The profit in the first half of 2017 is in line with expectations. The company's revenue and gross margin fell 12.9% and 22.7% respectively in the first half of 2017 compared with the same period last year. However, net profit for the period rose 1.9 per cent year-on-year to 587 million, mainly due to a 137 million asset disposal gain recorded during the period. Revenue from wind power products fell 16.9% year-on-year, mainly due to a sharp decline in revenue in the Chinese and European markets during the period. Due to lower product sales prices and rising raw material prices, gross profit margin fell 4 percentage points year-on-year to 31.3%.

The number of new grid-connected wind power installed in China in 2017 is expected to be 18 gigawatts, down 6.7% from the same period last year. The latest guidance issued by the National Energy Administration at the end of July clearly points out that the number of new wind power installed in China will reach 110.4 gigawatts between 2017 and 2020. We expect 18 gigawatts of new wind power to be installed in 2018 (down 6.7 per cent from the same period last year) and 31 gigawatts per year between 2017 and 2020. The domestic demand in the next few years has been formally established by the Energy Bureau.

We lowered our profit forecast based on 2017 weak domestic demand. Our forecast is based on the decline in domestic demand for wind power products in 2017 and the subsequent strong demand in 2018 and 2019. In addition, we expect overseas markets to continue to contribute to the company's growth. Our forecast net income per share from 2017 to 2019 is RMB 0.582, RMB 0.652 and RMB 0.739 respectively.

We lowered the company's target price to HK $7.70 but maintained its "neutral" investment rating. Our new target price is equivalent to 11.2 times / 10.0 times / 8.9 times 2017-2019 earnings or 0.9 times / 0.8 times 2017-2019 price-to-book ratio.