Net profit in 2021 rose 22.9% year-on-year to 2.289 billion yuan. During the period, revenue from Hyundai manufacturing services fell 19.3 per cent year-on-year, while revenue from the other four sectors grew significantly year-on-year. The company's comprehensive gross profit margin fell 3.4 percentage points to 18.9% year-on-year, mainly due to a decline in gross profit margins in efficient clean energy equipment (from-1.8% to 21.7%) and in the engineering and trade business (from-16.0% to 10.9%). During the period, the net interest rate fell slightly by 0.2 percentage point to 4.8% compared with the same period last year. New orders in 2021 rose 14.2% year-on-year to 56.4 billion yuan. The order on hand at the end of the term amounts to RMB 81.6 billion. About 3.3 gigawatts of turbines were delivered in 2021 and more are expected to be delivered in 2022 and beyond.

We expect the newly installed power generation capacity to be about 200 gigawatts in 2022, an increase of 13.4% over the same period last year. In order to achieve a carbon peak in 2030 and carbon neutrality in 2060, China needs to invest more in renewable energy in the coming decades. We expect the new installed capacity to be about 200 gigawatts in 2022. Of these, thermal power, hydropower, nuclear power, wind power and solar power are expected to contribute 45 gigawatts, 20 gigawatts, 5 gigawatts, 55 gigawatts and 75 gigawatts of new power generation respectively.

We maintain our investment rating as "buy" but adjust our target price to HK $9.50. Our adjusted earnings per share forecasts for 2022-2024 are 0.770 yuan, 0.898 yuan and 1.026 yuan respectively. Our new target price is equivalent to a 2022-2024 price-to-earnings ratio of 10.0 / 8.6 / 7.5 times or a 2022-2024 price-to-book ratio of 0.7 / 0.7 / 0.6 times.

Net profit in 2021 rose 22.9% year-on-year to 2.289 billion yuan. Dongfang Electric's revenue, gross profit and net profit in 2021 increased by 28.3%, 8.6% and 22.9% respectively from a year earlier to 47.819 billion yuan, 9.037 billion yuan and 2.289 billion yuan, respectively. Dongfang Electric's net profit in 2021 is slightly worse than our expectations, but basically in line with market expectations. The net profit of the company during the period is about 96.1% of the market consensus profit forecast. During the period, revenue from Hyundai manufacturing services fell 19.3% year-on-year to 3.963 billion yuan, while revenue from the other four sectors all achieved significant year-on-year growth. Of this total, revenue from renewable energy equipment increased by 50.1% year-on-year to RMB 15.138 billion (wind power equipment revenue increased by 69.8% to RMB 12.618 billion). Revenue from efficient clean energy equipment increased by 14.7% year-on-year to RMB 12.787 billion (nuclear power equipment increased by 23.5% to RMB 2.229 billion) Revenue from engineering and trade operations rose 60.3 per cent year-on-year to 7.758 billion yuan, while revenue from emerging growth industries rose 29.8 per cent year-on-year to 8.172 billion yuan. The company's comprehensive gross margin fell 3.4 percentage points year-on-year to 18.9%, mainly due to a decline in gross margin in the sectors of efficient clean energy equipment (from-1.8% to 21.7%) and the engineering and trade business (from-16.0% to 10.9%). During the period, the net interest rate fell slightly by 0.2 percentage point to 4.8% compared with the same period last year. New orders in 2021 rose 14.2% year-on-year to 56.4 billion yuan. Of these, efficient clean energy equipment accounted for 25.8%, renewable energy equipment accounted for 29.4%, engineering and trade business accounted for 13.5%, modern manufacturing service business accounted for 12.8%, and emerging growth industries accounted for 18.5%. The total amount of on-hand orders at the end of the period amounts to 81.6 billion yuan. It is worth noting that wind power equipment contributed 26.4% of total revenue and 23.1% of new orders during the period. About 3.3 gigawatts of turbines were delivered in 2021, and the company said it would deliver more in 2022. China's current carbon neutralization policy will release trillions of yuan of investment in the power sector in the next few years. We are optimistic about the company's prospects and believe that the company will continue to benefit from the huge opportunities in the domestic power sector.

We expect the newly installed power generation capacity to be about 200 gigawatts in 2022, an increase of 13.4% over the same period last year. In 2021, investment in the domestic power sector reached 1.0481 trillion yuan, an increase of 2.9 percent over the same period last year. Of this total, investment in power supply projects and power grids reached 553 billion yuan (up 4.5 per cent year on year) and 495.1 billion yuan (up 1.1 per cent year on year) respectively.

