Goldwind Science&Technology Co., Ltd. (002202) Earnings Call Transcript & Summary

Moderator, and they are now in the meeting, and now you can start meeting the call today, please. English investors, good morning. I would like to thank you for being part of the Goldwind 2020 Annual Result Release. I'm the IR, and my name is Guo Zimo. Today, I'm very happy to welcome our executives to be here to talk to our investors. We have Cao Zhigang, the Chairman of the company; Vice Chair and the BOD Director, [indiscernible]; as well as our VP, Mr. Ma Jin. Well, today, I would like to welcome Mr. Ma to walk you through the business review of the industry, our operations and financials and outlook of our business. And then we will get into the Q&A session. I'd like to remind all the investors, and please pay attention to the dial-in key of the QA session. Thank you. Thanks.

Thanks for all the investors to join us for this annual results release. Please go to Page 3. In 2020, the wind power market grow very well. And the global and new installation is 96.7 gigawatts. And around 90.2 gigawatts are for the onshore and 6.5 gigawatts for the offshore. On the right side, it shows 2020 new installations and mainly comes from 2 markets, including China and the U.S. and driving up by the feed-in-tariff results and the product tax credit policy, respectively. Please go to Page 4, and Page 4 shows the 35-year plan, national plan period for grid connections to be further improved. In 2020, China record 70.167 (sic) [ 71.67 ] gigawatts of the new grid connection increased by 178.7%. Onshore wind added 68.6 gigawatts and offshore wind added 3.06 gigawatts. At the end of 2020, China's cumulative grid-connected wind power capacity ended with 281.5 gigawatts, taking 12.8% of the China power mix. Thermal power declined to 56.6%. On the right side, you see the electricity production. In 2020, China's total power consumption was 7,511 billion kilowatt hours, an increase of 3.1% and the 466.5 billion kilowatt hour of wind power production represents an increase of 15% and a penetration ratio of 6.2%. And we say that the penetration ratio is being further improved, but we still see a big gap. And for Denmark, this number for the wind power penetration is already 28% (sic) [ 48% ]; Germany, 27%. And you see that for the European countries and -- their wind power shares are all above 10% in 2020. On Slide 5, and the national average wind utilization was 2,097 hours. In 2020, up by 15 hours relatively of 2019. . Fujian, Yunnan, Sichuan and Guangxi demonstrated highest utilization. National average curtailment rate was 3%, decreasing by 1%. y. Xinjiang, Gansu and west Inner Mongolia decreased most significantly. On the right side, you see the cost advantage. The LCOE dropped to USD 0.047 kilowatt hour in 2019 reduced by 30.9%. And an average cost -- construction cost lowered to USD 1,222 kilowatt decreased by 13.7% compared with 2015. And let's see the Chinese public tender market. In 2020, the domestic public tender market totaled 31.1 gigawatts. Onshore for 24.9 gigawatts and offshore, 6.3 gigawatts. On the right side, it shows us the average bidding price. You can see by the end of last year, the 2.5S-series turbine record RMB 3,271 kilowatt and the 3S-series turbine record RMB 3,098 kilowatts. And let's talk about the state policy and there are many products that's being issued in order to guide the healthy development of the market. For example, the Notice on the 2020 Wind Power and the Solar Power Project Construction, and the Wind Power Investment Monitor and Warning as well as the Notice on the Issuing 2020 Renewable Energy Consumption Reasonability Quota for Provincial-level Energy Bureaus. On the right side, it shows the non hydro renewable power consumption responsibility code in 2020. And we have 9 provinces that has minimum non-hydropower responsibility quota exceeding 15%. Now let me walk you through the business review. In 2020, our turbine manufacturing and sales keep the #1 market share in the world and 6 consecutive years as a top 3 in the world. And you can see the penetration of the net profit is more than 30%. We have 7 R&D center worldwide. We have more than 5,000 patents, and around 3,300 being authorized. We joined 246 standard making in and outside China. And we also joined hands with 500 suppliers to build an industrial environment together with green development. On Slide 10, it shows the 4 segmental results. In 2020, for the manufacturing and sales for the turbine, the revenue was up by 83.1%. And for the wind power development, and this development is more than CNY 4 billion. And for the wind service, it's more than CNY 4.2 billion. And for other business, it accounted for 2.1% of the total business. On the next slide, it shows wind turbine sales performance. In 2020, our external sales capacity reached 12,938 (sic) [ 12,932 ] megawatts and representing an increase of 58.3%. Sales of the 1.5 megawatt-platform products totaled 302 megawatts, accounted for 2.3% of the product mix. Sales capacity of 2S-series product, which -- 10,714 megawatts, representing an increase of 51.2%, taking up 82.9% of the total sales volume. And the sales capacity of 6S/8S series of product totaled 482 megawatts, an increase of 90.2%, taking 3.7% of the total sales volume. And the next slide shows you the order backlog. And at the end of 2020, we have a total backlog of 60.1 gigawatts. External order accounted for 14.4 gigawatts, and including 3.6 gigawatts of successful bidding and the 10.8 gigawatts for signed contract. On the right side, it shows the external order mix by the end of last year. And for the 2S-series product took the highest proportion of 45% in the order mix, reaching 6.4 gigawatts of the total external order. For 6 and 8S-series turbine and it's external order is around 2.2 gigawatts with 15% in the order mix. Next page shows our business expansion. By the end of last year, our overseas external order backlog is 1,996 megawatts, majority of them in Vietnam, Kazakhstan, Pakistan, Chile and Philippines. Overseas attributable under construction and pipeline capacity reached 1,097 megawatts, mainly in Argentina and Australia. Benefiting from the overseas strategy, and we made one [indiscernible]. By 2020, overseas order backlog and cumulative exports doubled compared with 2016. And the export during 13th 5-year plan period quadruped from the 12th 5-year plan period. And then we also talk about the wind power generation. By the end of 2020, our attributable grid-connected wind power project totaled 5,487 megawatt, of which 