1Q2018 earnings went up YoY by 22.6%, in line with expectations. Salesand net profit in 1Q2018 went up YoY by 20.0% and 22.6%, respectively.
Gross margin in 1Q2018 was down YoY by 1.2 ppt to 19.7% and net marginwas up YoY by 0.1 ppt to 3.6%. Results were in line with our expectation.
New orders for the quarter went down YoY by 24.7%. The Companysecured RMB 25.43 bn in new orders in 1Q2018, down YoY by 24.7%, andorders on hand reached RMB 231.83 bn （including RMB 110.13 bn in ordersnot yet coming into effect）， up 2.0% from year end 2017. Industrial equipmentbecame the key contributor of new orders by bringing in RMB 12.07 bn in neworders in the first 3 months.
Nuclear power investment is expected to be relaunched in 2018.
Following the recent completion of Sanmen AP1000 nuclear power unit, it isexpected that investment in 3rd generation nuclear power plants will speed upin China. We expect that at least 8 units of nuclear power plants will beapproved and commence construction each year from 2018 to 2020, forminga strong catalyst to the share price of Shanghai Electric as the Company hasmore than 30% share in the domestic nuclear power equipment market.
We maintain the "Accumulate" investment rating and the TP of HK$3.56. We maintain our bullish view on Shanghai Electric given its marketleading position in the nuclear power equipment market and its solidoperating performance in 1Q2018. Our TP corresponds to 15.0x / 14.0x /13.1x FY18-FY20 PER or 0.7x / 0.7x / 0.7x FY18-FY20 PBR.