What's new
Goldwind plans to sell its 100% stake in Dezhou Runjin New Energy（Runjin） to China Development Bank Energy （CDB Energy） forRmb930mn. Runjin has two wholly owned wind farms with combinedcapacity at 200MW that connected to power grids in 2016 and 2018,respectively, and are not yet included in the subsidy catalogue.
Comments
Higher valuation points to high-quality in construction andoperation. The consideration implies 13x 2018a P/E for Runjin, closeto Goldwind-A’s valuation of 13.2x 2019e P/E. However, it indicates3.2x P/B based on adjusted net assets at end-February （vs. 1.5x2019e P/B for Goldwind-A and 0.7x for Longyuan and HuanengRenewables）。 Given Runjin’s two wind farms are not included in thesubsidy catalogue, we think the valuation premium points to marketrecognition of the quality of wind farms built and operated byGoldwind.
Cash inflow from wind farm disposal should support healthy growthin installed capacity in next two years. China plans to reducesubsidies for wind power projects, and those approved before 2019must be completed and connected to power grids before end-2020 toensure they receive the current higher subsidies. As of end-2018,Goldwind had over 2GW wind power projects in the pipeline, and thecompany plans to complete and start operation on about 1GWprojects in both 2019 and 2020 to avoid a cut in tariffs. We estimatecapex for wind farms at Rmb1.4bn in 2019–2020, given unit costs ofRmb7/KW and 20% of capital investment. The Rmb930mn inproceeds from disposing of Runjin’s wind farms would account for66% of estimated capex, and we believe this will mitigate the rushinstallation’s impact on the balance sheet.
Valuation and recommendation
Based on the consideration and net assets, we estimate the disposalwill enhance 2019 net profit by Rmb800mn, or 23%. We maintain ourearnings forecasts for now, as the deal is still not finalized.
Goldwind-A is trading at 13.2x and 12.0x 2019e and 2020e P/E, andGoldwind-H at 8.7x and 7.9x P/E. Maintain BUY for Goldwind-A/H andTP at Rmb17.59 （21.0x and 19.1x 2019-2020e P/E with 59% upside）and HK$13.26 （15.9x and 14.4x 2019-2020e P/E with 62% upside）。
Risks
The transaction is not completed as expected.