Net earnings in 2019 increased by 13.2% YoY to RMB1,278 mn.
Revenue of Dongfang Electric in 2019 was better than both the market andour expectation, but its net earnings during the period missed marketconsensus expectation by approximately 5.5%. Consolidated gross marginof the Company in 2019 went up YoY by 0.9 ppts to 24.1% due to marginrecovery of thermal equipment, while net margin in 2019 was up slightly by0.2 ppt YoY to 3.9%. New orders in 2019 went up YoY by 15.0% toRMB40.184 bn, with orders backlog of RMB83.478 bn at the end of 2019.
We expect domestic power sector investment in 2020 to be no lessthan RMB900 bn, implying YoY growth of 12.6%. Although power sectorinvestment in the first 2 months of 2020 experienced sharp decline, weexpect investment to speed up entering the 2nd quarter of 2020. Tostimulate domestic economic growth, we expect power sector investment inChina to hit RMB900 bn in 2020, up 12.6% YoY. More specifically, weexpect power engineering investment to be no less than RMB350 bn(+11.5% YoY), while the spending on power grid to be no less thanRMB550 bn (+13.3% YoY).
We maintain the investment rating of "Buy" but trim our TP toHK$5.50. Our revised EPS estimates from 2020 to 2022 are RMB0.492,RMB0.598 and RMB0.730, respectively. Our new TP corresponds to 10.0x/8.2x/ 6.7x FY20 to FY22 PER or 0.5x/ 0.5x/ 0.5x FY20 to FY22 PBR.