Following two consecutive half-year periods of performance growth and continuous profit improvement, is XINYI ENERGY (03868) experiencing a valuation turnaround? Recent reports show that XINYI ENERGY released its 2025 first-half financial results, achieving revenue of RMB 1.21 billion, up 7.67% year-on-year, with EBITDA of RMB 1.12 billion, growing 7.7% year-on-year in line with revenue growth. Net profit attributable to shareholders reached RMB 450 million, up 23.43% year-on-year, with a net profit margin of 37.19%. During the period, the company proposed an interim dividend of HK$222 million, representing HK$2.9 cents per share, up 26.1% year-on-year, with a payout ratio of 49%.

The company's profit growth in this interim report exceeded revenue growth, primarily due to declining financing costs and reduced income tax expenses. The financing cost rate decreased by 4.02 percentage points, while the income tax expense ratio fell by 3.24 percentage points, contributing a combined 7.26 percentage points improvement to the net profit margin.

However, XINYI ENERGY's stock price showed a muted response to the performance results, trading steadily with low volume. In early July, the company, together with Xinyi Solar, issued a joint voluntary announcement that their application materials for a solar power plant infrastructure REIT listing in China had been submitted to the NDRC. The REIT concept attracted short-term speculative capital, causing the stock price to surge temporarily before declining after the 9th, with the current price down more than 30% from July highs.

**Steady Revenue Growth but Notable Profit Volatility**

In the first half of 2025, XINYI ENERGY achieved optimistic growth rates across various performance indicators, with particularly notable improvements in profitability, alongside synchronized growth in shareholder returns.

The company's revenue performance remained relatively stable. Looking at half-year periods, the company achieved continuous growth for two consecutive half-years. Over a longer timeframe, revenue has only declined once since listing, during the first half of 2024, primarily due to market-based electricity trading where transaction prices were lower than feed-in tariffs. However, electricity sales volume continued to grow. On an annual basis from 2020-2024, the company's revenue compound annual growth rate was 9.1%.

However, profit volatility has been significant. Declining electricity prices led to decreasing gross margins, which translated to the profit level. The 2025 net profit margin of 37.19% represents a decline of 14.16 percentage points compared to the same period in 2020.

Nevertheless, XINYI ENERGY has shown significant improvements in cost control and operational efficiency. Through optimizing asset structure and enhancing management effectiveness, the company has effectively mitigated profit decline pressure. For instance, excluding 2023, core cost components including administrative expenses (2-3%) and financing costs (12-13%) have remained relatively stable.

Additionally, the company's expanding layout in the renewable energy sector is expected to create new growth drivers, thereby enhancing overall risk resilience.

From a business perspective, in the first half of 2025, XINYI ENERGY's electricity sales reached RMB 741 million, up 15.06% year-on-year. While tariff adjustment income declined slightly, overall growth momentum was maintained. During the period, the total power generation from the company's owned and operated solar power plant projects increased 22.7% year-on-year.

XINYI ENERGY primarily operates solar projects. As of June 2025, the company operated and held solar power plant projects with a total approved generation capacity of 4,540.5 MW, of which 1,734 MW fall under feed-in tariff policies and 2,806.5 MW under grid parity policies.

Leveraging its parent company, the company maintained steady expansion, acquiring a large-scale solar power plant project in China with approved capacity of 30 MW from Xinyi Solar and its subsidiaries during the period. This project operates under grid parity policies.

Under steady expansion, the company's power generation maintained double-digit growth rates, though declining electricity price trends and power curtailment losses due to grid consumption constraints partially offset the volume gains.

Notably, under tariff adjustments, the company's accounts receivable reached very high levels at RMB 4.603 billion in the first half of 2025, representing 3.8 times revenue, with most receivables within one-year aging. However, the company maintained relatively healthy cash flow, recording net operating cash flow of RMB 309 million, up 81.8% year-on-year, with receivables providing support for future cash inflows.

**Industry Maintains High Prospects, Awaiting Sector Valuation Recovery**

The solar energy industry continues to possess very high development prospects. Under carbon neutrality policies, photovoltaic new installed capacity maintains double-digit growth rates. According to statistics, photovoltaic new installed capacity exceeded 200 GW in the first half of 2025, with May alone reaching 92.92 GW, setting a new monthly installation record.

Photovoltaics firmly holds China's third-largest power source position, trailing only thermal and hydroelectric power. As of June 2025, cumulative photovoltaic installed capacity reached 1,098.51 GW.

However, industry growth rates show a decelerating trend, transitioning from policy-driven to market-driven approaches. In January 2025, the National Energy Administration issued the "Distributed Photovoltaic Power Generation Development and Construction Management Measures," clearly establishing policy transition timelines. According to the management measures, newly built projects connected to the grid after May 1, 2025, will be fully incorporated into market-based operating mechanisms, with the Chinese government no longer providing subsidies, and project returns determined entirely by supply and demand conditions.

It's worth noting that due to policy driving, the photovoltaic industry chain has expanded blindly in recent years, resulting in severe overcapacity. Since 2021, industry chain prices have continued declining, affecting the entire industry chain's valuation significantly. XINYI ENERGY's market value has been in a prolonged bear market, with current declines reaching 80%.

As a terminal power generation company, the company's growth has not been affected, though profitability has been impacted by electricity price volatility.

Despite historical profit volatility, XINYI ENERGY has maintained annual dividend payments, distributing dividends for seven consecutive years since 2019, with cumulative dividends of RMB 548 million and a dividend payout ratio of 86%.

Major investment banks maintain positive views on the company. BOCI Research noted that XINYI ENERGY's first-half net profit growth exceeded market expectations and believes its expansion into the Malaysian market will potentially enhance return on equity, maintaining a buy rating. CICC Research raised 2025-26 net profit forecasts by 5.2% and 5.0% to RMB 1.0 billion and RMB 1.07 billion respectively, citing Document 136's stabilization of existing project return expectations, the company's high-quality existing assets, and frequent policies boosting industry valuation performance. The firm raised its target price by 41% to HK$1.35, representing 9.8% upside from current levels.

In summary, XINYI ENERGY delivered impressive first-half performance, with profitability continuously improving over the past two half-year periods. Steady expansion drove continuous power generation growth, while operating cash flow remained strong, with expectations for maintained growth in the second half. Under carbon neutrality policies, the company retains high development prospects. As industry chain capacity clearing progresses, sector valuations will recover, simultaneously driving the company's market value upward trajectory.