Core viewpoints

Event: on August 22, Touri Xinneng (002218.SZ) released its semi-annual report 2017.

In the first half of 2017, the company achieved revenue of 829 million yuan, an increase of 29.35% over the same period last year, and a net profit of 87 million yuan, an increase of 49.63% over the same period last year. Our comments on this are as follows:

The performance improved steadily, higher than market expectations: according to the semi-Annual report of 2017: in the first half of 2017, the company achieved revenue of 829 million yuan, an increase of 29.35% over the same period last year, and a net profit of 87 million yuan, an increase of 49.63% over the same period last year. The net profit is close to the upper limit of the performance forecast (75 million-95 million, 28.86% Mak 63.22%), which is higher than market expectations. Performance growth is mainly due to the "photovoltaic EPC project contracting income increased significantly, component sales increased steadily". In view of the good growth momentum of "power station operation and EPC project contracting business" and "distributed power station EPC project driving component sales", the company expects the net profit of homing to home from January to September 2017 to change in the range of 1.16-150 million yuan (37.45% w / w 77.74%), showing a steady improvement.

EPC project revenue increased significantly by 24 times, driving the company's component revenue growth: in the first half of 2017, Touri Xinneng's overall gross profit margin was 22.12%, and the gross profit margin was-3.37% lower than last year, mainly due to "a substantial increase in the revenue share of EPC projects with relatively low gross margins". However, the EPC project has a large base and can drive the sales of the group's series of products. During the reporting period, the gross profit margin of the company's electricity revenue was as high as 62.12%, which was much higher than the gross profit margin of crystalline silicon solar cell chip and module business (15.21%) and EPC project income (18%). At present, the company's own photovoltaic power station projects total 260MW, the future plans to own grid-connected power stations to achieve 1GW, electricity revenue will significantly contribute to the company's revenue, gross profit margin is expected to increase as a whole. In terms of business, the first half of 2017:

1) the EPC project reached 211 million yuan, a substantial increase of 24 times over the same period last year, and the proportion of revenue increased to 25.50% from 1.30% in the same period last year, which has become an important support for the company's performance. The company has rich experience in EPC project construction, obvious cost advantages, and accelerated progress in EPC business contracting. 2) Crystal silicon solar cell chip and module business achieved 427 million yuan (51.6% of revenue), an increase of 18.08% over the same period last year, mainly due to "the project EPC and roof distributed EPC drive the company's component sales". 3) electricity revenue reached 110 million yuan (13.28% of revenue), down-11.93% from the same period last year, mainly due to the "decline in government electricity price subsidies for photovoltaic power stations". The company plans to accumulate power stations and achieve a stable return on investment through power generation earnings every year.

The effect of cost control is remarkable, and the quality of performance has improved: in terms of period costs, in the first half of 2017:

1) sales expenses decreased by-35.54% compared with the same period last year, mainly due to "income structure adjustment and collectivization management and control expense"; the company launched "project-driven product sales packaging mode" in the first half of the year. Reduce marketing expenses; 2) Management expenses decreased slightly-3.14%, mainly due to "collectivized management and control expense". 3) the financial expenses increased significantly by 81.33%, mainly due to the "EPC business expansion and credit scale growth". At the end of the period, the company's accounts receivable was 969 million yuan, and the ratio of accounts receivable to total assets increased to 18.18% from 14.11% in the same period last year, mainly due to the increase in EPC projects.

Caused by. The company has taken strict risk control measures, such as equity pledge and income right pledge, the risk can be controlled. In addition, the cash generated by the company's operating activities in the first half of 2017 was 12 million yuan, which was lower than the net profit for the same period, but the cash flow increased by 82.56% compared with the same period last year.

