Better-than-expected power equipment sales for Shanghai Electric Group, helped prop up the heavy-machinery manufacturer's profits last year.

Net profits for the group reached 2.8 billion yuan last year compared with 2 billion yuan in 2006, an increase of 37.4 percent.

Shanghai Electric President Huang Dinan said orders for power equipments in 2007 totaled more than 70 billion yuan. "This is a lot more than we expected," Huang told reporters at the company's financial results announcement yesterday.

Sales from power equipment alone brought in 33 billion yuan - 59 percent of the group's total revenue of 56 billion yuan last year.

However, in the face of rising raw-material prices and the yuan's appreciation, Shanghai Electric Chief Executive Officer Yu Yingui admitted that the company's profits and margins might be squeezed.

"We expect net profit margins to see a decline of 1 percentage point in 2008," Yu said. In 2007, the group's net profit margins inched up 3 basis points to 5 percent.

To stave off the pricing pressure of climbing steel prices, the heavy machinery manufacturer said that it has reached a series of strategic deals with major steel manufacturers to ensure competitive pricing.

He said the group currently has 16 billion yuan worth of steel reserves that will be sufficient for the next six months.

As the US currency continues to weaken, Huang admits that it might pose some concerns for the group in 2008, which settles its orders mainly with US dollars. To alleviate the pressure of the strong yuan, Huang said other currency is being considered.

"We have already started settling in euro for several projects this year," Huang said.

Shanghai Electric, which is one of the mainland enterprises that have decided to return to the A-share market, said that the plan is currently pending approval by the regulator.

Huang expects that the group will be able to commence A-share offerings in the current quarter, making it possible for the company to raise money in both capital markets.

Shares in Shanghai Electric slumped more than 6 percent yesterday after announcing its financial results, closing the stock price at HK$3.99.

(HK Edition 04/18/2008 page2)