Concord New Energy reported 1H18 revenue of Rmb809.6m （+36.3% YoY） and net profit ofRmb275.7m （+2.3% YoY）。 We believe the company will maintain strong revenue growth on the backof its solid power generation business. Therefore, we revise up our EPS forecasts from Rmb0.03 toRmb0.05 in 18E （+150.0% YoY）， from Rmb0.04 to Rmb0.08 in 19E （+60.0% YoY）， and from Rmb0.04to Rmb0.09 in 20E （+12.5% YoY）。 We maintain our target price of HK$0.41, representing 6.5x 18E PEand 0.5x 18E PB. With 18.8% upside, we maintain our Outperform recommendation.
Successful business transformation. The company has shifted its business model from anengineering, procurement, and construction （EPC） model to a build-transfer （BT） model. In 1H18,electricity sales amounted to Rmb627.5m （+78.9% YoY）。 With the power plant operation businessenjoying much higher gross margin than the EPC business, the company’s blended gross marginsurged from 40.8% in 1H17 to 57% in 1H18. We note EPC revenue declined 33.2% YoY in 1H18 fromRmb205.1m in 1H17. Meanwhile, the firm recorded Rmb22.5m in “other losses” （vs “other gains” ofRmb146.4m in 1H17, mainly due to the disposal of Yulin Ecology for c.Rmb177m）。 The companydeclared no dividend for 1H18 （as for 2017）。
Balance sheet. The company recorded total trade and bill receivables of Rmb1.6bn, vs Rmb1.3bn inend-2017. The increase was mainly due to a subsidy payment delay. The liability-to-asset ratio rosefrom 64.5% in end-2017 to 68.3% in end-June 2018. With financial cost growing from 4.9% in 1H17to 5.4% for 1H18, financial expenses increased 62% to Rmb140.4m in 1H18. For 2H18E, we expectaccounts receivable to remain high, amid a continued subsidy payment delay.
Strong power generation. In 1H18, power generation amounted to 1,862.3GWh （+55.1% YoY），including 1,635.0GWh from wind power （+74.0% YoY） and 227.3GWh from solar power （-12.9%YoY）。 We believe the substantial increase in wind power generation was mainly driven by thecontribution from newly installed capacity and an improving curtailment rate. Total wind installedcapacity amounted to 2.5GW in 1H18, vs 2.1GW in 1H17 （+19% YoY）， while the firm’s curtailmentrate declined from 9% in 1H17 to 5.1% in 1H18. Thanks to curtailment improvement as well asstrong wind resources, attributable wind utilisation hours increased to 1,190 hours in 1H18 （vs 990hours in 1H17）。
Maintain Outperform. We revise up our EPS forecasts from Rmb0.03 to Rmb0.05 in 18E （+150.0%YoY）， from Rmb0.04 to Rmb0.08 in 19E （+60.0% YoY）， and from Rmb0.04 to Rmb0.09 in 20E （+12.5%YoY）。 We maintain our target price of HK$0.41, representing 6.5x 18E PE and 0.5x 18E PB. With18.8% upside, we maintain our Outperform recommendation.