Net profit fell 69.4% to RMB 179 million in the first half of 2018. The company's revenue, gross profit and net profit fell 11.0% / 33.3% / 69.4% respectively in the first half of 2018 compared with the same period last year. During the period, with the exception of industrial equipment, which recorded a 14.4% year-on-year increase in revenue, revenue from other products declined during the period. Revenue from wind power equipment fell 14.4% from a year earlier. In addition, overseas market revenue also recorded a year-on-year decline of 24.9%, mainly due to a decline in sales to the US market. Due to low product prices and plateau material costs, the company's gross profit margin fell 7.7 percent to 23.1% in the first half of 2018 compared with the same period a year earlier.

9.5 gigawatts of new wind power were installed in China in the first seven months of 2018, while no less than 20 gigawatts of new wind power are expected for the whole of 2018. China added 9.5 gigawatts of wind power from January to July 2018, up 29.6% from a year earlier.

The cumulative installed capacity of wind power in China reached 172.9 gigawatts at the end of July 2018. We expect new wind power installations in 2018 to range from 20 gigawatts to 25 gigawatts, representing a potential year-on-year growth of 27.2%.

Lower the profit forecast to reflect the expectation of low gross margin. Under the expected average selling price of wind power equipment and high steel prices in the future, we expect gross profit margin to remain low and average 23.3% from 2018 to 2020. Our adjusted earnings per share forecast for 2018 to 2020 is 0.145, 0.148 and 0.152 yuan.

We maintain our "sell" investment rating and lower our target price to HK $5.00. We are less optimistic about the company's prospects and further lower our target price to HK $5.00. Our new target price is equivalent to 29.6 times 2018 price-to-earnings ratio or 0.6 times 2018 price-to-book ratio or 10.2 times 2018 enterprise value / EBITDA.