CGN New Energy announced 1H19 results: revenue of $660 million, year-on-year-4.2%, return net profit of $73 million, + 6.7% year-on-year. Due to the good performance of the wind and photovoltaic sectors, the weak performance of South Korean natural gas projects and the continued upward financial leverage, we keep our EPS profit forecast unchanged: $0.023 in 19 years, $0.025 in 20 years, and $0.026 in 21 years. We lowered our target price from HK $1.28 to HK $1.12, corresponding to 6.3x 19-year PE and 0.7x 19th-year PB, maintaining an overweight rating.
Business situation. The company's 1H19 achieved revenue of $660 million,-4.2% year-on-year, including $390 million from South Korean projects,-11.7% from the same period last year, and $260 million from Chinese projects, + 8.2% from the same period last year. The company's parent net profit was US $73.4 million, + 6.7% year-on-year, mainly due to the increase in photovoltaic installed capacity, which led to an increase in average utilization hours and a decline in coal-fired costs. Photovoltaic sector revenue of $39.3 million, year-on-year + 74.7%, net profit of $17.2 million, + 84.9% year-on-year. To 1H19, company equity installed capacity 5566MW, year-on-year + 486MW, including wind power installed capacity 1494MW, year-on-year + 186MW, photovoltaic installed capacity 480MW, year-on-year + 260MW. By July 2019, the company's cumulative power generation reached 7.8TWh,-1.1% compared with the same period last year, including wind power 1.8TWh, + 11.3% year-on-year, photovoltaic power generation 492.2GWh, + 106.6% year-on-year, thermal power generation 1.0TWh,-2.1%, South Korean natural gas project power generation 3.9TWh,-14%.
Financial leverage goes up. The net debt / equity ratio rose from 2.58 to 2.66, mainly due to a rise in bank loans to $2.05 billion from $1.96 billion in 2018. Capital expenditure rose to $230 million from $150 million in 1H18. Financial costs rose 12.4 per cent to $59.7 million.
The performance of the South Korean project is poor. South Korea's natural gas project recorded revenue of US $390 million,-11.7% compared with the same period last year, mainly due to the reduction of power generation of Li Village Phase I and Phase II power projects due to the increase in reserve capacity and the decline in electricity demand in South Korea. The number of hours used has dropped from 2578 hours in the same period of the year to 2168 hours, and electricity generation has also dropped by 14%.
Maintain and increase holdings. Due to the good performance of the wind and photovoltaic sectors, the weak performance of South Korean natural gas projects and the continued upward financial leverage, we keep our EPS profit forecast unchanged: $0.023 in 19 years, $0.025 in 20 years, and $0.026 in 21 years. We lowered our target price from HK $1.28 to HK $1.12, corresponding to 6.3x 19-year PE and 0.7x 19th-year PB, maintaining an overweight rating.