Net profit in the 3rd quarter of 2020 went up YoY by 125.2% to RMB823 mn, which was better than expected. The Compan/s revenue and earnings in the first 9 months met our expectation due to better-than-expected 3Q2020 operating performance. In the first 3 quarters of 2020. revenue increased 9.7% YoY to 82,532 mn and net earnings amounted to RMB2,345 mn( up YoY by 6.0%. Overall gross margin of the Company in 1M-9M2020 went down by 0.8 ppts YoY to 18.3% and its 3Q2020 quarterly gross margin was down by 1.8 ppts YoY to 15.6%.

Nationwide power sector investment in 1-10M2020 reached RMB684.2 bn, up YoY by 24.9%. Of which, power engineering investment went up YoY by 68.1% to RMB347.1 bn while power grid investment was down YoY by 1.3% to RMB337.1 bn. During the period, investment in hydro and wind power engineering surged YoY by 10.9% to RMB71,2 bn and by 126.7% to RMB 183.5 bn, respectively. Investment in renewables accounted for 92.2% of total spending of power engineering in 1-10M2020r and we expect that tie majority of power engineering investment will be spent on renewable energies in the next 5 years.

We reiterate the "Buy"' investment rating and maintain our TP of HKS3.25. We remain confident on the outlook of Shanghai Electric due to its strong recovery entering 2Q2020. The operations of the Company have largely returned to pre-pandemic levels. Our EPS estimates from 2020 to 2022 are RMB0.256, RMB0.294 and RMB0.334, respectively. The TP of HK$3.25 corresponds to 10.7x/ 9.3x/ 8.2x 2020-2022 PER or 0.6x/ 0.6x/ 0.6x 2020-2022 PBR.