Goldwind Science & Technology Co Ltd

XMUN:CXGH

Earnings Call Transcript 2021-Q3

[Operator]

Good afternoon, everyone. Welcome to Xinjiang Goldwind Science & Technology 2021 Q3 Financial Results Announcement.[Operator Instructions] [indiscernible] moderator.

[Unknown Executive]

Distinguished investors, Good afternoon. Welcome to the Xinjiang Goldwind Science & Technology Co., Ltd. 2021 Q3 financial results announcement. Today, we're very honored to have members of the management with us today. They are President, Cao Zhigang; CFO, Wang Hongyan; Vice President, Secretary of the Board, Madame Ma Jinru. We also have Vice President Li Fie joining us.

So in our announcement, we will have Madame Ma with the industry overview and our operation for Q1 to Q3. Mr. Wang Hongyan, who will then brief you on the financial results from January to September and to be followed by Q&A session.

Please also pay attention to the instructions for your questions. Let me now hand over to Madame Ma.

[Jinru Ma, executive]

Thank you, respected investors, dear friends old and new. Good afternoon. [indiscernible] no problem. Please go on.

First of all, I'd like to give you the first introduction, which is an industry review, please turn to Page 3. The 2020 is a very important year in the last 10 years. The average annual rate to global wind power cumulative installations was 15.3%. At the end of 2020, global installation reached 733 gigawatts, among which China ranks #1, then U.S. and Germany to be followed by Spain and U.K.. We know that in the last 15 years, stabilized cost of the global onshore wind power declined 6% from USD 0.089 per kilowatt in 2010 to USD 0.039 Sin 2020. Meanwhile, the levelized cost of global offshore wind power also declined by 48% from USD 0.162 per kilowatt hour in 2010 to USD 0.084 in 2020.

Now on this page, you see that in the first half, we have recorded 20% for new grid connections. As of September, we shall see that there are 273 gigawatt increase for grid connection increase of 32%. In October, the new connection has already surpassed more than 300 gigawatts. Also, we noted that China's total power consumption was up by 12.1%, along with wind power is [ 400 billion ] more than the generalized level. We also see that the penetration is 7.6%, and curtailment was down by 0.3%. We also see 1,640 hours for average utilization, increasing by 91 hours.

Now let's see the public tender market. We see that we have 41.9 gigawatts for the newly added bidding capacity, up by 115.1% year-on-year. According to market segments, onshore increased by 40.9 gigawatts; offshore, by 1 gigawatt. According to regions, 68% [indiscernible] in Northern part of China, 26% in South China and for centralized procurement, 6%. By 2021, September, received the average price for the 2 series -- or 3 series turbines, average price RMB 2,410; 4S RMB 2,326 per kilowatt hour.

On Page 6, we have streamlined you the policy reviews. We have noted the 2021 opinion on development of wind power and PV power. The announcement on 2021 renewable energy consumption and responsibility quota as well as the opinions in promoting new energy production and grid connection. In September 22, State Council also has issued opinion carbon neutrality. In January 24, central government also has introduced the new opinions promoting that new energy and renewable energy's alternative action would [indiscernible] the percentage of solar power and wind power, we will promote centralized developments and decentralize development to increase the penetration of non-fossil fuels. In the same time, we also have proposed some very important index. For example, by 2030, the consumption of the non-fossil fuels in the energy mix accounts for 25% and the total installation of wind and solar power accounts for more than 1.2 billion kilowatt hours and by 2060, non-fossil fuels accounts for 80% of the energy mix. So all of these have showcased China's commitment and confidence in developing renewable energy.

On the right side, you see the market potential for the wind power. Or one side, we have already initiated the approval for the new products by October 21. We have 9 provinces, regions and autonomous regions have already updated the new batch of the grid parity approval project. On the other side, various and diverse development mode is now bringing wind power to thousands, millions of houses in China. On October 12, President Xi has indicated that China will develope and boost the development of renewable energy and building the large wind farms and PV base in Desert [indiscernible], the first batch installation of 100 gigawatts has already been under constructed in October 17. Over 600 wind farm and [indiscernible] wind power businesses have indicated in declaration with 118 cities that during the 14th 5-year plan in 100 towns and 5,000 villages, we will have an installation of more than 10,000 turbines with a total capacity of reaching 50 gigawatts. This all showcase our market potential.

Now I'd like to talk about our business review from January to September our external sale capacity is more than 6,347 megawatts, among which 2S series turbines amounting to 2,203 megawatts accounting to 36.3%. For 3S and 4S turbines increased by 224%, now taking up 39.6% improved by 30%. 6S and 8S series turbines with the total sales capacity of 1,487 megawatts increased year-on-year, 332% accounting to 23.4%, up by 19%. So we're moving towards high-margin.

Now let's look at order backlog. Now we have a total backlog of 6.4 gigawatts; external, 15.1 gigawatts external; successful bid, 1.7 gigawatts; signed contracts, 13.3 gigawatts. As of the end of Q3 2021. Our total order backlog 1,875 megawatt with a growth rate of 28% in the last 3 years, distributing in Asia except China, South America, Middle East and Africa.

Let's look at the orders, we have the orders recorded 9.5 gigawatts for 3 and 4 series turbines, accounting for 63% becoming the largest one of our total structure. 2S, which is also accounting for 31%. 6S to 8S turbines accounting to 1%.

