Windicator: Strong second quarter helps with August share blues

WORLDWIDE: Wind company stocks took a battering in the summer as equity markets declined across the globe, but this was not enough to dampen the growing sense of optimism in the sector on the back of another strong set of quarterly results for Q2.

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China's currency devaluation in August prompted a rout across asset classes and geographies, with energy stocks hit particularly hard as commodity-related companies tumbled more than any other industry. However, reporting in early September, there is every sign that wind-turbine industry fundamentals are improving as all of the companies followed by the Windicator demonstrated solid progress and industry analysts continue to strike a positive note.

In China itself, Goldwind's half-year results showed a 110.9% surge in revenues over the first six months of last year, while its H1 net profit of CNY 1.25 billion ($195 million) represented a 276.6% increase on H1 2014. The company did not publish separate quarterly results, but a comparison of Q1 and H1 data reveals that Q2 revenues were up 127.3%. Q1 net profit was under CNY 250 million meaning it added around CNY 1 billion of net profit in Q2 — an extraordinary result.

The firm attributed its strong performance, which was broadly in line with guidance it issued in early July, to the steady development of the wind sector in China. Guidance issued by Credit Suisse at the end of August suggested that Goldwind will expand its market share in 2016 on the back of economies of scale and an increasingly favourable product mix. It also said that Goldwind could benefit from China's currency devaluation because of its overseas sales exposure.

Goldwind's stock was hit hard by August's equity decline. In mid-June, before concerns began to mount about growth levels in China, it was up 73.6% for the year. By 4 September, it was up just 6.5%. But despite continued worries about China as a whole, analysts remain positive on Goldwind, with 61% rating it a "buy" and 33% a "hold".

Compatriots Ming Yang, included for the first time in the Windicator, posted a 67% increase in revenues. Disciplined cost management helped it to achieve a 364.8% operating profit rise, and its net profit of CNY 68 million was almost a five-fold increase over its Q2 2014 figure of CNY 11.7 million.

Like Goldwind, Ming Yang's stock surged during the first half of the year only to slump heavily in July and August. Having climbed 67.6% by early May, the stock was back in negative territory by early September at -9%. Analyst opinions on Ming Yang are not available.

Elsewhere in Asia, India's Suzlon posted its first net profit in 3.5 years — 14 quarters — as expenses were nearly halved and the company benefited from one-off currency gains. Despite revenues being down 43.8%, earnings before interest and tax (EBIT) improved significantly as the company turned an INR 934 million ($13.9 million) operating loss in Q2 2014 into a INR 1.2 billion operating profit this year.

Suzlon's Q2 net profit of INR 10.4 billion compared to a loss of INR 7.5 billion in the second quarter of 2014. Suzlon said it had reduced its net debt (excluding foreign currency convertible bonds) to INR 70.1 billion from INR 148.2 billion on 31 March and also brought its interest cost down by 36% quarter on quarter.

Despite taking a hit in August with the global stock sell-off, Suzlon's stock was up 42.3% on 4 September. All three of the analysts surveyed by Reuters who follow Suzlon rated the company a "buy" at that time. Nomura noted that the company has gone through "multiple crises" over the past five years but is now a "potential turnaround story" after substantially repairing its balance sheet.

In Europe, Vestas posted its seventh straight quarterly profit and beat analysts' expectations on the back of a surge in orders in the first half of the year. Its Q2 net profit of €125 million ($139.5 million) comfortably exceeded both its €94 million Q2 2014 profit and the average €98 million prediction of ten analysts surveyed by Bloomberg. It came on the back of a 30.4% increase in quarterly revenues and a 39.4% rise in operating profits.

Speaking to Bloomberg, Jacob Pedersen, an analyst at Denmark's Sydbank, said of the results: "It's a demand story for now, but it's also a question of all the efficiency measures that have been put in place over the past few years."

Shares in Vestas fell after publication of the results. This was probably partly due to slight disappointment that management did not raise guidance, although it coincided with the wider sell-off in the markets. Nonetheless, the stock price was still up 45.9% for the year at 4 September and remains one of the strongest performers on the Stoxx Europe 600 index.

Vestas raised its 2015 guidance in May and some analysts now expect it to do so again in its Q3 earnings report, having declined to do so in Q2. Sentiment towards the company remains bullish in general, with just under 65% of analysts covered by Reuters rating it a "buy".

Gamesa's share price also slumped badly after more than doubling earlier this year. At 4 September it was up 64.7% for the year, having reached 110.1% in late July. Investors, who piled into the stock to benefit from the surging demand in China, Brazil and India, exited in numbers amid growing concerns about the growth prospects of emerging markets.

The firm posted another strong set of quarterly results, including a 20.5% increase in revenues and a 44.8% surge in operating profits. Its net profit of €35 million compared with one of €25 million in the same period a year earlier.

Like Vestas, Gamesa did not raise guidance on the back of its latest set of results. However, it had previously done so as recently as June, when it said it expects to "substantially exceed the forecasts" it provided at the beginning of the year, and stated it intends to double profits by 2017.

The company's optimism was backed up in a Societe Generale note at the end of August, which predicted double-digit revenue growth in 2015 and 2016 on the back of strong growth in key markets. Analysts in general are broadly positive on the stock — although less so than other wind stocks — with 44.4% recommending "buy".

Nordex's 50% surge in revenues was the highest of the European firms followed by Windicator, as was its operating profit of 130.6%. Its quarterly net profit of €R22.1 million compared with one of €7.4 million in the same period in 2014. The company attributed the performance to its ability to exploit economies of scale as well as strong demand.

Having fallen sharply in August, Nordex's stock was up 61.9% at the end of the first week in September. More than 70% of analysts rated the company a "buy" at that time.


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