On May 22, Poly Xiexin (0380.HKNeutral) and Xiexin New Energy jointly announced that Xiexin New Energy will sell 70 per cent of its seven subsidiaries and shareholder loans for 1.74 billion yuan. Considering that the transaction has no significant impact on the profit forecast, we keep the EPS forecast unchanged: 0.03 yuan in 2019, 0.03 yuan in 2020, and 0.04 yuan in 2021. We have lowered our target price from HK $0.32 to HK $0.27, corresponding to 0.6 times 19-year PB, maintaining a neutral rating.

Sell photovoltaic power stations. Seven subsidiaries own 977 MW photovoltaic power stations in Shanxi and Hebei provinces. We expect the company to continue to sell 2.0-5.0 gigawatts of power plants by the end of 2019.

The financial situation has improved. After the completion of the transaction, the original seven sub-companies will no longer merge. The debt of Xiexin New Energy and Poly Xiexin will drop by about 5.8 billion yuan. At the same time, Xiexin New Energy will use the 2.1 billion cash income to improve cash flow and repay debts. We expect the company's asset-liability ratio to fall by about 2.34%.

Transition to the light asset model. Due to the decline of government photovoltaic subsidies and the high debt ratio of the company, Xiexin New Energy began to gradually transform to a light asset model, that is, selling some photovoltaic power stations, reducing leverage and generating cash flow. We note that this transaction is the fourth since October 2018 (160 MW in October 2018, 140 MW in December 2018, 280 MW in March 2019). We believe that the operation, maintenance and management agreement signed at the same time as the transaction will contribute stable service fee income to the company.

Remain neutral. We keep the EPS forecast unchanged: 0.03 yuan in 2019, 0.03 yuan in 2020, and 0.04 yuan in 2021. We have lowered our target price from HK $0.32 to HK $0.27, corresponding to 0.6 times 19-year PB, maintaining a neutral rating.