PRETAX CHG IN 2008 ($.04 PRETAX CHG DEC, $.01PRETAX CR SEP, NOM PRETAX CR JUN & $.01 PRETAX CR MAR), INCLS$.03 PRETAX CR IN DEC 2006
(B): (C): (D): (E):
YEAR END CHANGED FROM JUL IN 2004 NAME CHANGED FROM TORCH EXECUTIVE SERVICES LTD BASED ON FULLY DILUTED SHARES A DEVELOPMENT STAGE COMPANY, A DEVELOPMENT STAGE COMPANY REFLECTS 1 MONTH OF DATA
221
Financial Statement AnalysesFinancial Statement Analyses\Balance Sheet - Common Size
Balance Sheet - (Common Size): Harbin
Electric, Inc.
2009 2008 2007 2006
Figures are expressed as Percent of Total Assets. Total Assets are in millions of U.S. Dollars.
2010
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006
574.3 17.4%
531.0 18.2%
235.5 20.8%
132.6 34.3%
93.0 72.4%
15.3% 10.9% 1.5% 3.6% 6.2% -0.4% 2.8% 0.4% 46.8% 0.0% 0.0% 0.0% 32.2% 2.1% 30.1% 23.1% 0.1%
18.9% 14.1% 2.2% 5.4% 8.2% -1.7% 2.2% 0.0% 53.4% 0.0% 0.0%
13.6% 9.3% 1.1% 3.4% 4.8% 0.0% 1.5% 0.0% 45.2% 0.0% 0.0% 0.4%
17.7% 1.9% 0.7% 0.6% 0.6% 0.0% 1.3% 0.0% 55.3% 0.1% 0.0% 0.8% 19.1% 1.1% 18.0% 25.8% 1.7%
9.6% 0.6% 0.5% 0.1% 0.0% 0.0% 0.9% 0.0% 83.5% 0.0% 0.0% 0.0% 10.8% 0.9% 9.9% 6.6% 3.0%
222
30.6% 1.1% 29.4% 17.2% 0.1%
41.5% 1.2% 40.3% 14.1% 0.7%
9.4% 13.6% 100.0%
2.9% 14.2% 100.0%
5.4% 7.9% 100.0%
19.7% 4.4% 100.0%
2.9% 0.7% 100.0%
574.3 4.7% 5.5%
531.0 10.5% 10.7%
235.5 3.6% 2.2%
132.6 1.3% 0.0%
93.0 0.7% 0.0%
1.4% 0.0% 5.8% 17.4% 8.7% 8.7% 0.0%
1.6% 0.0% 9.5% 32.3% 0.8% 0.8% 0.0%
0.9% 0.0% 2.1% 8.8% 14.3% 14.3% 0.0%
0.6% 0.0% 1.2% 3.1% 25.0% 25.0% 0.0%
0.6% 0.0% 1.7% 3.0% 30.8% 30.8% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.3% 26.4% 0.0% 0.5%
0.9% 34.0% 0.0% 4.0%
2.8% 25.8% 0.0% 0.0%
8.2% 36.2% 0.0% 0.0%
17.8% 51.6% 0.0% 0.0%

223
0.0% 0.0% 0.0% 73.1% 100.0%
0.0% 0.0% 0.0% 62.0% 100.0%
0.0% 0.0% 0.0% 74.2% 100.0%
0.0% 0.0% 0.0% 63.8% 100.0%
0.0% 0.0% 0.0% 48.4% 100.0%
224
Financial Statement Analyses\Balance Sheet - Year-Year % Change
Balance Sheet - (Year to Year Percent Change): Harbin

Electric, Inc.
2007 2006
2010
2009
2008
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006
8.2% 3.5%
125.5% 97.1%
77.5% 7.4%
42.7% -32.4%
274.9% 898.0%
-12.5% -16.1% -26.7% -26.8% -18.1%
213.4% 241.1% 337.6% 256.4% 286.1%
35.9% 754.2% 192.1% 906.2% 1,222.4%
164.5% 340.8% 113.6% 558.7% 2,750.5%
3.7% -56.6% 336.5% -35.8% -97.2%
35.6%
232.0%
99.2%
112.3% 20,275.7%
-5.1%
166.3%
44.9% -100.0%
-5.4%
365.5%
0.0% 13.8% 94.6% 10.7% 45.1% 38.3% 66.0% 109.4% 64.7% 175.3% -78.5% 286.6% 101.1% 297.9% -3.1% -24.5% 152.8% 83.0% 158.8% 460.5% -19.7% 21.6% 76.5% 18.5% 1,722.6%
225
250.1% 3.3% 8.2%
20.4% 303.9% 125.5%
-51.1% 217.0% 77.5%
863.8% 821.4% 42.7% 91.1% 274.9%
8.2% -52.0% -44.2%
125.5% 565.3% 987.5%
77.5% 398.3%
42.7% 153.8%
274.9% 252.0%
-0.3%
292.7%
149.8%
50.7%
-34.1% -41.7% 1,037.7% 1,037.7%
909.2% 726.9% -86.9% -86.9%
225.8% 409.8% 1.5% 1.5%
-0.7% 48,170.7% 46.8% 15.9% 15.9% 1,341.4%
-67.0% -16.0%
-28.8% 196.6%
-40.1% 26.7%
-34.5% 0.2% 24,832.0%
-86.6%
226
Preferred Stock Preferred Stock Issued for ESOP ESOP Guarantees Preferred Issued Common Equity Total Liabilities & Shareholders' Equity 27.5% 8.2% 88.5% 125.5% 106.4% 77.5% 87.9% 42.7% 83.0% 274.9%
227
Financial Statement Analyses\Balance Sheet - Five-Year Averages
Balance Sheet - (5 Year Averages): Harbin

Electric, Inc.
2008 2007 2006
2010
2009
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006
313.3 71.6
203.4 53.0
97.2 33.7
50.1 23.9
50.5 32.6 4.9 11.6 18.3 -2.2 6.7 0.5 161.9 0.0 0.0
34.7 20.3 3.2 7.5 11.4 -1.8 3.6 0.0 111.5 0.0 0.0
14.6 5.3 0.8 1.8 2.6 0.0 1.2 0.0 54.8 0.0 0.0 0.4
8.2 0.9 0.3 0.2 0.4 0.0 0.5 0.0 33.6 0.0 0.0 0.2 8.7 0.5 8.2 8.1 1.0
96.1 4.6 91.5 59.4 1.5
60.8 2.3 58.4 33.0 1.4
28.3 1.1 27.2 14.8 1.3
228
22.2 35.8 313.3
11.4 20.2 203.4
8.3 5.1 97.2
5.8 1.4 50.1
313.3 18.7 18.7
203.4 13.4 12.4
97.2 2.2
50.1 0.5
4.0 0.0 18.4 59.8 30.0 30.0 0.0
2.3 0.0 11.7 39.8 19.9 19.9 0.0
0.7 0.0 1.6 5.6 19.1 19.1
0.3 0.0 0.6 1.4 12.3 12.3
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
8.0 97.8 0.0 4.8
7.7 67.5 0.0 4.3
6.8 31.4 0.0 0.0
5.5 19.2 0.0 0.0

229
0.0 0.0 0.0 210.7 313.3
0.0 0.0 0.0 131.6 203.4
0.0 0.0 0.0 65.8 97.2
0.0 0.0 0.0 30.9 50.1
230
Financial Statement Analyses\Income Statement - Common Size
Income Statement - (Common Size): Harbin
Electric, Inc.
2010 426.5 2009 223.2 2008 120.8 2007 65.4 2006 40.4
Figures are expressed as Percent of Net Sales or Revenues. Net Sales or Revenues are in millions of U.S. Dollars.
Fiscal Year Net Sales or Revenues Cost of Goods Sold Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Reserves - Increase/Decrease Pretax Equity in Earnings Other Income/Expense - Net Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) Earnings before Interest & Taxes(EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Minority Interest Equity in Earnings After Tax Other Income/Expense Discontinued Operations Net Income before Extraordinary Items/Preferred Dividends
65.9% 63.6% 58.5% 48.8% 49.7% 2.3% 2.1% 2.2% 1.6% 1.6%
31.8% 34.3% 39.3% 49.6% 48.6% 9.9% 0.0% 9.2% 10.8% 13.3% 14.0% 0.1% 0.0% 0.0% 0.0%
78.1% 75.0% 71.5% 63.7% 65.4% 21.9% 25.0% 28.5% 36.3% 34.6% 0.1% 0.1% 0.2% 0.0% 0.0% 1.9% 5.9% 0.4% 0.0% 0.0% 0.0% 0.4% 0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
1.3% -1.6%
1.3% -0.3% 17.1%
25.6% 21.9% 32.2% 37.6% 53.3% 23.3% 19.7% 30.0% 36.0% 51.7% 1.2% 0.0% 5.9% 0.0% 5.3% 10.1% 0.0% 0.0% 6.1% 0.0%
22.1% 13.9% 24.7% 25.8% 45.6% 3.5% 0.6% 0.0% 0.0% 0.0% 18.0% 3.5% 1.6% 0.0% 0.0% 0.0% 3.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
8.8% 21.0% 25.8% 45.6%

231
Extraordinary Items & Gain/Loss Sale of Assets Preferred Dividend Requirements Net Income after Preferred Dividends - available to Common
0.0% 0.0% 18.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
8.8% 21.0% 25.8% 45.6%
232
Financial Statement Analyses\Income Statement - Year-Year % Change
Income Statement - (Year to Year Percent Change): Harbin

Electric, Inc.
2008 84.7% 2007 61.8% 58.7% 62.0% 65.0% 2006 70.9% 71.3% 86.6% 70.1%
Fiscal Year Net Sales or Revenues Cost of Goods Sold Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Reserves - Increase/Decrease Pretax Equity in Earnings Other Income/Expense - Net Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) Earnings before Interest & Taxes(EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Minority Interest Equity in Earnings After Tax Other Income/Expense Discontinued Operations
2010 91.0% 98.1% 104.4% 77.1% 105.6% 100.0% 99.0% 67.1% -86.2%
2009 84.8%
100.7% 121.7% 79.1% 145.2% 61.4% 57.6% 46.4% 50.0%
53.9% 255.2% 100.0%
93.7% 107.3% 62.4% 45.0%
57.8% 69.4%
93.1% 40.4%
-95.3% 2,342.5% -21.7% 10.5% 100.0%
-330.2% 123.4% 125.4% -60.4% 25.5% 21.6% 106.8% 58.1% 54.1%
102.7% 14.1% 108.1% 12.6% 108.9%
-4.0% 170.2%
204.4% 91.3% -30.3%
3.5% 72.3%
76.9%
-8.3%
84.4%
233
Net Income before Extraordinary Items/Preferred Dividends Extraordinary Items & Gain/Loss Sale of Assets Preferred Dividend Requirements Net Income after Preferred Dividends available to Common
291.0%
-22.6%
50.1%
-8.3%
84.4%
291.0%
-22.6%
50.1%
-8.3%
84.4%
234
Financial Statement Analyses\Income Statement - Five-Year Averages
Income Statement - (5 Year Averages): Harbin

Electric, Inc.
2010 2009 2008 2007 2006 175.3 94.7 50.1 25.9 109.1 55.3 26.9 12.7 3.8 1.9 0.9 0.4
Fiscal Year Net Sales or Revenues Cost of Goods Sold Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Reserves - Increase/Decrease Pretax Equity in Earnings Other Income/Expense - Net Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) Earnings before Interest & Taxes(EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Minority Interest Equity in Earnings After Tax Other Income/Expense Discontinued Operations Net Income before Extraordinary Items/Preferred Dividends Extraordinary Items & Gain/Loss Sale of Assets
62.4 37.5 22.2 12.7 18.1 0.0 9.9 0.0 5.8 0.0 3.2 0.0
131.0 67.1 33.6 16.4 44.3 27.6 16.4 0.9 2.9 0.5 0.0 0.0 2.0 0.8 2.8 0.4 0.0 0.0 0.9 0.0 0.1 0.2 0.0 0.0 1.7 0.0 0.0 0.0 1.3 9.5
48.6 28.8 44.8 26.9 6.8 0.0 5.7 0.0 0.0 0.0 9.1 0.0 0.0 0.0 0.0 0.0 9.1 0.0
235
38.1 21.2 15.0 5.4 1.2 0.0 0.0 0.0 2.5 0.7 0.0 0.0 0.0 0.9 0.0 0.0 0.0 0.0
31.4 18.1 14.1 0.0 0.0 0.0
Preferred Dividend Requirements Net Income after Preferred Dividends - available to Common
0.0
0.0
0.0
0.0 9.1
31.4 18.1 14.1
236
Financial Statement Analyses\Sources of Capital - Net Change
Sources of Capital: Harbin
Electric, Inc.
2010 2009 2008 2007 2006
Currency figures are in millions of U.S. Dollars. Year to year % changes pertain to reported Balance Sheet values.
Fiscal Year Fiscal Year End Date Total Capital Percent of Total Capital Short Term Debt Long Term Debt Other Liabilities Total Liabilities Minority Interest Preferred Stock Retained Earnings Common Equity Total Capital Year to Year Net Changes Short Term Debt Long Term Debt Other Liabilities Total Liabilities Minority Interest Preferred Stock Retained Earnings Common Equity Total Capital Year to Year Percent Changes Short Term Debt Long Term Debt
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 472.8 354.9 208.3 117.7 73.6
6.7% 10.6% 0.3% 32.1% 0.6% 0.0% 28.8% 88.8% 100.0%
16.0% 1.2% 1.3% 50.8% 6.0% 0.0% 19.6% 92.8% 100.0%
2.5% 16.1% 3.1% 29.2% 0.0% 0.0% 25.0% 83.9% 100.0%
0.0% 28.1% 9.2% 40.8% 0.0% 0.0% 27.4% 71.9% 100.0%
0.0% 38.8% 22.5% 65.1% 0.0% 0.0% 35.6% 61.2% 100.0%
-2.5 4.6 -0.3 -2.9 -1.8 0.0 6.7 9.1 11.8
5.1 -2.9 -0.2 12.0 2.1 0.0 1.7 15.5 14.7
0.5 0.0 -0.4 1.3 0.0 0.0 2.0 9.0 9.1
0.0 0.5 -0.6 0.0 0.0 0.0 0.6 4.0 4.4
0.0 2.9 1.7 4.8 0.0 0.0 1.6 2.0 4.9
-44.2% 1,037.7%
987.5% -86.9% 1.5% 15.9%

237
Other Liabilities Total Liabilities Minority Interest Preferred Stock Retained Earnings Common Equity Total Capital Total Liabilities & Common Equity Total Liabilities Net Change in Liabilities as % of Total Liabilities Common Equity Net Change in Common Equity as % of Common Equity Cash Flow Operating Activities Financing Activities Investing Activities
-67.0% -16.0% -86.6%
-28.8% 196.6%
-40.1% 26.7%
-34.5% 0.2% 24,832.0%
95.6% 27.5% 33.2%
33.6% 88.5% 70.4%
61.4% 106.4% 76.9%
23.1% 87.9% 59.9%
150.7% 83.0% 199.2%
151.6 -19.0% 419.9 21.6%
180.5 66.3% 329.2 46.9%
60.8 21.0% 174.6 51.6%
48.0 0.2% 84.6 46.8%
47.9 99.6% 45.0 45.4%
93.3 22.8 111.5
62.5 71.2 89.1
42.3 39.2 81.1
9.1 0.7 36.0
16.9 47.1 4.5
238
Financial Ratio AnalysesFinancial Ratio Analyses\Accounting Ratios
Accounting Ratios: Harbin Fiscal Year Fiscal Year End Date Receivables Turnover Receivables - Number of Days Inventory Turnover Inventory - Number of Days Gross Property, Plant & Equipment Turnover Net Property, Plant & Equipment Turnover Depreciation, Depletion & Amortization % of Gross Property, Plant & Equipment Depreciation, Depletion & Amortization Year to Year Change Depreciation, Depletion & Amortization Year to Year % Change
Electric, Inc.
2010 2009 2008 2007 2006 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 4.9 80.4 4.1 89.4 2.3 2.5 2.2 108.1 2.9 124.6 1.4 1.4 3.8 83.9 5.8 63.3 1.2 1.3 2.8 90.5 20.2 18.1 2.6 2.7 4.5 79.0 20.9 17.5 4.0 4.4
5.2%
2.9%
2.7%
4.3%
6.6%
0.5
0.2
0.2
0.0
0.0
104.4%
79.1%
145.2%
62.0%
86.6%
239
Financial Ratio Analyses\Asset Utilization
Asset Utilization: Harbin
Electric, Inc.
2010 2009 2008 2007 2006
Figures are expressed as the ratio of Net Sales. Net Sales are in millions of U.S. Dollars.
Fiscal Year Fiscal Year End Date Net Sales Cash & Cash Equivalents Short-Term Investments Accounts Receivable Inventories Other Current Assets Total Current Assets Total Long Term Receivables & Investments Long Term Receivables Investments in Associated Companies Other Investments Property, Plant & Equipment Gross Accumulated Depreciation Property Plant & Equipment Net Other Assets Total Assets
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 426.5 23.4% 223.2 43.2% 120.8 40.5% 65.4 69.6% 40.4 166.6%
20.6% 14.7% 0.6% 63.0% 0.0% 0.0% 0.0% 0.0% 43.4% 2.8% 40.6% 31.1% 134.7%
44.9% 33.6% 0.0% 126.9% 0.0% 0.0% 0.0%
26.5% 18.2% 0.0% 88.1% 0.8% 0.0% 0.0% 0.8%
36.0% 3.9% 0.0% 112.3% 1.8% 0.2% 0.0% 1.5% 38.7% 2.2% 36.5% 52.3% 202.8%
22.0% 1.4% 0.0% 192.1% 0.0% 0.0% 0.0% 0.0% 24.8% 2.0% 22.8% 15.1% 230.0%
72.8% 2.7% 70.0% 40.9% 237.8%
81.0% 2.4% 78.6% 27.4% 194.9%
240
Financial Ratio Analyses\Fixed Charges Coverage
Fixed Charges Coverage: Harbin Fiscal Year Fiscal Year End Date EBIT/Total Interest Expense EBIT/Net Interest EBIT/(Total Interest Exp + Pfd Div) EBIT/Dividends on Common Shares EBIT/(Dividends on Common + Pfd) EBITDA/Total Interest Expense EBITDA/Net Interest EBITDA/(Total Interest Exp + Pfd Div) EBITDA/Dividends on Com Shares EBITDA/(Dividends on Com + Pfd)
Electric, Inc.
2009 2008 2007 2006
2010
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 19.1 22.2 19.1 3.4 3.6 3.4 293.7 293.7 21.0 24.3 21.0 3.7 4.0 3.7 325.2 325.2 6.1 7.0 6.1 3.7 3.7 3.7 8.8 8.8 8.8 5.7 6.6 5.7 3.6 3.6 3.6 8.5 8.5 8.5
241
Financial Ratio Analyses\Leverage Analysis
Leverage Analysis: Harbin Fiscal Year Fiscal Year End Date Long Term Debt % of EBIT Long Term Debt % of EBITDA Long Term Debt % of Total Assets Long Term Debt % of Total Capital Long Term Debt % of Com Equity Total Debt % of EBIT Total Debt % of EBITDA Total Debt % of Total Assets Total Debt % of Total Capital Total Debt % of Total Capital & Short Term Debt Total Debt % of Common Equity Minority Interest % of EBIT Minority Interest % of EBITDA Minority Interest % of Total Assets Minority Interest % of Total Capital Minority Interest % of Com Equity Preferred Stock % of EBIT Preferred Stock % of EDITDA Preferred Stock % of Total Assets
Electric, Inc.
2010 2009 2008 2007 2006 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 50.4% 45.9% 8.7% 10.6% 11.9% 82.2% 74.9% 14.2% 17.3% 16.2% 19.5% 2.9% 2.6% 0.5% 0.6% 0.7% 0.0% 0.0% 0.0% 10.0% 9.0% 0.8% 1.2% 1.3% 138.5% 125.0% 11.5% 17.2% 14.8% 18.5% 48.3% 43.6% 4.0% 6.0% 6.5% 0.0% 0.0% 0.0% 92.7% 86.4% 14.3% 16.1% 19.2% 107.1% 99.8% 16.5% 18.6% 18.2% 22.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 140.8% 134.6% 25.0% 28.1% 39.1% 140.8% 134.6% 25.0% 28.1% 28.1% 39.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 136.9% 132.6% 30.8% 38.8% 63.5% 136.9% 132.6% 30.8% 38.8% 38.8% 63.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
242
Preferred Stock % of Total Capital Preferred Stock % of Total Equity Common Equity % of Total Assets Common Equity % of Total Capital Total Capital % of Total Assets Capital Expenditure % of Sales Fixed Assets % of Common Equity Working Capital % of Total Capital Dividend Payout Funds From Operations % of Total Debt
0.0% 0.0% 73.1% 88.8% 82.3% 4.6% 41.2% 35.7% 0.0% 124.0%
0.0% 0.0% 62.0% 92.8% 66.8% 3.8% 47.5% 31.5% 0.8% 98.6%
0.0% 0.0% 74.2% 83.9% 88.4% 13.3% 54.4% 41.1% 0.0% 91.1%
0.0% 0.0% 63.8% 71.9% 88.8% 18.6% 28.2% 58.9% 0.0% 72.5%
0.0% 0.0% 48.4% 61.2% 79.2% 3.9% 20.5% 101.7% 0.0% 51.1%
243
Financial Ratio Analyses\Liquidity Analysis
Liquidity Analysis: Harbin Fiscal Year Fiscal Year End Date Total Current Assets % Net Sales Cash % of Current Assets Cash & Equivalents % of Current Assets Quick Ratio Receivables % of Current Assets Receivable Turnover number of days Inventories % of Current Assets Inventory Turnover - number of days Inventory to Cash & Equivalents - number of days Receivables % of Total Assets Current Ratio Total Debt % of Total Capital Funds from Operations % of Current Liabilities Funds from Operations % of Long Term Debt Funds from Operations % of Total Debt Funds from Operations % of Total Capital Cash Flow (in milllions of U.S. Dollars) Operating Activities
Electric, Inc.
2010 2009 2008 2007 2006 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 63.0% 126.9% 88.1% 112.3% 192.1%
37.1% 1.9 32.6% 80.4 23.4% 89.4 571.8 15.3% 2.7 16.2% 101.3% 202.3% 124.0% 21.4%
34.0% 1.1 35.4% 108.1 26.4% 124.6 463.4 18.9% 1.7 14.8% 35.1% 1,367.4% 98.6% 17.0%
46.0% 3.9 30.1% 83.9 20.6% 63.3 802.1 13.6% 5.1 18.2% 170.6% 105.2% 91.1% 17.0%
62.0% 17.0 32.1% 90.5 3.5% 18.1 6,376.0 17.7% 18.1 28.1% 590.3% 72.5% 72.5% 20.4%
86.7% 27.5 11.5% 79.0 0.8% 17.5 41,545.6 9.6% 28.0 38.8% 527.4% 51.1% 51.1% 19.9%
93.3
62.5
42.3
9.1
16.9
244
Financing Activities Investing Activities
22.8 111.5
71.2 89.1
39.2 81.1
0.7 36.0
47.1 4.5
245
Financial Ratio Analyses\Per-Share Ratios
Per Share Data: Harbin
Electric, Inc.
2010 2009 2008 2007 2006
Figures are expressed as per unit of respective shares. Figures are in U.S. Dollars.
Fiscal Year Fiscal Year End Date Sales Operating Income Pre-tax Income Net Income (Continuing Operations) Net Income Before Extra Items Extraordinary Items Net Income After Extraordinary Items Net Income Available to Common Shares Fully Diluted Earnings Common Dividends Cash Earnings Book Value Retained Earnings Assets
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 13.65 2.99 3.01 2.46 2.46 0.00 2.46 2.46 2.46 0.00 3.24 13.38 4.36 18.38 7.19 1.80 1.00 0.63 0.63 0.00 0.63 0.77 0.77 0.00 2.35 10.34 2.24 17.09 5.47 1.56 1.35 1.15 1.15 0.00 1.15 1.19 1.19 0.00 1.66 7.77 2.36 10.65 3.60 1.31 0.93 0.93 0.93 0.00 0.93 0.91 0.91 0.00 1.29 4.50 1.78 7.31 2.43 0.84 1.11 1.11 1.11 0.00 1.11 1.01 1.01 0.00 0.80 2.65 1.58 5.60
246
Financial Ratio Analyses\Profitability Growth
Profitability Analysis: Harbin

Currency figures are in U.S. Dollars.
Electric, Inc.
2010 2009 2008 2007 2006
Fiscal Year Fiscal Year End Date Gross Income Margin Operating Income Margin Pretax Income Margin EBIT Margin Net Income Margin Return on Equity - Total Return on Invested Capital Return on Assets Asset Turnover Financial Leverage Interest Expense on Debt Effective Tax Rate Cash Flow % Sales Selling, General & Administrative Expenses % of Sales Research & Development Expense Operating Income Return On Total Capital
12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 31.8% 21.9% 22.1% 23.3% 18.0% 20.5% 17.5% 14.5% 0.7 19.5% 34.3% 25.0% 13.9% 19.7% 8.8% 7.8% 9.0% 7.4% 0.4 18.5% 39.3% 28.5% 24.7% 30.0% 21.0% 19.6% 17.8% 16.0% 0.5 22.2% 6,355,334 15.1% 29.3% 10.8% 49.6% 36.3% 25.8% 36.0% 25.8% 26.1% 22.2% 18.8% 0.5 39.1% 6,619,954 0.0% 36.7% 13.3% 48.6% 34.6% 45.6% 51.7% 45.6% 53.0% 40.8% 34.0% 0.4 63.5% 2,450,248 0.0% 36.2% 14.0%
5,200,833 13,144,382 15.8% 23.8% 9.9% 25.2% 27.0% 9.2%
0.8% 33.2%
0.9% 70.4%
1.0% 76.9%
1.6% 59.9%
3.7% 199.2%
247
Wright Quality Rating AnalysesWright Quality Rating Analyses\Investment Acceptance
Wright Quality Rating - Investment Acceptance: Harbin

Currency figures are in millions of U.S. Dollars.
Wright Quality Rating
Electric, Inc.
CAA20 CAA20
510 528 337 348 1,858 3,437 364.1% 650.3% NAS 123 34 34.1%
Investment Acceptance Rating Total Market Value of Shares Outstanding - Three Year Average - Current Year Public Market Value (Excludes Closely Held) - Three Year Average - Current Year Trading Volume - Three Year Average - Current Year Turnover Rate - Three Year Average - Current Year Stock Exchange Listings Number of Institutional Investors Number of Shareholders Closely Held Shares as % of Total Shares Outstanding
248
Wright Quality Rating Analyses\Financial Strength
Wright Quality Rating - Financial Strength: Harbin Wright Quality Rating Financial Strength Rating Total Shareholders' Equity (Millions of U.S. Dollars) Total Shareholders' Equity as % Total Capital Preferred Stock as % of Total Capital Long Term Debt as % of Total Capital Long Term Debt (Millions of U.S. Dollars) Lease Obligations (Millions of U.S. Dollars)
Electric, Inc.
C C
AA20 AA20
433 89.1% 0.0% 10.3% 50 0 50 20.4% 19.1 22.2 1.8 2.4
Long Term Debt including Leases (Millions of U.S. Dollars) Total Debt as % of Total Capital Fixed Charge Coverage Ratio: Pretax Income to Interest Expense & Preferred Dividends Fixed Charge Coverage Ratio: Pretax Income to Net Interest Income & Preferred Dividends Quick Ratio (Cash & Receivables / Current Liabilities) Current Ratio (Current Assets / Current Liabilities)
249
Wright Quality Rating Analyses\Profitability & Stability
Wright Quality Rating - Profitability & Stability: Harbin Wright Quality Rating Profitability & Stability Rating
Electric, Inc.
CA CA
A20 A20
22.0% -4.0% 32.5% -4.0% 89.8% 99.0% 16.7% 17.6%
Profit Rate of Earnings on Equity Capital - Time-Weighted Normal - Basic Trend Cash Earnings Return on Equity - Time-Weighted Average - Basic Trend Cash Earnings Return on Equity - Stability Index Return On Assets (Time-Weighted Average) Pre-Tax Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Capital (Adjusted Rate) Pre-Tax Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Assets (Time-Weighted Average) Operating Income as % of Total Capital (Adjusted Rate)
1,657.2% 16.7% 17.6% 1,657.2%
250
Wright Quality Rating Analyses\Corporate Growth
Wright Quality Rating - Corporate Growth: Harbin

Figures are expressed on a Per Share Basis.
Electric, Inc.
CAA CAA
Wright Quality Rating Growth Rating Normal Earnings Growth Cash Earnings Growth Cash Earnings Stability Index Earned Equity Growth Dividend Growth Operating Income Growth Assets Growth Sales/Revenues Growth
20 20
20.0% 25.0% 91.3% 22.0% 0.0% 25.0% 25.0% 25.0%
251
EQUITY RESEARCH
COMPANY UPDATE
China July 14, 2011

Buy
13E-3 and preliminary proxy filed; One further step towards LBO; Reiterate Buy and $24 price target
Yesterday, HRBN filed schedule 13E-3 with the SEC together with a Preliminary Proxy Statement. We believe that this is one more step towards a successful LBO. In general, both the Special Committee and the board of HRBN believe the current merger and merger agreement are fair to HRBNs minority shareholders, and the merger enables the minority shareholders to realize their value of investment. HRBN likely has fulfilled all required documents for SEC review. Major documents filed together with 13E-3 are a Preliminary Proxy Statement for a special shareholder meeting, Opinions of Morgan Stanley and Lazard Frres regarding the fairness of the transaction, and Limited Guarantee that the buyer group, Chairman Mr. Yang and Abax Global, are liable to $30M termination fee payable to HRBN if they fail to complete the merger. Some previously filed documents were also attached, including a $400M Facility Agreement with China Development Bank, Equity Commitment by Abax Global, and a definitive Merger Agreement. The Preliminary Proxy disclosed more details in the LBO process: (1) Acting as the financial advisors to HRBN, both Morgan Stanley and Lazard Frres conducted their own due diligence in November 2010 and April 2011, respectively, to serve as a basis for fairness opinion. (2) HRBNs special committee engaged Ernst & Young to conduct a detailed accounting and tax due diligence, which was completed in early February 2011 and also served as the judgment basis to Morgan Stanley and Lazard Frres. (3) During the go-shop period from November 2010 to January 2011, Morgan Stanley contacted 73 parties, with 16 entered in non-disclosure agreements. (4) The company twice revised down its financial outlook, in April and June 2011, respectively, reducing 2011 revenue and EPS estimates from $578M and $3.72 to $473-494M and $2.80-$2.93, respectively, which are 3% and 34% above our current estimates. (5) On May 10, 2011, Mr. Yang agreed to pay Baring Private Equity Asia $500,000 for Baring to waive its right of providing 10% of the LBO financing. That said, we believe HRBN needs to solve its litigations before closing the transaction. There were eight and three putative stockholder class action complaints filed in Nevada and New York, respectively. After consolidation or voluntary dismissal, three remained to date. The company has filed motions to dismiss one and intends to defend itself in others. In our view, SEC is likely to approve the merger transaction, which will likely close by the year end. Our Buy rating and $24 price target is mainly based on a favorable outcome of HRBNs LBO. In our opinion the persistent gap, currently ~30% between the share price and the LBO offering price, creates buying opportunities.

$ $ $ $ $ $ $ $ $
215 76 295 286 30 184 281 168 98
$ -$ $ $ $ $ $ $
1.10 1.30 1.40 0.49 0.96 0.95 1.01 1.06
$ -$ $ $ $ $ $ $
1.17 1.17 1.78 0.59 1.26 1.05 1.10 1.10
$ -$ $ $ $ $ $ $
1.32 -1.38 2.08 0.70 1.51 1.20 1.42 1.27
7.2x -6.1x 5.4x 1.1x 5.6x 8.2x 4.0x 4.8x 5.3x
6.8x -6.8x 4.2x 0.9x 4.3x 7.4x 3.7x 4.6x 4.8x
6.0x 5.7x 3.6x 0.8x 3.6x 6.5x 2.8x 4.0x 4.1x
$ $ $ $ $
1.21 0.50 3.57 0.30 0.22
$ $ $ $ $
820 1,500 1,213 334 167
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.11 0.04 0.23 0.03 0.02
$ $ $ $ $
0.12 0.04 0.27 0.04 0.02
10.8x 15.2x 18.1x 10.5x 11.5x 13.2x
11.3x 13.6x 15.4x 9.5x 10.3x 12.0x
10.3x 12.2x 13.3x 8.4x 9.1x 10.7x
$ 1,154 $ 294 $ 1,499 $ 438 $ 10,165 $ 6,630
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.12 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.15 0.18 0.07 0.28
32.1x 71.6x 43.5x 88.8x 31.1x 20.4x 47.9x
22.7x 49.7x 29.3x 83.6x 25.2x -16.7x 28.7x
15.3x 18.3x 18.9x 56.2x 14.2x 24.6x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.32 $ 1.57 $ 3.27 $ 3.93 $ 8.08 $ 5.11 $ 4.58 $ 5.25 n/a $ 2.10 $ 2.50
$ 10.83 $ 1.93 $ 3.87 $ 4.59 $ 9.73 $ 5.60 $ 5.44 $ 6.00 n/a -$ 2.47 $ 2.89
21.7x 20.9x 20.8x 18.7x 20.4x 12.1x 27.4x 12.1x -14.6x 24.2x 19.3x
11.7x 16.6x 17.1x 14.7x 13.1x 10.2x 18.2x 10.1x -20.0x 18.8x 15.1x
12.2x 13.5x 14.5x 12.6x 10.9x 9.3x 15.4x 8.9x 17.0x 16.3x 13.0x
Maxim Group LLC
253

(In millions except per shr) Revenue Drivers: Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Total other income (expense) Income before income taxes Provision for income taxes Tax Rate Net income before noncontrolling intere Minority interests As % of net income Net income Y/Y Growth Net Margin Foreign currency translation adjustmen Comprehensive income Weighted average shares outstanding Basic Diluted EPS (to controlling interest) Basic Diluted Y/Y Growth D&A Share-based compensation EBITDA EBITDA margin Exchange Rate (RMB/US$) $ $ 2004 Full Yr 2005 Full Yr 2006 Full Yr 2007 Full Yr 36.6 2008 Full Yr 49.5 35% 41% 33.8 85% 28% 27.8 2009 Full Yr 1Q10 31-Mar 2Q10 30-Jun 3Q10 30-Sep 4Q10 31-Dec 2010 Full Yr 1Q11 31-Mar 2Q11E 30-Jun 3Q11E 30-Sep 4Q11E 31-Dec 2011E Full Yr 2012E Full Yr
4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
19.8 20.1 19.3 17.0 76.3 19.3 18.1 19.3 20.4 77.2 86.8 60% 74% 18% -14% 27% -3% -10% 0% 20% 1% 12% 56% 19% 19% 18% 16% 18% 19% 16% 16% 16% 16% 16% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 14.7 15.3 16.1 61.7 67.9 166% 78% 81% -18% 51% -4% (3.0%) 0% 15% 2% 10% 28% 15% 14% 14% 13% 14% 15% 13% 12% 12% 13% 12% 22.5 23.6 23.5 23.7 93.2 21.8 25.9 27.0 30.8 105.5 125.7 107% 39% 14% 3% 31% -3% 10% 15% 30% 13% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 22% 23% 45.0 44.6 48.9 49.9 188.5 46.3 51.3 58.7 62.4 218.7 258.9 13% 6% 11% 12% 11% 3% 15% 20% 25% 16% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 46% 48% 47% 46% 47% 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 547.6 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 6% 12% 24% 10% 16% (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (391.9) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.49 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.48 $ NM -25% 221% (47.4%) (40.8%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
Maxim Group LLC
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As of:
7/14/2011
% of Ratings that Firm received Banking fees 24.0% 0.0% 0.0%
with Rating 65.8% 26.3% 7.9%
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: One or more of the following valuation methods are used by Maxim Group analysts in making a ratings or price projection: Analysis of companies P/E ratio, price/book ratio, earnings expectations or sales growth as they relate within an industry group or to the broader market, enterprise value/sales, Individual sector analysis, sum of the parts analysis and discounted cash flow.
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Price Target Risks: Investment risks associated with the achievement of the price target include, but are not limited to, the companys failure to achieve our earnings and revenue estimates, unforeseen macroeconomic and/or industry events that adversely impact demand for the companys products and services, product obsolescence, the companys ability to recruit and retain competent personnel, changes in investor sentiment regarding the specific company or industry, changing competitive pressures and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-K that the company has filed with the SEC. Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
RISK RATINGS
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Company Report
NASDAQ (HRBN) July 5, 2011
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Company Snapshot
Company Snapshot
Reference Code : 732345C1-017F-413B-A6A3-C3DF193F55EB Harbin Electric, Inc. 9 Ha Ping Xi Lu Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu Harbin 150060 China Publication Date: July 2011 Phone: 86 451 8611 6757 Website: www.harbinelectric.com Industry: Industrial Goods and Machinery
Overview
Harbin Electric is involved in manufacturing a range of electric motors. Its product line includes linear motors (LMs), automobile specialty micro-motors for automobile interior applications, and industrial rotary motors for use in agricultural equipment and medical devices. The company primarily operates in China and the US. It is headquartered in Harbin, China, and employs around 4,430 people. The company recorded revenues of $426.5 million in the fiscal year ended December 2010, an increase of 91% over 2009. The company's operating profit was $93.3 million in fiscal 2010, an increase of 67.1% over 2009. Its net profit was $76.8 million in fiscal 2010, as compared to the net profit of $19.6 million in 2009.
Key Employees
Employee Name Lanxiang Gao Tianfu Yang Job Title Director, and Chief Operating Officer, Shanghai Tech-Full Chairman and Chief Executive Officer Executive Vice President, Finance and Investor Relations; and Corporate Secretary Chief Technology Officer Board Executive Board Executive Board
Christy Y Shue
Senior Management
Kanenori Okawa
Senior Management
Company Report, July 2011 Product Code: 732345C1-017F-413B-A6A3-C3DF193F55EB
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Company Snapshot
Financial Deals Activity Overview

Harbin Electric, Inc.: Deal Activity by Deal Type (2007 - YTD*2011) Harbin Electric, Inc.: Recent Deal Activity Tianfu Yang and Abax Global Capital to acquire remaining 59.4% stake in Harbin Electric Harbin Electric acquires Xi'an Simo Motor Harbin Electric raises $100 million through public offering Harbin Electric acquires Weihai Hengda Electric Motor Harbin Electric completes $49.45 million private placement
11 Oct 2010
19 Oct 2009
05 Aug 2009
15 Jul 2008
26 Jun 2008
Recent Developments
Date Nov 23, 2010 Headline Harbin Electric enters into term loan facility agreement with CDB Category Corporate loans/ other capital raising
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Table of Contents
Table of Contents
Company Snapshot __________________________________________________________________ 2 Table of Contents ____________________________________________________________________ 4 Harbin Electric, Inc.: Overview and Key Facts ________________________________________ 7 Harbin Electric, Inc.: Overview ______________________________________________________ 7 Harbin Electric, Inc.: Key Facts _____________________________________________________ 7 Harbin Electric, Inc.: Key Employees ________________________________________________ 8 Harbin Electric, Inc.: Key Employee Biographies ______________________________________ 9 Harbin Electric, Inc.: Major Products and Services ___________________________________ 13 Harbin Electric, Inc.: Company History _____________________________________________ 14 Harbin Electric, Inc.: Locations and Subsidiaries _____________________________________ 15 Harbin Electric, Inc.: Key Competitors ______________________________________________ 16 Harbin Electric, Inc.: Company Analysis ________________________________________________ 17 Harbin Electric, Inc.: Business Description __________________________________________ 17 Harbin Electric, Inc.: Corporate Financial Deals Activity ___________________________________ 18 Harbin Electric, Inc.: Financial Deals Overview _______________________________________ 18 Harbin Electric, Inc.: Targets and Partners __________________________________________ 20 Harbin Electric, Inc.: Top Deals 2007 -YTD*2011 ______________________________________ 21 Harbin Electric, Inc.: Advisors_____________________________________________________ 22 Harbin Electric, Inc.: Top Legal Advisors _____________________________________________ 22 Harbin Electric, Inc.: Top Financial Advisors __________________________________________ 22 Harbin Electric, Inc.: Mergers and Acquisitions ______________________________________ 23 Harbin Electric, Inc.: Capital Raising _______________________________________________ 24 Harbin Electric, Inc.: Partnership __________________________________________________ 25 Harbin Electric, Inc.: Private Equity and Ownership ___________________________________ 26 Harbin Electric, Inc.: Recent Developments _____________________________________________ 27 Harbin Electric, Inc.: News and Events Summary _____________________________________ 27 Harbin Electric, Inc.: Financial Deals _______________________________________________ 27 Appendix __________________________________________________________________________ 28 Contact Us ____________________________________________________________________ 28 Methodology ___________________________________________________________________ 28 About Datamonitor ______________________________________________________________ 29
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Table of Contents
List of Tables
Table 1: Harbin Electric, Inc.: Key Facts ______________________________________________________________ 7 Table 2: Harbin Electric, Inc.: Key Employees _________________________________________________________ 8 Table 3: Harbin Electric, Inc.: Locations and Subsidiaries ______________________________________________ 15 Table 4: Harbin Electric, Inc.: Key Competitors _______________________________________________________ 16 Table 5: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) _________________________________ 18 Table 6: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011) _______________________ 19 Table 7: Harbin Electric, Inc.: M&A Average Deal Size - Value (US$m) ____________________________________ 19 Table 8: Harbin Electric, Inc.: Targets and Partners ___________________________________________________ 20 Table 9: Harbin Electric, Inc.: Top Deals 2007 -YTD*2011 _______________________________________________ 21 Table 10: Harbin Electric, Inc.: Legal Advisor Ranking by Value (US$m) __________________________________ 22 Table 11: Harbin Electric, Inc.: Financial Advisor Ranking by Value (US$m) _______________________________ 22 Table 12: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) ___________________________ 23 Table 13: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011) _____________________________ 23 Table 14: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) __________________ 24 Table 15: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011) ____________________________ 24 Table 16: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) _____________________ 25 Table 17: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011) __________________________ 25 Table 18: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 - YTD*2011) ______ 26 Table 19: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011) _________ 26 Table 20: Harbin Electric, Inc.: News and Events Summary _____________________________________________ 27 Table 21: Harbin Electric, Inc.: Financial Deals _______________________________________________________ 27
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Table of Contents
List of Figures
Figure 1: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) _________________________________ 18 Figure 2: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011) ______________________ 19 Figure 3: Harbin Electric, Inc.: M&A Average Deal Size - Value (US$m) ___________________________________ 19 Figure 4: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) ___________________________ 23 Figure 5: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011) _____________________________ 23 Figure 6: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) __________________ 24 Figure 7: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011) ____________________________ 24 Figure 8: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) _____________________ 25 Figure 9: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011) __________________________ 25 Figure 10: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 - YTD*2011) _____ 26 Figure 11: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011) ________ 26
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Table of Contents
Harbin Electric, Inc.: Company Overview