32% Northwest region. And in 2020, we added 1,238 megawatts of the attributable, grid-connected wind power capacity at home and abroad and 1,058 megawatts in China and disposed of 437 megawatts. At the end of last year, company's attributable, under construction wind capacity at home and abroad totaled 2,818 megawatts. Capitalized wind project in China totaled 2,301 megawatts. On the right side, it shows the grid connection by region. Next slide, in 2020, the company's self-run wind farms record 2,223 hour utilization, 126 hour higher than the industry average. At the same time, benefiting for our installed fleet and O&M experience. And we maintained very good [ house ]. By the end of last year, our under operation capacity totaled 14.12 gigawatts, quadrupling the number in 2016. Next, let me share with you the financial results. On Slide 7 (sic) [ 17 ], you see, this is the breakdown of the financials. In 2020, the revenue is CNY 56.146 billion, up by 48.2%. GP margin is 9.647 billion, up by 38.5%; GP margin, 17.2%; EBITDA CNY 6.114 billion, up by 15.6%. EBITDA margin, 10.9%. Attributable net profit is around -- and CNY 2.964 billion, up 34%; net profit was 5.3%. Quarterly financial results is that in Q4, the revenue is CNY 19.234 billion, up by 42.4%. Gross margin, around CNY 3.5 billion, up by 18.6%. Recurring net profit in Q4 is the CNY 907 million, up by 372.6% with 4.7% GP margin. And attributable net profit in Q4 is 894 million, up by 44.4% with 4.7% margin. And from Slide 19 to 22, we have the segment total sales. First of all, let's talk about wind turbine and component sales. In 2020, revenue from the sales of the WTGs and the components totaled 46.659 billion, representing an increase of 61.7%. And the segmental GP margin was 13.9%, up by 1.9 (sic) [ 1.5 ] percentage. And then let's talk about wind farm investment and development. In 2020, revenue from wind farm investment operation is CNY 4 billion, represent a decrease of 5.6%, the GP margin was up. And for wind power service in 2020, revenue from the wind power service totaled around 4.434 billion, representing 24.2% growth. Other business includes the water treatment investment technology, financial investment, equity investment, the total segment revenue is RMB 1.035 billion. And let's talk about operational efficiency. In 2020, the company made the net profit -- net operating cash flow totaled RMB 5.38 billion. And at the same time, you see the cash conversion shortened from 4 days -- shortened by 4 days to 52 days. In 2020, the company strengthened inventory management and the inventory turnover shortened 22 days Y-o-Y to 62 days. At the end of 2020, company debt service index remained healthy. And at the same time, the cash equivalent increased to CNY 8.274 billion. The company's net debt maintained the same level with 2019. The net gearing ratio was 43%. Okay. Let's take a look at the future development and outlook after talking about the financials. At the very beginning of the 14th 5-year plan, let's look into the development of the wind power industry. Please go to Page 26. You say that by the end of 2026, many countries may propose the carbon neutrality target. And for U.K., Canada, Chile, South Africa, New Zealand and Japan and South Korea. They said they're going to achieve carbon neutrality by 2050. China also said we're going to hit the carbon neutrality in 2060. A globe-wide green development consensus outlines broader prospectives for the future of the renewable energy. Wind power is very important part of the renewable energy is going to embrace a bracing future. And on the Page 27, on the left side, to say that as a major contributor to carbon neutrality, onshore and offshore wind installation is going to grow steadily, with the research institution predicted 5.4% of the global average annual growth rate between 2019 to 2029, and emerging markets and developing countries grow most prominently. On the right side is talking about the power generation. By the end of 2050, renewable power will take as high as 69% of the power mix, wind an solar power will expand to 56%.while the fossil fuel will decline to 24%. And according to Bloomberg, the carbon emission by power sector were expanded to decline by 8.6% Y-o-Y. To control the temperature rising within 2 degrees, USD 7.8 trillion need to be invested. And at the same time, in China, we also mentioned about the carbon neutrality, it will also bring more opportunities to the wind power development in China. And on the Slide of 28, we show the China's commitment for carbon neutrality. And in China by [ 2023 ] and the nonfossil energy will take around 25% of the primary energy consumption. As we mentioned -- NEA mentioned, in 2020 that China's total installations of the wind and solar power will reach 1.2 billion kilowatts by 2030. And you say that China and currently, the carbon emission is -- need to be decreased. Therefore, the proportion of the renewable energy will keep increasing. The NDRC also mentioned that nonfossil energy will account for 78% of the power consumption by 2050, of which wind power takes 38.5%, and -- meaning that wind power is going to be the dominant form of the energy sources. And that's why we also started our carbon neutral practice. And in 2020, we have already made the Life Cycle emission assessment, and we find out, actually, the carbon emission of 7.25 gram per kilowatt hour electricity generated and the 2.6-month carbon emission offset cycle and 6-month energy payback circle. And we also see that wind power has become the most economic in the green power format, which will further consolidate our confidence for the carbon neutral development. On the right side, it shows our carbon neutral parks. And we set up our carbon neutral park in [ Yizhuang, Beijing ], of China. And we're setting the total greenhouse gas emission in the park to offset all greenhouse gases emitted by the park making it the first carbon neutral demonstration park in China. And next page, we show the sustainability and ESG. The company for many years, and we will be included into the MSCI ESG Leader Index, Hang Seng Corporate Sustainability Index and Hang Seng Good Index Series (sic) [ FTSE4Good Index Series ] as well as the Corporate ESG performance, and we also good -- did very good ratings. And for example, for CSI ESG, we have the AA rating. And at the same time, we will also be included into the ESG data and also with AA ranking from the Hang Seng Corporate Sustainability Index as well as the CSI Sustainable 100 Index, Beautiful China ESG 100 Index and ISS ESG Index with a B- rating.

