Equities Hong Kong/China Company Update Company Report GCL New Energy (451 HK) Transformation on Track After our recent visit to GCL New Energy ( GNE ), we are impressed by the company s transformation into a nationwide solar farm operator in China. We think GNE s underlying value will be reflected in the long term when GNE manages to resolve the issue of extremely high net gearing and disposes of its non-core business of printed circuit board ( PCB ). HK-listed solar farm arm of GCL-Poly Energy. GCL-Poly Energy (3800 HK) was introduced as the major shareholder of GNE in 2014 through issuance of new shares. GNE then became the HK-listed solar farm arm of GCL-Poly Energy. Nationwide solar farm operator in China. GNE holds a nationwide portfolio of solar farm projects in China with aggregate installed capacity of 1,640MW as at 31 December 2015. Capacity expansion amid soaring net gearing ratio. Net gearing ratio grew to 450.1% as at 31 December 2015 after addition of 1GW installed capacity of solar farms over 2015. We expect the net gearing ratio to increase significantly if GNE maintains its target addition of 2.0-2.5GW installed capacity in 2016. Underlying value to be reflected. We think the underlying value of GNE will be reflected in the long term when GNE manages to resolve the issue of extremely high net gearing and disposes of its non-core PCB business. Investment summary FY-end 31 Dec 2014 (Apr-Dec) 2015 Turnover (Rmb m) 930 1,970 Growth (%) N/A N/A Net profit (Rmb m) (89) (15) Growth (%) N/A N/A EPS (Rmb) (0.007) (0.001) Growth (%) N/A N/A PER (x) N/A N/A OCF/Share (Rmb) (0.03) 0.00 P/B (x) 1.71 1.60 EV/EBITDA (x) 417.0 23.4 DPS (Rmb) 0.000 0.000 Yield (%) 0.00 0.00 Note: FY-end date was changed from 31 March to 31 December commencing from FY14 23 May 2016 HK & China / Alternative Energy NOT RATED Share Price Target Price Upside/ Downside HK$0.335 N/A N/A (As of 20 May 2016) Patrick Chow (852) 2106 8306 patrick.chow@ebscn.hk 52 Week Price Range (HK$) 0.307-1.021 Yield (%) N.A Latest Key Data FF no of shares (m) 5,898 FF (%) 30.9 FF market cap (HK$ m) 1,976 12M daily turnover (HK$ m) 10.98 12M volatility (%) 80.3 PEG FY16-18E (x) N/A RoE FY16E (%) N/A P/B FY16E (x) 2.44 Net debt/equity FY16E (%) N/A Performance (%) 1M YTD 12M Absolute (17.3) (26.4) (59.3) Relative to HSCEI (8.2) (12.3) (17.6) Shareholding Structure (%) GCL-Poly Energy 62.3 Haitong Securities 9.7 Price Chart HK$ Turnover (HK$ m) 0.60 0.50 0.40 0.30 0.20 0.10 0.00 11/2015 12/2015 12/2015 01/2016 01/2016 02/2016 02/2016 03/2016 03/2016 03/2016 04/2016 04/2016 05/2016 Source: Bloomberg GCL Newenergy HSCEI 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page
Tap into Solar Farm HK-listed solar farm arm of GCL-Poly Energy GCL New Energy Hldg. Ltd. ( GNE ) is mainly engaged in the development and operation of solar farms in China. GCL-Poly Energy (3800 HK) was introduced as the major shareholder of the company in 2014 through issuance of new shares. After the company renaming from Same Time Hldg. Ltd., GNE was transformed from a printed circuit board ( PCB ) manufacturer to a solar farm operator. After various project acquisitions, GNE s aggregate installed capacity of solar farms amounted to 616MW and 1,640MW as at the year end of 2014 and 2015 respectively. Solar farm projects of aggregate installed capacity of 1,036MW were under construction as at 31 December 2015. Figure 1: Corporate development Year 2014 Major event Introduction of GCL-Poly Energy as major shareholder of the company through issuance of new shares Transformation from a printed circuit board manufacturer to a solar farm operator Renaming from "Same Time Hldg. Ltd." to "GCL New Energy Hldg. Ltd." As at 31 December 2014, aggregate installed capacity of solar farms was 616MW 2015 As at 31 December 2015, aggregate installed capacity of solar farms increased to 1,640MW As at 31 December 2015, aggregate installed capacity of 1,036MW was under construction 2016 Company's target addition of 2.0-2.5GW installed capacity in 2016 Sources: Company, CER Nationwide portfolio of solar farms in China As at 31 December 2015, GNE held aggregate installed capacity of solar farm projects of 1,640MW, of which 1,261MW was connected to power grids. Over 40% of installed capacity was located in Jiangsu, Inner Mongolia, Shanxi and Qinghai. These four regions were also the major revenue drivers, representing 62.8% of aggregate revenue (including those from JVs) of 2015. As at 31 December 2015, solar farm projects of aggregate installed capacity of 1,036MW were under construction, of which 32.8% and 18.3% of installed capacity was located in Shaanxi and Henan respectively. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 2
