Pls see attached the full PDF research report, below is a highlight:
 
Event:
We attended Shanghai Electric’s reverse road show. Main findings:
1)         A-share issue to take place soon. Final approval has been received from CSRC and management wants to issue the A-share as soon as possible. This may take place in November, unless the H-share price plunges in the next few days.
2)         Management are confident of reaching FY08 earnings targets and gave guidance on FY09. This year’s earnings target is Rmb2.92bn, and an EPS of Rmb0.25 (before dilution) under HK GAAP, 11% higher than our forecast. The target implies an EPS of Rmb0.07 in 4Q08, growing at 167% YoY in 4Q08. According to management guidance, 2009 will not see a YoY decline in net profits. Gross margin on power equipment may drop 0~2ppt in 2009, while 2010 should see margins benefit from lower steel prices.
3)         Capex is in line with government policy. Management believes the government will support alternative energy, power grids, and railway transportation in an effort to bolster economic growth. This should benefit the company, as most of its capex in the areas of: 1) nuclear and wind equipment (though the company will invest less in solar); 2) power transformers, and. 3) urban railway trains.
4)         Negative impact of global and domestic macro turbulence. To date, no overseas orders have been cancelled or had delivery postponed, however: 1) delivery of some orders has been postponed by domestic clients, impacting power equipment (2% of Rmb160bn backlog) and steel-rolling equipment. 2) Sales of crankshafts for ship use have been negatively impacted by the downstream ship production sector. With current annual capacity at 200 sets, the company is therefore planning to postpone the 3rd phase of its capacity expansion plans. 3) Printing and packaging equipment, demand for which comes mainly from overseas, has seen a decline in orders.