Harbin Electric, Inc.: Overview and Key Facts
Harbin Electric, Inc.: Overview
Harbin Electric, Inc.: Key Facts
Table 1: Harbin Electric, Inc.: Key Facts Corporate Address: 9 Ha Ping Xi Lu Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu Harbin 150060 Country: Phone: Web Address: Turnover (US$m): Employees: Financial Year End: Industry: Primary Stock Exchange (Ticker):
SOURCE: DATAMONITOR
China 86 451 8611 6757 www.harbinelectric.com 427 4,430 December Industrial Goods and Machinery NASDAQ (HRBN)
DATAMONITOR
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Table of Contents
Harbin Electric, Inc.: Key Employees

Table 2: Harbin Electric, Inc.: Key Employees Employee Name Lanxiang Gao Job Title Director, and Chief Operating Officer, Shanghai Tech-Full Chairman and Chief Executive Officer Executive Vice President, Finance and Investor Relations; and Corporate Secretary Chief Technology Officer Director, Research and Development, Advanced Automation Group Vice President, Shanghai Tech-Full Vice President Chief Financial Officer Independent Director Board Executive Board Age 58 Since 2007
Tianfu Yang
Executive Board
49
2005
Christy Y Shue
Senior Management
Kanenori Okawa
Senior Management
2007
Shaotang Chen
Senior Management
2007
Suofei Xu Tianli Yang Zedong Xu Boyd Plowman
Senior Management Senior Management Senior Management Non Executive Board Non Executive Board Non Executive Board Non Executive Board 41 67 2005 2005 2009
Ching Chuen Chan
Independent Director
75
2005
David Gatton
57
2005
Yunyue Ye
SOURCE:DATAMONITOR
59
2006
DATAMONITOR
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Table of Contents
Harbin Electric, Inc.: Key Employee Biographies

Lanxiang Gao Ms. Gao has been a Director and Chief Operating Officer, Shanghai Tech-Full Electric, a subsidiary of Harbin Electric, since 2007. She worked as an Engineer at Shanghai No.21 Research Institute. Ms. Gao managed a development and production project of office automation motors in collaboration with Sankyo Seiki of Japan for 10 years and served as the Senior Engineer. She graduated from Zhejiang University, China with a major in Electrical Engineering. Board: Executive Board Job Title: Director, and Chief Operating Officer, Shanghai Tech-Full Since: 2007 Age: 58
Tianfu Yang Mr. Yang has been the Chairman and Chief Executive Officer at Harbin Electric since 2005. From 2003, he has been the Chairman and Chief Executive Officer at Harbin Tech Full Electric. From 2000, Mr. Yang has been the Chairman and Chief Executive Officer at Harbin Tech Full Industry. From 1994 to 2000, he was the President at Harbin Tianheng Wood Industry Manufacture. From 1991 to 1994, Mr. Yang was the President at Hong Kong Lianfa Real Estate Company. From 1988 to 1991, he was the President at Hong Kong Property Management Development. From 1986 to 1988, he was the President at Helongjiang Cultural Development Company and Guangzhou Subsidiary Company. Mr. Yang is also the National People's Representative at City of Harbin. He graduated from Zhejiang University with a Masters degree in Electric Motor Automation and Control. Board: Executive Board Job Title: Chairman and Chief Executive Officer Salary (US$): 26,470 Since: 2005 Age: 49
Christy Y Shue Ms. Shue is an Executive Vice President, Finance and Investor Relations; and Corporate Secretary at Harbin Electric. Prior to joining the company, she was the Vice President and a Senior Investor Relations Consultant at Christensen. Prior to joining Christensen, Ms. Shue was Manager, Investor Relations at International Paper. She holds a PhD in Chemistry from Purdue University and an MBA in Finance business from the Stern School of Business, New York University. She earned her Bachelor of Science degree from Sichuan University, China. Board: Senior Management Job Title: Executive Vice President, Finance and Investor Relations; and Corporate Secretary Salary (US$): 147,100
Company Report, July 2011 Product Code: 732345C1-017F-413B-A6A3-C3DF193F55EB Page 9 www.datamonitor.com
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Kanenori Okawa Mr. Okawa has been the Chief Technology Officer at Harbin Electric since 2007. From 1997 to 2007, he was Chief Technology Advisor at Nittoku Engineering. From 1973 to 1997, Mr. Okawa worked at Industrial Far East and held various positions including serving as the President from 1978 to 1997. He began his career with Ikegami Tuusinki after he graduated in 1971 with a BS in Electrical Engineering. Board: Senior Management Job Title: Chief Technology Officer Since: 2007
Shaotang Chen Dr. Chen has been a Director, Research and Development, Advanced Automation Group, a subsidiary of Harbin Electric, since 2007. From 2000 to 2007, he has been the Staff Research Engineer at Delphi Research Labs. From 2001 to 2003, Dr. Chen was Delphi Research Labs Chief Scientist at Delphi Energenix Center. From 1999 to 2000, he was Senior Research Engineer for Mechatronics Group at Delphi Research Labs. From 1995 to 1999, Dr. Chen was Senior Research Engineer in the Electrical and Electronics Department at General Motors NAO Research and Development Center. He graduated in 1995 from University of Wisconsin-Madison with a PhD in Electrical Engineering. Board: Senior Management Job Title: Director, Research and Development, Advanced Automation Group Since: 2007
Suofei Xu Mr. Xu is the Vice President, Shanghai Tech-Full, a subsidiary of the company. From 2003 to 2008, he was the Vice President at Harbin Tech Full Electric. From 2003 to 2008, Mr. Xu was the Vice President at Harbin Tech Full Industry. From 2001 to 2003, he was an Investment Manager at Shenzhen Capital Group. From 1997 to 2001, he worked at Guangfa Securities as a Project Manager. From 1991 to 1997, Mr. Xu worked as the Section Chief for system allocation reform at Harbin Economic System Reform Committee. He graduated in 1988 from Fudan University with a BA in Law. Board: Senior Management Job Title: Vice President, Shanghai Tech-Full
Tianli Yang Mr. Yang has been the Vice President at Harbin Electric since 2005. Since 2003, he was the Vice President at Harbin Tech Full Electric. Since 2000, Mr.Yang has been the Vice President at Harbin Tech Full Industry. From 1985 to 2000, he was employed in the China State Construction Engineering Corporation in various positions, including Chief Administration Officer. Mr. Yang graduated from Helongjiang University in 1985 with a BA in Chinese Language and Literature.
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Board: Senior Management Job Title: Vice President Salary (US$): 15,882 Since: 2005
Zedong Xu Mr. Xu has been the Chief Financial Officer at Harbin Electric since 2005. From 2003 until present, he has been the Chief Financial Officer at Harbin Tech Full Electric. Since 2000, Mr. Xu has been the Chief Financial Officer at Harbin Tech Full Industry. From 1998 to 2000, he was employed as the Chief Financial Officer at Harbin WanDa Electrical Home Appliances. From 1996 to 1998, he was a Financial Manager at Harbin High Technology Torch Daya Real Estate. Mr. Xu graduated in 1992 from Harbin Electrical Engineering College with a BA in Project Management. Board: Senior Management Job Title: Chief Financial Officer Salary (US$): 15,882 Since: 2005 Age: 41
Boyd Plowman Mr. Plowman has been an Independent Director at Harbin Electric since 2009. He is the retired Executive Vice President and Chief Financial Officer at Fleetwood Enterprises, Inc. where he was employed from 1969 to 1987 and from 1997 to 2008. During his career with Fleetwood, Mr. Plowman held numerous leadership positions including Controller, Treasurer, and Financial Vice President. During his second stint with Fleetwood, he served as an Executive Vice President and Chief Financial Officer until his retirement in 2008. He also served as the President and Chief Executive Officer at Lee & Associates. Prior to that, Mr. Plowman served as a Director and Chairman of the Audit Committee at Corporate Insurance and Reinsurance Company Limited (CIRCL), a Bermuda-based company reinsuring risks for captive insurance companies. He holds a bachelor's degree from Utah State University and was a certified public accountant. Board: Non Executive Board Job Title: Independent Director Since: 2009 Age: 67
Ching Chuen Chan Mr. Chan has been an Independent Director at Harbin Electric since 2005. He is an Honorary Professor at Hong Kong University's Department of Electrical and Electronics Engineering. Mr. Chan is a Fellow at the Royal Academy of Engineering, UK, the Chinese Academy of Engineering, the Ukraine Academy of Engineering
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Sciences and a Fellow and Vice President at Hong Kong Academy of Engineering Sciences. He graduated from Tsing Hua University in 1959 with a Master of Science degree in Electrical Engineering and obtained his PhD in 1982 from University of Hong Kong. Board: Non Executive Board Job Title: Independent Director Since: 2005 Age: 75
David Gatton Mr. Gatton has been an Independent Director at Harbin Electric since 2005. Since 1985, he has served as the Chairman and President of Development Initiatives. Mr. Gatton advises cities, organizations, and companies on business development strategies, public and private partnerships and marketing initiatives. He holds a BA from Cornell College and a Master's degree from Harvard University. Board: Non Executive Board Job Title: Independent Director Since: 2005 Age: 57
Yunyue Ye Mr. Ye has been an Independent Director at Harbin Electric since 2006. He is currently a Professor in Electrical Engineering at Zhejiang University, where he has taught for the past seven years. Mr. Ye also currently serves as a Director at Aerospace Electric and Electrical Motor Institute of Zhejiang University and a Director at Linear Motor Institute of the Chinese Electro-technical Society. He was also Council Member at China Electro-technical Society. Mr. Ye graduated from Zhejiang University in 1978. Board: Non Executive Board Job Title: Independent Director Since: 2006 Age: 59
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Harbin Electric, Inc.: Major Products and Services

Harbin Electric is a manufacturer of a range of electric motors. The company's key products and brands include the following: Linear motors: Flat linear motors Cylindrical linear motors Specialty micro-motors for automobile applications Industrial rotary motors: High and low voltage motors AC (alternating current) motors DC (direct current) motors Speed control motors Brands: Simo Motor Wenbao Moto
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Table of Contents
Harbin Electric, Inc.: Company History

Harbin Electric was incorporated in 2003 as Harbin Tech Full Technology Development Co., Ltd. to engage in the business of providing travel and concierge services. In the same year, the company formed Harbin Tech Full Electric (HTFE) was founded. In 2004, the company established a subsidiary, Tech Full International (TFI). In the same year, HTFE exchanged all outstanding stock of HTFE for stock of Tech Full International and HTFE thereby became a subsidiary of TFI. TFI was merged with and into a subsidiary of Torch (Torch Subsidiary), and Torch was renamed Harbin Electric in 2005. Subsequently, the Torch Subsidiary changed its name to Advanced Electric Motors. In the same year, Tech Full International changed its name to Tech Full Holdings. Harbin Electric was listed on OTC Bulletin Board by reverse merger with Torch under the symbol 'HRBN', in 2005. In the same year, Tech Full Holdings changed its name to Advanced Electric Motors. In 2006, Harbin Electric formed Shanghai Tech Full Electric to develop and manufacture automobile specialty micro-motors and their components and accessories in China. The company began trading on the NASDAQ Global Market under the ticker symbol 'HRBN' in 2007. In the same year, Harbin Electric established a subsidiary Advanced Automation Group. In the same year, the company acquired Harbin Taifu Auto Electric, a manufacturer of automobile specialty micro-motors in China. In 2008, Harbin Electric, through its subsidiary Harbin Tech Full Electric, acquired Hengda Electric Motor and Wendeng Second Electric Motor Factory, an industrial rotary motor business in Harbin, China. The company changed the name of its subsidiary Weihai Hengda Electric Motor Co., Ltd. to Weihai Tech Full Simo Motor Co., Ltd, in 2009. In 2009, Harbin Electric acquired Xi'an Simo Motor Incorporation (Group) and changed its name to Xi'an Tech Full Simo Motor Co., Ltd (Simo Motor). In June 2010, Simo Motor, subsidiary of the company, purchased 100% of the outstanding equity of Xi'an Tech Full Lamination Co., Ltd. ('Lamination'), Xi'an Simo A'Da Motor Co., Ltd. ('A'Da Motor'), Xi'an Tech Full Simo Moulds Co., Ltd. ('Moulds') and Xi'an Tech Full Simo Transportation Co., Ltd. ('Transportation'). In the same month, Simo Motor sold the outstanding equity of Tianjin Simo Electric Co., Ltd. ('Electric'), Xi'an Simo Science and Technology Development Co., Ltd. ('Science and Technology') and Xi'an Simo Imports and Exports Co., Ltd. ('Imports and Exports'). In June 2011, Harbin Electric entered into an agreement and plan of merger ('Merger Agreement') with Tech Full Electric Company Limited (parent), a Cayman Islands exempted company with limited liability, wholly owned indirectly by Mr. Tianfu Yang, the company's Chairman and Chief Executive Officer, and Tech Full Electric Acquisition, Inc., a Nevada corporation and a wholly-owned by parent.
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Table of Contents
Harbin Electric, Inc.: Locations and Subsidiaries

Table 3: Harbin Electric, Inc.: Locations and Subsidiaries Advanced Electric Motors, Inc. Delaware United States Harbin Tech Full Electric Co., Ltd. Harbin China
Advanced Automation Group, LLC. Delaware United States
Shanghai Tech Full Electric Co., Ltd Shanghai China
Xi'an Tech Full Simo Motor Co., Ltd. China
Weihai Tech Full Simo Motor Co., Ltd. China
SOURCE: DATAMONITOR
DATAMONITOR
272
Table of Contents
Harbin Electric, Inc.: Key Competitors

Table 4: Harbin Electric, Inc.: Key Competitors Emerson Electric Co. General Electric Company
SOURCE: DATAMONITOR
Franklin Electric Co., Inc. Nidec Corporation

DATAMONITOR
273
Harbin Electric, Inc.: Company Analysis

Harbin Electric, Inc.: Business Description
Harbin Electric is engaged in the design, develop, manufacture, supply, and service a wide range of electric motors including linear motors, specialty micro-motors, and industrial rotary motors, and value-added products. The company sells its products principally in China, but also to certain international markets. The company currently operates the following four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), a wholly owned subsidiary of the company, is located in the government-designated Development Zone in the city of Harbin with approximately 50,000 square meters of land and manufactures linear motors and linear motor integrated systems; Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), a wholly owned subsidiary of the company, is located in the Shanghai Zhuqiao Airport Industrial Zone with 40,800 square meters of land and manufactures specialty micro-motors; Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full), a wholly owned subsidiary of the company, is located in Weihai with approximately 150,000 square meters of land and primarily manufactures small to medium sized industrial rotary motors; and Xi'an Tech Full Simo Motor Co., Ltd. (Xi'an Tech Full Simo), a wholly owned subsidiary of the company, manufactures primarily medium to large sized industrial rotary motors. Xi'an Tech Full Simo is located in Xi'an city's Economy and Technology Development Zone and occupies approximately 200,000 square meters of land. Harbin Electric offers three major product lines: linear motors (LMs) and integrated systems, specialty micromotors, and industrial rotary motors. LMs operate on the same physical principles as a traditional motor, but the stator, or non-moving component, is flat, rather than cylindrical, producing linear, rather than rotational, force. The company sells its LMs to a broad range of customers in China and in the US, including those involved in the energy industry, factory automation, food processing, packaging industries, power generation systems, and mass transportation and freight transportation systems. Specialty micro-motors are used for various automation functions for automotives, precision instrument and machinery, office equipment, medical devices, and consumer electronics. The company supplies these products to domestic customers and also exports them to OEM suppliers in North America. Harbin Electric offers a wide range of industrial rotary motors including small, medium, and large-sized motors and some specialized motors such as high/low voltage motors and speed control motors. Its industrial rotary motors are widely used for trains, power plants, steel processing, agricultural machineries, heavy machineries, material industry, construction industry, chemical industry, HVAC, aviation, navigation and hi-tech fields. The company markets industrial rotary motors under brands 'Simo Motor' manufactured by Xi'an Tech Full Simo and 'Wenbao Motor' manufactured by Weihai Tech Full.
274
Harbin Electric, Inc.: Corporate Financial Deals Activity

Harbin Electric, Inc.: Financial Deals Overview
Figure 1: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) Table 5: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) Deal Type Acquisition Partnership Corporate Venturing Capital Raising Divestments Private Equity
SOURCE: DATAMONITOR
Deal Volume 1
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
275
Figure 2: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011)
Figure 3: Harbin Electric, Inc.: M&A Average Deal Size - Value (US$m)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 6: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011) Deal Type ACQ CR CV DIV Pship PE Total 2007 1 1 2 2008 1 2 3 2009 1 1 2 2010 1 1 2011 -
Table 7: Harbin Electric, Inc.: M&A Average Deal Size Value (US$m) Year 2007 Deal Volume 1 1 1 Average Deal Size (US$m) 11 54 DATAMONITOR
2008 2009 2010 2011 SOURCE: DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
*ACQ = Acquisition; CR = Capital Raising; CV = Corporate Venturing; DIV = Divestment; Pship = Partnership; PE =Private Equity & Ownership
276
Harbin Electric, Inc.: Targets and Partners

Table 8: Harbin Electric, Inc.: Targets and Partners Harbin Electric, Inc.Target/Partner (Country) Xi'an Tech Full Simo Motor Co., Ltd. (formerly Xian SIMO Motor, Inc.) (China) Weihai Hengda Electric Motor Co., Ltd. (China) Harbin Taifu Auto Electric Co., Ltd. (China) Shelton Technology LLC (United States)
SOURCE:DATAMONITOR
Deal Headline
Deal Type
Deal Date
Deal Value (US$m)
Harbin Electric acquires Xi'an Simo Motor
Acquisition
Oct 19, 2009
Harbin Electric acquires Weihai Hengda Electric Acquisition Motor Harbin Electric acquires Harbin Taifu Auto Electric Harbin forms joint venture with Shelton Technology LLC Acquisition
Jul 15, 2008
54
Jul 12, 2007 Apr 13, 2007
11
Partnership
DATAMONITOR
277
Harbin Electric, Inc.: Top Deals 2007 -YTD*2011

Table 9: Harbin Electric, Inc.: Top Deals 2007 -YTD*2011 Target/Partner (Country) Harbin Electric, Inc. (China) Xi'an Tech Full Simo Motor Co., Ltd. (formerly Xian SIMO Motor, Inc.) (China) Harbin Electric, Inc. (China) Weihai Hengda Electric Motor Co., Ltd. (China) Harbin Electric, Inc. (China) Harbin Electric, Inc. (China) Harbin Taifu Auto Electric Co., Ltd. (China) Shelton Technology LLC (United States) Deal Value (US$m)
Deal Headline Tianfu Yang and Abax Global Capital to acquire remaining 59.4% stake in Harbin Electric
Deal Date
Deal Status
Deal Type
11 Oct 2010
Announced
Private Equity
446
19 Oct 2009
Completed
Acquisition
Harbin Electric raises $100 million through public offering Harbin Electric acquires Weihai Hengda Electric Motor Harbin Electric completes $49.45 million private placement Harbin Electric completes $49.5 million private placment Harbin Electric acquires Harbin Taifu Auto Electric Harbin forms joint venture with Shelton Technology LLC
05 Aug 2009
Completed
IPO
100
15 Jul 2008
Completed
Acquisition
54
26 Jun 2008
Completed
Private Placement Private Placement
49
26 Jun 2008
Completed
50
12 Jul 2007
Completed
Acquisition
11
13 Apr 2007
Announced
Partnership
SOURCE:DATAMONITOR
DATAMONITOR
278
Harbin Electric, Inc.: Advisors

Harbin Electric, Inc.: Top Legal Advisors
Table 10: Harbin Electric, Inc.: Legal Advisor Ranking by Value (US$m) Company Name Gibson, Dunn & Crutcher LLP Loeb & Loeb LLP Reed Smith LLP
SOURCE:DATAMONITOR
Deal Volume 1 1 1
Deal Value (US$m) 223 223 11

DATAMONITOR
Harbin Electric, Inc.: Top Financial Advisors
Table 11: Harbin Electric, Inc.: Financial Advisor Ranking by Value (US$m) Company Name Lazard Freres & Co., LLC Morgan Stanley & Co., Incorporated ROTH Capital Partners, LLC Houlihan Lokey, Inc. Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
SOURCE:DATAMONITOR
Deal Volume 1 1 1 1 1
Deal Value (US$m) 223 223 100 54 DATAMONITOR
279
Harbin Electric, Inc.: Mergers and Acquisitions

Figure 4: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) Figure 5: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 12: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) Year 2007 2008 2009 2010 2011
SOURCE: DATAMONITOR
Table 13: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011) Geography Asia-Pacific Europe Middle East and Africa North America South and Central America
SOURCE: DATAMONITOR
Deal Volume 1 1 1 -
Deal Value (US$m) 11 54 DATAMONITOR
Deal Volume 3 DATAMONITOR
280
Harbin Electric, Inc.: Capital Raising

Figure 6: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) Figure 7: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 14: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) Year 2007 2008 2009 2010 2011
SOURCE: DATAMONITOR
Table 15: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011) Deal Type Private Placement Public Offering
SOURCE: DATAMONITOR
Deal Volume 2 1 -
Deal Volume 2 1
DATAMONITOR
281
Harbin Electric, Inc.: Partnership

Figure 8: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) Figure 9: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 16: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) Deal Value (US$m) DATAMONITOR
Table 17: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011) Deal Type Joint Venture
SOURCE: DATAMONITOR
Year 2007 2008 2009 2010 2011
Deal Volume 1 -
Deal Volume 1
DATAMONITOR
SOURCE: DATAMONITOR
282
Harbin Electric, Inc.: Private Equity and Ownership

Figure 10: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 YTD*2011) Figure 11: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 18: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 - YTD*2011) Year 2007 2008 2009 2010 2011
SOURCE: DATAMONITOR
Table 19: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011) Deal Type Private Equity
SOURCE: DATAMONITOR
Deal Volume 1 -
Deal Value (US$m) 446 DATAMONITOR
Deal Volume 1
DATAMONITOR
283
Harbin Electric, Inc.: Recent Developments

Harbin Electric, Inc.: News and Events Summary
Table 20: Harbin Electric, Inc.: News and Events Summary Date HeadLine Harbin Electric enters into term loan facility agreement with CDB Harbin Electric, Inc., a developer and manufacturer of electric motors in China, has entered into a term loan facility agreement with China Development Bank Corporation, or CDB, Hong Kong Branch, as lender pursuant to which CDB will provide a $35 million loan facility and an RMB100 million loan facility to the company. Corporate loans/ other capital raising Category
Nov 23, 2010
SOURCE: DATAMONITOR
DATAMONITOR
Harbin Electric, Inc.: Financial Deals

Table 21: Harbin Electric, Inc.: Financial Deals Publication Date Headline Harbin Electric enters into term loan facility agreement with CDB Harbin Electric, Inc., a developer and manufacturer of electric motors in China, has entered into a term loan facility agreement with China Development Bank Corporation, or CDB, Hong Kong Branch, as lender pursuant to which CDB will provide a $35 million loan facility and an RMB100 million loan facility to the company. Corporate loans/ other capital raising Category
Nov 23, 2010
SOURCE: DATAMONITOR
DATAMONITOR
*YTD The period beginning January 1st of the current year up until today's date.
284
Appendix
Appendix
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Appendix
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Company Profile
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TABLE OF CONTENTS
TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 Business Description...........................................................................................5 History...................................................................................................................6 Key Employees.....................................................................................................8 Key Employee Biographies..................................................................................9 Major Products and Services............................................................................13 Top Competitors.................................................................................................14 Locations and Subsidiaries...............................................................................15
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Company Overview
COMPANY OVERVIEW
KEY FACTS
Head Office Harbin Electric, Inc. 9 Ha Ping Xi Lu Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu Harbin 150060 CHN 86 451 8611 6757
Phone Fax Web Address
http://www.harbinelectric.com
Revenue / turnover 426.4 (USD Mn) Financial Year End Employees NASDAQ Ticker December 4,430 HRBN
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Business Description
BUSINESS DESCRIPTION
Harbin Electric is engaged in the design, develop, manufacture, supply, and service a wide range of electric motors including linear motors, specialty micro-motors, and industrial rotary motors, and value-added products. The company sells its products principally in China, but also to certain international markets. The company currently operates the following four manufacturing facilities in China: Harbin Tech Full Electric Co., Ltd. (Harbin Tech Full), a wholly owned subsidiary of the company, is located in the government-designated Development Zone in the city of Harbin with approximately 50,000 square meters of land and manufactures linear motors and linear motor integrated systems; Shanghai Tech Full Electric Co., Ltd. (Shanghai Tech Full), a wholly owned subsidiary of the company, is located in the Shanghai Zhuqiao Airport Industrial Zone with 40,800 square meters of land and manufactures specialty micro-motors; Weihai Tech Full Simo Motor Co., Ltd. (Weihai Tech Full), a wholly owned subsidiary of the company, is located in Weihai with approximately 150,000 square meters of land and primarily manufactures small to medium sized industrial rotary motors; and Xian Tech Full Simo Motor Co., Ltd. (Xian Tech Full Simo), a wholly owned subsidiary of the company, manufactures primarily medium to large sized industrial rotary motors. Xian Tech Full Simo is located in Xian citys Economy and Technology Development Zone and occupies approximately 200,000 square meters of land. Harbin Electric offers three major product lines: linear motors (LMs) and integrated systems, specialty micro-motors, and industrial rotary motors. LMs operate on the same physical principles as a traditional motor, but the stator, or non-moving component, is flat, rather than cylindrical, producing linear, rather than rotational, force. The company sells its LMs to a broad range of customers in China and in the US, including those involved in the energy industry, factory automation, food processing, packaging industries, power generation systems, and mass transportation and freight transportation systems. Specialty micro-motors are used for various automation functions for automotives, precision instrument and machinery, office equipment, medical devices, and consumer electronics. The company supplies these products to domestic customers and also exports them to OEM suppliers in North America. Harbin Electric offers a wide range of industrial rotary motors including small, medium, and large-sized motors and some specialized motors such as high/low voltage motors and speed control motors. Its industrial rotary motors are widely used for trains, power plants, steel processing, agricultural machineries, heavy machineries, material industry, construction industry, chemical industry, HVAC, aviation, navigation and hi-tech fields. The company markets industrial rotary motors under brands Simo Motor manufactured by Xian Tech Full Simo and Wenbao Motor manufactured by Weihai Tech Full.
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History
HISTORY
Harbin Electric was incorporated in 2003 as Harbin Tech Full Technology Development Co., Ltd. to engage in the business of providing travel and concierge services. In the same year, the company formed Harbin Tech Full Electric (HTFE) was founded. In 2004, the company established a subsidiary, Tech Full International (TFI). In the same year, HTFE exchanged all outstanding stock of HTFE for stock of Tech Full International and HTFE thereby became a subsidiary of TFI. TFI was merged with and into a subsidiary of Torch (Torch Subsidiary), and Torch was renamed Harbin Electric in 2005. Subsequently, the Torch Subsidiary changed its name to Advanced Electric Motors. In the same year, Tech Full International changed its name to Tech Full Holdings. Harbin Electric was listed on OTC Bulletin Board by reverse merger with Torch under the symbol HRBN, in 2005. In the same year, Tech Full Holdings changed its name to Advanced Electric Motors. In 2006, Harbin Electric formed Shanghai Tech Full Electric to develop and manufacture automobile specialty micro-motors and their components and accessories in China. The company began trading on the NASDAQ Global Market under the ticker symbol HRBN in 2007. In the same year, Harbin Electric established a subsidiary Advanced Automation Group. In the same year, the company acquired Harbin Taifu Auto Electric, a manufacturer of automobile specialty micro-motors in China. In 2008, Harbin Electric, through its subsidiary Harbin Tech Full Electric, acquired Hengda Electric Motor and Wendeng Second Electric Motor Factory, an industrial rotary motor business in Harbin, China. The company changed the name of its subsidiary Weihai Hengda Electric Motor Co., Ltd. to Weihai Tech Full Simo Motor Co., Ltd, in 2009. In 2009, Harbin Electric acquired Xian Simo Motor Incorporation (Group) and changed its name to Xian Tech Full Simo Motor Co., Ltd (Simo Motor). In June 2010, Simo Motor, subsidiary of the company, purchased 100% of the outstanding equity of Xian Tech Full Lamination Co., Ltd. ('Lamination'), Xian Simo ADa Motor Co., Ltd. ('ADa Motor'), Xian Tech Full Simo Moulds Co., Ltd. ('Moulds') and Xian Tech Full Simo Transportation Co., Ltd. ('Transportation').
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History
In the same month, Simo Motor sold the outstanding equity of Tianjin Simo Electric Co., Ltd. ('Electric'), Xian Simo Science and Technology Development Co., Ltd. ('Science and Technology') and Xian Simo Imports and Exports Co., Ltd. ('Imports and Exports'). In June 2011, Harbin Electric entered into an agreement and plan of merger ('Merger Agreement') with Tech Full Electric Company Limited (parent), a Cayman Islands exempted company with limited liability, wholly owned indirectly by Mr. Tianfu Yang, the companys Chairman and Chief Executive Officer, and Tech Full Electric Acquisition, Inc., a Nevada corporation and a wholly-owned by parent.
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Key Employees
KEY EMPLOYEES
Name
Tianfu Yang Lanxiang Gao Ching Chuen Chan David Gatton Yunyue Ye Boyd Plowman Zedong Xu Kanenori Okawa Tianli Yang Christy Y Shue
Job Title
Chairman and Chief Executive Officer Director, and Chief Operating Officer, Shanghai Tech-Full Independent Director Independent Director Independent Director Independent Director Chief Financial Officer Chief Technology Officer Vice President Executive Vice President, Finance and Investor Relations; and Corporate Secretary
Board
Executive Board Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Senior Management Senior Management Senior Management Senior Management
Compensation
26470 USD
15882 USD
15882 USD 147100 USD
Suofei Xu Shaotang Chen
Vice President, Shanghai Tech-Full Senior Management Director, Research and Senior Management Development, Advanced Automation Group
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Key Employee Biographies
KEY EMPLOYEE BIOGRAPHIES

Tianfu Yang
Board: Executive Board Job Title: Chairman and Chief Executive Officer Since: 2005 Age: 49 Mr. Yang has been the Chairman and Chief Executive Officer at Harbin Electric since 2005. From 2003, he has been the Chairman and Chief Executive Officer at Harbin Tech Full Electric. From 2000, Mr. Yang has been the Chairman and Chief Executive Officer at Harbin Tech Full Industry. From 1994 to 2000, he was the President at Harbin Tianheng Wood Industry Manufacture. From 1991 to 1994, Mr. Yang was the President at Hong Kong Lianfa Real Estate Company. From 1988 to 1991, he was the President at Hong Kong Property Management Development. From 1986 to 1988, he was the President at Helongjiang Cultural Development Company and Guangzhou Subsidiary Company. Mr. Yang is also the National Peoples Representative at City of Harbin. He graduated from Zhejiang University with a Masters degree in Electric Motor Automation and Control.
Lanxiang Gao
Board: Executive Board Job Title: Director, and Chief Operating Officer, Shanghai Tech-Full Since: 2007 Age: 58 Ms. Gao has been a Director and Chief Operating Officer, Shanghai Tech-Full Electric, a subsidiary of Harbin Electric, since 2007. She worked as an Engineer at Shanghai No.21 Research Institute. Ms. Gao managed a development and production project of office automation motors in collaboration with Sankyo Seiki of Japan for 10 years and served as the Senior Engineer. She graduated from Zhejiang University, China with a major in Electrical Engineering.
Ching Chuen Chan

Board: Non Executive Board Job Title: Independent Director Since: 2005 Age: 75 Mr. Chan has been an Independent Director at Harbin Electric since 2005. He is an Honorary Professor at Hong Kong Universitys Department of Electrical and Electronics Engineering. Mr. Chan is a Fellow at the Royal Academy of Engineering, UK, the Chinese Academy of Engineering, the
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Ukraine Academy of Engineering Sciences and a Fellow and Vice President at Hong Kong Academy of Engineering Sciences. He graduated from Tsing Hua University in 1959 with a Master of Science degree in Electrical Engineering and obtained his PhD in 1982 from University of Hong Kong.
David Gatton
Board: Non Executive Board Job Title: Independent Director Since: 2005 Age: 57 Mr. Gatton has been an Independent Director at Harbin Electric since 2005. Since 1985, he has served as the Chairman and President of Development Initiatives. Mr. Gatton advises cities, organizations, and companies on business development strategies, public and private partnerships and marketing initiatives. He holds a BA from Cornell College and a Masters degree from Harvard University.
Yunyue Ye
Board: Non Executive Board Job Title: Independent Director Since: 2006 Age: 59 Mr. Ye has been an Independent Director at Harbin Electric since 2006. He is currently a Professor in Electrical Engineering at Zhejiang University, where he has taught for the past seven years. Mr. Ye also currently serves as a Director at Aerospace Electric and Electrical Motor Institute of Zhejiang University and a Director at Linear Motor Institute of the Chinese Electro-technical Society. He was also Council Member at China Electro-technical Society. Mr. Ye graduated from Zhejiang University in 1978.
Boyd Plowman
Board: Non Executive Board Job Title: Independent Director Since: 2009 Age: 67 Mr. Plowman has been an Independent Director at Harbin Electric since 2009. He is the retired Executive Vice President and Chief Financial Officer at Fleetwood Enterprises, Inc. where he was employed from 1969 to 1987 and from 1997 to 2008. During his career with Fleetwood, Mr. Plowman held numerous leadership positions including Controller, Treasurer, and Financial Vice President. During his second stint with Fleetwood, he served as an Executive Vice President and Chief Financial Officer until his retirement in 2008. He also served as the President and Chief Executive Officer at
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Lee & Associates. Prior to that, Mr. Plowman served as a Director and Chairman of the Audit Committee at Corporate Insurance and Reinsurance Company Limited (CIRCL), a Bermuda-based company reinsuring risks for captive insurance companies. He holds a bachelor's degree from Utah State University and was a certified public accountant.
Zedong Xu
Board: Senior Management Job Title: Chief Financial Officer Since: 2005 Age: 41 Mr. Xu has been the Chief Financial Officer at Harbin Electric since 2005. From 2003 until present, he has been the Chief Financial Officer at Harbin Tech Full Electric. Since 2000, Mr. Xu has been the Chief Financial Officer at Harbin Tech Full Industry. From 1998 to 2000, he was employed as the Chief Financial Officer at Harbin WanDa Electrical Home Appliances. From 1996 to 1998, he was a Financial Manager at Harbin High Technology Torch Daya Real Estate. Mr. Xu graduated in 1992 from Harbin Electrical Engineering College with a BA in Project Management.
Kanenori Okawa
Board: Senior Management Job Title: Chief Technology Officer Since: 2007 Mr. Okawa has been the Chief Technology Officer at Harbin Electric since 2007. From 1997 to 2007, he was Chief Technology Advisor at Nittoku Engineering. From 1973 to 1997, Mr. Okawa worked at Industrial Far East and held various positions including serving as the President from 1978 to 1997. He began his career with Ikegami Tuusinki after he graduated in 1971 with a BS in Electrical Engineering.
Tianli Yang
Board: Senior Management Job Title: Vice President Since: 2005 Mr. Yang has been the Vice President at Harbin Electric since 2005. Since 2003, he was the Vice President at Harbin Tech Full Electric. Since 2000, Mr.Yang has been the Vice President at Harbin Tech Full Industry. From 1985 to 2000, he was employed in the China State Construction Engineering Corporation in various positions, including Chief Administration Officer. Mr. Yang graduated from Helongjiang University in 1985 with a BA in Chinese Language and Literature.
Christy Y Shue
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Board: Senior Management Job Title: Executive Vice President, Finance and Investor Relations; and Corporate Secretary Ms. Shue is an Executive Vice President, Finance and Investor Relations; and Corporate Secretary at Harbin Electric. Prior to joining the company, she was the Vice President and a Senior Investor Relations Consultant at Christensen. Prior to joining Christensen, Ms. Shue was Manager, Investor Relations at International Paper. She holds a PhD in Chemistry from Purdue University and an MBA in Finance business from the Stern School of Business, New York University. She earned her Bachelor of Science degree from Sichuan University, China.
Suofei Xu
Board: Senior Management Job Title: Vice President, Shanghai Tech-Full Mr. Xu is the Vice President, Shanghai Tech-Full, a subsidiary of the company. From 2003 to 2008, he was the Vice President at Harbin Tech Full Electric. From 2003 to 2008, Mr. Xu was the Vice President at Harbin Tech Full Industry. From 2001 to 2003, he was an Investment Manager at Shenzhen Capital Group. From 1997 to 2001, he worked at Guangfa Securities as a Project Manager. From 1991 to 1997, Mr. Xu worked as the Section Chief for system allocation reform at Harbin Economic System Reform Committee. He graduated in 1988 from Fudan University with a BA in Law.
Shaotang Chen
Board: Senior Management Job Title: Director, Research and Development, Advanced Automation Group Since: 2007 Dr. Chen has been a Director, Research and Development, Advanced Automation Group, a subsidiary of Harbin Electric, since 2007. From 2000 to 2007, he has been the Staff Research Engineer at Delphi Research Labs. From 2001 to 2003, Dr. Chen was Delphi Research Labs Chief Scientist at Delphi Energenix Center. From 1999 to 2000, he was Senior Research Engineer for Mechatronics Group at Delphi Research Labs. From 1995 to 1999, Dr. Chen was Senior Research Engineer in the Electrical and Electronics Department at General Motors NAO Research and Development Center. He graduated in 1995 from University of Wisconsin-Madison with a PhD in Electrical Engineering.
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Major Products and Services
MAJOR PRODUCTS AND SERVICES

Harbin Electric is a manufacturer of a range of electric motors. The companys key products and brands include the following: Linear motors: Flat linear motors Cylindrical linear motors Specialty micro-motors for automobile applications Industrial rotary motors: High and low voltage motors AC (alternating current) motors DC (direct current) motors Speed control motors Brands: Simo Motor Wenbao Motor
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Top Competitors
TOP COMPETITORS
The following companies are the major competitors of Harbin Electric, Inc.
Franklin Electric Co., Inc. Emerson Electric Co. General Electric Company Nidec Corporation
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Locations and Subsidiaries
LOCATIONS AND SUBSIDIARIES

Head Office
Harbin Electric, Inc. 9 Ha Ping Xi Lu Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu Harbin 150060 CHN P:86 451 8611 6757 http://www.harbinelectric.com
Other Locations and Subsidiaries

Advanced Electric Motors, Inc. Delaware USA Harbin Tech Full Electric Co., Ltd. Harbin CHN Xian Tech Full Simo Motor Co., Ltd. CHN Advanced Automation Group, LLC. Delaware USA Shanghai Tech Full Electric Co., Ltd Shanghai CHN Weihai Tech Full Simo Motor Co., Ltd. CHN
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Report Date

Highlights
Conclusions Page 9
Harbin Electric, Inc. is an above average quality company with a negative outlook. Harbin Electric, Inc. has medium business growth and is run by efficient management. The trend in Harbin Electric, Inc. fair value exchange rate against its closest rated-competitor, American Superconductor Corporation, has been depreciating over the past 2 weeks. When compared to its closest peer, Hydrogenics Corporation (USA), Harbin Electric, Inc. shows similar undervaluation and is more likely to outperform the market. StockMarks Ratings Total Quality Classical Business Management Price Volability Outperformance
SMT
SMC
SMB
SMM
SMP
SMV
SMO
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Company Profile
HRBN
Industrials
NASDAQ
2011-06-28

Harbin Electric, Inc.s long-term investment attractiveness rating (Total StockMark or SMT), depicted in the chart below, is driven by price attractiveness.
It is a mid-cap stock currently trading at a multiple of 7.42 times earnings. While Harbin Electric, Inc.'s share price has fallen considerably in the last quarter, the company's longterm investment rating (chart above) decreased over the same period.
2
303
An important question to ask is whether Harbin Electric, Inc.s underlying long-term fundamentals justify the steep decline in the company's share price. We can examine this issue using the StockMarks framework. First, in the chart on the right, we compare the companys trend for each rating, followed by a comparison of the companys overall long-term investment attractiveness rating (Total StockMark or SMT) in relation to its sector (chart below).
Ratings showing a positive trend: Total; Price; Classic; Volatility; Outperformance; Ratings showing a negative trend: Business; Management;
Harbin Electric, Inc. currently has an overall long-term investment attractiveness rating (Total StockMark or SMT) of 65, placing Harbin Electric, Inc. above the SMT average of 50.88 for United Stateslisted companies. This rating ranks Harbin Electric, Inc. fourth when compared to ten of its closest peers, selected because of similarity of business, financial and market-positioning factors such as size (see page 5).
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Ticker
Company
Company Name
SMP 67 66 72 67 66 66 67 53 66 74 66
Harbin Electric, Inc.s best rank among competitors is second for the Management Efficiency (SMM) rating.

