September February 27, 1, 2015 2016 China Singyes Solar Technologies [0750.HK] Outlook improving but positives largely priced in after recent share price rally Singyes s 1H16 earnings growth of 42% YoY was driven mainly by one-off items, and the core profit was -1% YoY based on our calculations. That said, we see some positive factors after attending the analyst meeting: (1) Singyes is confident of achieving 420MW of solar EPC volume in 2016E and will start construction of 500MW in 2017E, up significantly from 183MW in 2015; (2) Singyes is making good progress on selling its existing solar farm projects located in Gansu and Xinjiang (110MW), as well as some projects in Guangdong, which will help improve its cash flow; and (3) a solid backlog will help support the curtain wall business. We raised our 2016E/2017E core earnings forecast to RMB360m/373m from RMB190m/201m after fully modelling the company s targets. We raised our TP from HK$2.75 to HK$4.80, based on 8.8x 2016E PER (historical average). However, we maintain our HOLD rating, as we believe the recent strong share price rally already factored in most of the positives. 1H16 earnings driven mainly by one-off gains. The reported net profit of RMB316m included two major items: (1) RMB145m of non-cash pre-tax gains on the disposal of the 50MW Golden Sun project in June; and (2) RMB43m of fairvalue gains on CBs. Adjusting for the above items and other one-off items, we calculated the core net profit to be RMB176m (-1% YoY). Recovery of solar EPC volume. Singyes completed 170MW of solar EPC volume in 1H16 (+42% YoY), with an ASP of RMB7.4/watt (-14% YoY, largely due to the replacement of business tax with VAT). Currently, projects under construction are 200MW, which must be completed by year end according to the contract terms. This, coupled with another new project of 50MW, will take the EPC volume to 250MW in 2H16E, implying 420MW for the full year. Singyes s construction target for 2017E is 500MW, with a focus on top-runner projects and distributive generation projects. Aims to gradually cash out from solar farm projects to reduce gearing. As at end-june, Singyes owned 195.5MW of on-grid solar farm projects (Gansu and Xinjiang: 110MW; Guangdong: 42MW; Golden Sun projects: 43.5MW). Between July and August, a 30MW project in Guangdong and a 10MW project in Hebei were connected to the grid. Including other projects under development, the total solar farm scale could reach 397.9MW. Singyes is making good progress in selling 110MW in Gansu and Xinjiang this year. We have modelled a selling price of RMB8/watt, largely the same as the projects construction cost. We estimate this will help reduce the net debt-to-equity ratio to 40% by year-end from 67% in June. On the other hand, Singyes intends to sell more solar farms in Guangdong, through introducing an investment trust. This will help further improve cash flow and reduce gearing. Solid backlog for curtain wall business. Revenue from its curtain wall business increased 27% YoY to RMB765m in 1H16. We expect the revenue in 2H16E to be largely similar to that in 1H16. Currently, the total backlog is ~RMB1.79bn, including RMB1bn in Mainland China, RMB500m in Hong Kong, RMB200m in Australia, RMB40m in Macau and RMB50m in Malaysia. Upside risk: Better-than-expected solar EPC business. Downside risks: (1) Government policy changes; (2) extended receivables; (3) refinancing risk; (4) reduced margins for solar EPC. Solar Power Sector HOLD BUY (Unchanged) Close: Close: HK$4.29 HK$xxx (August (Feb 26, 31, 2015) 2016) Target Target Price: Price: HK$4.80 HK$xx (+xx%) (+12%) Share Price Performance Market Cap US$461m US$xxxm Shares Outstanding 696m 834m Auditor Ernst & Young Free Float 63% xx% 52W range HK$2.460-7.447 HK$xxxxxx 3M average daily T/O US$xxxm US$5.3m Major Shareholding Liu Liu Hongwei (36.7%) (35%) Wayne Fung, CFA Analyst (852) 3698-6319 waynefung@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) 3698-6317 cmwong@chinastock.com.hk 1
