CHSTE reported in-line 1H16 results, with core profit up 13% to Rmb564m(excl. FX and disposal gain/loss and one-off impairment). Export was the majorprofit driver, with US in continuous growth and European market starting tobear fruit. GPM (+4.1ppt) also benefited from export growth on USDappreciation. While export looks strong, domestic wind shipment outlook is amajor uncertainty and may continue to cannibalize export growth. CHSTE willhold an analyst briefing at 9:30am, 22 Aug (JW Marriot Hotel Hong Kong).
1H16 core profit +13% on export growth and finance cost savings
CHSTE’s reported net profit was up 10% yoy to Rmb576m. Core profit was up13% to Rmb564m, after stripping off non-recurring items including FX anddisposal gain/loss and one-off impairments (total Rmb15m vs. Rmb32m in1H15). This was mainly driven by export profit jump (+97%) and financing costsaving (-10%), despite a 5% revenue contraction. GPM advanced 4.1ppt to33.8%, primarily on higher wind-gearbox contribution and export marginexpansion.
By product, wind gearbox revenue grew 3% yoy on strong export growthdespite some domestic decline; while non-wind industrial gearbox segment isdown-sizing with revenue down 34% yoy during the period.
Wind export gathering pace, but partially cannibalized by domestic contraction
Export was the major profit driver in 1H, with revenue increased by 70% yoyand accounting for 35% of overall revenue. US remains robust – revenue wentup 27% and GPM advanced 9ppt, on both higher shipment and USDappreciation against RMB. Management previously guided a 5-5.5GW exportvolume to GE this year vs. 4.5GW in 2015. Moreover, the company’s Europeanmarket incubation is bearing fruit – the market contributed Rmb422m revenueand Rmb146m gross profit in 1H, up substantially from Rmb31m and Rmb12min the corresponding period last year. Export business should continue to growas the company sees rebound in wind-gearbox order growth in 1H.
Nevertheless, the additional profit contribution from wind export was partiallyeaten by domestic decline. Total wind gearbox sales were up only 3% despite a70% export growth. By simply assuming all non-wind industrial gearbox aredomestic, the underlying domestic wind gearbox sales dropped 18% yoy in theperiod, amid the country’s wind installation decline (-15%).
Stable balance sheet and receivable condition
As of 30 June, total debt balance was Rmb9.1bn, up by Rmb1.6bn vs. end-15,while net gearing further dropped to 8% from 13% by end-15. Receivableturnover days remain stable at around 330 days.
Key focus would be around order outlook for domestic and export windgearbox.