Weisheng Group (Weisheng) is expected to release its 2017 results later this month. The company's earnings for 2017 may be relatively lackluster, mainly due to 1) rising expenses (costs and R&D expenses associated with the spin-off); b) rising non-controlling equity (related to the spin-off). However, we believe that Weisheng's core performance in the second half of 2017 will show signs of a year-over-year and month-on-month improvement, which will dispel market concerns about its growth prospects. Due to opportunities for changes in smart meter standards and the reduction in electricity meter purchases by the national grid, the market is concerned about the company's prospects. This limited the growth of Weisheng in 2017 and 2018. However, Weisheng has successfully identified other areas with growth potential, such as exports and ADO businesses, which offset the impact of the National Grid's reduction in equipment purchases in 2017. We still believe that in the medium to long term, both the energy Internet and electricity reforms will drive growth. The potential spin-off of the company's AMI water business (water metering and data collection terminal business) is a stock price catalyst, but so far the timing of the spin-off has not been determined. We believe that if the company's growth prospects become clear, the market will revalue Victory. Our views on Weisheng tend to be positive because we believe the company can achieve growth even under difficult market conditions, and the upgrading of power transmission standards is expected to be the driving force for the next round of growth. The company's current dividend yield of 6.2% is expected to support the stock price. We upgraded our rating from holding to buying. The latest target price is HK$5.05, based on 14 times the 2018 price-earnings ratio. Investment highlights A strong recovery is expected in the second half of '17. We expect Weisheng's turnover in 2017 to be RMB 2,882.7 billion, up 10.2% from RMB 2,607.5 billion in 2016. Weisheng's estimated net profit in 2017 was RMB 307 million, a slight decrease from RMB 307.3 million in 2016. Weisheng's 2017 report data is likely to be rather lackluster for the market. However, if we exclude the impact of sales revenue of RMB 100 million in the first half of 2017 and the impact of spin-off related projects (professional expenses and minority shareholder interests), Weisheng's performance in the second half of 2017 was strong. Weisheng's net profit for the second half of 2017 is estimated at 136.3 million yuan. Excluding the impact of sales revenue in the first half of 2017, it rose 36.1% year on year and 40% month on month. Given the year-over-year decline in grid investment, Weisheng's 2017 performance was impressive. The company has successfully identified areas with growth momentum to offset the impact of the National Grid's reduced procurement of equipment. Through better sales and marketing strategies, Weisheng also gained market share in the Chinese market in 2017. We expect Weisheng to announce a final dividend of RMB 0.21 per share, representing an expected yield of 6.2%. Despite the recent poor business environment, the company continues to grow. We believe that given (a) the reduction in the number of smart meters purchased by the national grid; and (b) the company's continued investment in R&D and marketing, Weisheng's 2017 performance will prove the company's ability to achieve growth in a poor market environment. Growth areas such as exports and ADO business performed well and brought growth to offset the decline in grid sales. Despite State Grid's delays in purchasing new products, we expect that export business, ADO business, and other meter products will continue to drive Weisheng's growth. We also believe that the effects of these negative factors have already surfaced in the first half of 2017, so the negative factors have already been reflected in stock prices. The long-term growth momentum remains. We believe that the development of the energy internet will bring about a demand for high-end power distribution and transmission equipment (hardware and software). Electricity reform is another major development in the national grid and China Southern Power Grid. This will bring upgrade requirements for power distribution equipment. We believe that with the scale of energy internet investment and grid demand upgrades unclear, the market is unlikely to revalue Victory. The company's 2017 operating performance and progress in penetrating new market segments should provide a basis for investors to reevaluate Victory.