20200831-招银国际-隆基股份-601012.SH-2Q20_results_beat__shipment_growth_to_offset_pricing_and_costs_impacts_in_2H20_5页_820kb

CMB International Securities | Equity Research | Company Update Summary

Core Content Overview

LONGi Green Energy (601012 CH) reported strong financial results for 2Q20, which exceeded expectations. The company delivered a net profit of RMB2,252 million, representing a 61.1% YoY increase, and set a new quarterly earnings record. This performance was primarily driven by a 140.2% YoY growth in external module shipments to 4.7GW during the quarter. Despite ongoing price cuts in April and May, the company maintained a high gross profit margin (GPM) for mono-wafer sales, estimated at above 30% in 1Q20 and above 33% in 2Q20.

For 1H20, the net profit reached RMB4,116 million, a 104.8% YoY increase, significantly surpassing both the analyst's and the market's expectations. The company's strong overseas module sales contributed to its profitability, with 52% of total module shipments going to international markets. US module sales, in particular, offered higher average selling prices (ASP), contributing to higher margins compared to domestic sales.

Key Financial Highlights

• 2Q20 External Module Shipment: 4,708MW, up 106.2% YoY
• 2Q20 Net Profit: RMB2,252 million, up 61.1% YoY
• 1H20 Net Profit: RMB4,116 million, up 104.8% YoY
• 1H20 Module Sales: 6.58GW, up 106.2% YoY
• 1H20 Wafer Sales: 3.958GW, up 14.9% YoY
• 2Q20 Impairment Losses: RMB406 million, mainly from Taizhou and Chuzhou plants
• 2Q20 Net Interest Gain: RMB41.3 million, marking the second consecutive quarter of net interest income

Key Ratios and Metrics

Earnings Revisions

The analyst raised the FY20-22E EPS forecasts by 39.9%, 42.9%, and 54.8% respectively to RMB2.08, RMB2.58, and RMB3.12. This reflects improved operational performance and strong demand for the company's products, particularly in overseas markets.

Target Price and Rating

• Target Price (TP): RMB72.40 (up from previous TP of RMB31.23)
• Rating: BUY
• 12-month price performance: +15.0% (upside from current price of RMB62.96)

Outlook and Risks

The analyst expects 2H20 to be a period of shipment growth that will help offset the price and cost pressures in the PV supply chain. The company's state-of-the-art PERC cell technology (23% efficiency) and strong overseas sales network are viewed as key advantages in maintaining profitability despite market volatility.

Key Risks:

• Rapid adoption of HJT technology could impact the company's competitive edge.
• Shortage of polysilicon might hinder capacity expansion in 2021.

Share Performance

Shareholding and Capital Structure

• Li Zhenguo: 15.0%
• Li Chunan: 11.0%
• Free Float: 50.4%
• Net Cash Position: Maintained throughout the period

Balance Sheet Highlights

• Cash & Equivalents: RMB37,320 million at YE 31 Dec
• Current Ratio: Improved to 1.99 by FY22E
• Inventory Turnover Days: Stabilized at 81.4
• Total Net Assets: RMB55,091 million by FY22E

Strategic Position

LONGi's strong cost structure, high GPM, and robust shipment growth position it well for continued profitability. The company's ability to maintain net cash and high margins in overseas markets suggests resilience against market challenges, including the impact of the pandemic and price fluctuations.

Conclusion

The report upgrades LONGi from Hold to BUY, citing strong performance, resilient demand, and projected shipment growth in 2H20. The analyst believes the company is well-positioned to outperform the broader market due to its operational efficiency and international sales network. The target price of RMB72.40 reflects the 28.1x FY21E P/E multiple.