Net profit in 2019 fell 37.3 per cent year-on-year to 295 million yuan, worse than expected. 2019 revenue is in line with expectations but earnings are about 62.4% lower than market expectations. Despite the decline in total debt, financing costs rose 26.6% year-on-year to 2.882 billion yuan during the period, mainly because the average borrowing cost during the period rose 1.4 percentage points year-on-year to 7.4%. Following the sale of 1.56 gigawatts of solar assets in 2019, we expect the company to sell more and larger solar assets in 2020, especially as Xiexin Group is currently committed to further deleveraging to reduce its financial risk.

The first phase of the photovoltaic asset sale agreement with Huaneng Group was signed in January 2020 at a reasonable cost. Xiexin Group announced in January 2020 that it had formally entered into the first phase of a share purchase agreement with China Huaneng Group for the sale of the company's seven photovoltaic power stations with a total installed capacity of 294MW in Chinese mainland area. The implied price per watt of this transaction is 8.27 yuan, which is reasonable and similar to the cost of the four transactions completed in 2019. The average selling price of four asset disposals totaling about 1.56 gigawatts completed in 2019 is 8.09 yuan per watt.

We maintained our "neutral" investment rating but lowered our target price to HK $0.11. After the large-scale disposal of solar assets, the profitability of Xiexin New Energy is expected to be further weakened if the significant asset disposal gains or the cost reduction caused by leverage reduction fail to exceed the profit contribution of the assets disposed of. Our new target price is equivalent to 5.3 times / 5.2 times 2020 / 2021 price-to-earnings ratio or 0.3 times / 0.3 times 2020 / 2021 price-to-book ratio.