VPower released positive profit alert, expecting 1H20 net profit to surge more than 70% YoY. The Company’s 1H20 earnings performance would be significantly stronger than our previous estimates of 1H20 earnings of HK$178mn (+24.8% YoY), due to 1) business growth from SI and IBO businesses; 2) an increase in other income an gains; and 3) an increase in share of profits of JVs. Despite some non-recurring items likely to boost earnings growth, we still see VPower’s 1H20 earnings performance a solid sign of delivery of mgmt. guidance. Our DCF TP is lifted to HK$5.50, reflecting FY20/21E PER of 19.7x/12.1x, respectively. Maintain BUY.
- 1H20 net profit to surge more than 70% YoY. VPower’s positive profit alert was 36.4% higher than our previous estimate. As per our communication with the Company, we think the upside surprise would mainly come from 1) one-off income generated from consultancy contract arose with the Myanmar mega size JV projects; 2) stably performed IBO projects with increasing capacity contribution; 3) better-than-expected SI product sales and 4) the Myanmar JV started to contribute earnings though with limited operating days during 1H20.
- Effective capacity to increase 17.3% YoY. The Company added ~58MW consolidated capacity mostly in 2Q20 in Myanmar and Brazil, and has another 112.8MW new capacity in the pipeline. In 1H20, we think contribution from new capacity would be mild, and we expect revenue growth from IBO projects will accelerate in 2H20. We estimate effective capacity in FY20 will increase by 104.7MW, representing 17.3% growth YoY.
- Myanmar JV projects to commence fully operation in 2H20. By 30 Jun, 582.4MW out of 1,059.5MW of the Myanmar JV projects had entered operating phase. We expect the remaining capacity will be put into operation soon within 3Q20. Same as newly added IBO projects, we think key earnings contribution will mostly fall into 2H20. Given the projects’ scale and profitability of the JV, we think the increment of share profit from JV in 2H20 will be more significant.
- Raise TP to HK$5.50, maintain BUY. We revise FY20E EPS up by 6.8% to HK$27.9 cents to reflect stronger-than-expected 1H20 earnings. Our revised 1H20E net profit is lifted to HK$245mn, up 71.7% YoY. We think VPower’s earnings growth is still on track with our projections. Our DCF TP is raised by 14.6% to HK$5.50 based on slightly adjustment on IBO project profitability. Maintain BUY rating on VPower.