HYGS NJ
In relation to its highest correlated stocks (for pair trading) Harbin Electric, Inc.s best rank is third for the Management Efficiency (SMM) rating. However, to assess pair trading convergence it is also important to consider Harbin Electric, Inc.s worst ranking, which is sixth for the Price Attractiveness (SMP) rating.

Ticker
Company Name
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Likewise, we should note the lastmonth price divergence, which was -0.085 in relation to its closest pair. Peer Analysis

The overall conclusion is that Harbin Electric, Inc. is an above average quality company with a negative outlook. Nevertheless, we need to look further into its determinants by examining each quality rating separately. We selected also a group of investment peers in terms of longterm operational and financial similarities. Because of the stringency of the criteria used, not all companies have a degree of similarity greater than the minimum of 50% recommended for reliable benchmarking. Among this group shown in the table above on the right, Harbin Electric, Inc.s best rank is second for the Management Efficiency (SMM) rating. The radar chart above provides a synopsis of all of Harbin Electric, Inc.s ratings in comparison to its top two peers.
Harbin Electric, Inc. has medium business quality growth.

Harbin Electric, Inc. currently has a Business StockMark (SMB) of 44, indicating that the company's longterm business growth rates are significantly below the sector average of United States-listed companies.
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This rating places Harbin Electric, Inc. seventh in terms of growth in relation to its ten closest peers. The previous chart shows the movements in the SMB and the ratings of the three indicators used in the calculation of the business rating. The SMB's recent fall was not primarily due to a decline in the rating of the company's sales elasticity. The sales elasticity indicator compares the long-term revenue growth of the company to other companies in its industry. The decline in the sales elasticity pushed this indicator below the average, suggesting that Harbin Electric, Inc. is growing at a slower pace than its industry. Harbin Electric, Inc.s business rating is 1.02 times higher than that of its closest competitor, American Superconductor Corporation. Harbin Electric, Inc. currently has a SMM of 66, the second highest of its quality sub-ratings. Management Classification Grid For a descriptive classification of management efficiency based on an interval scale, we use the following five categories: Category First Class Efficient Average Mediocre Inefficient SMM Rating 90-100 55-89 40-54 20-39 0-19 The assessment of the management efficiency trend needs to be qualified by taking into account how long the incumbent management has been The chart above shows the movements of the SMM and the rating's three determinants. Comparing the management efficiency of Harbin Electric, Inc. with that of its closest competitor, American Superconductor Corporation, reveals that Harbin Electric, Inc.s rating is 1.08 times higher. Finally, despite the importance of management efficiency, investors should not neglect other more subjective management attributes such as integrity and business savvy, which are beyond the scope of this report.


With the recent steep decline in Harbin Electric, Inc.s share price, the possibility of the company's shares being oversold increases. We can assess whether the Harbin Electric, Inc. is in fact undervalued by looking at the company's Price Attractiveness StockMark (SMP).
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The SMP takes into account both fundamental and technical indicators to arrive at a rating of the attractiveness of a company's stock to long term investors at its current price. Harbin Electric, Inc. currently has a Price StockMark of 67, indicating that the market is undervaluing Harbin Electric, Inc.s long-term fundamentals. On this count, we can observe that Harbin Electric, Inc. is already undervalued and with a trend towards more undervaluation. To see if this situation is unique to the company, we can check the exchange rate at which the stock is trading in relation to its top competitors and peers.
The fair value exchange rate of Harbin Electric, Inc.s stock in relation to its closest competitor American Superconductor Corporation is depreciating.
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The market risk

The analysis of market risk is done through the Volatility StockMark (SMV) rating. This rating combines the previous year price variance and price level with longterm market correlation in a way that we can interpret it in the usual scale of 0 (worst) to 100 (best). Comparing the volatility rating of the Harbin Electric, Inc., which is currently at 75, with its closest competitor, American Superconductor Corporation, we see that it is 0.97 times lower.
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Although relevant in itself, the rating is more useful when we compare its evolution to the trend in stock price. The chart on the previous page shows both in an index form. We can observe that Harbin Electric, Inc.s market risk outlook is mixed. It is also important to observe the trend in the volatility of SMV because this provides a good indication about the stickiness of short term price movements.
For this, we use the Outperformance StockMark (SMO), which measures the likelihood of the company to outperform the market in the near term. This rating combines the company's past quarter price dynamics with its market risk and total quality, in a scale from 0 (worst) to 100 (best). Harbin Electric, Inc.s SMO is currently at 77. Looking at its trend in the chart on the left, we can see that it is deteriorating. When compared to its closest peer, Hydrogenics Corporation (USA), Harbin Electric, Inc. shows similar undervaluation and is more likely to outperform the market. While, if compared to its first competitor, American Superconductor Corporation, Harbin Electric, Inc. shows similar undervaluation and is equally likely to outperform the market.
Conclusions The company's share price in the past year has been hit hard, but we believe that its underlying fundamentals will determine the stocks long-term performance. A StockMarks analysis of Harbin Electric, Inc. reveals a company with an above average quality and medium long-term business growth. The likelihood of Harbin Electric, Inc. stock to outperform the market as measured by the Outperformance StockMark (SMO) is well above average with a rating of 77 / 100. The risk associated with holding the shares as measured by the Volatility StockMark (SMV) is well below average with a rating of 75 /100. Overall, we believe Harbin Electric, Inc. to be a good long-term investment.
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EQUITY RESEARCH
COMPANY UPDATE
China June 28, 2011

(HRBN Nasdaq $14.99) Some explanations on HRBNs Reiterate Buy and $24 price target debt
Buy
financing;
Recently we received large number of investor inquiries about HRBNs debt financing, in particular, whether the current agreement is binding and how it is structured. After reading through the details in the SEC documents, we have concluded several important points. The $400M Facility Agreement dated June 9, 2011, is a binding agreement not a letter of intend. As far as we understand, the letter of intend for the $400M term loan was issued by China Development Bank (CDB) when HRBNs buying group, Chairman Mr. Yang, Abax Global Capital (Abax) and a few other member of HRBNs top management file a 13-D to SEC on May 2, 2011 indicating the secure of such debt financing. Since that time, specific contract terms were negotiated and the June 9 Facility Agreement was the result of the negotiation and a binding agreement of $400M term loan. That said the utilization of the loan is subject to fulfillment of all required documents, including Corporate Documents, Legal Opinions, Finance Documents, Acquisition Agreement and Regulatory Approval. The $400M term loan from CDB is mainly collateralized by HRBNs equities. As far as we understand, one important type of Finance Documents required by CDB was Security Documents, which mainly include the Borrower Share Mortgage and the Target Share Pledge. Borrow Share Mortgage is a document that the shareholders of Tech Full Electric Company Limited (Tech Full), or the acquisition vehicle, pledge their entire equity interest in Tech Full as the loan collateral; here the shareholders are mainly HRBNs Chairman Mr. Yang. Target Share Pledge is a document that Tech Full pledges its entire equity interest in HRBN after the completion of the acquisition as the loan collateral. In addition, CDB has required Mr. Yang and his wifes personal assets as extra collateral in case the assets/equity interest of HRBN are not sufficient for the loan value. This extra collateral is where the Personal Guarantee comes into play. The $50M term loans ($35M and RMB100M) issued by CDB last November was to HRBN and not included in the $400M facility. Mr. Yang pledged 7M shares of HRBN he owns to collateralize the loan. In our view, it is more convenient for CDB to access Mr. Yangs personal assets as he is a Chinese citizen than a foreign issuers assets as HRBN is registered in Nevada, U.S.A. Second, it is a rather standard practice for a Chinese state-owned bank like CDB to give a large discount on any assets taken as loan collateral, a reason why it seems CDB valued Mr. Yangs shares much lower than then market value. Overall, we expect SEC is likely to approve the merger transaction in a few months. Our Buy rating and $24 price target is mainly based on a favorable outcome of HRBNs LBO. In our view, the wide gap between the current share price and the LBO offering price creates buying opportunities.

$ $ $ $ $ $ $ $ $
249 76 213 236 37 184 256 155 78
$ -$ $ $ $ $ $ $
1.12 1.30 1.40 0.49 0.96 0.95 1.01 1.06
$ -$ $ $ $ $ $ $
1.23 1.17 1.78 0.59 1.28 1.05 1.10 1.11
$ -$ $ $ $ $ $ $
1.48 -1.38 2.08 0.70 1.51 1.20 1.42 1.29
8.2x -4.4x 4.4x 1.4x 5.6x 7.5x 3.7x 3.8x 4.9x
7.5x -4.9x 3.5x 1.2x 4.2x 6.7x 3.4x 3.6x 4.4x
6.2x 4.1x 3.0x 1.0x 3.6x 5.9x 2.6x 3.1x 3.7x
$ $ $ $ $
1.18 0.53 3.70 0.30 0.21
$ $ $ $ $
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$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.11 0.04 0.23 0.03 0.02
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0.12 0.04 0.27 0.04 0.02
10.5x 15.9x 18.8x 10.3x 10.9x 13.3x
11.1x 14.1x 16.0x 9.3x 9.8x 12.1x
10.1x 12.7x 13.9x 8.2x 8.7x 10.7x
$ 1,147 $ 261 $ 1,364 $ 377 $ 10,404 $ 6,489
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.11 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.14 0.18 0.07 0.29
31.8x 63.4x 39.6x 76.3x 31.8x 19.8x 43.8x
22.6x 44.0x 28.1x 71.8x 25.8x -16.1x 27.3x
15.2x 17.5x 18.1x 48.3x 13.6x 22.5x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.39 $ 1.56 $ 3.27 $ 3.94 $ 8.01 $ 5.08 $ 4.58 $ 5.23 n/a $ 2.10 $ 2.50
$ 10.60 $ 1.91 $ 3.87 $ 4.60 $ 9.69 $ 5.56 $ 5.44 $ 5.97 n/a -$ 2.46 $ 2.89
21.7x 20.0x 20.0x 17.8x 18.8x 11.7x 26.6x 11.6x -14.3x 23.2x 18.6x
11.6x 16.0x 16.5x 13.9x 12.2x 10.0x 17.7x 9.8x -19.5x 18.0x 14.5x
12.4x 13.1x 13.9x 11.9x 10.1x 9.1x 14.9x 8.6x 16.6x 15.6x 12.6x
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4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
19.8 20.1 19.3 17.0 76.3 19.3 18.1 19.3 20.4 77.2 86.8 60% 74% 18% -14% 27% -3% -10% 0% 20% 1% 12% 56% 19% 19% 18% 16% 18% 19% 16% 16% 16% 16% 16% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 14.7 15.3 16.1 61.7 67.9 166% 78% 81% -18% 51% -4% (3.0%) 0% 15% 2% 10% 28% 15% 14% 14% 13% 14% 15% 13% 12% 12% 13% 12% 22.5 23.6 23.5 23.7 93.2 21.8 25.9 27.0 30.8 105.5 125.7 107% 39% 14% 3% 31% -3% 10% 15% 30% 13% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 22% 23% 45.0 44.6 48.9 49.9 188.5 46.3 51.3 58.7 62.4 218.7 258.9 13% 6% 11% 12% 11% 3% 15% 20% 25% 16% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 46% 48% 47% 46% 47% 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 547.6 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 6% 12% 24% 10% 16% (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (391.9) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.49 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.48 $ NM -25% 221% (47.4%) (40.8%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
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As of:
6/28/2011
with Rating 65.8% 26.3% 7.9%
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: One or more of the following valuation methods are used by Maxim Group analysts in making a ratings or price projection: Analysis of companies P/E ratio, price/book ratio, earnings expectations or sales growth as they relate within an industry group or to the broader market, enterprise value/sales, Individual sector analysis, sum of the parts analysis and discounted cash flow. Price Target Risks: Investment risks associated with the achievement of the price target include, but are not limited to, the companys failure to achieve our earnings and revenue estimates, unforeseen macroeconomic
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and/or industry events that adversely impact demand for the companys products and services, product obsolescence, the companys ability to recruit and retain competent personnel, changes in investor sentiment regarding the specific company or industry, changing competitive pressures and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-K that the company has filed with the SEC. Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
RISK RATINGS
DISCLAIMERS
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Maxim Group LLC
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Company Report
NASDAQ (HRBN) June 9, 2011
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Company Snapshot
Company Snapshot
Reference Code : 732345C1-017F-413B-A6A3-C3DF193F55EB Harbin Electric, Inc. 9 Ha Ping Xi Lu Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu Harbin 150060 China Publication Date: June 2011 Phone: 86 451 8611 6757 Website: www.harbinelectric.com Industry: Industrial Goods and Machinery
Overview
Harbin Electric is involved in manufacturing a range of electric motors. Its product line includes linear motors (LMs), automobile specialty micro-motors for automobile interior applications, and industrial rotary motors for use in agricultural equipment and medical devices. The company primarily operates in China and the US. It is headquartered in Harbin, China, and employs around 2,000 people. The company recorded revenues of $223.2 million in the fiscal year ended December 2009, an increase of 84.8% over 2008. The company's operating profit was $55.8 million in fiscal 2009, an increase of 62.4% over 2008. Its net profit was $19.6 million in fiscal 2009, a decrease of 22.6% compared to 2008.
Key Employees
Employee Name Lanxiang Gao Tianfu Yang Job Title Director and Chief Operating Officer, Shanghai Tech-Full Chairman and Chief Executive Officer Executive Vice President, Finance and Investor Relations; and Corporate Secretary Chief Technology Officer Board Executive Board Executive Board
Christy Y Shue
Senior Management
Kanenori Okawa
Senior Management
Company Report, June 2011 Product Code: 732345C1-017F-413B-A6A3-C3DF193F55EB
319
Company Snapshot
Financial Deals Activity Overview

Harbin Electric, Inc.: Deal Activity by Deal Type (2007 - YTD*2011) Harbin Electric, Inc.: Recent Deal Activity Tianfu Yang and Baring Private Equity to acquire remaining 69.9% stake in Harbin Electric Harbin Electric acquires Xi'an Simo Motor Harbin Electric raises $100 million through public offering Harbin Electric acquires Weihai Hengda Electric Motor Harbin Electric completes $49.45 million private placement
11 Oct 2010
19 Oct 2009
05 Aug 2009
15 Jul 2008
26 Jun 2008
Recent Developments
Date Nov 23, 2010 Headline Harbin Electric enters into term loan facility agreement with CDB Category Corporate loans/ other capital raising
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Table of Contents
Table of Contents
Company Snapshot __________________________________________________________________ 2 Table of Contents ____________________________________________________________________ 4 Harbin Electric, Inc.: Overview and Key Facts ________________________________________ 7 Harbin Electric, Inc.: Overview ______________________________________________________ 7 Harbin Electric, Inc.: Key Facts _____________________________________________________ 7 Harbin Electric, Inc.: Key Employees ________________________________________________ 8 Harbin Electric, Inc.: Key Employee Biographies ______________________________________ 9 Harbin Electric, Inc.: Major Products and Services ___________________________________ 14 Harbin Electric, Inc.: Company History _____________________________________________ 15 Harbin Electric, Inc.: Company Analysis ________________________________________________ 16 Harbin Electric, Inc.: Business Description __________________________________________ 16 Harbin Electric, Inc.: Corporate Financial Deals Activity ___________________________________ 17 Harbin Electric, Inc.: Financial Deals Overview _______________________________________ 17 Harbin Electric, Inc.: Targets and Partners __________________________________________ 19 Harbin Electric, Inc.: Top Deals 2007 -YTD*2011 ______________________________________ 20 Harbin Electric, Inc.: Advisors_____________________________________________________ 21 Harbin Electric, Inc.: Top Legal Advisors _____________________________________________ 21 Harbin Electric, Inc.: Top Financial Advisors __________________________________________ 21 Harbin Electric, Inc.: Mergers and Acquisitions ______________________________________ 22 Harbin Electric, Inc.: Capital Raising _______________________________________________ 23 Harbin Electric, Inc.: Partnership __________________________________________________ 24 Harbin Electric, Inc.: Private Equity and Ownership ___________________________________ 25 Harbin Electric, Inc.: Recent Developments _____________________________________________ 26 Harbin Electric, Inc.: News and Events Summary _____________________________________ 26 Harbin Electric, Inc.: Financial Deals _______________________________________________ 26 Appendix __________________________________________________________________________ 27 Contact Us ____________________________________________________________________ 27 Methodology ___________________________________________________________________ 27 About Datamonitor ______________________________________________________________ 28
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Table of Contents
List of Tables
Table 1: Harbin Electric, Inc.: Key Facts ______________________________________________________________ 7 Table 2: Harbin Electric, Inc.: Key Employees _________________________________________________________ 8 Table 3: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) _________________________________ 17 Table 4: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011) _______________________ 18 Table 5: Harbin Electric, Inc.: M&A Average Deal Size - Value (US$m) ____________________________________ 18 Table 6: Harbin Electric, Inc.: Targets and Partners ___________________________________________________ 19 Table 7: Harbin Electric, Inc.: Top Deals 2007 -YTD*2011 _______________________________________________ 20 Table 8: Harbin Electric, Inc.: Legal Advisor Ranking by Value (US$m) ___________________________________ 21 Table 9: Harbin Electric, Inc.: Financial Advisor Ranking by Value (US$m) ________________________________ 21 Table 10: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) ___________________________ 22 Table 11: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011) _____________________________ 22 Table 12: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) __________________ 23 Table 13: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011) ____________________________ 23 Table 14: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) _____________________ 24 Table 15: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011) __________________________ 24 Table 16: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 - YTD*2011) ______ 25 Table 17: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011) _________ 25 Table 18: Harbin Electric, Inc.: News and Events Summary _____________________________________________ 26 Table 19: Harbin Electric, Inc.: Financial Deals _______________________________________________________ 26
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Table of Contents
List of Figures
Figure 1: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) _________________________________ 17 Figure 2: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011) ______________________ 18 Figure 3: Harbin Electric, Inc.: M&A Average Deal Size - Value (US$m) ___________________________________ 18 Figure 4: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) ___________________________ 22 Figure 5: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011) _____________________________ 22 Figure 6: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) __________________ 23 Figure 7: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011) ____________________________ 23 Figure 8: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) _____________________ 24 Figure 9: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011) __________________________ 24 Figure 10: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 - YTD*2011) _____ 25 Figure 11: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011) ________ 25
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Table of Contents
Harbin Electric, Inc.: Company Overview

Harbin Electric, Inc.: Overview and Key Facts
Harbin Electric, Inc.: Overview
Harbin Electric is involved in manufacturing a range of electric motors. Its product line includes linear motors (LMs), automobile specialty micro-motors for automobile interior applications, and industrial rotary motors for use in agricultural equipment and medical devices. The company primarily operates in China and the US. It is headquartered in Harbin, China, and employs around 2,000 people. The company recorded revenues of $223.2 million in the fiscal year ended December 2009, an increase of 84.8% over 2008. The company's operating profit was $55.8 million in fiscal 2009, an increase of 62.4% over 2008. Its net profit was $19.6 million in fiscal 2009, a decrease of 22.6% compared to 2008.
Harbin Electric, Inc.: Key Facts
Table 1: Harbin Electric, Inc.: Key Facts Corporate Address: 9 Ha Ping Xi Lu Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu Harbin 150060 Country: Phone: Web Address: Turnover (US$m): Employees: Financial Year End: Industry: Primary Stock Exchange (Ticker):
SOURCE: DATAMONITOR
China 86 451 8611 6757 www.harbinelectric.com 223 2,000 December Industrial Goods and Machinery NASDAQ (HRBN)
DATAMONITOR
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Table of Contents
Harbin Electric, Inc.: Key Employees

Table 2: Harbin Electric, Inc.: Key Employees Employee Name Lanxiang Gao Job Title Director and Chief Operating Officer, Shanghai Tech-Full Chairman and Chief Executive Officer Executive Vice President, Finance and Investor Relations; and Corporate Secretary Chief Technology Officer Director, Research and Development, Advanced Automation Group Vice President, Shanghai Tech-Full Vice President Chief Financial Officer Director Board Executive Board Age 57 Since 2007
Tianfu Yang
Executive Board
48
2005
Christy Y Shue
Senior Management
46
Kanenori Okawa
Senior Management
2007
Shaotang Chen
Senior Management
2007
Suofei Xu Tianli Yang Zedong Xu Boyd Plowman
Senior Management Senior Management Senior Management Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board 46 40 66 2005 2005 2009
Ching Chuen Chan
Director
75
2005
David Gatton
Director
56
2005
Patrick McManus
Director
55
2005
Yunyue Ye
SOURCE:DATAMONITOR
Director
58
2006
DATAMONITOR
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Table of Contents
Harbin Electric, Inc.: Key Employee Biographies

Lanxiang Gao Ms. Gao has been a Director and Chief Operating Officer, Shanghai Tech-Full Electric, a subsidiary of Harbin Electric, since 2007. She worked as an Engineer for Shanghai No.21 Research Institute. Ms. Gao managed a development and production project of office automation motors in collaboration with Sankyo Seiki of Japan for 10 years and served as the Senior Engineer. She graduated from Zhejiang University, China with a major in Electrical Engineering. Board: Executive Board Job Title: Director and Chief Operating Officer, Shanghai Tech-Full Since: 2007 Age: 57
Tianfu Yang Mr. Yang has been the Chairman and Chief Executive Officer at Harbin Electric since 2005. From 2003, he has been the Chairman and Chief Executive Officer at Harbin Tech Full Electric. From 2000, Mr. Yang has been the Chairman and Chief Executive Officer at Harbin Tech Full Industry. From 1994 to 2000, he was the President at Harbin Tianheng Wood Industry Manufacture. From 1991 to 1994, Mr. Yang was the President at Hong Kong Lianfa Real Estate Company. From 1988 to 1991, he was the President at Hong Kong Property Management Development. From 1986 to 1988, he was the President at Helongjiang Cultural Development Company and Guangzhou Subsidiary Company. Mr. Yang is also the National People's Representative of the City of Harbin. He graduated from Zhejiang University with a Masters degree in Electric Motor Automation and Control. Board: Executive Board Job Title: Chairman and Chief Executive Officer Since: 2005 Age: 48
Christy Y Shue Ms. Shue is the Executive Vice President, Finance and Investor Relations; and Corporate Secretary at Harbin Electric. Prior to joining the company, she was a Vice President and a Senior Investor Relations Consultant at Christensen. Prior to joining Christensen, Ms. Shue was Manager, Investor Relations at International Paper. She holds a PhD in Chemistry from Purdue University and an MBA in Finance business from the Stern School of Business, New York University. She earned her Bachelor of Science degree from Sichuan University, China. Board: Senior Management Job Title: Executive Vice President, Finance and Investor Relations; and Corporate Secretary Age: 46
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Kanenori Okawa Mr. Okawa has been the Chief Technology Officer at Harbin Electric since 2007. From 1997 to 2007, he was Chief Technology Advisor at Nittoku Engineering. From 1973 to 1997, Mr. Okawa worked for the Industrial Far East and held various positions including serving as the President from 1978 to 1997. He began his career with Ikegami Tuusinki after he graduated in 1971 with a BS in Electrical Engineering. Board: Senior Management Job Title: Chief Technology Officer Since: 2007
Shaotang Chen Dr. Chen has been the Director, Research and Development, Advanced Automation Group, a subsidiary of Harbin Electric since 2007. From 2000 to 2007, he has been the Staff Research Engineer for Delphi Research Labs. From 2001 to 2003, Dr. Chen was Delphi Research Labs Chief Scientist for Delphi Energenix Center. From 1999 to 2000, he was Senior Research Engineer for Mechatronics Group of Delphi Research Labs. From 1995 to 1999, Dr. Chen was Senior Research Engineer in the Electrical and Electronics Department of General Motors NAO Research and Development Center. He graduated in 1995 from University of Wisconsin-Madison with a PhD in Electrical Engineering. Board: Senior Management Job Title: Director, Research and Development, Advanced Automation Group Since: 2007
Suofei Xu Mr. Xu is the Vice President, Shanghai Tech-Full, a subsidiary of the company. From 2003 until 2008, he was the Vice President at Harbin Tech Full Electric. From 2003 until 2008, Mr. Xu was the Vice President at Harbin Tech Full Industry. From 2001 to 2003, he was an Investment Manager for Shenzhen Capital Group. From 1997 to 2001, he worked at Guangfa Securities as a Project Manager. From 1991 to 1997, Mr. Xu worked as the Section Chief for system allocation reform of the Harbin Economic System Reform Committee. He graduated in 1988 from Fudan University with a BA in Law. Board: Senior Management Job Title: Vice President, Shanghai Tech-Full
Tianli Yang Mr. Yang has been the Vice President at Harbin Electric since 2005. Since 2003, he was the Vice President at Harbin Tech Full Electric. Since 2000, Mr.Yang has been the Vice President at Harbin Tech Full Industry. From 1985 to 2000, he was employed in the China State Construction Engineering Corporation in various positions, including Chief Administration Officer. Mr. Yang graduated from Helongjiang University in 1985 with a BA in Chinese Language and Literature. Board: Senior Management
Company Report, June 2011 Product Code: 732345C1-017F-413B-A6A3-C3DF193F55EB Page 10 www.datamonitor.com
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Job Title: Vice President Since: 2005 Age: 46
Zedong Xu Mr. Xu has been the Chief Financial Officer at Harbin Electric since 2005. From 2003 until present, he has been the Chief Financial Officer at Harbin Tech Full Electric. Since 2000, Mr. Xu has been the Chief Financial Officer at Harbin Tech Full Industry. From 1998 to 2000, he was employed as the Chief Financial Officer at Harbin WanDa Electrical Home Appliances. From 1996 to 1998, he was a Financial Manager at Harbin High Technology Torch Daya Real Estate. Mr. Xu graduated in 1992 from Harbin Electrical Engineering College with a BA in Project Management. Board: Senior Management Job Title: Chief Financial Officer Since: 2005 Age: 40
Boyd Plowman Mr. Plowman has been a Director at Harbin Electric since October 2009. He is the retired Executive Vice President and Chief Financial Officer at Fleetwood Enterprises, Inc. where he was employed from 1969 until 1987 and from 1997 until 2008. During his career with Fleetwood, Mr. Plowman held numerous leadership positions including Controller, Treasurer, and Financial Vice President. During his second stint with Fleetwood, he served as Executive Vice President and Chief Financial Officer until his retirement in 2008. He also served as President and Chief Executive Officer at Lee & Associates. Prior to that, Mr. Plowman served as a Director and Chairman of the Audit Committee at Corporate Insurance and Reinsurance Company Limited (CIRCL), a Bermuda-based company reinsuring risks for captive insurance companies. He holds a bachelor's degree from Utah State University and was a certified public accountant. Board: Non Executive Board Job Title: Director Since: 2009 Age: 66
Ching Chuen Chan Mr. Chan has been a Director at Harbin Electric since 2005. He is an Honorary Professor at Hong Kong University's Department of Electrical and Electronics Engineering. Mr. Chan is a Fellow of the Royal Academy of Engineering, UK, the Chinese Academy of Engineering, the Ukraine Academy of Engineering Sciences and a Fellow and Vice President of Hong Kong Academy of Engineering Sciences. He graduated from Tsing Hua University in 1959 with a Master of Science degree in Electrical Engineering and obtained his PhD in 1982 from University of Hong Kong.
Company Report, June 2011 Product Code: 732345C1-017F-413B-A6A3-C3DF193F55EB Page 11 www.datamonitor.com
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Board: Non Executive Board Job Title: Director Since: 2005 Age: 75
David Gatton Mr. Gatton has been a Director at Harbin Electric since 2005. Since 1985, he has served as the Chairman and President of Development Initiatives. Mr. Gatton advises cities, organizations, and companies on business development strategies, public/private partnerships and marketing initiatives. He holds a BA from Cornell College and a Master's degree from Harvard University. Board: Non Executive Board Job Title: Director Since: 2005 Age: 56
Patrick McManus Mr. McManus has been a Director at Harbin Electric since 2005. He brings over 25 years of experience in business, finance and law to Harbin Electric. While serving the City of Lynn as its Mayor, Mr. McManus was elected a Member and Trustee of the Executive Committee of the US Conference of Mayors. He started his career in business at the General Electric Company in 1979, and was a Professor of Business and Finance at Salem State College in Massachusetts. Mr. McManus has been a Certified Public Accountant since 1985. He holds a Juris Doctorate from Boston College Law School and an MBA from Suffolk University. Board: Non Executive Board Job Title: Director Since: 2005 Age: 55
Yunyue Ye Mr. Ye has been a Director at Harbin Electric since 2006. He is currently a Professor in Electrical Engineering at Zhejiang University, where he has taught for the past seven years. Mr. Ye also currently serves as Director at the Aerospace Electric and Electrical Motor Institute of Zhejiang University and Director of the Linear Motor Institute of the Chinese Electro-technical Society. He was also Council Member of the China Electro-technical Society. Mr. Ye graduated from Zhejiang University in 1978. Board: Non Executive Board Job Title: Director
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Since: 2006 Age: 58
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Harbin Electric, Inc.: Major Products and Services

Harbin Electric is a manufacturer of a range of electric motors. The company's key products include the following: Linear motors: Flat linear motors Cylindrical linear motors Specialty micro-motors for automobile applications Industrial rotary motors: High/low voltage motors AC (alternating current) motors DC (direct current) motors Speed control motors
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Table of Contents
Harbin Electric, Inc.: Company History

Harbin Electric was incorporated in 2003 as Harbin Tech Full Technology Development Co., Ltd. to engage in the business of providing travel and concierge services. In the same year, the company formed Harbin Tech Full Electric (HTFE) was founded. In 2004, the company established a subsidiary, Tech Full International (TFI). In the same year, HTFE exchanged all outstanding stock of HTFE for stock of Tech Full International and HTFE thereby became a subsidiary of TFI. TFI was merged with and into a subsidiary of Torch (Torch Subsidiary), and Torch was renamed Harbin Electric in 2005. Subsequently, the Torch Subsidiary changed its name to Advanced Electric Motors. In the same year, Tech Full International changed its name to Tech Full Holdings. Harbin Electric was listed on OTC Bulletin Board by reverse merger with Torch under the symbol 'HRBN', in 2005. In the same year, Tech Full Holdings changed its name to Advanced Electric Motors. In 2006, Harbin Electric formed Shanghai Tech Full Electric to develop and manufacture automobile specialty micro-motors and their components and accessories in China. The company began trading on the NASDAQ Global Market under the ticker symbol 'HRBN' in 2007. In 2007, Harbin Electric established a subsidiary Advanced Automation Group. In the same year, the company acquired Harbin Taifu Auto Electric, a manufacturer of automobile specialty micro-motors in China. In 2008, Harbin Electric, through its subsidiary Harbin Tech Full Electric, acquired Hengda Electric Motor and Wendeng Second Electric Motor Factory, an industrial rotary motor business in Harbin, China. The company changed the name of its subsidiary Weihai Hengda Electric Motor Co., Ltd. to Weihai Tech Full Simo Motor Co., Ltd, in June 2009. In October 2009, Harbin Electric acquired Xi'an Simo Motor Incorporation (Group) and changed its name to Xi'an Tech Full Simo Motor Co., Ltd.
332

Harbin Electric, Inc.: Business Description
Harbin Electric is a manufacturer of electric motors. It offers controller automation and other special motors. The company operates in China and the US. The company operates four manufacturing facilities in China located in Xi'an, Weihai, Harbin, and Shanghai. The company's product line includes: linear motors (LMs) and integrated application systems, specialty micromotors, and industrial rotary motors. The linear motors and integrated application systems include flat linear motors, cylindrical linear motors, logistic applications such as baggage sorting machines, oil pump system, railway liner motor system and other integrated system. The company provides its LMs to a range of customers including oil services, factory automation, food processing, packaging industries and mass transportation systems. The company manufactures specialty micro-motors for a range of automobile applications including car seats, windows, doors, and door locks, and gas pedals. The company supplies these products to domestic customers and also exports them to original equipment manufacturers (OEM) suppliers in North America. Harbin Electric provides industrial rotary motors through its subsidiary, Xi'an Simo Motor. It offers industrial rotary motors that provide solutions for electrical driving systems. Simo Motor develops and manufactures a range of industrial motors including some 28 series, over 450 categories and more than 8,000 models of high and low voltage, small, medium, and large-sized motors with output power. Its products are used in the machine tool, pump, blower, compressor, transportation, agriculture and food industry, steel rolling, power supply, building and construction materials industry, aviation and navigation, among others. The company sells its products primarily in China, North America, Europe and Asia as well as in Africa, Southeast Asia and the Middle East. The company's other subsidiaries include Advanced Electric Motors, Harbin Tech Full Electric, Advanced Automation Group and Shanghai Tech Full Electric.
333

Harbin Electric, Inc.: Financial Deals Overview
Figure 1: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) Table 3: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (TTM) Deal Type Acquisition Partnership Corporate Venturing Capital Raising Divestments Private Equity
SOURCE: DATAMONITOR
Deal Volume 1
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
334
Figure 2: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011)
Figure 3: Harbin Electric, Inc.: M&A Average Deal Size - Value (US$m)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 4: Harbin Electric, Inc.: Deal Activity by Deal Type - Volume (2007 - YTD*2011) Deal Type ACQ CR CV DIV Pship PE Total 2007 1 1 2 2008 1 2 3 2009 1 1 2 2010 1 1 2011 -
Table 5: Harbin Electric, Inc.: M&A Average Deal Size Value (US$m) Year 2007 Deal Volume 1 1 1 Average Deal Size (US$m) 11 54 DATAMONITOR
2008 2009 2010 2011 SOURCE: DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
*ACQ = Acquisition; CR = Capital Raising; CV = Corporate Venturing; DIV = Divestment; Pship = Partnership; PE =Private Equity & Ownership
335
Harbin Electric, Inc.: Targets and Partners

Table 6: Harbin Electric, Inc.: Targets and Partners Harbin Electric, Inc.Target/Partner (Country) Xi'an Tech Full Simo Motor Co., Ltd. (formerly Xian SIMO Motor, Inc.) (China) Weihai Hengda Electric Motor Co., Ltd. (China) Harbin Taifu Auto Electric Co., Ltd. (China) Shelton Technology LLC (United States)
SOURCE:DATAMONITOR
Deal Headline
Deal Type
Deal Date
Deal Value (US$m)
Acquisition
Oct 19, 2009
Harbin Electric acquires Weihai Hengda Electric Acquisition Motor Harbin Electric acquires Harbin Taifu Auto Electric Harbin forms joint venture with Shelton Technology LLC Acquisition
Jul 15, 2008
54
Jul 12, 2007 Apr 13, 2007
11
Partnership
DATAMONITOR
336
Harbin Electric, Inc.: Top Deals 2007 -YTD*2011

Table 7: Harbin Electric, Inc.: Top Deals 2007 -YTD*2011 Target/Partner (Country) Harbin Electric, Inc. (China) Xi'an Tech Full Simo Motor Co., Ltd. (formerly Xian SIMO Motor, Inc.) (China) Harbin Electric, Inc. (China) Weihai Hengda Electric Motor Co., Ltd. (China) Harbin Electric, Inc. (China) Harbin Electric, Inc. (China) Harbin Taifu Auto Electric Co., Ltd. (China) Shelton Technology LLC (United States) Deal Value (US$m)
Deal Headline Tianfu Yang and Baring Private Equity to acquire remaining 69.9% stake in Harbin Electric
Deal Date
Deal Status
Deal Type
11 Oct 2010
Announced
Private Equity
746
19 Oct 2009
Completed
Acquisition
Harbin Electric raises $100 million through public offering Harbin Electric acquires Weihai Hengda Electric Motor Harbin Electric completes $49.45 million private placement Harbin Electric completes $49.5 million private placment Harbin Electric acquires Harbin Taifu Auto Electric Harbin forms joint venture with Shelton Technology LLC
05 Aug 2009
Completed
IPO
100
15 Jul 2008
Completed
Acquisition
54
26 Jun 2008
Completed
Private Placement Private Placement
49
26 Jun 2008
Completed
50
12 Jul 2007
Completed
Acquisition
11
13 Apr 2007
Announced
Partnership
SOURCE:DATAMONITOR
DATAMONITOR
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Harbin Electric, Inc.: Advisors

Harbin Electric, Inc.: Top Legal Advisors
Table 8: Harbin Electric, Inc.: Legal Advisor Ranking by Value (US$m) Company Name Reed Smith LLP
SOURCE:DATAMONITOR
Deal Volume 1
Deal Value (US$m) 11

DATAMONITOR
Harbin Electric, Inc.: Top Financial Advisors
Table 9: Harbin Electric, Inc.: Financial Advisor Ranking by Value (US$m) Company Name Morgan Stanley ROTH Capital Partners, LLC Houlihan Lokey, Inc. Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
SOURCE:DATAMONITOR
Deal Volume 1 1 1 1
Deal Value (US$m) 746 100 54 DATAMONITOR
338
Harbin Electric, Inc.: Mergers and Acquisitions

Figure 4: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) Figure 5: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 10: Harbin Electric, Inc.: M&A Volume and Value Trend (2007 - YTD*2011) Year 2007 2008 2009 2010 2011
SOURCE: DATAMONITOR
Table 11: Harbin Electric, Inc.: M&A Activity by Geography (2007 - YTD*2011) Geography Asia-Pacific Europe Middle East and Africa North America South and Central America
SOURCE: DATAMONITOR
Deal Volume 1 1 1 -
Deal Volume 3 DATAMONITOR
339
Harbin Electric, Inc.: Capital Raising

Figure 6: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) Figure 7: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 12: Harbin Electric, Inc.: Capital Raising Volume and Value Trend (2007 - YTD*2011) Year 2007 2008 2009 2010 2011
SOURCE: DATAMONITOR
Table 13: Harbin Electric, Inc.: Capital Raising by Deal Type (2007 - YTD*2011) Deal Type Private Placement Public Offering
SOURCE: DATAMONITOR
Deal Volume 2 1 -
Deal Volume 2 1
DATAMONITOR
340
Harbin Electric, Inc.: Partnership

Figure 8: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) Figure 9: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 14: Harbin Electric, Inc.: Partnership Volume and Value Trend (2007 - YTD*2011) Deal Value (US$m) DATAMONITOR
Table 15: Harbin Electric, Inc.: Partnership Trend by Deal Type (2007 - YTD*2011) Deal Type Joint Venture
SOURCE: DATAMONITOR
Year 2007 2008 2009 2010 2011
Deal Volume 1 -
Deal Volume 1
DATAMONITOR
SOURCE: DATAMONITOR
341
Harbin Electric, Inc.: Private Equity and Ownership

Figure 10: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 YTD*2011) Figure 11: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011)
SOURCE: DATAMONITOR
DATAMONITOR
SOURCE: DATAMONITOR
DATAMONITOR
Table 16: Harbin Electric, Inc.: Private Equity and Ownership Volume and Value Trend (2007 - YTD*2011) Year 2007 2008 2009 2010 2011
SOURCE: DATAMONITOR
Table 17: Harbin Electric, Inc.: Private Equity and Ownership Volume by Deal Type (2007 - YTD*2011) Deal Type Private Equity
SOURCE: DATAMONITOR
Deal Volume 1 -
Deal Value (US$m) 746 DATAMONITOR
Deal Volume 1
DATAMONITOR
342

Harbin Electric, Inc.: News and Events Summary
Table 18: Harbin Electric, Inc.: News and Events Summary Date HeadLine Harbin Electric enters into term loan facility agreement with CDB Harbin Electric, Inc., a developer and manufacturer of electric motors in China, has entered into a term loan facility agreement with China Development Bank Corporation, or CDB, Hong Kong Branch, as lender pursuant to which CDB will provide a $35 million loan facility and an RMB100 million loan facility to the company. Corporate loans/ other capital raising Category
Nov 23, 2010
SOURCE: DATAMONITOR
DATAMONITOR
Harbin Electric, Inc.: Financial Deals

Table 19: Harbin Electric, Inc.: Financial Deals Publication Date Headline Harbin Electric enters into term loan facility agreement with CDB Harbin Electric, Inc., a developer and manufacturer of electric motors in China, has entered into a term loan facility agreement with China Development Bank Corporation, or CDB, Hong Kong Branch, as lender pursuant to which CDB will provide a $35 million loan facility and an RMB100 million loan facility to the company. Corporate loans/ other capital raising Category
Nov 23, 2010
SOURCE: DATAMONITOR
DATAMONITOR
*YTD The period beginning January 1st of the current year up until today's date.
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Appendix
Appendix
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Datamonitor company reports are prepared under an established and tested methodology which ensures proper checks and controls to capture and validate the quality and accuracy of data. The information is primarily sourced through: Company Annual Reports Company Analyst Relations Company websites SEC filings (10-K, 20-F, 10-Q etc) Media releases Investors presentations Datamonitor proprietary databases
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Appendix
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EQUITY RESEARCH
COMPANY UPDATE
China June 21, 2011
Closing Price (6/20/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth $13.35 $24 $5.82 - $25.05 $419.2 31.4 14.4 8.3 1,244 $19.60 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $470.7 $547.6 Current Current EPS P/E $0.77 17.3 $2.46 5.4 $2.14 6.2 $2.67 5.0 10% - 15% GAAP Quarterly EPS

