Net profit attributable to owners of the parent company of Datang Renewable Energy increased 12.3% year-on-year to RMB 992 million in the first half of 2020, better than our expectations. Guimu's net profit is equivalent to 96.8% of our previous full-year forecast. Revenue from electricity sales recorded a 7.3% year-on-year increase, driven by the incremental effects of new installations and the increase in average feed-in tariffs. At the same time, due to the reduction in non-current expenses, the increase in total operating costs narrowed markedly, indicating a partial improvement in the company's profitability. Net financial expenses were affected by the expansion of capital expenditure and recorded a year-on-year increase in the number of units, but the average financing cost remained at a reasonable level. Given the company's performance in the first half of the year and the increase in profit margins, we expect that Datang New Energy's net profit for the full year of 2020 may record a year-on-year increase of about 10.0%-15.0%.

The investment rating of Datang Renewable Energy was raised to “buy” and the target price was raised to HK$1.50. Due to higher power generation expectations, we raised Datang Renewable Energy's net profit forecast for 2020/2021/2022 by 4.4%/5.3%/1.9%, respectively. The earnings forecast per share for the same period was adjusted to RMB 0.114/$0.124/$0.173 respectively due to changes in interest allocation assumptions for perpetual bond/renewable bond holders. Looking ahead, the significant increase in the company's wind power and photovoltaic installations will bring new growth impetus to its total power generation and electricity sales revenue. Continued issuance of perpetual bonds is expected to effectively reduce the company's net debt ratio, ease the pressure on cash flow caused by subsidy arrears, and help improve profit margins. We raised Datang New Energy's investment rating to “buy”; the current target price is equivalent to 11.6 times/10.7 times/7.6 times the price-earnings ratio for 2020/2021/2022.