Morningstar

Morningstar, Inc.

Equity Bottom-Up

We are dropping analyst coverage of Shanghai Electric Group. We provide broad coverage of more than 1,500 companies across more than 90 industry groups and adjust our coverage as necessary based on client demand and investor interest.

Shanghai Electric Group’s, or SEG’s, operating income growth of 16.7% year over year in the first quarter of 2019 came in above our expectations, primarily driven by a significant jump of CNY 488 million in other income owing to revenue from repossession of land by the government. We maintain SEG’s fair value estimate at HKD 3.18 per share and consider the stock to be modestly undervalued. Our no-moat and negative moat trend ratings remain. Overall revenue growth decelerated to 11.4% year over…

Shanghai Electric Group reported better-than-expected full-year 2018 revenue of CNY 101.2 billion, though net income of CNY 3 billion missed our estimate of CNY 3.4 billion. This is primarily due to a decline in gross margins to 18.2% from 19.9% in 2017 and compared with our estimate of 20.5%. Second-half fiscal-year 2018 gross margins for industrial equipment and modern services came in below our expectations due to pricing pressure for elevators and changes to gross margin structure for the…

<p>Shanghai Electric Group's third-quarter 2018 results are tracking largely in line with our full-year estimates. We maintain our fair value estimate at HKD 2.80 as longer-term secular headwinds persist. Our no-moat and negative moat trend ratings remain intact. During the quarter, revenue grew by 7.2% year over year, though this came at the expense of gross margin, which contracted 90 basis points to 21.4% from the same period a year ago, driven by a competitive bidding environment as well as…</p>

<p>We have lowered our fair value estimate for Shanghai Electric, or SEG, to HKD 2.80 (from HKD 3.60) after factoring in lower revenue growth assumptions for 2019-22. We expect demand for thermal and nuclear power equipment to remain weak, given China’s focus on renewable energy, and there are environmental and safety concerns regarding nuclear projects. We do not expect the high gross margins achieved in 2016-17 to be sustainable and are lowering our gross margin forecasts for SEG, as the…</p>

China

Shanghai Electric Group Company Limited, through its subsidiaries, designs, manufactures, sells, and services a wide range of products and services in the power equipment, electromechanical equipment, transportation equipment and environmental system industries.

Shanghai Electric Group Company (2727 HK)

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