Wind turbine OEMs: lower prices fuel structural growth

31st January 2018

Macquarie

Alice Matthews

0 0

According to Macquarie's latest research, the most important trend in the wind industry in 2017 was the decline in average selling prices (ASP) of wind turbines. The company forecasts ASPs to decline by ten percent YoY, which is likely to put pressure on margins across the value chain. However, this trend does have positive consequences for the company's medium term growth outlook for the industry. Macquarie believes this is currently being overlooked by the market due to the short term focus on margin pressure.

In this article, Macquarie explores the emergence of new wind markets that have arisen due to lower turbine ASPs and the improved economics of wind power. The company identifies 15 countries that have especially promising growth profiles. It describes them as the 'Big Zeros', as they have a large installed base of traditional power capacity but with less than one percent wind penetration.

Impact

Macquarie first wrote about the Big Zero markets in January 2017 when it originally forecasted 10GW of demand from these markets over the next four years.
Macquarie now increases this to 16GW due to an increase in order intake announced by OEMs from Big Zero markets. During 9M17 these markets announced orders worth 1.7GW volume, from only 150MW in 9M16.
Macquarie forecasts global wind demand will have a CAGR of eight percent from 2017 to 2020; this is despite a declining European market (15.5GW to 10GW pa).

Outlook

The company believes Vestas and Siemens Gamesa are likely to benefit from these markets first due to their scale, manufacturing presence and global reach.
Vestas won 43% of the 1.7GW of announced orders from the Big Zero countries during 9M17, higher than any other turbine OEM. Siemens Gamesa was the second highest; winning 23% of the announced orders. Whilst no orders were announced by Nordex and Senvion during the same period.
This has led Macquarie to upgrade its volume forecast for Vestas by six percent in 2019. This increases Macquarie's sales forecast by five percent to €11.4bn, eight percent higher than (FactSet) consensus, and its EBIT and EPS forecasts by three percent. Similarly for Siemens Gamesa Macquarie upgrades its sales, EBIT and EPS forecasts in 2019 by two percent.
Macquarie maintains its Outperform rating on Vestas, and upgrades its TP by three percent to kr. 550. The company believes it is best positioned to win the first mover advantage in the Big Zero markets, and to withstand margin pressure from ASP reductions due to greater operational leverage and a reduction in variable costs.
Macquarie maintains its Neutral recommendation on Siemens Gamesa and raises its TP 11% to €11). The company still believes 2018 earnings could be at risk given the short term uncertainty over orders in India and Germany. However, the outlook beyond 2018 looks encouraging as Macquarie expects the company to announce an impactful 'self-help' programme at the Capital Markets Day in February 2018.