Figure 2: Solar farm project portfolio (as at 31 December 2015) Location Installed capacity Grid-connected capacity Revenue (MW) (% of total) (MW) (% of total) (Rmb m) (% of total) Subsidiary Jiangsu 222 13.5 155 11.8 114 15.5 Inner Mongolia 215 13.1 175 13.3 127 17.3 Shanxi 180 11.0 129 9.8 108 14.7 Qinghai 120 7.3 120 9.1 112 15.3 Hebei 134 8.2 107 8.1 43 5.9 Ningxia 130 7.9 130 9.9 46 6.3 Hubei 116 7.1 55 4.2 0 0.0 Xinjiang 80 4.9 80 6.1 48 6.5 Shaanxi 100 6.1 79 6.0 42 5.7 Anhui 80 4.9 39 3.0 0 0.0 Hainan 50 3.0 48 3.6 25 3.4 Henan 50 3.0 50 3.8 0 0.0 Yunnan 50 3.0 38 2.9 2 0.3 Shandong 35 2.1 35 2.7 2 0.3 Zhejiang 23 1.4 21 1.6 19 2.6 Sub-total 1,585 96.6 1,261 95.8 688 93.7 JV Qinghai 30 1.8 30 2.3 42 5.7 Xinjiang 25 1.5 25 1.9 4 0.5 Sub-total 55 3.4 55 4.2 46 6.3 Total 1,640 100.0 1,316 100.0 734 100.0 Sources: Company, CER Figure 3: Solar farm projects under construction (as at 31 December 2015) Installed capacity Location (MW) (% of total) Shaanxi 340 32.8 Henan 190 18.3 Shandong 127 12.3 Hebei 108 10.4 Jiangsu 75 7.2 Jiangxi 70 6.8 Inner Mongolia 31 3.0 Shanxi 30 2.9 Yunnan 30 2.9 Ningxia 20 1.9 Jilin 15 1.4 Total 1,036 100.0 Sources: Company, CER China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 3
Figure 4: Overview of solar farm projects in China (as at 31 December 2015) Solar farms in operation Solar farms under construction Capacity expansion under soaring net gearing ratio GNE added solar farm projects of installed capacity of 1GW and incurred capital expenditure of Rmb8.5bn in 2015. The company targets to add 2.0-2.5GW installed capacity with planned capital expenditure of Rmb15-19bn in 2016. With the rapid capacity expansion, its net gearing ratio soared to 450.1% together with net debt of Rmb19.7bn as at 31 December 2015. We foresee a significant jump in net gearing ratio if the company sticks to its capacity growth plan for 2016. Considering GNE s financial position and expansion track record, we think a less aggressive expansion plan is actually more beneficial to the company. We think addition of 1GW installed capacity in 2016 is more rational. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 4
Valuation Underlying value to be reflected According to consensus forecast, GNE now trades at FY16E P/B of 2.44x, well above its HK-listed peer average of 1.00x, but with historical net gearing ratio of 450.1%, much higher its peer average of 112.0%. We think the underlying value of GNE will be reflected in the long term if the company manages to resolve the issue of extremely high net gearing and disposes of its non-core business of PCB manufacturing. We prefer the company to adopt a less aggressive capacity expansion plan for a better financial position. Figure 5: Peer comparison Company Ticker Price (Local $) Mkt cap (HK$ m) Y/E P/E (x) P/B (x) Yield (%) Y 0 Y 1 Y 2 Y 0 Y 1 Y 2 Y 0 Y 1 Y 2 Net debt /equity (%) Y 0 GCL New Energy Hldg. Ltd. 451 HK 0.335 6,390 12/2015 N/A N/A 25.9 1.60 2.44 2.41 0.0 0.0 0.0 450.1 HK-listed United Photovoltaics Group 686 HK 0.59 2,832 12/2015 6.6 6.3 4.4 1.06 0.66 0.52 0.0 0.0 6.4 180.3 Comtec Solar Systems Group 712 HK 0.55 766 12/2015 N/A 21.1 20.2 0.57 N/A N/A 0.0 N/A N/A 40.5 China Singyes Solar Tech 750 HK 2.68 1,863 12/2015 4.4 3.8 3.5 0.46 0.41 0.38 1.1 1.8 1.9 78.9 Xinyi Solar Hldg. Ltd. 968 HK 2.93 19,774 12/2015 15.8 10.9 8.6 3.44 2.66 2.13 3.0 3.8 4.8 10.5 Shunfeng Int l Clean 1165 HK 1.22 5,131 12/2015 1.8 3.2 N/A 0.47 0.46 N/A 0.0 N/A N/A 128.4 Xinte Energy Co., Ltd. 1799 HK 7.15 7,472 12/2015 6.0 N/A N/A 0.93 N/A N/A 0.0 N/A N/A 211.0 Gcl-Poly Energy Hldg. Ltd. 3800 HK 1.1 20,446 12/2015 6.0 7.0 6.3 0.94 0.80 0.70 0.0 0.0 0.2 195.1 Flat Glass Group Co. Ltd. 6865 HK 1.42 2,556 12/2015 N/A N/A N/A N/A N/A N/A N/A N/A N/A 51.3 Average 6.8 8.7 8.6 1.12 1.00 0.93 0.6 1.4 3.4 112.0 PRC-listed GCL System Integration Tec-A 002506 CH 6.43 38,501 12/2015 25.7 30.9 24.4 8.85 7.35 5.88 0.0 N/A 0.9 70.0 Jiangsu Akcome Science & T-A 002610 CH 15.68 20,888 12/2015 104.5 40.7 29.1 2.84 3.50 3.13 0.6 0.0 0.0 206.8 Risen Energy Co., Ltd.