20180830-申万宏源研究_香港_-协鑫新能源-00451.HK-Stretched_out_to_dry_6页_1mb

GCL New Energy (451HK) Research Summary

Core Content

This report provides a detailed analysis of GCL New Energy (451HK), a Chinese renewable energy company, focusing on its financial performance, valuation metrics, and strategic developments in the solar power sector as of August 2018. The analyst, Vincent Yu, CFA, has revised the company's financial forecasts and adjusted the investment rating to Hold due to various challenges and uncertainties in the market.

Key Financial Highlights

Revenue and Profit

• 1H18 Revenue: Rmb2.7bn (+49.2% YoY)
• 1H18 Net Profit: Rmb345m (-28.9% YoY)
• EPS Forecast: Revised down from Rmb0.05 to Rmb0.04 for 2018E and 2019E (flat YoY), and maintained at Rmb0.05 for 2020E (+25% YoY)

Valuation Metrics

• Price Target: Revised from HK$0.59 to HK$0.30
• PE (2018E): 6x
• PB (2018E): 0.7x

Operating Performance

• Gross Margin: Declined from 70.8% in 1H17 to 68.7% in 1H18
• Average Tariff: Rmb0.76/kWh (down from Rmb0.80/kWh)
• Finance Costs: Increased 75% YoY to Rmb1.1bn due to higher borrowings, despite a slight decline in average borrowing costs

Capacity Expansion and Market Position

• Newly Installed Capacity (1H18): 1.2GW
• Total Installed Capacity (end-June 2018): 7.1GW (+41% YoY)
• Grid-Connected Capacity: 6.1GW
• Domestic Solar Capacity: Over 89% located in regions with limited curtailment issues
• Impact of 531 Policy: The company's 1H18 newly installed capacity was not affected by the policy
• Construction Cost per Watt: Decreased to Rmb5.9 in 1H18 from Rmb6.3 in 1H17 (-6% YoY), with further decline expected in 2H18

Financial Risk and Liabilities

• Total Borrowings (June 2018): Rmb37.4bn (up from Rmb35.4bn in end-2017)
• Net Debt to Total Equity Ratio (1H18): 364% (up from 330% in end-2017)
• Government Subsidy Receivables (end-June 2018): Rmb6.1bn (up from Rmb4.2bn in 2017), with Rmb3bn classified as non-current
• Subsidy Gap: Exceeded Rmb120bn by June 2018, raising concerns about future subsidy payments

Cash Flow and Balance Sheet

• Operating Cash Flow (1H18): Rmb450m
• Capital Expenditure (1H18): Rmb9.576bn
• Net Cash Flow (1H18): Rmb851m
• Total Assets (2018E): Rmb59.927bn
• Total Liabilities (2018E): Rmb51.717bn
• Shareholder Equity (2018E): Rmb8.209bn

Key Financial Ratios

• ROE (2018E): 11.2%
• Debt-to-Asset Ratio (2018E): 63.8%
• Gross Profit Margin (2018E): 68.7%
• EBITDA Margin (2018E): 69.0%
• Earnings per Share (2018E): Rmb0.04
• Net Assets per Share (2018E): Rmb0.43

Investment Rating and Disclaimer

• Company Rating: Hold
• Reason for Downgrade: No upside potential with the revised target price, and concerns over high gearing and subsidy payment uncertainties
• Disclaimer: The report is intended for professional investors only, and the views expressed are the personal opinions of the analyst. The company does not guarantee the accuracy or completeness of the information and disclaims any liability for losses incurred from the use of the report.

Summary of Main Points

• Revenue Growth: Strong YoY growth in 2017 and 2016, but flat in 2018E and 2019E
• Profit Decline: Net profit dropped significantly in 2018 due to lower tariffs and increased finance costs
• Valuation Adjustments: Target price reduced to HK$0.30, with no upside potential
• Capacity Expansion: Continued expansion in solar power capacity, with reduced construction costs
• High Leverage: Net debt to equity ratio increased, raising concerns about financial risk
• Subsidy Uncertainty: Large subsidy gap and uncertainty over future subsidy payments
• Investment Rating: Downgraded to Hold due to limited upside and financial concerns

Conclusion

GCL New Energy is experiencing strong revenue growth, primarily driven by increased solar power sales, but faces challenges such as declining gross margins and rising liabilities. The company's financial health is under scrutiny due to its high gearing and subsidy payment issues. Despite capacity expansion and falling construction costs, the revised target price and flat EPS forecasts have led to a downgrade to Hold. Investors are advised to consider the report's limitations and consult independent financial advisors.