Thanks for Madam, Ma. Next, I would like to leave the time for our investors for Q&A. [Operator Instructions] Next, let's welcome our operator to gather investors in. And operator, please help us to gather the first investor in. Thank you.

[Operator Instructions] The first question comes from the Citibank, Mr. Li.

I have 2 questions. The first question, is it possible for the executives to give us some guidance on our wind turbine cells as well as your GP margin projection. Second question that regarding the 14th 5-year plan for your wind farm development. I'd like to know during this 14th 5-year plan, will that stick to 1 gigawatt of the wind farm development per year, or we are also going to change this plan during the 14th 5-year stage?

Thank you very much. And just now, you mentioned 2 questions. The first question. And our guidance 2021, you can hear from the introduction we made and we have the carbon -- peak carbon emission and the carbon neutrality policies made by China. And as you can see, in China, the NDRC also provide a micro guidance. And the total volume would be more than -- a big development would be [ forcing ]. And also in 2021, every year, our new market capacity, especially for the wind market is going to further enlarge. We have some inventory wind farm need to be approved and then be connected to the grid. It has a relatively fixed cycle and such fixed cycle would be more than 12 months fees and even 80 months fees for some of the projects. And that's the reason from the government's policy or from the industrial development, we foresee that in 2021, on one side, we needed to be proactively building our capacity in the market, where from the industrial perspective, in 2021, we can clearly see that after the peak installation happens in 2020, many of the wind farm developments and then they already have a lot of less inventories that are waiting for the further development of the wind farms. So that's why in 2020, for domestic market, for the installation and we believe it's going to be 35 to 40 gigawatts for the wind farms. While regarding the 2021 for Goldwind in the market. And our forecast is around the 10 gigawatts for the sales. But go to the second question you mentioned. You mentioned about the 1 farm development in 2021. Regarding the GP margin of the wind turbine sales, you can see that for 2020 compared with 2019, and we made a decent growth of the wind turbine sales GP margin, and it's increased from 12% to 14.4%. And in this year, in 2021, this GP margin will still go up to 18%, as mentioned by us in 2020. And that's for the sales and the GP margin for the wind turbine sales. Well, the second question was asking about the wind farm development. And strategically, we do make some slight changes last year. And our new installation would be around 1 gigawatts for the wind power on annual basis. But because of the 2030, 2060 carbon related energies made by China market. And every year, the newly added, connected grid wind power would increase from -- start from 2023. So in 2021, our target is that on one side, we will make sure that every year, we will have at least 1 gigawatt or 1.5 gigawatts grid-connected installation on a yearly basis for our self run wind farms. And for 2021, we also need to build our inventory for the 14th 5-year plan development. And that's my answer to your second question.

Next question comes from Qian Hao of Everbright Securities.

