A net loss of RMB 9,988 million was recorded for the full year of 2021. Revenue in 2021 fell 4.3% year over year to RMB131,388 million, with net loss recorded for the full year of RMB9,988 billion. Shanghai Electric's 2021 results are in line with the profit warning issued earlier. Falling revenue, falling gross margins, and rapidly rising asset and credit impairment losses were the core reasons for the huge losses recorded in 2021. Notably, during the period, credit impairment losses surged 534% year on year to RMB 10.987 billion, while asset impairment losses soared 305% year over year to RMB 4,525 billion. We believe that asset impairment losses during the period are non-recurring and will only affect Shanghai Electric's profit in 2021.

Investments in the power sector are expected to increase by around 30% year over year in 2022. Investment in the domestic power industry reached RMB 1,048.1 billion in 2021, an increase of 2.9% over the previous year. Among them, power engineering and grid investments reached RMB 553 billion (up 4.5% year on year) and RMB 495.1 billion (up 1.1% year on year), respectively. Investment in non-fossil power sources accounts for 88.6% of the total investment in power engineering. We expect investment in the power industry to be around RMB 1.36 trillion in 2022, an increase of 30% over the previous year. The installed capacity of additional power generation is expected to be around 200 gigawatts in 2022 (a 13.4% increase over the previous year).

We maintained our “buy” investment rating but adjusted our target price to HK$2.75. Our adjusted earnings per share forecast for 2022 to 2024 is RMB 0.224, RMB 0.252, and RMB 0.294. The new target price is equivalent to 10.0 times/8.9 times/7.6 times the price-earnings ratio of 2022 to 2024 or 0.6 times/0.5 times/0.5 times/0.5 times the net market ratio from 2022 to 2024.