The company is the largest private photovoltaic power generation enterprise in China. Capital costs are high, and net profit fell 37% year on year. The company's 2019 revenue was 6.052 billion yuan, up 7% year on year; net profit was 295 million yuan, down 37% year on year; diluted profit per share was RMB 1.54 points, down 37% year on year; financing costs increased 27% year on year to $2,882 million, mainly due to reduced capitalized interest expenses and higher average interest rates. The company sold 80.34 million kilowatt-hours of electricity for photovoltaic power plants in 2019, an increase of 6% over the previous year.
The company's balance ratio at the end of 2019 was 82%, down 2 pcts from the previous year. Reducing debt and reducing assets were the primary goals. The installed capacity of the company's grid-connected photovoltaic power plant in 2019 was 7.145 GW, and the average electricity price (excluding tax) was 0.77 yuan/kWh, an increase of 1 cent over the same period last year. In 2019, the company completed four asset sale transaction agreements. The total sales of power plant assets were about 1.6 GW, and cash was recovered about RMB 2.65 billion. At the same time, it provided operation and maintenance services for the sold photovoltaic power plant projects to generate a stable source of revenue and guarantee cash flow. At the beginning of 2020, the company signed the first batch of equity transaction contracts with Huaneng Group to accelerate the sale of power plants and relieve pressure on cash flow.
Renewable power generation operating assets are expected to experience a revaluation. Due to factors such as a large number of renewable energy projects not being included in the subsidy list, and factors such as insufficient total additional electricity prices and collection difficulties and expectations, arrears of national subsidies have become an important burden for renewable energy power generation operators. According to our report “Renewable Energy Power Generation Operating Assets Are Expected to Usher in Value - Feasibility Analysis of Stock Defaulted with National Subsidy ABS” estimates, as of 2019, about 300 billion countries have made up arrears, greatly reducing the refinancing capacity and willingness of relevant enterprises to invest. If ABS is issued through the State Grid Corporation as one of the entities responsible for payment of subsidies, it is beneficial to revitalize existing assets and support downstream enterprises. By the end of 2019, the company's electricity price receivables (government subsidies), including the first seven batches, poverty alleviation, and the eighth or subsequent batch of applications for registration, totaled $8.236 billion. If the stock asset subsidy arrears are resolved through ABS, the company's cash flow will improve significantly, and the asset value of photovoltaic power plants is expected to be revalued.
Upgraded to “Overweight” rating. The company is the largest private photovoltaic power plant operator in China. Due to the arrears of subsidies for photovoltaic power generation, capital costs are high and short-term debt pressure is high. The company's net profit for 2020 was lowered to 333/311 million yuan (the original forecast was 783/816 million yuan), and the net profit forecast for 2022 was 369 million yuan, corresponding to 174/1.63/1.93 points for the EPS in 2020-22. If the arrears of national subsidies are resolved through the ABS method, the company's cash flow will improve significantly, debt reduction and asset light will be achieved, and the company's valuation is expected to increase and be upgraded to an “increase in holdings” rating.
Risk warning: There have been major changes in the PV industry policy and subsidy policy, the risk of falling electricity price subsidies, the risk of higher balance ratios, and interest rate fluctuations affecting capital and financing expenses.