Net profit for 2017 is in line with the profit warning guidelines. The company's revenue, gross profit and net profit fell 8.1% / 27.4% / 59.3% respectively in 2017 compared with the same period last year. Revenue from all products except industrial equipment declined during the period. Of this total, revenue from wind power equipment fell 7.6% from the same period last year. In addition, overseas markets also recorded a 15.1% year-on-year decline in revenue during the revenue period. Due to low product prices and plateau material costs, the company's gross profit margin fell 7 percentage points year-on-year to 26.3% in 2017.

In 2018, it is estimated that the new installed wind power capacity will increase by 27.2% to 52.6% compared with the same period last year. China added 19.66 gigawatts of wind power in 2017, down 15.9% from a year earlier. At the end of the period, the cumulative installed capacity of wind power reached 188.4 gigawatts, up 11.7% from the same period last year. We expect new wind power installations in 2018 to range from 25 gigawatts to 30 gigawatts, equivalent to a year-on-year increase of 27.2% to 52.6%.

It is expected that lower gross margins in the future will further impact the company's profitability. We expect low gross margin to become the new normal for the company, especially given the continued low average selling price of wind power equipment and high steel prices in the future. As a result, we have lowered our profit forecasts for 2018 to 2020. Our adjusted earnings per share forecast for 2018 to 2020 is 0.277, 0.305 and 0.314 yuan.

We downgraded our investment rating to "sell" and lowered our target price to HK $7.00. We are less optimistic about the company's prospects and downgrade its rating and target price at the same time. Our new target price is equal to 20.5x / 18.6x 2018-2019 P / E or 0.8x / 0.8x 2018-2019 P / B or 10.0x 2018 / EBITDA.