Cumulative dividend payout ratio of 87% over the past 7 years, XINYI ENERGY (03868) first half profit improvement valuation to reverse.

Continuous growth in performance for two consecutive half-years, sustained improvement in profitability, has the valuation of XINYI ENERGY (03868) experienced a reversal? It is understood that XINYI ENERGY recently released its 2025 first-half financial report, achieving revenue of 1.21 billion yuan, a year-on-year increase of 7.67%, EBITDA of 1.12 billion yuan, a year-on-year increase of 7.7%, which is basically in sync with the revenue, and a net profit attributable to shareholders of 450 million yuan, a year-on-year increase of 23.43%, with a net profit margin of 37.19%. During this period, the company plans to distribute a mid-term dividend of 222 million Hong Kong dollars, with a dividend per share of 2.9 Hong Kong cents, a year-on-year increase of 26.1%, and a dividend payout ratio of 49%. The company's profit growth in this mid-report is higher than its revenue, mainly due to the decrease in financing costs and reduced income tax expenses, with the financing cost rate decreasing by 4.02 percentage points and the income tax expense ratio decreasing by 3.24 percentage points, contributing a total of 7.26 percentage points to the increase in net profit margin. However, XINYI ENERGY's stock price has responded sluggishly to its performance, with stable performance and low trading volume. In fact, in early July, the company and XINYI SOLAR jointly announced that they had submitted the application materials for the issuance of CECEP Solar Energy Power Plant REIT to the National Development and Reform Commission. The concept of REIT attracted short-term fund speculation, leading to a significant short-term increase in the stock price, but after the 9th, it entered a downward trend, falling by more than 30% from its peak in July. While the performance revenue is steadily increasing, there is significant volatility in profitability. In fact, in the first half of 2025, XINYI ENERGY's various performance indicators achieved optimistic growth rates, especially in profitability, which improved significantly, along with a synchronous increase in shareholder returns. The company's revenue performance is relatively stable. Looking at the half-yearly basis, the company achieved continuous growth for two consecutive half-years. Over the longer term since its listing, revenue has only declined in the first half of 2024, mainly due to the electricity trading price being lower than the grid electricity price after market electrification. However, electricity sales volume has continued to grow. Looking at the annual basis from 2020 to 2024, the company's revenue compound annual growth rate was 9.1%. However, there is significant volatility in profits, as the downward trend in electricity prices has led to a decline in gross profit margins, which has translated to lower profitability. In 2025, the net profit margin for shareholders was 37.19%, a decrease of 14.16 percentage points compared to the same period in 2020. However, XINYI ENERGY continues to improve significantly in cost control and operational efficiency. By optimizing asset structure and improving management efficiency, it has effectively alleviated pressure on profit decline. For example, excluding 2023, core costs such as administrative expenses (2-3%) and financing costs (12-13%) have remained relatively stable. In addition, the company's expansion in the new energy field is gradually expanding, creating new growth points in the future, thereby enhancing overall risk resistance. From a business perspective, in the first half of 2025, XINYI ENERGY's electricity sales were 741 million yuan, a year-on-year increase of 15.06%, with a slight decrease in income from electricity price adjustments, but an overall upward trend. During this period, the company's total electricity generated by the CECEP Solar Energy power plant projects it owns and operates increased by 22.7% year-on-year. XINYI ENERGY mainly operates the CECEP Solar Energy project. As of June 2025, the company jointly operates and holds approved generating capacity of 4,540.5 MW from the CECEP Solar Energy power plant projects, of which 1,734 MW are under the grid electricity price policy and 2,806.5 MW are under the flat-rate grid connection policy. Leveraging its parent company, the company has maintained a steady expansion, during which it acquired a large CECEP Solar Energy power plant project with an approved capacity of 30 MW in China from XINYI SOLAR and its affiliated companies. This project is under the flat-rate grid-connected policy of the CECEP Solar Energy power plant. With steady expansion, the company's electricity generation capacity has maintained double-digit growth, but the downward trend in electricity prices and grid connection restrictions have led to losses in electricity consumption that offset the growth in "quantity." It is worth noting that under the electricity price adjustments, the company's accounts receivable were very high, reaching 4.603 billion yuan in the first half of 2025, which is 3.8 times its revenue, and mostly aged within a year. However, the company still maintains a relatively healthy cash flow, recording a net operating cash flow of 309 million yuan during this period, an 81.8% year-on-year increase, with accounts receivable providing support for future cash flow. The industry still has a high outlook, waiting for sector valuation repair. The CECEP Solar Energy industry still has a very high development outlook. Under the dual-carbon policy, the growth rate of photovoltaic installed capacity has maintained double-digit growth. According to statistics, in the first half of 2025, the new installed capacity of photovoltaics exceeded 200 GW, with May alone reaching 92.92 GW, setting a new monthly installation record. Photovoltaics are firmly in the position of China's third largest main power source, after thermal and hydropower. As of June 2025, accumulative installed photovoltaic capacity had reached 109,851 MW. However, the industry growth rate is showing a slowing trend, shifting gradually from policy-driven to market-driven. In January 2025, the National Energy Administration issued the "Management Measures for the Development and Construction of Distributed Photovoltaic Power Generation," clearly setting a policy transition point. According to the management measures, newly commissioned projects connected to the grid after May 1, 2025, will be fully integrated into a market-oriented operation mechanism, with the Chinese government no longer providing subsidies, and project returns will be determined entirely by supply and demand conditions. It is worth mentioning that due to policy-driven reasons, the photovoltaic industry chain has blindly expanded in recent years, leading to serious overcapacity. Since 2021, prices in the industry chain have continued to decline. As a result, the valuation of the entire industry chain has greatly diminished, with XINYI ENERGY's market value continuing to drop, with a decrease of 80% up to now. As a terminal power generation field, the company's growth has not been affected, but its profitability has been affected by fluctuations in electricity prices. Despite fluctuations in profitability in previous years, XINYI ENERGY has continued to pay dividends every year, with continuous dividends for seven consecutive years since 2019, totaling 548 million yuan in dividends paid, with a high dividend payout ratio of 86%. Major investment banks hold a positive attitude towards the company. For example, a research report from BOC International stated that XINYI ENERGY's net profit growth in the first half of the year exceeded market expectations, and believed that its entry into the Malaysian market would enhance its return on equity, maintaining a buy rating on XINYI ENERGY. A research report from CITIC Securities stated that it raised its net profit forecast for 2025-2026 by 5.2% and 5.0% to 1 billion yuan and 1.07 billion yuan respectively, considering the stable income expectations of existing projects under Document No. 136, the company's high-quality existing assets, and frequent policies boosting industry valuation performance. The bank raised its target price by 41% to 1.35 Hong Kong dollars, representing a 9.8% increase from the current price. Overall, the performance of XINYI ENERGY in the first half of the year is commendable, with continuous improvement in profitability over the past two half-years, steady expansion driving continuous growth in electricity generation, strong operating cash flow, and an expected continuation of growth in the second half of the year. Under the dual-carbon policy, the company still has high development prospects, and as the industry chain capacity is cleared out, sector valuations will be repaired, driving the company's market value to open an upward channel.