Datang Renewable's ("DTR", or the "Company") 1H21 profit attributable to owners of the parent rose 42.3% YoY to RMB1,412 mn, in line with our expectation. The Company's 1H21 revenue increased 31.8% YoY to RMB6.356 bn, mainly driven by capacity growth and the YoY improvement in wind curtailment rate. The Company's wind utilisation hours for 1H21 increased 12.9% YoY to 1,274 hours, while the YoY growth rate was 3.9 ppts lower than that of the first quarter. On the cost side, total operating expenses for 1H21 was up 47.0% YoY; D&A expense, labor cost, R&M and material costs were up 14.1%, 27.8%, 107.6% and 258.7% YoY, respectively. Meanwhile, as the Company recorded a total of RMB603 mn in impairment provisions for certain CIPs, receivables, etc. during 1H21, other operating expenses surged 351.5% YoY to RMB868 mn. As a result, DTR's 1H21 operating margin saw a sharp decrease of 6.6 pts YoY to 45.8%. Net finance expense dropped 9.2% YoY from a decrease in the balance of interest-bearing liabilities; average borrowing rate for 1H21 was also down by 0.32 ppts to 4.02%. In 1H21 the Company added 23.3% of its total consolidated capacity and accumulated power generation recorded a YoY increase of 33.4%, both in line with expectation.
Investment suggestion: DTR's 1H21 results were in line our expectation after taking into account the negative impacts from asset impairment. Net profit to owners of the parent represented 61.5% of our previous full-year estimate.
The Company's revenue maintained strong YoY uptrend boosted by the incremental effect from new capacity as well as solid wind resources. Excluding the impairment provisions in 1H21, the increase in other major operating expenses was basically in accordance with capacity growth. Also the management indicated that they expect no further impairment provisions for the second half of this year. Average borrowing rate remained at an ideal level of around 4.0%, and may continue to trend down in the second half. Considering that the Company's revenue is to be supported by strong electricity sales, assuming no further unexpected changes in major operating costs and financing expenses, we expect the company's 2021 full-year net profit to owners of the parent to be around RMB2.0 bn, representing YoY growth of 65%-70%. From a medium- to long-term perspective, the Company is to achieve stable capacity growth given the context of carbon neutrality and emissions peak, thus its long-term fundamental growth logic remains intact.
We maintain our "Accumulate" rating for DTR, current TP is HK$2.75, which represents which represents 10.6x/ 9.4x/ 7.6x 2021/ 2022/ 2023 PER. We may revise down DTR’s FY21 earnings forecasts and adjust TP accordingly in the next Company Report to reflect impacts from the recent asset impairments.