Positive profit alert for 2018 operations was recently announced. TheCompany posted a positive profit alert on 24th January 2019 indicating thatits net profit in 2018 is expected to increase by 65% to 95% as compared tothat recorded in 2017. Net profit recorded in 2017 was RMB 673 mn. Therestructuring completed in 2018 is the key reason behind the successfulturnaround of Dongfang Electric during the year.
Net earnings in 9M2018 amounted to RMB 900 mn, up 48.0% YoY. Sales and net profit in 9M2018 went up YoY by 0.4% and 48.0%,respectively. Gross margin recovered and went up YoY by 1.3 ppts to20.3% while net margin was up by 1.3 ppts to 4.1%. New orders in 9M2018went up YoY by 23.6% to reach RMB 22.834 bn, with export orderscontributing 21.7% of the total new orders. The operating result in 9M2018was better than both the market and our expectation.
Nationwide newly installed power generating capacity went down YoYby 7.0% to 124.4 GW in 2018. In which, thermal, hydro, nuclear, wind andsolar contributed 41.2 GW, 8.5 GW, 8.8 GW, 20.6 GW and 44.3 GW,respectively, of newly installed capacity in 2018. Renewable energies madeup 67% of newly installed power capacity in China in 2018.
We upgrade the rating to "Buy" and raise our TP to HK$7.40. Therevised EPS estimates from FY18 to FY20 are RMB 0.435, RMB 0.474 andRMB 0.528, respectively. Our new TP corresponds to 15.0x/ 13.7x/ 12.3xFY18/ FY19/ FY20 PER or 0.7x/ 0.6x/ 0.6x FY18/ FY19/ FY20 PBR.