I have 2 questions. The first question. We see that in 2020, in the whole industry and we have many new installations. And we also did a very good sales compared with 2019. But to say that in China, in 2021, and you may also have your own forecast for this market. Are we going to have -- what would be the market share of this year? And how can we maintain our market share to make sure it will always increase in 2021? This is my first question. The second question is that from H2 of last year, the tender and the feed-in price for the wind turbine product was fluctuating a lot. And how can we make sure we have some cost control over the wind turbine manufacturing to guarantee the GP margin could be attained?

Well, regarding the forecast of 2021, I already mentioned a few statistics. And those numbers are also relevant to our market share. And regarding the new installation of 35 to 40 gigawatts of this year and our targeted shipment would be around 12 gigawatts. And some of them would be for our self-operated wind farms, where around 10 gigawatts will be sold to the client. And regarding the market share, you see from the third-party industrial agency, and in 2020, a clear feature that the top 3 and the top 5 player in 2020 are going to see a very distributed or kind of scattered market share, and they are taking majority of their market shares. Well, for last year, the great connection volume and the delivery volume for 2020 along with the finished constructions in 2020, and also along with some inventory projects from 2019, and some of them, the project has been done without the grid connection where some projects are still under construction. And that's why those factors are contributing to the performance of 2020 for the home market. But one change I can note is that in 2020, the market share has been further taken by the top 5 and top 3 players in this market. And it also clearly shows that the production capacity of the whole industry can truly be capable to cater the needs of the 2060 carbon neutrality target. So these will also help us to release a good signal for future cost reduction. And besides -- talking about the market share, in 2021, we were -- still made good progress, try to make good progress. Well, besides our market share guidance, we will also pay special attention to the high-quality order rather than just sticking for a lot of order numbers. And we want to have as much as market share, but at the same time, we need to be responsible for our shareholders. GP margin is one indicator to assess our performance. But more importantly, we should also consider those high-quality contracts or the high-quality orders that we can obtain from the market. So to make sure we will be responsible for our shareholders, we need to keep a simple mind in order to save the opportunity in this market. This is my response to the first question. Let me answer the second question. We were talking about from H2 last year, we started to see the decrease in price for the wind turbine sales, how can we guarantee the GP margin in 2021? I have to say that right off the February of this year, we see the price rebound. At least we see that the rebound is clearly seen. The price was up by 150 to 200 per kilowatt hour. But how do we improve the GP margin in the near future? On one side, we need to further improve our operational efficiency. I have a few mention -- points to mention to you. First of all, we need to reduce costs and improve working efficiency. And we have to have a generalized platform in order to help to produce multiple products. And we also further optimize the existing product portfolio and also optimize the models for each of the products based for the lean management in order to optimize the product portfolio. And at the same time, we also optimize the processing technology. We leverage outsourcing and self-development as well as the OEM to reduce the cost optimizing the GP margin will guarantee the quality. And at the same time, we can leverage the R&D capacity of our suppliers to work with us, to adopt a new material, new design and new technology. In this way, it can also help us to boost the GP margin. And the fourth part is on the operational efficiency. We still want to further improve the production capacity distribution here in China so as to improve the GP margin. While regarding the new generation of the product, we really want to leverage those most competitive new technology and launching the flagship product to further improve the competitiveness of our product in the market. On the other side, for Goldwind, we also enjoy the service advantage in the market. And we also made good progress of speaking to the right technical road map. And in the next few years, we will pay more attention to the life cycle reduction of the LCOE. So you can see that we will be able to cash out on such optimization and then contribute to the GP margin increase for each turbine.

Sorry, a follow-up question from me. Mr. Cao, you mentioned about the market share. Then a follow-up question from me is that if in 2021, we see a decrease in installation compared with the last year, is it means that this year, we're going to have a serious competition? What would the action be taken by Goldwind?

Talking about the market share, we also have an internal target. And last year, we hoped the market share would be 21%, while for 2021, the market share we hoped to achieve would be 25%. You also mentioned about that in this market, we have a fairish competition, especially from the price side. You see a decrease in trend was there, especially for the public bidding and the tendering market. As I was talking to our clients recently, there are 2 positive signals we can capture. On one side, for many of our clients, in the 14th 5-year plan, they have very aggressive project construction plan. So during the 14th 5-year plan, I think the volume of the wind power market is still going to be up. Another positive signal is that the clients, they were also reviewing the development of the whole industry for the past 15 years. Every time after the peak installations being done, there will be some problems in this market and the market need to pay attention on how to digest those problems. Many patients pay attention to the leveled cost of the electricity. Whilst the unit's being put into operation, when the wind farm has been put into operation, during the operational stage, and we should also guarantee the quality of the electricity production. The RCOE reduction is also a great concern for many clients. So that's the reason, even if you see fairest competition in this market. But right after the peak installation for example, what used to happen in 2010, 2015, we used to see the peak installations in both years. After those peak installation periods, clients may become more rational of investing in further projects.

