GWD’s net profit （excl. perpetual int.） was up 8.0% YoY to RMB1,225mn, missedconsensus estimates. WTG GPM recovery pace was slower than expected, dueto drags from overseas orders. We saw some positives on GWD’s recovery path,as WTG GPM stepped out of the shadow of price war. Looking ahead, we expectthe improvement to continue at graduate pace, and WTG shipment to acceleratein 2H20. We raise GWD’s rating from Hold to BUY on cheap valuation. TPremains unchanged at HK$7.70.
1H20 net profit was RMB1,225mn, missed consensus estimates.
Revenue grew by 23.4% to RMB19.4bn, mainly boosted by WTG salesreaching 4.1GW in 1H20, up 28.5%. Overall GPM declined 3.6ppt YoY to17.1% but exhibited a slight recovery of 0.4ppt HoH. Sellingexpense/administrative expense to revenue rate declined 0.2/1.0pptrespectively, reflecting GWD’s effort on cost control. However, otherexpense to revenue rate expanded 0.6ppt, partially offset those gains fromcost control. Aggregate those three major expense to revenue rates was16.7%, reflecting tiny margin left from GWD’s operating business. Net profitexcluded perpetual distribution was RMB1,225mn. GWD’s 2Q20performance was significantly lower than consensus estimates, in our view.
FY20 WTG shipment guidance maintained 12-14GW. We think WTGshipment a highlight, as the Company managed to deliver 3.25GW in 2Q20,despite various challenges brought by COVID-19. Mgmt. saw optimistic signfor product delivery, easing market concerns for tighten supply chain. GWDmaintained full year WTG shipment at 12-14GW, reflecting >30% growth YoY.
Slight recovery in WTG GPM. GPM of WTG read 12.1%, reflecting 0.74pptrecovery YoY. GPM recovery was mainly on improving price/cost structureas GWD gradually digested those extremely low price orders. However, wethink the recovery pace was slower than market expectation, as 1H20 GPMwas lower than mgmt. guidance level of 15% in FY20. GWD explainedlockdown measures are likely to bring challenge to GPM recovery for overseasprojects, which would lead to 1ppt margin squeeze from previous target. Mgmt.
maintained 15% GPM target for domestic orders in 2020. Overall, despiteimpacts from overseas orders, we still saw GPM expanding in 1H20. We thinkthe segment has finally stepped out of the shadow of price war.
Upgrade to BUY on cheap valuation. We are still conservative on GWD’searnings recovery outlook. Our FY20E EPS estimates is 17.8% lower thanconsensus estimates. After sharp correction in short term, however, we thinkGWD’s investment value begins to emerge. We raise GWD's rating fromHold to BUY. TP remains unchanged at HK$7.70, reflecting 10.7x/7.3xFY20/21E PER.