Xinyi Energy’s 2022 Earnings Trail Expectation but Quicker Subsidy Settlement a Positive Surprise

Xinyi Energy’s 2022 net profit of HKD 971.5 million, down 21.2% year on year, was below expectation. We believe the miss is mainly due to a HKD 223.8 million write-off of subsidy receivables, slower capacity expansion on the back of COVID-19 disruptions, and high solar module costs. Consequently, total dividend per share for 2022 dropped 13.2% year on year to HKD 0.151. Meanwhile, core performance is intact, as 2022 adjusted EBITDA margin at 92.4% was in line with our expectation. We keep our fair value estimate of HKD 3.12 after reviewing our assumptions and we think the shares look attractive now with dividend yield of about 7% in 2023. However, share price performance may be capped by the disappointing write-off in the near term. In our view, the write-off is a prudent provision by management to reflect potential risk in the subsidy audit by the government. This is one-off in nature, and we do not rule out the possibility of a reversal later on.