Harbin Power Equipment, the mainland's largest maker of power equipment, expects the growth of new orders to slow down this year.

Qu Dazhuang, managing director of Harbin Power, said the mainland's power equipment market will come down this year, as "the macro-economic control measures will limit the demand for electricity".

The company reported a total of orders worth 51.3 billion yuan in 2007, compared to 28.5 billion yuan a year earlier.

Qu said the number of new orders should be less than 50 billion yuan this year.

Although the company targets to speed up market development overseas, its lack of familiarity with overseas markets has deferred the progress, Qu said.

"The raw material costs are climbing and we should be more cautious in taking new orders," Qu added.

Steel products account for approximately 70 percent of the total cost, said Liu Zhiquan, deputy general manager of Harbin Power.

He noted that steel prices have surged by 10 to 15 percent in the first quarter.

"The surge of prices is caused by the disastrous blizzards early this year." He expects the prices to stabilize for the rest of the year.

Liu added that the company can pass on the increased costs to its customers, and also offset the impact by better cost control.

Harbin Power's gross profit margin grew by 4.52 percentage points to 15.65 percent last year. Liu said the higher margin is derived from effective cost management and technological improvement since 2004.

The company reported a 4.98 percent decrease in turnover to 27.6 billion yuan in 2007, but a 49.1 percent increase in net profits to 1.5 billion yuan.

"It's difficult to say whether the gross profit margin can be kept this year," Qu said, "but we expect that the costs of raw materials will surge further, therefore, we have to strengthen our internal management."

Harbin Power was also hit by the yuan appreciation last year. It booked a net foreign exchange loss of 104 million yuan.

Liu said the company will gradually increase the foreign exchange loan to settle the yuan loan. "We expect the foreign exchange loss to stablize or decrease gradually even though the yuan appreciation is accelerating."

The share price of Harbin Power closed 0.78 percent higher at HK$12.98, bucking the weak market sentiment yesterday.

(HK Edition 04/15/2008 page4)