Buy
Definitive agreement announced as expected; SEC approval up next; Reiterate Buy and $24 price target
Definitive merger agreement reached. Yesterday, HRBN announced that it has entered into a definitive, binding merger agreement with the acquisition vehicle owned by HRBNs chairman Tianfu Yang, with a termination date of March 8, 2012. HRBN and the acquisition vehicle have termination penalties of $22.5M and $30M, respectively. The $30M termination fee of the acquisition vehicle is guaranteed by Mr. Yang and his partner, Abax Global Capital (Abax). Filed with the merger agreement was an investment commitment letter from Abax to contribute $38.8M to purchase HRBNs common shares and a note purchase agreement for Abax to purchase $25M senior notes of HRBN. Abaxs equity and debt investments combined with the $400M debt financing from China Development Bank (CDB, please refer to our report published on June 10, 2011) formed a complete LBO syndication. In our view, the company and buying parties have made solid efforts along the LBO process. With the necessary documents submitted to the SEC, we believe the next step will be the SEC approving the acquisition. The shareholder voting should come after the SECs approval. With the current share price trading at a substantial discount to the offering price, we believe it should not be difficult for the company to gather a majority of votes among the minority holders (excluding 40.6% outstanding shares owned by buying parties) for the current LBO. That said, we wont be surprised if SEC takes a few months to reach a decision. We believe it is reasonable for the company to expect the deal to close in 4Q11. We still believe the wide gap between the current share price and the LBO offering price provides buying opportunities. Although HRBNs share price appreciated nearly $5/share (or $60%) during yesterdays trading, there is still a significant gap over a 40% discount to the $24/share offer price. Again, we believe this is mainly due to the over-generalized distrust among Chinese companies, as well as the fear that additional negative publicity regarding HRBN may cause the share price to drop. We maintain our thesis on a likely successful LBO and reiterate our Buy rating and $24 price target, which is based on the reaffirmed LBO offer price. Meanwhile, we warn investors about the high volatility of HRBNs shares the trading gap to our price target could further widen before narrowing.
Maxim Group Current Current FYE: December 2011E 2012E 1Q $0.34A $0.58 2Q $0.48 $0.66 3Q $0.63 $0.70 4Q $0.68 $0.74 FY $2.14 $2.67 Consensus-First Call Quarterly EPS FYE: December 2011E 2012E 1Q $0.34A $0.58 2Q $0.50 $0.66 3Q $0.62 $0.70 4Q $0.66 $0.74 $2.12 $2.78 FY Echo He, MD, PhD ehe@maximgrp.com (212) 895-3718

$ $ $ $ $ $ $ $ $
191 79 179 215 17 184 253 124 69
$ -$ $ $ $ $ $ $
1.12 1.30 1.40 0.49 0.96 0.95 1.01 1.06
$ -$ $ $ $ $ $ $
1.23 1.17 1.78 0.59 1.28 1.05 1.10 1.11
$ -$ $ $ $ $ $ $
1.48 -1.40 1.97 0.70 1.51 1.20 1.42 1.29
6.3x -3.7x 4.0x 0.6x 5.6x 7.4x 2.9x 3.3x 4.2x
5.8x -4.1x 3.2x 0.5x 4.2x 6.7x 2.7x 3.2x 3.8x
4.8x 3.4x 2.9x 0.4x 3.6x 5.8x 2.1x 2.8x 3.3x
$ $ $ $ $
1.06 0.52 3.48 0.26 0.20
$ $ $ $ $
714 1,538 1,185 290 152
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.11 0.04 0.23 0.03 0.02
$ $ $ $ $
0.12 0.04 0.27 0.04 0.02
9.4x 15.6x 17.7x 9.1x 10.5x 12.4x
9.9x 13.7x 15.0x 8.4x 9.4x 11.3x
9.1x 12.4x 12.9x 7.4x 8.3x 10.0x
$ 1,035 $ 245 $ 1,307 $ 346 $ 10,135 $ 6,007
$ $ $ $ $ $
0.06 0.04 0.08 0.05 0.03 0.20
$ $ $ $ $ $
0.08 0.05 0.12 0.05 0.04 0.24
$ $ $ $ -$
0.12 0.14 0.19 0.07 0.29
28.7x 59.4x 37.9x 70.0x 31.0x 18.3x 40.9x
20.4x 41.3x 25.3x 70.7x 25.1x -14.9x 25.4x
13.8x 16.4x 16.0x 45.9x 12.4x 20.9x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.49 $ 1.56 $ 3.27 $ 3.95 $ 8.01 $ 5.08 $ 4.58 $ 5.23 n/a $ 2.10 $ 2.50
$ 10.71 $ 1.91 $ 3.87 $ 4.61 $ 9.69 $ 5.56 $ 5.44 $ 5.97 n/a -$ 2.46 $ 2.89
21.5x 19.7x 19.6x 17.7x 18.1x 11.1x 26.2x 10.8x -14.1x 22.4x 18.1x
11.4x 15.8x 16.2x 13.8x 11.7x 9.5x 17.4x 9.2x -19.3x 17.4x 14.2x
12.2x 12.9x 13.7x 11.9x 9.7x 8.7x 14.7x 8.0x 16.5x 15.1x 12.3x
Maxim Group LLC
347

4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
19.8 20.1 19.3 17.0 76.3 19.3 18.1 19.3 20.4 77.2 86.8 60% 74% 18% -14% 27% -3% -10% 0% 20% 1% 12% 56% 19% 19% 18% 16% 18% 19% 16% 16% 16% 16% 16% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 14.7 15.3 16.1 61.7 67.9 166% 78% 81% -18% 51% -4% (3.0%) 0% 15% 2% 10% 28% 15% 14% 14% 13% 14% 15% 13% 12% 12% 13% 12% 22.5 23.6 23.5 23.7 93.2 21.8 25.9 27.0 30.8 105.5 125.7 107% 39% 14% 3% 31% -3% 10% 15% 30% 13% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 22% 23% 45.0 44.6 48.9 49.9 188.5 46.3 51.3 58.7 62.4 218.7 258.9 13% 6% 11% 12% 11% 3% 15% 20% 25% 16% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 46% 48% 47% 46% 47% 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 547.6 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 6% 12% 24% 10% 16% (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (391.9) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.49 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.48 $ NM -25% 221% (47.4%) (40.8%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
Maxim Group LLC
348
As of:
6/21/2011
with Rating 65.8% 26.3% 7.9%
Maxim Group LLC
349

RISK RATINGS
DISCLAIMERS Maxim Group LLC

5
350

Maxim Group LLC
351
INDUSTRY NOTE | CHINA EQUITY RESEARCH | June 21, 2011
China
This report provides an update on the activity within the U.S.-listed China sector related to privatization, PE investment, and dual-listing. It includes a table providing details for each company pursuing privatization. PRIVATIZATION UPDATE There are currently eight companies that have privatization activities ongoing, three completed transactions, and one transaction that was abandoned. The attached tables includes relevant details for each. Since our last edition on this topic (dated May 26, 2011), there have been several noteworthy events, including the signing of definitive agreements for two of the transactions (FTLK, HRBN). We have expanded our tables to include additional information which we believe is valuable for deal tracking and assessment.
s
Reason for Report:

Industry Update

CFSG CHC COGO FSIN FTLK HOLI HRBN YONG $7.91 $3.39 $5.05 $4.80 $6.72 $9.65 $13.35 $4.98 Neutral Buy Buy Buy Buy Buy Buy Neutral
May 31, 2011 - FTLK buyout reached definitive agreement, offer price increased to $7.20 from $7.10. The buying group has ~77.1% ownership. The deal is currently pending shareholder vote and expected to close by the end of Q3' 2011. FTLK filed its initial SC 13E3 on June 14, 2011. June 10, 2011 - CFSG filed its initial SC 13E3 with going-private transaction details. No material change in terms since last update. June 13, 2011 - PUDA announced that its Independent Committee has retained Cowen and Company, LLC and Morgan Joseph TriArtisan LLC as financial advisors. Shares have been halted since April 11, 2011. June 13, 2011 - CISG's board special committee has retained Duff & Phelps, LLC as its independent financial advisor, O'Melveny & Myers LLP as its United States legal counsel and Walkers as its Cayman Islands legal counsel. June 20, 2011 - HRBN announced the signing of a definitive agreement; offer price remains $24. The deal is now pending shareholder vote and expected to close in Q4'2011. According to related filings, the buyer group has a 40.6% stake in the Company, funding will be from (i) term loan $400M from CDB, (ii) $25M secured notes issued to Abax and (iii) $38.8M equity financing from Abax.
PRIVATE EQUITY INVESTMENT We believe there continues to be high interest from the PE community (particularly in Asia) for investing in certain U.S.-listed Chinese companies, via open market purchases and/or private placements. We believe PE investments, particularly from brand-name firms, can serve as positive catalysts, providing needed capital as well as validation for companies. On June 9th, YONG closed a $50M investment by Morgan Stanley Private Equity Asia (initially announced on May 31st). In connection with the transaction, Homer Sun, MD of MSPE Asia, will join YONG's BoD. DUAL-LISTING ON HONG KONG STOCK EXCHANGE For the companies that have announced intent to dual-list shares on the Hong Kong Stock Exchange (CHC, COGO, HOLI), we believe the process remains in the early stages for each. With the current wide valuation discrepancy for small-cap Chinese companies listed on U.S. exchanges versus those on the Hong Kong exchange, we believe dual-listing is a viable approach for certain companies to unlock value, particularly for those like CHC that have a large number of comparable companies listed in HK.
352
CHINA
Summary of On-going Deals CNinsure CISG TPG Asia, Chairman & CEO, CDH Inservice Chemspec International CPC Chairman & CEO, Primavera China Fire & Security CFSG Bain Capital (Management's 59.1% stake agreed to vote for the agreement) Mar-07-2011 59.1% $9.00 $6.26 44% --17.3x 16.4x $7.91 (12.1%) China Security & Surveillance Technology CSR Chairman & CEO Funtalk China FTLK Chairman & CEO (key mgt), ARCH, Capital Ally, GM Investment Mar-25-2011 77.1% $7.10 $6.15 15% May-31-2011 $7.20 8.4x 8.7x $6.72 (6.7%) Fushi Copperweld FSIN Chariman & CEO, Abax Global Capital
China Industry Note - June 21, 2011
(4)
Announcement Date Pre-deal Buyer/mgt Ownership % Bid Price per Share or ADS Price 1-Day Prior to Announcement Premium (1) Price Revision Date Revised Price P/E (TTM) (2) P/E (NTM) (2) Current Price (06/20/2011) Current Discount to Bid Price Status
May-16-2011 34.3% $19.00 $13.16 44% --15.0x 13.3x $13.97 (26.5%) Under board review
Nov-11-2010 55.0% $8.00 $6.32 28% Mar-21-2011 $8.10 9.0x 8.2x $7.00 (13.6%) Board approved, pending shareholder vote; Expected to close by the end of Q3'11 Standard Chartered US$ 70M Mar-21-2011 May-03-2011
Mar-08-2011 20.9% $6.50 $4.10 59% --6.8x 5.9x $4.65 (28.5%)
Nov-03-2010 29.2% $11.50 $9.10 26% --8.8x 8.2x $4.80 (58.3%)
Oct-11-2010 40.6% $24.00 $19.96 20% --8.8x 7.3x $13.35 (44.4%)
Apr-29-2011 31.6% $12.00 $6.00 100% --10.9x 10.1x $6.00 (50.0%)
Board approved, pending Board approved, pending shareholder vote; shareholder vote; Expected to close by Nov 15, 2011 BofA, Citi, HSBC US$ 80M May-20-2011 Jun-10-2011 China Development Bank US$ 500M Apr-20-2011 May-31-2011
Board approved, pending Under board review shareholder vote; Expected to close by the end of Q3' 2011 PAG Asia Capital (3) US$ 150M May-31-2011 Jun-14-2011 N/A Pending N/A
Board approved, pending Under board review; shareholder vote; Shares halted since Apr 11, Expected to close in Q4' 2011 2011 China Development Bank: US$ 400M Abax: US$25M (5) Jun-20-2011 N/A >50% total & >50% of disinterested shares N/A Morgan Stanley & Co. / Lazard Freres & Co. LLC
Debt/Convertible Financing Board Approval/Signing Definitive Agreement Initial Filing of SC 13E3
N/A Pending N/A
N/A Pending N/A
Voting Threshold
N/A
>50% total & >75% total & >2/3 of voting shares at EGM >50% of disinterested shares >50% of disinterested shares 75.8% Barclays Capital PE not involved Imperial Capital, LLC 77.7% Bank of America Merrill Lynch
N/A
N/A
Post-deal Private Equity Ownership Board Financial Advisor
N/A Duff & Phelps, LLC O'Melveny & Myers LLP and Walkers
N/A BofA Merrill Lynch
N/A Cowen and Company, LLC / Morgan Joseph TriArtisan LLC Not disclosed
Board Legal Advisor

(1)
Skadden, Arps, Slate, Meagher & Flom LLP / Maples Gibson, Dunn & Crutcher LLP Gibson, Dunn & Crutcher LLP and Calder
Premium of bid price above the closing price on previous trading day before announcement (2) Valuation multiples are calculated as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful (3) US$ 150M investment in convertible preferred shares (4) PUDA stock halted since April 11, 2011, lastest available close price is $6.00 (5) According to SC 13D filed June 20, 2011, the source of fund will from (i) term loan $400M from CDB, (ii) $25M secured notes issued to Abax, and (iii) $38.8M equity financing from Abax Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 2 of 4
353
CHINA
Summary of Completed or Abandoned Deals BMP Sunstone BJGP Sanofi-Aventis Buyers (as announced)
Announcement Date Pre-deal Buyer/mgt Ownership % Bid Price per Share or ADS Price 1-Day Prior to Announcement Premium (1) P/E (TTM) (3) P/E (NTM) (3) Status
Oct-28-2010 23.0% $10.00 $7.66 31% 125.0x 90.9x Completed on Feb 24, 2011
Qiao Xing Mobile (2) QXM Parent Company Qiao Xing Universal Resources, Inc. (Nasdaq: XING) Sep-09-2010 61.0% $3.92 $3.55 10% NM NA Abandoned due to lack of quorum in shareholder meeting on Apr 7, 2011 Not involved Jan-03-2011 Oct-22-2010 >50% of disinterested voting shareholders representing >75% of voting disinterested shares Not involved Not disclosed Not disclosed
Tongjitang Chinese Medicines Sinoenergy TCM SNEN Skywide Capital Management Hanmax (controlled by CEO) / CEO & Director (owned by management) Fosun Oct-12-2009 39.1% $1.90 $1.28 48% NM NA Completed on Sep 29, 2010 Apr-08-2010 83.0% $4.50 $3.78 19% NM 18.0x Completed on Apr 15, 2011 Mar-10-2008 39.2% $10.20 $6.60 55% NM 11.3x Withdrawn on Jun 27, 2008
Debt/Convertible Financing Board Approval/Signing Definitive Agreement Initial Filing of SC 13E3 Voting Threshold Post-deal Private Equity Ownership Board Financial Advisor Board Legal Advisor
(1) (2)
Not involved Oct-28-2010 N/A >50% of toal shares
Not involved Oct-12-2009 Nov-13-2009 >50% of total shares
N/A N/A N/A N/A
Premium of bid price above the closing price on previous trading day before announcement The offer price is 1.9 shares of XING common stock plus $0.8 in cash, we convert to dollar value using XING's closing price on Sept-8-2010 (3) Valuation multiples are calculated as of deal announcement date; data sourced from ROTH research if companies are covered, or Bloomberg if otherwise; NA indicates not available, NM indicates not meaningful Source: Company Filings, Bloomberg, ROTH Capital Partners
Page 3 of 4
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CHINA

Disclosures:
ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Fushi Copperweld, Inc. stock. Within the last twelve months, ROTH has received compensation for investment banking services from Funtalk China Holdings Limited. ROTH makes a market in shares of China Fire & Security Group, Inc., Cogo Group, Inc., Fushi Copperweld, Inc., Funtalk China Holdings Limited, Hollysys Automation Technologies, Harbin Electric, Inc. and Yongye International, Inc. and as such, buys and sells from customers on a principal basis. Within the last twelve months, ROTH has managed or co-managed a public offering for Funtalk China Holdings Limited. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 06/21/11 Count Percent 45 22.8 5 8.9 0 0 0 0
Count 197 56 2 0
Percent 76.7 21.8 0.8 0.0
Page 4 of 4
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Mark Tobin, (949) 720-5775 mtobin@roth.com Steve Chen, schen@roth.com Emma Jia Zhao, CFA, ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
CHINA FLASH NOTE | EQUITY RESEARCH | June 20, 2011

Company Update
Auditor: FRAZER FROST LLP EPS $ Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 3.1x 2011E Curr 0.41A 0.51E 0.61E 0.64E 2.17E 3.9x
| HRBN - $8.39 - NASDAQ | Buy CORRECTED - HRBN: Enters Into Definitive Merger Agreement
This morning, HRBN announced that it has entered into a definitive agreement to be acquired for $24 per share by a buying group consisting of its Chairman, Tianfu Yang, and Abax Global Capital. The board approved and adopted the agreement, which is now subject to shareholder vote. The transaction is expected to close in 4Q11.
$5.82 - $25.05 31.25 $262.1 1,148,322 $24.00 $122.8 $80.9 15%
2012E Curr 2.89E 2.9x
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 103.8A 115.3E 126.7E 131.1E 476.8E 2012E Curr 578.3E
Merger agreement. HRBN entered into a definitive merger agreement with a buying group consisting of its Chairman, Tianfu Yang, and Abax Global Capital. The key aspects of the transaction are below: s $24 per share in cash without interest s BoD approved and adopted the merger agreement s Closing subject to shareholder vote (majority in combined voting power of the outstanding shares not owned by the Purchasing Group) s Expected to close in 4Q11 s Secured debt financing from China Development Bank Corporation Hong Kong Branch; Abax has issued an equity commitment letter Next steps. The transaction is subject to customary closing conditions. The company will file a proxy statement (Form 14) and Schedule 13E-3 with the SEC; followed by a shareholder vote. Once completed, the merger will result in the company becoming privately-held and shares will no longer be listed on any public market. Shares set to open up strongly, but still at a substantial discount to offer price. Pre-market trading indicates that HRBN continues to trade at a substantial discount to the offer price. The current discount is the widest of any of the U.S.-listed Chinese companies that have reached the definitive agreement stage (CFSG, CPC, CSR, FTLK).
16.0 12.8 9.6 6.4 3.2 0.0
30 25 20 15 10 5
Aug-10
Sep-10
Nov-10
Dec-10
May-11
Feb-11
Mar-11
Jan-11
Oct-10
Jun-11
Apr-11
Jul-10
Price
356
June 20, 2011
VALUATION
RISKS
COMPANY DESCRIPTION
Page 2 of 4
357
June 20, 2011

Disclosures:
Within the last twelve months, ROTH has received compensation for investment banking services from Funtalk China Holdings Limited. ROTH makes a market in shares of Harbin Electric, Inc., China Fire & Security Group, Inc. and Funtalk China Holdings Limited and as such, buys and sells from customers on a principal basis. Within the last twelve months, ROTH has managed or co-managed a public offering for Funtalk China Holdings Limited. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral. On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.
Page 3 of 4
358
June 20, 2011
Count 197 56 2 0
Percent 77.0 21.9 0.8 0.0
Page 4 of 4
359
EQUITY RESEARCH
COMPANY UPDATE
China June 10, 2011
Closing Price (6/9/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth $15.48 $24 $13.34 - $25.05 $486.1 31.4 14.4 7.5 783 $19.60 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $470.7 $547.6 Current Current EPS P/E $0.77 20.1 $2.46 6.3 $2.14 7.2 $2.67 5.8 10% - 15% GAAP Quarterly EPS

Buy
$400M term loan available; HRBN has made significant progress on LBO; Reiterate Buy rating and $24 price target
The largest piece of LBO financing is now officially available. Yesterday, the buying parties of HRBNs ongoing LBO, including the Chairman Tianfu Yang and Abax Global Capital (Abax), filed a 13D to announce that they entered into a $400M term loan agreement with China Development Bank (CDB) to fund the buyout of HRBNs publicly held outstanding shares, which we believe totals around 19M shares. We have learned that the loan is collateralized by HRBNs entire asset or equity ownership. The agreed-upon interest rate is LIBOR + 3.5% in the first three years, and LIBOR + 4.5% thereafter. HRBN will start to repay the loan three years after it is issued, at 20% of total principal each year for five years, or after its successful relisting. We believe that $400M is sufficient to buy ~85% of the outstanding shares. The purchase of the remaining shares should be funded by Abax and other investors, with an aggregated amount of $67M in the form of both equity and debt financing. We believe this is an important step forward for the ongoing LBO. In our view, the following steps should include, at least: (1) a contract signing for the minor financing of $67M; (2) signing the LBO agreement with the board of HRBN; and (3) collecting votes from public shareholders. With the major financing secured, we believe HRBNs buyers have overcome the most difficult hurdle on the LBO track, but the rest of the journey may also take a longerthan-expected time due to the lack of LBO precedents in China, as well as extra cautions among board members under negative market headwinds. Wide gap to LBO offering price provides buying opportunities. We believe the markets lack of response to the significantly positive news is mainly due to the over-generalized distrust of Chinese companies, as well as the fear that the negative publicity regarding HRBN may prevent its appreciation. Per our knowledge, the buying parties are seriously motivated to carry the LBO process forward within a reasonable time frame. Therefore, we believe this wide gap of more than 30% between the current stock price and the LBOs offering price of $24/share creates a buying opportunity. We maintain our thesis on a likely successful LBO and reiterate our Buy rating.
Maxim Group Current Current FYE: December 2011E 2012E 1Q $0.34A $0.58 2Q $0.48 $0.66 3Q $0.63 $0.70 4Q $0.68 $0.74 FY $2.14 $2.67 Consensus-First Call Quarterly EPS FYE: December 2011E 2012E 1Q $0.34A $0.58 2Q $0.50 $0.66 3Q $0.62 $0.70 4Q $0.66 $0.74 $2.12 $2.78 FY Echo He, MD, PhD ehe@maximgrp.com (212) 895-3718

6/9 Company Harbin Electric TKR HRBN Price $ 15.48 LAST $ $ $ $ $ $ $ $ $ 7.15 2.16 5.60 6.25 3.55 5.42 7.20 3.79 4.24 MktCap (mm) $ 485 EPS P/E _________________________ _________________________ 10A 11E 12E 10A 11E 12E $ 2.46 $ 2.14 $ 2.67 6.3x 7.2x 5.8x
Chinese Industrial Companies China Automotive CAAS A-Power APWR FushiCopperweld FSIN Lihua International LIWA Shengdatech SDTH Wonder Auto WATG ChemSpec CPC China Gerui Adv. Material CHOP SORL Auto Parts SORL Average HK Listed China Motor Companies Harbin Power Equipment 1133-HK Shanghai Electric Group 2727-HK Dongfang Electric Group 1072-HK Chongqing Machinery & E2722-HK Shanghai Prime Machiner2345-HK Average
$ $ $ $ $ $ $ $ $
193 98 209 239 192 184 260 159 82
$ -$ $ $ $ $ $ $
1.12 1.30 1.40 0.49 0.96 0.95 1.01 1.06
$ -$ $ $ $ $ $ $
1.22 1.17 1.78 0.59 1.28 1.05 1.10 1.11
$ -$ $ $ $ $ $ $
1.48 -1.40 1.97 0.70 1.51 1.20 1.42 1.29
6.4x -4.3x 4.5x 7.2x 5.6x 7.6x 3.8x 4.0x 5.4x
5.9x -4.8x 3.5x 6.0x 4.2x 6.9x 3.4x 3.8x 4.8x
4.8x 4.0x 3.2x 5.1x 3.6x 6.0x 2.7x 3.3x 4.1x
$ $ $ $ $
1.01 0.50 3.48 0.28 0.19
$ $ $ $ $
682 1,492 1,182 312 147
$ $ $ $ $
0.11 0.03 0.20 0.03 0.02
$ $ $ $ $
0.11 0.04 0.23 0.03 0.02
$ $ $ $ $
0.12 0.04 0.27 0.04 0.02
8.9x 15.1x 17.7x 9.8x 10.1x 12.3x
9.4x 13.3x 15.0x 9.1x 9.1x 11.2x
8.6x 12.0x 12.9x 7.9x 8.1x 9.9x
$ 1,193 $ 248 $ 1,474 $ 359 $ 10,015 $ 6,201
$ $ $ -$ $
0.12 0.04 0.08 0.03 0.20
$ $ $ $ $ $
0.17 0.05 0.12 0.04 0.04 0.24
$ $ $ $ -$
0.25 0.14 0.19 0.06 -0.29
33.1x 60.2x 42.8x 30.6x 18.9x 37.1x
23.5x 41.8x 28.5x 79.1x 24.8x -15.4x 35.5x
15.8x 16.6x 18.1x 51.2x 12.7x 22.9x
US/International Motor Companies Siemens SI $ 132.73 $ 115,307 ABB ABB $ 26.02 $ 59,586 Emerson Electric EMR $ 51.69 $ 38,931 Illinois Tool Works ITW $ 55.34 $ 27,807 Cummins CMI $ 96.58 $ 19,084 $ 46.06 $ 5,194 Magna International MGA Rockwell Automation ROK $ 79.66 $ 11,360 Lear Corporation LEA $ 49.07 $ 2,291 Regal Beloit RBC $ 66.40 $ 2,556 Smith AO AOS $ 39.71 $ 1,212 Franklin Electric FELE $ 42.54 $ 989 Average Source: Thomson One, Bloomberg and Maxim Group estimates.
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.36 $ 1.56 $ 3.27 $ 3.94 $ 8.01 $ 5.07 $ 4.60 $ 5.18 n/a $ 2.10 $ 2.50
$ 10.58 $ 1.91 $ 3.87 $ 4.60 $ 9.69 $ 5.56 $ 5.49 $ 5.94 n/a -$ 2.44 $ 2.89
21.8x 20.8x 19.2x 18.0x 18.7x 10.6x 26.1x 11.1x -13.8x 21.9x 18.2x
11.7x 16.7x 15.8x 14.1x 12.1x 9.1x 17.3x 9.5x -19.0x 17.0x 14.2x
12.5x 13.6x 13.4x 12.0x 10.0x 8.3x 14.5x 8.3x 16.3x 14.7x 12.4x
Maxim Group LLC
361

4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
19.8 20.1 19.3 17.0 76.3 19.3 18.1 19.3 20.4 77.2 86.8 60% 74% 18% -14% 27% -3% -10% 0% 20% 1% 12% 56% 19% 19% 18% 16% 18% 19% 16% 16% 16% 16% 16% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 14.7 15.3 16.1 61.7 67.9 166% 78% 81% -18% 51% -4% (3.0%) 0% 15% 2% 10% 28% 15% 14% 14% 13% 14% 15% 13% 12% 12% 13% 12% 22.5 23.6 23.5 23.7 93.2 21.8 25.9 27.0 30.8 105.5 125.7 107% 39% 14% 3% 31% -3% 10% 15% 30% 13% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 22% 23% 45.0 44.6 48.9 49.9 188.5 46.3 51.3 58.7 62.4 218.7 258.9 13% 6% 11% 12% 11% 3% 15% 20% 25% 16% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 46% 48% 47% 46% 47% 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 547.6 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 6% 12% 24% 10% 16% (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (391.9) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.49 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.48 $ NM -25% 221% (47.4%) (40.8%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
Maxim Group LLC
362
As of:
6/10/2011
with Rating 67.1% 25.0% 7.9%
Maxim Group LLC
363

RISK RATINGS
DISCLAIMERS Maxim Group LLC

5
364

Maxim Group LLC
365
EQUITY RESEARCH
COMPANY UPDATE
China May 27, 2011
Closing Price (5/26/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com $16.21 $24 $14.95 - $25.05 $507.4 31.3 14.4 7.5 563 $19.60 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $470.7 $547.6 Current Current EPS P/E $0.77 21.1 $2.46 6.6 $2.14 7.6 $2.67 6.1 15% GAAP Quarterly EPS Current 2011E $0.34A $0.48 $0.63 $0.68 Current 2012E $0.58 $0.66 $0.70 $0.74

Buy
Its not about trust, but common sense; Reiterate Buy

Over the past month, HRBNs price has been extremely volatile. We believe this is mainly due to the wide-spread investors disbelief on a traditional LBO in an emerging market of China. HRBN is one of the first, if not the first, cases of management-initiated LBO among Chinese companies listed in the U.S. All parties involved in the transaction lack experience in the current situation, which is compounded with a market headwind against Chinese companies. This created a wide gap of over 30% between the current stock price and the LBOs offering price of $24/share. We maintain our thesis on a successful LBO and reiterate Buy. Why is this deal taking so long? First, we believe the announcement of the LBO could have been too early. When Chairman, Mr. Yang, and his former buyout partner, Baring Private Equity Asia (Baring), submitted the buyout proposal in October 2011, the buyout syndication might not have formed yet, because it wasnt until the end of April 2011 that the buying parties reported that China Development Bank committed $400 term loan. Second, the misunderstanding of the value of Chinese assets may have made foreign funds/investors biased on their decisions. This could be one reason that Baring is no long in the buyout group; instead, Abax Global Capital, a Chinese institution, is potentially taking a role of minority equity holder. We believe the change of equity investor played a negative role to the LBO process. Why HRBN is more likely to succeed with an LBO? We believe the key is its ability to secure debt financing. To our knowledge, the more cumbersome steps of a Chinese LBO process include auditing/due diligence, open bidding and, most important, securing debt financing with reasonably low interest rates (especially under tightening monetary policies). We believe equity investment is not a hurdle because the current Chinese capital market is filled with private equity funds; but selling out a significant portion of equity is not in the interests of the companys No.1 shareholder, the Chairman/founder. Up to date, there are around 10 U.S. listed Chinese companies with announced LBO proposals, most likely before they could form a definite syndication. This suggests it will be likely a long process for the majority of these companies, if they are eventually able to complete the LBO. In our view, HRBN is much advanced in the process, having overcome majority of the hurdles. In our opinion, we shouldnt generalize distrust to all Chinese companies, just as we shouldnt generalize high growth to all of them. Chinese stocks are alike U.S. counterparts in general, there are good ones and bad ones; there are ones with higher returns and others with lower returns. Under one macro condition, they should be treated as individual stocks, instead of a short/long block.

Chinese Industrial Companies China Automotive CAAS A-Power APWR FushiCopperweld FSIN Lihua International LIWA Shengdatech SDTH Wonder Auto WATG ChemSpec CPC China Gerui Adv. Materia CHOP SORL Auto Parts SORL Average
$ $ $ $ $ $ $ $ $
211 126 263 291 192 184 261 188 102
$ -$ $ $ $ $ $ $
1.12 1.30 1.40 0.49 0.97 0.95 1.01 1.06
$ $ $ $ $ $ $ $ $
1.23 0.61 1.17 1.78 0.59 1.28 1.04 1.11 1.11
$ -$ $ $ $ $ $ $
1.49 -1.40 1.97 0.70 1.52 1.20 1.38 1.29
7.0x 5.4x 5.4x 7.2x 5.6x 7.6x 4.4x 5.0x 6.0x
6.3x 4.5x -6.0x 4.3x 6.0x 4.2x 6.9x 4.0x 4.8x 5.2x
5.2x 5.1x 3.9x 5.1x 3.6x 6.0x 3.3x 4.1x 4.5x
HK Listed China Motor Companies Harbin Power Equipment 1133-HK $ Shanghai Electric Group 2727-HK $ Dongfang Electric Group 1072-HK $ Chongqing Machinery & E2722-HK $ Shanghai Prime Machine 2345-HK $ Average
1.21 0.53 3.86 0.31 0.19
$ $ $ $ $
815 1,569 1,312 341 146
$ $ $ $ $
0.11 0.03 0.19 0.03 0.02
$ $ $ $ $
0.10 0.04 0.22 0.03 0.02
$ $ $ $ $
0.11 0.04 0.26 0.03 0.02
11.1x 16.5x 20.3x 11.1x 10.4x 13.9x
11.7x 14.6x 17.2x 10.3x 9.4x 12.6x
10.6x 13.1x 14.8x 9.0x 8.3x 11.2x
China Mainland Listed China Motor Companies Xiangtan Electric 600416-S $ 3.84 $ Zhejiang Founder Motor 002196-S $ 2.26 $ BroadOcean 002249-S $ 3.38 $ Shanghai Electric Group 601727-S $ 1.06 $ Dongfang Electric Group 600875-S $ 3.73 $ Average
1,168 245 1,448 10,398 6,203
$ $ $ $ $
0.11 0.04 0.08 0.03 0.19
$ $ $ $ $
0.16 0.05 0.12 0.04 0.23
$ $ $ -$
0.24 0.13 0.18 0.28
33.7x 61.8x 43.6x 33.0x 19.6x 38.3x
23.9x 42.9x 29.1x 26.7x -16.3x 27.8x
16.1x 17.1x 18.4x 13.3x 16.2x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.40 $ 1.55 $ 3.27 $ 3.94 $ 7.97 $ 5.06 $ 4.53 $ 5.18 n/a $ 2.10 $ 2.50
$ 10.61 $ 1.90 $ 3.87 $ 4.59 $ 9.55 $ 5.58 $ 5.36 $ 5.95 n/a -$ 2.44 $ 2.89
21.0x 20.9x 20.1x 18.5x 20.5x 11.1x 27.3x 11.2x -14.0x 22.2x 18.7x
11.2x 16.8x 16.5x 14.5x 13.3x 9.5x 18.3x 9.6x -19.2x 17.2x 14.6x
12.1x 13.7x 14.0x 12.4x 11.1x 8.6x 15.5x 8.3x 16.5x 14.9x 12.7x
Maxim Group LLC
367

4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
19.8 20.1 19.3 17.0 76.3 19.3 18.1 19.3 20.4 77.2 86.8 60% 74% 18% -14% 27% -3% -10% 0% 20% 1% 12% 56% 19% 19% 18% 16% 18% 19% 16% 16% 16% 16% 16% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 14.7 15.3 16.1 61.7 67.9 166% 78% 81% -18% 51% -4% (3.0%) 0% 15% 2% 10% 28% 15% 14% 14% 13% 14% 15% 13% 12% 12% 13% 12% 22.5 23.6 23.5 23.7 93.2 21.8 25.9 27.0 30.8 105.5 125.7 107% 39% 14% 3% 31% -3% 10% 15% 30% 13% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 22% 23% 45.0 44.6 48.9 49.9 188.5 46.3 51.3 58.7 62.4 218.7 258.9 13% 6% 11% 12% 11% 3% 15% 20% 25% 16% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 46% 48% 47% 46% 47% 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 547.6 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 6% 12% 24% 10% 16% (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (391.9) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.49 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.48 $ NM -25% 221% (47.4%) (40.8%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
Maxim Group LLC
368
As of:
5/27/2011
with Rating 65.8% 30.3% 3.9%
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: One or more of the following valuation methods are used by Maxim Group analysts in making a ratings or price projection: Analysis of companies P/E ratio, price/book ratio, earnings expectations
Maxim Group LLC
369

or sales growth as they relate within an industry group or to the broader market, enterprise value/sales, Individual sector analysis, sum of the parts analysis and discounted cash flow. Price Target Risks: Investment risks associated with the achievement of the price target include, but are not limited to, the companys failure to achieve our earnings and revenue estimates, unforeseen macroeconomic and/or industry events that adversely impact demand for the companys products and services, product obsolescence, the companys ability to recruit and retain competent personnel, changes in investor sentiment regarding the specific company or industry, changing competitive pressures and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-K that the company has filed with the SEC. Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
RISK RATINGS
Maxim Group LLC
370
DISCLAIMERS
Maxim Group LLC
371
FINAL TRANSCRIPT
HRBN - Q1 2011 Harbin Electric Inc Earnings Conference Call
Event Date/Time: May. 11. 2011 / 1:00PM GMT
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us

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May. 11. 2011 / 1:00PM, HRBN - Q1 2011 Harbin Electric Inc Earnings Conference Call
CORPORATE PARTICIPANTS
Christy Shue Harbin Electric Inc. - EVP, Finance and Investor Relations Tianfu Yang Harbin Electric Inc. - Chairman & CEO Zedong Xu Harbin Electric Inc. - CFO
CONFERENCE CALL PARTICIPANTS

Echo He Maxim Group - Analyst Mark Tobin Roth Capital - Analyst Chad Cooper Roth Capital - Analyst
PRESENTATION
Operator Good morning and welcome to the Harbin Electric to report first-quarter 2011 earnings conference call. All participants will be in listen-only mode. (Operator Instructions). I would now like to turn the conference over to Christy Shue, Executive Vice President, Finance and Investor Relations. Please go ahead.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Thank you, Andrew. Good morning. Welcome to Harbin Electric's first-quarter 2011 earnings conference call. I'm joined by our Chairman and Chief Executive Officer, Mr. Tianfu Yang and Chief Financial Officer, Mr. Zedong Xu, on the call. Before we begin, I would like to remind you that our discussion this morning may include forward-looking statements. These forward-looking statements reflect the Company's current expectations on future events and are subject to a number of factors and uncertainties that could cause the actual results to differ materially. A detailed discussion of these factors and uncertainties is contained in the Company's filings with the SEC. We filed our quarterly report for the three months ended March 31, 2011 on SEC Form 10-Q yesterday after market closed and we issued a press release this morning to highlight our first-quarter financial result in comparison with the same quarter last year. When you compare our results sequentially with the fourth quarter last year the changes are minor on major line items and the results this quarter were roughly comparable to the last quarter. When you compare this quarter's results with the same quarter last year there were significant changes on certain line items. Therefore, we would like to focus the discussions on the year-over-year comparison and explain to you the factors that contributed to those changes.

