Uncertain Domestic Demand in 2019, Maintain "Neutral"

Xinyi Solar (00968 HK) Clean Energy Sector Solar Equity Research 股票研究 : Xinyi Solar (00968 HK) 公司报告 : 信义光能 (00968 HK) Jun Zhu 朱俊杰 (852) 2509 7592 junjie.zhu@gtjas.com.hk Uncertain Domestic Demand in 2019, Maintain "Neutral" 2019 年的本土需求存不确定性, 维持 中性 公 司 报 告 证 券 研 究 报 告 清洁能源行业 太阳能 Equity Research Report The spinoff and separate listing of Xinyi Energy was called off in the very last minute. The Company announced on 20 th December 2018, one day before the scheduled IPO of Xinyi Energy, the discontinuation of the spinoff and separate listing of Xinyi Energy in view of continuing stock market volatility and increased market risks. No definite schedule for restarting the transaction was provided; we do not think it will be restarted any time soon. Newly installed solar capacity in China reached 44.3 GW in 2018, down YoY 16.6%. According to stats from the NEA, newly installed solar capacity in China went down 16.6% to reach 44.26 GW in 2018, pushing nationwide cumulative installed solar capacity to 174.5 GW at the end of 2018. In 2018, solar electricity generated nationwide hit 175.5 bn kwh, up YoY by around 50%, and national average solar utilization hours was 1,115 hours, representing an increase of 37 hours YoY. We have revised our earnings estimates based on more upbeat assumptions. We expect the Malaysia expansion to help Xinyi to cope with the low solar glass ASP for the period from 2018 to 2020, with a sharp rise in solar glass shipments despite low ASP. We expect solar glass gross margin to gradually recover from 2018 to 2020. Our revised EPS forecasts from 2018 to 2020 are HKD 0.267/ HKD 0.308/ HKD 0.346, respectively. We maintain the "Neutral" investment rating but raise our TP to HK$ 3.10. Our new TP corresponds to 11.6x / 10.0x / 9.0x FY18 to FY20 PER or 2.1x / 1.9x / 1.7x FY18 to FY20 PBR. 信义能源的分拆和独立上市在最后一刻被叫停 公司于 2018 年 12 月 20 日 ( 即信义能源 原定上市日期的前一天 ) 宣布, 鉴于股市持续的波动和市场风险的加大, 决定不继续进行 信义能源的分拆上市 目前公司没有给出重启信义能源分拆上市的具体时间表, 但我们认 为短期内不会再被重启 中国于 2018 年的新增太阳能发电装机容量达到 44.3 吉瓦, 同比下降 16.6% 据国家能源 局的统计,2018 年中国新增太阳能装机容量为 44.26 吉瓦, 下降 16.6% 截止 2018 年底 全国累计太阳能装机容量达到 174.5 吉瓦 全国于 2018 年的总太阳能发电量为 1,755 亿 千瓦时, 同比增长约 50%, 而全国平均太阳能利用小时数为 1,115 小时, 同比升 37 小时 我们在更为乐观的假设下调整了盈利预期 我们预计马来西亚的扩张将有助信义应对 2018 年至 2020 年期间的低光伏玻璃均价 尽管均价较低, 但太阳能玻璃出货量预计将大幅上 升 我们预计太阳能玻璃毛利率将从 2018 年到 2020 年逐步回升 我们对 2018 年至 2020 年的每股收益预测分别调整为 0.267 港元 / 0.308 港元 / 0.346 港元 我们维持 中性 的投资评级但上调目标价至 3.10 港元 我们的新目标价相当于 11.6 倍 / 10.0 倍 / 9.0 倍 2018 至 2020 年市盈率或 2.1 倍 / 1.9 倍 / 1.7 倍 2018 至 2020 年市净率 Rating: Neutral Maintained 评级 : 中性 ( 维持 ) 618m TP 目标价 : HK$3.10 Revised from 原目标价 : HK$2.60 Share price 股价 : Stock performance 股价表现 5.0 0.0 (5.0) (10.0) (15.0) (20.0) (25.0) (30.0) (35.0) (40.0) [Table_PriceChange] Change in Share Price 股价变动 % of return Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. Share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 Source: Bloomberg, Guotai Junan International. 