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’s earnings was only 55.6%/52.8% to ours and consensus annual estimates, indicating a likely earnings miss in FY19E. However, market seems not explicitly concerning earnings miss but paying more attention to overall GPM improvement, from 17.9% in 2Q19 to 19.1% in 3Q19. We believe GWD demonstrated cost control capabilities with future 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 disclosed quarterly shipment results since 2014. Mgmt. took active measures to merge WTG product platforms from 6 types to 3 types through modular design. The Company suffered short-term pain for cost surge from component upgrade, but we expect GWD’s product capabilities and improving cost curve will conquer the market for grid-parity demand in 2020/21E.
- Order backlog refresh record again to 22.8GW. Strong order backlog was in line with thrilling domestic demand with record-high tender of 49.9GW in 9M19, and installation rush drove recovery of WTG average bidding price. Mgmt. maintained prudent product delivery pricing outlook in 2020E, as GWD 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 in 2019E to 12GW in 2020E. We believe GWD’s order backlog would be enough to cover some grid-parity and offshore demand in 2021E.
- Expense control a highlight in 3Q19. Selling & distribution, administrative and finance expenses exhibited significant decline as percentages to topline in 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 will boost long-term profitability.
- Increasing contribution from overseas market. Mgmt. expected overseas WTG to reach 1.2GW in FY19E and 2.0GW in 2020E. We believe increasing overseas sales will stabilize GWD’s earnings performance, despite grid-parity impacts in China.
- Maintain BUY on improving WTG outlook. We trimmed GWD’s FY19E earnings by 3.8% based on business update, and raised FY20E earnings by 15.5% to reflect wind farms disposal gain and better cost control. Out FY21E estimates is largely unchanged. We lower target FY20E PE multiple from 11.8x to 10.3x as we expect GWD’s FY20E earnings will be boost by higher wind farm disposal gain. Our TP is HK$12.06 unchanged, based Maintain BUY rating.
