Matters:

Recently, Goldwind Technology won the bid for wind turbines and ancillary equipment (including towers) for Jiangsu Guoxin Dafeng's 850,000 kilowatt offshore wind power project, with a bid amount of 3.16 billion yuan. The project has a total investment of about 10.6 billion yuan. It is proposed to install 99 offshore wind turbines with a stand-alone capacity of 8.5 MW and 1 offshore test model with a stand-alone capacity of 13 MW or more.

Guoxin Telecom's new opinion: The Jiangsu Guoxin Dafeng Sea Wind Project is the first batch of affordable seabreeze projects in Jiangsu Province this year. The commencement of this project also marks the second centralized construction period for offshore wind power in China during the “14th Five-Year Plan” period. The company is a leading global fan company. In 2023, the world added 16.4 GW of installed wind power capacity (including export sales and personal use), with a market share of 13.90%. The company has accumulated more than 114 GW of installed capacity worldwide, and is also in a leading position in the offshore wind power market. The domestic sea wind market is currently gaining momentum. The company is expected to achieve rapid growth in ocean wind unit deliveries in 2024; looking forward to the future, the company will fully benefit from the increase in wind power demand in emerging markets and the cost reduction effect brought about by the switching of its own technology route. The company's current dynamic valuation is at an all-time low, with a PB of 0.8 times in 2023. We expect the company to achieve net profit of 16.5/24.1/3.23 billion yuan in 2024-2026, corresponding to the current stock price of 19/13/10 times PE, respectively, giving it a “superior to the market” rating.

Commentary:

Performance review

The domestic wind power market experienced a wave of scrambling in the subsidy era in 2020-2021, and equipment companies generally achieved increased operating performance. Entering 2022, on the one hand, construction of affordable domestic projects requires reducing construction costs, and the profits of equipment companies are under pressure; on the other hand, the domestic epidemic has also caused delays in downstream project construction, and the industry experienced a negative increase in installed demand in 2023. In 2024, large new energy bases will drive the trend of large-scale domestic units. Exports and offshore models with higher value and profitability have not significantly boosted the overall market due to delays in downstream construction. After experiencing a dormant period from 2022 to 2023, we expect the wind power market to pick up steadily in 2024.

Due to the challenges of these industry changes, combined with the direct drive permanent magnet route originally used by the company, it is difficult to distance the cost of equipment from competitors using the double feed technology route in the context of an industry with larger units, and profitability is clearly under pressure. The company achieved revenue of $50.46 billion in 2023, +8.7% year-on-year, and -4% CAGR in 2020-2023. Since 2022, the company's revenue has shown a downward trend. The year-on-year revenue growth rate in 2023 was positive, mainly due to the increase in wind farm transfer scale and revenue. In the first quarter of 2024, the company achieved revenue of 6.98 billion yuan, +25.4% year-on-year.

Looking at a single quarter, the company's revenue showed clear seasonal fluctuations.

In 2023, the company achieved net profit of 1.33 billion yuan, a year-on-year ratio of -44.2%, and a CAGR of -23% in 2020-2023. Since 2021, the company's net profit to mother has continued to decline. The main reason is the decline in gross margin due to increased competition in the wind power market and the increase in the cost ratio level during the period. In the first quarter of 2024, the company achieved net profit of 330 million yuan, -73.1% year-on-year. The main reason for the year-on-year decline in profit was large power plant transfers in the first quarter of 2023, which had a high year-on-year base.

In terms of profitability, due to larger fans and increased competition, the company's gross margin has been declining year by year since 2021. The gross profit margin for the first quarter of 2024 was 26.1%, a significant increase from the gross margin level for the full year of 2023, mainly due to seasonal reasons. The trend of fluctuating net sales margin is generally consistent with gross margin.

In terms of period expenses, the company's sales expense ratio is relatively stable, remaining around 6.5%; the management expense ratio increased from 3.2% in 2020 to 3.9% in 2023; and the R&D expense ratio increased from 2.6% in 2020 to 3.7% in 2023.

Operating data

In 2023, the company sold 13.8 GW of wind turbines, which was basically the same as the previous year. In terms of product structure, the large-scale expansion of wind turbines continues to accelerate, with 4MW (inclusive) -6MW units accounting for more than 50% of sales in 2023. As of the end of 2023, the company had external orders of 29.8 GW, of which 4.7 GW were overseas orders.

In 2023, the company's domestic and foreign self-operated wind farms added 1.8 GW of installed equity capacity and transferred 822 MW of grid-connected capacity; by the end of 2023, the company's cumulative global equity grid installed capacity was 7.3 GW, and the wind farm capacity under construction was 2.3 GW. The scope of the company's domestic and international consolidated statements in 2023 was 14.95 billion kWh of electricity generation and 14.59 billion kWh of feed-in electricity.

Profit forecasting

Looking ahead, we expect positive changes at the industry and company level. At the industry level, first, the domestic offshore wind power market will enter an intensive construction period in 2024-2026, and the company as a leading enterprise will fully benefit from the boom in the seabreeze field; secondly, overseas, especially emerging market countries, will enter a period of rapid wind power development in the next 5 years. On the other hand, it is also more related to the firm implementation of energy transformation strategies in emerging market countries, and the demand for incremental electricity. The company is a Chinese fan brand with the longest domestic export performance and strong global financability, and has a competitive advantage in the export market. At the company level, the company continues to implement the shift in technology routes. In 2024, the company accelerated its plan to reduce technology costs, and is expected to further optimize manufacturing costs in 2024-2025. At the same time, the company is actively expanding and strengthening the wind power development sector, and the power plant product business segment continues to grow.

In summary, we expect the company to achieve operating income of 490.8/550.1/59.28 billion yuan in 2024-2026, a year-on-year change of -2.7%/+12.1%/+7.8%; achieve net profit to mother of 16.5/24.1/3.23 billion yuan, an increase of 23.9%/46.2%/34.1% year-on-year. The current stock price corresponds to PE 18.8/12.9/9.6 times, respectively.

Investment advice

The company is expected to achieve net profit of 16.5/24.1/3.23 billion yuan in 2024-2026, an increase of 23.9%/46.2%/34.1% over the previous year. The current stock price corresponds to PE 18.8/12.9/9.6 times, respectively, giving it a “superior to the market” rating.

Risk warning

Raw material prices have risen; the industry's installed demand has fallen short of expectations; the company's wind power development sector's business development has fallen short of expectations; market competition has intensified; and geopolitical risks.