3 M 3 个月 HK$3.300 (45.0) Feb18 May18 Aug18 Oct18 Jan19 HSI Xinyi Solar 1 Y 1 年 20.0 34.7 (5.8) 13.0 24.0 10.1 3.1 3.0 2.8 中信外义运光输能 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (HK$ m) (HK$ m) (HK$) ( %) (x) (HK$) (x) (HK$) (%) (%) 2016A 6,007 1,986 0.294 58.9 11.2 0.921 3.6 0.140 4.2 33.2 2017A 9,527 2,332 0.326 10.9 10.1 1.363 2.4 0.150 4.5 28.5 2018F 7,220 2,016 0.267 (18.1) 12.4 1.486 2.2 0.150 4.5 18.7 2019F 8,898 2,361 0.308 15.4 10.7 1.645 2.0 0.159 4.8 19.7 2020F 10,043 2,650 0.346 12.3 9.5 1.833 1.8 0.166 5.0 19.9 [Table_BaseData] Shares in issue (m) 总股数 (m) 7,659.7 Major shareholder 大股东 Lee, YinYee 34.0% Market cap. (HK$ m) 市值 (HK$ m) 25,277.0 Free float (%) 自由流通比率 (%) 36.0 3 month average vol. 3 个月平均成交股数 ( 000) 18,922.6 FY19 Net gearing (%) FY19 净负债 / 股东资金 (%) 34.0 52 Weeks high/low (HK$) 52 周高 / 低 (HK$) 3.572 / 2.030 FY19 EV / EBITDA (x) FY19 企业值 / EBITDA (x) 6.8 See the last page for disclaimer Page 1 of 7

Xinyi Solar decided not to proceed with the spinoff and separate listing of Xinyi Energy in the very last minute. The Company announced on 20 th December 2018, one day before the scheduled IPO of Xinyi Energy, the discontinuation of the spinoff and separate listing of Xinyi Energy in view of continuing stock market volatility and increased market risks. The management guided that it will continue to monitor the market conditions and other conditions to assess the appropriate window for the proposed spinoff of and separate listing of Xinyi Energy in the future. No definite schedule for restarting the IPO was provided; we do not believe it will be restarted any time soon. Originally, Xinyi Energy, being the subsidiary of Xinyi Solar that operates the solar farm assets, intended to offer an aggregate of 1,880 million shares, representing 28.4% of the enlarged number of shares in issue, at an indicative offer price range of between HKD 1.89 and HKD 2.42 per share, implying market capitalization of between HKD 12.52 bn and HKD 16.0 bn. The implied valuation of Xinyi Energy ranges between 11.4x and 14.5x 2018 PER. With an initial portfolio of 9 solar projects, Xinyi Energy intended to use the IPO proceeds to acquire 6 solar projects from Xinyi Solar. Upon completion of the IPO, Xinyi Energy would own and operate 15 solar projects with an aggregate installed and gridconnected capacity of 1,494 MW. However, the spinoff would automatically mean 28.4% earnings dilution over the approximate HKD 1.1 bn in net earnings generated by 1,494 MW of solar farm assets held by Xinyi Solar (or approximately HKD 310 mn in earnings dilution to be exact). It is important to note that the valuation of Xinyi Energy was substantially higher than all the solar power IPP and wind power IPP comparables listed in the HK market, and we believe its high valuation could be the one of the key reasons behind the decision of not to proceed with the spinoff and separate listing aside from the increased market volatility indicated by the Company. As solar glass ASP dropped substantially in 2018 (more than 20% on a YoY basis) without a clear sign that demand on solar glass will increase in 2019, postponing the Xinyi Energy IPO could be the right choice for now. In our view, not proceeding with the separate listing at this moment is in the interest of Xinyi Solar and of its common shareholders. Newly installed solar capacity in China in 2018 reached 44.3 GW, down YoY 16.6%. According to a recent press release from the NEA of China, newly installed solar capacity in China in 2018 reached 44.26 GW, down YoY by 16.6% from