20211029-招银国际-金风科技-02208.HK-3Q21_results_slight_beat__wind_farm_disposal_to_sustain_earnings_performance_in_2022_5页_1mb

Goldwind (2208 HK) Company Update Summary

Core Content

Goldwind (2208 HK) reported a slight beat in 3Q21 results, with a net profit of RMB1,164 million, representing a 46.6% YoY increase and a 32.9% QoQ increase. The company's GPM (Gross Profit Margin) for 9M21 was 26.3%, with a 24.3% GPM for 3Q21, which is a 7.2ppt increase YoY but a 3.4ppt decrease QoQ. The strong performance was driven by high-margin offshore wind turbine generator (WTG) shipments, and management was confident in delivering an 18% WTG GPM for FY21.

Despite a sharp decline in WTG tender prices in 2022, the report suggests that Goldwind's rational market competition strategies will help it mitigate the impact of low-price orders and sustain earnings performance through wind farm disposals. The target price (TP) was lifted by 14.7% to HK$20.20, maintaining a BUY rating.

Key Financial Highlights

Main Points

• 3Q21 Earnings Performance: Goldwind's net profit slightly exceeded market estimates, driven by high-margin offshore WTG shipments.
• GPM Trends: The company's gross profit margin for 9M21 was 26.3%, and for 3Q21, it was 24.3%, on track with management's guidance for FY21.
• Challenges in FY22: A sharp decline in WTG tender prices is expected, which may pressure margins. However, Goldwind is expected to smooth earnings through wind farm disposals.
• Wind Farm Disposal Strategy: Selling wind farms is seen as a more profitable strategy than competing in price wars. Based on historical data, wind farm disposals offer higher unit earnings performance.
• Market Outlook: With high visibility in wind farm projects, installation is expected to accelerate in 2022, and the onshore grid-parity projects are projected to offer better IRR than solar farms.
• Target Price and Rating: The target price was raised to HK$20.20 (up 14.7% from previous), and the rating is maintained at BUY.

Wind Farm Disposal Analysis

• Order Backlog: As of end-3Q21, Goldwind had a 15.1GW order backlog, maintaining a leading position in the market.
• Economics of Wind Farm Disposal: Wind farm disposal is expected to provide higher returns compared to selling WTG, especially with increased demand from SOEs and high energy consumption industries.
• Project Economics:
  • Grid Parity Wind Farm IRR: 7.4%
  • Equity IRR: 10.9%
  • Average ROE in first 10 years: 6.4%
  • Payback Period: 9 years

Strategic Considerations

• Price War Avoidance: Goldwind's strategic decision to avoid price wars and focus on rational market competition is expected to reduce the impact of declining tender prices.
• Market Position: Despite a declining bid winning rate, the report suggests this was a strategic move to avoid irrational pricing.
• Investor Confidence: The company's attractive ROE and earnings CAGR make it a compelling investment despite the challenges in the wind turbine manufacturing segment.

Financial Summary

• Operating Profit: Expected to remain strong with a 12.1% pre-tax margin in 2022.
• Cash Flow: Net cash from operating activities is expected to increase in 2023, while investing and financing activities show mixed performance.
• Balance Sheet: The company's debt-to-equity ratio is expected to rise, with net debt-to-equity increasing to 83.5% in FY22.

Key Ratios

Conclusion

Goldwind is expected to maintain its earnings performance through strategic wind farm disposals, despite the decline in WTG tender prices. The target price increase and BUY rating reflect confidence in the company's ability to capitalize on its wind farm assets and adapt to market conditions. The report emphasizes that wind farm sales offer better economic returns than continuing to compete in the WTG manufacturing sector, which is expected to face challenges due to price pressures and material costs.