Significant increase in performance in 2018
The company disclosed its 2018 performance announcement. The company achieved main business revenue of RMB 8.32 billion for the whole year, an increase of 17.1% over the previous year, and net profit of RMB 1.09 billion, an increase of 78.7% over the previous year. The operating profit margin was 42.1%. The annual performance increased significantly, in line with our previous expectations. We believe that an important reason for the continuous rise in the company's performance in recent years is the decrease in the wind abandonment rate, and with the further improvement of the national wind abandonment rate, this effect will continue to play a positive role in the future.
The improvement effect of wind abandonment is remarkable, and there is still room for growth in stock efficiency
In 2018, the company achieved a cumulative power generation capacity of 17,975.2 GWH, an increase of 17.5% over the previous year. Among them, wind power generation capacity was 17,689.8 GWH, an increase of 17.6% over the previous year, in line with our expectations. We believe that the company's ability to achieve a large increase in its annual power generation capacity mainly benefits from the improvement in wind abandonment rates. The company's wind abandonment rate in 2018 was 8.1%, down 7.1 percentage points from the previous year. The number of hours used was 2,096 hours, an increase of 191 hours over the previous year. Since the company has a large installed capacity and power generation of wind power in key wind waste provinces, we believe that with the further improvement of the country's wind waste rate, there is still plenty of room for stock efficiency to grow, and the company's power generation capacity will maintain a steady growth rate.
New installations have slowed somewhat, and will accelerate in '19
The company's new installed capacity slowed down in '18, adding 188.5 MW of wind power installed capacity throughout the year, which is lower than our previous expectations. We believe that the main reason for the slowdown in new installations is that wind turbine construction periods have been lengthened due to stricter environmental protection, land acquisition, etc., and the pace of commissioning of wind power projects in some regions, especially in the South, has slowed. As this part of the construction is completed one after another, a large number of wind power installations will be connected to the grid and put into operation in 2019-2020. We predict that the company will add 1000/1000/600MW of wind power installed capacity in 2019-2021.
Accounts receivable have increased significantly
The amount of the company's accounts receivable and notes receivable reached RMB 7.47 billion in 2018, an increase of 48.2% over the previous year. The large increase was mainly due to the increase in renewable energy subsidy receivables brought about by the company's sharp increase in the company's electricity sales revenue in 2018.
The rapid growth in the scale of receivables has put some pressure on the company's cash flow, and some older accounts receivable also face a certain risk of impairment. However, we think that as affordable Internet access approaches, delays and mismatches in the generation and recycling of such subsidies will gradually ease, and the subsidy recovery situation will gradually improve after 19 years.
Profit forecasting and investment ratings
On March 29, 2019, Datang Renewable Energy closed at HK$0.93. We forecast the EPS for 2019-2021 to be RMB 0.186/0.230/0.280 respectively. We maintained a “buy” rating by assigning a reasonable value of HK$1.30/share based on a price-earnings ratio of 6.0 times in 2019.
Risk warning
The wind situation fell short of expectations; new installations fell short of expectations; there was a risk of policy uncertainty such as subsidies and green certificates.