Company Reports

Xinyi Energy’s 2023 net profit of HKD 993.0 million, up 2.2% year on year, was below market and our expectations. We believe the disappointment is mainly due to lower utilization rates, grid curtailment issues, and slower-than-expected capacity expansion. Dividend per share for 2023 fell 60.3% year on year to HKD 0.06, but we think the market has priced this in, given the change in the dividend policy since second-half 2023. We cut our 2024-26 earnings forecasts by 18%-19% to factor in the weak results, which led to a lower fair value estimate of HKD 1.60 per share, from HKD 2.04. Trading at 2024 estimated yield of more than 6%, we think Xinyi Energy looks attractive now. However, we don’t expect a rerating in the near term, as concerns about subsidy settlement continue to linger, while it will take time for the firm to rebuild investor confidence.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy mainly acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. Previously, the company aimed to distribute not less than 90% of its distributable income annually. However, Xinyi Energy changed its dividend policy in 2023—it now considers the firm’s financial resources and funding needs, with no fixed payout ratio.

No-moat Xinyi Energy’s year-to-date close-to-50% share price fall has been disappointing, with the market reacting to reduced dividend payout, uncertainty over the collection of subsidy payments, and rising financing costs. We cut our fair value estimate to HKD 2.04 from HKD 2.64 after incorporating the depreciation of the Chinese yuan, and higher midcycle accounts receivable days given the slow subsidy collection. We also raise our weighted average cost of capital to 9.6% from 8.6% to reflect the increased uncertainty. Being a non-state-owned enterprise, we think Xinyi Energy may be at a disadvantaged position in terms of getting preferential borrowing rates and speedy settlement of subsidies owed to it when compared with its SOE peers. While the firm remains undervalued, we don’t expect a rerating in the near term, as it will take time for Xinyi Energy to deliver earnings improvement and rebuild investor confidence.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy mainly acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model, along with its weighted average lifetime of about 15.7 years for its solar farm portfolio as of end-2022, largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. Previously, the company aimed to distribute not less than 90% of its distributable income annually. However, Xinyi Energy changed its dividend policy in 2023—it now considers the firm’s financial resources and funding needs, with no fixed payout ratio.

Xinyi Energy’s first-half 2023 net profit of HKD 566.9 million, down 9.0% year on year, was below expectations. We believe the miss is mainly attributable to the depreciation of the Chinese yuan and more conservative assumptions on tariff adjustment. We cut our fair value estimate to HKD 2.64 from HKD 3.12 after updating our model assumptions. While the firm remains undervalued, we think share price performance will be weak in the near term, given negative investor sentiment after the disappointing change in the dividend policy.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy mainly acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model, along with its weighted average lifetime of about 15.7 years for its solar farm portfolio as of end-2022, largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. Previously, the company aimed to distribute not less than 90% of its distributable income annually. However, Xinyi Energy changed its dividend policy in 2023—it now considers the firm’s financial resources and funding needs, with no fixed payout ratio.

We think Xinyi Energy’s 1-for-10 rights issue on a nonunderwritten basis at HKD 2.19 per rights share will help to improve its balance sheet. However, near-term share price performance may be capped by this dilutive exercise, in our view. Despite that, we keep our fair value estimate of HKD 3.12, and we believe the shares look attractive now with dividend yield of more than 7% in 2023.

Xinyi Energy’s 2022 net profit of HKD 971.5 million, down 21.2% year on year, was below expectation. We believe the miss is mainly due to a HKD 223.8 million write-off of subsidy receivables, slower capacity expansion on the back of COVID-19 disruptions, and high solar module costs. Consequently, total dividend per share for 2022 dropped 13.2% year on year to HKD 0.151. Meanwhile, core performance is intact, as 2022 adjusted EBITDA margin at 92.4% was in line with our expectation. We keep our fair value estimate of HKD 3.12 after reviewing our assumptions and we think the shares look attractive now with dividend yield of about 7% in 2023. However, share price performance may be capped by the disappointing write-off in the near term. In our view, the write-off is a prudent provision by management to reflect potential risk in the subsidy audit by the government. This is one-off in nature, and we do not rule out the possibility of a reversal later on.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy mainly acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model, along with its weighted average lifetime of about 15.7 years for its solar farm portfolio as of end-2022, largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. The company targets to distribute not less than 90%of its distributable income annually.

We cut Xinyi Energy’s fair value estimate to HKD 3.12 from HKD 3.28, after incorporating higher interest rates, the depreciation of the Chinese yuan and a slower near-term acquisition pace in our valuation model. As Xinyi Energy’s share price has corrected over the past few months, we think the shares are undervalued now with an attractive dividend yield of more than 7% annually. However, we think near-term share price performance could be capped by the firm’s increasing gearing level and the rising interest rate environment.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy only acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model, along with its weighted average lifetime of about 16 years for its solar farm portfolio as of end-2021, largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. The company targets to distribute 90%-100% of its distributable income annually.

