What's new
Goldwind held an analyst briefing and provided an update on its1H19 operations, change in sales expenses, and 2H19 outlook. Wefine-tune our earnings forecast and TP based on our new forecastsfor the wind turbine market’s tendering prices.
Comments
1H19 gross margin pressured and 2H19 GM to improve HoH; lowerfull-year GM forecast. 1H19 GM fell 9.9ppt for WTG segment and-12.9ppt for 2.0MW models as ASP fell to Rmb3,280/KW due tointensifying competition in 2Q–3Q18. We expect 2H19 GM torebound 2.2ppt HoH to 13.6% given a 3% rebound in ASP over 4Q18–1Q19. However, we cut our full-year GM forecast 1ppt due to lower1H19 GM.
One-off provision warranty pushes up sales expenses; lift full-yearsales expense forecast. 1H19 selling expense rose 136% YoY toRmb1.19bn as a provision for increased warranty rose about 400%YoY. We expect the provision to return normal in 2H19 as it is aone-off expense. However, we raise our full-year SG&A expenseforecast 2% due to the elevated sales expenses in 1H19.
Revenue in wind farm service accelerating; raise full-year revenueforecast. 1H19 revenue from wind farm service increased 132% YoYto Rmb1.44bn, close to the full-year 2018 level. We raise our segmentrevenue forecast 7.5%, as second-half service revenue usually growsover 50% HoH.
Valuation and recommendation
Given fine-tuning to our forecasts for revenue, gross margin and salesexpenses, we cut our 2019 and 2020 earnings forecasts 8.1% and5.2% to Rmb3.25bn and Rmb3.69bn. Given our lowered earningsforecast and weakening risk appetite, we trim Goldwind A-share andH-share TPs 11% and 19.6% to Rmb15.65 （20.3x and 17.9x2019e/2020e P/E with 27.3% upside） and HK$10.66 （13.9x and 12.2x2019e/2020e P/E with 26.3% upside）。 Maintain OUTPERFORM onA-share and H-share. Goldwind A-share is trading at 16.0x and 14.1x2019e/2020e P/E, and H-share at 9.8x and 8.6x P/E.
Risks
Sharper-than-expected rise in raw material prices; disappointinggrid-connection for wind farms.