Xiehe New Energy announced its 19-year interim results: the company recorded revenue of 960 million yuan, year-on-year + 19.0%, net profit of 400 million yuan, year-on-year + 44.8%. Taking into account the company's strong business performance, we maintain the EPS forecast as follows: 0.08 yuan (year-on-year + 33.3%) in 2019, raised from 0.10 yuan to 0.11 yuan (year-on-year + 37.5%) in 2020, and 0.13 yuan (+ 18.2%) in 2021. We raised the target price slightly from HK $0.46 to HK $0.48, corresponding to 5 times 19 PE and 0.6 times 19 PB.
Maintain the buy rating.
The performance is outstanding. The company recorded revenue of 960 million yuan in the first half of 19 years, + 19.0% year-on-year, and net profit of 400 million yuan, + 44.8% compared with the same period last year. The revenue of the power generation sector is 870 million yuan, + 41.3% compared with the same period last year, accounting for 92% of revenue (77.5% in the same period of 18 years). Thanks to an increase in the share of revenue in the power generation sector with higher gross margins, the company achieved an overall gross profit margin of 64.9% (57% in the same period of 18 years). The asset-liability ratio fell to 68.7% from 69.9% at the end of 18 years, and the weighted average financing cost fell from 5.53% to 5.41%. Due to the increase in capital expenditure caused by the new installation, the financial cost rose to 199 million yuan, + 41.6% compared with the same period last year. Accounts receivable rose to 831 million yuan from 715 million yuan at the end of 18 years, mainly due to the delay in government subsidies, and management optimistically expected to recover some of the subsidies in the second half of the year. The company does not pay dividends in the first half of the year.
The growth of electricity generation is strong. In the first half of 19 years, the company realized equity power generation 2.4TWh, + 29.0% compared with the same period last year, of which wind plate equity generation 2.1TWh, year-on-year + 30.8%, photovoltaic plate equity generation 0.3TWh, + 16.2% year-on-year. The strong growth in power generation is mainly due to new installations, an increase in average utilization hours and an improvement in abandoning wind and light. According to management disclosure, the company will put into production 500MW installation in 19 years. In the wind power sector, the average number of hours utilized in the first half of 19 years reached 1189 hours (1190 hours in the same period of 18 years), mainly due to weak wind resources in some southern provinces; the abandonment rate was 3.9%, lower than the national average of 4.7%. In the photovoltaic plate, the average utilization hour reached 813 hours in the first half of 19 years (710 hours in the same period of 18 years), and the light abandonment rate decreased from 15% to 7%, mainly due to the improvement of light abandonment in Tibet and the three northern regions. At present, the company is focused on the layout of wind power and photovoltaic projects in the north where profits are good and efficiency is high. Taking into account the improvement of the rich wind and light resources and the phenomenon of abandoning wind and light in the northern region, as well as the company's weighted average price of wind power remains at a high level (the weighted average price of wind power reached 0.55 yuan / kWh in the first half of 19 years), we believe that the power generation sector will continue to maintain excellent profitability in the second half of the year.
Keep buying. We maintain the EPS forecast as follows: 0.08 yuan (year-on-year + 33.3%) in 2019, from 0.10 yuan to 0.11 yuan (year-on-year + 37.5%) in 2020, and 0.13 yuan (year-on-year + 18.2%) in 2021. We raised the target price slightly from HK $0.46 to HK $0.48, corresponding to 5 times 19 PE and 0.6 times 19 PB. Maintain the buy rating.