Company Background

Founded in 2000, the company focuses on the R&D, production and sale of monocrystalline rods and wafers. With over 10 years of development, the company has already become the largest monocrystalline rods manufacturer in the world. As of 2014, the company was able to produce 3GW monocrystalline rods and wafers. According to its plan, the production capacity of the company's monocrystalline ingots and wafers will be doubled to 6GW.

H1 Result was Lower than Expected

The company reported sales of RMB1.679 billion in H1, representing an increase of 15.3% yoy. Net profit attributable to shareholders rose by 5.2% to RMB117 million and EPS was RMB0.07. Compared to the same period last year, the company just recorded a mild profit growth, which was lower than market expectations.

Raising Gross Profit Margin through R&D

In H1, the R&D expenses of the company rose by 42.9% yoy to RMB206 million. As of 30 June 2015, the company was granted a total of 101 national patents. Through applying continuous-fed technology, slicing technology and gold-wire bonding cutting technology in producing solar monocrystalline rods/wafers, operating costs continued to fall. The unit cost of monocrystalline wafer already dropped by 16.9% yoy to RMB1.13/W. In H1, revenue from wafers was RMB1.165 billion, which was the company's largest revenue source, accounting for 69% of total revenue. The gross margin of this segment expanded 4.08%-point yoy to 20.85%. It is expected that the per unit production cost of the company will continue to fall in future.

Valuation

Monocrystalline wafers are gaining market acceptance due to its high conversion efficiency ratio, which is especially suitable for adoption by distributed power generation. We believe there is a trend that monocrystalline wafers will increase its market share. The company is the global leader in monocrystalline wafer manufacturing. It has already started to expand into mid-stream business to produce modules as well as downstream business to construct and operate power plants. We expect it can develop the whole supply chain in future. We recommend a “BUY” rating, with a target price of RMB13.80, which is equivalent to a prospective P/E of 30x. (Closing price as at 3 Sep 2015)

Financials

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