VPower released satisfactory FY19 results. Net profit surged 32.9% YoY to HK$284mn in 2019, confirmed our view that the Company resumed growth track in 2H19. Mgmt. gives optimistic outlook for 2020, on the back of 1) 148.1MW new wholly owned IBO projects to commission and 169.3MW to have full year contribution; and 2) JV with CNTIC in Myanmar to commission by 1H20. We expect VPower’s net profit to exhibit continuous jump in FY20/21E, and we revise earnings projection to FY19-22E CAGR of 66.0%. Reiterate BUY.
- FY19 earnings surged 32.9% YoY. Revenue increased 15.4% YoY to HK$2,794mn, comprising by 63% from SI business and remaining from IBO. Revenue structure was quite different from our estimates, as VPower 1) sold significantly more SI units in 2H19, and 2) had several IBO project with delayed commissioning. GPM declined 2.8ppt to 26.4%, due to revenue mix change and some IBO project incurred fuel costs pass-through. VPower recognized significant consultancy income of HK$135mn to make up somewhat lagging gross profit performance, while administration expenses also increased associated 24.4% YoY with consultancy service provision. Overall, VPower realized HK$284mn profit, 14.0% higher than our estimates.
- Looking forward to a fruitful 2020. We expect VPower to have 148.1MW new projects to commission and have existing running 169.3MW projects to have full year contribution in 2020. More importantly, the Company will also have its JV with CNTIC running mega size project (total install capacity of 1,059.5MW) in Myanmar to commission by 1H20. We think the Company has high earnings visibility in 2020, and share profit from the JV will have significant contribution to earnings growth.
- Enhancing relationships with MTU. VPower signed distribution agreement with MTU, its key power generating engine supplier, for selling MTU products in China. According to mgmt., VPower had become one of the largest customers of MTU, and the distribution agreement will further enhance strategic partnership with MTU for long-term high-quality engine supply. The Company has positive outlook for gen-set demand from data center and marine market, and we expect SI sales in China will be boost in medium term.
- Boost FY20/21E earnings forecast by 64.5/80.0%. Based on mgmt. update on project status as well as high earnings visibility for Myanmar JV, we had substantial increased in our FY20/21E earnings outlook. We raise FY20/21E EPS by 64.5%/80.0% to HK$26.4/45.8cents. Our forecasts are 88.3%/134.8% higher than consensus estimates. We believe it is a conviction call for VPower. Reiterate BUY with TP unchanged at HK$3.25. Our TP reflects 12.3/7.1x FY20/21E PER.