-A 300118 CH 17.51 14,016 12/2015 35.3 22.8 17.1 3.23 3.35 2.84 0.4 0.4 0.4 69.1 Zhejiang Sunflower Light-A 300111 CH 4.94 6,564 12/2015 61.8 32.9 26.0 4.29 3.86 3.36 0.0 N/A N/A 59.8 Henan Ancai Hi-Tech Co.-A 600207 CH 8.66 7,090 12/2015 320.7 N/A N/A 7.53 N/A N/A 0.0 N/A N/A 108.2 Hareon Solar Technology Co.-A 600401 CH 2.44 13,679 12/2015 120.2 N/A N/A 2.31 N/A N/A 0.0 N/A N/A 82.6 Eging Photovoltaic Techno-A 600537 CH 14.02 9,784 12/2015 35.1 26.0 21.9 2.90 2.69 2.37 1.4 1.1 1.4 29.1 Hongfa Technology Co., Ltd.-A 600885 CH 28.13 17,756 12/2015 31.6 24.4 20.9 4.91 4.40 3.72 0.7 0.6 0.8 2.8 Average 91.9 29.6 23.2 4.61 4.19 3.55 0.4 0.5 0.7 78.5 TOTAL AVERAGE 49.3 19.2 15.9 2.87 2.59 2.24 0.5 1.0 2.0 95.3 Sources: Company, Bloomberg (consensus forecast) China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 5
Company Description GCL New Energy Hldg. Ltd. ( GNE ) is engaged in the development and operation of solar farms in China. Profit & Loss (Consolidated) FY-end 31 Dec (Rmb m) 2014 (Apr-Dec) (restated) 2015 Revenue 930 1,970 - Solar energy 1 688 - Printed circuit board 930 1,282 Cost of sales (855) (1,447) Gross profit 75 523 Other income (excl. Interest income) 66 251 Distribution and selling expenses (13) (17) Administrative expenses (147) (359) Share-based payment expenses (73) (136) Change in fair value of financial instruments 45 29 Impairment loss 0 (42) Bargain purchase from business combination 0 22 Other expenses, gains and losses, net (17) 53 Operating profit (63) 323 Interest income 1 27 Finance costs (15) (336) Results of associate(s) and JV(s) (1) 9 Profit before tax (77) 23 Taxation (12) (39) Profit after tax (89) (15) Minority interests 0 0 Net profit (89) (15) EBITDA 18 743 EBIT (62) 359 EPS (Rmb) (0.007) (0.001) DPS (Rmb) 0.000 0.000 Note: FY-end date was changed from 31 March to 31 December commencing from FY14 Cash Flow (Consolidated) FY-end 31 Dec (Rmb m) 2014 (Apr-Dec) (restated) 2015 Operating cash flow (395) 35 Net profit (89) (15) Depreciation & amortization 81 384 Change in working capital (435) (779) Others 49 446 Investment cash flow (2,570) (9,181) Net capex (2,096) (7,902) Others (474) (1,278) Free cash flow (1,656) (6,419) Financing cash flow 3,530 10,479 Change in share capital 1,874 0 Net change in debt 897 10,960 Dividend paid 0 0 Others 760 (481) Net cash flow 565 1,334 Balance Sheet (Consolidated) FY-end 31 Dec (Rmb m) 2014 (Apr-Dec) (restated) 2015 Total assets 7,864 23,502 Current assets 1,662 6,556 Cash and cash equivalents 598 1,965 Pledged bank and other deposits 439 825 Trade and other receivables 451 3,151 Other loan receivables 0 389 Inventories 138 167 Others 36 59 Non-current assets 6,202 16,947 Net fixed assets 5,269 14,194 Prepayments, deposits & other receivables 842 2,355 Others 90 398 Total liabilities 5,575 21,060 Current liabilities 4,008 12,858 ST borrowings 254 4,467 Bonds 0 360 Trade and other payables 2,874 7,100 Others 879 931 Non-current liabilities 1,568 8,202 LT borrowings 1,521 7,393 Convertible bonds 0 733 Others 46 76 Total equity 2,289 2,442 Shareholders' equity 2,288 2,441 Minorities 0 1 Total equity & liabilities 7,864 23,502 Net cash/(debt) (1,177) (10,988) Working capital (2,345) (6,303) Total capital employed 3,856 10,644 Shareholders' equity + Minorities 2,289 2,442 Net gearing (%) 51.4 450.1 Financial Summary FY-end 31 Dec 2014 (Apr-Dec) (restated) 2015 Growth (%) Revenue N/A N/A EBITDA N/A N/A EBIT N/A N/A Net profit N/A N/A EPS N/A N/A Margins (%) Gross 8.1 26.5 EBITDA 2.0 37.7 EBIT N/A 18.2 Net N/A N/A Others (%) Effective tax rate -15.9 166.3 Payout ratio N/A N/A RoCE N/A N/A Average RoE N/A N/A Average RoA N/A N/A Interest cover (x) N/A 1.1 China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 6
