1H2018 earnings went up YoY by 12.5%, beating expectations. Sales andnet profit in 1H2018 went up YoY by 24.4% and 12.5%, respectively. Grossmargin for the period went down YoY by 2.3 ppt to 17.1% and net margin wasdown YoY by 0.4 ppt to 3.4%. Results were better than expectations.
New orders in the first 6 months went up YoY by 20.8%. New orderssigned in 1H2018 reached RMB 66.53 bn, up YoY by 20.8%, and orders onhand reached RMB 226.1 bn （including RMB 104.6 bn in orders not yetcoming into effect）， which was relatively flat compared to that at year end2017. New orders of modern services grew 68.6% YoY to RMB 28.6 bn andbecame the key contributor of new orders growth.
Power generating infrastructure investment in China in 7M2018 reachedRMB 123.8 bn, down YoY by 1.3%. In 7M2018, newly installed powercapacity in China reached 66.6 GW, down YoY by 3.2%. Newly installedthermal and hydro during the period dropped YoY by 0.2% and 28.4%,respectively. However, newly installed wind capacity increased 46.9% YoY in1H2018. We expect China’s investment in thermal and hydro power tocontinue their current downtrend while China's investment in wind, nuclearand solar energies will accelerate.
We upgrade the rating to "Buy" and raise the TP to HK$ 3.63. Wemaintain our bullish view on Shanghai Electric given its continued reform andtransformation as well as its solid operating performance in 1H2018. Our TPcorresponds to 15.0x/ 13.3x/ 12.3x FY18-FY20 PER or 0.8x/ 0.8x/ 0.8xFY18-FY20 PBR.