隆基股份:Headwinds to emerge in 2Q20

LONGi reported strong FY19/1Q20earnings results, with net profit readRMB5,280mn/1,864mn, up 106.4%/205.1% YoY respectively. We think thestrong growth momentum is about to face headwinds, as impacts from COVID-19spreading around major solar installation market such as US and Europe willemerge from 2Q20. Continuous price-cutting among the PV supply chain would bean exhibit of demand disruption. We think earnings visibility for FY20E is low, implyingsignificant uncertainties for both product ASP and shipment volume. We cut TP by9.8% to RMB31.23to reflect ASP risks. We think LONGi is fairly priced for now, andsuggest staying on the sideline until recovery signal is confirmed. Maintain HOLD.n Outstanding FY19results. LONGi recorded 49.6% YoY revenue growth inFY19to RMB32.9bn, Strong revenue growth was driven by 139.3%/23.4%mono wafer and module shipment YoY growth (see Figure 2). Overall GPMwas 28.9%, up 6.7% YoY, mainly backed by stunning wafer GPM of 32.2%and module GPM of 25.2%. Net profit was RMB5.28bn, up 106.4% YoY, closeto high end of earnings preview.n Surprising good 1Q20earnings. To market’s surprise, LONGi’s strongearnings growth momentum continued in 1Q20, with revenue surged 50.6%to RMB8,599mn, and quarter net profit reached RMB1.86bn refreshing recordhigh. In 1Q20, the Company maintained stable QoQ wafer sales andsignificant decline in QoQ module shipment, but manage to boost modulesales ASP through increasing module export to the US market. According tomgmt., 450MW modules were ship to US market, accounting for 24% ofquarter shipment which enjoyed significant pricing premium. 1Q20wafer andmodule GPM were high at 39.7% and 22.5% respectively, reflecting theCompany’s effort in costs reduction and efficiency improvement.n Headwinds to emerge in 2Q20. Mgmt. maintained FY20wafer/moduleshipment (internal usage incl.) targets at 58GW/20GW unchanged, in view of 1)~8GW module order was secured; and 2) optimistic outlook that order flow to pickup as US and Europe to resume functional from city lockdown mode. We areafraid that the demand disruption will end LONGi’s stunning growth momentum,as wafer/module price had declined 14.7%/4.1% since 25Mar. As market visibilityis still low, we expect there will be further price cut coming. We trim ourwafer/module ASP assumption down by 4.4%/6.8% to RMB2.39/pc andRMB1.52/watt, reflecting FY20E GPM of 29.1%/17.4% respectively.n Earnings growth to slow down in FY20E. Based on our revised ASP andcosts assumptions, we trim LONGi’s FY20/21E EPS outlook by 7.6%/2.7% toRMB1.49/1.80. Based on 21x FY20PER, we cut TP by 9.3% to RMB31.23.LONGi is close to fairly priced given potential risks. Maintain HOLD.