1H2019 operating results beat expectation. Revenue and net profit in1H2019 went up YoY by 3.3% and 4.5%, respectively, beating consensusestimates. Total sales went up despite sales of the high efficiency & cleanenergy segment dropped 10.7% YoY. Consolidated gross margin went up by1 ppt to 18.1% mainly due to the sharp boost in gross margin of the modernservices segment （+7.4 ppt YoY） despite margin decline in other businesssegments. Net margin during the period stayed relatively flat at 3.5%.
New orders in 6M2019 went up by 6.5% YoY to RMB77.54 bn. Backlogorders amounted to RMB255.66 bn （with orders of RMB73.13 bn not yetcoming into effect） by the end of June 2019. It is worth noting that newlysigned wind power equipment in 1H2019 reached RMB5.72 bn, up 40% YoY,and backlog orders of wind power equipment reached RMB23.87 bn.
Meanwhile, environmental protection equipment new orders reachedRMB10.05 bn in 1H2019, up 283% YoY, with backlog hitting RMB13.14 bn.
Power engineering spending in 7M2019 went up YoY by 0.7% toRMB124.6 bn. Thermal, nuclear and solar investment in 7M2019 went downYoY by 33.2%, 31.1% and 34.3%, while that of hydro and wind powerinvestment jumped YoY by 37.1% and 51.6%. We expect the majority ofdomestic power investment to be spent on renewable energies going forward.
We reiterate the "Buy" rating but have slightly trimmed our TP toHK$3.68. We remain confident on the outlook of Shanghai Electric due to itscontinued transformation. Our new TP of HK$3.68 corresponds to 15.0x/12.6x/ 11.7x FY19-FY21 PER or 0.8x/ 0.8x/ 0.8x FY19-FY21 PBR.