Earnings in 2016 went up YoY by 110.6%, better than marketexpectation. Sales, gross profit and net profit in 2016 went up by 23.2%,29.3% and 110.6%, respectively. Thanks to product margin recovery andbetter operating cost control, gross margin went up YoY by 0.7 ppt to 13.9%,while net margin went up 0.5 ppt to 1.3%. Export sales contributed nearly athird of total sales during the period, we expect offshore markets to be morecrucial going forward.
SOE reform will help with a turnaround of the Company. The thermalpower sector in China is currently experiencing overcapacity, and we expectthe SOE reform will help to achieve a turnaround for Harbin Electric. Goingforward, we expect conventional power equipment to be exported mainly tooffshore markets while the domestic market will see a surge in demand forpower plant engineering & services and nuclear power equipment.Meanwhile, better operating cost control in 2017 and onwards will furtherreduce costs to improve profitability.
Earnings forecasts have been readjusted following the surprise result in2016. Net profit of RMB 413 mn was recorded in 2016, better thanexpectation, and therefore we have adjusted our assumptions and earningsforecasts. Our revised EPS from FY17 to FY19 is RMB 0.463, RMB 0.567 andRMB 0.578, respectively.