VPower’s 1H19 earnings indicated the Company was still suffering from its Asiato global transformation. We see some good signs coming from 1） release ofannounced project pipeline with accelerating pace; and 2） VPower’s refill of newproject pipeline with substantial project scale through submitting more bids. Weexpect the Company to resume growth track in 2H19, and deliver high earningsgrowth in 2020.
1H19 profit declined 8.0% YoY. Revenue increased 10.5% YoY toHK$1,203mn, driven by sale growth of 6.4%/16.4% from SI/IBO businessrespectively. Major expenses were under well control on track with our fullyear estimates, while the Company recognized less other income and gainsin 1H19 compared to last year. Finance costs continued to expand rapidly withYoY growth of 47.5%, and we believe it was a key item dragging VPower’searnings. Net profit recorded HK$143mn, down 8.0% YoY.
IBO pipeline in releasing phase. VPower added 175.5MW new IBO projectsduring 1H19, successfully replacing expired contract and expanding operatingscales. The Company further enhanced its competitiveness in Myanmarmarket through adding another 109.7MW, and achieved breakthrough in SriLanka with project scale of 54.9MW. Mgmt. redeployed generators fromIndonesia to other areas with higher profitability and longer contract terms.
According to mgmt., VPower will have 70.3MW project in Brazil enteringcommercial operation by phases in 2H19. We believe those new IBO capacitywill bring more capacity in 2020 with full year contribution.
Future pipeline refilled with new opportunities. VPower released updatedIBO pipeline projects with tenders/binding contracts of totaled 309.9MW, ofwhich ~half are from UK peak shaving market. VPower made considerableIBO project bidding in Asia market during 1H19, and mgmt. expects resultswill be promising, which will likely enrich VPower’s project pool from 3-400MWto 1.2GW.
Growth to resume from 2H19. VPower experienced significant earnings dragsince 2H18 as the Company transformed from Asia to global platform. As theCompany released its IBO pipeline, we expect VPower to resume growth in2H19. Based on 1H19 results and more conservative assumptions on IBOproject revenue as well as fuel costs, we trim FY19-21E EPS by4.4%/29.9%/12.0% to HK 10/13/20 cents. Our DCF TP is cut from HK$3.68to HK$2.90. Maintain BUY.