the 53.1 GW installed in 2017 as a result of the 531 PV New Policy promulgated in 2018. In which, concentrated solar farm and distributed solar systems contributed 23.3 GW (30.7% YoY) and 20.96 GW (+7.8% YoY) of new solar installations in 2018, respectively. By the end of 2018, nationwide cumulative installed solar capacity hit 174.5 GW, up 33.9% YoY. In which, concentrated solar farms and distributed solar systems made up 123.84 GW and 50.61 GW of cumulative installed solar capacity in China, respectively. In 2018, solar electricity generated nationwide reached 175.5 bn kwh, up YoY by around 50%, and national average solar utilization hours was 1,115 hours, representing a YoY increase of 37 hours. Regions with high average utilization hours include Western Inner Mongolia (1,617 hours), Eastern Inner Mongolia (1,523 hours), Qinghai (1,460 hours) and Sichuan (1,439 hours). Solar grid curtailment rate in 2018 went down by 2.8 ppts or a decrease of 1.8 bn kwh of solar electricity. Grid curtailment for solar energy in China is mainly concentrated in Xinjiang and Gansu provinces, with respective grid curtailment rate of 16% (6 ppts YoY) and 10% (10 ppts YoY). We expect no less than 40 GW per year of new solar installations in the domestic market in 2019 and 2020. The new notice recently promulgated by the NDRC and NEA reaffirms China s determination to further invest in renewable energies over the next few years. The NDRC and NEA of China announced on 9 th January the notice on actively promoting work related to wind power and solar power generation gridparity projects (gridparity projects do not require government subsidies) or 关于积极推进风电 光伏发电无补贴平价上网有关工作的通知. With the fast development of wind power and solar power and technological breakthroughs in recent years, wind and solar projects that are located in wind/ sun resourcerich regions with low construction costs and that are located in regions with good market environment have basically achieved the same competitiveness and cost level (i.e. grid parity) as coalfired power projects. We think the notice is a strong boost in confidence for the solar industry in China, especially following the impact of the 531 PV New Policy promulgated in 2018. The notice reassures China s determination to continue its development on renewable energies in the remaining two years of 13 th Five Year Plan. Meanwhile, the notice also confirmed China s decision to get rid of all subsidies for all new renewable projects (subsidies used to be very strong incentives for new energy investments in China). The process to get rid of all subsidies for renewable energy projects will be accelerated following the announcement of this notice. Further, grid parity solar projects are expected to be seen gradually across China, and continued decline in per kwh cost is an important precondition to the realization of grid parity. Although investment in new solar projects is expected to increase, solar material price might continue to plunge and further weaken the profitability of solar material producers. Moving forward, earnings growth for solar material producers is expected to mainly come from a sharp increase in shipment volume and not high product margin. The notice has brought some excitement to the market, but we think the turning point for the solar industry hasn t arrived yet. We expect the turning point to be in 2H2019, when solar materials price ceases to fall and when global new installations growth becomes more definite. Investors are advised to pay attention to solar materials price and global solar installations statistics. See the last page for disclaimer Page 2 of 7