China Everbright Research Limited Rating System Buy Expected to outperform the benchmark index by >15% over the next six months Accumulate Expected to outperform the benchmark index by 5-15% over the next six months Hold Expected to outperform or underperform the benchmark index by <5% over the next six months Reduce Expected to underperform the benchmark index by 5-15% over the next six months Sell Expected to underperform the benchmark index by >15% over the next six months Analyst Certification The research analyst(s) primarily responsible for the preparation of this report hereby certify that (1) all of the views expressed in this report accurately reflect his or her or their personal views about the subject company or companies and its/theirs securities; (2) no part of his or her or their compensation was/were, is/are or will be directly or indirectly, related to the specific recommendations or views expressed in this report or any specific investment banking function; (3) he/she/they are not directly supervised by, and do not directly report to, investment banking functions; (4) he/she/they has/have not breached the quiet period restriction of dealing in the securities covered in this report; (5) he/she/they is/are not an officer and do(es) not hold any directorship in the company or companies this report covered. Disclosure Our firm does not have financial interests (including stock holding) that equal 1% or more of the market capitalization of the listed company under review at the date this report is published; does not have investment banking relationship with the listed company under review within the past 12 months; and does not have market-making activities in the stock. None of our staff is an officer of the listed company. Disclaimer This report has been prepared by China Everbright Research Ltd. China Everbright Research Ltd. does not guarantee, either expressed or implied, the completeness, reliability and accuracy of the materials contained in the report. This report has been prepared for general reference and no part of this report is to be constructed as an offer, invitation, advertisement or inducement whatsoever, or form to buy or sell any securities or financial instruments whether referred to herein or otherwise. Opinions in this report are subject to change by the original writer without notice. China Everbright Research Ltd. does not accept any liability whatsoever, directly, indirectly, consequential or incidental that may arise from the use of or reliance on the contents of this report. China Everbright Research Ltd. and its affiliates and their respective associates, directors, employees or officers may from time to time have long or short positions in securities, warrants, futures, options, derivatives or any other interests and/or underwriting commitments in the securities or financial instruments referred to in this report. Reports by China Everbright Research Ltd. do not have regard to the specific investment objectives, financial situation, risk tolerance or the particular needs of any investor. Before entering into any investment contract, individual should exercise judgment or seek for professional advice when necessary. The information contained herein is believed to be reliable. Its completeness and accuracy are, however, not guaranteed. All copyrights are reserved by China Everbright Research Ltd. This report or any part of its contents must not be reproduced in whole or in part without the prior written approval of China Everbright Research Ltd. China Everbright Research Ltd. is licensed by the Securities and Futures Commission (SFC) and is governed under the rules and regulations of the SFC and the Securities and Futures Ordinances and its subsidiary legislation. Address: 24/F., Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong. Contact No.: (852) 2106-8101 China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page