Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Another week, another rumoured (<a href="https://www.bloomberg.com/news/articles/2024-04-11/china-s-cgn-new-energy-s-parent-said-to-revive-take-private-plan" target="_blank" rel="noopener">from Bloomberg</a>) takeover. This time it's for clean energy play <a href="https://www.smartkarma.com/entities/cgn-new-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:4295:1" rel="noopener">CGN New Energy Holdings (1811 HK)</a>.</li>
<li>Back in 2020, CGN was subject to a potential privatisation from its SOE-parent - see <a href="https://skr.ma/28MYq" target="_blank" rel="noopener">CGN New Energy: The Latest SOE Clean Energy Play</a> - but it failed to materialise.</li>
<li>A couple of years back, a "valuation system with Chinese characteristics" had the media discussing whether this implied a premium for SOEs and companies aligned with national goals.</li>
</ul>


Another week, another rumoured (from Bloomberg) takeover. This time it's for clean energy play CGN New Energy Holdings (1811 HK).
Back in 2020, CGN was subject to a potential privatisation from its SOE-parent - see CGN New Energy: The Latest SOE Clean Energy Play - but it failed to materialise.
A couple of years back, a "valuation system with Chinese characteristics" had the media discussing whether this implied a premium for SOEs and companies aligned with national goals.


CGN New Energy (1811 HK): Takeover Rumours

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd-49b9d808-e8c9-4049-a85a-5380de9f21ad" target="_blank" data-smartkarma-citation="entities:35558:1" rel="noopener"></a>YTD, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a> has seen its share price weak, but we believe focus should not be on the poor FY22 result and the moderate 1Q23 generation growth.</li>
<li>Based on 5.5-6.5GW planned capacity expansion in FY23, this will mean a solid growth of 17.7-20.9% YoY. Coupled with efficiency improvement, we expect a sharp rebound in FY23 profit.</li>
<li>With impairment on Ukraine mostly made and reversal of exchange and trading losses, there will be a big swing in bottom line. We welcome the improvement in cash flow too.</li>
</ul>



YTD, China Longyuan Power (916 HK) has seen its share price weak, but we believe focus should not be on the poor FY22 result and the moderate 1Q23 generation growth.
Based on 5.5-6.5GW planned capacity expansion in FY23, this will mean a solid growth of 17.7-20.9% YoY. Coupled with efficiency improvement, we expect a sharp rebound in FY23 profit.
With impairment on Ukraine mostly made and reversal of exchange and trading losses, there will be a big swing in bottom line. We welcome the improvement in cash flow too.


China Longyuan (916 HK): We Stay on the Bull Camp

China Power International / Equity Bottom-Up

<ul>
<li>The Rmb10.8bn acquisition of clean energy assets from parent by <a href="https://www.smartkarma.com/entities/china-power-international" target="_blank" data-smartkarma-citation="entities:15548:1" rel="noopener">China Power International (2380 HK)</a> is positive in raising its clean energy proportion to over 70% of total capacity.</li>
<li>The drop in share price reflects concerns about elevation of gearing and the need for potential equity funding. However, even all equity financing scenario will only dilute EPS by 1%.</li>
<li>We think its earnings quality will improve, balance sheet will be enhanced and profitability will be raised. Its 1H23 positive profit alert also showed a recovery in operational performance. </li>
</ul>


The Rmb10.8bn acquisition of clean energy assets from parent by China Power International (2380 HK) is positive in raising its clean energy proportion to over 70% of total capacity.
The drop in share price reflects concerns about elevation of gearing and the need for potential equity funding. However, even all equity financing scenario will only dilute EPS by 1%.
We think its earnings quality will improve, balance sheet will be enhanced and profitability will be raised. Its 1H23 positive profit alert also showed a recovery in operational performance. 


China Power International (2380 HK): A Major Move to Raise Clean Energy Exposure

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-power-international" target="_blank" data-smartkarma-citation="entities:15548:1" rel="noopener">China Power International (2380 HK)</a> will enjoy another year of strong earnings improvement in FY23, as coal-fired segment returns to profit and new energy capacity drives growth.</li>
<li>Solar and wind capacity will increase 66.5% and 23.1%, respectively, raising new energy's proportion to over 70%. Profitability for hydropower also looks to recover in this year.</li>
<li>There is huge room for asset injection from SPIC given the parent's new energy capacity of 139GW, with only 20GW in CPI. Its FY23 PER of 8.4x PER is attractive. </li>
</ul>



China Power International (2380 HK) will enjoy another year of strong earnings improvement in FY23, as coal-fired segment returns to profit and new energy capacity drives growth.
Solar and wind capacity will increase 66.5% and 23.1%, respectively, raising new energy's proportion to over 70%. Profitability for hydropower also looks to recover in this year.
There is huge room for asset injection from SPIC given the parent's new energy capacity of 139GW, with only 20GW in CPI. Its FY23 PER of 8.4x PER is attractive. 


China Power International (2380 HK): This Will Be a Rewarding Year

<ul>
<li>We think the underperformance of <a href="https://www.smartkarma.com/entities/china-power-international" target="_blank" data-smartkarma-citation="entities:15548:1" rel="noopener">China Power International (2380 HK)</a> (CPI) against the market in this year is unjustified given a projected improvement in profitability.</li>
<li>CPI has secured coal supply with more than 60% of contracts on annual long-term basis within the benchmark price range. Also, power tariff is expected to be on an uptrend.</li>
<li>The proposed new management incentive scheme will better align management's and shareholders' interests. CPI also indicated good room to lower leverage in this year while sustaining growth. </li>
</ul>


We think the underperformance of China Power International (2380 HK) (CPI) against the market in this year is unjustified given a projected improvement in profitability.
CPI has secured coal supply with more than 60% of contracts on annual long-term basis within the benchmark price range. Also, power tariff is expected to be on an uptrend.
The proposed new management incentive scheme will better align management's and shareholders' interests. CPI also indicated good room to lower leverage in this year while sustaining growth. 


China Power International (2380 HK): Moving in the Right Direction

Hong Kong

CGN New Energy Holdings Co Ltd is a diversified independent power producer in Asia. The Company has a portfolio of gas-fired, coal-fired, oil-fired, hydro, cogen and fuel cell power generation projects in the People's Republic of China and Korea.

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CGN New Energy Holdings (1811 HK)

CGN New Energy (1811 HK): Takeover Rumours

CGN doesn't appear overly expensive here. CGNPC has explored taking CGN private before so the rumours are not without merit. I'd be picking up...

David Blennerhassett

China Longyuan (916 HK): We Stay on the Bull Camp

Capacity expansion of 17.7-20.9% YoY, coupled with efficiency improvement will mean sharp rebound in FY23 profit. Reduction in impairment and...

Osbert Tang, CFA

China Power International (2380 HK): A Major Move to Raise Clean Energy Exposure

CPI's Rmb10.8bn acquisition from its parent will make clean energy reach 70% of total capacity. The move will enhance earnings by 10% and an all...

Osbert Tang, CFA

China Power International (2380 HK): This Will Be a Rewarding Year

FY23 will be an exciting year for CPI as coal-fired, wind & solar, hydro and new innovation segments will all see better profitability. Potential...

Osbert Tang, CFA

China Power International (2380 HK): Moving in the Right Direction

We think there is good room for CPI's performance to catch up as we see its profitability to improve on better tariff and capacity expansion. Its...

Osbert Tang, CFA

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