Net earnings in 2017 met market expectation. Sales and net profit in 2017were up YoY by 12.3% and down YoY by 1.9%, respectively. The earningsdecline was mainly due to the sharp rise in operating expenses (+17.8% YoY)and a substantial decline in the gross margin in 2017. During the period,gross margin was down YoY by 2.8 ppts to 28.5% and net margin droppedYoY by 1.5 ppts to 10.3%. Overseas sales went down by 4.1% YoY in 2017.
　　New orders from State Grid and Southern Grid reached RMB 894 mn.Wasion secured RMB 452 mn worth of new orders from the 2 centralizedtenders on smart meters and data collection terminals from State Grids in2017, down YoY by 24.3%. New orders from Southern Grid reached RMB442 mn, up 36.0% YoY. Combined orders from both State Grid and SouthernGrid amounted to RMB 894 mn, in line with our prior estimate on new ordersfor 2017. Demand in 2018 from both State Grid and Southern Grid remainsquite uncertain given the high penetration rate of smart meters in China.
　　Earnings estimates have been adjusted to reflect expected low marginsand an uncertain outlook. We expect growth to be sluggish and grossmargin to remain at the current level during the forecast period. Our EPSforecasts for FY18 / FY19 / FY20 are RMB 0.301 / RMB 0.315 / RMB 0.325,respectively.
　　We cut the TP to HKD 3.90 and maintain the "Neutral" rating. We slightlycut our TP to HK$ 3.90 based on the uncertain outlook of Wasion. The newTP corresponds to 10.5x / 10.0x / 9.7x FY18 / FY19 / FY20 PER or 0.8x / 0.7xFY18 / FY19 PBR, respectively.