Xiexin New Energy's revenue in 2018 reached 5.6 billion yuan (up 42.9% from the same period last year), and its net profit reached 470 million yuan (down 38.5% from the same period last year). We downgrade EPS as follows: from 0.04 to 0.03 yuan in 2019, from 0.05 to 0.03 yuan in 2020, and we forecast that EPS will be 0.04 in 2021. We slightly raised the target price to HK $0.32, corresponding to 0.7 times 19-year PB, maintaining a neutral rating.
Financial data. The sharp increase in revenue in 2018 is mainly due to the intensive commissioning of new photovoltaic installations in the past two years, resulting in a 45% increase in electricity generation in 2018 compared with the same period last year. In 2018, the comprehensive tax-free electricity price of the company's power plants in China decreased from 0.79 yuan / KWh in 2017 to 0.76 yuan / KWh. As a result, the company's gross margin fell to 66.5% in 2018 from 67.3% in 2017. The company's other losses in 2018 were as high as 350 million yuan (compared with 30 million yuan in the same period in 2017), mainly due to unrealized non-cash exchange losses of 400 million yuan caused by debts denominated in Hong Kong dollars and US dollars. partially offset by a gain of 35 million yuan from the sale of the photovoltaic power plant project.
The debt is high. The total borrowing cost of the company reached 2.4 billion yuan in 2018, compared with 1.8 billion yuan in the same period last year. The sharp rise in financial expenses is mainly due to a rise in corporate debt. By the end of 2018, the company's total debt reached 40.7 billion yuan (35.4 billion yuan in 2017). The net debt ratio rose to 384% from 330% at the end of 2017. In the future, we believe that the company will continue its power station production strategy and introduce strategic investors at an appropriate time.
Sell photovoltaic power stations. On March 28, the company announced the sale of 55% of the shares of Xin'an Xiexin, Ruzhou Xiexin and Jiangling Xiexin for 250 million yuan. The above sale subsidiaries hold photovoltaic power stations in 280MW, China. After the completion of the sale, the above subsidiaries will no longer be consolidated, and the proceeds from the sale will be used to ease the company's cash flow pressure and repay the loan.
Remain neutral. We downgrade EPS as follows: from 0.04 to 0.03 yuan in 2019, from 0.05 to 0.03 yuan in 2020, and we forecast that EPS will be 0.04 in 2021. We slightly raised the target price to HK $0.32, corresponding to 0.7 times 19-year PB, maintaining a neutral rating.