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In terms of the revenue for the first quarter of 2011 total revenues were 104 -- approximately $104m, down slightly, compared to $105m in the first quarter of last year. Marginally lower sales of linear motors and specialty micro-motors were partially compensated by slightly higher sales in industrial rotary motors. The breakdown of total revenues by product line was relatively stable year over year, with linear motors and related systems contributing approximately 19% of total revenues. Specialty micro-motors contributed 15% and the rotary motors accounting for about 66% of the total revenues. In the linear motor product line our sales were down minimal [or] marginally $0.6m year over year. Mainly lower sales volume [in oil pumps] and in the propulsion systems for coal transportation trains were lower but which were largely offset by higher volumes in other linear motors. We sold 75 units of linear motor-driven oil pumps in the first-quarter 2011 compared with 105 units in the first quarter of last year and this resulted in about $1.4m decrease in sales. And, similarly, in the linear motor propulsions systems for coal transportation trains the revenues also declined by about $1.4m. However, sales of other linear motors remained robust and the new models generated significant revenues in the first quarter this year. In the specialty micro-motor product line sales declined by about $0.7m. A decrease in sales volume of existing products was partially compensated by sales of new products. Rotary motor sales at Xi'an Tech Full Simo were up $1.3m, driven by volumes, while rotary motors sales at Weihai were down $0.7m due to lower volumes. Sales of other products dropped by about $1m. So next in terms of the gross profit margin. Our gross profit margin is roughly in line with the last quarter sequentially but down some 33.9% in the first quarter. We have a gross margin of 29.1% this quarter. The decline in overall gross margin was primarily due to margin decline in linear motors and specialty micro-motors In addition, higher raw material costs and the labor costs contributed to higher cost of goods sold across all product lines. And this is for the reference, what we've seen, for example, the copper price increased by nearly 20% in our raw material purchasing year over year. Aluminum and the silicon steel prices were also up on a significant level, but lower -- but slightly lower than the copper. Meanwhile, our total labor cost from production and manufacturing also increased. Although the Company anticipates passing on a portion of the higher costs through increased selling prices, but sometimes it takes some time to raise the price of a product and usually you have a lag there. So we expect that higher raw material prices will continue to pressure our gross margin near term. By product line let me pull out each -- some specific factors by product lines. In the linear motors gross margin declined to 45.6%, from 59.8% last year. The margin compression was mainly attributable to two factors besides higher raw material and labor costs. The first factor mainly is the change in product mix. Our sales volume of higher-margin products, for example, oil pumps and propulsion systems for coal transportation trains, those two products are our highest-margin products and their volume declined in the first quarter this year compared to last year. At Harbin we've sold more of other linear motors and -- but those other linear motors, relatively speaking, have lower margins than the oil pumps and our linear motor for propulsion systems. And then the second factor that contributed to lower margin in the linear motors is because we have lower average selling price. And in order to expand our customer base and gain our market share, for some of the other linear motor products we lowered the selling prices. Although for a minor portion of the product we also raised the prices, but that was not enough to compensate the -- for the products that we lowered the prices. In the specialty micro-motors product line gross margin declined to 32% in the first quarter, from 38% in the first quarter of last year. The lower gross margin was mainly due to the following two major factors in addition to higher raw material and the labor costs. The first major factor contributing to lower margin in the specialty motor is we added several new products in the first quarter. And not in this quarter, but compared to the first quarter last year, the first quarter last year did not have those products.
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So these few new products we added and generally when you launch new products you do experience higher manufacturing costs at the start up stage because of the higher costs associated with the training of our workforce and we have to do more test runs. And also usually the [new] products and the customer usually start with the lower or smaller order volumes so to give you -- to give us more time to do test runs and make quality consistently all that. So all those factors result in reduced production efficiency and result to higher costs per unit. But we expect when the volume ramps up and we do gain economies of scale and then our production efficiency would improve and then we would lower -- the cost of sales percentage would be lowered once the economies of scale is going up. The second factor is also related to the changes in product mix in micro-motors, because we do -- we have launched new products. So the sales volume of the existing products that we have been selling which also have a higher margin declined, while the new products we are selling and we're producing because of the higher costs they also have lower margins. So both products increased, so you do have this product mix shift and some rotation, that affected the margin overall in this product line. In both linear motors and specialty micro-motor product lines we continue launching new and customized products. Some of them may have lower margins but help us continue to capture new opportunities in the market and is essential for our growth in top line and bottom line. In the rotary motors product line, which actually contributes to the largest portion of our revenue, gross margin was 23.5% in the first quarter of this year, relative stable compared with the 25% in the year-ago period. In this line we do also see higher raw material costs and labor costs. However, we have been working on improve the manufacturing efficiency at our rotary motor facilities after we acquired them. And we have seen the improved manufacturing efficiency helped with stabilizing the margin despite high escalating raw material and labor costs there. In terms of operating expenses line item you probably -- (inaudible) that you have paid attention. I believe that there were several items that are higher -- significantly higher than last year. First of all, our research and development expenses, the R&D expenses, in this quarter is the highest in our historical period and we incurred a total about $3.9m R&D expense in the first quarter compared to only $0.6m in the three months in the same quarter last year. While we have -- the Company has been telling our investors that technology and R&D are the Company's long-term strategic focus we have been making every effort to enhance our R&D projects, exploring opportunities in new products in new technology and we invest -- we will continue invest in product and technology development in order to capture additional market share and position the Company well for further growth. The $3.9m R&D expense in this quarter was primarily associated with a new development project to develop an automated control system for linear servo motors. We actually started this project development last year around -- in March last year. We actually have been talking about this project each quarter. We told investors that these linear servo motors are -- will be used for heavy equipment machinery and is supported by government and we jointly developing this project with research institutions and each research institution will focus on certain technology. One part of the project is the automated control system for the linear servo motors. This development project was initiated in March in collaboration with another research institute and we have seen that the project has been successful and attracted extensive interest from potential customers. And in the first quarter we incurred about $3.1m just on this project. And then we expected to launch this -- the production of this newly-developed linear servo motor during this year. And about -- so you have questions about this product and everything and the technology, all that, we can get into that later. I won't go into much detail about this. However, in subsequent quarters this year we expect our R&D expenses to be lower and expect that the total R&D expenses in the entire year will remain below 3% of total revenues. So that means we are front-end loaded with the R&D expense because of this project [last year] that hit the milestones and that is near completion.
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In other selling, general and administrative expenses we reported $10m compared to $7.4m in the first quarter of last year, which is 9.7% of total revenue this quarter compared to 7% of the total revenues same quarter last year. The year-over-year increase in SG&A primarily reflected three contributors. The first one is Xi'an Tech Full Simo recorded $1.7m incremental provision for bad debts in the first quarter of 2011. Versus in the first quarter of 2010 the reserve was minimal. This is purely reflecting the accounts receivable aging analysis. And the second factor that contributes to higher SG&A is the expenses related to the Going Private proposal that's submitted by the Company's Chairman and Chief Executive Officer, Mr. Tianfu Yang. The expense in this quarter totaled $0.9m so this proposal and the Company's evaluation of this proposal is continuing. And this expense included the legal fees associated with the class-action law suits, also fees associated with the legal and financial advisors for the Special Committee of the Board and also included those fees associated with the Company's legal counsels and also the other related expenses. However, the Company expected to recover some of the legal expenses related to the class-action law suits because we do have an insurance policy that covers some of the expenses. The third factor that contributed to higher SG&A is the shipping and the handling costs increased significantly this quarter compared to the same quarter last year. So the shipping and handling amounted to $1.5m compared to $0.8m the same quarter last year. The higher shipping and handling costs mainly reflect the higher fuel costs -- energy costs that you see all over the world anyway. And also another contributor is that further we have been expanding our customer base trying to get more customers, sell our products all over the country. So we did get more customers but they are located farther away from our manufacturing sites. So we have to ship -- make the shipments more distance -- so it's longer distances. So that also contributed to higher shipping and handling costs. Therefore, with all those factors our operating profit dropped to $16m from $27m -- $27.7m in the first quarter of last year and the operating margin also declined to 15.7% from 26.3%. Okay, with those factors that we discussed our net income also decreased to $10.8m, or $0.34 per diluted share, and from last year -- from the same quarter last year, which was $20.6m, or $0.66 per diluted share. And the net income -- the lower net income also contributes to several major factors. Some of them we have discussed -- just discussed, for example, the lower gross margin, higher R&D expenses, higher SG&A expenses. And also there were some expenses that are also higher than the last year. For example, the fair value change in our warrant and also our interest expense are higher due to we took [$50m] on debt from China Development Bank last year. Another factor that affected the net income is the income tax provision. The income tax provision, given that the lower net income, we would expect that we would have lower tax. But, however, keep in mind that our China subsidiary they pay tax on the income that they earn. So a lot of the expenses incurred, for example, the R&D expenses or some other expenses incurred on the US side are not deductible on the China side. So we would have to make the income tax provision based on the net income that the local subsidiaries earn. And based on the Chinese tax law, some of the deductibles that can be deductible in the US but cannot be deductible in China. And our corporate income tax -- some of our preferential discounted tax rates expired also in China. The major one is our Harbin Tech Full which in last year, or in the past we have been enjoying very low preferential tax rates. In 2010 it was 10%, but that was -- but that preferential tax treatment expired at the end of 2010. And although Harbin Tech Full, our PRC subsidiary, is in the process of applying for a new preferential income tax rate from the Chinese government, which we're applying at the next level, which is 15%, but we have not obtained the government's approval yet. Usually, it takes about several months. It takes two or even more months to get a government approval; that's the typical length of time in China. Then the government usually approve you towards the end of the year. So before we obtain the government
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approval the management decided to use the standard rate of 25% to make the income tax provision. So that is the major income tax rate change. And we expect -- the management believes that it's highly likely that Harbin Tech Full will get approval for this 15% income tax rate. And the other PRC subsidiaries' tax rate remained pretty much the same, other than at our Shanghai subsidiary the income tax rate just gone up 1%, from 11% last year to 12% this year. So income tax also hit our net income this year. However, if we get approval of the 15% income tax rate later this year then we would lower the income tax provision. Okay, there are couple of balance sheet items I would like just to give for discussion. And as of March 31 we had cash and cash equivalent of about $123m. We had a cash increase from $99m at the end of 2010 mainly attributable to our operating earnings and we still made very good operating earnings. And also we had [proceeds on the note] provided by PRC banks. Capital. And also in the first quarter we have not used the -- we have not spent a lot of capital items there. The capital expenditure in the first quarter is minimal; it's about $20m. And you know that generally capital spending in the first quarter is seasonally lower in China as major capital spending usually starts in the second quarter after the Chinese New Year. So we expect the capital spending to increase in subsequent quarters of this year while we continue to invest in upgrading our manufacturing capabilities, improving production efficiency and expanding the capacity, continuing to complete the project that we started to expand the capacity and some new projects that we start. In summary, overall we had a flat quarter on the top line year over year, primarily considered as a temporary near-term business fluctuation. Long term, management are confident with our business prospects and we expect to continue grow top and bottom line longer term. Our capacity expansion is underway at our [rotary motor] facilities in Xi'an and Weihai and our new products continue to come out of pipeline through both our specialty micro-motor facility in Shanghai and our linear motor facility in Harbin. And we'll mention a few new products that are in the pipeline that we expect to launch this year. For example, the linear servo motors and also the second-generation oil pumps. And also we have actually developed a motor -- the linear motor that replace the motor in the traditional oil pump, so that would open up new market demand, new market for us. Lastly, I would like just to make a few comments on the Going Private proposal. The Company's Board of Directors received from the Company's Chairman and CEO, Mr. Yang, that regarding this Going Private proposal. There is a recent event section in the press release that provides the current status of this event and also much more details is also provided in the 10-Q that we filed. The most recent public information about this proposal is the amended 13D filed jointly by Mr. Yang and ABAX. When Mr. Yang and ABAX jointly submitted the proposal to the Special Committee recently, on April 20 I believe, to the Special Committee of the Board of Directors that they intend to acquire all of the shares of the Company's common stock not already -- if not already held by Mr. Yang and ABAX or any of their respective affiliates at $24 per share. According to the amended 13D filed jointly by Mr. Yang and ABAX Mr. Yang stated that Tech Full Electric Co. Ltd. which is an acquisition vehicle formed and Mr. Yang, in connection with this Going Private proposal, has received a debt commitment of [$400m] issued by China Development Bank. And also according to the amendment 13D filed ABAX also committed equity and debt financing up to $63.8m. So that's the most recent public information that we have available. The Special Committee of the Board is continuing its process of evaluating this proposal by Mr. Yang and ABAX or any other proposals that the Company may receive. Please note that the Company does not have any other information beyond what's disclosed in this press release or in our 10-Q, or previously. We know that investors may have questions regarding this event. However, we do want to remind you that we are not in the position and will not be able to discuss this event with you beyond what's already disclosed. Okay, this completes our prepared remarks. And now we can move to the floor for questions. Operator, let's start the question session.
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QUESTIONS AND ANSWERS

Operator We will now begin the question and answer session. (Operator Instructions). The first question comes from Echo He from Maxim Group. Please go ahead.
Echo He - Maxim Group - Analyst Hi, Christy, Tianfu. Thank you for taking --
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Hi, Echo.
Echo He - Maxim Group - Analyst -- my questions. Okay. The first one -- several of them, okay? First one is about the -- you said the volume of oil pump and coal transportation cars, the order volume declined in the quarter. Is this because of seasonality where you see some weakening of the market demand due to some kind of tightening in the economy? Is that -- can that be generalized? (Spoken in foreign language).
Tianfu Yang - Harbin Electric Inc. - Chairman & CEO (Spoken in foreign language).
Echo He - Maxim Group - Analyst Okay.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Let me translate the reply. The question is the volume decline in our oil pumps and the propulsion systems for coal transportation train, whether they're driven by the seasonality or driven by the tightening policy in China. Okay, yes, for the -- first of all, let's talk about our coal transportation train project. The first project that we took on started December -- the fourth-quarter 2009. That project we have been supplying our equipment to that coal transportation line for over a year and that project itself, the construction and everything and the launching everything, is completing and towards the end of the completion. So we expect that actually by the second quarter, third quarter that that project should be wrapped up and we should be completing and moving on. So that usually towards the end of a project you see the volume declining because we are wrapping up the project. So for that project we will close -- we will finish by second quarter, third quarter. Currently, we are discussing, negotiating and exploring

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two other projects within the space for coal transportation and we're still in the process of discussing. When we can sign the contracts we do not have that timeframe yet, but once we do have this news we will update investors. In terms of the oil pump and the declining volume, it is more seasonality. And usually in the first quarter we do encounter the Chinese Spring Festival that has a long -- longer days of vacation. And also [in the spring and winter] time there is not much of activity going on in this period because in the north part of China, in Harbin, it's very cold and you can't really work outdoors too much in the oil fields, so there is no installation much going on. And towards the spring you start -- starting in the second quarter toward the spring the activity started to ramp up. In terms of the overall total volume of the oil pump we do not expect a change from last year. Right now we expect pretty stable. For this one customer it should -- we should maintain stable volume shipment to them. However, we are also starting to selling this oil pump to other oil field in China. In the beginning it might be small volume but it's opened another door for us. The other field is Jiangsu oil field and we will start to install new oil pumps for them by second quarter (inaudible) second quarter right now. So overall the oil pump volumes should be higher than last year, given that our existing customer and then the new customer that we sign now. So that's the current situation of those two projects.
Echo He - Maxim Group - Analyst Okay, thank you. My second question is about the cost side. The raw material cost increase actually affected your margins a lot in each product line, actually. And I want to know in each product line, linear motor, micro-motor and rotary motor, how much the cost increase -- raw material cost increase you can pass through to your customers. (Spoken in foreign language).
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Okay, let me translate this -- it's long. I will just give some highlights -- translation of the highlights, okay? The question is the higher raw material costs in our product line, how much we can pass on to the customers by raising price. And the reply is, yes, the raw material price -- escalating raw material price does hurt our margin, which currently is -- perhaps we believe it to be a big factor there for all our products. And usually when we do the production we actually receive the orders and we arrange the production one-quarter or two-quarters ahead of time. And -- so that's how we -- the raw material that we have to really arrange before time -- ahead of time. At our Shanghai facility for our specialty micro-motor for the automobile industry, because those contracts are longer term it is very difficult to re-price in that line of products. Also because that when we sign contracts with the customers and when we give them the price quotes we do consider some of the room in considering the raw material fluctuation and, still, right now our margin is about 30% in our micro-motor segment; it's 32%. So overall in the industry that margin is very decent, very good. It's not bad. So we believe those are reasonable rates that we can -- that are acceptable for us. So we'd not be able to raise price in that area because they are all long-term customers that we want to sign up. But in other line of business, particularly in the rotary motors, we do consider one of the strategies to raise the price and pass on some cost to the customer. But then you do have some pricing lag when you can really realize those higher price and also

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it's just impractical to pass on or to recover all the price increases. A good thing is right now we see some copper price has started declining again right now compared to last year. So you do see the raw material fluctuation from time to time. So it is really difficult to quantify how much you can really recover from -- by passing on by raising the price. And one other factor I would like to point out is we have -- when we just acquired [Xi'an Simo and Weihai] you see that last year and the year before you see they reported higher gross margin. And the one reason is after we acquired and did the restructuring, we downsized the management, downsized the administration, so we did get a lot of cost savings there and in the manufacturing also improved some efficiency there. And their existing inventories we sold so that showed some higher margin. But if you look at our current margin, even with the raw material cost factor that's hurting our margin the overall margin in the industry is still quite decent. Like our Simo Motor, their gross margin is at the 23%, 25% range. So in the field in the industry that is very good margin already. I just want to say that it's just not practical that one -- in the beginning that we'd made some initiative to improve the margin, but then you do have raw material come in that it's -- to expect that everything stays the same that it's not practical for us to really improve the margin. To improve our operations and the manufacturing efficiency, to improve the revenue, all that, is by really improve all our systems, our manufacturing equipment and technology, all that, longer term. And short term by recovering costs from some customer, all that, and that's only short term. So we will still need to focus on longer term.
Echo He - Maxim Group - Analyst Okay. Christy, do you use FIFO or LIFO to calculate your raw --?
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations [Angela], you're on the phone. Just remind me. We report -- we disclose that in our footnotes. I can't recall. I believe it's FIFO.
Unidentified Company Representative (Spoken in foreign language).
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Yes. No, I don't think it's LIFO. It's in our --
Unidentified Company Representative Yes, it's the first thing -- yes.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations It's not LIFO.
Echo He - Maxim Group - Analyst It's FIFO, right?

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Unidentified Company Representative Yes.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Yes, FIFO.
Echo He - Maxim Group - Analyst Okay, thanks. My third question is about your -- actually, new product lines; the linear servo motor we were talking about. And I want to know what's the technology you're using. Did you acquire it and/or co-developed and from what kind of approximate source? And also the potential customers you're targeting and also is there are any government subsidies in this project. (Spoken in foreign language).
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Okay. All right, the answer for the question is our linear servo motor where are they used and whether -- how we develop the technology and whether we get government support -- subsidy -- subsidies there. And the servo motor's mainly used for the petrochemical industry, heavy machinery industry, the motors that goes to big machinery equipment in industrial. And what we are doing is we are making a system. Right now we're not only just only developing a product where we just want to sell the motors; we want to sell a system. So this is -- we consider our system an integrated system where you have motors and you also have the control systems that go with it. So when you sell a higher -- the system usually we do have -- get higher margin. And especially this particular system we collaborated -- the motor part we in-house developed. And in develop stage then we did get some sort of government subsidy but it's not -- it's minimal, but we did get some government subsidy for the R&D part. But once you go into the production and then you have to rely on your own. The part -- the controlling -- the automated control part that goes with the motor to make the system is where we collaborated with the other research institute. However, because we are the initiative party, we are the one that owns all this proprietary technology once it's developed.
Echo He - Maxim Group - Analyst Okay.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Echo, (Spoken in foreign language).

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Echo He - Maxim Group - Analyst All right, okay. Just the last one [I care about], that metro transportation project, is that still -- what status is that and what's the project -- the goal for this currently? (Spoken in foreign language).
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Okay, yes. About the metro train subway transportation project, and the question is what's the status over there. In terms of the subway transportation we're actually currently working on three potential projects -- three projects. The first one is the one that we have been discussing and informed the investors, which is the Beijing Airport express line that we -- that track -- that line has already been operating and the trains are using the imported train. And now they need to expand, put more trains to run more frequently. They wanted to run 20 minutes -- every 20 minutes and run a train there. So they do need more trains to put on the track. So we mentioned that we -- that the first domestic train will be built and we delivered some of the motors for the testing train. And there we expect by later this year they should complete the assembly and tests and by -- within this year we should be delivering the products -- the production to them. So that is scheduled to deliver this year for us. And the other line, actually, also in Beijing that is starting construction, then it's called the [S1] line that actually has been published or more discussed in China in all the newspapers, which is very -- it's a low-speed maglev subway metro train in Beijing and the technology and the linear motors we co-developed working together with them. So we expect to also once that finish construction, we will deliver our products to them. And the third project we just started to bid, but that is more longer-term next year is the -- a subway line in [Chongqing] and they already decided to use the linear motor technology. So we are actually one of the bidders, but we are the only one in China. And we have other bidders from the other parts of the world, like Canadians, (inaudible) and all that. So we believe, given our cost advantage we have hope to get the project, but we have to wait until they finish bidding process. And when we can contract we don't know yet, but that's the potential project we're working on just to give you some information on that.
Echo He - Maxim Group - Analyst Okay, that's all. That's all, thank you so much.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Okay, thank you, Echo. Okay, we have a few minutes for some -- just a few questions. Let's see do we have more questions online in the queue?
Operator Yes. The next question comes from Mark Tobin of Roth Capital Partners. Please go ahead.

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Mark Tobin - Roth Capital - Analyst Hi, thanks for taking my question. First, just to go back to the gross margin question, looking at the declines, particularly in the linear motor and micro motor segments, can you help quantify what contribution mix, raw material and labor, made to that decline?
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Okay, let me just translate the question first. Okay. (Spoken in foreign language).
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Mark, yes, we do -- qualitatively speaking that the raw material -- in the cost of goods sold the raw material is the bigger part of the cost of goods sold. And we do not have breakdown right now but we have provided -- in the past we have provided a breakdown for the linear motors and micro-motors, the raw material was about 60%, 70% of the raw material -- 70% of raw material and about 10%, 15% the labor and 10% for the utilities and all that other manufacturing costs. So the raw material cost is about 50% of the cost of goods sold. I do not have the number breakdown for rotary motor on top of my head. We can get back to you later on and see if we have that breakdown. But it's common in China the labor cost is relatively lower and for all the other -- if you look at all the industry -- manufacturing industry that's coming from machinery not from labor industry or for the -- this -- or heavy machinery industry it's common that the raw material takes up 50% of the total cost of goods sold.
Mark Tobin - Roth Capital - Analyst Okay, understood. And I guess another way of asking, had the mix during this past quarter -- the product mix for linear motors been the same as it was a year ago what would the margins have been? Or how much would they have declined? I guess I'm trying to get a sense of what recovery can we expect on the gross margin line and how much is tracking with gross margin and how much is more of a structural shift in the mix of your business.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Yes, that's a good question. Currently we do not have that breakdown. We do see when we're looking -- do the analysis we look at our total manufacturing costs. The manufacturing costs have gone up a lot. And then the raw material we looked at a few items to see the one thing. The copper I looked at is nearly 20% higher in our purchasing -- in our raw material purchasing than last year. So we can rather look at what are the factors that are contributing to it, but we did not quantitatively to see that. What we'll see, we'll take a look and see if we'll be able to quantify that, but it's a lot of data that we need to put together to make a number. So we'll discuss that offline.

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Mark Tobin - Roth Capital - Analyst Okay. And, changing over to R&D, I understand that the development project was -- has been underway for the better part of a year. What drove such a large portion of the expenses to be recognized during this quarter? And obviously, based on the guidance for just under 3% of total annual revenue, this level is going to continue to some extent but, certainly, higher than a year ago.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Yes, I can explain this R&D expense is mainly -- [$3.1m] is related to this one particular project, the servo motor project, and the remaining is for the normal R&D activities that we do. So this project -- the servo motor project mainly during the first quarter is incurred in the first quarter because a lot of milestones achieved and then, according to their contract, we need to pay those milestone achievement expense. So that's just for that -- for this quarter. And once we complete the part of the R&D and then the main part is how we fit the product into our production line and we ramp up and arrange production and all that, so that will be different from R&D.
Mark Tobin - Roth Capital - Analyst Okay, that's helpful. And then, finally, on the tax rate when do you expect to find out the decision on the approval for the reduced tax rate?
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations We heard the government in China -- the government usually give you -- towards the end of the year they give you approval and say -- okay, yes, tax rate, you know that you're approved for this rate. But let me get -- let me ask the CFO to see if we can provide more details, but that's the information I have now.
Mark Tobin - Roth Capital - Analyst Okay.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations (Spoken in foreign language).
Zedong Xu - Harbin Electric Inc. - CFO (Spoken in foreign language).
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations The common practice in China is usually the government towards the end of the year they tell you -- okay, so you're okay to do this. Although we have submitted the application now to the Tax Bureau, however, they don't process that, they don't tell you right now. Even if they believe you can get it they don't tell you right now to give you the document. But for Harbin Tech Full we had a three-year exemption, two-year half that was expired, but we are still qualified as a high technology development

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company and located in an economic development zone. So we believe we're still qualified for that 15% and we should be able to get that 15%. But that's just -- not until later this year the government would not clearly say that's okay.
Mark Tobin - Roth Capital - Analyst Okay, that's helpful. Thank you.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Okay. Sorry that we run out of time and we're almost [done]. Let's just take one simple one, one more question and we will close this right now.
Operator Next question comes from Chad Cooper of Roth Capital. Please go ahead.
Chad Cooper - Roth Capital - Analyst Hi, Christy, good morning. Hi, Mr. Yang.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Hi, Chad.
Chad Cooper - Roth Capital - Analyst Not really a question, but more a message to your Special Committee. I speak to several of your large institutional shareholders really on a daily basis and I think the consistent message across the board is that the $24 proposal by Mr. Yang and the sponsors is a sufficient price and they are not in favor of the Special Committee holding up the timing of the transaction to try to find a higher bidder. This process has gone on for seven months now and I think the general consensus is that it's gone on long enough. Thank you.
Christy Shue - Harbin Electric Inc. - EVP, Finance and Investor Relations Thank you, Chad. We will pass your message and the shareholders' message to the Special Committee. Okay, and thank you for your interest in the Company. Okay, thanks, everybody, for coming to our first-quarter earnings conference call. If you have follow-up questions regarding our business and operation please feel free to call me. And my number is 631-312-8612 for follow-up questions. Okay, thank you, everyone. (Spoken in foreign language).
Operator The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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DISCLAIMER
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Mark Tobin, (949) 720-5775 mtobin@roth.com Steve Chen, (86)(21)6141-5757 schen@roth.com Emma Jia Zhao, CFA, (86) (21) 6141-5757 x 7825 ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
CHINA FLASH NOTE | EQUITY RESEARCH | May 11, 2011

Analysis of Sales/Earnings
Auditor: FRAZER FROST LLP EPS (Net) Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 6.6x 2011E Curr 0.65E 0.72E 0.87E 0.87E 3.11E 5.8x
| HRBN - $17.96 - NASDAQ | Buy HRBN: First Take - 1Q11 Results Well Below Estimates; Conf Call Wed 9am ET
HRBN reported 1Q11 results that were well below our estimates. Downside was primarily due to the following factors: (a) lower than expected revenue; elevated operating expenses; and a higher than expected tax rate. A portion of the expenses appear to be non-recurring in nature, and we expect opex will decrease from current levels. We continue to view the pending privatization as the primary value driver for shares of HRBN. Management will host a conference call Wednesday at 9am ET.
$14.95 - $25.05 31.25 $561.3 500,505 $24.00 $98.8 $79.6 25%
2012E Curr 3.76E 4.8x
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 112.9E 122.5E 136.8E 140.1E 512.3E 2012E Curr 625.5E
1Q11 results. Revenue equaled $103.8M vs. ROTH/Consensus est. $112.9M/ $108.9M. Downside was primarily due to lower than expected sales of rotary motors from Weihai and Xi'an. Non-GAAP EPS equaled $0.41 vs. ROTH/ Consensus est. $0.65/$0.59. Non-GAAP EPS excludes $0.01 charge for the change in fair value of warrants and $0.06 bad debt expense. Earnings downside was primarily due to lower revenue, higher than expected operating expenses (opex of $14.0M is $4.1M higher than est.), and a 27.9% tax rate (exceeded our 15% est). A portion of the expenses appear to be non-recurring in nature, and we expect opex will decrease from current levels. Balance sheet. HRBN ended with 1Q11 with $122.8M in cash, vs. 98.7m at the end of 4Q10. Privatization remains the focus. We continue to view the pending privatization as the major value-driver for shares of HRBN. Conference call. Management will host a conference call on Wednesday at 9am ET. Dial in: 877-317-6789.
Aug-10
Sep-10
Nov-10
Dec-10
May-11
6.0 5.25 4.5 3.75 3.0 2.25 1.5 0.75 0.0
28 26 24 22 20 18 16 14 12 Price
Feb-11
Mar-11
Jan-11
Jun-10
Oct-10
Apr-11
Jul-10
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May 11, 2011
VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching price target include s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s Continued share weakness could lead to a lower takeout offer. s A slow-down in China''s economic growth and continued inflation could impact sales and compress margins.
RISKS
Change in macro policies in China. Two of HRBN''s major catalysts, oil pump for oilfield and linear motors for urban metro lines, can be largely affected by central and local government policies. The development of urban railways can experience delays that out of control of HRBN, such as delay in construction. Volatile raw materials costs HRBN is subject to market fluctuations and volatility of two major raw materials, copper and steel respectively.
COMPANY DESCRIPTION
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Disclosures:
ROTH makes a market in shares of Harbin Electric, Inc. and as such, buys and sells from customers on a principal basis. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral.
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 05/11/11 Count Percent 41 20.9 5 8.9 0 0
Rating Buy [B] Neutral [N] Sell [S]
Count 196 56 2
Percent 76.9 22.0 0.8
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A security, which at the time the rating is instituted and or reiterated, indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Not Covered (NC): ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not
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be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
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EQUITY RESEARCH
COMPANY UPDATE
China May 11, 2011
Closing Price (5/10/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com $17.96 $24 $14.95 - $25.05 $562.1 31.3 14.4 6.6 498 $19.60 NA Medium Revenues ($M) 2011E 2012E $103.8A $122.1 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $470.7 $547.6 Current Prior Current EPS EPS P/E $0.77 23.3 $2.46 7.3 $2.14 $2.52 8.4 $2.67 $2.96 6.7 15% GAAP Quarterly EPS Current Prior Current 2011E 2011E 2012E $0.34A $0.58 $0.48 $0.56 $0.66 $0.63 $0.67 $0.70 $0.68 $0.76 $0.74 $2.14 $2.52 $2.67 Quarterly EPS 2011E 2012E $0.34A $0.64 $0.64 $0.74 $0.77 $0.76 $0.81 $0.82 $2.80 $3.35 (212) 895-3718

Buy
1Q11 missed due to higher cost and expenses; Reducing EPS; Maintain Buy and $24 price target
Yesterday evening, HRBN reported 1Q11 results. Revenue was $103.8M, 1% below our estimate and 5% below consensus. EPS was $0.34, 18 cents below our estimate of $0.52 and 24 cents below consensus of $0.58. Total revenue was down 1.6% y/y mainly due to capacity constraint. Margins were lower due to increased raw material cost and higher expenses and taxes. We expect gross margin pressure to continue in the coming quarters. HRBNs gross margin was 29.1% in 1Q11, flat q/q but down from 33.9% a year ago. The margin pressure was mainly due to raw material price inflation. Per our recorded data, Chinas average manufacturers purchasing price increased by ~10% y/y in 1Q11, a growth rate much faster than the average selling price increase, 0.8% y/y. Higher expenses for good cause. R&D expense was substantially higher, 3.7% of total revenue vs. 0.6% in 1Q10. There was $3.1M dedicated to the development of an automated control system for linear servo motors, which is a new product that HRBN plans to launch by end of 2011. Higher SG&A expense, 9.7% of total revenue vs. 7% in 1Q10 included $1.7M incremental bad debt in Xian facility and $0.9M legal and financial advisory fees associated with the on-going LBO process. Reducing estimates. We are maintaining our revenue estimates for the rest of 2011 and 2012, as we believe HRBNs revenue growth should be supported by gradual capacity expansion in Weihai and Xian as well as new linear motor product sales. However, Chinas commodity price inflation and HRBNs increasing operating and tax expenses should negatively affect earnings. We are reducing our 2011 and 2012 EPS to $2.14 and $2.67, from prior $2.52 and $2.96, respectively. Our Buy recommendation is mainly based on the likely success of management LBO at $24/share. As of today, the buying parties, Chairman, a few other senior management and Abax Capital aggregately control ~46.1% of total companys equity. They have already secured $464M term loan from China Development Bank. We believe the transaction is more likely to close than fall through in the near future. At current levels, HRBN is trading at a premium to its U.S.-listed Chinese peers, although still at a large discount to its listed peers in Hong Kong and Mainland China.

Exhibit 1. Actual vs. Maxim Estimates and Consensus
Maxim 1Q11 Total Rev ($M) GAAP EPS ($) $ $ Actual 103.8 0.34 $ $ Est 104.8 0.52 Consensus Actual vs. Actual vs. Est Maxim Consensus $ $ 108.9 0.58 -1% -33% -5% -41%
Source: Maxim Group estimates.
Exhibit 2. Detail Comparison Actual vs. Expected

(In millions except per shr) Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Loss on cross currency hedge settlement Gain on debt repurchase Change in fair value of warrant Total other income (expense) Income before income taxes Provision for income taxes 1Q10 Actual 19.8 60% 19% 16.2 166% 15% 22.5 107% 21% 45.0 13% 1Q11E Expected 16.9 -15% 16% 13.8 -15% 13% 22.5 0% 21% 49.5 10% 1Q11A Actual 19.3 -3% 19% 15.5 -4% 15% 21.8 -3% 21% 46.3 3% Actual vs. Expected 14% 1,213 246 12% 1,061 178
bps bps bps bps
-3% (311) bps (48) bps -7% (720) bps (269) bps -1% (89) bps -1% -1% (100) bps (8) bps 363% 294 1% 20 29% -18% (1,269) bps (322) bps 18% 60% bps bps
43% 47% 45% $ 105.5 $ 104.8 $ 103.8 243% -1% -2% (69.7) (74.2) (73.6) 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.2) (0.8) 27.0 (4.1) 30.6 -14% 29.2% (0.8) 0.8% (10.0) 9.5% (10.8) 19.8 -29% 18.9% 1.0 (1.2) (0.2) 19.5 (3.3) 30.2 -15% 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 -41% 15.7% 1.1 (1.9) (0.4) (1.2) 15.0 (4.2)
397% -23% 26% 1,094 bps -33% 10 bps -33% (506) bps
Tax Rate 15.1% 17.0% 27.9% Net income before noncontrolling interest 22.9 16.2 10.8 Minority interests (2.4) (0.0) As % of net income 8.7% 0.0% 0.1% Net income 20.6 16.2 10.8 Y/Y Growth 137% -21% -47% Net Margin 19.5% 15.5% 10.4% Foreign currency translation adjustment 0.1 2.4 Change in fair value of derivative instrument (or Reclassification adjustment for gain on sales of Comprehensive income 20.6 16.2 13.3 Weighted average shares outstanding Basic 31.1 31.2 31.3 Diluted 31.4 31.3 31.4 EPS (to controlling interest) Basic $ 0.66 $ 0.52 $ 0.35 Diluted $ 0.66 $ 0.52 $ 0.34 Y/Y Growth 68% -21% -47%
-18%
-33% -33%
Maxim Group LLC
392

Exhibit 3. Estimate Revision
2Q11E ($'s in millions, except EPS) Total net revenues y/y Growth Gross Profit y/y Growth Gross margin Income from operations y/y Growth Operating Margin Net Income y/y Growth Net Margin Diluted GAAP EPS y/y Growth $ Old 112.2 $ 6% 32.4 -8% 29% 21.2 -25% 19% 17.7 -31% 16% 0.56 $ -31% 2011E ($'s in millions, except EPS) Total net revenues y/y Growth Gross Profit y/y Growth Gross margin Income from operations y/y Growth Operating Margin EBITDA y/y Growth EBITDA Margin Net Income y/y Growth Net Margin $ Old 471.6 $ 11% 136.8 1% 29% 94.3 1% 20% 109.0 3% 23% 79.1 3% 17% New 470.7 10% 135.0 -1% 29% 88.4 -5% 19% 100.4 -5% 21% 67.3 -12% 14% $ -15% -8% -6% -1% New 112.2 6% 31.9 -10% 28% 20.2 -28% 18% 15.2 -41% 14% 0.48 -41% New vs. Old 0% -2% $ 3Q11E Old 123.0 $ 12% 35.8 7% 29% 25.9 19% 21% 21.1 18% 17% 0.67 $ 18% 2012E Old $ 549.0 $ 16% 159.0 16% 29% 113.1 20% 21% 129.1 18% 24% 93.8 18% 17% 2.96 $ 18% New 547.6 16% 155.7 15% 28% 109.9 24% 20% 125.9 25% 23% 84.8 26% 15% 2.67 25% -10% -10% -2% -3% -2% New 123.0 12% 35.4 5% 29% 25.2 15% 20% 19.8 11% 16% 0.63 10% New vs. Old 0% -1%
-5%
-3%
-14%
-6%
-14%
-7%
New vs. Old 0%
New vs. Old 0%
Diluted GAAP EPS $ 2.52 $ 2.14 -15% y/y Growth 2% -13% Source: Thomson One, Bloomberg and Maxim Group estimates.
Maxim Group LLC
393

Exhibit 4. Comparable Company Analysis
$ $ $ $ $ $ $ $ $
238 176 291 309 192 184 271 201 106
$ $ $ $ $ $ $ $ $
1.12 0.27 1.30 1.40 0.49 0.97 0.95 1.01 1.06
$ $ $ $ $ $ $ $ $
1.23 0.71 1.17 1.80 0.59 1.29 0.94 1.16 1.19
$ $ $ $ $ $ $ $ $
1.49 1.32 1.40 1.80 0.70 1.57 1.06 1.41 1.33
7.9x 14.4x 6.0x 5.8x 7.2x 5.6x 7.9x 4.8x 5.2x 7.2x
7.2x 5.5x 6.7x 4.5x 6.0x 4.2x 8.0x 4.1x 4.6x 5.6x
5.9x 2.9x 5.6x 4.5x 5.1x 3.5x 7.1x 3.4x 4.1x 4.7x
1.14 0.55 3.86 0.36 0.21
$ $ $ $ $
771 1,623 1,312 396 159
$ $ $ $ $
0.11 0.03 0.19 0.03 0.02
$ $ $ $ $
0.10 0.04 0.22 0.03 0.02
$ $ $ $ $
0.11 0.04 0.26 0.03 0.02
10.5x 17.0x 20.3x 13.0x 11.3x 14.4x
11.2x 15.0x 17.3x 12.0x 10.2x 13.1x
10.2x 13.3x 14.8x 10.4x 9.0x 11.6x
China Mainland Listed China Motor Companies Xiangtan Electric 600416-S $ 4.03 $ Zhejiang Founder Motor 002196-S $ 2.41 $ BroadOcean 002249-S $ 3.61 $ Shanghai Electric Group 601727-S $ 1.14 $ Dongfang Electric Group 600875-S $ 4.11 $ Average US/International Motor Companies Siemens SI $ 138.94 ABB ABB $ 26.68 Emerson Electric EMR $ 55.37 Illinois Tool Works ITW $ 58.29 Cummins CMI $ 118.41 Magna International MGA $ 52.29 Rockwell Automation ROK $ 86.38 Lear Corporation LEA $ 51.90 Regal Beloit RBC $ 73.24 Smith AO AOS $ 43.36 Franklin Electric FELE $ 44.23 Average
1,225 261 1,548 11,233 6,845
$ $ $ $ $
0.11 0.04 0.08 0.03 0.19
$ $ $ $ $
0.16 0.05 0.12 0.04 0.23
$ $ $ -$
0.24 0.13 0.18 0.28
35.3x 65.9x 46.6x 35.6x 21.7x 41.0x
25.0x 45.8x 31.1x 28.9x -18.0x 29.8x
16.5x 18.2x 19.7x 14.6x 17.3x
$ 120,701 $ 61,097 $ 41,703 $ 29,290 $ 23,398 $ 5,896 $ 12,318 $ 2,423 $ 2,820 $ 1,323 $ 1,029
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 11.18 $ 1.55 $ 3.27 $ 3.94 $ 7.95 $ 5.04 $ 4.53 $ 5.18 n/a $ 2.09 $ 2.44
$ 10.67 $ 1.90 $ 3.86 $ 4.59 $ 9.55 $ 5.59 $ 5.36 $ 5.96 n/a -$ 2.44 $ 2.82
22.8x 21.3x 20.6x 18.9x 22.9x 12.1x 28.3x 11.8x -15.1x 22.8x 19.7x
12.4x 17.2x 16.9x 14.8x 14.9x 10.4x 19.1x 10.0x -20.7x 18.1x 15.5x
13.0x 14.1x 14.3x 12.7x 12.4x 9.4x 16.1x 8.7x 17.8x 15.7x 13.4x
Source: Thomson One, Bloomberg and Maxim Group estimates.
Maxim Group LLC
394

Exhibit 5. Income Statement
19.8 20.1 19.3 17.0 76.3 19.3 18.1 19.3 20.4 77.2 86.8 60% 74% 18% -14% 27% -3% -10% 0% 20% 1% 12% 56% 19% 19% 18% 16% 18% 19% 16% 16% 16% 16% 16% 18.3 16.2 15.2 15.3 14.0 60.8 15.5 14.7 15.3 16.1 61.7 67.9 166% 78% 81% -18% 51% -4% (3.0%) 0% 15% 2% 10% 28% 15% 14% 14% 13% 14% 15% 13% 12% 12% 13% 12% 22.5 23.6 23.5 23.7 93.2 21.8 25.9 27.0 30.8 105.5 125.7 107% 39% 14% 3% 31% -3% 10% 15% 30% 13% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 22% 23% 45.0 44.6 48.9 49.9 188.5 46.3 51.3 58.7 62.4 218.7 258.9 13% 6% 11% 12% 11% 3% 15% 20% 25% 16% 18% 0% 0% 20% 43% 42% 45% 47% 44% 45% 46% 48% 47% 46% 47% 4.9 $ 23.6 $ 40.4 $ 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 103.8 $ 112.2 $ 123.0 $ 131.6 $ 470.7 $ 547.6 387% 71% 62% 85% 85% 243% 175% 133% -1% 91% (1.6%) 6% 12% 24% 10% 16% (2.3) (12.1) (20.8) (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (73.6) (80.4) (87.6) (94.1) (335.7) (391.9) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28 $ $ 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1 0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.2 (15%) 29.1% (3.9) 3.7% (10.1) 9.7% (14.0) 16.3 (41%) 15.7% 1.1 (1.9) (1.2) 15.0 (4.2) 27.9% 10.8 (0.0) 0.1% 10.8 (47.4%) 10.4% 2.4 13.3 31.3 31.4 31.9 -10% 28.4% (1.3) 1.2% (10.3) 9.2% (11.7) 20.2 (28%) 18.0% 1.2 (1.9) (1.2) 19.1 (3.8) 20.0% 15.2 0.0% 15.2 (40.6%) 13.6% 15.2 31.3 31.4 35.4 5% 28.8% (1.2) 1.0% (9.0) 7.3% (10.2) 25.2 15% 20.5% 1.3 (1.9) (1.0) 24.1 (4.3) 18.0% 19.8 0.0% 19.8 11% 16.1% 19.8 31.4 31.5 0.63 $ 0.63 $ 10% 2.9 0.1 28.2 6.51 37.5 21% 28.5% (1.3) 1.0% (9.5) 7.2% (10.8) 26.7 71% 20.3% 1.4 (1.9) (0.9) 25.8 (4.4) 17.0% 21.4 0.0% 21.4 69% 16.3% 21.4 31.4 31.6 135.0 -1% 28.7% (7.8) 1.7% (38.9) 8.3% (46.6) 88.4 -5% 18.8% 5.1 (7.7) (4.4) 84.0 (16.7) 19.9% 67.3 (0.0) 0.0% 67.3 -12% 14.3% 67.3 31.3 31.5 155.7 15% 28.4% (4.4) 0.8% (41.3) 7.5% (45.7) 109.9 24% 20.1% 5.5 (7.7) (4.0) 106.0 (21.2) 20.0% 84.8 0.0% 84.8 26% 15.5% 84.8 31.6 31.7 2.68 2.67 25% 14.7 1.3 125.9 23.0% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.35 $ 0.49 $ 0.57 $ 0.44 $ 2.46 $ 0.34 $ 0.48 $ NM -25% 221% (47.4%) (40.8%) 3.1 2.3 11.5 2.9 2.9 0.3 0.2 1.0 0.1 0.1 25.2 6.84 18.2 6.60 105.8 24.8% 6.76 19.3 6.57 23.2 6.54
0.68 $ 2.15 $ 0.68 $ 2.14 $ 54% -13% 2.9 11.5 0.1 0.4 29.7 6.48 100.4 21.3% 6.48
Maxim Group LLC
395
As of:
5/11/2011
with Rating 64.5% 31.6% 3.9%
I, Echo He, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firms total revenues, a portion of which is generated by investment banking activities. Valuation Methods: One or more of the following valuation methods are used by Maxim Group analysts in making a ratings or price projection: Analysis of companies P/E ratio, price/book ratio, earnings expectations or sales growth as they relate within an industry group or to the broader market, enterprise value/sales, Individual sector analysis, sum of the parts analysis and discounted cash flow. Price Target Risks: Investment risks associated with the achievement of the price target include, but are not limited to, the companys failure to achieve our earnings and revenue estimates, unforeseen macroeconomic and/or industry events that adversely impact demand for the companys products and services, product obsolescence, the companys ability to recruit and retain competent personnel, changes in investor sentiment
Maxim Group LLC
396

regarding the specific company or industry, changing competitive pressures and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-K that the company has filed with the SEC. Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Slowdown of Chinese economy; (2) Raw material price increases; (3) High competition in industrial motor market; (4) Difficulties of developing linear motor market; (5) Potential equity issuance; and (6) Failure of the proposed LBO to be completed.
RISK RATINGS
Maxim Group LLC
397
Harbin Electric, Inc. (HRBN) DISCLAIMERS

