1Q19 WTG shipment was strong. GWD released 1Q19 results based on PRCGAAP standards. Operating revnue recorded RMB5,396mn, up 39.8% YoY. TheCompany disclosed quarterly WTG shipment for the first time, with externalWTG shipment reaching 929MW in 1Q19, which we believe was the mainreason driving the strong revenue growth. Gross profit for the quarter wasRMB1,436mn, with GPM down 9.4ppt to 26.6%, implying GWD still facing GPMpressures from the WTG segment. Major expenses remained in good control,while admin expenses exhibited an increase of 22.5% YoY. We infer the surge ofthe admin costs to be one-off in relation to GWD’s rights offering executed inMar. Net income and recurring net income was RMB229mn and RMB188mn,down 4.6% and 16.5% YoY, respectively.
Good signs under pressures environment. We observed two good signs forWTG market in China, including 1） WTG tender remained active in 1Q19, astotal tender scale reched 14.9GW, of which 6GW from grid-parity project inInner Mongolia, and the remaining 8.9GW from projects under the old FITscheme; 2） average tender price exhibited continued increase, as bidding pricefor 2.0MW and 2.5MW had increased 6.7% and 4.0% respectively from yearlow in Aug-2018 to Mar-2019. As a WTG manufacturer with largest marketshares in China, we expect GWD to face continuous GPM pressures as with WTGshipment price decline due to the extremely low tender order in 2018 torelease. We expect the turning point to come in 4Q19, given WTG shipmentprice to pick up.
Short term shipment accelerating. In view of potential policy uncertainties,we expect wind operators will likely to accelerate project construction pace,which we believe will boost short term WTG shipment in 2019. For 2020 andbeyond, as we see NDRC and NEA intend to suppress subsidies expansion pace,WTG shipment will be somewhat uncertain, in our opinion, and that will likelyforce order shipments to concentrate in 2019.
Share price has factored in market fears, maintain HOLD. GWD’s shareprice has tumbled 24.7% since FY18 results announcement. We believe GWD’sshare price performance has factored in market fears for further marginsqueeze as well as potential policy impacts. Though policy uncertainties are stillhanging, we still see some good signs coming from WTG tender pricerecovering as well as increasing grid-parity demand coming on stream. GivenGWD’s leading position in both market shares and technologies, we expectGWD’s WTG performance will recover gradually from 4Q19. Maintain HOLDwith TP unchanged at HK$9.25 per share.