2020 results disappoint but outlook remains positive amid expectation of potential restructuring. Revenue of Harbin Electric in 2020 rose YoY by 5.5% to RMB23760 mn, while a net loss of approximately RMB7.3 mn was recorded. The decline in earnings was mainly due to impact on international engineering projects brought by RMB appreciation and the COVID-19 pandemic. Consolidated gross margin of Harbin Electric went down YoY by 3.4 ppt to 114% in 2020 as a result of gross margin decline in most business segments. The parent of the Company, HEC Group, recently completed the acquisition of XEMC Wind Power, signaling that potentiai restructuring on Harbin Electric could be on its way. XEMC Wind Power was ranked 91h largest wind turbine maker in China back in 2019.
　　Power engineering investment in 1M-2M2021 went up YoY by 117.1% to RMB48.0 bn. Nationwide power sector investment in 1M-2M2021 reached RMB70.7 bn, up YoY by 99.2%, Of whichT power engineering investment went up YoY by 117.1% to RMB48.0 bn while power grid investment was up YoY by 64.9% to RMB22.7 bn. Renewable energies investment accounted for nearly 91.9% （+2.6ppt YoY） of total spending of power engineering in 1-2M2021, and we expect the majority of power engineering investment in China will be on renewables going forward.
　　We maintain the "Accumulate" investment rating but cut our TP to HKS3.00. With expected gross margin recovery and a gradual improvement in efficiency, our adjusted EPS forecasts from 2021 to 2023 are RMB0.099f RMB0.170 and RMB0.244, respectively. Our TP translates to 25.3x/ 14.7x/ 10.1x 2021-2023 PER or 0.3W 0.3x/ 0.3x 2021-2023 PBR, respectively.