[Operator Instructions] Next question comes from [ Dongwu Securities ].

I have a question to all of you. First question. I'd like to ask the executives to share your comments on the installation including onshore and offshore of the whole industry, what would be the trend? And another question that weighs the peak carbon emission by 2030. And for our downstream farms [indiscernible] or some state-owned companies, what will be their plan for the wind power development in the near future. Because many people believe they still are going to see a decreasing installation. So many clients may still hesitate if making further investment in wind power industry. Therefore, the executives, would you mind to share with us, your comments on the industrial development, especially on the installation side. And last year, I see the tendering volumes being down by 50%. Well, for this year as far as I see from the project number, what would be the public tender and bidding market look like for 2021? And my second question were regarding the GP margin and the delivery of the wind turbines. You have a very good backlog. So would you like to share with us, besides 2021, and what would be your forecast for the delivery of the wind turbine in market? Recent years, we also see the turbine products see a decrease in price. And also the component is also decreasing the price. So with those decreasing trend of the turbine product and the components, what would be the GP margin in the near future? You mentioned that for this year, the GP margin would be around 80%. So in the longer run, what would be the GP margin for the next few years? And how about the GP margin for the offshore wind park? And another question is that last year, in your profit mix, wind farm development is taking a very big part. So what would be your forecast this year?

The first question is talking about the installation of 2021. One point I'd like to mention is that with carbon emission and the carbon neutrality policy, in the near future, a wind power and solar power development will see a very promising future. There's no doubt on that. You mentioned right before the 22nd of September last year, there used to be a situation, especially as the international wind energy summit held in Beijing, right before that meeting's being held, there are so many uncertainties in our industry. But when the key carbon emission and the carbon neutrality products has been confirmed by Chinese government. For NEA, for NDRC and for Environmental Ministry of China, all the ministries are trying to formulate the road map in implementing the peak carbon emission and carbon neutrality policies being issued by China. This is already the confirmed direction we'll go forward. And another piece of information that in 2020, for many of our clients, especially those one who enjoy the subsidized projects. And they have a motivation. They hope that project could be connected to the grid so that they can enjoy more subsidies for the electricity produced from the government. So that's why in 2020, we have a great volume of the grid connection. And on the other side, last year, the things, we had a decreasing backlog. The reason because in 2020, we have many projects being delivered and many projects being connected to the grid. Where in 2020, we have less under constructed projects. And that's why in 2020, we have less backlog. Well, to be specific in 2021, I mentioned within that 35 to 40 gigawatts of the installation, the offshore one would be around 8 to 10 gigawatts. And the rest part will come from the onshore installation. Well, the greater challenge we have in 2022 is still on the offshore side. And by the end of this year, when the offshore wind farms being connected to grid, and those offshore wind farm is going to enjoy the subsidies from the government. But still, the policy is not 100% clear from the government perspective. But I think the government, they may reissue some new policies regarding the electricity production subsidies for the offshore wind farms. So from 2022 on, we may see less offshore installation. But the onshore installation will compensate on the decrease in offshore installation from next year on. And that's my judgment and my forecast of the industry by 2021.

Let me give you more information for those questions. Mr. Cao mentioned the outlook of the whole industry. And then you also asked about the situation for the public tender and bidding and the offshore delivery of the market. And we're going to see a high level of the public bidding and tendering. It's around 35 gigawatts in 2021. While for the offshore installation, for how industry, it would be 8 to 10 gigawatts. We are about to deliver 2 gigawatts for the offshore part of this year. For your final question, you were talking about the transfer and the development volume for the wind farms. And Mr. Cao mentioned that during the 14th 5-year plan, we will also further strengthen our assets in developing more wind farms. We hope that we can also seize opportunity for the wind farm development in China. As far I see that the newly added grid-connected volume would be 1 to 1.5 gigawatts. If this number is achievable, then around 700 megawatts wind farms will be delivered, will be sold to the market by us.

Next question come from Morgan Stanley, Madam Hou.

Okay. Mr. Cao, Mr. Madam Ma, I have 2 questions. The first question. You know that last year, in 2020 we delivered many of the installations in this market would be the 1 for the offshore market. And in Q3 last year, you also mentioned for your overseas exports, the GP margin would be slightly lower in that of domestic China. So would you like to share with us that the GP margin for domestic China and the GP margin for the export business? This is my first question. Well, for the second question, you see that from H2 of last year, our 2S-series platform seeing a good GP margin where for 3S and 4S products, the GP margin was decreasing compared with H1 of last year. So what's the reason?

The first question, you were asking -- hi, Eva, can I -- we delivered more than 40 gigawatts of the installation to the market, then you'd like to know the mix of the GP margin?

I remember in -- in Q3, you mentioned that export business showed slightly lower GP margin. So I would like to know what's the GP margin for the domestic business and the overseas business? Thank you. Mr. Cao?

