2017 earnings went up YoY by 11.6%, better than expectations. Salesand net profit in 2017 went down YoY by 10.1% and up YoY by 11.6%,respectively. The rise in earnings was mainly due to gross margin recovery,rise in non-operating profits and lower tax expenses during the period. Grossmargin in 2017 increased YoY by 0.9 ppt to 19.9% and net margin was upYoY by 0.6 ppt to 3.3%.
New orders in 2017 went up YoY by 17.8%. The Company secured RMB100.46 bn in new orders in 2017, up YoY by 17.8% YoY, and orders on handreached RMB 226.92 bn （including RMB 82.44 bn of orders not yet cominginto effect）， down YoY by 7.1%. High efficiency & clean energy equipment（thermal） new orders dropped 35.5% YoY in 2017.
Power generating infrastructure investment in China in 2M2018 reachedRMB 25.2 bn, up 8.3% YoY. In 2M2018, newly installed power capacity inChina reached 23.6 GW, up YoY by 45.9%, but new thermal powerinstallations went down YoY by 25.1% to 5.9 GW. Under new policies fromthe Chinese government, we expect China’s investment in thermal power tocontinue the current downtrend while investment on wind, nuclear and solarenergies will be accelerated.
We maintain the “Accumulate” investment rating but cut the TP to HK$3.56. We maintain our bullish view on Shanghai Electric given its marketleading position in advanced energy equipment and industrial equipment inthe domestic market. Our new TP corresponds to 15.0x / 14.0x / 13.1xFY18-FY20 PER or 0.7x / 0.7x / 0.7x FY18-FY20 PBR.