2023 results fall short of our expectations
Xinyi Energy announced 2023 results: operating income of HK$2.52 billion, +8.7% year over year; net profit to mother of HK$990 million, +2.2% year over year. Performance was lower than our expectations, mainly due to the company's acquisition scale slightly lower than our expectations, and weak lighting resources in 2023. The company's annual and year-end dividends fell 39.7% and 64.9% year over year to HK 6.0 cents and 2.6 HK cents per share, corresponding to the 2023 dividend rate of 49.7%.
In 2023, the acquisition of a 636.5 MW affordable photovoltaic project was slightly lower than the target of 0.7 to 1 GW. The projects are located in Hainan, Guangdong and Anhui provinces. At the end of 2023, the company's installed capacity reached 3.65 GW, accounting for 52.8% of affordable projects. The pressure on national subsidies is expected to gradually ease as affordable projects increase.
The gross margin/net margin fell 2.7 ppt/2.5ppt year over year to 67.9%/39.4%, but it still led the industry. Electricity sales in 2023 were +19.6% YoY to 3,818 GWh, and electricity sales revenue was +10.9% YoY to HK$1.42 billion, but revenue growth was hampered by the devaluation of RMB against HKD. The decline in gross margin was mainly due to the adjustment of some administrative expenses to sales costs. Poor lighting resources reduced the efficiency of electricity generation orders by 2.5%, and phased electricity restrictions occurred in some regions. The decline in net interest rates is mainly due to an increase in financing costs and an increase in income tax expenses due to rising overseas interest rates.
Develop borrowing channels in mainland China and dilute financing costs. The company began borrowing from banks in mainland China on 1H23. As of the end of 2023, the mainland loan ratio was about 13%. The company's current project loans are all long-term loans. The interest rate is less than 3%, which is significantly lower than the offshore loan interest rate. The company plans to continue increasing the mainland's financing ratio in 2024. As of the end of 2023, the company's net debt ratio was 42.3%, which is significantly lower than its peers.
Development trends
The company plans to acquire 0.7 to 1 GW in 2024, and has exercised options with the parent company to acquire a 790 MW affordable photovoltaic project. According to the company's announcement, the company will subscribe for a total of 8 photovoltaic power plants in Kaiping Jinji, Yunfu, Qujing, and Sanshan Gao'an. The approved electricity price is 0.3134 to 0.453 yuan/kilowatt-hour, and the estimated subscription price is 475 million yuan. Currently, the parent company Xinyi Solar has a total of 1.9 GW projects available for acquisition, of which 1.4 GW is an affordable project. The company believes that as the price of photovoltaic modules falls, the parent company has more acquisition opportunities with stable cash flow and high expected return on investment, and hopes to reserve funds for potential mergers and acquisitions.
Profit forecasting and valuation
As the scale of the acquisition fell short of expectations and electricity limits increased in some regions, we lowered our profit forecast for 2024 by 10.0% to HK$1.15 billion, and introduced a profit forecast of HK$1.33 billion for 2025. The current stock price corresponds to a price-earnings ratio of 7.9 times in 2024 and a price-earnings ratio of 6.8 times in 2025. Maintaining a neutral rating, we are based on more careful profit forecasts, and we expect the company's dividend policy to be close to 2023, with limited room for the dividend payout rate to increase. The target price will be reduced by 45% to HK$1.15, corresponding to the 8.3 times price-earnings ratio in 2024 and 7.1 times the price-earnings ratio in 2025, with 4.5% upside compared to the current stock price.
risks
The acquisition of the new project fell short of expectations, and the progress of the subsidy recovery fell short of expectations.