GW It s important to note that the early arrival of solar grid parity in China could mean a weakening in project return for newly built solar projects in the country and might lead to solar energy investment decline in the domestic market. We have revised our earnings forecasts from 2018 to 2020 under more upbeat assumptions. We expect solar glass ASP to remain low all the way to 2020 and to average at RMB 24.0 per sq.m. from 2018 to 2020 or RMB 24.1 per sq.m./ RMB 23.7 per sq.m./ RMB 24.3 per sq.m. from 2018 to 2020, respectively. Leveraging on better operating efficiency of more advanced and bigger production facilities as well as lower raw materials costs in Malaysia, we expect the gross margin of solar glass segment to continue to recover from 30.2% recorded in 2017 to 31.1%/ 35.5%/ 35.8% from 2018 to 2020, respectively. We expect gross margin of solar farms and solar EPC to remain stable, averaging at 25.7% and 74.2% from 2018 to 2020, respectively. By the end of 2018/ 2019/ 2020, we expect daily melting solar glass capacity to reach 7,800 tons/ 8,800 tons/ 9,800 tons, respectively, while solar farm capacity is expected to hit 2,184 MW/ 2,384 MW/ 2,584 MW, respectively. With the sharp ramp up in production capacity and the increased efficiency brought by the bigger and more advanced production facilities launched in Malaysia, the profitability of the solar glass segment is poised to recover to above 30% of gross margin over next few years. Meanwhile, the cancellation of the spinoff and separate listing of Xinyi Energy has eased earnings dilution pressure of Xinyi Solar and we think the decision is in the interest of both Xinyi Solar and of its shareholders. We have adjusted our earnings forecasts from 2018 to 2020 based on the above assumptions. Our revised EPS forecasts for the period from FY18 to FY20 are HKD 0.267, HKD 0.308 and HKD 0.346, respectively. Maintain the "Neutral" investment rating and raise the TP to HK$ 3.10. As the ASP of solar glass is expected to remain low from 2018 to 2020 as a result of solar energy gridparity efforts in China and increased market competition, we expect the profitability of the solar glass segment to remain stable at around 34% thanks to the Malaysia expansion. Meanwhile, we also expect Xinyi s solar glass shipments to grow rapidly over next few years as a result of the Company s Malaysia strategy, which is set to add 1,000 tons per day of new solar glass capacity per annum from 2018 to 2020. We believe the Malaysia expansion is a critical step on Xinyi s globalization strategy. Although bullish on the longterm prospect of the solar industry, we believe there are still uncertainties in the solar industry as well as in the market at the moment, and a turning point for the solar industry has not yet arrived. Key risks in the shortterm period would be the uncertain domestic