The results in the first half of 2021 are in line with our expectations. Xiexin New Energy's revenue plunged 30.7% year-on-year to 1.918 billion yuan in the first half of 2021, while net profit rose 24.9% yuan 53 million year-on-year. The company's performance in the first half of 2021 was in line with our expectations, and the net profit for the period was equivalent to 48.9% of our 2021 full-year profit forecast. The total grid-connected capacity of the company's controlling solar projects at the end of the reporting period fell 47% to 2.9 gigawatts compared with the same period last year. The sharp decline in solar installed capacity is due to asset sales. The decline in solar installed capacity also led to a 28% year-on-year drop in electricity sales and 31% in revenue during the period.

The sale of a total of 2384 megawatts of solar assets was announced in the first nine months of 2021. Xiexin New Energy has conducted 11 solar asset disposal transactions in the first nine months of 2021, which will sell about 2.384 gigawatts of solar power plant assets. If the net income from the sale of more than 2 gigawatts of solar power plants in the first nine months of 2021 will be used to repay the company's debt, the company will reduce its debt by about 21.378 billion yuan. Xiexin New Energy sold about 5.834 gigawatts of solar assets between 2019 and September 2021. The sale of assets is much faster than the market expected. After the disposal assets are delivered, the company is expected to achieve a net cash position by 2022.

We maintain our "neutral" investment rating but raise our target price to HK $0.35. Our target price is equivalent to a price-to-earnings ratio of 56.1x / 25.6x / 20.0x / 2021 to 2023or a price-to-book ratio of 2021 to 2023x / 0.5x / 0.3x respectively.

The operating results in the first half of 2021 are in line with our expectations. Xiexin New Energy's revenue plunged 30.7% year-on-year to 1.918 billion yuan, while shareholder net profit rose 24.9% year-on-year to 53 million yuan. The company's operating results in the first half of 2021 are basically in line with our expectations, and the net profit during the period is equivalent to 48.9% of our annual profit forecast for 2021.

The total grid-connected capacity of the company's controlling solar projects at the end of the reporting period fell 47% to 2.9 gigawatts compared with the same period last year. At the same time, its total solar installed capacity is about 3041 megawatts, and the total installed capacity of the associated company is about 517MW. The sharp decline in solar grid-connected capacity is due to asset sales. The decline in solar grid-connected capacity also led to a 28% year-on-year drop in electricity sales and 31% in revenue during the period. The average electricity price in the first half of 2021 was about 0.72 yuan per kilowatt-hour, down 5.3 per cent from the same period last year. The composite gross margin fell 3.9 percentage points year-on-year to 63.9%, while the net profit margin surged 1.3 percentage points to 2.8%. Total borrowing fell 50.4 per cent year-on-year to 18.1 billion yuan at the end of June 2021, thanks to continued asset sales. The company announced the disposal of more than 2 gigawatts of solar assets from January to September 2021, while the delivery of most asset sales may be completed in the second half of 2021. After completing all asset disposal transactions, the company will have about 1 gigawatt of operating solar assets by the end of 2021 or early 2022. At the same time, the company is expected to accelerate the development of its new hydrogen division to boost its future growth, especially after large-scale sales of solar assets.

The sale of a total of 2384 megawatts of solar assets was announced in the first nine months of 2021. Xiexin New Energy has signed a total of 11 solar asset disposal transactions in the first nine months of 2021, which will sell about 2.384 gigawatts of solar power plant assets (compared with 1.56 gigawatts for 2019 and 1.89 gigawatts for 2020). If the net income from more than 2 gigawatts of solar power plant assets sold in the first nine months of 2021 (about 8.28 billion yuan) will be used to repay the company's debt, the company will reduce the debt by about 21.378 billion yuan. Xiexin New Energy sold about 5.834 gigawatts of solar assets between 2019 and September 2021, much larger and faster than the market expected. The company will achieve its goal (transforming into a light asset company) by the end of 2021. The first task of the company is to reduce the asset-liability ratio and withdraw cash to help ease the operating pressure and debt repayment pressure of Xiexin Group. With asset sales accelerating in the first nine months of 2021, we believe the company has now basically achieved its goal of operating only about 1 gigawatt of solar assets to maintain its listing. Since 11 deals (to seven buyers) have been announced so far in 2021, we believe that the company's solar asset disposal is roughly coming to an end.

The hydrogen Energy Division was established in July 2021. On the premise of being optimistic about the great development potential of hydrogen energy in the future, Xiexin New Energy announced the establishment of hydrogen Energy Division in late July 2021 to actively carry out the research and development of hydrogen energy and its related business. In addition, on July 28, the company reached a strategic cooperation agreement with CCIC on the proposed establishment of a hydrogen energy industry investment fund with a total size of RMB 10 billion, and on the same day, it reached a strategic cooperation agreement with CCB International on the proposed establishment of a new energy industry investment fund with a fund size of no more than US $800 million, which will be used to invest in new energy related businesses and to achieve carbon emission reduction and carbon neutralization related investment projects. The strategic cooperation agreement and memorandum of strategic cooperation announced this time are not legally binding, and the subsequent fund management contracts and fund legal documents signed by both parties shall prevail. Natural gas accounts for more than 70% of global hydrogen energy production and is the main source of hydrogen energy. Considering the diversified layout of hydrogen energy in the future, the company signed a non-legally binding memorandum of understanding with Poly Xiexin Natural Gas Group Co., Ltd., a related person of the company. to make use of the latter's rich overseas natural gas resources (located in Ethiopia), it is processed into liquid ammonia and transported back to China for hydrogen production. This will make it possible for the company to meet the hydrogen needs of large domestic industrial customers, rapidly expand its production capacity, meet the huge domestic market demand, and eventually become a major international hydrogen energy supplier.

We maintain our "neutral" investment rating but raise our target price to HK $0.35. By selling large-scale solar assets, the company will significantly reduce its financial risk, and financing costs are expected to fall between 2021 and 2023. We believe that asset disposal is necessary to reduce its financial risk (the company defaulted on its maturing dollar bills in early 2021, but successfully completed its debt restructuring and the debt maturity was extended for three years) and the financial risk of its parent company. Over time, however, asset disposal will weaken the company's growth prospects, and its profitability is likely to decline after the divestiture of high-quality solar assets. Following the completion of the disposal of 2.4GW solar assets announced in the first nine months of 2021, most of them are expected to be completed in the second half of 2021, when the company's revenue will decline further (and will achieve a net cash position). Large-scale asset disposal will bring great uncertainty to the future operation of Xiexin New Energy, and we can not accurately predict the profit of the company. The company aims to transform through the recently established hydrogen business unit, but there is still a lot of uncertainty about the new business unit's action plan. However, with plenty of cash on hand over the next two years (proceeds from the sale of solar assets), the company is likely to rapidly expand its hydrogen business in a bid to reverse its performance from 2022 and be driven by the new business. Our adjusted earnings per share forecast for 2021 to 2023 is RMB 0.005 / RMB 0.011 / RMB 0.015 respectively. Due to the uncertain outlook of the company after asset disposal, we maintain our "neutral" investment rating but raise our target price to HK $0.35. The new target price is equivalent to a price-to-earnings ratio of 2021 to 2023 or a price-to-book ratio of 2021 to 2023, respectively.