On Page 10, we will brief you on our power production. As of September 30, we have attributable installations in our self-run farms amounting to 5,554 megawatts, among which 31% in Eastern China, 25% in Northwestern China and 22% in Eastern China, 10% in the southern part of China. Among which domestic attributable installation is 450 (sic) ` megawatts, among which 335 megawatts are newly added, and transferred 473 megawatts. As of the end of Q3 2021, the total attributable wind farm capacity amounted to 2,406 megawatts among which Eastern China, 29% -- Northern China, 29%; Eastern China, 24%; Southern China, 5%.

So the average operation hours is 1,896 hours higher than the national average by 256 hours increased by 14.4% year-on-year.

Now Mr. Wang will brief you on the financial results.

[Hongyan Wang, executive]

Hello, everyone. Now I'd like to brief you on our financial results. Just now, Madame Ma, has talked about our sales and capacity. Of course, these indicators are very important for our financial results. So I will also brief you some of our financial results.

If you look at our company realized a very big and important sales performance among which 1.5 megawatts and the 2S are becoming the driving force. Order reduction, it is also very serious. For example, 2 to 4 series in January to September compared with last year, month-on-month, decreased by 67.14%. In terms of the percentage from January to September, accounting for 36.28%. Last year, the absolute number was 80.29%. So 48% reduction year-on-year. So that is a major shift in the whole industry, depending on 4/2S turbines, the 8S turbines, this increased by -- 6S to 8S turbines increased by 332%. So the total turbine sales has moved towards the same trend in the market with larger capacity on our sales.

So the sales will also impact on our financial results differently. It has from January to September the revenue was RMB 33.55 billion. The gross profit was 26.3%. Last year, it was 17%. So we have realized a 9% increase for gross profit. While in Shanghai, our turbine business, our total sales capacity times total sales volume has increased, so these has drive the gross margin of our components of our [indiscernible].

Also you see there is a clear improvement of over 331% of our offshore turbines this year, accounting for more than 25%. Therefore, this shift has contributed to the growth of our gross margin. That second is the EPC business percentage has been reduced. That's why our total margin has been up 9%. Secondly, from January to September -- The total profit attributable to the owners of the company also increased. Why? First element is the improvement of the general margins. Secondly it is nonconcurrent return reduction. You could see that in Q3, it is RMB 150 million. Last year, it is more than RMB 200 million. So now the shift means we are more focused on our major business, and that's why the profit attributable to the owners of the company has also changed.

The third thing to clarify is the profit margin attributable to the owners of the company also increased largely, especially the onshore business percentage had an increase also or 6S and [ 8S ], we have shortened the lead time, we also have moved according to market trends, which also contributed to the percentage increase and the shift in our business operations.

So in Q3, as you see our company realized revenue of RMB 17 billion in the first half. We also have net profit attributable to owners of the company increased. Ratio of net profit attributable to owners of the company, which are also in line with our projections. I will not clarify additionally on these figures as it is obvious in the financial report.

Now I'd like to give you an overview on the working capital and cash now. From Q1 to Q2, we see the cash flow was not performing really well as of the end of Q3, accumulative operating cash flow outflow is RMB 2.23 billion. Inflow, RMB 1.86 billion, which also indicates the feature in the market today. It also signifies the ending of last year's business and the status quo of the market this year. So we forecast that in Q4, our cash flow will continue to improve.

So on the working capital turnover, we also have made a clear analysis. In terms of the cash conversion cycle, it has increased by 15 days. It showcases that the management attached great importance to the efficiency of our cash conversion. There are 3 effects. First, I shortened the turnover days of cash conversion. You all know that in the old whole company, also in the latest wind energy acquisition, we have 15 products. On that basis, we also need to manage our inventory for faster turnover. So that cash conversion cycle short term is very, very difficult to achieve. Therefore, it is a very enlightening achievement.

Secondly, for accounts receivable, turnover increased device 4 days. Why? As of the environmental protection and of the international business increased. So we have a year-on-year increase of the inventory turnover by 4 days. It is also very complied with the market practice. It is also under well controlled for the 4-day increase, the whole company will also adapt our management style to better improve the turnover of the accounts receivable.

Now let's look at the turnover of accounts payables increased by 17 days year-on-year, or accounts payable base and turnover increase, it is beneficial for the whole company to adapt our liabilities, especially loans with interest and loans without interest as well as our working capital and cash flow. So that's all for the operating cash flow and working capital.

Additionally, let's look at our liabilities like cash, loan and bonds as well as net gearing ratio and ROE. In terms of our debt structure and liability, you could see the liquidity of the whole company, also complies with the requirements. If you look at the -- as at asset to liability ratio, it is also slightly increasing. There are 2 additional explanations from January to September, the asset percentage of the wind farms and power generation plants are increasing , therefore, it has impacted on our asset to liability ratio. Secondly, in our announcements, investors could also see that we have some loan with interest. We also issued bonds in May and September, we have reduced 1.5 billion bonds, and we will have a further reduction. Therefore, as the company has reinforced and expand our investment on heavy assets, we also have done our best to control the liabilities to strike for the liability, the liabilities as well as the asset liability to ratio has increased slightly, but it is costly under control.

Now let's also look at the interest. For the 4 items of fees increased by 3.25% year-on-year. Normally, it has something to do with the gross margin. It is much lower than the increase of the gross margin, but why are they increasing? 4 aspects. First, the onshore wind turbine has realized the forward sales by 370%. Therefore, the onshore -- the offshore business will impact on this case.

Second, R&D expenses to the development of new products, new models as well as the press release or the new products at the wind power acquisition.

The third reason is the social security issue last year, we had a reduction on the social security expenses, but we do not have any reduction or waved fees for social securities. This year, we see the company has seized the market opportunities. Second, we have improved our business operations. Number three, we have better managed the expenditures so that we have increased the ROE. That's all for my explanation on the financial results.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]