Net profit in 2018 missed expectations. Sales, gross profit and net profit ofGNE in 2018 went up YoY by 42.8%, 41.0% and down YoY by 44.2%,respectively. The operation was worse than both ours and marketexpectations. Increased finance expense and the forex loss due to RMBdeprecation are primary reasons behind the earnings decline during theperiod. Gross margin and net margin went down YoY by 0.9 ppt and 13.0 ppt,respectively.
Total installed solar capacity of GNE in 2018 reached 7.31 GW, up YoYby 22.0%. The installed solar capacity and grid connected capacity by theend of 2018 reached 7.31 GW and 6.96 GW, up YoY by 22.0% and 26.4%,respectively. Electricity sales volume went up YoY by 46.9% to 7,830 mn kWhand average tariff was down by 3.4% YoY to RMB 0.76/kWh during theperiod. Given its deleveraging strategy, we expect newly installed solarcapacity from 2019 to 2021 to be 150 MW/ 180 MW/ 200 MW, respectively.
We have revised our earnings estimates from 2019 to 2021 with the newassumptions used. We expect earnings to rebound sharply in 2019 due todebt structure optimization, deleveraging and RMB appreciation. Our revisedEPS forecasts from 2019 to 2021 are RMB 0.0651/ RMB 0.0591/ RMB0.0645, respectively.
We maintain the "Buy" investment rating and raise our TP to HK$ 0.50. Our new TP corresponds to 6.5x/ 7.2x/ 6.6x FY19 to FY21 PER or 1.1x/ 1.0x/0.8x FY19 to FY21 PBR.