GWD delivered 848MW WTG sales in 1Q20 amid impacts from COVID-19, down 8.7% YoY. The Company faced continued GPM squeezed during the first quarter as operating expenses increased outpace revenue growth. GWD managed to release earnings growth, however, through completion of selling several wind farm projects. Looking ahead, we think headwind remains, and we think COVID-19 may bring more uncertainties from the supply chain, as some downstream developers expressed wind blade may subject to delay for 1-2 months. Maintain HOLD.
- 1Q20 earnings surged 291.5% to RMB895mn. Sales revenue recorded a 1.3% YoY increase to RMB5,467mn, while operating costs expand more rapidly at 8.4% YoY to RMB4,290mn, which led to a YoY GPM squeeze of 5.1ppt. The Company completed transactions of selling 49% shares of several wind farm projects, which helped boost investment income by 669% to RMB1,120mn. Overall, GWD realized net profit of RMB895mn, up 291.5% and accounting for 32.5% of our FY20E forecasts.
- WTG sales was 848MW in 1Q20, down 8.7% YoY. We think GWD’s 1Q20 WTG delivery was satisfactory given disruption caused by COVID-19. Mgmt. maintained annual shipment target at 12-14GW unchanged and disclosed there were still 4.3GW WTG tenders in 1Q20, of which 84% required to delivery within 2020. Given relatively a slow start of WTG sales, and potential disruption of supply chain mainly from wind blade material import, we think it would be challenging for GWD to fulfill the sales target.
- Selling and distribution costs still a concern. The expenses increased 22.7% YoY during 1Q20, substantially faster than revenue growth. We had observed the expenses expanded quick associated with increasing warranty provision with several new WTG models in FY19. Mgmt. explained the costs was not distributed evenly with WTG sales, and some provision was explicitly incurred during 1Q20. In 2020, we think the costs will still be one of the key concerns of the market.
- GPM to see improvements in 2Q20. Mgmt. expects WTG shipments to accelerate in 2Q20, with improvements in both order structure and several costs saving measures in the supply chain. GWD expected to have GPM to recover in 2Q20, implying WTG GPM had bottomed out.
- Maintained HOLD. GWD’s share price had rebounded 13.6% since our previous update. Given the headwinds in 2020 and uncertainties in 2021 and beyond, we remain conservative on the Company. At 13.0x FY20E PER, we think GWD is fairly valued. Maintain HOLD with TP unchanged at HK$7.70.
