GWD’s net profit (excl. perpetual int.) was up 8.0% YoY to RMB1,225mn, missed consensus estimates. WTG GPM recovery pace was slower than expected, due to drags from overseas orders. We saw some positives on GWD’s recovery path, as WTG GPM stepped out of the shadow of price war. Looking ahead, we expect the improvement to continue at graduate pace, and WTG shipment to accelerate in 2H20. Our TP for GWD-A is lifted 12.8% to RMB11.40 based on 12x FY21E EPS, maintain HOLD.
- 1H20 net profit was RMB1,225mn, missed consensus estimates. Revenue grew by 23.4% to RMB19.4bn, mainly boosted by WTG sales reaching 4.1GW in 1H20, up 28.5%. Overall GPM declined 3.6ppt YoY to 17.1% but exhibited a slight recovery of 0.4ppt HoH. Selling expense/administrative expense to revenue rate declined 0.2/1.0ppt respectively, reflecting GWD’s effort on cost control. However, other expense to revenue rate expanded 0.6ppt, partially offset those gains from cost control. Aggregate those three major expense to revenue rates was 16.7%, reflecting tiny margin left from GWD’s operating business. Net profit excluded perpetual distribution was RMB1,225mn. GWD’s 2Q20 performance was significantly lower than consensus estimates, in our view.
- FY20 WTG shipment guidance maintained 12-14GW. We think WTG shipment a highlight, as the Company managed to deliver 3.25GW in 2Q20, despite various challenges brought by COVID-19. Mgmt. saw optimistic sign for product delivery, easing market concerns for tighten supply chain. GWD maintained full year WTG shipment at 12-14GW, reflecting >30% growth YoY.
- Slight recovery in WTG GPM. GPM of WTG read 12.1%, reflecting 0.74ppt recovery YoY. GPM recovery was mainly on improving price/cost structure as GWD gradually digested those extremely low price orders. However, we think the recovery pace was slower than market expectation, as 1H20 GPM was lower than mgmt. guidance level of 15% in FY20. GWD explained lockdown measures are likely to bring challenge to GPM recovery for overseas projects, which would lead to 1ppt margin squeeze from previous target. Mgmt. maintained 15% GPM target for domestic orders in 2020. Overall, despite impacts from overseas orders, we still saw GPM expanding in 1H20. We think the segment has finally stepped out of the shadow of price war.
- Maintain HOLD with TP lifted to RMB11.40. We are still conservative on GWD’s earnings recovery outlook. Our FY20E EPS estimates is 25.3% lower than consensus estimates. Our TP for GWD-A is lifted 12.8% to RMB11.40 based on 12x FY21E EPS, maintain HOLD.
