Net profit for the first half of 2019 rose 18.8% year over year to RMB 410 million, falling short of our expectations. Revenue during the period was better than expected, but net profit fell short of expectations, mainly due to the sharp rise in financing costs and administrative expenses during the period. Gross profit margin fell 1.2 percentage points year over year to 67.5% during the period. As of the end of June 2019, the total installed capacity of solar energy and grid-connected capacity was 7,182 megawatts and 7,038 megawatts, respectively. Total solar electricity sales during the period were 4,577 million kilowatt-hours, up 22% year on year.

The average solar feed-in price during the period was RMB 0.75 per kilowatt-hour, a year-on-year decrease of about 3%.

The potential acquisition of China's Huaneng Group is likely to occur within the second half of 2019. We believe that the probability of this potential transaction is quite high, mainly because GCL Poly urgently needs to reduce leverage to cope with the negative impact of the sharp drop in PV material prices in 2019. We think the potential deal would be extremely beneficial to GCL Group and its shareholders. High leverage and high borrowing costs have always been the core reasons for GCL New Energy's low profitability, but we believe everything will change after Huaneng takes over.

We lowered our earnings forecast for the company under new assumptions. Applying a series of new assumptions, our adjusted earnings per share forecast for 2019 to 2021 is RMB 0.041/0.050/0.052, respectively.

We lowered our target price to HK$0.40 but reiterated our “buy” investment rating. Our new target price is equivalent to 8.5 times /7.0 times /6.8 times the price-earnings ratio from 2019 to 2021 or 1.0 times /0.9 times /0.7 times the net price-earnings ratio from 2019 to 2021.