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

Dear investors, good afternoon. I'd like to welcome you to join us for Xinjiang Goldwind Science & Technology 2022 Annual Results Announcement. Today, we have President of the company, Mr. Cao, Zhigang; and the VP the Secretary of the Board and Secretary of the company, Ms. Ma Jinru; Chief Financial Officer, Mr. Wang, Hongyan; and VP, Mr. [indiscernible]; VP, Mr. [indiscernible] be here for this annual results announcement. First of all, we're going to have a Ms. Ma and Mr. Wang to walk you through the industrial review, business review and the financial results and outlook. And later, we're going to get into the Q&A session. Now let's welcome Ms. Ma first.

Distinguished investors, I'd like to thank you very much for joining us here for this annual results announcement. First of all, please allow me to walk you through the industrial growth and also our own performance of the company. And you can say, first of all, I'd like to show you the global wind power market on Page 3, they show you the global wind power market. You can see in the year of 2022, the new installation is 85.7 gigawatts, a decrease of 50% Y-o-Y with onshore wind 76.6 gigawatts, a decrease of 9% on Y-o-Y basis and offshore wind totaling 9.1 gigawatts an increase of 46% Y-o-Y basis. On the right side, we show you the new installation in different countries. China is the world's largest wind market, newly added 48.8 gigawatts of new capacity accounted for more than 57% of the global build and surpassed the second largest market in the U.S. and with nearly 40 gigawatts. U.K. took the third place in the ranking, its installed capacity decreased significantly to 3.4 gigawatts in 2022, and more than 3 gigawatts come from the offshore wind installation. Next page show you the wind power development in China. Last year, the China recorded 37.6 gigawatts of new grade connection, a decrease of 20.9% on Y-o-Y basis. At end of 2022, China's cumulative grade connected wind power capacity totaled 665.4 gigawatts, taking 30.3% of the power mix. Thermal power declined to 52%. On the right side, we show you electricity production by billion-kilowatt hour. In 2022, total power consumption in China was 8,637 billion kilowatt hour, an increase of 3.6%. 762.4 billion-kilowatt hour of wind power production presented an increase of 60.3% Y-o-Y and a penetration rate of 8.8%. 27 members states of the European Union and the U.K. has an average wind energy share above 17% in 2022. Denmark had the highest share of the wind, which is 55%. Let's also take a look at utilization and the utilization rate and the national average wind utilization was 2,221 hours in '22 down by 9 hours compared with '21. National average wind power utilization rate was 96.8%, decreased by 0.1 percentage points Y-o-Y, especially in Beijing, Tianjin, Shanghai, Jiangsu, Zhejiang, Anhui, Guangxi, and Hainan, the utilization rate is 100%. On the right side, we show you the cost advantage. You can say that the LCOE in China onshore has dropped to a more competitive price USD 0.028 per kilowatt hour in '21 decreased by 51% in the past 5 years. Let's also take a look at the public tender market. In the year of 2022, the domestic public tender market totaled 98.53 gigawatts in 2022, representing 82% of the Y-o-Y increase, the highest number in the history. Onshore public tender was 83.83 gigawatt. Offshore was 14.70 gigawatts. By region 69, close to 70% of the tender originated from northern part of China, the rest of the product coming from the south part of the China. On the right side, we show your average bidding price. You can also say that in December of 2022, the overall average bidding price is around 1,814 per kilowatt. On the next page I'll show you the policy support from the central government. And especially, you know that after the pricing is stabilized, the government continue to role out the policies regarding the wind power and the new energy power continue to seek for the grade and the low carbon transformation of the new energy industry. There are fourth [ code ] of the policy. First of all, the government-issued policy accelerated new energy system planning and designing and promote high-quality development of new energy. And last year, you know that the NDRC and NEA issued the 14th Five-Year Plan for Modern Energy System proposing that by 2035, a modern energy system will be basically built. And also it mentioned that the 14th Five-Year Plan Renewable Energy Development Plan and also the 2030 Renewable Energy and The Wind Power Development Plan, where on the same time, we also have coordinating energy security and green low carbon transition to build a new power system that adopted to the increase in proportion of the new energy NDRC and NEA issued the opinions on policies and measures to improve the mechanism of a green-oriented transition of energy. And as mentioned by the end of 2030, a complete basic system and policy system for green and low-carbon development of energy will be basically established. And at the same time, the NEA issued in guidance and energy we worked in 2022. Clearly mentioned the related work for each of the province. The third part is deepen the reform of the power system and accelerated the construction of the unified national power market system and NDRC and NEA issued that the guiding opinions on accelerating the construction of the national unified electricity market system. Proposing that by 2025, the national Unified electricity market system will be initially completed. The General Office of the NDRC and the General Department NEA issued that a notice on accelerating the construction of electricity spot market proposing to further deepened the reform and power system. The fourth part is promoting the development of the large wind power base and decentralized wind power and encourage wind power to accelerate going globe. But NEA and MARA has already mentioned