GCL New Energy (451 HK) Summary
Core Content
GCL New Energy (GNE) is undergoing a significant transformation from a printed circuit board (PCB) manufacturer to a nationwide solar farm operator in China. The company's focus has shifted towards solar energy, which is expected to drive profitability and growth. The report highlights the company's progress in expanding its solar farm capacity and improving its financial performance, leading to the initiation of an "Accumulate" rating.
Main Points
- Business Transformation: GNE has been reshaping itself into a solar farm operator since 2014, with GCL-Poly Energy as its major shareholder. The company has seen a significant increase in solar energy revenue and net profit.
- Profit Turnaround: GNE is expected to turn a profit starting from FY16E, with net profit projected to grow by 86.9% and 51.4% in FY17E and FY18E respectively.
- Capacity Expansion: The company's installed solar capacity is expected to grow by 127.7%, 40.2%, and 19.1% YoY for FY16E, FY17E, and FY18E respectively. Electricity sales are also projected to increase significantly.
- Financial Improvement: Gross margin is expected to rise from 26.5% in FY15 to 48.3%, 54.8%, and 59.2% for FY16E, FY17E, and FY18E. Net margin is expected to turn positive and increase from negative values in FY15 to 14.4%, 20.1%, and 23.9%.
- Valuation: Based on DCF analysis, the target price is set at HK$0.495, representing a FY17E P/E of 7.6x and offering an 11.2% upside potential.
- Shareholding Structure: GCL-Poly Energy holds 62.3% of the shares, while Haitong Securities holds 9.7%.
- Investment Summary: The company's turnover and net profit have shown significant growth, with net profit increasing from negative in FY15 to Rmb571m in FY16E, and further to Rmb1,067m and Rmb1,615m in FY17E and FY18E respectively.
- Key Risks: The report identifies several risks, including a potential slump in on-grid tariffs, ineffective implementation of the minimum utilization hours policy, and delays in new project development.
Key Financial Metrics
| FY-end 31 Dec |
2014 (Apr-Dec) |
2015 |
2016E |
2017E |
2018E |
| Turnover (Rmb m) |
930 |
1,970 |
3,951 |
5,306 |
6,754 |
| Growth (%) |
N/A |
N/A |
100.6 |
34.3 |
27.3 |
| Net profit (Rmb m) |
(89) |
(15) |
571 |
1,067 |
1,615 |
| Growth (%) |
N/A |
N/A |
N/A |
86.9 |
51.4 |
| EPS (Rmb) |
(0.007) |
(0.001) |
0.031 |
0.056 |
0.085 |
| Growth (%) |
N/A |
N/A |
N/A |
78.4 |
51.4 |
| PER (x) |
N/A |
N/A |
12.2 |
6.8 |
4.5 |
| OCF/Share (Rmb) |
(0.03) |
0.00 |
0.36 |
0.38 |
0.49 |
| P/B (x) |
2.32 |
2.17 |
1.45 |
0.84 |
0.57 |
| EV/EBITDA (x) |
532.6 |
26.2 |
10.4 |
7.0 |
5.0 |
| DPS (Rmb) |
0.000 |
0.000 |
0.000 |
0.000 |
0.010 |
| Yield (%) |
0.00 |
0.00 |
0.00 |
0.00 |
2.61 |
Revenue and Profit Trends
- Solar Energy Contribution: Revenue from solar energy increased from Rmb279m in 1H15 to Rmb929m in 1H16, with a YoY growth of 233.2%. Solar energy is expected to represent 60.2%, 67.8%, and 73.2% of total revenue for FY16E, FY17E, and FY18E respectively.
- PCB Business Decline: Revenue from PCB manufacturing decreased from 68.9% in 1H15 to 44.4% in 1H16. It is expected to fall further to 39.8%, 32.2%, and 26.8% for FY16E, FY17E, and FY18E respectively.
- Net Profit Growth: Net profit is projected to grow from negative in FY15 to Rmb571m in FY16E, then to Rmb1,067m and Rmb1,615m in FY17E and FY18E respectively.
Capacity and Projects
- Installed Capacity: As of 30 June 2016, GNE had a total installed capacity of 2,735MW, up 253.8% YoY from 773MW in 2015.
- Projects Under Construction: As of 30 June 2016, the company had 705MW of projects under construction.
- Major Power Generating Regions: Inner Mongolia, Jiangsu, Shaanxi, Henan, and Hebei account for 46.8% of the total installed capacity as of 30 June 2016.
- Capacity Growth Targets: GNE aims for 2.0-2.5GW of new installed capacity in FY16, with growth of 127.7%, 40.2%, and 19.1% YoY for FY16-18 respectively.
Financial Performance
| FY-end 31 Dec |
2016E |
2017E |
2018E |
| Revenue (Rmb m) |
3,951 |
5,306 |
6,754 |
| - Solar energy (% of total) |
60.2 |
67.8 |
73.2 |
| - PCB (% of total) |
39.8 |
32.2 |
26.8 |
| Net profit (Rmb m) |
571 |
1,067 |
1,615 |
| - YoY growth (%) |
N/A |
86.9 |
51.4 |
| Gross margin (%) |
48.3 |
54.8 |
59.2 |
| Net margin (%) |
14.4 |
20.1 |
23.9 |
| Net gearing (%) |
346.9 |
259.2 |
171.7 |
Valuation and Investment Recommendation
- Target Price: HK$0.495
- Upside Potential: 11.2%
- P/E Ratio: 7.6x for FY17E
- DCF Valuation: Based on projected EBIT and capital expenditure, the equity value per share is estimated at HK$0.497.
- Peer Comparison: GNE's P/E ratio for FY17E is below the average of HK-listed peers (8.7x), indicating potential undervaluation.
Risks
- Slump in On-Grid Tariffs: The government may cut solar energy tariffs significantly, affecting profitability.
- Minimum Utilization Hours Policy: The policy may not be effectively implemented, impacting revenue.
- Project Development Delays: The company may face delays in new project development, affecting growth.
Corporate Development History
| Year |
Major Event |
| 2014 |
Introduction of GCL-Poly Energy as major shareholder; transformation into solar farm operator; company renamed to GCL New Energy Holdings Ltd. |
| 2015 |
Aggregate installed capacity of solar farms reached 1,640MW; 1,036MW under construction. |
| 2016 |
Aggregate installed capacity of solar farms reached 2,735MW; 705MW under construction; target of 2.0-2.5GW installed capacity in 2016. |
Executive Directors
| Name |
Age |
Title |
Background |
| Mr Zhu Yufeng |
34 |
Chairman & Executive Director |
Son of Zhu Gongshan, founder and substantial shareholder of GCL-Poly Energy; rich experience in electricity conglomerate |
| Mr Sun Xingping |
52 |
President & Executive Director |
Holder of bachelor's degrees in thermal power and power system automation, and master of engineering in mechanical engineering |
| Ms Hu Xiaoyan |
44 |
Executive Director |
Extensive experience in the industry, though specific background details are not provided |
