Goldwind Science & Technology Co Ltd

XMUN:CXGH

Earnings Call Transcript 2019-Q3

[Unknown Executive]

[Foreign Language] Good morning, ladies and gentlemen. Welcome to Goldwind's Third Quarter Results Conference Call. Today, we've invited 3 management-level guest speakers to join us. They are Company President, Mr. Zhigang Cao; Vice President and Company Secretary, Ms. Jinru Ma; and Chief Financial Officer, Mr. Chunzhi Liu. [Foreign Language]

We'll begin today's agenda with industrial review throughout the first 3 quarters followed by business review, financial results and outlook. After this, we'll begin Q&A session. First, let's welcome Ms. Ma to introduce industry dynamics and business development throughout the first 3 quarters of 2019.

[Jinru Ma, executive]

[Interpreted] Distinguished investors and analysts, thank you for attending today's conference call. First, let's take a look at industry review in the first 9 months.

Slide #3 presents the outlook of global wind power market with Mackenzie’s global annual grid-connected capacity additions forecast from 2019 to 2028 is 734.5 gigawatts, with 5.5 average annual growth rate, of which China proves to be the largest incremental market, with a total of 252 gigawatts and 1.9 AAGR. Bloomberg New Energy Finance NEO 2019 report shows that renewables will contribute 62% in world power generation mix by 2050, of which wind and solar power will take 48%. But fossil fuels keep reducing proportion in the mix, from over a half now to 31% in 2050. Slide #4 shows the increasing competitiveness of wind power in the near future. Renewables keep challenging coal on levelized cost of energy of new capacity in the nationwide. Average levelized cost of energy of newly installed onshore wind power will lower to USD 0.02 per kilowatt hour by 2050, making it the most economical green power. Bloomberg New Energy Report illustrates that roughly $3 trillion will be invested in power sources through 2019 to 2050. 49% will be on onshore wind, with $1,400 billion cumulative investment, reflecting wind power's competitiveness in attracting investments. Slide #5 demonstrates the continuous expansion of domestic wind power market. Through January to September 2019, China's new grid connection was 13.08 gigawatts, an increase of 48 -- 47% year-on-year. Cumulative grid connection was over 197.8 gigawatts. As of September 30, 2019, wind power's share of power mix in China was 10.6%; hydropower accounted for 16.6%; and thermal power took 62.8%. In the meanwhile, through January to September 2019, domestic wind power production totaled 289.7 billion kilowatt hours, an increase of 8.3% year-on-year. Throughout the first 3 quarters of 2019, domestic power consumption totaled 5,344 billion kilowatt hours, an increase of 4.4% year-on-year.

Not only did grid connection capacity and power production of wind power increase, but also the national average wind curtailment and curtailment rate both declined. Through January to September 2019, domestic average wind utilization was 1,519 hours, a decrease of 48 -- 46 hours year-on-year, and domestic wind curtailment totaled 12.8 billion kilowatt hours, decreasing 9.4 billion kilowatt hours year-on-year. National curtailment rate dropped 3.5 percentage points year-on-year to 4.2%. Domestic wind power penetration rate also increased by 0.2 percentage points year-on-year to 5.4%. As for comparison of penetration rate with European region, it is self-explanatory how much potential China's wind power industry has.

Now turning to Slide #7, on domestic wind turbine generator public tender market. Through January to September 2019, domestic public tender market totaled 49.9 gigawatts, an increase of 108.5% year-on-year, exceeding annual public tender volume in all previous years, among which public tender volume in South China was 19.8 gigawatts, 39.7% out of total, comparing with 30.1 gigawatts and 60.3% in North China.

The graph on the right side illustrates the upward trend of average monthly public tender prices. In September 2019, average tender prices of 2.5 megawatt-unit WTG was RMB 3,898 per kilowatt, up 17% from the trough in August 2018. Average tender price of 3.0 megawatt-unit WTG in September 2019 was RMB 3,900 per kilowatt. Slide #8 lists out the policies that were published in the first half of 2019, including phase out of feeding tariffs and the renewable power quota system. We're not going to expand in details today. Now let's move on to company's business review. Let's look at Slide #10. Sales capacity totaled 5,245 megawatts as of the third quarter of 2019, of which 2S platform WTG remained the major product in the market. Its sales reached 3,398 megawatts, representing 64.8% in product mix. Sales of 2.5S platform WTG totaled 1,156 megawatts, representing 22% in product mix. Sales of 3S platform WTG totaled 506 megawatts, representing 9.7% in product mix. And sales of 6S platform WTG was 123 megawatts, representing 2.4% in product mix. The growth of company's turbine sales led to the growth of total revenue. It is expected that the annual sales capacity for the entire year is in good shape. Slide 11 presents company's record-high order backlog quantities. As of September 30, 2019, company's external order backlog totaled 22.8 gigawatts, an increase of 25.1% year-on-year, of which signed contracts totaled 15.6 gigawatts, representing a considerable increase of 22.2% (sic) [ 20.2% ] year-on-year.

