Earnings for the first half of 2020 plummeted 89.7% year-on-year to RMB 42 million. The company's performance during the period was in line with its earlier earnings warning. The decline in earnings in the first six months of 2020 was mainly due to: 1) a decrease in revenue during the period due to the sale of solar power plants in 2019; 2) an increase in exchange losses due to the appreciation of the US dollar against the RMB; and 3) an increase in asset impairment losses. We anticipate that the disposal of solar assets will be the company's top priority in 2020.

China's Ministry of Finance is planning to issue bonds from the State Grid to resolve the long-standing problem of renewable energy subsidy arrears. According to domestic media reports, the proceeds from the first batch of bond issues will cover renewable energy projects within the scope of the 13th Five-Year Plan. The bond issuance scale is estimated to be between RMB 140 and 150 billion. We think the possibility of this news is quite high, mainly because the country is currently formulating an energy development plan for the 14th Five-Year Plan period, and solving the core issues left over from the 13th Five-Year Plan will be the key to success in the next five-year plan.

We maintain a “neutral” investment rating but slightly adjusted our target price to HK$0.12. We maintain our current “neutral” investment rating as potential asset sales have brought greater uncertainty to the company's operations from 2020 to 2022.

Our new target price is equivalent to 15.1 times/6.6 times the 2020/2021 price-earnings ratio or 0.3 times/0.3 times the 2020/2021 net price-earnings ratio.