For all of our turbines, the GP margin is around 40.4%, including components for turbine, and it's around 40.7% for the GP margin. Excluding the overseas business, domestic China business, the GP margin is 15.3%. We are sure in 2020, due to the COVID-19 pandemic and also due to the geopolitical reasons, the overseas business see a decrease in GP margin, which led to a relatively lower GP margin for the whole business. We are talking about last year, we have -- more than 1 gigawatt hour has been sold for the overseas business, and you can go back to our annual report to see that. Last year, the overseas business is around 1.3 gigawatts. And another thing I'd like to mention that we should never compare GP margin in domestic China with this market so easily. In domestic China, there are 2 parts for the wind farm development. On one side, we give our product to wind farm developers and fish and the client is responsible for the installation side. And after the -- our products being connected to the grid, we're going to have 35 years of the warranty period providing the service. And that's for the domestic business. While for the overseas business, it is way included into the turbine sales, but the delivery scope is somewhat different in overseas markets. On one side, we need to deliver the product to the customer right before a write-off of the products. We will also be responsible for the overseas logistics, which means from the port to the wind farm location. We're responsible for the shipping and the transportation of the product. And also the lifting and installation of the product will also be covered by us. It's already be stipulated in the contract. And we also provide a 2-year warranty support to our overseas clients. So you say that the business stock for domestic and overseas business are different, which will lead to the difference on the GP margin. But this is not a contributing factor why the GP margin for overseas business was low in 2020. The fundamental reason is still because of the COVID-19 and -- because of pandemic, we see the delay for the product execution and the delivery of the product to overseas clients. So we took a very prudent attitude. All the products -- product delay and the projects delay because of the COVID-19 are all built into the financials of 2020. And that's why you see the difference for the GP margin for domestic and overseas markets. Well, in 2021, with new development and the difference between the GP margin for domestic and overseas market won't be sustained at that home. Another question was talking about the product series, right?

Yes. Another question is talking about the product and talk about the GP margin of different products in H2 compared with H1 of 2020. We see that 2S product, its GP margin was increased from 11% to 15% in H2, but for 3S and the 4S product, the GP margin in H2 were lower than H1. What's the reason? Is it also -- what's the reason? I'd like to know that.

Eva, let me say a few words on these questions. Every year, they're in window period as product delivery, and there are some uneven distribution of the projects being delivered. I think a majority of investors or institutional investors have worked for many years. Every year, in H1, we probably only finish 1/3 of the product that's being delivered. And general speaking, 25% to 30% of the order will be delivered in H1, while majority of the other or 2/3 of the order will be delivered in H2 of the year. Now that's the situation we have. So that's why we have some uneven distribution of the order delivery in H1 and H2. And that's why we also have a different GP margin in H1 and H2. And that's the fundamental reasons why we have the different GP margin for the same product in H1 and H2. But one message is clear that in H2 of the year, every year, we have improved the GP margin for all products.

Next question comes from Banda Foundation.

Madam Ma and Mr. Cao, I have a question in talking about the marine engineering product. I'd say from the offshore wind -- I mean offshore wind energy. I say from European market, the offshore wind, the turbine manufacturing cost is also very high. And its construction cost is almost the same as ours or even sometimes slightly higher than ours. But I'd say that their electricity price for the public tender and bidding would be around RMB 0.40 per kilowatt hour. So I would like to know why the electricity price for the offshore wind power would be so low in European countries? Is it because of the scale effect and why can China you made such a low electricity price for the offshore market?