solar materials demand in 2019 (only around 20 GW of solar systems were added in China in 2H2018, down 17.7% from the 24.3GW added in 1H2018) as well as the ASP of the solar glass for the period. We thus maintain the "Neutral" investment rating but raise our TP to HK$ 3.10. Our new TP corresponds to 11.6x/ 10.0x/ 9.0x FY18 to FY20 PER or 2.1x/ 1.9x/ 1.7x FY18 to FY20 PBR, respectively. Figure1: Historical Cumulative Solar Capacity in China Figure2: Solar Energy Structure in China in 2018 300 Concentrated PV Distributed PV 267.6 250 200 174.5 50.6 150 130.3 100 77.4 50 0 35.8 28.1 19.4 3.3 6.5 2011 2012 2013 2014 2015 2016 2017 2018 2020E 123.8 Unit: GW. Source: NEA, Guotai Junan International. Source: NEA, Guotai Junan International. See the last page for disclaimer Page 3 of 7

MW Tons per day (tpd) HKD mn HKD mn GW Figure3: Annual New Solar Installations in China by Type, 2012 2018 60 Concentrated Solar Farm Distributed Solar System 53.1 50 44.3 40 34.5 19.4 30 4.2 21.0 20 10 0 15.1 12.9 33.6 10.6 1.4 30.3 0.8 23.3 2.1 3.5 12.1 13.7 8.6 3.5 2012 2013 2014 2015 2016 2017 2018 Source: NEA, Guotai Junan International. Figure4: Historical & Forecast Revenue Figure5: Revenue Breakdown by Segment 1 Revenues YoY Growth 240% 1 Solar glass Solar EPC Solar Farm 10,000 9,527 8,898 10,043 190% 10,000 1,474 2,303 8,000 6,000 4,000 6,007 26.5% 58.6% 7,220 24.2% 23.2% 12.9% 140% 90% 40% 10% 8,000 6,000 4,000 1,050 681 4,276 2,307 5,746 2,123 219 4,877 2,245 275 6,378 234 7,507 2016A 2017A 2018E 2019E 2020E 60% 2016A 2017A 2018E 2019E 2020E Figure6: Historical & Forecast Solar Farm Capacity Figure7: Historical & Forecast Solar Glass Capacity 3,000 1 2,500 1,500 1,647 1,972 2,184 2,384 2,584 10,000 8,000 6,000 5,800 6,300 7,800 8,800 9,800 1,000 4,000 500 2016A 2017A 2018E 2019E 2019E 2016A 2017A 2018E 2019E 2020E See the last page for disclaimer Page 4 of 7

Figure8: Forward PER of Xinyi Solar Figure9: Forward PBR of Xinyi Solar 12x 11x 10x 9x 8x 7x 6x 5x Min: 5.2x Average: 7.2x Max: 12.8x PER Average 4x 0316 0916 0317 0917 0318 0918 0319 2x Min: 1.3x Average: 1.7x Max: 2.5x PBR Average 1x 0316 0916 0317 0917 0318 0918 0319 Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International. Table1: Peers Comparison Company Stock Code Currency Last price PER PBR ROE (%) EV/EBITDA(x) Market Cap (in local $) 17A 18F 19F 20F 17A 18F 19F 20F 18F 18F HKD mn Polysilicon & Wafer Comtec Solar Systems Group 00712 HK HKD 0.08 n.a. n.a. n.a. n.a. 0.6 n.a. n.a. n.a. n.a. n.a. 170 Daqo New Energy CorpAdr DQ US USD 36.93 4.2 7.9 6.5 4.3 1.0 0.8 0.7 0.6 10.7 4.9 3,725 GclPoly Energy Holdings Ltd 03800 HK HKD 0.56 4.5 62.2 12.4 7.9 0.4 0.4 0.4 0.4 1.0 7.9 10,265 Oci Co Ltd 010060 KS KRW 107,500.00 10.9 18.3 23.5 10.6 0.8 0.7 0.7 0.7 4.2 6.3 18,171 Rec Silicon Asa REC NO NOK 0.56 n.a. n.a. n.a. 51.3 0.4 1.6 1.8 1.9 (178.7) n.a. 1,339 TBEA Co Ltd 600089 CH CNY 7.12 11.7 11.5 10.4 8.9 0.9 0.8 0.8 0.7 7.5 7.5 30,876 Wacker Chemie Ag WCH GR EUR 91.14 5.2 18.3 15.7 14.6 1.5 1.4 1.4 1.3 10.5 5.2 42,835 Xinte Energy 1799 HK HKD 6.10 5.2 4.7 4.1 3.4 0.6 0.5 0.5 0.4 11.5 n.a. 6,375 Xian Longi Silicon MateriaA 601012 CH CNY 22.52 17.4 20.9 17.7 15.2 4.4 3.7 3.1 2.6 15.7 16.4 73,373 Simple Average 8.5 20.6 12.9 14.5 1.2 1.3 1.2 1.1 (14.7) 8.0 