Goldwind Technology (02208): The technical correction in valuation is still expected to be repaired in the long term

After six trading days of trend decline, fan leader Goldwind Technology (02208) pulled back more than 20%. Is the half-year rebound trend coming to an end?

The Zhitong Finance App learned that Goldwind Technology's Hong Kong stock has continued to rebound since it bottomed out in February this year and began to accelerate in September. During this period, the company also helped the stock price rise through repurchases. The National Day was affected by the central bank's “double drop”. The stock price soared all the way to HK$7.55 on October 7, doubling from a low point. Afterwards, the general market was adjusted, and the withdrawal of a large number of profitable markets caused a huge shock in the sector, and the company also entered a drastic adjustment.

Although Goldwind Technology has rebounded more than 70% this year, its valuation is still very low. The PB value is only 0.6 times. This year's performance has continued to grow, profitability has increased, and PE (TTM) is less than 10 times.

In fact, since interest rate cuts, loose monetary policies have continued to gain strength and a package of incremental fiscal policies have been introduced one after another, continuously attracting overseas capital to enter the market in anticipation of economic improvements, making Chinese assets more valuable for investment. Long-term investors have continued to pour in, and underrated high-performing stocks with high dividends have also been gradually capitalized and re-valued. So, after the technical pullback, does Goldwind still have a chance?

Performance and market value “double recovered”, and Hong Kong stocks continued to return

This year, Goldwind Technology achieved a double recovery in terms of performance and valuation. In terms of performance, it maintained a quarterly revenue growth trend and gradually improved profitability. The net interest rate for the first half of the year was 6.89%, up 0.27 percentage points from the previous year, but it was still 4.74 and 4.4 percentage points lower than the same period in 2022 and 2021, respectively. In terms of valuation, the market value of the company's A Hong Kong stock increased by 22% and 74%, respectively, this year.

The company's “double repair” did not go well. On the one hand, it had to face profit pressure from the business where fan prices fell, and the market was concerned about the profit of its business after the 2023 results were released; on the other hand, in February and March, both BlackRock and Xiaomo reduced their holdings. However, in 2024, the company's fan business profit exceeded expectations. In the first half of the year, pre-tax losses narrowed by 67.3% year on year, and the market value also received positive feedback.

In fact, the company's work this year focuses on overseas business, which mainly includes providing business and financing guarantees for overseas companies, such as Goldwind New Energy's South Africa guarantee in April, Goldwind Philippines guarantee in May, and Goldwind Italy guarantee in June, etc., to promote the smooth development of overseas business and convenient financing. Overseas business performance was also strong. In the first half of the year, revenue increased by 83.76%, and revenue share increased to 23.71%.

With losses in the fan business narrowing, wind farm's high gross profit contribution, and rapid growth in overseas business, Goldwind Technology's significant improvement in fundamentals has reversed investors' expectations. More importantly, the company is generous in paying dividends and persists even during the downturn in performance. Since 2010, it has accumulated 14 dividends, with a dividend ratio of 33.33%, and the cumulative dividend amount accounts for more than 40% of the market value. However, the company is heavy on assets, has a high debt ratio, and has a low ROE level, so after the market capitalization broke, the dividend ratio was not high, only 2%, which greatly suppressed the room for valuation repair.

This year, the company announced a return plan for the next three years (2024-2026). The cumulative profit distributed in cash in the last 3 years is no less than 30% of the average annual distributed profit achieved in the last 3 years. If profitability continues to increase, shareholder return will also increase. Currently, the premium for AH shares is as high as 64.1%. The sharp correction in the past two weeks has not changed the monthly upward channel, and with the continuous improvement of fundamentals, the Hong Kong stock market value will continue to return in value.

Profit improvement expectations are worth watching in the long term

Looking at fundamentals, the Zhitong Finance App learned that Goldwind Technology's business includes fans and components, wind farm development, wind power services, and other businesses. The fan business is affected by falling prices in the industry chain and has been losing money in recent years. The wind farm business is the most profitable business. The profit margin is very high, more than 40%, and contributes to the company's core profit, while wind power services and other businesses account for a relatively low share of performance.

In the first half of 2024, the fan business and wind farm business contributed 63.2% and 21.8% respectively. The revenue share of wind farms changed most significantly due to the company's focus on gross profit margin, increasing by 14.66 percentage points since 2020, which also offset the decline in the profit margin of the fan business and maintained a stable overall profit margin. During this period, the company's overall gross margin and net profit margin were 18.25% and 7.11% respectively, both exceeding the level of the past two years.

The fan business still accounts for the company's core revenue. The pre-tax loss rate in the first half of the year was 3.74%, a sharp decrease of 7.72 percentage points over the previous year. This mainly means a recovery in volume and price. In terms of products, the share of large fans is gradually increasing. Units of 6MW and above account for nearly 60%. The larger the fan, the higher the reliability requirements, which means that there is more room for profit improvement. As prices pick up, the fan business is expected to turn a loss into a profit in the second half of the year.

The wind farm will continue to bring stable cash flow and high profit margins to the company, and the wind farm business is closely linked to overseas business. The company has expanded its business footprint to 6 continents and 40 countries. Currently, the main overseas fixed assets are distributed in Australia and Argentina. As more overseas projects are launched, the overseas business will continue to grow at a high rate, driving the continuous growth of the wind farm and the company's revenue.

From an industry perspective, the number of installed fans around the world continues to increase. GWEC expects the CAGR to reach 8.8% in 2023-2028, while the domestic economy will maintain a double-digit growth rate. In addition, emerging countries are growing rapidly. Taking onshore wind power as an example, the Asia-Pacific region will grow 106% year-on-year in 2023. According to Bloomberg New Energy's financial statistics, in 2023, the company added 20% of the domestic market share of domestic wind power installed capacity, ranking first in the country for 13 consecutive years, with a global market share of 13.90%, ranking first in the world, and maintained a leading position in the industry for many years.

Overall, the fundamentals of Goldwind Technology have reached an inflection point. The only variable is that the fan business will receive feedback on performance as prices recover. The wind farm business and overseas business are developing well and are stable on the growth channel, and other businesses will also improve along with the core business. The company is also in a leading position in the industry, with a stable market share. From adjustment to recovery, the industry is always the first to seize opportunities and take the lead in increasing business profits.

Goldwind Technology attaches importance to shareholder returns and attracts value investors through a stable dividend+repurchase policy. This year's “double recovery” is only the beginning, and the valuation is still at the bottom, and it is worth paying attention to in the long term.