Results for the first half of 2021 were in line with expectations. Harbin Electric's revenue in the first half of 2021 increased 22.8% year over year to RMB 11.807 billion, while shareholders' net profit increased 18.2% year over year to RMB 34.5 million. The consolidated gross margin for the period fell 2.5 percentage points to 10.7% year on year, mainly due to the decline in gross margin of almost all business segments during the period. The total capacity of power equipment produced in the first half of 2021 reached 10.635 gigawatts, an increase of 5.2% over the previous year. New orders signed during the period reached RMB 8.953 billion, up 1.6% year on year. Among them, thermal power, hydropower, nuclear power, power plant services and other equipment contributed 43.0%, 18.9%, 1.3%, 17.2% and 19.6% of new orders, respectively.

China will start investing RMB 900 billion in pumped energy storage projects during the 14th Five-Year Plan period. On August 6, 2021, the National Energy Administration issued a letter requesting the “Medium- and Long-Term Development Plan for Pumped Energy Storage (2021-2035)” (draft for comments), which mentioned that an investment of RMB 1.8 trillion will be initiated between 2021 and 2035 to build a new 300 gigawatt pumped storage power plant. Leading domestic suppliers of hydropower equipment and engineering services are expected to benefit from the huge investment in hydropower during this period.

We maintained our “collected” investment rating for the company and raised the target price to HK$3.50. We have raised the company's profit forecast for 2022 and beyond. The adjusted earnings per share forecast for 2021 to 2023 is RMB 0.091 /RMB 0.243/RMB 0.363 respectively. Our new target price is equivalent to 31.9 times/12.0 times/8.0 times the price-earnings ratio of 2021 to 2023 or 0.3 times/0.3 times/0.3 times the net price-earnings ratio of 2021 to 2023.