Maxim Group LLC
398
Mark Tobin, (949) 720-5775 mtobin@roth.com Steve Chen, schen@roth.com Emma Jia Zhao, CFA, ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
COMPANY NOTE | CHINA RESEARCH | May 11, 2011

Analysis of Sales/Earnings Estimates Changed
Auditor: FRAZER FROST LLP EPS (Net) Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 6.6x 2011E Curr Prev 0.41A 0.65E 0.51E 0.72E 0.61E 0.87E 0.64E 0.87E 2.12E 3.11E 8.5x 5.8x
| HRBN - $17.96 - NASDAQ | Buy
$14.95 - $25.05 31.25 $561.3 500,505 $24.00 $122.8 $80.9 15%
HRBN: Lowering Est. on Tempered Outlook & Higher Opex; Buy-out Still the Focus
We are substantially lowering our estimates after HRBN reported weaker than expected 1Q11 results. Downside was driven by lower than expected revenue from rotary motors (Weihai and Xi'an), higher operating expenses, and higher tax rate. While we anticipate recovery from Q1 levels, our outlook is tempered. We continue to view the pending privatization as the primary value driver for shares.
2012E Curr Prev 2.89E 3.76E 6.2x 4.8x
1Q11 results below est. Revenue equaled $103.8M vs. ROTH/Consensus est. of $112.9M/$108.9M; Non-GAAP EPS equaled $0.41, well below ROTH/ Consensus est. of $0.65/$0.59. Non-GAAP EPS excludes $0.4m associated with fair value change of warrants & 1.7m bad debt expense. Revenue downside was primarily due to weak sales of rotary motors at Weihai ($21.8M vs. est. $26.5M) and Xian ($46.3M vs. est. $49.5M). Gross margins remained flat sequentially at 29.1% (vs. 29.2% in 4Q & est. 30.8%) due to unfavorable product mix and rising raw material costs, within which Linear business margin deterioration was most dramatic (45.6% vs. 56.7% in 4Q10 & 63.1% in 3Q10). Operating expenses equaled $13.9M (vs. est. $9.9M), which included higher expense for new linear servo motors R&D, bad debt provision in Xian, privatization expenses, and elevated shipping costs. Finally, a higher effective tax rate due to the expiration of tax holidays contributed to the loss. Lowering estimates. We are substantially lowering our 2011 and 2012 estimates to reflect a more tempered sales outlook, expectations for elevated operating expenses, and a higher tax rate. In particular, we are scaling back our projections for linear motors and rotary motors, based on the expectation that Q1 weakness could persist. We anticipate SG&A and R&D expenses will remain elevated, albeit not at Q1 levels. Privatization. We continue to focus on HRBN's prospective privatization as the key value driver for shares. Management indicated that the special committee is reviewing the proposal, but no indication of expected timing was provided. We maintain our BUY rating and $24 price target, based on the offer price of the proposed buy-out.
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr Prev 103.8A 112.9E 115.3E 122.5E 126.7E 136.8E 131.1E 140.1E 476.8E 512.3E 2012E Curr Prev 578.3E 625.5E
Aug-10
Sep-10
Nov-10
Dec-10
May-11
6.0 5.25 4.5 3.75 3.0 2.25 1.5 0.75 0.0
28 26 24 22 20 18 16 14 12 Price
Feb-11
Mar-11
Jan-11
Jun-10
Oct-10
Apr-11
Jul-10
399
China Company Note - May 11, 2011
VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching our price target include: s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s Continued share weakness could lead to a lower takeout offer. s A slow-down in China''s economic growth and continued inflation could impact sales and compress margins.
RISKS
COMPANY DESCRIPTION
MENTIONED COMPANIES
Page 2 of 5
400
FY07
FY08
46,950 34,628 11,664 27,578 0 120,820 85% (73,343) 47,477 39.3%
Q1'09A
12,382 6,114 1,383 10,846 0 30,725 36.8% (19,801) 10,924 35.6%
Q2'09A
11,547 8,555 1,343 16,918 0 38,363 60.1% (25,500) 12,863 33.5%
Q3'09A
16,426 8,448 1,408 20,650 0 46,932 18.3% (30,171) 16,761 35.7%
Q4'09A
20,371 18,441 643 23,694 44,065 107,214 208.6% (71,150) 36,064 33.6%
FY09
60,726 41,558 4,777 72,109 44,065 223,234 84.8% (146,622) 76,612 34.3%
Q1'10A
19,831 16,245 1,899 22,468 45,042 105,485 243.3% (69,743) 35,742 33.9%
Q2'10A
20,138 15,183 2,003 23,512 44,599 105,436 174.8% (70,104) 35,332 33.5%
Q3'10A
19,356 15,310 2,296 23,511 48,881 109,355 133.0% (75,780) 33,575 30.7%
Q4'10A
17,009 14,030 1,468 23,757 49,942 106,206 -0.9% (75,142) 31,064 29.2%
FY10A
76,334 60,767 7,666 93,249 188,465 426,481 91.0% (290,768) 135,713 31.8%
Q1'11A
19,261 15,532 961 21,770 46,305 103,829 -1.6% (73,626) 30,204 29.1%
Q2'11E
19,918 17,325 2,043 24,688 51,289 115,263 9.3% (81,293) 33,970 29.5%
Q3'11E
22,118 20,475 2,985 25,862 55,236 126,676 15.8% (88,818) 37,858 29.9%
Q4'11E
21,426 22,050 2,348 27,321 57,932 131,078 23.4% (91,922) 39,157 29.9%
FY11E
82,723 75,382 8,338 99,641 210,763 476,847 11.8% (335,658) 141,189 29.6%
FY12E
101,165 97,020 8,711 119,569 251,861 578,326 21.3% (404,886) 173,440 30.0%
(7,660) 11.7% (1,064) 1.6% 23,711 36.3% 69%
(11,913) 9.9% (1,170) 1.0% 34,393 28.5% 45%
(2,505) 8.2% (393) 1.3% 8,026 26.1% -7%
(3,639) 9.5% (409) 1.1% 8,816 23.0% 7%
(3,249) 6.9% (468) 1.0% 13,044 27.8% 24%
(9,278) 8.7% (823) 0.8% 25,962 24.2% 270%
(18,672) 8.4% (2,093) 0.9% 55,847 25.0% 62%
(7,417) 7.0% (594) 0.6% 27,731 26.3% 246%
(6,886) 6.5% (363) 0.3% 28,083 26.6% 219%
(10,059) 9.2% (1,663) 1.5% 21,853 20.0% 68%
(14,613) 13.8% (803) 0.8% 15,648 14.7% -40%
(38,974) 9.1% (3,423) 0.8% 93,315 21.9% 67%
(10,073) 9.7% (3,879) 3.7% 16,252 15.7% -41%
(9,797) 8.5% (2,997) 2.6% 21,176 18.4% -25%
(9,881) 7.8% (3,040) 2.4% 24,937 19.7% 14%
(9,962) 7.6% (3,015) 2.3% 26,180 20.0% 67%
(39,713) 8.3% (12,930) 2.7% 88,545 18.6% -5%
(41,772) 7.2% (12,632) 2.2% 119,036 20.6% 34%
(6,620) 0 (189) 0 0 0 0 0 16,903 0 0.0% 16,903 25.8% -8% 16,903 25.8% 40% $0.91 -10% $0.91 37% 18,635 29,863
(6,066) 0 218 1,358 0 0 0 0 29,903 (4,524) 15.1% 25,379 21.0% 50% 25,379 21.0% 50% $1.19 31% $1.19 31% 21,324 42,066
(1,441) 0 0 539 0 0 2,573 0 9,697 (1,043) 10.8% 8,654 28.2% 62% 6,081 19.8% 14% $0.39 46% $0.27 2% 22,159 10,245
(843) 0 0 2,101 0 0 (14,015) 0 (3,941) (1,479) -37.5% (5,419) -14.1% -187% 7,423 19.3% 19% -$0.24 -178% $0.33 7% 22,341 10,688
(8,478) 0 0 1,063 (9,000) 4,155 (737) 0 46 (1,954) 4209.2% (1,908) -4.1% -125% 10,953 23.3% 41% -$0.07 -121% $0.40 20% 27,077 23,101
(1,553) 0 0 1,759 0 0 (1,037) 0 25,131 (3,320) 13.2% (3,491) 18,320 17.1% 203% 19,356 18.1% 220% $0.59 114% $0.62 127% 31,240 28,806
(12,316) 0 0 5,462 (9,000) 4,155 (13,215) 0 30,934 (7,796) 25.2% (3,491) 19,647 8.8% -23% 43,813 19.6% 73% $0.77 -36% $1.71 43% 25,672 72,840
(1,647) 0 0 1,119 0 0 (234) 0 26,969 (4,063) 15.1% (2,352) 20,554 19.5% 137% 20,788 19.7% 242% $0.66 68% $0.66 142% 31,354 31,037
(978) 0 0 1,327 0 0 1,657 (623) 29,466 (3,791) 12.9% (1) 25,675 24.4% -574% 24,641 23.4% 232% $0.82 N/A $0.79 137% 31,343 30,866
(1,133) 0 0 740 0 0 (302) 0 21,158 (3,296) 15.6% 11 17,873 16.3% -1037% 20,208 18.5% 85% $0.57 N/A $0.65 60% 31,282 24,943
(836) 0 0 2,304 0 0 (547) 0 16,569 (3,765) 22.7% (91) 12,714 12.0% -31% 19,603 18.5% 1% $0.41 -31% $0.62 1% 31,376 17,938
(4,593) 0 0 5,490 0 0 574 (623) 94,163 (14,915) 15.8% (2,432) 76,815 18.0% 291% 85,240 20.0% 95% $2.46 221% $2.72 60% 31,282 104,784
(1,924) 0 0 1,121 0 0 (434) 0 15,015 (4,195) 27.9% (14) 10,806 10.4% -47% 12,939 12.5% -38% $0.34 -47% $0.41 -38% 31,364 22,726
(2,000) 0 0 1,000 0 0 0 0 20,176 (4,035) 20.0% 0 16,141 14.0% -37% 16,141 14.0% -34% $0.51 -37% $0.51 -35% 31,458 27,650
(2,000) 0 0 1,000 0 0 0 0 23,937 (4,787) 20.0% 0 19,150 15.1% 7% 19,150 15.1% -5% $0.61 6% $0.61 -6% 31,552 31,411
(2,000) 0 0 1,000 0 0 0 0 25,180 (5,036) 20.0% 0 20,144 15.4% 58% 20,144 15.4% 3% $0.64 57% $0.64 2% 31,647 32,656
(7,924) 0 0 4,121 0 0 (434) 0 84,309 (18,054) 21.4% 0 66,240 13.9% -14% 66,674 14.0% -22% $2.10 -14% $2.12 -22% 31,505 114,443
(8,000) 0 0 4,000 0 0 0 0 115,036 (23,007) 20.0% 0 92,028 15.9% 39% 92,028 15.9% 38% $2.89 37% $2.89 36% 31,885 149,036
Page 3 of 5
401

Disclosures:
Count 196 56 2
Percent 76.9 22.0 0.8
Page 4 of 5
402

Page 5 of 5
403
EQUITY RESEARCH
COMPANY UPDATE
China May 3, 2011
Closing Price (5/2/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth $19.59 $24 $14.95 - $25.05 $613.2 31.3 20.1 6.6 415 $18.50 NA Medium Revenues ($M) 2011E 2012E $104.8 $123.6 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $471.6 $549.0 Current Current EPS P/E $0.77 25.4 $2.46 8.0 $2.52 7.8 $2.96 6.6 15% GAAP Quarterly EPS

Buy
It is tough to believe a Chinese LBO; Reiterate Buy

The anticipated news finally came. Yesterday morning before the market opened, Chairman and CEO, Tianfu Yang, a few other member of HRBNs top management and Hong Kong private equity company, Abax Global Capital (Abax) together filed a 13-D to SEC, indicating the secure of financing, both debt and equity, for the purpose of HRBNs LBO transaction, which was originally announced in October 2010. The sources of fund are Chinese institutions. The 13-D showed that Mr. Yang and a few other senior management members collectively own 40.7% of HRBNs total 31.25M outstanding shares, leaving 18.53M shares to be purchased by ~$445M given the $24/share offering price. If adding the purchase of outstanding options, warrants and transaction costs, ~$464M is needed to complete the transaction according to the filing. To suffice the funding, the 13-D indicated China Development Bank (CDB) committed, on April 29, 2011, a $400M term loan (expires on April 2, 2012). The remaining $64M was committed by Abax (on April 20, 2011) in forms of both equity and debt. In addition, Mr. Yang and Abax jointly submitted an LBO proposal to HRBNs board with the $24/share offer price on April 20, 2012. The trading gap to offering price does not appear warranted. After the news was released, HRBNs share price initially jumped by over 10% to above $21. However, the stock traded back to end the day with less than 5% gain. It seems that the market still does not believe the LBO is actually going to happen. We believe the future steps from here include, at least, HRBNs board approval of the submitted LBO proposal and shareholders voting, both of which, in our opinion, have a good chance to go through successfully, although it may, again, take some time. The current discount of share price seems unjustifiable by the near term risks, in our view. HRBN is a differentiated case. Although we admit there are a few announced LBO proposals of Chinese companies that may bear higher risks of being unsuccessful, we believe the case of HRBN is among those most likely to succeed at current stage. Our opinion is based on (1) HRBNs solid asset quality, (2) most likely reliable historical financial results, (3) large amount available funding in Chinas private equity market and (4) the driven management. We reiterate our Buy and $24 price target, which is the announced LBO offer price.
Maxim Group Current Current FYE: December 2011E 2012E 1Q $0.52 $0.64 2Q $0.56 $0.74 3Q $0.67 $0.76 $0.76 $0.82 4Q FY $2.52 $2.96 Consensus-First Call Quarterly EPS FYE: December 2011E 2012E 1Q $0.58 $0.64 2Q $0.64 $0.74 3Q $0.77 $0.76 $0.81 $0.82 4Q FY $2.80 $3.35 Echo He, MD, PhD ehe@maximgrp.com (212) 895-3718

5/2 Company Harbin Electric TKR HRBN Price $ 19.59 LAST $ $ $ $ $ $ $ $ $ 9.42 4.08 8.34 8.08 3.55 5.59 7.47 4.92 5.25 MktCap (mm) $ 614 EPS P/E _________________________ _________________________ 10A 11E 12E 10A 11E 12E $ 2.46 $ 2.52 $ 2.96 8.0x 7.8x 6.6x
Chinese Industrial Companies China Automotive CAAS A-Power APWR FushiCopperweld FSIN Lihua International LIWA Shengdatech SDTH Wonder Auto WATG ChemSpec CPC China Gerui Adv. Material CHOP SORL Auto Parts SORL Average
$ $ $ $ $ $ $ $ $
255 185 311 309 192 189 270 206 101
$ $ $ $ $ $ $ $ $
1.12 0.27 1.30 1.40 0.49 0.97 0.95 1.01 1.06
$ $ $ $ $ $ $ $ $
1.23 0.71 1.20 1.80 0.59 1.29 0.94 1.17 1.19
$ $ $ $ $ $ $ $ $
1.49 1.32 1.39 1.80 0.70 1.57 1.06 1.41 1.33
8.4x 15.1x 6.4x 5.8x 7.2x 5.8x 7.9x 4.9x 5.0x 7.4x
7.7x 5.7x 7.0x 4.5x 6.0x 4.3x 8.0x 4.2x 4.4x 5.5x
6.3x 3.1x 6.0x 4.5x 5.1x 3.6x 7.0x 3.5x 4.0x 4.8x
HK Listed China Motor Companies Harbin Power Equipment 1133-HK $ Shanghai Electric Group 2727-HK $ Dongfang Electric Group 1072-HK $ Chongqing Machinery & E2722-HK $ Shanghai Prime Machiner2345-HK $ Average
0.97 0.50 3.29 0.36 0.22
$ $ $ $ $
656 1,500 1,119 393 167
$ $ $ $ $
0.11 0.03 0.19 0.03 0.02
$ $ $ $ $
0.10 0.04 0.22 0.03 0.02
$ $ $ $ $
0.11 0.04 0.26 0.03 0.02
8.9x 15.8x 17.3x 12.9x 11.9x 13.4x
9.4x 13.9x 14.7x 11.9x 10.7x 12.1x
8.6x 12.3x 12.6x 10.4x 9.5x 10.7x
China Mainland Listed China Motor Companies Xiangtan Electric 600416-S $ 3.98 $ 1,209 Zhejiang Founder Motor 002196-S $ 2.39 $ 259 BroadOcean 002249-S $ 3.91 $ 1,675 Shanghai Electric Group 601727-S $ 1.12 $ 10,988 Dongfang Electric Group 600875-S $ 3.84 $ 6,388 Average US/International Motor Companies Siemens SI $ 144.83 $ 125,818 ABB ABB $ 26.94 $ 61,693 Emerson Electric EMR $ 60.81 $ 45,800 Illinois Tool Works ITW $ 58.03 $ 29,159 Cummins CMI $ 118.29 $ 23,374 Magna International MGA $ 51.82 $ 5,843 Rockwell Automation ROK $ 86.99 $ 12,405 Lear Corporation LEA $ 52.24 $ 2,439 Regal Beloit RBC $ 75.52 $ 2,908 Smith AO AOS $ 43.63 $ 1,332 Franklin Electric FELE $ 44.20 $ 1,028 Average Source: Thomson One, Bloomberg and Maxim Group estimates.
$ $ $ $ $
0.11 0.04 0.08 0.03 0.19
$ $ $ $ $
0.16 0.05 0.12 0.04 0.23
$ $ $ -$
0.24 0.12 0.18 0.28
34.9x 65.4x 50.5x 34.8x 20.2x 41.2x
24.7x 45.4x 33.6x 30.5x -17.0x 30.3x
16.3x 20.4x 21.3x 13.6x 17.9x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 9.62 $ 1.53 $ 3.29 $ 3.94 $ 7.95 $ 4.74 $ 4.54 $ 5.14 n/a $ 2.09 $ 2.29
$ 10.29 $ 1.89 $ 3.86 $ 4.57 $ 9.55 $ 5.44 $ 5.37 $ 5.82 n/a -$ 2.44 $ 2.72
23.8x 21.6x 22.6x 18.8x 22.9x 12.0x 28.5x 11.8x -15.2x 22.8x 20.0x
15.1x 17.6x 18.5x 14.7x 14.9x 10.9x 19.2x 10.2x -20.8x 19.3x 16.1x
14.1x 14.3x 15.8x 12.7x 12.4x 9.5x 16.2x 9.0x 17.9x 16.3x 13.8x
Maxim Group LLC
405

(In millions except per shr) Revenue Drivers: Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Total other income (expense) Income before income taxes Provision for income taxes Tax Rate Net income before noncontrolling intere Minority interests As % of net income Net income Y/Y Growth Net Margin Foreign currency translation adjustmen Comprehensive income Weighted average shares outstanding Basic Diluted EPS (to controlling interest) Basic Diluted Y/Y Growth D&A Share-based compensation EBITDA EBITDA margin Exchange Rate (RMB/US$) $ $ 2004 Full Yr 2005 Full Yr 2006 Full Yr 2007 Full Yr 36.6 2008 Full Yr 49.5 35% 41% 33.8 85% 28% 27.8 2009 Full Yr 2010 Full Yr 1Q11E 31-Mar 2Q11E 30-Jun 3Q11E 30-Sep 4Q11E 31-Dec 2011E Full Yr 1Q12E 31-Mar 2Q121E 30-Jun 3Q12E 30-Sep 4Q12E 31-Dec 2012E Full Yr
4.9 (2.3) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28
23.6 $ 387% (12.1) 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1
40.4 $ 71% (20.8) 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3
76.3 16.9 18.1 19.3 20.4 74.8 18.5 20.8 21.3 23.5 84.2 27% -15% -10% 0% 20% -2% 10% 15% 10% 15% 13% 56% 18% 16% 16% 16% 16% 16% 15% 15% 15% 16% 15% 18.3 60.8 13.8 14.7 15.3 16.1 60.0 15.2 16.2 16.8 17.7 66.0 51% (15.0%) (3.0%) 0% 15% -1% 10% 10% 10% 10% 10% 28% 14% 13% 13% 12% 12% 13% 12% 12% 12% 12% 12% 93.2 22.5 25.9 27.0 30.8 106.2 28.1 31.1 31.9 35.5 126.5 31% 0% 10% 15% 30% 14% 25% 20% 18% 15% 19% 0% 22% 21% 23% 22% 23% 23% 23% 23% 23% 24% 23% 188.5 49.5 51.3 58.7 62.4 221.9 59.5 64.1 67.5 71.8 262.8 11% 10% 15% 20% 25% 18% 20% 25% 15% 15% 18% 0% 0% 20% 44% 47% 46% 48% 47% 47% 48% 48% 48% 48% 48% 65.4 $ 120.8 $ 223.2 $ 426.5 $ 104.8 $ 112.2 $ 123.0 $ 131.6 $ 471.6 $ 123.6 $ 134.7 $ 140.4 $ 150.4 $ 549.0 62% 85% 85% 91% (0.7%) 6% 12% 24% 11% 18% 20% 14% 14% 16% (33.0) (73.3) (146.6) (290.8) (74.2) (79.8) (87.2) (93.6) (334.8) (87.8) (95.6) (99.7) (106.9) (390.0) 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.6 (14%) 29% (0.8) 0.8% (10.0) 9.5% (10.8) 19.8 (29%) 18.9% 1.0 (1.2) (0.2) 19.5 (3.3) 17.0% 16.2 0.0% 16.2 (21.2%) 15.5% 16.2 31.2 31.3 32.4 -8% 29% (0.9) 0.8% (10.3) 9.2% (11.2) 21.2 (25%) 18.9% 1.2 (1.0) 0.2 21.4 (3.6) 17.0% 17.7 0.0% 17.7 (31.0%) 15.8% 17.7 31.2 31.4 35.8 7% 29% (0.9) 0.8% (9.0) 7.3% (9.9) 25.9 19% 21.1% 0.7 (1.2) (0.5) 25.5 (4.3) 17.0% 21.1 0.0% 21.1 18% 17.2% 21.1 31.3 31.5 0.68 $ 0.67 $ 18% 37.9 22% 29% (1.1) 0.8% (9.5) 7.2% (10.5) 27.4 75% 20.8% 2.8 (1.2) 1.6 29.0 (4.9) 17.0% 24.0 0.0% 24.0 89% 18.3% 24.0 31.4 31.5 0.77 $ 0.76 $ 73% 136.8 1% 29.0% (3.7) 0.8% (38.7) 8.2% (42.4) 94.3 1% 20.0% 5.6 (4.6) 1.0 95.3 (16.2) 17.0% 79.1 0.0% 79.1 3% 16.8% 79.1 31.3 31.4 2.53 $ 2.52 $ 2% 13.5 1.2 109.0 23.1% 6.48 35.7 17% 29% (1.0) 0.8% (10.1) 8.2% (11.1) 24.6 25% 19.9% 1.0 (1.2) (0.2) 24.5 (4.2) 17.0% 20.3 0.0% 20.3 25% 16.4% 20.3 31.4 31.6 0.65 $ 0.64 $ 24% 39.0 20% 29% (1.1) 0.8% (10.1) 7.5% (11.2) 27.9 31% 20.7% 1.5 (1.2) 0.3 28.1 (4.8) 17.0% 23.3 0.0% 23.3 32% 17.3% 23.3 31.5 31.7 0.74 $ 0.74 $ 31% 40.7 13% 29% (1.1) 0.8% (10.2) 7.3% (11.4) 29.3 13% 20.9% 0.8 (1.2) (0.4) 28.9 (4.9) 17.0% 24.0 0.0% 24.0 13% 17.1% 24.0 31.5 31.7 0.76 $ 0.76 $ 13% 43.5 15% 29% (1.2) 0.8% (11.0) 7.3% (12.2) 31.4 14% 20.9% 1.3 (1.2) 0.1 31.5 (5.3) 17.0% 26.1 0.0% 26.1 9% 17.4% 26.1 31.6 31.8 0.83 $ 0.82 $ 8% 159.0 16% 29.0% (4.4) 0.8% (41.5) 7.6% (45.9) 113.1 20% 20.6% 4.7 (4.8) (0.2) 113.0 (19.2) 17.0% 93.8 0.0% 93.8 18% 17.1% 93.8 31.5 31.7 2.98 2.96 18% 14.7 1.3 129.1 23.5% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
$ $
0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 2.47 $ 0.52 $ 0.57 $ 1.19 $ 0.77 $ 2.46 $ 0.52 $ 0.56 $ 31% (35.7%) 221% (21.1%) (31.1%) 7.7 17.0 11.5 1.8 1.2 1.0 43.8 36.3% 6.83 74.1 33.2% 6.84 105.8 24.8% 6.76
6.57
6.54
6.51
6.48
6.45
6.42
6.39
6.36
Maxim Group LLC
406
As of:
5/3/2011
with Rating 64.5% 31.6% 3.9%
Maxim Group LLC
407

and/or industry events that adversely impact demand for the companys products and services, product obsolescence, the companys ability to recruit and retain competent personnel, changes in investor sentiment regarding the specific company or industry, changing competitive pressures and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-K that the company has filed with the SEC. Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Failure of the proposed LBO to be completed; (2) Slowdown of Chinese economy; (3) Raw material price increases; (4) High competition in industrial motor market; (5) Difficulties of developing linear motor market; and (6) Potential equity issuance.
RISK RATINGS
Maxim Group LLC
408
DISCLAIMERS
Maxim Group LLC
409
Mark Tobin, (949) 720-5775 mtobin@roth.com Emma Jia Zhao, CFA, (86) (21) 6141-5757 x 7825 ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
CHINA FLASH NOTE | EQUITY RESEARCH | May 2, 2011

Industry Update
Auditor: FRAZER FROST LLP EPS (Net) Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 6.9x 2011E Curr 0.65E 0.72E 0.87E 0.87E 3.11E 6.0x
| HRBN - $18.72 - NASDAQ | Buy HRBN: 13D Suggests Privatization On Track
$14.95 - $25.05 31.25 $585.0 412,014 $24.00 $98.8 $79.6 25%
Form 13D's filed this morning suggest that the financing for HRBN's privatization is in place and the deal is on track for completion at $24 per share, in our view. This morning, Form 13D's were filed by HRBN Chairman Yang and by Abax Global Capital Ltd. Key takeaways include:
2012E Curr 3.76E 5.0x
s s
s s
Proposed $24 buyout price Received commitment for $400M term loan facility from China Development Bank Received commitment for up to $63.8M equity and debt financing from Abax Subject to customary closing conditions, including shareholder approval
EPS (Net): Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 112.9E 122.5E 136.8E 140.1E 512.3E 2012E Curr 625.5E
We believe today's announcement is the most significant for the HRBN privatization and view the remaining steps largely as formalities. We maintain our BUY rating and $24 price target.
28 26 24 22 20 18 16 14 12
6.00 5.25 4.50 3.75 3.00 2.25 1.50 0.75 0.00
Feb-11
Aug-10
Sep-10
Nov-10
Dec-10
Mar-11
Jan-11
Jun-10
Oct-10
Apr-11
Jul-10
Intraday Price: $ 20.21 at 11:11am ET
410
May 2, 2011
VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching price target include s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s Continued share weakness could lead to a lower takeout offer. s A slow-down in China''s economic growth and continued inflation could impact sales and compress margins.
RISKS
Change in macro policies in China. Two of HRBN''s major catalysts, oil pump for oilfield and linear motors for urban metro lines, can be largely affected by central and local government policies. The development of urban railways can experience delays that out of control of HRBN, such as delay in construction. Volatile raw materials costs HRBN is subject to market fluctuations and volatility of two major raw materials, copper and steel respectively.
COMPANY DESCRIPTION
Page 2 of 4
411
May 2, 2011
Disclosures:
Count 202 60 4
Percent 75.7 22.5 1.5
Page 3 of 4
412
May 2, 2011
Page 4 of 4
413
Equity Research

Dropping Coverage
We are dropping coverage of Harbin Electric, Inc. based on the submission of a proposal from the CEO and his partners to the board of directors to acquire all the publicly held shares of the company at $24 per share. Our final rating was Outperform.
Global Industrial Infrastructure Industrial Technology
May 02, 2011 Stock Rating:
Outperform
Company Profile:Aggressive Growth Symbol: HRBN (NASDAQ) Price: $18.72 (52-Wk.: $15-$25) Market Value (mil.): $560 Fiscal Year End: December Long-Term EPS Growth Rate: 25% Dividend/Yield: None 2010A Estimates EPS FY CY Valuation FY P/E CY P/E $2.72 2011E $2.72 $2.72 2012E NA NA
6.9x
6.9x 6.9x
NA NA
Trading Data (Thomson Financial) Shares Outstanding (mil.) 31 Float (mil.) 21 Average Daily Volume 404,003 Financial Data (Thomson Financial) Long-Term Debt/Total Capital (MRQ) 26.1 Book Value Per Share (MRQ) 5.0 Enterprise Value (mil.) 566.9 EBITDA (TTM) 103.0 Enterprise Value/EBITDA (TTM) 5.5x Return on Equity (TTM) 18.3 Two-Year Price Performance Chart
$25
$20
$15
$10
$5
$0 12/31/09 12/31/10
Source: Thomson Financial, William Blair & Company estimates
Brian Drab, CFA 312.364.8280 bdrab@williamblair.com
Liping Cai, CFA +86 21 2327 2260 lcai@williamblair.com
Tim Mulrooney 312.364.8123 tmulrooney@williamblair.com
China-based Harbin Electric is a leading manufacturer of electric motors in China, including linear motors, micro-motors, and rotary motors. Manufacturing operations are located in the cities of Harbin, Shanghai, Weihai, and Xian. The company generates about 90% of sales in China and 10% in international end-markets.
Please consult the last page of this report for all disclosures.
414
William Blair & Company, L.L.C.

William Blair & Company, L.L.C. and its affiliates beneficially own or control (either directly or through its managed accounts) 1% or more of the equity securities of Harbin Electric, Inc. as of the end of the month ending not more than 40 days from the date herein. William Blair & Company, L.L.C. is a market maker in the security of Harbin Electric, Inc. and may have a long or short position. Additional information is available upon request.
Harbin Electric Inc. (HRBN)
Previous Close: $18.72
Current Rating: Outperform

Apr 29, 2009 - May 2, 2011 $26 $24 $22 $20 $18 $16 $14 $12 $10 $8 12/31/09
Source: William Blair & Company, L.L.C. and FactSet
8/11/09 - O
12/31/10
Legend: I = Initiation, D = Dropped, R = Restricted, NR = Not Rated @ = Analyst Change
Current Rating Distribution (as of 04/30/11) Coverage Universe Percent Outperform (Buy) Market Perform (Hold) Underperform (Sell) 58 31 1
Inv. Banking Relationships* Outperform (Buy) Market Perform (Hold) Underperform (Sell)
Percent 8 2 0
*Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months. Brian Drab, Liping Cai attests that 1) all of the views expressed in this research report accurately reflect his/her personal views about any and all of the securities and companies covered by this report, and 2) no part of his/her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed by him/her in this report. We seek to update our research as appropriate, but various regulations may prohibit us from doing so. Other than certain periodical industry reports, the majority of reports are published at irregular intervals as deemed appropriate by the analyst. Stock Rating: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings reflect the expected performance of the stock relative to the broader market over the next 12 months. The assessment of expected performance is a function of near-term company fundamentals, industry outlook, confidence in earnings estimates, valuation, and other factors. Outperform (O) stock expected to outperform the broader market over the next 12 months; Market Perform (M) stock expected to perform approximately in line with the broader market over the next 12 months; Underperform (U) stock expected to underperform the broader market over the next 12 months; Not Rated (NR) the stock is currently not rated. Company Profile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company profile is a fundamental assessment, over a longer-term horizon, of the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and strength of franchise (management strength and track record, market leadership, distinctive capabilities); 2) financial profile (earnings growth rate/consistency, cash flow generation, return on investment, balance sheet, accounting); 3) other factors such as sector or industry conditions, economic environment, confidence in long-term growth prospects, etc. Established Growth (E) Fundamental risk is lower relative to the broader William Blair universe; Core Growth (C) Fundamental risk is approximately in line with the broader William Blair universe; Aggressive Growth (A) Fundamental risk is higher relative to the broader William Blair universe.
Brian Drab, CFA 312.364.8280
415

The ratings and company profile assessments reflect the opinion of the individual analyst and are subject to change at any time. The compensation of the research analyst is based on a variety of factors, including performance of his or her stock recommendations; contributions to all of the firms departments, including asset management, corporate finance, institutional sales, and retail brokerage; firm profitability; and competitive factors. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategiesto our clients and our trading desksthat are contrary to opinions expressed in this research. Our asset management and trading desks may make investment decisions that are inconsistent with recommendations or views expressed in this report. We will from time to time have long or short positions in, act as principal in, and buy or sell the securities referred to in this report. Our research is disseminated primarily electronically, and in some instances in printed form. Electronic research is simultaneously available to all clients. This research is for our clients only. No part of this material may be copied or duplicated in any form by any means or redistributed without the prior written consent of William Blair & Company, L.L.C. THIS IS NOT IN ANY SENSE A SOLICITATION OR OFFER OF THE PURCHASE OR SALE OF SECURITIES. THE FACTUAL STATEMENTS HEREIN HAVE BEEN TAKEN FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT SUCH STATEMENTS ARE MADE WITHOUT ANY REPRESENTATION AS TO ACCURACY OR COMPLETENESS OR OTHERWISE. OPINIONS EXPRESSED ARE OUR OWN UNLESS OTHERWISE STATED. PRICES SHOWN ARE APPROXIMATE. THIS MATERIAL HAS BEEN APPROVED FOR DISTRIBUTION IN THE UNITED KINGDOM BY WILLIAM BLAIR INTERNATIONAL, LIMITED, REGULATED BY THE FINANCIAL SERVICES AUTHORITY (FSA), AND IS DIRECTED ONLY AT, AND IS ONLY MADE AVAILABLE TO, PERSONS FALLING WITHIN COB 3.5 AND 3.6 OF THE FSA HANDBOOK (BEING ELIGIBLE COUNTERPARTIES AND PROFESSIONAL CLIENTS). THIS DOCUMENT IS NOT TO BE DISTRIBUTED OR PASSED ON TO ANY RETAIL CLIENTS. NO PERSONS OTHER THAN PERSONS TO WHOM THIS DOCUMENT IS DIRECTED SHOULD RELY ON IT OR ITS CONTENTS OR USE IT AS THE BASIS TO MAKE AN INVESTMENT DECISION. WILLIAM BLAIR & COMPANY AND WILLIAM BLAIR & COMPANY (SCRIPT) ARE REGISTERED TRADEMARKS OF WILLIAM BLAIR & COMPANY, L.L.C. Copyright 2011, William Blair & Company, L.L.C.
416
Mark Tobin, (949) 720-5775 mtobin@roth.com Kun Tao, CFA, (949) 720-7149 ktao@roth.com Emma Jia Zhao, CFA, (86) (21) 6141-5757 x 7825 ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
INDUSTRY NOTE | CHINA EQUITY RESEARCH | April 20, 2011
China
U.S.-Listed China - Privatization Update (2nd Edition)
The attached industry report provides an update on the pending privatization activity within the U.S.-listed Chinese sector. Shares of some companies (CSR, FSIN, HRBN) are trading at meaningful discounts to the respective proposed buy-out price, while others maintain a narrower range. We believe the former group could present an attractive investment opportunity for eventdriven investors. There are currently six companies that have buy-out activities ongoing, three completed transactions, and one transaction that was abandoned. Since our initial report on this topic (dated March 31, 2011), there have been noteworthy events related to several of the pending transactions.
s
Reason for Report:

Industry Update

CFSG FSIN HRBN $6.67 $8.24 $20.29 Buy Buy Buy
s s
On April 7, 2011, QXM announced that its proposed buy-out was abandoned permanently due to a lack of shareholder quorum. On April 15, 2011, TCM announced the completion of its acquisition by Hanmax and Fosun. On April 15, 2011, HRBN released a Form 8-K indicating that the Chairman expected to announce a $24 bid on April 18, 2011. As of the date of this report, no announcement has been made.
Important Disclosures & Regulation AC Certification(s) are located on the last page of this report.
417
CHINA
China Industry Note - April 20, 2011
BMP Sunstone BJGP Buyers (as announced) Sanofi-Aventis
Chemspec International CPC Chairman & CEO, Primavera
China Fire & Security CFSG Undisclosed private equity firm
China Security & Surveillance Technology CSR Chairman & CEO
Qiao Xing Mobile Fushi Copperweld FSIN Harbin Electric HRBN Communication QXM
(3)
Sinoenergy SNEN Skywide Capital Management (owned by management)
Tongjitang Chinese Medicines TCM Hanmax (controlled by CEO) / Fosun CEO & Director
Chariman & CEO, Chairman & CEO, Parent Company Qiao Abax Global Capital Baring Private Equity Xing Universal Resources, Inc. (Nasdaq: XING)
Announcement Date
Oct-28-2010
Nov-11-2010
Mar-07-2011
Mar-08-2011
Nov-03-2010
Oct-11-2010
Sep-09-2010
Oct-12-2009
Nov-01-2010
Mar-10-2008
Pre-deal buyer/mgt ownership %
23.0%
55.0%
NA (2)
20.9%
29.2%
31.1%
61.0%
39.1%
83.0%
39.2%
Bid Price per share or ADS
$10.00
$8.00
Undisclosed price at a premium
$6.50
$11.50
$24.00
$3.92
$1.90
$4.50
$10.20
Price day prior to announcement

(1)
$7.66
$6.32
$6.26
$4.10
$9.10
$19.96
$3.55
$1.28
$3.95
$6.60
Premium
31%
27%
NA
59%
26%
20%
10%
48%
14%
55%
Price revision Date
--
Mar-21-2011
--
--
--
--
--
--
--
--
Revised Price
--
$8.10
--
--
--
--
--
--
--
--
Current Price (04/19/2011)
--
$7.28
$6.67
$4.51
$8.24
$20.29
--
--
--
--
Current discount to bid price Status
-Completed on Feb24-2011
(10.1%)
NA
(30.6%) Under review by special committee
(28.3%) Under review by special committee
(15.5%) Under review by special committee; Buyers lined up financing, no intention to raise offer price (4)
--
--
--
--
Subject to Under review by shareholder vote, special committee expected to close by the end of Q3'11
Abandoned for lack of Completed on Sepquorum in shareholder 29-2010 meeting on April-072011
Completed on April- Withdrawn on Jun15-2011; Pending 27-2008 delisting
Stephens Inc.
Houlihan Lokey
Barclays Capital
Nomura International (HK)
BofA Merrill Lynch
Morgan Stanley & Co.
Not disclosed
Brean Murray, Carret & Co.
Morgan Stanley Asia Morgan Stanley Asia Limited Limited Sheppard, Mullin, Richter & Hampton LLP / Thorp Alberga
Board Legal Advisor

(1) (2) (3) (4)
Morgan, Lewis & Bockius LLP
Shearman & Sterling Shearman & Sterling Shearman & Sterling LLP / Maples and LLP LLP Calder
Not disclosed
Arent Fox LLP
NA
Premium of bid price above the closing price on previous trading day before announcement Not disclosed. Li Family and key management own 59.9% of CFSG shares outstanding The offer price is 1.9 shares of XING common stock plus $0.8 in cash, we convert to dollar value using XING's closing price on Sept-8-2010 HRBN's 8-K filed on April 15, 2011 cited CEO's indication that financing was lined-up
Source: Company Filings
Page 2 of 6
418
CHINA

VALUATION
Our $8 price target is based on a 14.5x multiple applied to our 2011 GAAP EPS estimate of $0.55. The premium multiple is based on our expectation for a >30% buy-out premium. Factors that may impede CFSG shares from reaching price target include a buyout process does not materialize, substantial weakness in the company's fundamentals, or unexpected management turnover.
RISKS

VALUATION
Our $11.50 price target reflects the proposed Fu/Abax going private bid price. Factors that may impede FSIN shares from reaching price target include failure of completion of the going private buyout, delays or restatements associated with its 2010 annual audit, and rapid decline in copper prices.
RISKS
Volatile raw material prices. Fushi's selling prices are highly dependent on copper, aluminum and steel prices. Changes in these prices may adversely impact demand for FSIN's bi-metallic products and its operational results. Execution/integration risk. FSIN continues to integrate its acquired operations, including Copperweld, Shanghai Hongtai, and Dalian Jinchuan. Its overall global expansion strategy faces execution risk due to a variety of factors. Restatement risk. The company appointed KPMG as its independent auditor in January 2011, replacing Frazer Frost. Its first annual audit will be signed-off with the filing of the Company's 2010 Form 10-K which we expect will be filed in March 2011. The change in auditor could present risk of delayed filings or restatements, which could negatively impact share performance, in our opinion. Going private transaction risk. In November 2010, FSIN's Board of Directors received a going private proposal from its Chairman (Mr. Fu) and Abax Global Capital to acquire all of the outstanding shares of common stock for $11.50 per share. The inability to complete this transaction could negatively impact share performance. Management turnover. The company's current CFO, Craig Studwell, was appointed in October 2010. While we view Mr. Studwell as highly experienced and capable, we note that his tenure with FSIN is limited and he has yet to oversee the filing of an audited annual report for the company. Litigation risk. Associated with its going private proposal, a shareholder class action lawsuit was filed against the Company and certain officers and directors. This lawsuit could consume financial and management resources, presenting financial and business risk.
Page 3 of 6
419
CHINA

VALUATION
Our $24 price target reflects the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching price target include: there are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction, continued share weakness could lead to a lower takeout offer, a slow-down in China's economic growth and continued inflation could impact sales and compress margins.
RISKS
Page 4 of 6
420
CHINA

Disclosures:
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Fushi Copperweld, Inc. stock. ROTH makes a market in shares of China Fire & Security Group, Inc., Fushi Copperweld, Inc. and Harbin Electric, Inc. and as such, buys and sells from customers on a principal basis. On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral.
Page 5 of 6
421
CHINA
Rating Buy [B] Neutral [N] Sell [S] Not Rated [NR]
Count 197 61 4 0
Percent 74.9 23.2 1.5 0.0
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A security, which at the time the rating is instituted and or reiterated, indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Not Covered (NC): ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
Page 6 of 6
422
EQUITY RESEARCH
COMPANY UPDATE
China April 14, 2011
Closing Price (4/13/11): 12-Month Target Price: 52-Week Range: Market Cap (MM): Shares O/S (MM): Float (MM): Shares Short (MM): Avg. Vol. (000) Book Value/Share: Dividend/Yield: Risk Profile: Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Maxim Group FYE: December 2009A: GAAP 2010A: GAAP 2011E: GAAP 2012E: GAAP LT Earnings Growth Maxim Group FYE: December 1Q 2Q 3Q 4Q FY Consensus-First Call FYE: December 1Q 2Q 3Q 4Q FY Echo He, MD, PhD ehe@maximgrp.com $18.60 $24 $14.95 - $25.05 $582.2 31.3 20.1 5.2 355 $18.50 NA Medium Revenues ($M) 2011E 2012E $104.8 $123.6 $112.2 $134.7 $123.0 $140.4 $131.6 $150.4 $471.6 $549.0 Current Current EPS P/E $0.77 24.2 $2.46 7.6 $2.52 7.4 $2.96 6.3 15% GAAP Quarterly EPS Current Current 2011E 2012E $0.52 $0.64 $0.56 $0.74 $0.67 $0.76 $0.76 $0.82 $2.52 $2.96 Quarterly EPS 2011E 2012E $0.60 $0.67 $0.69 $0.84 $0.80 $0.88 $0.81 $0.96 $2.91 $3.51 (212) 895-3718

Buy
LBO proposal may be nearing the end of the tunnel; Reiterate Buy rating and $24 price target
A brief history. On October 11, 2010, HRBNs Chairman and CEO, Tianfu Yang, who owns 31% of HRBN, announced a LBO proposal with Baring Private Equity Asia (Baring) as an exclusive partner and Goldman Sachs Asia as an advisor that committed to securing debt financing. The story took a drastic turn on November 23, 2010, when the agreement between the Chairman and Baring ended. Investors raised their doubts on whether the LBO could find financial support. Then, on January 11, 2011, Abax Global Capital (Abax) announced a 5.4% ownership of and Standstill Agreement with HRBN, suggesting a role for Abax in the LBO syndication. We believe that after more than six months, the time is near to see some evidence of debt and equity investment for the LBO. On the equity side, there is likely a limited number of investors, given that the Chairman intends to control as much equity as possible. On the debt side, we believe state-owned banks are more likely to play a role, evidenced by China Development Banks $50M loan to HRBN announced on November 22, 2010. Overall, we believe Chinese institutions will constitute the majority of the LBO syndication; HRBN is considered a quality investment target in the eyes of Chinese institutions because: (1) it has solid assets and an established domestic market share; and (2) it is valued at ~50% or less of similar assets trading on Hong Kong and/or Mainland China stock exchanges. Our positive outlook for HRBNs LBO is case-specific and should not be generalized among other Chinese company buy-out proposals. In our view, the ultimate purpose of Chinese company buy-outs is to re-list them on the Hong Kong or Mainland China stock exchanges, for which the investor base and preferences are different from U.S. exchanges. We believe companies with high tangible asset values, material market shares, and considerable histories of operation (among other aspects) are more welcomed by Chinese investors. Overall, our confidence for a successful conclusion of HRBNs LBO is based on our belief in: (1) the likeliness of available financing from Chinese institutions; (2) the feasibility for buying parties to buy back HRBN and re-list it on a Chinese exchange at a doubled (or even higher) valuation; and (3) HRBNs reliable historical financials. We reiterate our Buy rating and $24 price target, which is the announced LBO offer price.

