1H22 results miss our forecast
Xinyi Energy announced 1H22 results: Revenue grew 13.1% YoY to HK$1.26bn and net profit attributable to shareholders edged up 0.4% YoY to HK$623mn.
Results miss our forecast. In 1H22, the firm only acquired 40MW capacity from third parties due to COVID-19 and high prices in the value chain. Meanwhile, its gross margin and net margin dropped 1.4ppt and 6.3ppt YoY to 72.7% and 49.5%. The internal rate of return declined, due to: depreciation expenses arising from new projects; increased labor costs and administrative expenses; and expired preferential policies that drove up income tax rate by 6.4ppt YoY to 20.6%.
Cash flow improved notably due to strategy to acquire parity projects. The firm started to focus on acquiring parity projects since 2020. In 1H22, power sales volume increased 21% to 1.49bn kWh, contributing HK$0.62bn income. The firm’s operating cash flow surged 101% YoY to HK$598mn in 1H22.
High dividend continued. The firm’s distributable income was HK$563mn and it announced a dividend of HK$0.077 (up 4.1% YoY), implying a dividend payout ratio of 100%.
Trends to watch
Full-year acquisition target remains 1GW; likely to be adjusted due to volatile assembly prices. In 1H22, the firm only acquired 40MW of PV power plants due to COVID-19. As of 1H22, the installed capacity totaled 2,534MW, with 32% from parity projects. It plans to acquire 650MW of parity projects from its shareholder, Xinyi Solar. However, Xinyi Energy management said that they do not rule out a 10-20% adjustment in the acquisition target amount if the assembly prices tweaked.
Earnings solid despite parity projects; incremental growth highlights investment value. Although the firm has more than 30% parity projects, management expects the PV net interest rate will reach 45-50% after the full tax period this year. We think this demonstrates its excellence in managing power stations and maintaining operating efficiency. We expect the firm to keep focusing on the main business, shift its attention from scale growth to incremental growth, and maintain an industry-leading internal rate of return.
Financials and valuation
We lower our expectations of the firm’s newly installed capacity, given that its 1H22 results were weaker than we expected. We cut our 2022 net profit forecast by 15.3% to HK$1.28bn. We also cut our 2023 net profit forecast by 6.6% to HK$1.66bn, as we think some projects will likely be delayed due to high assembly prices.
The stock is trading at 18.0x 2022e and 13.9x 2023e P/E. We maintain OUTPERFORM. Given adjusted earnings forecasts, we cut our TP by 23.6% to HK$4.70, implying 26.8x 2022e and 20.7x 2023e P/E, offering 48.7% upside.
Risks
Disappointing progress of acquisition of new projects.