Results were well below what was expected
The Company's results for the year 2014 showed that its operating revenues registered RMB5.01 billion, up by 20% yoy; it recorded gross profit of RMB1.049 billion, up by 6.1% yoy with gross margin of 20.9% going down by 3 ppt from that in 2013. The profit attributable to its shareholders was RMB584 million, up by 19.1% yoy, with the earning per share of RMB0.84, which was much lower than expected.
Curtain wall business had a solid growth
The Company had a stable growth in the business of curtain wall and green buildings which reported the revenues of RMB1.67 billion, up by 21.9% yoy; it recorded a gross margin of 15.3%, down by 0.8 ppt yoy. Despite the current downturn of the property market, the Company underwent a fast growth in green building business. So it has identified green building as a business priority.
PV EPC projects delayed
The total revenue generated by PV EPC projects was RMB2.06 billion, up by 9.3% yoy. In 2014, only 240MW of EPC projects were completed, which was below what was expected on the market. The Company has set a target of 600MW for this year, with above-ground power plant and distributed power station accounting for 50% each. The business is expected to have a significant growth in this year and it is likely for on-grid electricity price to adjust downward two years later, like what happened to the wind power. The coming two years will witness the rushing installation of PV power plants and we are confident about the Company's growth of PV EPC construction scale.
New model helps drive profit margin
PV EPC projects has overall shown a declining gross margin. In case of Singyes Solar, its gross margin fell from 29.5% in 2013 to 26.7% in 2014. Therefore, the Company is introducing new model for EPC projects, i.e., in addition to the construction of PV power plants, it will also help investors look for projects, obtain travel permits and approval of relevant application documents. The management says that the new model is likely to bring their gross margin back to exceed 30%.
Increase the scale of self-owned power plants
Singyes Solar plans to scale up its own power plants in this year by completing the construction of up to 300MW power plants. By the end of 2014, the Company's installed capacity stood at 270MW. On one hand, the operation of its own power plants can provide the stable cash flow for its working capital. On the other hand, a low debt level can be achieved by selling its own power plants as well as afterwards helping the investors operate.
Valuation
National Energy Administration has adjusted this year's planned installation of PV capacity up to 17.8GW, of which 5GW was already completed by the end of Q1. Considering that there will be a upsurging installation of PV capacity in the next two years, the Company's EPC business is projected to double at least if construction goes well, plus the likely increase of orders. Coupled with the growth in green buildings, the operation of its own power plants and sales of new materials, it is expected that the Company's net profit can reach RMB790 million and RMB980 million respectively for the next two years. We set its target stock price at HK$14.25, equivalent to 10 times earnings in the fiscal year 2015. A ¡§Buy¡¨ rating is maintained.
Financials
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