$ $ $ $ $ $ $ $ $
269 185 291 256 192 180 262 207 109
$ $ $ $ $ $ $ $ $
1.12 0.27 1.30 1.40 0.49 0.95 0.91 1.01 1.06
$ $ $ $ $ $ $ $ $
1.23 0.71 1.20 1.80 0.59 1.27 0.99 1.18 1.19
$ $ $ $ $ $ $ $ $
1.49 1.32 1.39 1.80 0.70 1.57 1.15 1.46 1.33
8.9x 15.1x 6.0x 4.8x 7.2x 5.6x 8.0x 4.9x 5.3x 7.3x
8.1x 5.7x 6.5x 3.7x 6.0x 4.2x 7.3x 4.2x 4.8x 5.3x
6.7x 3.1x 5.6x 3.7x 5.1x 3.4x 6.3x 3.4x 4.3x 4.6x
1.06 0.56 3.40 0.37 0.22
$ $ $ $ $
713 1,653 1,156 405 169
$ $ $ $ $
0.11 0.03 0.19 0.03 0.02
$ $ $ $ $
0.10 0.04 0.22 0.03 0.02
$ $ $ $ $
0.11 0.04 0.26 0.03 0.02
9.7x 17.4x 17.9x 13.2x 12.0x 14.1x
10.3x 15.4x 15.3x 12.7x 10.8x 12.9x
9.4x 13.8x 13.1x 11.3x 9.6x 11.4x
China Mainland Listed China Motor Companies Xiangtan Electric 600416-S $ 4.42 $ Zhejiang Founder Motor 002196-S $ 3.63 $ BroadOcean 002249-S $ 4.15 $ Shanghai Electric Group 601727-S $ 1.17 $ Dongfang Electric Group 600875-S $ 4.08 $ Average
1,346 394 1,779 11,507 6,784
$ $ $ $ $
0.11 0.04 0.08 0.03 0.19
$ $ $ $ $
0.15 0.05 0.12 0.04 0.22
$ $ $ $ $
0.22 0.18 0.18 0.04 0.28
40.8x 99.3x 53.6x 36.5x 21.5x 50.3x
28.6x 68.9x 35.8x 30.8x 18.2x 36.5x
20.5x 20.7x 22.6x 26.9x 14.5x 21.0x
$ 6.09 $ 1.25 $ 2.69 $ 3.08 $ 5.17 $ 4.34 $ 3.05 $ 4.42 n/a $ 2.87 $ 1.94
$ 9.60 $ 1.54 $ 3.29 $ 3.78 $ 7.22 $ 4.78 $ 4.51 $ 4.95 n/a $ 2.07 $ 2.27
$ 10.27 $ 1.85 $ 3.85 $ 4.42 $ 8.69 $ 5.39 $ 5.31 $ 5.69 n/a -$ 2.45 $ 2.67
22.3x 19.4x 21.3x 17.3x 20.5x 10.6x 30.0x 10.7x -14.7x 22.8x 18.9x
14.1x 15.8x 17.4x 14.1x 14.7x 9.6x 20.3x 9.5x -20.3x 19.5x 15.5x
13.2x 13.1x 14.9x 12.1x 12.2x 8.5x 17.3x 8.3x 17.2x 16.6x 13.3x
Maxim Group LLC
424

(In millions except per shr) Revenue Drivers: Linear Motors Y/Y Growth % of Total Rev Specialty Micro-Motors Y/Y Growth % of Total Rev Rotary Motors - Weihai Y/Y Growth % of Total Rev Rotary Motors - Xi'an Y/Y Growth % of Total Rev Revenues Y/Y Growth Cost of sales Gross profit Y/Y Growth Gross Margin R&D As % of Rev G&A As % of Rev Total operating expenses Income from operations Y/Y Growth Operating Margin Other income (expenses), net Interest expense, net Total other income (expense) Income before income taxes Provision for income taxes Tax Rate Net income before noncontrolling intere Minority interests As % of net income Net income Y/Y Growth Net Margin Foreign currency translation adjustmen Comprehensive income Weighted average shares outstanding Basic Diluted EPS (to controlling interest) Basic Diluted Y/Y Growth D&A Share-based compensation EBITDA EBITDA margin Exchange Rate (RMB/US$) $ $ 2004 Full Yr 2005 Full Yr 2006 Full Yr 2007 Full Yr 36.6 2008 Full Yr 49.5 35% 41% 33.8 85% 28% 27.8 2009 Full Yr 1Q10 31-Mar 2Q10 30-Jun 3Q10 30-Sep 4Q10 31-Dec 2010 Full Yr 1Q11E 31-Mar 2Q11E 30-Jun 3Q11E 30-Sep 4Q11E 31-Dec 2011E Full Yr 1Q12E 31-Mar 2Q121E 30-Jun 3Q12E 30-Sep 4Q12E 31-Dec 2012E Full Yr
19.8 20.1 19.3 17.0 76.3 16.9 18.1 19.3 20.4 74.8 18.5 20.8 21.3 23.5 84.2 60% 74% 18% -14% 27% -15% -10% 0% 20% -2% 10% 15% 10% 15% 13% 56% 19% 19% 18% 16% 18% 16% 16% 16% 16% 16% 15% 15% 15% 16% 15% 18.3 16.2 15.2 15.3 14.0 60.8 13.8 14.7 15.3 16.1 60.0 15.2 16.2 16.8 17.7 66.0 166% 78% 81% -18% 51% (15.0%) (3.0%) 0% 15% -1% 10% 10% 10% 10% 10% 28% 15% 14% 14% 13% 14% 13% 13% 12% 12% 13% 12% 12% 12% 12% 12% 22.5 23.6 23.5 23.7 93.2 22.5 25.9 27.0 30.8 106.2 28.1 31.1 31.9 35.5 126.5 107% 39% 14% 3% 31% 0% 10% 15% 30% 14% 25% 20% 18% 15% 19% 0% 21% 22% 21% 22% 22% 21% 23% 22% 23% 23% 23% 23% 23% 24% 23% 45.0 44.6 48.9 49.9 188.5 49.5 51.3 58.7 62.4 221.9 59.5 64.1 67.5 71.8 262.8 13% 6% 11% 12% 11% 10% 15% 20% 25% 18% 20% 25% 15% 15% 18% 0% 0% 20% 43% 42% 45% 47% 44% 47% 46% 48% 47% 47% 48% 48% 48% 48% 48% 4.9 $ 23.6 $ 40.4 $ 65.4 $ 120.8 $ 223.2 $ 105.5 $ 105.4 $ 109.4 $ 106.2 $ 426.5 $ 104.8 $ 112.2 $ 123.0 $ 131.6 $ 471.6 $ 123.6 $ 134.7 $ 140.4 $ 150.4 $ 549.0 387% 71% 62% 85% 85% 243% 175% 133% -1% 91% (0.7%) 6% 12% 24% 11% 18% 20% 14% 14% 16% (2.3) (12.1) (20.8) (33.0) (73.3) (146.6) (69.7) (70.1) (75.8) (75.1) (290.8) (74.2) (79.8) (87.2) (93.6) (334.8) (87.8) (95.6) (99.7) (106.9) (390.0) 2.6 52.9% (0.1) 1.9% (0.2) 3.8% (0.3) 2.3 47.1% 0.0 0.0 2.3 0.0% 2.3 0.0% 2.3 47.6% 2.2 6.4 6.4 0.36 0.36 0.1 2.4 48.6% 8.28 $ $ 11.6 350% 48.9% (0.3) 1.4% (1.3) 5.3% (1.6) 10.0 42.1% 0.0 0.0 10.0 0.0% 10.0 0.0% 10.0 333% 42.3% 0.5 11.1 14.9 15.1 0.67 $ 0.66 $ 82% 0.4 10.3 43.7% 8.07 19.7 70% 48.6% (1.5) 3.7% (4.2) 10.3% (5.7) 14.0 34.6% 0.0 (2.5) 4.4 18.4 0.0% 18.4 0.0% 18.4 84% 45.6% 1.0 19.5 16.6 18.3 32.4 65% 49.6% (1.1) 1.6% (7.7) 11.7% (8.7) 23.7 36.3% (0.2) (6.6) (6.8) 16.9 0.0% 16.9 0.0% 16.9 (8%) 25.8% 7.2 13.2 17.1 18.6 47.5 46% 39.3% (1.2) 1.0% (11.9) 9.9% (13.1) 34.4 45% 28.5% 1.6 (6.1) (4.5) 29.9 (4.5) 15.1% 25.4 0.0% 25.4 50% 21.0% 9.5 40.0 20.2 21.3 76.6 61% 34.3% (2.1) 0.9% (18.7) 8.4% (20.8) 55.8 62% 25.0% 5.5 (12.3) (24.9) 30.9 (7.8) 25.2% 23.1 (3.5) 11.3% 19.6 (23%) 8.8% (0.1) 16.3 25.6 25.7 35.7 227% 33.9% (0.6) 0.6% (7.4) 7.0% (8.0) 27.7 246% 26.3% 1.1 (1.6) (0.8) 27.0 (4.1) 15.1% 22.9 (2.4) 8.7% 20.6 137% 19.5% 0.1 20.6 31.1 31.4 0.66 $ 0.66 $ 68% 3.3 0.3 31.3 6.84 35.3 175% 33.5% (0.4) 0.3% (6.9) 6.5% (7.2) 28.1 219% 26.6% 1.3 (1.0) 1.4 29.5 (3.8) 12.9% 25.7 (0.0) 0.0% 25.7 NM 24.4% 1.3 27.0 31.1 31.3 0.83 $ 0.82 $ NM 2.8 0.3 31.1 6.84 33.6 100% 30.7% (1.7) 1.5% (10.1) 9.2% (11.7) 21.9 68% 20.0% 0.7 (1.1) (0.7) 21.2 (3.3) 15.6% 17.9 (0.0) 0.1% 17.9 NM 16.3% 5.6 23.5 31.1 31.3 31.1 -14% 29.2% (0.8) 0.8% (14.6) 13.8% (15.4) 15.6 (39.7%) 14.7% 2.3 (0.8) 0.9 16.6 (3.8) 22.7% 12.8 (0.1) 0.4% 12.7 -31% 12.0% 6.7 19.4 31.1 31.3 135.7 77% 31.8% (3.4) 0.8% (39.0) 9.1% (42.4) 93.3 67% 21.9% 5.5 (4.6) 0.8 94.2 (14.9) 15.8% 79.2 (2.4) 2.6% 76.8 291% 18.0% 13.7 90.5 31.1 31.3 30.6 (14%) 29% (0.8) 0.8% (10.0) 9.5% (10.8) 19.8 (29%) 18.9% 1.0 (1.2) (0.2) 19.5 (3.3) 17.0% 16.2 0.0% 16.2 (21.2%) 15.5% 16.2 31.2 31.3 32.4 -8% 29% (0.9) 0.8% (10.3) 9.2% (11.2) 21.2 (25%) 18.9% 1.2 (1.0) 0.2 21.4 (3.6) 17.0% 17.7 0.0% 17.7 (31.0%) 15.8% 17.7 31.2 31.4 35.8 7% 29% (0.9) 0.8% (9.0) 7.3% (9.9) 25.9 19% 21.1% 0.7 (1.2) (0.5) 25.5 (4.3) 17.0% 21.1 0.0% 21.1 18% 17.2% 21.1 31.3 31.5 0.68 $ 0.67 $ 18% 37.9 22% 29% (1.1) 0.8% (9.5) 7.2% (10.5) 27.4 75% 20.8% 2.8 (1.2) 1.6 29.0 (4.9) 17.0% 24.0 0.0% 24.0 89% 18.3% 24.0 31.4 31.5 0.77 $ 0.76 $ 73% 136.8 1% 29.0% (3.7) 0.8% (38.7) 8.2% (42.4) 94.3 1% 20.0% 5.6 (4.6) 1.0 95.3 (16.2) 17.0% 79.1 0.0% 79.1 3% 16.8% 79.1 31.3 31.4 2.53 $ 2.52 $ 2% 13.5 1.2 109.0 23.1% 6.48 35.7 17% 29% (1.0) 0.8% (10.1) 8.2% (11.1) 24.6 25% 19.9% 1.0 (1.2) (0.2) 24.5 (4.2) 17.0% 20.3 0.0% 20.3 25% 16.4% 20.3 31.4 31.6 0.65 $ 0.64 $ 24% 39.0 20% 29% (1.1) 0.8% (10.1) 7.5% (11.2) 27.9 31% 20.7% 1.5 (1.2) 0.3 28.1 (4.8) 17.0% 23.3 0.0% 23.3 32% 17.3% 23.3 31.5 31.7 0.74 $ 0.74 $ 31% 40.7 13% 29% (1.1) 0.8% (10.2) 7.3% (11.4) 29.3 13% 20.9% 0.8 (1.2) (0.4) 28.9 (4.9) 17.0% 24.0 0.0% 24.0 13% 17.1% 24.0 31.5 31.7 0.76 $ 0.76 $ 13% 43.5 15% 29% (1.2) 0.8% (11.0) 7.3% (12.2) 31.4 14% 20.9% 1.3 (1.2) 0.1 31.5 (5.3) 17.0% 26.1 0.0% 26.1 9% 17.4% 26.1 31.6 31.8 0.83 $ 0.82 $ 8% 159.0 16% 29.0% (4.4) 0.8% (41.5) 7.6% (45.9) 113.1 20% 20.6% 4.7 (4.8) (0.2) 113.0 (19.2) 17.0% 93.8 0.0% 93.8 18% 17.1% 93.8 31.5 31.7 2.98 2.96 18% 14.7 1.3 129.1 23.5% 6.36
60.3 22% 27% 40.2 19% 18% 71.4 157% 23% 32% $ 44.5
1.11 $ 0.99 $ 1.01 $ 0.91 $ 53% (10%) 2.2 6.2 0.9 1.6 17.1 42.3% 7.80 31.4 48.1% 7.30
1.25 $ 0.77 $ 1.19 $ 0.77 $ 31% (35.7%) 7.7 17.0 1.8 1.2 43.8 36.3% 6.83 74.1 33.2% 6.84
0.57 $ 0.44 $ 2.47 $ 0.52 $ 0.57 $ 0.57 $ 0.44 $ 2.46 $ 0.52 $ 0.56 $ NM -25% 221% (21.1%) (31.1%) 3.1 2.3 11.5 0.3 0.2 1.0 25.2 6.84 18.2 6.60 105.8 24.8% 6.76
6.57
6.54
6.51
6.48
6.45
6.42
6.39
6.36
Maxim Group LLC
425
As of:
4/14/2011
with Rating 61.4% 34.1% 4.5%
Maxim Group LLC
426

and/or industry events that adversely impact demand for the companys products and services, product obsolescence, the companys ability to recruit and retain competent personnel, changes in investor sentiment regarding the specific company or industry, changing competitive pressures and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-K that the company has filed with the SEC. Investment Risks: Aside from general market and other economic risks, risks particular to our Harbin Electric, Inc. rating include: (1) Slowdown of Chinese economy; (2) Raw material price increases; (3) High competition in industrial motor market; (4) Difficulties of developing linear motor market; (5) Potential equity issuance; and (6) Failure of the proposed LBO to be completed.
RISK RATINGS
Maxim Group LLC
427
DISCLAIMERS
Maxim Group LLC
428
D.I. REPORT
HRBN $19.62 Mkt. Cap.

$613 million
A p r i l 1 2 , 2 0 11
Our Process and D.I. Rating Our process is simple. We consistently research the same 100 risk factors on each company, harvested from 5 years of SEC filings, across the following major categories: SEC activity; accounting/auditor issues; capital markets events; stability of the board and executives, and non-SEC investigative activity. Each D.I. Report identifies and summarizes those risk factors that we believe hold the potential to destabilize a company, distract its management, and/or interfere with underlying fundamentals. Our reports otherwise take no view on a public companys fundamental outlook or whether you should buy, sell, or hold its securities. D.I. Ratings, range from Low to High Risk. They are based on the number, nature, and timing of the risk factors we found among the 100 we research over the most recent 5 years. Detailed, well-organized, and in-depth analyst notes are available to subscribers for each D.I. Report we publish. High Risk It is our opinion that companies with a High Risk rating carry so much risk as to hold the potential to overwhelm underlying fundamentals. Required Disclosure - Please see http://www.disclosureinsight.com/disclosures.html for certain disclosures regarding ITG Inc. (a member of FINRA and SIPC) required under NASD Rule 2711(h).
D.I. RATING
High Risk
D.I. PROFILE Insider ownership; a non-binding proposal by HRBNs Chairman & CEO to take HRBN private; a non-top tier auditor; stock price volatility; ineffective internal controls; acquisition activity; related party transactions; and the chairman and CEO positions being held by one person support our opinion of a High Risk rating for HRBN. As of Jun-10, all directors and executive officers as a group owned 35.2% of HRBNs outstanding stock. Chairman & CEO Tianfu Yang owns 31%. In Oct-10, HRBN received a proposal from Yang (along with a private equity firm) to take HRBN private for $24 per share. In Nov-10, HRBN disclosed that the original proposal was modified as the private equity firm Yang was working with limited its potential capital contribution as disclosed in the original proposal. Also in Nov-10, the company entered into a term loan facility agreement, which limits HRBN's ability to, among other things, create liens on company assets, merge, consolidate, transfer substantially all of the companys assets, give guarantees or indemnities, and engage in any transaction that results in Yang and certain of his affiliates being the beneficial owner of less than 30% of HRBN's outstanding common stock. HRBNs auditor is Frazer Frost, LLP. There were 7 instances of stock price volatility >10% in the last year. In Mar-11, HRBN disclosed that as of 31-Dec-10, there were inherent weaknesses in internal control systems and internal controls were ineffective at HRBNs subsidiary, Xi'an Simo (a former state-owned enterprise acquired in Oct-09). HRBN completed 7 acquisitions for $204 million, of which $54 million was allocated to goodwill. The largest acquisition was Xian Simo in Oct-09 for $112 million, of which $42 million was allocated to goodwill. On 28-Dec-10, HRBN made an advance of $1.5 million to an entity (Tai Fu Industrial, Co., Ltd.) owned by Chairman & CEO Yang. HRBN stated that the "purpose of the advance was to accommodate an urgent cash need of a transaction for this related entity." As of 31-Dec-10, the advance had been repaid to the company. Chairman & CEO Tianfu Yang and VP Tianli Yang are brothers. Yang has served as Chairman & CEO since May-03. SEC Activity: A response we received from the SEC to a Freedom of Information Act request indicated no investigative activity as of 1-Mar-11. Comment letters are available from 5 SEC reviews. The first review (20-Jan-06 to 8-Feb-07) pertained to the registration statement filed 13-Jan-06 and its various amendments. This review lasted longer than 6 months, which is atypical in our experience. The second review (9-Nov-07 to 7-Jan-08) pertained to the 2006 10-K. Issues raised included disclosure on why SG&A expenses increased by 395% in 2006; revenue recognition policy for after sales service; and description of business. The third review (21-Jul-08 to 27-Oct-08) pertained to the registration statement filed 24-Jul-08, 2007 10-K, and 2007 10-K/A.
763-595-0900 direports@disclosureinsight.com www.disclosureinsight.com 2011 Disclosure Insight, Inc. All Rights Reserved. Additional legal and patent notices apply.
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Issues raised related to managements assessment of internal controls The fourth review (20-Aug-09 to 30-Sep-09) pertained to the 2008 10-K. Issues raised related to the disclosure of contractual obligations and controls and procedures. The fifth review (28-Apr-10 to 14-May-10) pertained to the registration statement filed 30-Apr-10. Accounting/Auditor: In Dec-06, HRBN dismissed Kabani & Company, Inc. as its auditor and appointed Moore Stephens Wurth Frazer and Torbet, LLP. No disagreements were disclosed between HRBN and Kabani & Company. In Jan-10, Moore Stephens Wurth Frazer and Torbet, LLP and Frost, PLLC formed a new partnership firm named Frazer Frost, LLP. The new firm was approved as the new auditor for the company. HRBN disclosed that the company's disclosure controls and procedures were not effective as of 31-Dec-07, because HRBNs 2007 10-K failed to include the required managements report on internal control over financial reporting. Internal controls were declared effective as of 30-Sep-08. In Mar-11, HRBN disclosed that as of 31Dec-10, there were inherent weaknesses in internal control systems and internal controls were ineffective at the companys Xi'an Simo business. HRBN amended its 2007 10-K 3 times (Jul-08, Aug-08, and Oct-08) to restate a variety of items. Executive Suite: Stable. Tianfu Yang has served as CEO since May-03. Zedong Xu has served as CFO and Principal Accounting Officer since 2003. The Board: There have been 5 director departures. In Dec-06, Christopher Chung-Yi Hsu (then age 25) resigned from the board due to his resignation from Citadel Equity Fund, Ltd (CEF), a majority holder of HRBNs guaranteed senior secured floating rate notes. In Mar-07, Oliver Weisberg (then age 34) resigned. At the time, Weisberg was a managing Director and Head of the Special Situations - Asia Group at CEF. Suofei Xu (then age 43) was last reported as a director in the 2007 10-K filed in Mar-08. There was no disclosure on his departure. In Aug-09, Feng Bai (then age 39, a member of the audit and compensation committees) departed from the board for personal reasons. In Jul-09, Patrick McManus (then age 55, Chairman of the audit committee, a member of the nominating and compensation committees) passed away. Tianfu Yang has served as Chairman since May-03. Capital Markets: HRBN completed 7 acquisitions for $204 million, of which $54 million was allocated to goodwill. The largest acquisition was Xian Simo in Oct-09 for $112 million, of which $42 million was allocated to goodwill. On 27-Aug-09, HRBN received a letter from NASDAQ stating that as a result of the departure of director Feng Bai and the death of director Patrick McManus (both audit committee members) the company was not in compliance with NASDAQ's audit committee requirements. Dr. Ching Chuen Chan and Yunyue Ye were appointed as directors and members of the audit committee to replace Feng Bai and McManus, at which point HRBN regained compliance on 31-Aug-09. As of Jun-10, all directors and executive officers as a group owned 35.2% of HRBNs outstanding stock. Chairman & CEO Yang owns 31% of HRBN. There were 7 instances of stock price volatility >10% in the last year. In Oct-10, HRBN disclosed receiving a proposal letter from Chairman & CEO Yang and Baring Private Equity Asia Group Limited (Baring) to acquire all of the outstanding shares of Harbin not currently owned by Yang and his affiliates in a transaction to bring the company private for $24 per share in cash, subject to certain conditions. HRBN subsequently formed a special committee of independent directors (Special Committee). The Special Committee retained independent advisors, including an independent financial advisor. In Nov-10, Yang submitted a non-binding modification letter to the board modifying the proposal presented in Oct-10. The modification stated that Yang will no longer have an exclusive relationship with Baring, thereby allowing Yang to pursue alternative financing for the acquisition. Also, Baring will have the opportunity (but not the obligation) to provide up to 10% of the financing for the acquisition. Also in Nov-10, HRBN entered into a term loan facility agreement, which limits HRBN's ability to, among other things, create liens on HRBNs assets, merge, consolidate, transfer substantially all company assets, give guarantees or indemnities, and engage in any transaction that results in Yang and certain of his affiliates being the beneficial owner of less than 30% of HRBN's outstanding common stock. On 28-Dec-10, HRBN made an advance of $1.5 million to an entity (Tai Fu Industrial, Co., Ltd.) owned by Chairman & CEO Yang. HRBN stated that the "purpose of the advance was to accommodate an urgent cash need of a transaction for this related entity." As of 31-Dec-10, the advance had been repaid to the company. Chairman & CEO Tianfu Yang and VP Tianli Yang are brothers. Non-SEC Investigative Activity and Reviews: Nothing of note.
www.disclosureinsight.com 2011 Disclosure Insight, Inc.
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Are conference calls routinely held? Are there multiple classes of stock? Is this a controlled company?
Yes No No
Is there a small float? (<50% of shares outstanding.) Is revenue concentrated/otherwise not meaningful? Were noteworthy related party transactions found?
No No Yes
This D.I. Report represents the summation of 100 separate risk factors we analyzed over a 5-year period. The in-depth analyst notes used to produce this report are available to clients on our website.
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April 12, 2011
Disclosures:
The following are the D.I. Ratings we may assign: High Risk: It is our opinion that companies with a High Risk rating carry so much risk as to hold the potential to overwhelm underlying fundamentals. Medium Risk - Negative Bias: Companies with a Medium Risk rating have at least one risk factor that concerns us. We assign a Negative Bias to the Medium Risk rating to those companies that in our opinion carry sufficient risk that the rating could deteriorate to High Risk. The Medium Risk - Negative Bias rating can also be assigned to those companies previously rated as High Risk that have shown some improvement, albeit not enough to yet warrant a lower risk rating as they could just as easily become High Risk again. Medium Risk - Positive Bias: Companies with a Medium Risk rating have at least one risk factor that concerns us. We assign a Positive Bias to the Medium Risk rating for those companies that in our opinion carry at least one risk factor that could potentially deteriorate into a higher risk challenge. The Medium Risk - Positive Bias rating can also be assigned to those companies previously rated as carrying higher risk, but have shown sufficient improvement. Low Risk: Companies with a Low Risk rating carry a low risk profile. In our opinion, the nature and timing of the risk factors we found do not concern us at the time of report publication. Intellectual Property This material is copyrighted 2000 to 2011 by Disclosure Insight, Inc. All rights reserved. The works of authorship contained in the accompanying material, including but not limited to all data, design, text, images, charts and other data compilations or collective works are owned by Disclosure Insight, Inc. or one of its affiliates and may not be copied, reproduced, transmitted, displayed, performed, distributed, rented, sublicensed, altered, or stored for subsequent use, in whole or in part in any manner, without the prior written consent of Disclosure Insight, Inc. Photocopying or electronic distribution of any of the accompanying material or contents without the prior written consent of Disclosure Insight, Inc. violates U.S. copyright law, and may be punishable by statutory damages of up to $150,000 per infringement, plus attorneys fees (17 USC 504 et. seq.). Without advance permission, illegal copying includes regular photocopying, faxing, excerpting, forwarding electronically, and sharing of online access. Disclosure Insight, D.I., D.I. Score, D.I. Rating, D.I. Profile, D.I. Database, D.I. Report, D.I. Watch List, D.I. Focus List, D.I. Mailbox, Better Disclosure for Better Decisions, 5 Years of Due Diligence in One Report, Assess the Risk. Achieve the Return., D.I. Favorites, and Just Because its Public Information Doesnt Mean its Public Knowledge are service/trademarks of Disclosure Insight, Inc. and are proprietary. Potential Conflicts of Interest Disclosure Insight, Inc. requires its employees and principals to adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct regarding potential conflicts of interest. This includes prohibiting its employees and principals from trading in their own accounts in any manner which might be deemed in conflict with client subscribers. Further, and with few exceptions, Disclosure Insight, Inc. prohibits its employees and principals from trading of any kind in any individual public company securities, or derivatives thereof, on any company on which production of a new D.I. Report has commenced. Such prohibitions shall remain in place until either 5 days after the individual D.I. Report has been published or its production otherwise ceases. In addition, Disclosure Insight, Inc. prohibits its employees and principals from trading of any kind in any individual public company securities, or derivatives thereof, on any company on which we have received a response from the United States Securities and Exchange Commission (or other regulatory authority) to one of our Freedom of Information Act (FOIA) requests which suggests the presence of an undisclosed SEC or other governmental investigation and/ or law enforcement activity. Such prohibitions on newly received FOIA data shall remain in place from when the material is received until either 5 days after it has been published or production on the data point otherwise ceases. On a severely limited basis, we will permit employees to engage in trading of the sort that would be deemed in conflict with this policy such as extreme financial hardship as defined by the CFA Institute Code of Ethics. Disclosure Insight, Inc. otherwise permits, and encourages, its employees to freely trade in any securities so long as such trading is not deemed as in conflict with this policy or client subscribers. We similarly place no holding period limits or restrictions
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on such personal trading. This could, and often does, include trading in mutual funds, exchange traded funds (ETFs), and derivatives thereof which may include covered names as components of the overall funds and/or ETFs. Disclosure Insight, Inc. does not engage in investment banking activities or take any security positions, except those necessary for routine corporate treasury functions. ADDITIONAL DISCLOSURES ARE AVAILABLE AT www.disclosureinsight.com
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Report Date

Highlights
Conclusions Page 9
Harbin Electric, Inc. is a high quality company with a neutral outlook. Harbin Electric, Inc. has strong business growth and is run by efficient management. The trend in Harbin Electric, Inc. fair value exchange rate against its closest rated-competitor, American Superconductor Corporation, has been appreciating over the past 2 weeks. When compared to its closest peer, Hydrogenics Corporation (USA), Harbin Electric, Inc. shows similar undervaluation and is more likely to outperform the market. StockMarks Ratings Total Quality Classical Business Management Price Volability Outperformance
SMT
SMC
SMB
SMM
SMP
SMV
SMO
1
434

Company Profile
HRBN
Industrials
NASDAQ
2011-03-28

Harbin Electric, Inc.s long-term investment attractiveness rating (Total StockMark or SMT), depicted in the chart below, is driven by higher quality business.
It is a mid-cap stock currently trading at a multiple of 7.66 times earnings. While Harbin Electric, Inc.'s share price has risen modestly in the last quarter, the company's long-term investment rating (chart above) increased over the same period.
2
435
An important question to ask is whether Harbin Electric, Inc.s underlying long-term fundamentals justify the modest rise in the company's share price. We can examine this issue using the StockMarks framework. First, in the chart on the right, we compare the companys trend for each rating, followed by a comparison of the companys overall long-term investment attractiveness rating (Total StockMark or SMT) in relation to its sector (chart below).
Ratings showing a positive trend: Total; Business; Classic; Volatility; Outperformance; Ratings showing a negative trend: Management; Price;
Harbin Electric, Inc. currently has an overall long-term investment attractiveness rating (Total StockMark or SMT) of 93, placing Harbin Electric, Inc. above the SMT average of 50.87 for United Stateslisted companies. This rating ranks Harbin Electric, Inc. first when compared to ten of its closest peers, selected because of similarity of business, financial and market-positioning factors such as size (see page 5).
3
436

Ticker
Company
Company Name
SMP 57 60 57 58 58 58 58 53 58 68 58
Harbin Electric, Inc.s best rank among competitors is first for the Management Efficiency (SMM) rating.

HYGS NJ
In relation to its highest correlated stocks (for pair trading) Harbin Electric, Inc.s best rank is first for the Total Quality (SMT) rating. However, to assess pair trading convergence it is also important to consider Harbin Electric, Inc.s worst ranking, which is ninth for the Price Attractiveness (SMP) rating.

Ticker
Company Name
4
437

Likewise, we should note the lastmonth price divergence, which was 0.122 in relation to its closest pair. Peer Analysis

The overall conclusion is that Harbin Electric, Inc. is a high quality company with a neutral outlook. Nevertheless, we need to look further into its determinants by examining each quality rating separately. We selected also a group of investment peers in terms of longterm operational and financial similarities. Because of the stringency of the criteria used, not all companies have a degree of similarity greater than the minimum of 50% recommended for reliable benchmarking. Among this group shown in the table above on the right, Harbin Electric, Inc.s best rank is first for the Management Efficiency (SMM) rating. The radar chart above provides a synopsis of all of Harbin Electric, Inc.s ratings in comparison to its top two peers.
Harbin Electric, Inc. has strong business quality growth.

Harbin Electric, Inc. currently has a Business StockMark (SMB) of 90, indicating that the company's longterm business growth rates are significantly above the sector average of United States-listed companies.
5
438

This rating places Harbin Electric, Inc. second in terms of growth in relation to its ten closest peers. The previous chart shows the movements in the SMB and the ratings of the three indicators used in the calculation of the business rating. The SMB's recent rise was not primarily due to a growth in the rating of the company's sales elasticity. The sales elasticity indicator compares the long-term revenue growth of the company to other companies in its industry. The growth in the sales elasticity pushed this indicator above the average, suggesting that Harbin Electric, Inc. is growing at a slower pace than its industry. Harbin Electric, Inc.s business rating is 1.01 times higher than that of its closest competitor, American Superconductor Corporation. Harbin Electric, Inc. currently has a SMM of 75, the second highest of its quality sub-ratings. Management Classification Grid For a descriptive classification of management efficiency based on an interval scale, we use the following five categories: Category First Class Efficient Average Mediocre Inefficient SMM Rating 90-100 55-89 40-54 20-39 0-19 The assessment of the management efficiency trend needs to be qualified by taking into account how long the incumbent management has been The chart above shows the movements of the SMM and the rating's three determinants. Comparing the management efficiency of Harbin Electric, Inc. with that of its closest competitor, American Superconductor Corporation, reveals that Harbin Electric, Inc.s rating is 1.21 times higher. Finally, despite the importance of management efficiency, investors should not neglect other more subjective management attributes such as integrity and business savvy, which are beyond the scope of this report.


