Substantial Growth in 2015
Xinyi Solar realized revenue of HKD4.75 billion in 2015, representing an increase of 97.1% compared to 2014. The revenue of photovoltaic glass products grew to HKD3.91 billion with an increase of 64.4%, mainly because of: i) thanks to the rise of downstream demands, Chinese photovoltaic glass market grew strongly in 2015; and ii) The newly increased capacity of the second half of 2014 had comprehensive and efficient operations throughout 2015 to obtain additional market shares, resulting in an increase of sales by about 77.0% than 2014. Besides, the revenue of solar power electricity generation increased by 922.9% to HKD310 million. It is noteworthy that, six photovoltaic power plants were connected to the grid in the second half of 2015, so the operating result of this part could not be fully reflected in 2015. It is estimated that the revenue of solar power electricity generation will have a substantial increase in 2016.
The gross profit recorded HKD1.71 billion, 124.8% more than 2014. The gross profit margin increased from 31.6% in 2014 to 36% in 2015, mainly due to: i) The scale economic effects of expansion of capacity of photovoltaic glass business and the improvement of production processes. ii) The optimization of product structure (The company gradually reduces its sales proportion of photovoltaic raw glass and focuses on photovoltaic processed glass which has higher gross profit margin.). And iii) the increased contribution of solar power electricity generation which had higher margin than that of photovoltaic glass business. It is estimated that if the production capacity can be further expanded, the scale effects of processed glass may further drive the growth of gross profit margin. The net profit attributed to the parent company was HKD1.21 billion, increased by 144.6% than 2014. The EPS was HKD0.1853.
Significant Expansion of Production Capacity within the Next Two Years
The production bases of the company are located in Wuhu, Anhui and Tianjin. In 2011, there were only four production lines for photovoltaic raw glass with a production capacity of 2,000 tonnes/day. In the second half of 2014, the company expanded its production capacity in photovoltaic glass by adding two production lines for ultra-clear photovoltaic raw glass with a production capacity of 900 tonnes/day. Moreover, in 2015, it upgraded a production line for photovoltaic raw glass with a production capacity of 500 tonnes/day to 600 tonnes/day. Currently, the company's production capacity is 3,900 tonnes/day. The company plans to continue to expand its production capacity within the next two years. It intends to build a production line for photovoltaic glass with a production capacity of 900 tonnes/day in Malaysia (which will be put into production in the fourth quarter of 2016) and two production lines for photovoltaic glass with a respective production capacity of 1000 tonnes/day in Anhui (which will be put into production in the fourth quarter of 2016 and the first quarter of 2017, respectively). It is expected that the production capacity of the company will expand to 6,800 tonnes/day by the middle of 2017. The company believes that since the photovoltaic industry has developed by an compound growth rate of over 20% in the past few years, and the newly increased production lines in Anhui will be put into production gradually in two years, the industry can absorb the increased production capacity and will not suffer from a significant impact in terms of the balance of supply and demand.
Solar Power Electricity Generation Has Become A New Profit Growth Point
Since its engagement in the business of solar power electricity generation in 2014, the company continues to increase the investment in this area. As of the end of 2015, the company has a total of eight ground-based solar plants in operation with a total grid-connected capacity of 610MW. Two solar plants had started power generation in 2014 with a total electric energy production of 250MV, while the remaining six solar plants had been connected to the grid in 2015 with a total electric energy production of 360MV. It is expected that by the end of the year the grid-connected capacity will reach 1,750MW.
Valuation
The company has recently announced that the earnings in the first half of 2016 has grown by 70% to 90% year-on-year, mainly because i) The year-on-year increase of revenue of photovoltaic glass is about 50%. ii) The improvement of cost and production efficiency has promoted the gross profit margin of photovoltaic glass. And iii) The income of solar power electricity generation has increased. We give the company a target price of HKD 4.1, equivalent to 15x of P/E in 2016. (Closing price as at 22 June 2016)
Risk warnings
Decrease of the price of photovoltaic glass;
The newly installed capacity falls short of expectations.
Financials
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