Investment in non-fossil energy power accounts for 88.6% of the total investment in power projects. At the same time, China's newly installed power generation capacity reached 176.29 gigawatts during the period, down 7.9 percent from the same period last year. Among them, the new installed capacity of non-fossil energy power sources was 138.09 gigawatts, accounting for 78.3% of the new installed capacity, an increase of 5.2 percentage points over the same period last year. Of the new installed capacity during the period, thermal power increased by 46.28 gigawatts (down 18.2% from the same period last year), hydropower increased by 23.49 gigawatts (up 79.0% from the same period last year), wind power increased by 47.57 gigawatts (down 34.0% from the same period last year), and solar energy increased by 54.93 gigawatts (up 14.0% from the same period last year). By the end of 2021, the country's cumulative installed power generation capacity reached 2377 gigawatts, an increase of 7.9 percent over the same period last year. To achieve a carbon peak in 2030 and carbon neutrality in 2060, China needs to invest more in renewable energy in the coming decades. We expect the new installed power capacity to be about 200 gigawatts in 2022 (up 13.4% from the same period last year). Of these, thermal power, hydropower, nuclear power, wind power and solar power are expected to contribute 45 gigawatts, 20 gigawatts, 5 gigawatts, 55 gigawatts and 75 gigawatts of new power generation respectively. We also expect that most of the new installations in the next few years will come from renewable energy sources.

We updated our profit forecasts based on new assumptions. Dongfang Electric's total revenue will grow at a compound annual growth rate of 8.3% between 2021 and 2024, mainly because revenue from the efficient clean energy sector is expected to decline at an annual compound growth rate of 14.7% during the period. All other business sectors will record strong double-digit compound annual growth rates during the period.

The revenue contribution of the efficient clean energy sector reached 31.7% in 2021, and is expected to drop to 24.7%, 19.5% and 15.5%, respectively, between 2022 and 2024. The revenue contribution of renewable energy equipment will increase from 26.7% in 2021 to 30.5% in 2022-2024, respectively. Revenue from renewable energy equipment is expected to grow at a compound annual growth rate of 19.8% between 2021 and 2024, reaching 22 billion yuan in 2024. Significant growth in the renewable energy equipment sector will offset the negative impact of declining sales in the thermal power equipment sector. Due to the decline in profit margin of thermal power equipment (gross profit margin of thermal power products fell 5.3 percentage points to 21.2% year-on-year during the period), Dongfang Electric's comprehensive gross profit margin fell 3.4 percentage points to 18.9% year-on-year during the period. However, we expect the company's consolidated gross profit margin to recover to 19.5%, 20.1%, 20.4%, respectively, during the period 2022-2024. Taking into account the expected rebound in profit margins in major business segments and the expected improvement in the company's operating efficiency under stricter cost control measures, we expect Dongfang Electric's overall profitability to continue to enhance. Our adjusted earnings per share forecast for 2022-2024 are 0.770 yuan, 0.898 yuan and 1.026 yuan respectively.

We maintain our "buy" investment rating but adjust our target price to HK $9.50. The medium-and long-term Development Plan of pumped Storage and the notice on the renovation and upgrading of National Coal Power Units will release the new demand for hydropower equipment and power station engineering services, which is expected to further promote the growth of Dongfang Electric in the next few years. At the same time, as China intends to increase investment in domestic infrastructure projects during the 14th five-year Plan period, as an effective measure to boost growth and further optimize the energy structure, we expect that investment in the power sector will continue to grow significantly in 2022 after breaking through the 1 trillion yuan mark for the first time in 2021. We expect the investment in 2022 to exceed 1.36 trillion yuan, equivalent to a 30 per cent year-on-year increase. It is expected that the average investment in the power sector in 2021-2025 will not be less than 1.4 trillion yuan per year, because we expect the scale of investment to continue to increase in the next few years. We believe that Dongfang Electric will further benefit from the increase in investment in China's power sector in the next few years. We reaffirmed our "buy" investment rating, but adjusted our target price to HK $9.50. Our new target price is equivalent to a 2022-2024 price-to-earnings ratio of 10.0 / 8.6 / 7.5 times or a 2022-2024 price-to-book ratio of 0.7 / 0.7 / 0.6 times.