Preannounced 1H24 earnings down 55.2-63.4% YoY

Titan Wind Energy preannounced its 1H24 results, expecting attributable net profit to fall 55.2-63.4% YoY to Rmb212-260mn and attributable recurring net profit to decline 52.1-60.8% YoY to Rmb217- 265mn. We attribute the significant drop in earnings in 1H24 and 2Q24 to three factors.

First, there was a YoY decline in shipments of onshore wind towers and blades in 1H24 as more installations are scheduled for 2H24. As a result, this segment contributed limited earnings. Second, the offshore wind power business saw limited shipments of pipe piles and jackets in 1H24 due to ongoing delays in construction. Third, the power generation business contributed limited earnings in 2Q24 due to weak wind speeds in Inner Mongolia. The profit of power generation built a high base in the same period last year as the new 500MW project in Inner Mongolia was not fully converted into fixed assets.

Trends to watch

Delivery in onshore and offshore wind industries was slower paced in 1H24 but likely to recover notably in 2H24. Demand for onshore wind power has been strong this year. However, the actual number of wind turbines has not increased due to the rapid growth in the per-unit capacity of wind turbines in the past few years. Generally, hoisting does not reach full capacity till end-2Q. We expect the firm's delivery of onshore wind towers to rebound markedly HoH in 2H24.

Due to delays in project construction in some regions, especially in Jiangsu, project delivery, for both the firm and the industry, was weak in 1H24. We expect construction to accelerate in 2H24. Many projects will likely start construction in Jiangsu, Yangjiang, Zhejiang, and Fujian. We expect the industry to see a small installation rush in 2025.

Strategic focus on offshore wind business; construction of power station projects to contribute earnings growth. By the end of 2023, the firm had commenced operation of 950,000t of offshore wind capacity in Jiangsu and Guangdong, and continued construction of a 300,000t/yr jacket factory in Yangjiang (Guangdong) in China. In overseas markets, the construction of a 500,000t/yr pile factory in the home port of Cuxhaven in Germany has commenced. We believe the firm will continue to focus on the offshore wind business and expect it to contribute earnings in the next few years amid an industry uptrend.

Power station: The firm connected a 200MW power station in Hubei to the power grid in early June. The construction of new projects is underway. This should contribute to long-term earnings growth.

Financials and valuation

Given weaker-than-expected growth in the offshore wind industry and profit from the firm's power station business, we lower our 2024 and 2025 net profit forecasts by 23.3% and 10.4% to Rmb1.10bn and Rmb1.62bn. The stock is trading at 13.0x 2024e and 8.8x 2025e P/E. We maintain our OUTPERFORM rating, as we are upbeat about the firm's efforts to expand its presence in offshore engineering and its power generation business to contribute incremental earnings. Despite lower earnings forecasts, we think the temporary industry pressure has been largely priced in, and we cut our target price 13.7% to Rmb10.97 (18.0x 2024e and 12.1x 2025e P/E), offering 38.2% upside.

Risks

Rising raw material prices; slower-than-expected construction of new capacity; disappointing demand for installed capacity.