Ming Yang Emerges Stronger From Wind Energy Downturn

July 9, 2013 by  
Filed under Green Energy News

Ming Yang Wind Power Group (MY) is the only Chinese wind turbine producer to be listed in the American stock market. The stock offers one of the few ways to invest in wind energy, as the US does not have large wind pure play companies in the wind energy industry (General Electric (GE) is a conglomerate). The company has seen a sharp erosion in its stock price as massive overcapacity in wind turbines has led to huge losses for the entire industry. Even the largest wind turbine companies such as Vestas, Gamesa, Sinovel, etc., have been making losses in the last few years due to the sharply falling ASPs. Ming Yang too has been affected by industry woes but the company is now recovering strongly as the WTG market is seeing signs of recovery. Ming Yang is a large non-state owned Chinese Wind Energy Company with a global market share of around ~5%. The company is trying to expand into foreign markets as the Chinese market has become hyper-competitive with very low prices. The company recently signed a deal with one of India’s largest conglomerates to develop large wind farms in India. The stock price has doubled from its all time lows as the industry is seeing signs of revival with the bankruptcy of fringe players.

Ming Yang Energy Advantages

1. Large opportunity as China is the largest wind energy market – Ming Yang has a strong base in China which accounts for almost 50% of the global wind energy demand. After growing at a tremendous pace from 2006-2010, China has slowed down in recent times. However China is still expected to install an average of 25 GW of wind energy capacity per year till 2050 as it tries to reduce its dependency on dirty thermal power. Ming Yang expects to ship around 2.5 GW of wind turbines this year, which will give it a ~10% market share of the Chinese market comprising 18GW in 2013. The company should be able to increase its market share as small WTG producers are going bankrupt.

2. Increasing market share – Ming Yang has managed to increase its market share during the downturn and is well positioned as the industry recovers. The weaker companies such as Sinovel face a lot of litigation and management challenges. MY on the other hand has a well defined product roadmap, a good order book and has returned to profitability.

“As the renewable industry in China continues its recovery and downstream customers see tangible improvement in their subsidy rebates, Ming Yang continues to expect increased market demand from its customers in 2013. During the previous downturn, Ming Yang had increased its market share, and now with the market in recovery, it expects to continue to enhance its leading market position.”

Source – Ming Yang

3. Offshore Wind Energy – As terrestrial wind farms are seeing a slowdown in growth, major WTG companies are trying to expand into the fast growing offshore wind energy market. Though most of the early growth has come from Europe, the Chinese government is looking to aggressively expand its offshore wind energy capacity. Ming Yang has positioned itself to capitalize on this opportunity by licensing technology from a German Firm and plans to develop 6 MW Turbines for offshore Wind Installations.

Ming Yang also plans to deliver WTGs to two offshore wind power projects in Guangdong Province in China in 2013, each expected to have 200MW of capacity.

Source – Ming Yang

4. Financials remain in good shape – The company has very little debt and a good return metrics as compared to other renewable energy players. Though working capital requirements are high, it is mostly funded through payables and advance customer payments. The company has got roughly $450 million in debt compared to around $200 million in cash. This gives it a low debt equity ratio compared to the other Chinese renewable energy companies.

5. Strong Order Book – The company has managed to win more orders than shipments in the current quarter. The company’s order book remains strong with more than 2 GW in WTG orders. The company is also winning traction for its new generation SCD wind turbines which have a high margin profile.

Order Backlog As of March 31, 2013, the company’s order backlog amounted to 2.2 GW, representing 1,066 units of 1.5MW WTGs, 180 units of 2.0MW WTGs, 67 units of 2.5-3.0MW SCD WTGs and 1 unit of 6.0MW SCD WTG. Cumulative signed orders since its inception amounted to 6.1GW, representing 3,622 units of 1.5MW WTGs, 222 units of 2.0MW WTGs, 84 units of 2.5-3.0MW SCD WTGs and 1 unit of 6.0MW SCD WTG.

Source – Ming Yang

6. Chinese bank and government support – The Chinese government remains highly supportive of domestic wind and solar energy companies as the country suffers heavily from pollution. Chinese leaders want to become leaders in green energy and have heavily subsidized green companies. This had led to over-investment in the renewable energy sector leading to a price crash. The industry is now seeing some rays of hope with the weaker players going out of business. Ming Yang managed to sign a big deal in India with the help of government owned Chinese Development Bank. Cheap finance is a huge advantage in capital intensive renewable energy projects. Ming Yang can benefit strongly from cheap vendor financing by government owned Chinese banks.

The company stated that it is working with Reliance Power Limited of India with the aim to install 2.5GW of generation capacity over three years with financing support from China Development Bank Corp. Ming Yang expects to deliver 400MW of combined capacity in overseas markets in 2013 by providing engineering, procurement and construction (“EPC”) services as well as WTGs to customers in India and eastern Europe, out of which 300MW is expected to be with Reliance Power Limited.

Source - Ming Yang

Ming Yang Risks

  1. Competition – The global wind energy market has seen intense competition in recent times as a number of Chinese companies entered this industry, boosted by the cheap capital and government support. Things have started to improve as the Chinese government is looking to weed out the unprofitable small players. Top global companies such as Suzlon and Vestas have also lost market share and are reeling under huge losses and debt. This will help reduce the competition and boost the stronger players such as Ming Yang.
  2. Chinese dependency – Ming Yang grew at an exponential pace during 2006-2010 due the strong growth of the domestic Chinese market. However, the flip side is that the company is heavily dependent on the Chinese market for its revenues. The 5 large state owned utilities in China (Datang, Huadian, Guodian, CPIC and Huaneng) account for most of the revenues and orders. The company has been trying to reduce its dependency by expanding into foreign markets such as India and the US. However, expansion has not been easy as the transportation costs for complete wind turbines are quite high and one has to establish local supply chains.

Stock Valuation

Ming Yang’s stock valuation remains depressed with a P/S of just 0.5x and a P/B of 0.5x. The forward P/E might look expensive at ~23x, but that will come down as the company returns to normalized margins. Unlike Chinese solar companies, MY has become profitable and its margins should increase in the coming quarters.

Stock Price Performance

Ming Yang’s stock price has declined by more than 80% since its 2011 IPO and currently trades at $1.82. The stock has given good returns in 2013 rising by more than 50% as the industry seems to be bottoming out. The strong players are positioned well to take the market share and returns to profits as weaker players shut down. MY has survived more or less intact from a vicious downturn in the wind energy industry. The stock price should increase substantially in my view from the current levels.

MY Total Return Price Chart

MY Total Return Price data by YCharts

Summary

Ming Yang has suffered like other Chinese renewable energy companies due to a massive overcapacity in solar panels and wind turbines. Its stock price has not increased in the last couple of years as the company has been mired in losses due the industry downturn. However, as weak companies are fighting for survival, Ming Yang Energy can look to expand its market share taking advantage of rival weaknesses. The company is also well placed to capitalize on the growth of the offshore wind energy market. The company has established a beachhead in India which is a one of the biggest wind energy markets in the world. The company is also making good progress in making SCD wind turbines which should improve margins and give it an edge over commodity wind turbine producers in China. I remain positive on MY stock given its depressed valuation, increasing margins and market share and introduction of new SCD wind turbines for the offshore wind energy market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More…)

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