And then this is also an issue that is going to impact our outlook in the next 3 years. This is a very good question. Let me walk you through some statistics. For the offshore business right before the year 2019 and without the peak installation happens, you know that at that time, after 5 to 6 years from the 12 5-year plan to 13 5-year plan, every year the offshore wind installation wind farm operation, modulation and operations being further improved for Jiangsu facilities. And generally speaking, the cost is already 60,000 to 50,000 per kilowatt hour. And for Fujian province, the cost is 80,000 kilowatts. This is during the nonpeak season. While for 2020 and 2021, with the peak installation happened last year. And the engineering cost for the wind farm development increasing dramatically because of the lack of resources. And another issue is because the offshore wind farm is too distant from the land. And that's why in 2020 and 2021, the CapEx of the offshore wind farm makes the power generation cost, elevated a lot, especially in Guandong province. The highest cost is already 21,000 per kilowatt. And we believe this is truly abnormal, but such abnormal growth, I mean, after the year 2021, it will definitely go down. This is confirmed piece of information in this industry. And after 2 years development, the cost of the product in 2020 will also be further optimized. And that's for the offshore wind power manufacturing costs for -- per kilowatt, where we believe by the year 2022, the offshore wind power manufacturing costs would no longer higher than 2020. And it's even going to see a RMB 2,000 decrease per kilowatt compared with 2020. We're still very confident on that. And you mentioned about why the power generation price in domestic China and the overseas market for the offshore market are so different? Why in China, the manufacturing cost is low -- the production cost is low? But why the ultimate electricity price is higher in China? You know that in Europe, many of the wind -- offshore wind power, the wind farms and their electricity delivery infrastructure will be done by the power company and the wind farms will not take part of that. Where they have a big impact on the liberalized cost of the electricity. We made a brief calculation and for each kilowatt, the impact would be 1,500 to 200,000. Well, with the different distance of the wind farm to the land, the impact would also vary. The second impact is that for the wind farms in European countries and their capacity is many gigawatts for each wind farm. So they have a very consistent operation. In China, we're also trying to level up the capacities of each wind farm. Now according to the new developments, for each wind power, the capacity will also be further improved. But there will be some buffer period for us to further level up the capacity of the wind farm, so as to improve the efficiency and reduce the cost. And another big difference is for the wind sources. In European countries, for the wind farms, the utilization rate is always higher than 4,000, sometimes more than 3,000. The majority of the wind farm utilization is more than 4,000 hours. While in China, we have a big regional difference. For example, in Jiangsu province, in Northwest part of China and the utilization used to be 2,000 hours. Now it can reach 2,500 hours. And by 2022, in Jiangsu in the east part of China, the utilization would be more than 3,000 hours. Well, in Guangdong and [indiscernible]. And there is also a big difference by region, some can reach 4,000 hours for utilization where some will still be lower than 4,000 hours. So you can see that the utilization will also impact the levelized cost to a great extent. And that's the reason we have a similar electricity product level in domestic China, but the levelized cost would be very so much in China than the European countries. This is probably not directly targeting your questions. My colleagues also mentioned about -- a lot about the wind farm operation.

Let me say a few words. This is very technical. And for the electricity project section and wind speed, and it's going to be a triple kind of relationship. The average wind speed in Jiangsu province is 7.5 kilometer per hour while in Europe, this number is more than 10. So in European countries, the wind speed to the power generation ratio is so different compared with China. So that's a reason we still need to further develop into the advanced technology for the offshore wind power generation. We have truly a tailor-made solution to each of the region because of the geographic difference.

Let's welcome the final investors to raise the question. Okay. Next question would be the final question for this release. Let's welcome [indiscernible] to raise the question.

I have 2 questions. First question is that in the year 2020, the business order increased by 30%, which is accident. So in the next 3 to 5 years, regarding our overseas business, how you're going to plan it for the future? And the second question is that talking about the depreciation and provision, and they already made announcement. So I'd like to know that what's the reason for asset depreciation for 2021.

