China added 2.4 gigawatts of distributed photovoltaic systems in the first quarter of 2017, a year-on-year increase of 151%. PV installed 7.2 gigawatts in the first quarter, while distributed photovoltaics contributed 2.4 gigawatts during the period and achieved a cumulative installed capacity of 12.75 gigawatts at the end of the period. Given the distributed PV installation target of 60 gigawatts in 2020, we think more distributed PV projects will be connected to the grid one after another by 2020. We believe Societe Generale will benefit from this wave of national expansion of investment in distributed photovoltaics by 2020.

Earnings in 2016 were higher than market expectations, mainly due to a sharp increase in construction contract revenue during the period. The company completed a 360 megawatt photovoltaic EPC project in 2016, an increase of 100% over the previous year. The revenue growth of solar EPC and traditional EPC in 2016 contributed more than 1 billion yuan to the company's overall revenue growth. Gross margin and net interest rate increased 0.6 percentage points and 1.1 percentage points respectively during the period. Management is committed to completing the 500 MW solar EPC project in 2017.

We have readjusted our earnings forecasts based on the new assumptions. We expect the company to complete 430 megawatts, 465 megawatts, and 500 megawatts of solar EPC projects from 2017 to 2019, respectively. Our adjusted earnings per share for the 2017-2019 fiscal year were RMB 0.662, RMB 0.736 and RMB 0.803, respectively.

We maintain our “collected” investment ratings and target price of HK$5.00. Our target price is equivalent to 6.7 times/6.0 times/5.5 times the price-earnings ratio from 2017 to 2019 or 0.8 times/0.7 times/0.6 times the 2017-2019 net price-earnings ratio.