We keep our fair value estimate for no-moat Xinyi Energy at HKD 3.28 per share following its largely in line first-half 2022 results. However, we think the firm’s share price may face pressure in the near term as earnings fall short of market expectations, based on FactSet consensus estimates. We believe the miss may be due to a higher-than-expected tax rate given the expiry of tax holiday for some solar projects and slower capacity expansion on the back of COVID-19 disruptions. First-half revenue rose 13% year on year, driven by the acquisition of 660 megawatts, or MW, of solar projects in 2021. However, net profit was flat due to higher operating and income tax expenses. A decent dividend yield of more than 5% may provide share price support, in our view.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy only acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model, along with its weighted average lifetime of about 16 years for its solar farm portfolio as of end-2021, largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. The company targets to distribute 90%-100% of its distributable income annually.

We are transferring coverage of Xinyi Energy with no-moat and stable moat trend ratings and a fair value estimate of HKD 3.28 per share. We forecast Xinyi Energy’s net profit to grow at a five-year CAGR of 10.8%, with its operating margin falling to 65.2% in midcycle from 71.6% on average in the past three years due to increasing contribution from grid-parity projects. At current prices, we think the shares are not attractive given the firm’s increasing gearing level and the rising interest rate environment for its HKD-denominated debt.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, Xinyi Energy only acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operations. The company's unique business model, along with its weighted average lifetime of about 16 years for its solar farm portfolio as of end-2021, largely shields it from construction risks and regulatory risks such as project approvals, leading to a more stable returns profile. The company targets to distribute 90%-100% of its distributable income annually.

We are putting Xinyi Energy under review, pending a change in analyst.

Xinyi Energy Holdings is the solar farm operation unit of its holding company Xinyi Solar, a leading solar glass manufacturer and solar farm developer in China. Unlike most solar power suppliers with integrated upstream solar project development, it only acquires utility-scale ground-mounted solar projects and focuses on downstream solar farm operation. This allows the company to enjoy an operating margin above 70%, compared with 45%-55% for major solar peers. The company's unique business model, along with its weighted average of 16 years of guaranteed subsidies, also shields it from regulatory risks in project approvals and tariff cuts, leading to a more stable outlook in returns. The company's target to distribute 90%-100% of distributable income to investors implies a sustained dividend that is yielding above 5% presently.

We lift our fair value estimate on no-moat Xinyi Energy to HKD 3.52 per share from HKD 3.10, after raising our near-term acquisition forecast and factoring in a stronger risk appetite. Management lifted its 2021 full-year acquisition plan to no less than 700 MW from previous guidance of 600 MW. This is more optimistic than we expected, and management's tone also indicates a more upbeat near-term outlook. Given its improved earnings quality and strong balance sheet, we think the company should be able to accelerate its acquisition pace in the near term. Therefore, we raise our forecast on capacity additions, and expect its total capacity to increase at 20% CAGR for within the next five years. This will be slightly offset by the continuous decline in on-grid tariffs, as subsidy-free projects are taking up a larger portion in its portfolio. We maintain our 2021 full-year net profit forecast to HKD 1.2 billion but revised up our forecast on its revenue growth to five-year CAGR of 15.6% from 12.9%. The updated valuation also factors in our latest foreign exchange forecast.

Xinyi Energy’s positive first-half 2021 earnings alert, guiding to a 25%-45% year-over-year increase in net profit, implies a net profit of HKD 547.0 million-634.5 million, which is within our expectations. The strong growth is largely due to the low base in the first half of 2020 and capacity additions, which are already factored into our forecast. Since the news should not be surprising, we anticipate a limited share price reaction.

The National Energy Administration of China’s, or NEA’s, release of a draft plan on competitive allocation of wind and solar power has raised concerns over an unfavorable policy shift that may dampen renewable energy's growth and profit outlook, leading to a steep fall in renewable operators’ share prices in the past week. In our view, the draft paper delivers two key messages: 1) China’s renewable targets remain unchanged, and the NEA expects total power consumption in 2030 to reach 11,000 TWh, with non-hydro renewable mix of 25.9% by 2030. This implies about an average of 120-130 GW annual capacity additions for wind and solar between 2020 and 2030, compared to 50.5 GW per year over the past 10 years; 2) No immediate solution on the deficit of the Renewable Energy Fund, and renewable operators are encouraged to waive part of their rights for subsidy grants in exchange for quality projects with guaranteed grid connection. This indicates a rising marketization of the renewable power sector, amid competitive-bid for guaranteed grid-connected projects or expanding sales through power trading platforms, which we think implies lower effective tariffs and rising competitiveness of renewable power over coal-fired power generation.