The profit in 2017 is in line with market expectations. Revenue and net profit rose 12.3% and 1.9% respectively in 2017 compared with the same period last year. The decline in earnings during the period was mainly due to a sharp rise in operating expenses (up 17.8% from a year earlier) and a sharp decline in gross profit margin. During the period, gross margin fell 2.8 percentage points year-on-year to 28.5%, while net profit margin fell 1.5 percentage points year-on-year to 10.3%. Overseas revenue fell 4.1% year-on-year during the period.

In 2017, new orders from State Network and South Network reached 894 million yuan. Weisheng won orders for smart meters and data acquisition terminals worth 452 million yuan in two unified tenders organized by the State Network in 2017, down 24.3% from the same period last year. During the period, the newly signed order of the Southern Network reached 442 million yuan, a sharp increase of 36.0% over the same period last year. The total new orders of the two power grid companies are RMB 894 million, which is in line with our earlier forecast of the company's new orders during the period. In view of the high coverage of smart meters in China, there is still great uncertainty about the new orders from the two power grid companies in 2018.

The adjusted earnings forecast reflects the expected low gross margin and uncertainty about the future. We expect growth to remain sluggish and gross profit margin to remain at current levels. Our revised earnings per share forecasts for fiscal year 2018 to 2020 are 0.301 RMB / 0.315 RMB and 0.325 RMB respectively.

We lowered our target price to HK $3.90 and maintained our "neutral" investment rating. In view of Weisheng's uncertain outlook, we have slightly lowered our target price to HK $3.90. The new target price is equivalent to 10.5x / 10.0x / 9.7x 2018 to 2020p or 0.8x / 0.7x 2018 / 2019.