that the implementation opinions on accelerating the transformation and the development of rural energy and assist rural revitalization. So with all those products that support in China, the wind industry is going to see for high-quality growth to support China to hit the [indiscernible] strategy with such a backdrop, let's also take a look at the different review of the company. These are the 4 major business that we will be engaged in, including wind turbine manufacturing and sales, wind farm investment and development, wind power service and other business. You can say that in the year of 2022. After almost 6 years here, our new installations being ranking #1 in the world. For 12 consecutive years, we have 8 global R&D center to drive innovative features and we also had 6,500 domestic and foreign patents with 4,300 authorized patents. And we also have more than 500 suppliers to build a green industrial environment together, and let's also take a look at the other parts by segment. From a revenue or from a business structure perspective, let me show you that with the China accounting rules, you can say our 4 business lines. Altogether, the revenue is close to RMB 32 billion and also accounted for 70% of the total revenue, 50% of the revenue and wind power service close to 12% of the total revenue. And the coming next, let me just give you some key highlights of our business lines. First of all, let's also take a look at the turbine manufacturing and the sales business. You can see that our sales capacity and last thing here, the external sales capacity totaled 13.871 megawatts, representing an increase of 29.8% Y-o-Y. And you can see the sales capacity of the 2S actually -- it's actually in the decline stage after the last 2 periods. So, generally speaking, you know that the capacity of some of the small turbine has been decreased and last year, and you see the capacity of MSPM series, be increased remarkably to more than 62.2% of the total sales capacity. Let's also take a look at the orders in our hands. You can see that by the end of last year, the total order backlog is 27.1 gigawatts, external order is 26.6 watts and including 5.8 gigawatts of a successful bid and 20.8 gigawatts for signed contract. We have another 509 megawatts of the order that are for company's own wind farm development projects. Well, let's take a look at the right side, that is our external order mix. You can say that our MSPM, the order is a close to 18.2 gigawatts of external order and the proportion increased from 29% in 2021 to 68% in 2022. Let's also take a look at our global business expansion. By the end of last year, you can see our overseas external order backlog is actually 4,467-megawatts. Majority of them are in Vietnam, Chile, Egypt, Uzbekistan, South Africa. And you can say that our order backlog in Middle East and Africa increased by 369% compared with 2021. Overseas operating capacity totaled 881 megawatts attributable on the construction capacity totaled 1,164 megawatts, which was mainly domicile in Australia. So you can say that in different countries, in different regions, we make sure that our products being quite profitable to the local weather environment, we also have the highly efficient turbine product and to the earth strike and [ Ecuador ] some metal climate zone [ Ecuador ] . So all in all, we'll be able to further improve our turbine production competitiveness and making sure that we will be able to provide the effective performance and also create energy to our customers. We are talking about the wind power generation. You can see currently, the company's attributable grid-connected wind power projects totaled more than 7,078 megawatts, 28 are in Northern China, 26 in Eastern China, 33 in Northeast part of China, other regions are with a single-digit proportion. And in the year of 2022, you can say that we have 1,745 megawatts of attributable grid-connected wind power capacity at home and abroad. And 1,164 megawatts are in China, the rest part are in overseas countries. Companies attributable under-construction wind capacity at home and the abroad around the 2,639 megawatts. On the right side, let's also take a look at the utilization. We have already mentioned about the industrial average. Companies sales from wind farm utilization with our 2,546 hour utilization, 235 hours higher than that of the national average. Due to our experience, you can say that we also have a very strong wind power service. And you can say that at the end of last year, the under operation capacity totaled at 28 gigawatts, a nice increase compared with the past few years. The company also continued to improve our competitiveness on ESG, and continue to innovate our business on sustainability. And the last year, through energy saving and the consumption reduction and the use of green electricity, the company achieved a new carbon neutrality by purchasing carbon offsets and achieve the carbon neutrality at the operational level. Where last year, you can also say that the company did 2 major actions in order to practice our sustainability and ESG. And the last year, we have completed a great evaluation on 202 supplier of the wind turbine, and we have 24 suppliers being rated as a level 4 and level 5 green suppliers, level 3 suppliers and above accounted for 49%. And the supply evaluated this year, a total of 112 supplier used green power and the ratio of green power used by the major supplier of Goldwind product was already 45.89%. And by the end of last year, the company has accumulated installed capacity of more 97 gigawatt than worldwide with any power generation of about 215.4 billion kilowatt hour, which can reduce carbon dioxide emissions by around 178 million tons per year, compared with the thermal power and it can also help to reduce the green gas emission by 1,000 million tons compared with the thermal power. Now let me welcome our [ CFO ] to walk you through financial results.

