20180830-申万宏源研究_香港_-协鑫新能源-00451.HK-杠杆之殇_6页_1mb

GCL New Energy (451HK) Summary

Core Content

GCL New Energy (451HK) is a Chinese renewable energy company that focuses on solar power generation. This report, dated 30 August 2018, provides a detailed financial analysis and valuation of the company, highlighting its performance, challenges, and future outlook.

Main Points

• Company Overview: GCL New Energy is part of Shenwan Hongyuan Securities and operates in the renewable energy sector with a focus on photovoltaic (PV) power generation.

• Market Data:

  • Closing Price: HK$0.30
  • Price Target: HK$0.30
  • Market Cap (US$m): 729
  • Market Cap (HK$m): 5,722
  • Shares Outstanding (m): 19,074
  • Exchange Rate (Rmb-HK$): 1.15

• Financial Performance (2016–2020E):

  • Revenue: Increased from Rmb2,246m in 2016 to an estimated Rmb5,518m in 2020E, with a slower growth rate in recent years.
  • Net Income: Rose from Rmb130.4m in 2016 to Rmb898.4m in 2020E, though 2018E saw a decline of 28.9% compared to the previous year.
  • EPS: Revised down from Rmb0.05 in 2018E to Rmb0.04, and similarly for 2019E. Maintained at Rmb0.05 for 2020E, indicating a 25% YoY increase.
  • Valuation Ratios:
    • PE (Price-to-Earnings) decreased from 36.2 in 2016 to 5.4 in 2020E.
    • PB (Price-to-Book) dropped from 0.9 to 0.6.
    • EV/EBITDA remained relatively stable at around 10.5x.

• Challenges:

  • High Debt Levels: The net debt-to-equity ratio increased from 330% in 2017 to 364% in 2018E, raising concerns about leverage.
  • Falling Margins: Gross margin declined from 70.8% in 2017 to 68.7% in 2018E, mainly due to lower grid-connected tariffs and increased financing costs.
  • Funding Costs: Increased by 75% to Rmb1.1bn in 2018E, though average borrowing costs decreased slightly to 6.5%.
  • Government Subsidies: Delays in government subsidy payments, with a non-current receivable of Rmb3bn, creating uncertainty about future cash flows.

• Capacity Expansion:

  • Domestic new installations in 2018E reached 1.2GW, with total installed capacity growing to 7.1GW by June.
  • Over 89% of the company's PV capacity is located in regions with limited curtailment issues.
  • The average construction cost per watt fell to Rmb5.9 from Rmb6.3, with further potential for cost reduction.

• Rating and Outlook:

  • The company's stock was downgraded to Hold with a target price of HK$0.30, reflecting 6x 2018E PE and 0.7x PB.
  • The current price has no upside potential, indicating a neutral stance.

Key Information

• Revenue Growth: Driven by a 59% increase in solar power sales, but growth rates have slowed in recent years.
• Profitability: Net income improved significantly from 2016 to 2018E, though 2018E saw a decline due to lower margins.
• Debt Concerns: High leverage and increasing borrowings raise concerns about financial stability.
• Subsidy Delays: Significant delays in government subsidies may impact short-term liquidity.
• Cost Efficiency: Construction costs have declined, offering potential for improved profitability in the future.
• Valuation: The company is currently undervalued based on its 2018E financials, with a target price of HK$0.30.

Financial Summary

Investment Rating

• Security Investment Rating:
  • Hold: Share price is expected to have between 10% downside to 10% upside over a 12-month period.
• Industry Investment Rating:
  • Equal Weight: Industry performance is expected to be similar to the overall market.

Disclaimer

This report is intended solely for the use of SWS Research's clients and is not to be used by any other person. The Company does not guarantee the accuracy or completeness of the information provided. Any investment decisions should be made independently and with full understanding of the risks involved. The report is not a recommendation or advice for investment, and no liability is accepted for any losses incurred.