Net profit fell 53.9% to RMB 208 million in 2018. The company's revenue increased 2.7% year over year in 2018, but net profit fell 53.9% year over year. Revenue from wind power equipment increased 1.4% year-on-year to RMB 6.9 billion during the period, accounting for 84% of total revenue. Revenue from industrial equipment contributed RMB 1.3 billion, an increase of 29.7% over the previous year. Local revenue during the period remained flat at RMB 5.4 billion, while overseas revenue increased 6.5% year-on-year to RMB 2.8 billion. Due to lower product prices and higher raw material prices, the company's gross margin fell 10.1 percentage points year-on-year to 18.7% in 2018.

In the first three months of 2019, domestic additional wind power installations reached 4.8 gigawatts, a year-on-year decrease of 9.1%. The cumulative installed capacity of wind power in China reached 188.9 gigawatts at the end of March 2019, an increase of 13.2% over the previous year. We expect 25 gigawatts of new wind power installations in 2019, meaning no less than 19% year-over-year installed growth.

Adjust profit forecasts to reflect the impact of lower product prices. With wind power equipment prices expected to remain low in the future and high steel prices, the company's gross margin is expected to hover low and average 19% from 2019 to 2021. We expect that the company's shipments will increase year by year after domestic wind power is affordable online is realized. Our adjusted earnings per share forecast for 2019 to 2021 is RMB 0.282, RMB 0.251, and RMB 0.311.

We maintain our “sell” investment rating and target price of HK$5.00. We maintain a cautious view of the company's prospects. Our target price is equivalent to 15.0 times the 2019 price-earnings ratio or 0.6 times the 2019 net price-earnings ratio.