Earnings for the first half of 2018 increased 185.7% year over year, better than expected. The company's revenue and profit increased 3.9% and 185.7%, respectively, in the first half of 2018. During the period, gross margin rebounded 3.6 percentage points year over year to 24.4%. The company's core business remained healthy during the period. The main reasons for the sharp increase in profit include a decrease in financing costs during the period and an increase in gross profit.

In the first six months of 2018, 24.3 gigawatts of photovoltaic installations were added in China. According to data from the National Energy Administration, the installed capacity of newly added solar power generation in China reached 24.3 gigawatts in the first six months of 2018, the same as the previous year. Affected by the 531 New Deal, we expect new domestic PV installations to fall back to between 35 gigawatts and 40 gigawatts in 2018, which means that domestic demand for solar EPCs will decline in the second half of 2018. However, after the advent of affordable PV access, we expect local demand to record high growth again in 2019 and 2020.

We raised our earnings forecast under new, more optimistic assumptions. We expect Societe Generale to complete 510 megawatts, 550 megawatts, and 575 megawatts of solar EPC projects in the 2018-2020 fiscal years, respectively. Revenue per watt of solar EPC projects during the period is expected to be RMB 5.5/RMB 5.0/RMB 4.7, respectively. Our adjusted earnings per share for the 2018-2020 fiscal year were RMB 0.511, RMB 0.584, and RMB 0.615, respectively.

We upgraded the rating to “buy” and raised the target price to HK$3.00. Our new target price is equivalent to 5.0 times/4.4 times/4.2 times the price-earnings ratio for the 2018-2020 fiscal year or 0.4 times the 2018 net price-earnings ratio.