Related events:
On November 24, 2017, the company announced that it intends to invest approximately HK$1,050 million (equivalent to approximately RMB 886 million) to acquire GCL Renewable Energy Holdings Limited (stock abbreviation: GCL New Energy, stock code: 00451 .HK) held by Haitong International NewEnergy VIII Limited (“HTNE”) 1,844,978,301 shares, and Sum Tai Holdings Limited (“STHL”) holds 65,000,000 shares of GCL New Energy, accounting for 10.01% of all of its issued shares. After the transaction is completed, the company will become the second largest shareholder of GCL New Energy.
Key points of investment:
Costs and expenses are properly controlled, accounts receivable continue to decline, and the company is breaking through a trough period. The third quarterly report shows that the company's three-fee control continues to achieve good results. Among them, the share of sales expenses increased 0.12 pct month-on-month; the share of management expenses continued to decline by 0.16 pct month-on-month. ; The share of financial expenses decreased by 0.43 pct. month-on-month. The company's receivables clean-up measures have achieved remarkable results, with accounts receivable as a percentage of total assets reported in the third quarter falling to 30.00%, reaching the lowest level since 2015. Since the second quarter, the company has successfully turned a loss into a profit through measures such as restructuring, improving liabilities, removing inventory, reducing costs, making up for shortcomings, and clearing receivables, and its overall operation is passing through a period of slump.
It is proposed to invest 1,050 million Hong Kong dollars (about 886 million yuan) to acquire 10.01% of GCL New Energy's shares, becoming its second largest shareholder, further enhancing the synergy effect. GCL New Energy is currently listed in Hong Kong, with the code 00451.HK. It is a new energy power generation operating platform under GCL Group. As of 2017 Q2, it had 128 photovoltaic power plants with a total installed capacity of 5079 MW, ranking first in the country and second in the world. In the first half of 2017, GCL New Energy achieved revenue of 1,812 million yuan, an increase of about 95% over the previous year, and achieved net profit of 549 million yuan. The company's acquisition of part of GCL's shares has increased the synergy effect with GCL New Energy. At the same time, combined with the company's rapidly developing EPC business, it is conducive to bringing a sustainable and stable source of revenue to the company.
“Black Silicone+PERC” high-efficiency batteries have been mass-produced, and this acquisition further accelerates the company's industrial chain layout. The company is expanding to the entire industry chain from being a simple photovoltaic module manufacturer when it was originally listed backstage. The upstream company already has 900 MW of high-efficiency battery production capacity in Peixian County, Xuzhou, and is expected to reach 2,000 MW production capacity by the end of the year. The average efficiency of “black silicon PERC” cells based on diamond wire cutting polysilicon can already reach 20.4%, and they are gradually regaining their competitiveness in the face of single crystals. In addition to downstream companies expanding into the photovoltaic EPC market, GCL New Energy acquired 10.01% of GCL's shares again, making a “high-efficiency battery+differentiated component+EPC+ power plant equity” industry chain structure being formed. It is also forming more synergistic and resonant effects with the entire GCL Group's “polysilicon-long crystal-silicon wafers” (Poly GCL), “battery-components-EPC-power plant equity” (GCL Integrated), and “power stations” (GCL New Energy).
The first phase of the employee stock ownership plan has been purchased, which will help stabilize market expectations. As of June 16, 2017, the company's first employee stock ownership plan had completed stock purchases. A total of 66.0744 million shares were purchased, with an average transaction price of 4.17 yuan. The lockdown period was 12 months. We believe that in a context where the company's operations are overcoming a trough period and the expansion of the industrial chain is accelerating, the intervention of the company's employee stock ownership plan is conducive to stabilizing market expectations.
Profit forecast: Benefiting from effective cost control and the development of the EPC business, the company successfully turned a loss into a profit in 2017 Q2/Q3. In the future, as the contribution of battery cell performance increases and the EPC scale expands, the company's profitability is expected to recover further. We expect the company's EPS to be 0.070, 0.131, and 0.168 yuan respectively in 2017, 2018, and 2019, giving it a “prudent recommendation” investment rating for the first time.
Risk warning: The sales situation of high-efficiency batteries fell short of expectations; the sharp rise in upstream polycrystalline silicon prices further reduced the gross profit margin of modules; the sustainability of the company's cost control fell short of expectations; EPC business development fell short of expectations, etc.