Weighted Average 11.6 20.0 15.6 12.8 2.4 2.0 1.8 1.6 9.6 10.4 Cell & Module Canadian Solar Inc CSIQ US USD 13.48 7.9 9.0 9.1 8.7 0.8 0.8 0.7 0.7 10.4 6.9 6,198 Hanwha Q Cells Co. HQCL US USD 6.36 n.a. 11.4 23.6 n.a. 1.2 n.a. n.a. n.a. 9.2 n.a. 4,156 Ja Solar Holdings Co LtdAdr JASO US USD 7.49 7.9 n.a. n.a. n.a. 0.3 1.7 1.9 n.a. 1.4 3.7 2,798 Jinkosolar Holding CoAdr JKS US USD 13.87 21.3 18.4 35.7 30.4 0.4 0.5 0.5 0.4 4.8 5.8 4,258 Renesola LtdAdr SOL US USD 2.41 1.7 60.3 20.1 n.a. 10.1 n.a. n.a. n.a. 2.4 n.a. 720 Simple Average 9.7 24.8 22.1 19.5 2.6 1.0 1.0 0.5 5.6 5.5 Weighted Average 11.7 14.7 20.9 17.5 1.1 0.9 0.9 0.6 7.1 5.9 Solar Glass Ancai HiTech 600207 CH CNY 4.17 n.a. n.a. n.a. n.a. 1.9 n.a. n.a. n.a. n.a. n.a. 4,201 AVIC Sanxin 002163 CH CNY 4.87 n.a. n.a. n.a. n.a. 5.5 n.a. n.a. n.a. n.a. n.a. 4,569 Changzhou Almaden 002623 CH CNY 16.16 n.a. 24.5 49.0 n.a. 1.2 n.a. n.a. n.a. n.a. n.a. 3,019 CSG Holdings 200012 CH HKD 2.52 7.2 8.5 7.0 5.3 0.7 0.6 0.6 0.5 8.8 n.a. 11,658 Flat Glass 06865 HK HKD 2.62 2.4 11.1 7.9 6.8 0.3 1.2 1.1 0.9 10.7 n.a. 4,716 Xinyi Solar Holdings 00968 HK HKD 3.30 10.1 12.4 11.1 9.5 2.2 2.1 1.9 1.7 17.6 10.1 25,277 Simple Average 6.6 14.1 18.8 7.2 2.0 1.3 1.2 1.1 12.4 10.1 Weighted Average 8.4 12.1 12.3 8.0 1.9 1.6 1.4 1.3 14.4 10.1 Solar System Operator Gcl New Energy Holdings Ltd 00451 HK HKD 0.30 5.8 6.4 5.3 4.8 0.6 0.6 0.6 0.5 10.6 8.4 5,627 Jiangsu Akcome Science & TA 002610 CH CNY 1.63 65.2 n.a. n.a. n.a. 1.3 n.a. n.a. n.a. n.a. n.a. 8,544 Kong Sun Holdings 00295 HK HKD 0.13 13.9 n.a. n.a. n.a. 0.2 n.a. n.a. n.a. n.a. n.a. 1,915 Shunfeng International Clean 01165 HK HKD 0.52 n.a. n.a. n.a. n.a. 0.5 n.a. n.a. n.a. n.a. n.a. 2,591 Panda Green Energy 00686 HK HKD 0.38 17.0 n.a. n.a. n.a. 0.4 n.a. n.a. n.a. n.a. n.a. 3,574 Simple Average 25.5 6.4 5.3 4.8 0.6 0.6 0.6 0.5 10.6 8.4 Weighted Average 34.4 6.4 5.3 4.8 0.8 0.6 0.6 0.5 10.6 8.4 Source: Bloomberg, Guotai Junan International. Updated as of January 31 st 2019. See the last page for disclaimer Page 5 of 7

Financial Statements and Ratios Income Statement Balance Sheet Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F Total Revenue 6,007 9,527 7,220 8,898 10,043 COGS (3,257) (6,122) (4,072) (4,888) (5,589) Gross profit 2,750 3,405 3,148 4,010 4,455 Selling expense (164) (239) (255) (299) (348) Admin expense (321) (433) (408) (479) (557) Other income 176 181 190 209 230 Other gains / expenses 8 0 0 0 0 Operating Profit 2,448 2,914 2,676 3,441 3,779 Share of JV / affiliate 37 40 44 48 53 Net finance costs (95) (165) (210) (217) (164) Profit Before Tax 2,390 2,789 2,509 3,272 3,669 Income Tax (241) (265) (234) (340) (414) Profit After Tax 2,150 2,524 2,276 2,933 3,254 Noncontrolling Interest (164) (192) (260) (572) (604) Shareholders' Profit / Loss 1,986 2,332 2,016 2,361 2,650 Basic EPS (HK$) 0.294 0.326 0.267 0.308 0.346 DPS (HK$) 0.140 0.150 0.150 0.159 0.166 Cash Flow Statement Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F Net income 1,986 2,332 2,016 2,361 2,650 D&A 400 549 797 1,235 1,914 Change in working capital (1,333) (1,868) 1,533 (368) 285 Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F PPE 11,079 14,240 15,302 15,895 15,807 Prepaid expense 384 261 326 408 510 Land use rights 327 344 464 