As of September 30, 2019, 2.5S platform WTG had 9.7 gigawatts order, an increase of 148 -- 142% year-on-year and took 42% in order book mix, up 20 percentage points, making it the major product to deliver. Order backlog and proportion of 3S platform WTG had both increased to 5.8 gigawatts and 26%, up 315% and 18 percentage points year-on-year, respectively. And 6S platform WTG has enormous potential of growth. As of September 30, 2019, its external order backlog totaled 1.1 gigawatts, up 125% year-on-year. The structure of the company's external order book was seeing significant change and reflected the changing dynamic of market demand. Slide #12 shows business development in foreign markets. As of September 30, 2019, company had 1,207 megawatts of overseas order backlog, up 62% year-on-year, spreading in Canada, the Philippines, Pakistan, South Africa and Australia. Company's attributable under-construction and pipeline capacity totaled 1,535 megawatts. Under construction projects are mainly domiciled in Argentina and Australia. Slide #13 and 14 introduce company's wind power generation business. As of September 30, 2019, company's cumulative attributable grid-connected wind farms in the globe totaled 4,596 megawatts, of which 34% is domiciled in Northwestern region, 34% domiciled in North China, and 21% domiciled in Eastern China and the Southern region. The company added 195 megawatts of attributable grid-connected capacity through January to September 2019. As of September 30, 2019, the company's attributable under-construction capacity totaled 1,390 megawatts and more than 50% -- 56% domiciled in Eastern China and Southern region. Overseas under-construction capacity totaled 1,224 megawatts, and the layout of under-construction capacity indicates that company's projects will be more balanced geographically in the future. The left-side graph on Slide #14 shows that through January to September 2019, company's self-owned wind farm utilization averaged 1,645 hours, 126 hours higher than the national average. Through January to September 2019, the group's consolidated power production volume was 5.923 billion kilowatt hours, an increase of 2% year-on-year. Now let's welcome CFO Mr. Liu to introduce the company's third quarter financial results.

[Chunzhi Liu, executive]

[Interpreted] Good morning, everyone. Now I will be presenting company's 1, 2, 3 -- 1 to third quarter financial results and third quarter results. Slide #16 shows company's first 3 quarter financial results. Benefiting from the acceleration of wind power industry, company's total revenue throughout the first 3 quarters of 2019 increased by 38.8% year-on-year to RMB 24.735 billion. Due to decreased gross profit margin of WTG's sales business, the company's comprehensive gross profit dropped 4.8% year-on-year. EBITDA declined 37.9% year-on-year, and EBITDA margin dropped 2 point -- 7.2 percentage points year-on-year to 5.8%. Attributable net profit totaled RMB 1.591 billion, and attributable net profit margin dropped 7.2 percentage points year-on-year to 6.4%. Slide #17 presents company's third quarter financial results. Company's revenue in the third quarter of 2019 total RMB 9.002 billion, up 32.7% year-on-year. And company's gross profit was RMB 1.721 billion, and gross profit margin was 19.1%. Recurring net profit in the third quarter of 2019 was RMB 408 million, dropped 53.4% year-on-year and recurring net profit margin was 4.5%. The company's attributable net profit in the third quarter of 2019 totaled RMB 406 million, and attributable net profit margin was 4.5%. Slide #18 illustrates company's cash flow and working capital status. Throughout the first 3 quarters of 2019, wind power industry entered an accelerated construction period. With the increase in wind turbine generator sales and emphasis on accounts receivables, company's net operating cash inflow throughout the first 3 quarters of 2019 was RMB 3.588 billion, an increase of RMB 1.959 billion year-on-year. In the third quarter of 2019, the turnover of company's operational assets showed obvious improvement. Cash turnover shortened by 33 days year-on-year to 121 days.

Receivables turnover shortened 81 days, demonstrating the acceleration in collecting receivables. Slide #19 introduces company's debt service indexes. In the first 3 quarters of 2019, the company's debt service indexes were very steady. Capital structure was healthy, with cash and cash equivalents increased to RMB 6.7 billion and bank loans expanded to RMB 25.9 billion. Net gearing ratio was 65% due to more net debts, down slightly year-on-year. Now let's welcome Ms. Ma to present industrial outlook.

[Jinru Ma, executive]

[Interpreted] Slide #21 presents the latest industry data and outlook on market demand basing on this data. According to Bloomberg New Energy Finance data's industry data, as of now, committed yet now -- yet not commenced construction window projects totaled 58 gigawatts. And developers have announced 59 gigawatts onshore wind projects, indicating plenty of potential to support national wind power installations in the next few years.

By the end of 2018, China's cumulative offshore wind installations totaled 4.445 gigawatts. National "Thirteenth Five-Year Plan" aims to have 5 gigawatt of grid-connected offshore wind power capacity by 2020 and 10 gigawatt commencing construction by 2020. Grid-parity and large energy bases wind power projects also accelerated planning and construction. The last slide here presents research results of China Renewable Energy Engineering Institute, showing that on-grid tariff of wind power in majority of regions in China has reached the same level with benchmark coal-fired power tariff, demonstrating the potential of wind power marketed transaction. The map on the left side shows that the green regions in China have reached the same level with benchmark coal-fired power tariff. The table on the right side lists our pipeline capacity of large energy bases projects which is estimated to exceed 25 gigawatts. Successive commencement of construction of such energy bases will likely restore total installation capacity in the "Three North" region in China.

It's expected that in the future, the several types of wind projects will also continue to expand their total capacity. And with the levelized cost of energy decrease of wind power and gradual improvement of clean energy penetration in China, high-quality wind resource area has been enabled with prerequisite for marketed transactions of power. We firmly believe that with the arrival of prepay era, the potential of wind power market will be exploited and prospects of the development of wind power industry is worth looking forward to. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]