GWD delivered strong set of 3Q21 results with net profit of RMB1,164mn, up 46.6%/32.9% YoY/QoQ. We believe earnings figures slightly beat market estimates. 9M21 overall GPM was 26.3%, implying 3Q21 GPM of 24.3%, up 7.2ppt/ down 3.4ppt YoY/QoQ. On the back of high margin offshore WTG shipment, mgmt. was confident to deliver 18% WTG GPM in FY21. Looking ahead in 2022, we think the outlook is a bit cloudy due to sharp decline in WTG tender price. However, as GWD was taking rational market competition strategies, we expect the Company to suffer less hit by low price order, and will be able to smooth earnings performance through wind farm disposal. Based on 18x FY22E PER, we lift GWD’s TP by 14.7% to HK$20.20. Maintain BUY.
WTG GPM on track to mgmt. guidance. GWD’s overall GPM was 26.3% in 9M21, and 3Q21 GPM was 24.3%. WTG margin was on track to mgmt.’s full year guidance of above 18.0% in FY21 on the back of high margin offshore WTG shipment. Looking ahead in FY22, since offshore WTG shipment is going to decline with tariff cut and potential material costs pressure, we expect GWD’s GPM will likely to decline with ~30% ASP cut. By far, although we believe WTG model to scale up could bring cost saving, we think visibility is low due to various uncertainties from the upstream.
Selling wind farm would be a better way. Market may once have had concerns for GWD’s lose in market shares as the Company exhibited declining bid winning rate. We argue that was GWD’s strategic decision in view of irrational pricing, especially in 1Q21. According to our estimates based on GWD’s wind farm disposal history in 2017-2020 , we think wind farm disposal offers significantly higher unit earnings performance. On the back of increasing project acquisition demand from SOEs and high energy consumption industries, we believe selling wind farm will be a better way to realize GWD’s WTG value than participating in price war.
Highly visible wind farm demand. Given WTG tender price decline during 2021, we now think on shore grid-parity projects offer better IRR compared with solar farm with substantial increasing module. In 9M21, there were 41.9GW open market tender for WTG. By end-3Q21, GWD still held 15.1GW order backlog, remained leading in the league table. We think wind farm installation will accelerate with high visibility in 2022.
Lift TP by 14.7% to HK$20.2; maintain BUY. Based on our revised model, we made only slight adjustment on FY21-23E earnings. GWD’s share price performance lagged behind WTG manufacturing peers in China but offered attractive ROE and 18.5% earnings CAGR in FY21-23E. Based on 15x FY22E PER, we lift TP by 14.7% to HK$20.20. Maintain BUY.