1Q20 earnings growth in line with guidanceGoldwind Science & Technology reported that 1Q20 revenue rose 1%YoY to Rmb5.47bn, but declined 58% QoQ due to seasonality in windturbine shipment. Attributable net profit rose 291% YoY, or 45% QoQto Rmb895mn, in line with guidance as the sales of its 300MW windfarm were delayed from 2H19 to 1Q20.
　　Gross margin of wind turbine (WTG) under pressure due to ongoingdigestion of low-price orders. 1Q20 blended gross margin fell 5.1pptYoY to 21.5%. Given high operating gross margin of wind farm in 1Q,we estimate 1Q20 gross margin of wind turbines remained underpressure at 12% due to delivery of low-price orders and cost pressurefrom supply chain. Given rising cost of wind turbine componentsamid COVID-19 and further decline in gross margin of thedevelopment, operation & maintenance business, we trim 2020forecast blended gross margin to 18.4%, with that of wind turbines at14-15%.
　　Trends to watch
　　Shipment of wind turbines to see rapid recovery thanks to newinfrastructure and improving access to power grid.
　　Tendering of grid-parity projects to start; watch R&D-driven grossmargin recovery. For detailed reasoning, please refer to page 2.
　　Financials and valuation
　　As the impact of lower gross margin may outweigh that of risingshipment, we trim 2020 earnings forecast 7% to Rmb3.44bn andintroduce 2021 earnings forecast at Rmb3.87bn. Goldwind A-share istrading at 11.8x and 10.5x 2020e–2021e P/E, and H-share at 8.1x and7.2x 2020e–2021e P/E. Maintain OUTPERFORM on A-share andH-share, but cut TP 10% and 10% to Rmb14.09 (17.3x and 15.4x2020e–2021e P/E with 41.2% upside) and HK$9.59 (10.2x and 9.1x2020e–2021e P/E with 26.0% upside).
　　Risks
　　Overseas COVID-19 affects value chain supply.