Xinjiang Goldwind Science & Technology Co., Ltd. :XJNGF-US: Earnings Analysis: Q3, 2017 By the Numbers : January 1, 2018

Xinjiang Goldwind Science & Technology Co., Ltd. reports financial results for the quarter ended September 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 1,068.15 million, Net Earnings of USD 174.38 million.
  • Gross margins narrowed from 29.40% to 26.97% compared to the same period last year, operating (EBITDA) margins now 9.61% from 17.48%.
  • Change in operating cash flow of -52.96% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 1068.15 905.32 518.46 1367.02 904.49
Revenue Growth (%YOY) 18.09 -14.23 -14.49 -23.55 -37.06
Earnings (mil) 174.38 133.66 26.22 126.23 103.6
Earnings Growth (%YOY) 68.32 -19.1 -53.7 8.8 -24.28
Net Margin (%) 16.33 14.76 5.06 9.23 11.45
EPS 0.05 0.04 0.01 0.04 0.03
Return on Equity (%) 5.74 4.66 0.94 4.58 3.83
Return on Assets (%) 7.05 5.76 1.15 5.46 4.56

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, XJNGF-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if XJNGF-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 17.99% and earnings by 30.46% compared to the previous period.

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 26.97% to 29.40% for the same period last year, while operating margins (EBITDA margins) went from 9.61% to 17.48% over the same time frame.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

XJNGF-US’s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now 71.76 days from 119.77 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

XJNGF-US’s year-on-year change in operating cash flow of -52.96% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s operating (EBIT) margins contracted from 13.25% to 9.61%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 13.54% to 18.20%.

EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Xinjiang Goldwind Science & Technology Co., Ltd.

Company Profile

Xinjiang Goldwind Science & Technology Co., Ltd. engages in the manufacture, design, and sale of wind turbine. It operates through the following segments: Wind Turbine Generator Manufacturing and Sales; Wind Power Services; Wind Farm Development; and Others. The Wind Turbine Generator Manufacturing and Sales segment engages in the research and development, manufacture and sale of wind turbine generators, and wind power components. The Wind Power Services segment provides wind power related consultancy, wind farm construction and maintenance services. The Wind Farm Development segment develops wind farms, which consists of wind power generation service as well as the sale of wind farms. The Other segment manages the operation of ater treatment plants under the service concession arrangement and finance leasing services, which as comprised of direct finance leasing and sale-lease back. The company was founded on February 17, 1998 and is headquartered in Urumqi, China.

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