FY19 results in line, rapid capacity expansion and high quality client portfolio to drive growth; Buy.pdf

FY19 resul ts in l ine. Yunnans 2019 revenue came i n at Rmb3.16bn, up 29% yoy; net i ncome came i n at Rmb850mn, up 64%, 0.5% lower than GHe. I ts separator segment contri buted Rmb778mn i n net i ncome, or 92% of Yunnans net i ncome. 4Q19 revenue came i n at Rmb1.05bn, down 19% yoy and up 45% qoq; net i ncome was Rmb218mn, down 31% yoy and 10% qoq. Yunnan proposed a cash di vi dend of Rmb0.125/sh, representi ng a payout rati o of 12%. Sol id separator growth in 2019. Yunnan recorded Rmb1.9bn revenue from separator sales i n 2019, up 46.29% yoy, due to rapi d capaci ty expansi on and hi gh-quali ty cli ent portfoli o. Yunnan sold more than 800mn sqm separator i n 2019, up 71% yoy. Uni t net i ncome up 6% yoy to Rmb1.08/sqm despi te 14% yoy decli ne i n ASP as result of soli d cost reducti on and ri si ng overseas sales whi ch offered better gross margi n. Rapid capacity expansion to continue. Wi th 2.3bn sqm capaci ty across Shanghai , Zhuhai , Wuxi and Ji angxi , Yunnan i ntends to further gai n global market share through rapi d capaci ty expansi on and a hi gh quali ty portfoli o. The company completed the acqui si ti on of Suzhou Ji eli i n Mar 2020 and targets to further expand i ts capaci ty to 3.3bn sqm by 2020-end. I n addi ti on, Yunnan i ntends to further dri ve overseas sales on the back of i ts hi gh-quali ty cli ent portfoli o. Maintain Buy. We lower our 2020-21 net i ncome esti mate by 7 .2%/3.7% and rai se our 2022 esti mate by 0.1% to factor i n the di srupti on from the COVI D-19 outbreak, largely i n the form of weak EV sales, parti cularly i n Jan-Feb 2020. We rai se our 12 month target pri ce by 4% to Rmb72/sh, based on 29x EV/EBI TDA on our equal wei ghted 2020/2021 EBI TDA (previ ously 29x 2020 EV/EBI TDA). Mai ntai n Buy rati ng. Ri sks: Lower-than-expected ASP; hi gher-than-expect raw materi al pri ces; slower-than-expected capaci ty expansi on. Chao Ji +86(21)2401-8936 | chao.j i Bei j i ng Gao Hua Securi ti es Company Li mi ted Chel sea Zhai +86(21)2401-8679 | chelsea.zhai Bei j i ng Gao Hua Securi ti es Company Li mi ted Yunnan Ener gy (002812.SZ): FY19 r esul ts in l ine, r apid capacity expansion and high qual ity cl ient por tfol io to dr ive gr owth; Buy 17 March 2020 | 11:04AM CST Goldman Sachs does and seeks to do busi ness wi th compani es covered i n i ts research reports. As a result, i nvestors should be aware that the fi rm may have a confl i ct of i nterest that could affect the obj ecti vi ty of thi s report. I nvestors should consi der thi s report as only a si ngle factor i n maki ng thei r i nvestment deci si on. For Reg AC certi fi cati on and other i mportant di sclosures, see the Di sclosure Appendi x, or go to Analysts employed by non-US affi li ates are not regi stered/quali fi ed as research analysts wi th FI NRA i n the U.S. 1d683a11c25f4f6cbdfeb1dbe7d8b02d Sour ce: Company data, Gol dman Sachs Resear ch estimates, FactSet. Pr ice as of 16 Mar 2020 cl ose. Exhibit 1: Financial summary (Rmb mn)20182019 YoY growthVS GHe4Q181Q192Q193Q194Q19 YoY growth QoQ growth %4Q18/2 018 %4Q19/2 019 Revenue2,457 3,160 28.6%-5.6%1,299 656 722 728 1,053 -18.9%44.6%52.8%33.3% YoY growth16.2%28.6%12.3%-7.6%36.0%52.3%793.3%12.5%-18.9%-54.9%-31.4%NANA Gross margin42.0%45.2%3.2%2.1%49.7%45.9%42.4%46.4%46.0%-3.7%-0.4%NANA SG stocks not so assi gned are deemed Neutral. Such assi gnments equate to Buy, Hold and Sell for the purposes of the above di sclosure requi red by the FI NRA Rules. See Rati ngs, Coverage groups and related defi ni ti ons below. The I nvestment Banki ng Relati onshi ps chart refl ects the percentage of subj ect compani es wi thi n each rati ng category for whom Goldman Sachs has provi ded i nvestment banki ng servi ces wi thi n the previ ous twelve months. Regul at ory discl osures Discl osures required by Unit ed St at es l aws and regul at ions See company-speci fi c regulatory di sclosures above for any of the followi ng di sclosures requi red as to compani es referred to i n thi s report: manager or co-manager i n a pendi ng transacti on; 1% or other ownershi p; compensati on for certai n servi ces; types of cli ent relati onshi ps; managed/co-managed publi c offeri ngs i n pri or peri ods; di rectorshi ps; for equi ty securi ti es, market maki ng and/or speci ali st role. Goldman Sachs trades or may trade as a Rating DistributionInvestment Banking Relationships BuyHoldSellBuyHoldSell Global44%40%16%63%57%51% 17 March 2020 3 Gol dman SachsYunnan Energy (002812.SZ) 1d683a11c25f4f6cbdfeb1dbe7d8b02d pri nci pal i n debt securi ti es (or i n related deri vati ves) of i ssuers di scussed i n thi s report. The followi ng are addi ti onal requi red di sclosures: Ownership and material confl icts of interest: Goldman Sachs poli cy prohi bi ts i ts analysts, professi onals reporti ng to analysts and members of thei r households from owni ng securi ti es of any company i n the analysts area of coverage. Anal yst compensation: Analysts are pai d i n part based on th