614 764 Others 393 456 495 537 583 Total Noncurrent Assets 12,182 15,301 16,587 17,453 17,663 Cash & Cash Equivalents 843 1,381 2,166 2,936 3,314 Inventories 288 374 292 361 385 Trade receivable 2,020 4,167 3,249 4,182 4,821 Others 1,452 1,545 1,494 2,256 2,846 Total Current Assets 4,604 7,467 7,201 9,735 11,366 Total Assets 16,786 22,767 23,788 27,188 29,029 Shortterm debts 1,952 3,145 1,218 2,233 1,283 Trade payable 873 888 611 978 1,118 Accruals and other payables 1,666 2,053 2,771 3,741 5,051 Others 100 155 195 254 342 Total Current Liabilities 4,591 6,241 4,796 7,206 7,793 Longterm debts 4,714 4,787 5,787 4,987 4,187 Deferred tax liabilities 0 0 0 0 0 Others 54 59 0 0 0 Total Noncurrent Liabilities 4,767 4,846 5,787 4,987 4,187 Total Liabilities 9,359 11,087 10,583 12,194 11,981 Total Shareholders' Equity 6,216 10,121 11,385 12,604 14,053 Minority Interest 1,212 1,559 1,819 2,391 2,995 Total Equity 7,428 11,680 13,204 14,995 17,048 BPS (HK$) 0.921 1.363 1.486 1.645 1.833 Others (372) 285 98 448 457 Cash from Operating Activities 681 1,298 4,444 3,676 5,305 Investing activities Capital expenditure (4,810) (2,511) () () () [Table_FinancialRatio] Financial Ratios 2016A 2017A 2018F 2019F 2020F Proceeds from disposal 2 0 21 23 24 Others (89) 21 66 52 54 Cash from Investing Activities (4,897) (2,490) (1,912) (1,925) (1,922) Financing activities Debt raised / (repaid) 3,076 1,267 (927) 215 (1,750) Dividend paid (844) (999) (1,262) (1,146) (1,215) Capital injection from minority 0 0 0 0 0 Placement proceeds 0 1,512 481 8 8 Others 0 (76) (38) (57) (48) Cash from Financing Activities 2,232 1,703 (1,746) (980) (3,005) Net Changes in Cash (1,984) 511 785 770 378 Adjustments (42) 26 0 0 0 Cash at Beg of Year 2,869 843 1,381 2,166 2,936 Gross margin 45.8% 35.7% 43.6% 45.1% 44.4% EBIT margin 40.8% 30.6% 37.1% 38.7% 37.6% EBITDA margin 47.4% 36.4% 48.1% 52.5% 56.7% Net margin 33.1% 24.5% 27.9% 26.5% 26.4% ROE 33.2% 28.5% 18.7% 19.7% 19.9% ROA 13.5% 11.8% 8.7% 9.3% 9.4% Net gearing 93.7% 64.7% 42.5% 34.0% 15.3% Inventory turnover(day) 32.3 22.3 26.2 26.9 25.1 AR turnover (day) 122.8 159.6 164.3 171.6 175.2 AP turnover (day) 97.8 52.9 54.8 73.0 73.0 EV/EBITDA (x) 11.3 9.6 9.2 6.8 5.3 Quick ratio (x) 0.9 1.1 1.4 1.3 1.4 Current ratio (x) 1.0 1.2 1.5 1.4 1.5 Cash at End of Year 843 1,381 2,166 2,936 3,314 See the last page for disclaimer Page 6 of 7

[Table_CompanyRatingDefinition] Company Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is 5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is unfavorable. Sell 卖出 Relative Performance <15%; or the fundamental outlook of the company or sector is unfavorable. [Table_IndustryRatingDefinition] Sector Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is 5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<5%; Or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886 HK),VALUE A SHARE (03095 HK),CSOP MSCI (03149 HK),CAM SCSMALLCAP (03157 HK),HAITIANTIAN (08227 HK),CSOP MSCIR (CNY) (83149 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forwardlooking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. 2019 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) 25099118 Fax: (852) 25097793 Website: www.gtja.com.hk See the last page for disclaimer Page 7 of 7