Due to short-term profit pressure, we downgraded our investment rating to "Collection" and lowered our target price to HK $2.25. Adjusted earnings per share from 2022 to 2024 are forecast to be-0.116 yuan, 0.136 yuan and 0.233 yuan.
The target price is equivalent to 15.0 times / 8.8 times 2023 pound's 2024 price / earnings ratio or 0.6 times / 0.6 times 2023 pound's 2024 price-to-earnings ratio.
Losses narrowed sharply in the third quarter of 2022. A net loss of RMB 1.416 billion was recorded in the first to third quarters of 2022, which was significantly smaller than the loss of RMB 4.422 billion recorded in the same period in 2021. The quarterly net loss in the third quarter of 2022 was 425 million yuan, which was also lower than the loss of 1.004 billion yuan recorded in the second quarter of 2022. The consolidated gross margin for the first to third quarters of 2022 rose 0.3 percentage points year-on-year to 17.0%, while the quarterly gross margin for the third quarter of 2022 rose 0.2 percentage points year-on-year to 16.9%. The order on hand at the end of June 2022 is RMB 265.96 billion. The company blamed losses in the first three quarters of 2022 on rising raw material, logistics and labor costs, shutdowns due to epidemic prevention and control, and a significant decline in the fair value of its securities holdings during the period.
Rising demand for energy equipment and power engineering services will revive growth and lead to recovery. Combined with current relevant policies and measures, medium-and long-term development plans, energy development goals and wind power bidding data, we expect a surge in domestic demand for wind turbines, power plant engineering services and coal-fired power generation equipment in the next 2-3 years. It is good for energy equipment giants such as Shanghai Electric. We believe that the company's performance will bottom out and rebound in 2023 and achieve a strong recovery.
Core risks: 1) increased asset impairment losses; 2) outbreaks related to production; 3) soaring prices of raw materials.