VPower delivered strong 1H20 results with earnings surged 84.6% to HK$263mn. The Company added 138.8MW IBO capacity and realized surprising SI sales in a challenging environment caused by COVID-19. Myanmar JV with total capacity of 1.06GW also commence operation within nine months construction period. We expect VPower’s effort to have good payoff in 2H20 with accelerating earnings, especially share profit from Myanmar JV. We reiterate our BUY rating on VPower with TP unchanged at HK$5.47.
- 1H20 results beat our est. by 7.5%. Revenue came with surprisingly high growth of 70.4% YoY to HK$2,050mn, driven by unexpectedly high growth from SI sales and steady IBO increment. Other income and gains recorded HK$88mn, comprised by consultancy income and asset disposal gain of HK$62/14mn, respectively. As VPower hired more employees to handle LNG related business, administrative expenses expanded 42.6% YoY. Finance costs exhibited a YoY decline of 8.5% with shrinking borrowings, reflecting good control on financing cost and gearing (net gearing dropped to 74.5% incl. top-up placement in Jul). Net profit was HK$263mn, up 84.6% YoY and was 7.5% higher than our estimates. VPower declared HK$1.51 cents interim dividend, representing 14.6% payout ratio on 1H20 EPS.
- Surprisingly high SI sales. SI segment revenue surged 104.6%, which was 96.7% higher than our estimate. Mgmt. disclosed strong market demand from China and other Asia countries and some ad hoc SI orders in 1H20 was key growth driver. GPM of SI experienced a decline of 5.4ppt to 17.6% due to additional efforts made to fulfill SI orders caused by COVID-19 lockdowns. Mgmt. expects SI sales to resume normal in 2H20 and guided high single digit growth for SI sales in FY20E.
- IBO segment expansion on track. GPM of IBO experienced 8.7ppt rise to 37.7% as VPower added more fuel inclusion projects from Brazil. Other than that, mgmt. explained GPM of non-fuel inclusion project stay stable in Asia. Iconic Myanmar JV contributed HK$23mn share profit in 1H20 with merely one month operating contribution, reaffirming the JV’s profitability. Looking ahead in 2H20, we expect IBO project to contribute stable operating profit growth, and the Myanmar JV to contribute HK$310mn share profit in FY20.
- Reiterate BUY on earnings acceleration in 2H20. We made no revision on our earnings forecast and TP. We believe VPower’s earnings release in 2H20 is highly visible. Trading at only 10.8/6.7x FY20/21E PER is undervalued. We think share price correction offers perfect opportunity to accumulate.