With the recent modest rise in Harbin Electric, Inc.s share price, the possibility of the company's shares being oversold increases. We can assess whether the Harbin Electric, Inc. is in fact undervalued by looking at the company's Price Attractiveness StockMark (SMP).
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439

The SMP takes into account both fundamental and technical indicators to arrive at a rating of the attractiveness of a company's stock to long term investors at its current price. Harbin Electric, Inc. currently has a Price StockMark of 57, indicating that the market is undervaluing Harbin Electric, Inc.s long-term fundamentals. On this count, we can observe that Harbin Electric, Inc. is already undervalued but began to recover. To see if this situation is unique to the company, we can check the exchange rate at which the stock is trading in relation to its top competitors and peers.
The fair value exchange rate of Harbin Electric, Inc.s stock in relation to its closest competitor American Superconductor Corporation is appreciating.
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440

The market risk

The analysis of market risk is done through the Volatility StockMark (SMV) rating. This rating combines the previous year price variance and price level with longterm market correlation in a way that we can interpret it in the usual scale of 0 (worst) to 100 (best). Comparing the volatility rating of the Harbin Electric, Inc., which is currently at 63, with its closest competitor, American Superconductor Corporation, we see that it is 4.85 times higher.
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Although relevant in itself, the rating is more useful when we compare its evolution to the trend in stock price. The chart on the previous page shows both in an index form. We can observe that Harbin Electric, Inc.s market risk outlook is negative. It is also important to observe the trend in the volatility of SMV because this provides a good indication about the stickiness of short term price movements.
For this, we use the Outperformance StockMark (SMO), which measures the likelihood of the company to outperform the market in the near term. This rating combines the company's past quarter price dynamics with its market risk and total quality, in a scale from 0 (worst) to 100 (best). Harbin Electric, Inc.s SMO is currently at 83. Looking at its trend in the chart on the left, we can see that it is deteriorating. When compared to its closest peer, Hydrogenics Corporation (USA), Harbin Electric, Inc. shows similar undervaluation and is more likely to outperform the market. While, if compared to its first competitor, American Superconductor Corporation, Harbin Electric, Inc. shows similar undervaluation and is equally likely to outperform the market.
Conclusions The company's share price in the past year has been hit hard, but we believe that its underlying fundamentals will determine the stocks long-term performance. A StockMarks analysis of Harbin Electric, Inc. reveals a company with a high quality and strong long-term business growth. The likelihood of Harbin Electric, Inc. stock to outperform the market as measured by the Outperformance StockMark (SMO) is well above average with a rating of 83 / 100. The risk associated with holding the shares as measured by the Volatility StockMark (SMV) is below average with a rating of 63 /100. Overall, we believe Harbin Electric, Inc. to be an average long-term investment.
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10
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Mark Tobin , (949) 720-5775 mtobin@roth.com Emma Jia Zhao, CFA , (86) (21) 6141-5757 x 7825 ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
COMPANY NOTE | CHINA RESEARCH | March 24, 2011

Stock Data 52 Week Low - High Shares Out. (mil) Mkt. Cap.(mil) 3-Mo. Avg. Vol. 12-Mo.Price Target Cash (mil) Tot. Debt (mil) Est. 3Yr. EPS Growth
Auditor: FRAZER FROST LLP EPS ($) Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.79A 0.65A 0.62A 2.72A 6.6x 2011E Curr 0.65E 0.72E 0.87E 0.87E 3.11E 5.7x Prev 0.66E 0.73E 0.87E 0.88E 3.15E 5.7x
| HRBN - $17.88 - NASDAQ | Buy HRBN: Updating Model; Focus Remains on Privatization
We are updating our model to reflect 4Q10 results. Our outlook for 2011 and 2012 remains largely unchanged. We are lowering our price target to $24 (from $26), reflecting the proposed buy-out price. We believe the pending privatization continues to be the primary value driver for shares of HRBN. We maintain our BUY rating. 4Q10 non-GAAP EPS roughly in-line. We view Q4 results as roughly in-line with our estimates. Revenue equaled $106.2M vs. est. $110.2M. Non-GAAP EPS equaled $0.62 vs. est. $0.63. Non-GAAP EPS excludes $0.17 in bad debt expense (Xi'an Simo) and $0.04 in buy-out-related expenses. Order milestones. We are encouraged by HRBN's orders for linear motors for the Beijing Airport express metro train and for 35 oil pumps from Jiangsu and Jilin oil fields (first sales outside of Daxing Oil Field). While the magnitude of these orders is not large, we are encouraged by the long-term potential associated with the penetration into new customers and applications. Revising estimates. We are tweaking our estimates to reflect our updated outlook. We believe the company is capable of achieving 20% revenue growth and 25% earnings growth through 2012. We model stable gross margins in the low-30%-range based on expectations for continued material and labor cost increases which offset HRBN's higher shipment volume. Intraday price: $17.47 at 11:20am ET.
Estimates Changed, Target Price Changed
$14.95 - $25.05 31.25 $558.8 298,669 $24.00 $98.8 $79.6 25%
2012E Curr 3.76E 4.8x Prev 3.79E 4.7x
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 106.2A 426.5A 2011E Curr 112.9E 122.5E 136.8E 140.1E 512.3E Prev 113.3E 123.0E 139.6E 144.3E 520.2E 2012E Curr 625.5E Prev 636.0E
1 Year Price History/Ave. Daily Vol for HRBN

27 24 21 18 15 12
Q1
Q2
Q3
Q1
2010
2011
Created by BlueMatrix
Refer to important disclosure information and rating System Definition on pages 4 - 5 of this report. Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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China Company Note - March 24, 2011
VALUATION
Our $24 PT is based on the offer price of the proposed buy-out. Factors that may impede HRBN shares from reaching price target include s There are still numerous steps in the privatization process, some of which could lead to delays in completing the transaction. s Continued share weakness could lead to a lower takeout offer. s A slow-down in China's economic growth and continued inflation could impact sales and compress margins.
RISKS
COMPANY DESCRIPTION
MENTIONED COMPANIES
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FY07
FY08
46,950 34,628 11,664 27,578 0 120,820 85% (73,343) 47,477 39.3%
Q1'09A
12,382 6,114 1,383 10,846 0 30,725 36.8% (19,801) 10,924 35.6%
Q2'09A
11,547 8,555 1,343 16,918 0 38,363 60.1% (25,500) 12,863 33.5%
Q3'09A
16,426 8,448 1,408 20,650 0 46,932 18.3% (30,171) 16,761 35.7%
Q4'09A
20,371 18,441 643 23,694 44,065 107,214 208.6% (71,150) 36,064 33.6%
FY09
60,726 41,558 4,777 72,109 44,065 223,234 84.8% (146,622) 76,612 34.3%
Q1'10A
19,831 16,245 1,899 22,468 45,042 105,485 243.3% (69,743) 35,742 33.9%
Q2'10A
20,138 15,183 2,003 23,512 44,599 105,436 174.8% (70,104) 35,332 33.5%
Q3'10A
19,356 15,310 2,296 23,511 48,881 109,355 133.0% (75,780) 33,575 30.7%
Q4'10A
17,009 14,030 1,468 23,757 49,942 106,206 -0.9% (75,142) 31,064 29.2%
FY10A
76,334 60,767 7,666 93,249 188,465 426,481 91.0% (290,768) 135,713 31.8%
Q1'11E
18,456 16,380 1,994 26,513 49,546 112,889 7.0% (78,148) 34,741 30.8%
Q2'11E
20,518 17,325 2,043 27,744 54,857 122,488 16.2% (84,417) 38,071 31.1%
Q3'11E
25,868 22,050 2,985 27,743 58,169 136,815 25.1% (92,636) 44,179 32.3%
Q4'11E
25,176 23,625 2,348 28,509 60,430 140,088 31.9% (95,308) 44,780 32.0%
FY11E
90,018 79,380 9,371 110,509 223,002 512,280 20.1% (350,509) 161,771 31.6%
FY12E
118,015 98,595 9,795 132,611 266,488 625,504 22.1% (425,845) 199,658 31.9%
(7,660) 11.7% (1,064) 1.6% 23,711 36.3% 69%
(11,913) 9.9% (1,170) 1.0% 34,393 28.5% 45%
(2,505) 8.2% (393) 1.3% 8,026 26.1% -7%
(3,639) 9.5% (409) 1.1% 8,816 23.0% 7%
(3,249) 6.9% (468) 1.0% 13,044 27.8% 24%
(9,278) 8.7% (823) 0.8% 25,962 24.2% 270%
(18,672) 8.4% (2,093) 0.9% 55,847 25.0% 62%
(7,417) 7.0% (594) 0.6% 27,731 26.3% 246%
(6,886) 6.5% (363) 0.3% 28,083 26.6% 219%
(10,059) 9.2% (1,663) 1.5% 21,853 20.0% 68%
(14,613) 13.8% (803) 0.8% 15,648 14.7% -40%
(38,974) 9.1% (3,423) 0.8% 93,315 21.9% 67%
(8,805) 7.8% (1,129) 1.0% 24,807 22.0% -11%
(9,187) 7.5% (1,225) 1.0% 27,659 22.6% -2%
(9,714) 7.1% (1,368) 1.0% 33,097 24.2% 51%
(10,086) 7.2% (1,401) 1.0% 33,293 23.8% 113%
(37,792) 7.4% (5,123) 1.0% 118,856 23.2% 27%
(44,491) 7.1% (6,255) 1.0% 148,912 23.8% 25%
(6,620) 0 (189) 0 0 0 0 0 16,903 0 0.0% 16,903 25.8% -8% 16,903 25.8% 40% $0.91 -10% $0.91 37% 18,635 29,863
(6,066) 0 218 1,358 0 0 0 0 29,903 (4,524) 15.1% 25,379 21.0% 50% 25,379 21.0% 50% $1.19 31% $1.19 31% 21,324 42,066
(1,441) 0 0 539 0 0 2,573 0 9,697 (1,043) 10.8% 8,654 28.2% 62% 6,081 19.8% 14% $0.39 46% $0.27 2% 22,159 10,245
(843) 0 0 2,101 0 0 (14,015) 0 (3,941) (1,479) -37.5% (5,419) -14.1% -187% 7,423 19.3% 19% -$0.24 -178% $0.33 7% 22,341 10,688
(8,478) 0 0 1,063 (9,000) 4,155 (737) 0 46 (1,954) 4209.2% (1,908) -4.1% -125% 10,953 23.3% 41% -$0.07 -121% $0.40 20% 27,077 23,101
(1,553) 0 0 1,759 0 0 (1,037) 0 25,131 (3,320) 13.2% (3,491) 18,320 17.1% 203% 19,356 18.1% 220% $0.59 114% $0.62 127% 31,240 28,806
(12,316) 0 0 5,462 (9,000) 4,155 (13,215) 0 30,934 (7,796) 25.2% (3,491) 19,647 8.8% -23% 43,813 19.6% 73% $0.77 -36% $1.71 43% 25,672 72,840
(1,647) 0 0 1,119 0 0 (234) 0 26,969 (4,063) 15.1% (2,352) 20,554 19.5% 137% 20,788 19.7% 242% $0.66 68% $0.66 142% 31,354 31,037
(978) 0 0 1,327 0 0 1,657 (623) 29,466 (3,791) 12.9% (1) 25,675 24.4% -574% 24,641 23.4% 232% $0.82 N/A $0.79 137% 31,343 30,866
(1,133) 0 0 740 0 0 (302) 0 21,158 (3,296) 15.6% 11 17,873 16.3% -1037% 20,208 18.5% 85% $0.57 N/A $0.65 60% 31,282 24,943
(836) 0 0 2,304 0 0 (547) 0 16,569 (3,765) 22.7% (91) 12,714 12.0% -31% 19,603 18.5% 1% $0.41 -31% $0.62 1% 31,376 17,938
(4,593) 0 0 5,490 0 0 574 (623) 94,163 (14,915) 15.8% (2,432) 76,815 18.0% 291% 85,240 20.0% 95% $2.46 221% $2.72 60% 31,282 104,784
(1,500) 0 0 1,000 0 0 (200) 0 24,107 (3,857) 16.0% 0 20,250 17.9% -1% 20,450 18.1% -2% $0.64 -2% $0.65 -2% 31,470 31,281
(1,500) 0 0 1,000 0 0 (200) 0 26,959 (4,313) 16.0% 0 22,646 18.5% -12% 22,846 18.7% -7% $0.72 -12% $0.72 -8% 31,564 34,133
(1,500) 0 0 1,000 0 0 (200) 0 32,397 (5,184) 16.0% 0 27,214 19.9% 52% 27,414 20.0% 36% $0.86 50% $0.87 34% 31,659 39,571
(1,500) 0 0 1,000 0 0 (200) 0 32,593 (5,215) 16.0% 0 27,378 19.5% 115% 27,578 19.7% 41% $0.86 113% $0.87 39% 31,754 39,769
(6,000) 0 0 4,000 0 0 (800) 0 116,056 (18,569) 16.0% 0 97,487 19.0% 27% 98,287 19.2% 15% $3.08 26% $3.11 14% 31,612 144,754
(8,000) 0 0 4,000 0 0 (800) 0 144,112 (24,499) 17.0% 0 119,613 19.1% 23% 120,413 19.3% 23% $3.74 21% $3.76 21% 31,993 178,912
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Disclosures:
Rating and Price Target History for: Harbin Electric, Inc. (HRBN) as of 03-23-2011
12/23/08 I:B:$15 03/13/09 B:$9 05/08/09 B:$13 07/01/09 B:$20 08/11/09 B:$23 11/02/09 B:$29 05/10/10 B:$33 10/13/10 H:$26 10/26/10 B:$26 25
20
15
10
Q1 2008
Q2
Q3 2009
Q1
Q2
Q3 2010
Q1
Q2
Q3 2011
0 Q1
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 03/24/11 Rating Buy [B] Neutral [N] Sell [S] Not Rated [NR] Count 197 58 4 0 Percent 72.2 21.2 1.5 0.0 Count 41 7 0 0 Percent 20.8 12.1 0 0
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12-month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A security, which at the time the rating is instituted and or reiterated, indicates an expectation that the price will decline by more than 10% over the next 12 months. Not Rated: A security which at the time the rating is instituted and or reiterated, indicates that we have no opinion or expectations as to the price of the security over the next 12 months. Not Covered (NC): ROTH does not publish research or have an opinion about the security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as
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a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
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Equity Research

Earnings Slightly Ahead of Expectations; Focus on Go-Private Deal
Fourth-Quarter Summary. Harbin Electric reported GAAP EPS of $0.41, including an increase in the provision for bad debts (+$0.17 EPS), a marking-tomarket of warrants (-$0.01), expenses related to the go-private transaction (+$0.04), and a government grant ($0.01). Adjusted EPS were $0.62, above the consensus estimate of $0.60. Revenue was flat year-over-year, largely due to capacity constraints. Revenue of $106 million was about flat year-over-year (in line with our expectations but a little below the consensus estimate of $109 million). The company continues to work on bringing Simo (about 45% of revenue) in line with GAAP accounting standards following the acquisition in October 2009. The company did not provide any new information regarding the CEOs proposal to take the company private, but said that the process remains active. After much anticipation, the company now expects to ship linear motors for use in subway applications, beginning in the second half of the year. Another positive was new business wins with the oil pump product, with sales expected in two new oil fields later this year. We expect earnings growth in 2011 to be restrained primarily by capacity limitations and higher raw material costs. We forecast EPS of $2.72 in 2011, in line with the 2010 result. Margin. Fourth-quarter gross margin declined 440 basis points year-over-year, to 29.2%. The decline was primarily due to 1) lower-margin rotary motors accounting for a greater proportion of revenue, 2) higher raw material costs, and 3) higher costs in the micro-motor business related to the start-up of the Shanghai facility. Operating margin declined 330 basis points, to 20.9%. Balance Sheet/Cash Flow. Harbin generated about $93 million in operating cash flow in 2010. Free cash flow (operating cash flow less capital expenditures) was $36 million. At the end of 2010, Harbin had $99 million in cash, including $50 million associated with a loan from China Development Bank Corporation, received in the fourth quarter. Valuation and Conclusion. At $17, shares trade at 6 times our new 2011 EPS estimate of $2.72, in line with the peer group. (The peer group used for comparison is composed of small-cap, China-based, electrical products manufacturers.) We believe the valuation has become less relevant since the announcement of the go-private transaction (proposed price: $24 per share). Given our view that the company will eventually be taken private at or above $24 in the next several months, we maintain an Outperform rating.
Business Services: Industrial Industrial Technology
March 18, 2011 Stock Rating:
Outperform
Company Profile:Aggressive Growth Symbol: HRBN (NASDAQ) Price: $16.70 (52-Wk.: $15-$25) Market Value (mil.): $521 Fiscal Year End: December Long-Term EPS Growth Rate: 25% Dividend/Yield: None 2010A Estimates EPS Q1 Q2 Q3 Q4 FY CY Valuation FY P/E CY P/E $0.66 $0.77 $0.65 $0.62 $2.72 2011E $0.58 $0.66 $0.75 $0.73 $2.72 $2.72 2012E NA NA NA NA NA NA
6.1x
6.1x 6.1x
NA NA
Trading Data (Thomson Financial) Shares Outstanding (mil.) 31 Float (mil.) 20 Average Daily Volume 276,155 Financial Data (Thomson Financial) Long-Term Debt/Total Capital (MRQ) 26.1 Book Value Per Share (MRQ) 5.0 Enterprise Value (mil.) 500.0 EBITDA (TTM) 112.0 Enterprise Value/EBITDA (TTM) 4.5x Return on Equity (TTM) 20.8 Two-Year Price Performance Chart
$25
$20
$15
$10
$5
$0 12/31/09 12/31/10
Source: Thomson Financial, William Blair & Company estimates
Brian Drab, CFA 312.364.8280 bdrab@williamblair.com
Liping Cai, CFA +86 21 2327 2260 lcai@williamblair.com
Tim Mulrooney 312.364.8123 tmulrooney@williamblair.com
China-based Harbin Electric is a leading manufacturer of electric motors in China, including linear motors, micro-motors, and rotary motors. Manufacturing operations are located in the cities of Harbin, Shanghai, Weihai, and Xian. The company generates about 90% of sales in China and 10% in international endmarkets.
Please consult the last page of this report for all disclosures.
449

Harbin Electric Product Line Detail Revenue by Segment1 4Q09 3Q10 Linear motors $20,370,657 $19,329,721 year-over-year change 58.9% 17.0% sequential change 23.3% -4.0% Auto micro-motors 17,154,238 15,305,526 year-over-year change 121.4% 81.2% sequential change 103.1% 0.8% Other (controllers, armatures, other motors) 1,929,852 2,288,046 year-over-year change 29.2% 62.5% sequential change 37.1% 14.2% Weihai Hengda (traditional rotary motors) 23,694,291 23,499,055 year-over-year change 86.8% 13.8% sequential change 14.7% -0.1% Simo (traditional rotary motors) 44,064,948 48,932,196 year-over-year change NM sequential change 9.7% Total revenue 107,213,986 109,354,544 year-over-year change 208.6% 133.0% sequential change 128.4% 3.7% Segment Percentage of Total Revenue Linear motors Auto micro-motors Other (controllers, armatures, other motors) Weihai Hengda (traditional rotary motors) Simo (traditional rotary motors) Total Gross Margin Linear motors Auto micro-motors Other (controllers, armatures, other motors) Weihai Hengda (tradtional rotary motors) Simo (traditional rotary motors) Total
4Q10 $16,992,893 -16.6% -12.1% 13,806,725 -19.5% -9.8% 1,062,056 -45.0% -53.6% 23,365,227 -1.4% -0.6% 49,916,622 NM 2.0% 106,205,579 -0.9% -2.9%
19.0% 16.0% 1.8% 22.1% 41.1% 100% 4Q09 61.6% 37.9% 49.3% 9.6% 31.6% 33.6%
17.7% 14.0% 2.1% 21.5% 44.7% 100% 3Q10 63.1% 31.5% 39.2% 10.9% 26.8% 30.7%
16.0% 13.0% 1.0% 22.0% 47.0% 99% 4Q10 56.7% 29.9% 34.7% 11.1% 28.2% 29.2%
(1) Segment revenue figures are based on percentage of total revenue provided by management and are not precise. Source: Company reports
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Harbin: Balance Sheet and Cash Flow Information (in dollars) Period ending Cash Flow Accounts Receivable Inventory Accounts Payable Total Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Balance Sheet Sep-10 2,736,287 768,351 6,685,572 426,448 Dec-10 2,714,677 11,576,990 (20,776,901) (8,025,569) Quarterly 4Q10 (21,610) 10,808,639 (27,462,473) (8,452,017) 14,098,691 (49,606) 14,049,085
79,184,157 93,282,848 (57,247,413) (57,297,019) 21,936,744 35,985,829 Sep-10 Dec-10 85,899,332 5.0x 74 62,843,556 4.6x 79 26,881,540 10.8x 34
Accounts Receivable 89,489,395 1 LTM reveivables turnover 4.8x DSO, LTM 76 Inventory 1 LTM inventory turnover DOH, LTM Accounts Payable 1 LTM payables turnover DPO, LTM 73,898,882 3.9x 94 53,849,313 5.3x 69
1) For comparison purposes, period ending balance sheet accounts (instead of average balance sheet accounts) were used to calculate turns. This is because third quarter 2009 did not include the Simo subsidiary, which greatly affected balance sheet accounts. Source: William Blair and Company, L.L.C. estimates
451
William Blair & Company, L.L.C. Fourth Quarter 2010 Performance Comparison The following table compares the companys actual fourth quarter 2010 performance on a consolidated basis with 1) fourth quarter 2009 performance and 2) our estimates for fourth quarter 2010 performance.
Fiscal Year End December 31 Income Statement Net Sales Cost of Goods Sold Gross Profit SG&A Research & Development Operating Profit Interest Expense Interest Income & Other Nonrecurring Income (Expense) Income Before Taxes Income Tax Provision Income After Taxes Noncontrolling Interest Income Available to Common Average Diluted Shares Outstanding Reported Diluted EPS - A/T Nonrecurring Income Adjusted Diluted EPS Effective Tax Rate % of Sales Net Sales Cost of Goods Sold Gross Profit SG&A Research & Development Operating Profit Adjusted Net Income Available to Common Growth Rates Net Sales Cost of Goods Sold Gross Profit SG&A Operating Profit Adjusted Net Income Available to Common Adjusted Diluted EPS
F4Q10
F4Q09
% Ch. -0.9% 5.6% -13.9% -13.1% -2.5% -14.5% -46.2% 15.6% n.m. n.m. 13.4% n.m. n.m. 0.5% n.m. n.m. -1.0%
WB Est. 4Q10 106,326,924 74,505,236 31,821,688 8,506,154 1,594,904 21,720,630 989,376 279,425 21,010,679 3,277,666 17,733,013 17,733,013 31,282,802 0.57 0.57 15.6% 100.0% 70.1% 29.9% 8.0% 1.5% 20.4% 16.7%
% Variance -0.1% 0.9% -2.4% -5.2% -49.7% 2.2% -15.5% 627.6% -21.1% 14.9% -27.8% -28.3% -0.4% -28.0% 9.0%
106,205,579 107,213,986 75,141,698 71,150,100 31,063,881 36,063,886 8,065,058 9,278,386 802,943 823,255 22,195,880 25,962,245 835,647 1,553,417 2,033,098 1,759,234 (6,824,147) (1,036,610) 16,569,184 25,131,452 3,764,733 3,320,263 12,804,451 21,811,189 90,529 3,491,414 12,713,922 18,319,775 31,149,289 0.41 0.21 0.62 22.7% 100.0% 70.8% 29.2% 7.6% 0.8% 20.9% 18.4% -0.9% 5.6% -13.9% -13.1% -14.5% 0.9% -1.0% 31,000,000 0.59 0.03 0.62 13.2% 100.0% 66.4% 33.6% 8.7% 0.8% 24.2% 18.1% 208.6% 206.0% 213.9% 149.4% 270.2% 220.4% 134.6%
2011 Forecast. We forecast 8% revenue growth, to $462 million, with stronger growth in the second half of the year when new capacity is expected to come on line in the rotary motor business. We expect about 100 basis points of operating margin contraction, to 22.9%, primarily due to higher raw material costs and shifts in product mix. Management expects the tax rate to be up slightly in 2011; we are modeling 17.5%. Largely due to capacity constraints, we forecast EPS to be flat in 2011, at $2.72. Risks. Although Harbin has many strengths, we continue to believe an investment in the companys shares comes with above-average risk. Specifically, uncertainty around the timing and profitability of the opportunities discussed above gives rise to risk to our forecast. Other risks include limited liquidity and float, ownership concentration (CEO owns 31% of common stock), the companys small size, customer concentration, vendor concentration, dependence on the Chinese government, political/country/currency risks, and the general challenges associated with managing rapid growth.
452
(Figures in U.S. dollars, except per-share items) Fiscal year end: December 31 Income Statement Net Sales Cost of Goods Sold Gross Profit SG&A Research & Development Operating Profit 1 Interest Expense Interest Income & Other Nonrecurring Income (Expense) Income Before Taxes Income Tax Provision Income After Taxes Noncontrolling Interest Income Available to Common Diluted EPS Average Diluted Shares Outstanding Reported Diluted EPS - A/T Nonrecurring Income Adjusted Diluted EPS Adjusted EBITDA Adjusted Net Income Available to Common Effective Tax Rate % of Sales Net Sales Cost of Goods Sold Gross Profit SG&A Research & Development Operating Profit Adjusted EBITDA Growth Rates Net Sales Cost of Goods Sold Gross Profit SG&A Research & Development Operating Profit Adjusted EBITDA Reported Diluted EPS Adjusted Diluted EPS 100.0% 50.4% 49.6% 11.7% 1.6% 36.3% 37.9% FY07 FY08 FY09 F1Q10 F2Q10 F3Q10 F4Q10 FY10 F1Q11E F2Q11E F3Q11E F4Q11E FY11E
$65,402,864 $120,820,302 $223,234,394 $105,485,157 $105,435,970 $109,354,544 $106,205,579 $426,481,250 $107,132,697 $113,178,283 $119,756,690 $122,343,361 $462,411,030 32,967,887 73,343,521 146,622,220 69,743,087 70,103,783 75,779,744 75,141,698 290,768,312 75,372,910 78,219,133 80,644,056 83,824,988 318,061,086 32,434,977 47,476,781 76,612,174 35,742,070 35,332,187 33,574,800 31,063,881 135,712,938 31,759,787 34,959,150 39,112,634 38,518,373 144,349,944 7,659,611 11,913,435 18,671,507 7,416,758 6,886,054 8,025,109 8,065,058 30,392,979 8,034,952 8,488,371 8,981,752 9,175,752 34,680,827 1,064,074 1,170,169 2,093,366 594,195 362,783 1,663,465 802,943 3,423,386 857,062 905,426 958,054 978,747 3,699,288 23,711,292 34,393,177 55,847,301 27,731,117 28,083,350 23,886,226 22,195,880 101,896,573 22,867,773 25,565,353 29,172,829 28,363,874 105,969,829 6,619,954 6,065,814 5,036,158 1,646,923 977,858 1,132,671 835,647 4,593,099 1,375,264 1,171,054 1,171,054 1,171,054 4,888,425 (188,654) 1,575,224 4,289,588 1,119,286 1,326,675 739,840 2,033,098 5,218,899 331,104 368,816 415,215 450,121 1,565,256 (24,166,452) (234,078) 1,034,299 (2,335,539) (6,824,147) (8,359,465) 16,902,684 29,902,587 30,934,279 26,969,402 29,466,466 21,157,856 16,569,184 94,162,908 21,823,613 24,763,115 28,416,991 27,642,941 102,646,660 4,523,888 7,796,084 4,063,361 3,790,892 3,296,165 3,764,733 14,915,151 3,819,132 4,333,545 4,972,973 4,837,515 17,963,166 16,902,684 25,378,699 23,138,195 22,906,041 25,675,574 17,861,691 12,804,451 79,247,757 18,004,481 20,429,570 23,444,018 22,805,426 84,683,495 3,491,414 2,352,353 770 (11,241) 90,529 2,432,411 16,902,684 25,378,699 19,646,781 20,553,688 25,674,804 17,872,932 12,713,922 76,815,346 18,004,481 20,429,570 23,444,018 22,805,426 84,683,495 18,634,739 0.91 0.91 24,788,384 16,902,684 21,323,660 1.19 1.19 37,034,575 25,378,699 15.1% 100.0% 60.7% 39.3% 9.9% 1.0% 28.5% 30.7% 25,672,420 0.77 0.94 1.71 60,577,207 43,813,233 25.2% 100.0% 65.7% 34.3% 8.4% 0.9% 25.0% 27.1% 31,353,863 0.66 0.01 0.66 29,985,073 20,785,425 15.1% 100.0% 66.1% 33.9% 7.0% 0.6% 26.3% 28.4% 31,343,306 0.82 (0.03) 0.79 30,412,339 24,640,505 12.9% 100.0% 66.5% 33.5% 6.5% 0.3% 26.6% 28.8% 31,281,802 0.57 0.07 0.65 26,682,846 20,208,471 15.6% 100.0% 69.3% 30.7% 7.3% 1.5% 21.8% 24.4% 31,149,289 0.41 0.21 0.62 26,284,882 19,538,069 22.7% 100.0% 70.8% 29.2% 7.6% 0.8% 20.9% 24.7% 31,282,065 2.46 0.27 2.72 113,365,140 85,172,470 15.8% 100.0% 68.2% 31.8% 7.1% 0.8% 23.9% 26.6% 31,150,289 0.58 0.58 25,120,221 18,004,481 17.5% 100.0% 70.4% 29.6% 7.5% 0.8% 21.3% 23.4% 31,151,289 0.66 0.66 27,922,084 20,429,570 17.5% 100.0% 69.1% 30.9% 7.5% 0.8% 22.6% 24.7% 31,152,289 0.75 0.75 31,643,498 23,444,018 17.5% 100.0% 67.3% 32.7% 7.5% 0.8% 24.4% 26.4% 31,153,289 0.73 0.73 30,876,693 22,805,426 17.5% 100.0% 68.5% 31.5% 7.5% 0.8% 23.2% 25.2% 31,151,789 2.72 2.72 115,562,496 84,683,495 17.5% 100.0% 68.8% 31.2% 7.5% 0.8% 22.9% 25.0%
61.8% 58.8% 65.0% 83.4% -28.6% 69.4% 71.4% -9.9% 37.4%
84.7% 122.5% 46.4% 55.5% 10.0% 45.0% 49.4% 31.2% 31.2%
84.8% 99.9% 61.4% 56.7% 78.9% 62.4% 63.6% -35.7% 43.4%
243.3% 252.2% 227.2% 196.1% 51.1% 245.5% 233.7% 67.8% 141.6%
174.8% 174.9% 174.7% 89.2% -11.2% 218.6% 214.6% n.m. 138.2%
133.0% 151.2% 100.3% 147.0% 255.2% 83.1% 90.7% n.m. 61.7%
-0.9% 5.6% -13.9% -13.1% -2.5% -14.5% -5.9% -30.9% -1.0%
91.0% 98.3% 77.1% 62.8% 63.5% 82.5% 87.1% 220.9% 59.5%
1.6% 8.1% -11.1% 8.3% 44.2% -17.5% -16.2% -11.8% -12.8%
7.3% 11.6% -1.1% 23.3% 149.6% -9.0% -8.2% -19.9% -16.6%
9.5% 6.4% 16.5% 11.9% -42.4% 22.1% 18.6% 31.7% 16.5%
15.2% 11.6% 24.0% 13.8% 21.9% 27.8% 17.5% 79.4% 18.4%
8.4% 9.4% 6.4% 14.1% 8.1% 4.0% 1.9% 10.7% -0.2%
(1) Interest expense includes amortization of debt discount and amortization of debt-issuance costs. Sources: Company reports and William Blair & Company, L.L.C. estimates
453

William Blair & Company, L.L.C. and its affiliates beneficially own or control (either directly or through its managed accounts) 1% or more of the equity securities of Harbin Electric, Inc. as of the end of the month ending not more than 40 days from the date herein. William Blair & Company, L.L.C. is a market maker in the security of Harbin Electric, Inc. and may have a long or short position. Additional information is available upon request.
Harbin Electric Inc. (HRBN)
Current Rating: Outperform
Mar 17, 2009 - Mar 17, 2011 $25 $20 $15 $10 $5 $0 12/31/09
Source: William Blair & Company, L.L.C. and FactSet
Previous Close: $16.05
8/11/09 - O
12/31/10
Legend: I = Initiation, D = Dropped, R = Restricted, NR = Not Rated @ = Analyst Change
Current Rating Distribution (as of 02/28/11) Coverage Universe Percent Outperform (Buy) Market Perform (Hold) Underperform (Sell) 65 34 1
Inv. Banking Relationships* Outperform (Buy) Market Perform (Hold) Underperform (Sell)
Percent 9 1 0
*Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months. Brian Drab, Liping Cai attests that 1) all of the views expressed in this research report accurately reflect his/her personal views about any and all of the securities and companies covered by this report, and 2) no part of his/her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed by him/her in this report. We seek to update our research as appropriate, but various regulations may prohibit us from doing so. Other than certain periodical industry reports, the majority of reports are published at irregular intervals as deemed appropriate by the analyst. Stock Rating: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings reflect the expected performance of the stock relative to the broader market over the next 12 months. The assessment of expected performance is a function of near-term company fundamentals, industry outlook, confidence in earnings estimates, valuation, and other factors. Outperform (O) stock expected to outperform the broader market over the next 12 months; Market Perform (M) stock expected to perform approximately in line with the broader market over the next 12 months; Underperform (U) stock expected to underperform the broader market over the next 12 months; Not Rated (NR) the stock is currently not rated. Company Profile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company profile is a fundamental assessment, over a longer-term horizon, of the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and strength of franchise (management strength and track record, market leadership, distinctive capabilities); 2) financial profile (earnings growth rate/consistency, cash flow generation, return on investment, balance sheet, accounting); 3) other factors such as sector or industry conditions, economic environment, confidence in long-term growth prospects, etc. Established Growth (E) Fundamental risk is lower relative to the broader William Blair universe; Core Growth (C) Fundamental risk is approximately in line with the broader William Blair universe; Aggressive Growth (A) Fundamental risk is higher relative to the broader William Blair universe. The ratings and company profile assessments reflect the opinion of the individual analyst and are subject to change at any time.
454

The compensation of the research analyst is based on a variety of factors, including performance of his or her stock recommendations; contributions to all of the firms departments, including asset management, corporate finance, institutional sales, and retail brokerage; firm profitability; and competitive factors. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategiesto our clients and our trading desksthat are contrary to opinions expressed in this research. Our asset management and trading desks may make investment decisions that are inconsistent with recommendations or views expressed in this report. We will from time to time have long or short positions in, act as principal in, and buy or sell the securities referred to in this report. Our research is disseminated primarily electronically, and in some instances in printed form. Electronic research is simultaneously available to all clients. This research is for our clients only. No part of this material may be copied or duplicated in any form by any means or redistributed without the prior written consent of William Blair & Company, L.L.C. THIS IS NOT IN ANY SENSE A SOLICITATION OR OFFER OF THE PURCHASE OR SALE OF SECURITIES. THE FACTUAL STATEMENTS HEREIN HAVE BEEN TAKEN FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT SUCH STATEMENTS ARE MADE WITHOUT ANY REPRESENTATION AS TO ACCURACY OR COMPLETENESS OR OTHERWISE. OPINIONS EXPRESSED ARE OUR OWN UNLESS OTHERWISE STATED. PRICES SHOWN ARE APPROXIMATE. THIS MATERIAL HAS BEEN APPROVED FOR DISTRIBUTION IN THE UNITED KINGDOM BY WILLIAM BLAIR INTERNATIONAL, LIMITED, REGULATED BY THE FINANCIAL SERVICES AUTHORITY (FSA), AND IS DIRECTED ONLY AT, AND IS ONLY MADE AVAILABLE TO, PERSONS FALLING WITHIN COB 3.5 AND 3.6 OF THE FSA HANDBOOK (BEING ELIGIBLE COUNTERPARTIES AND PROFESSIONAL CLIENTS). THIS DOCUMENT IS NOT TO BE DISTRIBUTED OR PASSED ON TO ANY RETAIL CLIENTS. NO PERSONS OTHER THAN PERSONS TO WHOM THIS DOCUMENT IS DIRECTED SHOULD RELY ON IT OR ITS CONTENTS OR USE IT AS THE BASIS TO MAKE AN INVESTMENT DECISION. WILLIAM BLAIR & COMPANY AND WILLIAM BLAIR & COMPANY (SCRIPT) ARE REGISTERED TRADEMARKS OF WILLIAM BLAIR & COMPANY, L.L.C. Copyright 2011, William Blair & Company, L.L.C.
455
Mark Tobin , (949) 720-5775 mtobin@roth.com Steve Chen, (86)(21)6141-5757 schen@roth.com Emma Jia Zhao, CFA , (86) (21) 6141-5757 x 7825 ezhao@roth.com Sales (800) 933-6830, Trading (800) 933-6820
CHINA FLASH NOTE | EQUITY RESEARCH | March 17, 2011

Stock Data 52 Week Low - High Shares Out. (mil) Mkt. Cap.(mil) 3-Mo. Avg. Vol. 12-Mo.Price Target Cash (mil) Tot. Debt (mil) Est. 3Yr. EPS Growth
Auditor: FRAZER FROST LLP EPS ($) Yr Dec 1Q 2Q 3Q 4Q YEAR P/E 2010 0.66A 0.77A 0.65A 0.63E 2.70E 6.2x 2011E Curr 0.66E 0.73E 0.87E 0.88E 3.15E 5.3x
| HRBN - $16.68 - NASDAQ | Buy HRBN: 4Q10 EPS Roughly In-line; Privatization Offer Still Drives Share Value
Q4 revenues below estimates; Adjusted EPS roughly in-line. 4Q10 revenue equaled $106.2M vs. ROTH/Consensus est. of $110.2M/$109.0M, primarily on softer-than-expected sales in specialty motors ($14.0M vs. est. $15.8M) and weak seasonality in linear motors ($17.0M vs. est. $18.0M est.). Gross margins declined sequentially from 30.7% in Q3 to 29.2% (vs. 31.1% est.). Non-GAAP EPS equaled $0.62, vs. ROTH est. of $0.63 and ahead of Consensus by 2 cents. Non-GAAP EPS excludes $0.21 in non-recurring items such as bad debt provisions for Simo ($5.2 million) and buyout associated expenses ($1.4 million). New business developments encouraging. HRBN, for the first time, received orders beyond its existing customer (Daqing) for 35 oil pumps which management expects to ship in June 2011. The Company also received the first order from Beijing Airport Express to install eight linear motor propulsion systems as a trial. Management expects mass production of metro trains to begin upon successful completion of this trial program. Buy-out is the primary value driver. We believe HRBN's share price will remain decoupled from fundamentals and view valuation as driven by the outstanding privatization offer. We will update our model within a subsequent research note. Intraday price: $16.84 at 12:29 PM ET
$14.95 - $25.05 31.25 $521.3 267,005 $26.00 $55.5 $57.0 30%
2012E Curr 3.79E 4.4x
Pro-forma EPS for all periods Revenue ($ millions) Yr Dec 1Q 2Q 3Q 4Q YEAR 2010 105.5A 105.4A 109.4A 110.2E 430.5E 2011E Curr 113.3E 123.0E 139.6E 144.3E 520.2E 2012E Curr 636.0E
1 Year Price History/Ave. Daily Vol for HRBN

27 24 21 18 15 12
Q1
Q2
Q3
Q1
2010
2011
Refer to important disclosure information and rating System Definition on pages 3 - 4 of this report. Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
456
March 17, 2011
VALUATION
Our estimates and price target are under review. Our $26 PT is based on the expected price of the proposed buy-out. Factors that may impede HRBN shares from reaching price target include s Negative sentiment from the press could continue to weight on U.S.-listed China companies. s There are still numerous steps in the process to an effective takeout, some of which could lead to delays in completing the transaction. s Continued share weakness could lead to a lower takeout offer. s The absence of a buyout could pressure shares.
RISKS
COMPANY DESCRIPTION
MENTIONED COMPANIES
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March 17, 2011
Disclosures:
Rating and Price Target History for: Harbin Electric, Inc. (HRBN) as of 03-16-2011
12/23/08 B:$15 03/13/09 B:$9 05/08/09 B:$13 07/01/09 B:$20 08/11/09 B:$23 11/02/09 B:$29 05/10/10 B:$33 10/13/10 H:$26 10/26/10 B:$26 25
20
15
10
Q1 2008
Q2
Q3 2009
Q1
Q2
Q3 2010
Q1
Q2
Q3 2011
0 Q1
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 03/17/11 Rating Buy [B] Neutral [N] Sell [S] Not Rated [NR] Count 201 59 7 0 Percent 71.5 21.0 2.5 0.0 Count 44 5 0 0 Percent 21.9 8.5 0 0
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12-month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A security, which at the time the rating is instituted and or reiterated, indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A security, which at the time the rating is instituted and or reiterated, indicates an expectation that the price will decline by more than 10% over the next 12 months. Not Rated: A security which at the time the rating is instituted and or reiterated, indicates that we have no opinion or expectations as to the price of the security over the next 12 months. Not Covered (NC): ROTH does not publish research or have an opinion about the security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as
Page 3 of 4
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March 17, 2011

a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2011. Member: FINRA/SIPC.
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Table of Contents

Rpt. 18371835 04-Nov-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

Rpt. 18358808 03-Nov-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 18342293 01-Nov-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 18343519 31-Oct-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 18315784 27-Oct-2011

HARBIN ELECTRIC INC DISCLOSURE INSIGHT - DISCLOSURE INSIGHT INC

Rpt. 17883103 14-Oct-2011

HARBIN ELECTRIC INC VALIDEA - REESE, JOHN

Rpt. 18234798 13-Oct-2011

HARBIN ELECTRIC INC WRIGHT INVESTORS SERVICE - WRIGHT REPORTS

Rpt. 16571234 10-Oct-2011

HARBIN ELECTRIC INC VALUENGINE, INC. - ANON

Rpt. 18221692 10-Oct-2011

HARBIN ELECTRIC INC SADIF-INVESTMENT ANALYTICS SA - RESEARCH SADIF

Rpt. 18214475 07-Oct-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - RESEARCH DEPARTMENT

These reports were compiled using a product of Thomson Reuters

Rpt. 18211261 06-Oct-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 16690175 01-Oct-2011

HARBIN ELECTRIC INC NEW CONSTRUCTS LLC - NEW CONSTRUCTS

Rpt. 18185070 30-Sep-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 18187396 30-Sep-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

Rpt. 18168312 26-Sep-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK, ET AL

Rpt. 18127034 14-Sep-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

Rpt. 18066684 25-Aug-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

Rpt. 18056665 23-Aug-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK, ET AL

Rpt. 18001866 10-Aug-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 18005012 10-Aug-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

These reports were compiled using a product of Thomson Reuters

Rpt. 18005873 10-Aug-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK

Rpt. 18006037 10-Aug-2011

HARBIN ELECTRIC INC THOMSON REUTERS STREETEVENTS - ANON

Rpt. 17975367 04-Aug-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

Rpt. 17881429 19-Jul-2011

HARBIN ELECTRIC INC ROTH CAPITAL PARTNERS, LLC - TOBIN, MARK, ET AL

Rpt. 17865338 15-Jul-2011

HARBIN ELECTRIC INC WRIGHT INVESTORS SERVICE - WRIGHT REPORTS

Rpt. 17862912 14-Jul-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO

Rpt. 17844540 11-Jul-2011

HARBIN ELECTRIC INC DATAMONITOR - COMPANY RESEARCH - DATAMONITOR INDEPENDENT RESEARCH

Rpt. 17817547 05-Jul-2011

HARBIN ELECTRIC INC DATAMONITOR - COMPANY RESEARCH - DATAMONITOR INDEPENDENT RESEARCH

Rpt. 17808159 01-Jul-2011

HARBIN ELECTRIC INC SADIF-INVESTMENT ANALYTICS SA - RESEARCH SADIF

Rpt. 17786481 28-Jun-2011

HARBIN ELECTRIC INC MAXIM GROUP LLC - HE, ECHO