Power generation performance increased steadily along with installed capacity. United PV recorded 551 gigawatt-hours of electricity generation in the first half of 2016, an increase of 66% over the same period last year. The increase in power generation is mainly due to the increase in installed capacity. As of the first half of 2016, the company's consolidated installed capacity had reached 912 megawatts, 71% higher than 532 megawatts in the same period in 2015.
On a year-on-year basis, electricity sales revenue increased 5.9.8% to 452 million yuan (RMB, same below); operating expenses grew slowly, rising 45.1% to 103 million, causing EBITDA profit margin to rise 8.2 percentage points. As a result, EBITDA increased 77.2% from 212 million to 376 million in the first half of 2015. Affected by rapid increases in financial costs and power plant depreciation, net profit for the first half of the year increased only 2.5% year-on-year to $249 million.
Future expansion depends on debt structure and cash flow. As United PV used capital from convertible bonds as equity capital for project development, financial cost pressure increased due to the rapid depreciation of the RMB, which greatly affected net profit growth in the first half of the year. As of the first half of the year, the company held a total of 3.48 billion yuan in convertible bonds, accounting for 36.2% of total interest-bearing debt. The company will have 1 billion convertible bonds due in October. We expect that this may be the time for Joint Photovoltaics to adjust the debt structure and reduce financial costs. Furthermore, according to management, United PV holds 1.44 billion yuan of electricity bill receivables, 14 of which are included in the country's sixth batch of renewable energy project subsidy list. The list has been approved by the Ministry of Finance, and the photovoltaic industry expects electricity bill subsidy receivables to be recovered within the year. This will greatly ease the project development financing pressure currently faced by United PV.
Panda Power Station: Opening a chapter in global PV collaboration. United PV and the United Nations Development Programme jointly launched the Panda Power Project on September 1. The plan will begin with a 50 MW photovoltaic power plant project designed in the shape of a panda and located in Datong, Shanxi. The project is wholly owned by United PV. In addition to encouraging young people to increase their awareness of green energy, the company hopes to develop collaborative relationships with technology-leading upstream PV manufacturers through the Panda Power Plant Program. The Panda Power Plant may be an opportunity for United PV to enter overseas markets with domestic and foreign upstream PV manufacturers.
The target price was lowered to HK$0.82. Given the slow growth rate of installed capacity and net profit, as well as the current high cost debt structure, we lowered the annual installed growth rate forecast of United PV from 800 megawatts to 300 megawatts. We believe that the adjustment of the debt structure will be the key to the company's sustainable development. As market sentiment changed, we lowered the beta value of the DCF model from 1.57 to 1.48, and lowered the market risk premium from 10.2% to 9.6%. As a result, our FY16E-FY17E profit forecast was lowered by 73.6% and 85.7% to RMB 86 million and RMB 85 million, respectively. The net profit forecast for 2018 was RMB 109 million.
Based on the above model and changes in earnings forecasts, we lowered our target price from HK$0.95 to HK$0.82 per share.
