GWD released 3Q19 results. Quarter earnings read only RMB406mn, down 54.3%YoY, while 9M19 earnings was RMB1, 591mn, down 34.2% YoY. By 9M19, GWD’searnings was only 55.6%/52.8% to ours and consensus annual estimates, indicatinga likely earnings miss in FY19E. However, market seems not explicitly concerningearnings miss but paying more attention to overall GPM improvement, from 17.9% in2Q19 to 19.1% in 3Q19. We believe GWD demonstrated cost control capabilities withfuture improvement potential. We revised FY19-21E EPS outlook by -3.8/+15.5/0.5%,respectively. Maintain BUY with TP unchanged at HK$12.06.
WTG shipment reached 5,245MW. It was the first time GWD disclosedquarterly shipment results since 2014. Mgmt. took active measures to mergeWTG product platforms from 6 types to 3 types through modular design. TheCompany suffered short-term pain for cost surge from component upgrade,but we expect GWD’s product capabilities and improving cost curve willconquer the market for grid-parity demand in 2020/21E.
Order backlog refresh record again to 22.8GW. Strong order backlog wasin line with thrilling domestic demand with record-high tender of 49.9GW in9M19, and installation rush drove recovery of WTG average bidding price.
Mgmt. maintained prudent product delivery pricing outlook in 2020E, asGWD still intends to fulfil those low price orders won in 2017/18. For 2020E,GWD expected WTG shipment will have significant growth from 8-8.5GW in2019E to 12GW in 2020E. We believe GWD’s order backlog would beenough to cover some grid-parity and offshore demand in 2021E.
Expense control a highlight in 3Q19. Selling & distribution, administrativeand finance expenses exhibited significant decline as percentages to toplinein 3Q19. Mgmt. set overall expenses (SD&A, finance and R&D expenses)ratio to decline 3ppt as a controlling target in FY19E, which we believe willboost long-term profitability.
Increasing contribution from overseas market. Mgmt. expected overseasWTG to reach 1.2GW in FY19E and 2.0GW in 2020E. We believe increasingoverseas sales will stabilize GWD’s earnings performance, despite gridparityimpacts in China.
Maintain BUY on improving WTG outlook. We trimmed GWD’s FY19Eearnings by 3.8% based on business update, and raised FY20E earnings by15.5% to reflect wind farms disposal gain and better cost control. Out FY21Eestimates is largely unchanged. We lower target FY20E PE multiple from11.8x to 10.3x as we expect GWD’s FY20E earnings will be boost byhigher wind farm disposal gain. Our TP is HK$12.06 unchanged, basedMaintain BUY rating.