Wind Turbine Orders And Green Policies Will Create An Opportunity

Key Takeaways

• Strong order backlog and external sales growth signal a robust revenue pipeline, driven by demand for renewable energy in China and abroad.
  
• Enhanced operational efficiency and reduced interest-bearing debt are expected to optimize cash flow, improve solvency, and boost profitability.
  
• Declines in grid connections and profit margins, high leverage, and regulatory risks may challenge Goldwind's revenue growth, profitability, and financial stability.

Catalysts

Provides wind power solutions in China and internationally.

• Strong growth in wind turbine order backlog and external sales could drive revenue growth in future periods. External sales grew by 80.16% and order backlog set a new historical high of 51.09 gigawatts. This indicates a robust pipeline that can significantly impact revenue.
  
• China's government policies advocating for green development and increased non-fossil fuel energy are likely to boost demand for Goldwind's renewable energy technologies, positively influencing future revenue growth.
  
• The international market order growth, with a 26.1% increase in overseas orders, indicates expanding market opportunities, which could improve revenue and net margins given higher sales in potentially more lucrative markets.
  
• Increased operational efficiency, such as improving receivable collections and managing inventory effectively, is expected to optimize cash flow and lower operational costs, positively impacting net margins and earnings.
  
• Continued optimization of the asset-liability structure and reduction of interest-bearing debt will likely improve solvency, potentially reducing interest expenses and enhancing overall profitability and earnings.

Goldwind Science&Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Goldwind Science&Technology's revenue will grow by 17.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 5.0% in 3 years time.
• Analysts expect earnings to reach CN¥4.8 billion (and earnings per share of CN¥0.98) by about May 2028, up from CN¥2.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CN¥3.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, down from 18.4x today. This future PE is lower than the current PE for the CN Electrical industry at 36.6x.
• Analysts expect the number of shares outstanding to decline by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.65%, as per the Simply Wall St company report.

Goldwind Science&Technology Future Earnings Per Share Growth

Risks

• The decline in new grid connections in China by 5.7% in Q1 2025 could negatively impact future revenue growth, as China accounts for a significant portion of Goldwind's market.
  
• Comprehensive profit margin decreased by 3.11% in Q1 2025, potentially affecting overall profitability and net margins if the trend continues.
  
• The increase in trade receivables, accounting for 20% of total assets, suggests potential challenges in collecting payments, which could impact operational cash flow and liquidity.
  
• High asset liability ratio of 73.05% indicates significant leverage, which poses a risk to financial stability and could pressure net earnings if debt management is not optimized.
  
• Dependence on Chinese government policies for renewable energy expansion introduces regulatory risk, which could affect revenue streams if policy support diminishes.

Valuation

• The analysts have a consensus price target of CN¥11.233 for Goldwind Science&Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CN¥15.0, and the most bearish reporting a price target of just CN¥9.14.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥95.3 billion, earnings will come to CN¥4.8 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 12.6%.
  
• Given the current share price of CN¥8.75, the analyst price target of CN¥11.23 is 22.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.