The outlook for 2017 was mixed; downgraded to a “hold” smart meter business was weak, and the 2016 performance fell short of expectations. The company's 2016 revenue fell 12% year on year to 2.6 billion yuan (we expect an increase of 2%), net profit fell 27% year over year to 307 million yuan (we expect a 2% decrease); and earnings per share were RMB 0.30. The company plans to pay a final dividend of HK$0.24, with a payout ratio of 70%. Net profit fell short of expectations mainly due to lower smart meter (SM) business revenue than expected, down 26% year on year. The reasons were: 1) the State Grid reduced the scale of smart meter tenders; 2) the proportion of smart meter orders in third- and fourth-tier cities with lower average sales prices increased. There was a slight recovery in gross margin, but net profit declined. Gross margin increased by about 1 percentage point year-on-year, from 30.2% to 31.3%, mainly due to increased profit margins in the SM and AMI (Intelligent Metering Solutions) segments. However, the net interest rate fell from 14.3% to 11.8% due to: 1) the company switched from US dollar debt to RMB debt, and interest rates rose, leading to an increase in financial costs; 2) new product development expenses increased. Continue to explore overseas market opportunities. The company's overseas business performance improved in 2016, with revenue growth of 31.1%, accounting for 15.2% of total revenue, up from 10% in 2015. In 2016, the company partnered with Siemens to enter a number of developing markets, including West Africa, Mexico, and Brazil. Meanwhile, benefiting from Europe's smart grid reforms, the company also received an order from Austria in early 2017. 6.16 million shares were repurchased after the results were announced. Since announcing its 2016 results on March 21, the company has carried out 6 share repurchases, for a total of 6.16 million shares, accounting for 0.6% of the shares in circulation. The outlook for 2017 was mixed, and earnings forecasts were lowered. As demand for distribution grids and smart grids in China continues to grow, we expect the company's ADO (Intelligent Distribution Systems and Solutions) segment to maintain a 20%/18% increase in sales during 2017/18. Furthermore, the expansion of overseas markets should also bring opportunities. However, the company said that the State Grid smart meter investment this year is likely to be the same as last year, and reminded that second-generation smart meters have not yet been launched. Due to increased administrative expenses and financial cost assumptions, we lowered our 2017/18 revenue forecast by 18%/9.7%, and our net profit forecast by 24.2%/19.9%. Short-term catalysts are lacking; the rating was downgraded to “hold” and the target price was lowered from HK$5.00 to HK$4.50. The company's current stock price corresponds to 11.4 times the historical price-earnings ratio, and the dividend rate is 6.1%. However, we believe the company lacked a short-term catalyst in 2017, and the outlook remains mixed. In 2017, we expect revenue to increase 10% to RMB 2.92 billion, net profit to rise 20% to RMB 367 million, and earnings per share of RMB 0.36. We downgraded the rating from “increase in holdings” to “hold” and the target price from HK$5.00 to HK$4.50, based on 11 times the predicted price-earnings ratio for 2017. The main risks: 1) AMI and smart meter orders are delayed; 2) the downward pressure on gross margin is greater than expected; 3) overseas market expansion is weaker than expected.