Cost-effective Wind Power And Global Expansion Will Propel Revenue Growth And Margins

Key Takeaways

• Reduction in wind power generation costs and a strong order backlog suggest robust future revenue growth for Goldwind.
  
• International expansion and favorable government policies present potential revenue growth and enhanced market opportunities.
  
• The significant reduction in wind power costs may increase competition, while rising financial ratios indicate potential stability concerns and liquidity challenges for Goldwind.

Catalysts

Provides wind power solutions in China and internationally.

• Significant reduction in the levelized cost of wind power generation, particularly in China, positions Goldwind to benefit from increased demand for cost-effective renewable energy, potentially driving future revenue growth.
  
• The substantial backlog of 44.28 gigawatts in orders and the focus on higher-capacity WTGs above 6 megawatts suggest robust future sales and an increase in revenue.
  
• International expansion, with successful market penetration across 6 continents and 42 countries, implies diversification and potential revenue growth from new geographic markets.
  
• Recent favorable government policies and actions, such as the carbon emission reduction plan and green power certificate trading, could enhance market opportunities and revenue growth.
  
• Improvements in profitability metrics, such as net profit margin increase to 16.43% and reduction of asset impairment charges, indicate room for better earnings and potential margin expansions in the future.

Goldwind Science&Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Goldwind Science&Technology's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 5.5% in 3 years time.
• Analysts expect earnings to reach CN¥4.2 billion (and earnings per share of CN¥1.11) by about December 2027, up from CN¥1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CN¥2.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2027 earnings, down from 25.9x today. This future PE is lower than the current PE for the CN Electrical industry at 23.8x.
• Analysts expect the number of shares outstanding to decline by 3.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.48%, as per the Simply Wall St company report.

Goldwind Science&Technology Future Earnings Per Share Growth

Risks

• The significant reduction in the levelized cost of wind power could lead to increased competition, potentially pressuring Goldwind's revenue and profit margins as competitors may offer cheaper alternatives.
  
• The asset liability ratio slightly increased to 73%, signaling potential financial stability concerns that may impact long-term earnings and growth capacity if not adequately managed.
  
• Days of trade receivables remain high at 184 days, indicating potential difficulties in collecting payments that could affect liquidity and cash flow, impacting net margins.
  
• Despite a high order backlog, 73% of WTGs are above 6 megawatts, which could represent a risk if market demand shifts or if there are delays in larger projects, impacting future revenues.
  
• Cash to total asset ratio decreased to 6.99%, suggesting reduced liquidity and potential challenges in meeting financial obligations that could pressure profitability and earnings.

Valuation

• The analysts have a consensus price target of CN¥11.88 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¥8.33.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CN¥76.7 billion, earnings will come to CN¥4.2 billion, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 11.5%.
  
• Given the current share price of CN¥10.81, the analyst's price target of CN¥11.88 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.