Figure 1: Singyes 1H16 revenue and gross profit breakdown (RMB m) 1H15 1H16 Chg YoY Revenue breakdown Curtain wall and green building Public work 192 110-42.9% Commercial and industrial 327 438 34.1% High-end residential 85 217 153.8% Sub-total 605 765 26.5% Gross profit 96 121 26.3% Gross margin 15.9% 15.9% Solar EPC Public work 0 1 350.0% Commercial and industrial 1,033 1,263 22.2% High-end residential buildings 0 0 n/a Sub-total 1,034 1,263 22.2% Gross profit 296 331 11.6% Gross margin 28.7% 26.2% Sale of goods Curtain wall materials 50 236 372.5% Renewable energy goods 441 387-12.4% New material business 23 33 47.1% Sub-total 514 655 27.6% Gross profit Curtain wall materials 9 38 348.2% Renewable energy goods 97 67-30.8% New material business 7 14 104.5% Sub-total 112 119 5.8% Gross margin Curtain wall materials 17.0% 16.2% Renewable energy goods 22.1% 17.4% New material business 29.3% 40.8% Average gross margin 21.9% 18.1% Sale of electricity Revenue 45 69 53.5% Gross profit 22 38 72.1% Gross margin 49.7% 55.7% Rendering of design and other services Revenue 5 4-29.4% Gross profit 5 4-29.4% Gross margin 100.0% 100.0% Sources: Company, CGIS Research 2
Oct-09 Feb-10 May-10 Aug-10 Nov-10 Mar-11 Jun-11 Sep-11 Dec-11 Apr-12 Jul-12 Oct-12 Jan-13 May-13 Aug-13 Nov-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-15 Jul-15 Oct-15 Jan-16 May-16 Aug-16 Figure 2: Singyes 1H16 results highlights Income Statement (RMBm) 1H15 1H16 Chg YoY Revenue 2,201 2,756 25.2% Cost of sales (1,669) (2,143) 28.4% Gross profit 532 613 15.2% Gross margin 24.2% 22.2% Other income and gains 115 234 103.6% Selling & distribution expenses (46) (60) 31.6% Administrative expenses (158) (173) 9.3% Others (8) (6) -17.1% EBIT 436 608 39.5% EBIT margin 19.8% 22.1% D&A 64 77 21.2% EBITDA 500 685 37.1% EBITDA margin 22.7% 24.9% Share of profit/(loss) of associates 0 (17) n/a Finance expenses (152) (190) 24.7% Pretax Profit 284 401 41.4% Income tax expenses (61) (76) 24.8% After tax profit 223 326 45.9% MI 0 (10) n/a Net profit 223 316 41.5% Recurring net profit 177 176-0.9% Net margin 10.1% 11.5% Recurring net margin 8.0% 6.4% Note: The recurring net profit figures are adjusted for the one-off gains on disposals, noncash deferred income, non-cash CB interest expenses and fair value change. Sources: Company, CGIS Research Figure 3: Singyes solar EPC volume Figure 4: Singyes PER band 600 500 400 300 200 100 0 500 420 250 240 183 120 50 2011 2012 2013 2014 2015 2016E 2017E EPC completed for the year (MW) HKD 20 18 16 14 27x 12 21x 10 8 15x 6 9x 4 2 3x 0 Sources: Company, CGIS Research estimates Note: The EPS is on recurring basis 3
Earnings projection (RMB m) 2013 2014 2015 2016E 2017E (RMB m) 2013 2014 2015 2016E 2017E Income statement Cash flow statement Revenue 4,151 5,043 4,239 6,260 6,818 Operating activities Curtain wall and green building 1,371 1,671 1,281 1,537 1,567 Pretax profit 627 699 447 600 474 Solar EPC 1,889 2,064 1,468 3,024 3,400 Depreciation 64 111 134 111 115 Sales of goods 879 1,247 1,365 1,520 1,629 Amortization of prepaid land lease payments 2 2 2 2 2 Sales of electricity 5 51 118 164 211 Amortization of intangible assets 1 1 1 1 1 Rendering of design & other services 6 10 8 15 11 Interest income (7) (24) (45) (14) (15) COGS (3,162) (3,962) (3,298) (4,886) (5,361) Finance costs 111 238 317 345 314 Gross profit 988 1,081 942 1,374 1,457 Share of profit/(loss) of associates 0 0 6 1 (0) Curtain wall and green building 220 256 177 223 219 Change in working capital 76 (766) (1,267) (762) 159 Solar EPC 557 550 397 764 815 Income tax paid (104) (141) (97) (114) (90) Sales of goods 209 237 312 280 294 Others (19) (176) (193) 0 0 Sales of electricity 0 30 49 92 118 Operating cash flow 751 (56) (694) 170 960 Rendering of design & other services 3 8 7 15 11 Other income 77 202 336 268 67 Investing activities Selling & distribution expenses (76) (89) (108) (175) (191) Net capex on PP&E (1,312) (1,084) (374) 580 (100) Administrative expenses (219) (271) (386) (488) (511) Purchase of intangible assets (0) (1) (3) 0 0 Other expenses (34) 14 (13) (31) (34) Investment in associates 0 0 (1) (3) (10) EBIT 737 937 770 946 788 Interest received 7 11 18 14 15 D&A 67 114 138 115 118 Dividend received from associates 0 0 0 0 0 EBITDA 805 1,051 908 1,061 906 Others 246 (95) 216 (10) (10) Share of profit/(loss) of associates 0 0 (6) (1) 0 Investing cash flow (1,059) (1,169) (144) 581 (105) Finance expenses (111) (238) (317) (345) (314) Pretax Profit 627 699 447 600 474 Financing activities Tax expenses (136) (114) (90) (114) (90) Proceed from/(repayment of) borrowings 344 1,417 1,400 850 (1,490) After tax profit 491 585 357 486 384 Proceed from equity 256 0 0 306 0 MI (0) (1) (1) (15) (12) Dividends paid (37) (49) (49) (17) 0 Net Income 491 584 356 472 373 Interest paid (99) (159) (245) (345) (314) Recurring net profit 491 504 208 360 373 Others 41 19 97 0 0 Reported EPS 0.75 0.84 0.51 0.62 0.45 Financing cash flow 507 1,229 1,203 793 (1,804) Recurring EPS 0.75 0.73 0.30 0.47 0.45 Net Changes in Cash 198 3 365 1,545 (949) (RMB m) 2013 2014 2015 2016E 2017E Balance sheet Non-current assets 2013 2014 2015 2016E 2017E PP&E 2,680 3,455 3,835 3,144 3,129 Valuation Prepaid land lease payment 95 98 96 104 112 PER (recurring earnings) (x) 4.5 4.7 12.1 7.9 8.3 Intangible assets 2 2 3 2 1 Dividend yield 2.2% 2.1% 0.7% 0.0% 0.6% Investment in associates 0 0 (5) (2) 8 PBR (x) 0.9 0.8 0.7 0.7 0.7 Others 58 238 111 113 123 EV/EBITDA (x) 6.2 4.7 5.5 4.7 5.5 Total non-current assets 2,834 3,792 4,045 3,363 3,365 Growth rate Revenue 34% 22% -16% 48% 9% Current assets EBIT 45% 27% -18% 23% -17% Inventories 77 115 93 228 124 EBITDA 43% 31% -14% 17% -15% Construction contracts 118 284 927 1,326 719 Recurring net profit 49% 3% -59% 73% 3% Trade and bill receivables 1,801 2,161 2,292 3,539 2,999 Recurring EPS 44% -3% -59% 58% -5% Others 230 455 652 1,100 1,081 Operating ratios Pledged deposits 347 500 376 376 376 Gross margin 24% 21% 22% 22% 21% Cash 895 901 1,265 2,810 1,861 Curtain wall and green building 16% 15% 14% 15% 14% Total current assets 3,467 4,417 5,607 9,380 7,161 Solar EPC 29% 27% 27% 25% 24% Sales of goods 24% 19% 23% 18% 18% Total assets 6,301 8,209 9,652 12,743 10,526 Sales of electricity 4% 58% 42% 56% 56% Rendering of design & other services 43% 77% 81% 100% 100% Current liabilities EBIT margin 18% 19% 18% 15% 12% Trade and bill payables 1,293 1,284 904 2,309 1,215 EBITDA margin 19% 21% 21% 17% 13% Other payables and accruals 183 314 331 391 374 Recurring net margin 12% 10% 5% 6% 5% Interest-bearing bank and other borrowings 870 988 1,041 1,091 1,091 Asset turnover 0.8 0.7 0.5 0.6 0.6 Income tax payable 33 18 13 13 13 Adjusted ROE 22% 18% 6% 9% 9% Others 0 187 252 252 252 Adjusted ROA 9% 7% 2% 3% 3% Total current liabilities 2,378 2,791 2,540 4,056 2,945 Interest coverage 7.3 4.4 2.9 3.1 2.9 Net debt/equity 12% 43% 68% 40% 25% Non-current liabilities Current ratio 1.5 1.6 2.2 2.3 2.4 Interest-bearing bank and other borrowings 681 1,751 2,986 3,786 2,296 Quick ratio 0.9 1.1 1.6 1.5 1.7 Deferred tax liabilities 87 87 87 87 87 Days inventories 8 9 11 12 12 Deferred income 555 439 538 538 538 Days receivables 136 143 192 170 175 Total non-current liabilities 1,323 2,277 3,611 4,411 2,921 Days payables 104 119 121 120 120 Equity Issued capital 46 46 46 46 46 Reserves 2,553 3,094 3,378 4,139 4,511 2,599 3,140 3,425 4,185 4,558 MI 0 1 77 91 103 Total equity 2,599 3,141 3,501 4,276 4,660 Total equity and liabilities 6,301 8,209 9,652 12,743 10,526 BVPS (RMB) 3.8 4.5 4.9 5.0 5.5 Sources: Company, CGIS Research estimates 4
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Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >20% within 12 months in absolute terms share price will decrease by >20% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888. 5