Okay, let me break on the first question. For the overseas -- for international business, we have a very clear road map. In the international market last year, we have 1.4 gigawatts for the contracted order where for this year, we hope we can make it 2 gigawatts. We're still going to work aggressively to get more customers. Besides improving our product and solution, we will also work for the service and the non-guarantees or post-guarantee period of service for the customer. And therefore, majority of the client, after 2 years of the warranty period. And we will provide another 15-year of the wind farm operational and maintenance service. That's a booming market, globally speaking. And regarding ownership and operation of the overseas wind farms, besides working done in 2020, we will also try to optimize our overseas wind farms. And we see a very good performance for the business in overseas market last year, but it's mainly because of the sales of the products. And last year, in 2020, we have the 27 countries having our products being operated. We're going to further improve our country coverage in the near future. Talking about the asset depreciation, the company has already disclosed the asset depreciation. And the total volume is 420 million and many of them, this is not a big number, including the industrial asset depreciation and constructed project depreciation and the goodwill depreciation. And there's no special clarification being made by me. But in 2021 -- and we also made a provision of CNY 250 million. It's because some of our overseas projects, due to the pandemic situation in 2020, many of those ships and the transportation service are encountering the shortage, that's why we see an increase in logistics for the product delivered to the overseas market. And we have to assess the logistics cost. And to make sure -- and the logistics cost once increased, the cash out net profitability would be go down. That's the way, and we also made a provision of CNY 250 million for this year. Thank you very much. This is all. And please also summarize this release to our investors. Thanks for investors, and thanks for the institutional investors of -- being interested in our performance. And I see we have a limited time for this release. But later, we welcome our investors and institutional investors to talk to us one on one, and hope that we can have more in-depth discussions on this industry. And if there is any question, we're happy to take your questions. I'd like to spend a few minutes in summarizing what's being mentioned in the presentation regarding our performance in 2020 and the forecast of 2021. Madam Ma walked you through these slides, which is already comprehensive. But a few highlights still need to be made by me. First of all, last year, in 2020, we maintained the #1 position in terms of the product delivery or the solution delivery last year. At the very beginning of 2020, we see the pandemic outbreak. And last year, the market was worried about whether the production capacity can take care of the backlog we have. But by the end of last year, we still took the customer centric approach. We 100% delivered all the orders and the contracted projects last year. The total delivery is close to 50 gigawatts, up by 4.8 gigawatts. The sales up by 4.8 gigawatts. And these are the absolute value increase. On one side, it shows our business volume was increasing whereas at the same time, we also win the trust from the clients. From the very beginning, customer worried we won't be able to serve them. But by the end of the year, we proved that we are capable of serving the customer and deliver the solution to them, which laid a very solid condition for our future cooperation with the clients. This is the first point I'd like to make. And the second point is that in the year 2020, we also made good operational performance. On one side, we further improved our GP margin from 12% in 2029 -- 2019 to 50% in 2020. And then we aimed to hit 80% of the GP margin in 2021. Another big part is that we now have a well consolidated business mix. And you see that we have an increasing number of the projects connected to the grid. And our offshore product delivery is already close to 1 million kilowatts. And for the overseas market, we also see a very good development, which shows increasing momentum for further improvement. While regarding the service business, it was up by 24% and the total revenue is already more than CNY 4 billion. And another part, I'd like to mention that we also further improved our operational efficiency. The inventory turnover days being reduced from 84 days to 62 days. Our receivable turnover days already decreased to 180 days, and we also have to optimize the payable turnover days. The payable turnover days is 128 days now. Another part is that we stick to the accounting rules and policies. We made more provisions for the risk in 2020. Sufficient provisions and allowances has been made by taking a look at the future outlook. At the same time, we also further improved the operational efficiency. So as to well control the risks during the operational process. And the third point I'd like to mention that I think we still made a well production capacity to serve the customer need. And for the backlog, even if it's decreasing now for that 60 gigawatt backlog. And it can help to support our operation in 2021 and 1.4 gigawatts, the newly added backlog on overseas market will also further consolidate our operation for this year. And this year for the overseas market, we're going to see more sales and our delivery to the overseas market will be 1.5 to 2 gigawatts, and that's -- they have a capacity they would like to release to the market. Another very important piece of the information, I would like to mention is about the wind farms. We also made some resources reserved for the wind farms. By [indiscernible], it can guarantee that in 2021, the new wind farms could be launched in a timely schedule, and which can also support our future development strategy of translating the wind farms into more like a product. Another important point I'd like to mention is that in the year 2020, we made many strategic innovations and product preparation. All that will help us to work for the peak carbon emission by 2030 and carbon neutrality by 2060 National Policy. Last year, and we made a good performance. And in 2021, and it is also the first year for our third round of win development. And we're going to have more policies and the managers to make sure to guarantee our sustainable development. Regarding the strategic innovation, one point I would like to mention is that we set up our central research institution, building our technical know-how and product innovation in the pipeline. For this year, we're going to newly add CNY 1.5 billion of the R&D investment. And we were still work on 70% of R&D investment being made for products, 20% for technical development and the 10% for emerging and [indiscernible] technological development. By having such an R&D investment mix, it can keep our long-term competitiveness. Another part is that we should also take a look at the long-term business development. The current performance is the key for our investors and shareholders but sustainable development is also a strategy, and we hope to secure after the funding of these companies. We hope that we can have a sustainable development in the wind power industry, with the serious competition in this market. On one side, we need to optimize the levelized the cost of electricity while at the same time, we should also support the high quality product and solutions to the market. With such strategies, we work on digital simulation solution. And this year, we're also going to have new test bench being put into operation for 60 gigawatts. And we also made experimental wind farms investment, along with the test benchmark. [Technical Difficulty] And we also pay attention to our product company that is a light-asset company doing the sewage treatment. And in that way, we're going to have the Goldwind environmental protection of making sure that we have the light assets while at the same time, a technological-driven business. Another [indiscernible] is also very new business for us. On one side, we made a 3-year digital investment for the company. From 2021 on, we will further release our digital capacity of making the digital capacity into the product. We will support our service reforms and their transition, but those work need to be built into the new product we have. And we also did a 5-year preparations for the future development. So that many people heard for Goldwind will work on the green supply chain and the green ecosystem adopting the renewable energy productions, solar and wind powers to provide the direct power supply to the industrial products. And that's the technical preparations we made right before 2020, well, last year, we should also pay attention not only to the electricity power, but also the user side and the grid transmission as well as the power storage on both ends need to be built into a comprehensive solution. So I think in 2021 or during the 14th 5-year plan, it would be a new market or a great market. The company already made our technical preparations for that. Then from the year 2021 [ onwards ], according to the market development, we were will continue to promote the product and solution in the market with a abundant investment. Another part of the building business that are going to support our business development in the near future, and that is the financial and equity investment business. We were also exploring the equity investment in the financial market to support our future business growth. So jointly speaking, we are still very confident for the year 2021 because it's the beginning year of our third round of business [indiscernible]. So that's all for me. Thank you very much.

Thanks for Mr. Cao. Thanks for all the investors. And thanks for paying attention to the company. Here comes to the end of the annual release. And all the information and materials will be available later on our website. Thank you very much.