Earnings in 1H17 were below expectations. Sales, gross profit and netprofit in 1H17 were down YoY by 5.9%, 8.3% and 17.3%, respectively. Theearnings decline was mainly due to the continued shrinkage of Power AMIdemand and a sharp rise in operating expenses. During the period, grossmargin was down YoY by 0.8 ppt to 29.3% and net margin dropped YoY by1.6 ppts to 12.0%.
　　ADO and overseas markets are key to revive growth. In light of a 21.2%YoY decrease in sales from the Power AMI in 1H17, ADO sales and overseassales grew rapidly by 35.8% YoY and 62.6% YoY, respectively. We expectthat ADO and overseas sales are key for Wasion to bring earnings growthback on track.
　　Earnings trimmed due to the uncertain outlook on Power AMI. Earningsin 1H17 dropped sharply due to the decreased sales to domestic power gridclients and higher operating expenses during the period. As the outlook onPower AMI remains largely uncertain, we trim our earnings forecasts for thenext few years. Our revised EPS forecasts for FY17 / FY18 / FY19 are RMB0.280 / RMB 0.301 and RMB 0.313, respectively.
　　We cut our TP to HKD 3.30 but maintain the "Neutral" investment rating.Our new TP corresponds to 10.0x / 9.3x / 9.0x FY17 / FY18 / FY19 PER or0.7x FY17 / FY18 / FY19 PBR, respectively.