金风科技：On track to WTG GPM recovery

GWD’s 9M20 earnings reached RMB2,069mn, with earnings growth acceleratedfrom 7.6% in 1H20 to 30.1%. Well performed earnings release was mainlyattributable to WTG sales of 4,216MW during 3Q20. 9M20 WTG sales reached8.3GW, on track to 10-12GW external shipment guidance. For GPM of WTGsegment, mgmt. express some improvement from costs saving measures, andmaintained full year target to improve GPM to ~15% unchanged. We think GWDwas largely on track to our projection of GPM rebound. We lift TP by 18.4% toRMB13.58 based on 14x FY21E P/E multiple. Upgrade to BUY rating.

9M20 earnings surged 30.1% YoY. Strong 9M20 results were mainlyboosted by accelerating WTG shipment, which brought a 3Q20 revenuegrowth of 95.6% YoY. Major expense to revenue ratios remained steady,while investment income was read high comparing with 3Q19. Quarterearnings was RMB794mn, up 95.5% YoY. In 9M20, the Companyrecognized RMB549mn impairment losses mainly from provisions forreceivables and inventories in 9M20, yet earnings was still readRMB2,069mn, up 30.1% YoY.

WTG shipment on track, guiding 10GW shipment in 2021E. WTGexternal shipments were 8,316MW in 9M20, up 58.6% YoY and implying2Q20 WTG shipment of 4,216MW. We think GWD’s sales pace is on trackto 12-14GW shipments in 2020E. For 2021E WTG demand outlook in China,mgmt. thought 30GW market size would be reasonable based oncommunications with major wind farm developers. GWD expected to seize30% market shares, implying a shipment target of 10GW in 2021E.

Improving product mix to drive further GPM recovery. The Companywas on a graduate pace in margin recovery based on improving price/coststructure in 9M20. Looking ahead, as WTG tender prices are declining in thegrid-parity era, we think product mix upgrade towards larger scale productwill be the key driver leading to further GPM recovery. With reference toGWD’s 3Q20 WTG shipment and order backlog, we observed significantchange product mix. We think GWD still has potential to improve its WTGprofitability despite pressures from tender prices.

Raise TP to RMB13.50 based on 14x P/E roll over to FY21E. We liftedGWD’s FY20E EPS forecast by 13.5% to RMB0.74 based on revision oninvestment income. Our outlook for FY21-22E remains largely unchanged.

Given recent strong market sentiment longing for supportive renewablesdevelopment policies in 14th FYP period, we lifted GWD’s target P/E multiplefrom 12x to 14x and rolled over valuation to FY21E. Our TP is lifted 18.4%to RMB13.50. Upgrade to BUY rating.