Source of opportunity

We reiterate our Sell rating on Goldwind (A/H). We still expect Goldwind tomaintain its leading market share and product reputation among peers. Wealso expect further earnings growth into 2015 (e.g. 2H13E net profit to be127% higher than 1H13 and 37% higher than FY2012). However, we believeits recovery has been more than priced in. We also expect its wind farmsales to only grow slowly in the near term. Hence, we cut 2013/2014/2015EPS estimates by 27%/4%/4%% (or 25%/18%/22% below Reuters consensusestimates) and H/-A-share 12-month P/E-based target price by 4%/3% toHK$2.6/Rmb3.1.

Catalyst

1) We expect the average selling prices (ASP) of 1.5GW and 2.5GW windturbines to fall modestly as market oversupply persists. Goldwind’s turbines arealready priced at a premium vs. peers’ and so it leaves little room for price hikes.

We, however, think a rising mix of more expensive/larger turbines may help raisethe ASP by 1% annually in 2014 and 2015. 2) We expect average gross marginsof its turbines to rise further from the 2012 trough (13.7%) to 14.7%/15.1%/ 15.4%in 2013/2014/2015. We attribute this mostly to falling unit cost of goods sold. 3) Interms of turbine sales volumes, we now expect 2013/2014/2015 levels to be3,086MW (+19% yoy), 3,312 (+7% yoy) and 3,658MW (+10% yoy) (previously3,135MW/3,417MW/3,598MW). We expect its yoy growth to exceed that ofChina’s total annual installation because of Goldwind’s ability to potentially gainmarket share as well as overseas growth. 4) We think its wind farm sales remaina key earnings contributor (125%/57%/39% of pre-tax profit in 2012/2013/2014) butit distorts net margins as gains are not included in revenue.

Valuation

Goldwind trades at 2014E 23X P/E. We think its 2014E P/B of 0.8 looksexpensive vs. our 2014E/2015E ROE of 3.5% and 3.7%.

Key risks

Higher-than-expected sales volumes, profit margins, and wind farm sales.

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