Net profit in 2018 fell 63.3% year-on-year to 71 million yuan. The company's revenue, gross profit and net profit in 2018 fell by 17.9%, 25.3% and 63.3%, respectively, compared with the same period last year. The sharp decline in profits during the period was mainly due to shrinking income and a continued decline in gross profit margin. Gross profit margin fell 1.2 percentage points year-on-year to 12.3% during the period, mainly due to a decline in gross profit margins in a number of business sectors. Overseas revenue contributed 28.5% of revenue during the period, but down 30.2% from a year earlier. New orders in 2018 reached 33.744 billion yuan, down 1.2 per cent from a year earlier. New overseas orders contributed 14.35 billion yuan during the period, a year-on-year surge of 377.6 per cent.

Harbin Electric Group, the parent company, offered to acquire all the issued H shares of Harbin Electric at HK $4.56 per share. Harbin Power Group and Harbin Electric jointly announced on December 24, 2018 that Harbin Power Group has made a voluntary conditional cash offer and will acquire all issued Harbin H shares at HK $4.56 per share. The offer price of HK $4.56 a share for H shares is still 10.95 per cent higher than yesterday's closing price. The tender offer for H shares will be paid in cash.

We maintain the company's investment rating of "collection" and the target price of HK $4.56. In view of the high acquisition premium of Harbin Electric Group and the irreversible downward trend in the domestic thermal power equipment market, we expect that the tender offer for H shares of Harbin Electric, the delisting of Harbin Electric and the merger of Harbin Electric and Harbin Electric Group will be successfully completed within 2019. The target price of HK $4.56 is equivalent to 0.5x / 0.4x / 0.4x 2019 to 2021.