Dear investors, good afternoon. Now I'm going to walk you through our financials of 2022. Well, talking about the financials, you can say these are the 4 major results after the financial consolidation. You can say that for the whole year and actually our revenues in totaled to RMB 46,000 million. And the reason is very [indiscernible] to see the turbine manufacturing and the sales business, the profit and the revenues on the downtrend and the reason is because the price issue and when we confirm the order and their you say that many of the order price continue to go down. In domestic China, the decrease was 41%. And in the rest of the world, the price go down by 9%. Well, for other business altogether and the business was on the growth perspective. Well, you see that because of the revenue of the turbine manufacturing and sales business was down. That's the reason the overall revenue was down. On the right side, of that is our profit margin. In '22, our GP margin was 17.66%. Last year, this number used to be 22.98%. It was down with the same reason as the revenue decline, that's for the turbine manufacturing in the south and its -- south, a profit is being reduced from a double-digit number to a single-digit number. Why it was dropped down a lot? There are 2 reasons: first of all, we can say that energy mix started to be -- a power mix started to be achieved in China. And we mentioned, actually, majority of our installations are coming from the newly added installation from the offshore market in domestic China, where for offshore markets and also overseas market, you see that there are some business impact; the second reason is also price, with the fewer market competition, and we see that the price reduction is even higher than that is the product we use. And for MSPM, we already have the economy of the scale, but which has not yet been translated into profit in a concrete measure, while at the same time, we also say that the performance is in line with our operation. And for the turbine manufacturing sales business, actually, the GP margin is still on the down trend. The next slide showing you the net profit attributable to the owner of the company and a weighted average return on equity. And you can say that the net profit attributable to owners of the company of 2022 was CNY 2.3 billion. And the reason the weighted average return on equity was 6.38%. In 2021, our GP margin -- our margin is more than CNY 11 billion. But in 2022, altogether, our GP margin was CNY 8.3 billion. So GP margin was being down by CNY 3.5 billion. A major reason is still be called the turbine manufacturing. The south GP margin was on the down trend. And therefore, the turbine manufacturing, the margin was down by almost a CNY 5 billion, along with the goodwill impairment, asset impairment and ROI. All those factors are working together to help to narrow down the margin reduction caused by the turbine manufacturing in the sales business. On the right side, we show you the weighted average return on equity, it was 6.38%, down by 5.17%. The reason still because the reduce of the revenue, the GP margin and also net asset structure has been changed. That's the reason weighted the average return on equity also on the down trend. This is actually the consolidated results. I mean next, let me just give you a look at the solvency position. Madam Ma has already mentioned this number. Because from this slide, the black statistics actually for 2021. And the colored highlighted area are actually for 2022, you can see that the turbine manufacturing and sales business, the revenue and the GP margin was on the down trend. Where for the wind farm development business and for the wind power service and other business, their revenue was on the up trend which is also in line with our management expectations, especially for wind power development, the GP margin was going down slightly. The reason still because [ great parity ] firms started to show up right after the watch to build and that's the reason you can also see that for the wind farm development and the GP margin was somewhat lower than 2021. Just now, I show you the financials of the different business lines. Coming next. Let's also take a look at the assets of the company. You can see by the end of 2022, our current ratio and quick ratio was improving, a positive trend, while at the same time, our total net assets greatly improved. This is actually used to be a negative number for the past 3 years. In 2022, the number become a positive 1. And for the company, our short term solvency capacity has been greatly improved, and the solvency competence cost continue to go upward. On the right side of that is our asset-lialibility ratio, the result is 17.51% and there are a few ways behind this number. By the end of 2022, in order to guarantee the [indiscernible] and along by offsetting the possible second peak of the botanic we proactively leave 2 months of the cash position in order to take out of the wage rate payment, where you can see the asset liability ratio 7.51%. This is actually, a number we shared with many of the major banks till now, our credit extension still be greatly maintained. The interest and liability costs to be well controlled. The asset quality is being robust and also healthy. And in recent days, you probably also noticed because of the possible risk of