Core ideas:

Lower-than-expected results in the first half of 2019, dragged down by rising costs

The company disclosed its mid-term results in 2019. In the first half of the year, the company achieved main business income of 4.492 billion yuan, an increase of 2.9% over the same period last year, and its net profit was 883 million yuan, down 6.72% from the same period last year. The performance was lower than we expected. The operating profit margin in the first half of the year was 46%, down 3 percentage points from the same period last year. The main reason is that power generation revenue grew slowly in the first half of the year, but operating expenses rose 9.2% from a year earlier, including an impairment loss of 81 million yuan for projects under construction in the first half of 2019.

The wind was poor in the first half of 2019, and the growth of revenue from electricity sales was slow.

In 2019, the company achieved cumulative wind power generation 9846GWH in the first half of 2019, an increase of 4.3% over the same period last year, 1135 hours of utilization hours, an increase of 13 hours over the same period last year, and the abandonment rate was 5.62%, an improvement of 4.18% over the same period last year.

Although the abandoned wind continued to improve, the wind situation in the first half of the year was generally worse than that in the same period last year, and the company's electricity sales revenue grew slowly in the first half of the year due to the decline in feed-in electricity prices compared with the same period last year. We predict that under normal wind conditions, the number of hours utilized for the whole year will reach 2146 hours, an increase of 50 hours over the same period last year, and the annual growth rate of electricity generation will reach 8% over the same period last year.

In 1920, the production of wind turbines was accelerated.

There is no new production and installation in the first half of 2019. As of June 30, the company has a project capacity under construction, 1.9GW, and will accelerate production during the pre-parity window period from 2019 to 2020. we predict that the company's new wind power installed capacity will be 1000/1000/600MW in 2019-2021.

Accounts receivable continues to rise

In the first half of 2019, the size of accounts receivable and bills receivable increased by 35.4% to 9.69 billion yuan compared with the same period last year, with a net increase of 2.22 billion yuan in accounts receivable in the first half of the year. In terms of subsidy recovery, 60 million yuan was recovered in the first half of the year and about 670 million yuan in July. As subsidy recovery will generally accelerate in the second half of the year, it is expected that the scale of receivables will remain at around 10 billion yuan by the end of the year.

Profit Forecast and Investment rating

On August 30, 2019, Datang New Energy closed at HK $0.74. We forecast that the EPS for 2019-2021 will be RMB0.147 per share and 0.168 per share, respectively, and will maintain a "buy" rating based on a fair value of HK $0.97 per share based on 6 times 2019 earnings.

Risk hint

The incoming wind situation is not up to expectations; the new installation is not up to expectations; subsidies, green permits and other policy uncertainty risks.