A net loss of 4.971 billion yuan was recorded in the first half of 2021. Shanghai Electric Communication Technology Co., Ltd. (a subsidiary of Shanghai Electric) made provision for the impairment loss on accounts receivable and inventory, totaling RMB 7.367 billion, which reduced the company's net profit by RMB 6.574 billion in the first half of 2021, which is the main reason for the loss recorded during the company period. The adjusted net profit of the company during the period was approximately RMB 1.6 billion. As the asset impairment loss recorded this time is non-recurrent, the fundamentals of the company are still sound. By the end of June 2021, the company's total on-hand orders reached RMB 275.16 billion (including outstanding orders of RMB 68.64 billion).

According to a recent report released by the China Power Union, China will add about 140 gigawatts of non-fossil energy power generation capacity in 2021. The forecast in the report shows that the newly installed capacity of hydropower, wind power and solar power in China is expected to reach 20 gigawatts, 50 gigawatts and 60 gigawatts respectively in 2021. Shanghai Electric was rated by Bloomberg New Energy Finance as the seventh largest wind turbine manufacturer in the world in 2020, with 5.1 gigawatts of wind turbines shipped during the period. The company is expected to continue to benefit from China's accelerated investment in wind power.

We reiterate the "buy" investment rating but adjust the target price to HK $3.30. Despite the short-term profit pressure, we are still full of confidence in the future of Shanghai Electric. Our adjusted earnings per share forecasts for 2021-2023 are RMB-0.195, RMB 0.274 and RMB 0.312. The target price of HK $3.30 is equivalent to a price-to-earnings ratio of 2022 to 2023 or a price-to-book ratio of 2021 to 2023.