the second peak of epidemic being mitigated, while reducing our position reserve. And in Q1 of this year, you're going to see a more robust asset structure. The final slide is our cash flow. In 2022, the net operating cash flow is around RMB 5,881 million, up by 30% and the best ever in our history. And this also shows 3 major improvement made by the company. On one side, we continue to improve our customer management according to their credit profile and also have a follow-up and system to our customers. In this way, it can actually help to further improve our cash flow, and also the net operating cash flow, while at the same time, we continue to strengthen our work on receivables and to have a time specific management measure in place. That's the reason we have less receivables and that can further improve our net operating cash flow, and the company also started to have centralized management of the capital to further improve the capital utilization efficiency. On the right side, we show you the cash to total asset ratio. You can say that the cash to total asset ratios being well test. The number is 11.42%. So generally speaking, for the company for 3 consecutive years, actually, our cash to total assets was been within a very good number. We always believe and 7% is being a good number. But for this year, because we'd like to make sure we have a safe operation, so we reserve another 2 months of the position to make sure we are ready for any of the uncertainties. Right after the second peak of pandemic being mitigated and still, we're going to further optimize our cash to total asset ratio to improve our liquidity and the financial city. That's all for the financials. Thank you.

Okay. Now let me just brief you on the global wind power industry outlook, in the next coming years. This is a slide showing you the data from the IEA, as well as the installation forecast. On the right side, it shows you the renewable and your net capacity addition by technology man and accelerated cases in 2027. And the renewable capacity additions are forecasted to increase continuously to raise 460 gigawatts in 2027. Majority of them are coming from wind power and solar. And by 2027, the onshore installation would reach 109 gigawatts and the newly additional offshore capacity order reached 30 gigawatts. On the right side, this is another forecast made by GWEC. We expect the new wind power installation will exceed 100 gigawatt in 2023. By 2024, the global onshore wind capacity will exceed 100 gigawatts for the first time. By 2025, new offshore wind power capacity will reach a new height, reaching 26 gigawatts in the next 5 years, 680 gigawatts of the new capacity will be added to the market and which means close to 136 gigawatt of the new installation per year to 2027. Let's also take a look at the next slide, and you can see that renewable energy already being accelerated in China. So as been mentioned by me and we are in the process of building the upper reaches of the Yellow River, the Hexi Corridor, the Yellow River curve and Xinjiang, and the 2 major comprehensive water and scenery bases in the southeast part of China. Where we can say that by 2025, you can see China's new wind power grid-connection will reach 245 gigawatts and especially, we believe renewable energy would be around 80% of the total power consumption. On the right side, this is another number being predicted by Wood Mackenzie and mentioned from '22 to '25 China's new wind power grid-connection will reach 245 gigawatts of which new offshore wind rate connection is expected to reach 44 gigawatts. The new grid-connection of the offshore is expected to reach 201 gigawatts accounted for 82% of the total new grid-connection and the annual new grid-connection capacity will reach 50 gigawatts. By the end of 2025, the cumulative grid-connection of China wind power market will be 573 gigawatts. This is another slide showing us the sustainability and ESG. We attach great importance to sustainable growth. We have already formulated our sustainable development strategy, which has already been passed by the board. Our sustainable development will be focused on 5 things including: honest and compliant operations, green and environmental friendly operations, sustainable industrial chain and also fair and sound working environment and harmonious community relations. We are targeting the five key [indiscernible] to formulate our sustainability and ESG practice. In 2022, and we have already reached the carbon neutrality on the operational level. And for this year, we're also going to continue with this good practice. Well, you can say that -- and we're also going to make sure 100% of the wind turbine should be able to be recycled and being reused in 2040. And there are a few indicators I'm going to share with you, for example, by the end of 2025, the hazardous waste with the per megawatt generated by the wind turbine should be 20% lower than that of the 2020. And in 2040, we have 100% of the wind turbines should be able to be recycled and reused. And we hope that we will be able to further reduce the greenhouse gas emission by 25% in the near future. These are very challenging tasks for us, but this actually shows our social responsibility practice. That's all for my presentation. Thank you.

Thank you. Thanks for the management team for the nice introduction.