Xinjiang Goldwind Sees Lull in Latest Quarter on Maturing Wind Power

Key Takeaways

•      Xinjiang Goldwind reported second quarter revenue of $1.48 billion, down 9% from a year earlier

•      The company is benefitting from a global push towards renewable energy sources, but its profit margins are feeling pressure as building activity slows in its core home market

By Andrew Curran

The enormous turbines have been turning full tilt these last few years at wind farms owned by or using equipment from Xinjiang Goldwind Science & Technology Co Ltd. (2208.HK; 002202.SZ), China’s leading maker of wind power equipment. But those engines are also showing signs of slowing these days, as evidenced by the company’s latest results that show the company’s revenue and profit both fell in the second quarter.

China’s leading maker of wind power equipment reported revenues of 10.1 billion yuan ($1.48 billion) in the second quarter of 2022, based on calculations using the company’s interim results released Friday. That was up by nearly 60% from 6.4 billion yuan in the first quarter, but it was down about 9% from the year-ago quarter.

The company’s quarterly net profit was even more wobbly at 707 million yuan, down about 30% sequentially and 44% from a year earlier. The falling profit came on the back of a gross profit margin that dipped to 24.7% in the first half of the year from 28.4% a year earlier.  

The most recent results continue a bumpy run for Goldwind, which is benefitting broadly from its strong market position as China seeks to attain peak carbon emissions by 2030 and carbon neutrality by 2060. But it’s also experiencing some growing pains as the market begins to mature and countries like China – which accounts for the vast majority of the company’s sales – start to phase out government incentives for new wind farm development.

Diving into the data, nearly two-thirds of Goldwind’s revenues in the first six months of this year came from wind turbine manufacturing and sales; around 20% came from developing its own wind farms; nearly 12% came from services such as the construction of wind farms; and the remaining 2% came from other sources, including a growing sideline operating water treatment plants in China.

Big institutional investors like BlackRock, Citigroup, and JPMorgan, who all play the long game, like large-scale renewable energy companies like Goldwind, and all are current investors. The last 12 months have seen the price of the company’s Hong Kong-listed shares peak at nearly HK$20 and bottom out at just over HK$10. The stock was trading at the middle of that range last week, though the shares dropped nearly 15% to HK$12.58 on Monday after the latest results came out, indicating investor might be disappointed at the sputtering growth.

But go back two years and the share price was just above $7. And 10 years ago it was less than $2. If the wind keeps blowing in such longer-term trends, investors with patience to ride short-term volatility could find Goldwind is a financial windfall that keeps on giving.

This kind of track record makes the company no flash-in-the-pan start-up on a global renewable energy bandwagon that has deep roots in China, thanks to strong government support. Xinjiang Goldwind was founded 24 years ago, and its 10,000 employees are scattered across 32 countries –mostly in places with strong local support for renewable power.

“So far, we have delivered over 44,000 wind turbines all over the world with a global cumulative installed capacity exceeding 86 GW and an operations and maintenance service capacity exceeding 50 GW,” Goldwind’s website says.

Hooked on China

Despite attempts to position itself as a global wind powerhouse, Goldwind generated nearly 93% of its revenues in the first half of the year within China. But the company says it is aggressively moving into new markets and “has achieved remarkable accomplishments,” in several of those, including emerging African and Asian markets.

Besides a China-centric customer concentration, the company acknowledges that shifts in Chinese government policy, major changes in currency exchange rates, intensifying competition, and the ongoing impact of Covid-19 in China could all put further pressure on its revenues and profits.

Xinjiang Goldwind is in the top ranks of wind turbine industry companies worldwide, competing with the likes of Suzlon (SUZLON.BO), Vestas (VWS.CO), General Electric GE, Hitachi (6501.T), Nordex SE (NDX1.DE) and Siemens (SIE.BE).

Following the Monday selloff, Goldwind’s Hong Kong shares trade at a price-to-earnings ratio (P/E) of about 13. That’s far higher than Suzlon’s ratio of 3.36 and roughly comparable to the 13 for the diversified conglomerate Hitachi. The company’s profitable status distinguishes it from many of its competitors that are losing money. That fact alone suggests that investors may have more faith in the company’s long-term prospects.

Despite its slowing business, there is still a lot to like about Goldwind. It is the largest wind power manufacturer in China by market share, and was the second largest in the world in 2021. What’s more, while global issues like high inflation, the Russia-Ukraine conflict, and Covid-19 threaten economic growth in China and elsewhere, there is no slowdown in energy consumption. That fact, combined with the global push towards greater use of renewable energy, puts established companies like Goldwind in the driver’s seat going forward.

It also helps that the Chinese government is actively promoting the development of non-fossil fuel energy and large-scale renewable energy developments. In March, the National Development and Reform Commission (NDRC) and National Energy Administration (NEA) issued a 14th Five-Year Plan Modern Energy System Plan that aims to have non-fossil energy sources like wind generate 39% of China’s energy needs by 2025. And in June nine government ministries, including the NDRC and NEA, issued another plan that proposed “vigorously push(ing) forward the development of wind power and photovoltaic power generation bases.”

Such policies help to explain why the big institutional investors continue to invest in Goldwind despite the breezes and lulls in its business.

While wind constitutes the bulk of Goldwind’s business and revenues, the company is also dipping its toes in the water treatment business in a diversification bid. The company owns 68 water treatment companies, with a water treatment scale of 4.2 million tons per day, in 33 cities across China. The fast-growing sideline produced revenues of 373.4 million yuan during the first six months of the year, up 25% year-on-year.

That shows that Goldwind isn’t content to just sit on its core wind power, but is busy looking for the next big thing to keep the wind in its sails.