Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

Shanghai Electric Group Company / Equity Bottom-Up

Shanghai Electric Group Company (2727 HK)

No-moat Shanghai Electric Group, or SEG, delivered a soft full-year 2016 result. The 3.6% year-on-year drop net income to CNY 2.2 billion missed our full-year estimate by 10%, as the improving margin was not enough to offset the decline in one-off gains. Excluding the one-off, net income growth would have been in line with our estimate. The virtually flat revenue growth to CNY 79.1 billion was as expected. Despite the noticeable improvement in the domestic macroeconomic environment in 2017, we anticipate 3.4% year-on-year earnings growth on the back of a modest 1.4% year-on-year top-line increase. The company’s wind turbine business, despite its solid growth thus far, has not been enough to offset the stagnating thermal equipment segment. We maintain our fair value estimate of HKD 3.6 per share, which implies a forward price/earnings ratio of 20.3 times and a price/book ratio of 0.9 times. At the current share price, we consider shares to be fairly valued.Analyst: John Hu

No-moat Shanghai Electric Group, or SEG, delivered a soft full-year 2016 result. The 3.6% year-on-year drop net income to CNY 2.2 billion missed our full-year estimate by 10%, as the improving margin was not enough to offset the decline in one-off gains. Excluding the one-off, net income growth would have been in line with our estimate. The virtually flat revenue growth to CNY 79.1 billion was as expected. Despite the noticeable improvement in the domestic macroeconomic environment in 2017, we anticipate 3.4% year-on-year earnings growth on the back of a modest 1.4% year-on-year top-line increase. The company’s wind turbine business, despite its solid growth thus far, has not been enough to offset the stagnating thermal equipment segment. We maintain our fair value estimate of HKD 3.6 per share, which implies a forward price/earnings ratio of 20.3 times and a price/book ratio of 0.9 times. At the current share price, we consider shares to be fairly valued.Analyst: John Hu

SEG's Fiscal 2016 Result Was Soft Amid Tepid Thermal Equipment Demand; FVE Maintained at HKD 3.6