Photovoltaic industry is growing rapidly, and domestic enterprises have a strong competitive advantage: solar power generation is a sunrise industry supported by the state and local governments. The industry is developing rapidly, and photovoltaic power generation will continue to grow in the next 20 years. According to the "Operation of China's Photovoltaic Industry in 2016" by the Ministry of Industry and Information Technology, the total output value of China's photovoltaic industry has reached 336 billion in 2016, and the production scale of each link of the wafer, module and other industrial chain accounts for more than 50% of the world, continuing to rank first in the world. Among them, polysilicon production in 2016 was 194000 tons, up 17.5 percent over the same period last year; silicon wafer production was about 63GW, up 31.2 percent over the same period last year; photovoltaic cell production was about 49GW, up 19.5 percent over the same period last year; photovoltaic module production was about 53GW, up 20.7 percent over the same period last year. New photovoltaic grid-connected installations reached 34.5GW (cumulative installed capacity is about 77GW), an increase of 127 percent over the same period last year. In 2016, the new installed capacity of global photovoltaic is about 73GW, a year-on-year growth rate of 38%. The growth rate of newly installed photovoltaic in China is much higher than the global growth rate. In addition, the production scale of China's photovoltaic industry is large and the cost continues to reduce, the cost of advanced polysilicon enterprises has dropped to less than 70 yuan / kg, the cost of crystal silicon modules has dropped to less than 2.5 yuan / watt, and the cost of some photovoltaic power generation has dropped to 0.65 yuan / degree level. Competitive strength continues to strengthen. Touri Xineng has accumulated in the photovoltaic industry for 15 years. It has a complete set of equipment manufacturing and production technology for amorphous silicon solar cell production line, key equipment manufacturing and production technology for high efficiency crystalline silicon solar cell, key equipment manufacturing and production technology for new flat panel solar collector, and photovoltaic glass key equipment manufacturing and production technology, which is unique in the global photovoltaic industry.

The whole industry chain layout photovoltaic industry, EPC construction and power station operation have obvious advantages: Touri Xin can form the business model of the whole industry chain layout, and the company has the most comprehensive solar energy products, including amorphous silicon thin film cells, crystalline silicon solar cells, solar application products, photovoltaic glass and solar collectors. 1) Crystal silicon solar cell field: a relatively complete industrial chain structure has been formed, such as "crystal silicon rod drawing / polysilicon casting-slicing-battery chip manufacturing-battery-EPC project general contract". 2) amorphous silicon solar cell field: completed the most complete industrial chain of "quartz / quartz sand-photovoltaic solar glass-amorphous silicon cell-EPC project general contract-photovoltaic power station operation" and "from stone to electricity". 3) solar energy application field: the industrial chain that can realize "product R & D design-mold making-plastic injection molding-packaging design-product assembly"; 4) flat plate solar water heater field:

Realize the industrial chain of "roll-to-roll coating-photothermal module package-photothermal system". Touri Xinneng's power plant operation continues to expand rapidly and will become the main source of the company's performance in the future. in the first half of 2017, the company's gross profit margin on electricity revenue is as high as 62.12%. Relying on the company's layout of the photovoltaic industry chain, the company has fully realized the independent production of solar equipment, thus effectively controlling the construction cost of photovoltaic power station, forming a competitive EPC construction advantage, and providing all kinds of Great Wall securities efficiently and cheaply. 3 Please refer to the last page rating description and important statement of solar products, which effectively ensures the high return on investment of your own power station and enables rapid expansion at low cost. In addition, "a variety of products and a relatively high share of overseas revenue" also make the company have a strong ability to resist market risks.

The leverage ratio is low, the development stamina is strong, and the performance determination degree is high: at the end of the first half of 2017, the company's asset-liability ratio was 47.66%, far lower than the industry's asset-liability ratio of 60-80%, and there is much room for improvement in financial leverage. The sound financial situation of the company also makes the company have the ability of financing in a variety of ways, and obtain more policy banks and commercial banks to provide credit support to the company, so as to provide reliable financial guarantee for the realization of the company's strategic goals. strong stamina for development. Currently, the company owns a total of 260MW power plants and plans to hold another 90-100MW this year (equivalent to 70-80 per cent of the workload of previous years).

In addition, the company has completed the EPC of about 51MW in the first half of the year (a total of EPC of 10MW last year), and the EPC plan in the second half of the year continues to advance, with strong support for performance. The downstream demand of the power station is stable (residential power consumption, industrial power consumption), the "company photovoltaic whole industry chain layout" ensures the low cost of the establishment and operation of the power station, and the company's performance is highly determined. We expect the company to achieve net profit of 200 million, 302 million and 405 million respectively from 2017 to 2019, with diluted EPS of 0.16,0.24,0.33 yuan respectively, and the current share price (4.67 yuan / share) corresponds to PE of 28.9X, 19.1X and 14.2X, respectively, maintaining the [recommended] rating.

Risk hint: the risk of changes in government policies and government subsidies; the risk that the growth rate of performance is lower than expected