HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind Science &amp; Technology H (2208 HK)</a> is a prime candidate to benefit from the growth in demand for wind power installation and generation in China's "Dual Carbon" policy.</li>
<li>It has healthy order backlog equals to 1.3x FY20 sales, potential for better margin from business mix and product upgrade and sustained wind power capacity growth with solid construction pipeline.</li>
<li>Goldwind is a laggard in YTD performance, and trading on undemanding multiples relative to peers. We also see room for narrowing its underperformance against its A-share in next year.</li>
</ul>



Xinjiang Goldwind Science &amp; Technology H (2208 HK) is a prime candidate to benefit from the growth in demand for wind power installation and generation in China's "Dual Carbon" policy.
It has healthy order backlog equals to 1.3x FY20 sales, potential for better margin from business mix and product upgrade and sustained wind power capacity growth with solid construction pipeline.
Goldwind is a laggard in YTD performance, and trading on undemanding multiples relative to peers. We also see room for narrowing its underperformance against its A-share in next year.


2022 High Conviction: Xinjiang Goldwind (2208 HK) - Riding The "Dual Carbon" Tailwinds

China Longyuan Power Group / Equity Bottom-Up

<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 Group Corp (916 HK)</a> achieved a 13.2% YoY growth in power generation for Oct, with wind power generation up by 11.2%. We consider this as a healthy pace as we calculated that the CAGR in wind power is still growing at a CAGR of 12.6% vs. Oct 2019, while it is just 5.6% for coal-fired generation. An earlier-and-colder winter, increase in capacity and lower curtailment are factors driving the 4Q21 outlook, in our view.   In the 3Q21 post-result call, Longyuan indicated that all major operating indicators are performing well - utilisation hours increased, curtailment rate dropped and on-grid tariff improved. While margin has contracted marginally, this is mostly the result from the coal segment, as depreciation and repair and maintenance costs for wind power are just growing in line with capacity. We think these takeaways are positive.

China Longyuan Power Group Corp (916 HK) achieved a 13.2% YoY growth in power generation for Oct, with wind power generation up by 11.2%. We consider this as a healthy pace as we calculated that the CAGR in wind power is still growing at a CAGR of 12.6% vs. Oct 2019, while it is just 5.6% for coal-fired generation. An earlier-and-colder winter, increase in capacity and lower curtailment are factors driving the 4Q21 outlook, in our view.   In the 3Q21 post-result call, Longyuan indicated that all major operating indicators are performing well - utilisation hours increased, curtailment rate dropped and on-grid tariff improved. While margin has contracted marginally, this is mostly the result from the coal segment, as depreciation and repair and maintenance costs for wind power are just growing in line with capacity. We think these takeaways are positive.

China Longyuan (916 HK): Gathering Pace in 4Q21

In a management update by <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 Group Corp (916 HK)</a>, the company highlights that outlook stays positive and see no company- and industry-specific reasons for the recent retreat in share price. In fact, Longyuan believes that it is on track to reach its target to achieve utilisation hours of 2,240 for the full-year and the Sep generation figures (+21.7% YoY for wind generation and +15.8% YoY) remain very decent performance.Longyuan also shared that there will not be significant impact of the recent rise in coal price on its coal-fired power stations, thanks to its own coal trading business which provides a hedge. Other positive developments including the good progress on A-share listing, derived benefit from relaxation of coal-fired power tariffs and increase in power trading. However, offshore wind project will remain on elevated capital costs but Longyuan notes that it is in a good position to secure new projects.

In a management update by China Longyuan Power Group Corp (916 HK), the company highlights that outlook stays positive and see no company- and industry-specific reasons for the recent retreat in share price. In fact, Longyuan believes that it is on track to reach its target to achieve utilisation hours of 2,240 for the full-year and the Sep generation figures (+21.7% YoY for wind generation and +15.8% YoY) remain very decent performance.Longyuan also shared that there will not be significant impact of the recent rise in coal price on its coal-fired power stations, thanks to its own coal trading business which provides a hedge. Other positive developments including the good progress on A-share listing, derived benefit from relaxation of coal-fired power tariffs and increase in power trading. However, offshore wind project will remain on elevated capital costs but Longyuan notes that it is in a good position to secure new projects.  

China Longyuan (916 HK): Takeaways from Management Update

We think there are three developments at <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 Group Corp (916 HK)</a> that driven its recent strength and will stay supportive to the share price. They are: 1.) positive debut of <a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a>, 2.) approval from SASAC on merger with <a href="https://www.smartkarma.com/entities/inner-mongolia-pingzhuang-eng-resources" target="_blank" data-smartkarma-citation="entities:4267:1" rel="noopener">Pingzhuang Energy (000780 CH)</a>, and 3.) solid May and 5M21 generation. In particular, the positive performance of the IPO of CTGR is the most important factor, in our view. With potential further upside at CTGR in the near term, we believe Longyuan's strength will likely to hold as well.SASAC's approval also marked an important step in Longyuan's proposed absorption and merger with Pingzhuang Energy, allowing it to access the liquidity in the domestic market. This adds to the continued solid wind and overall power generation in May, sustaining the encouraging trend of good underlying business momentum. With Longyuan currently trading on 13.5x FY21F PER, compared with CTGR's 19.5x, we believe its valuation is demanding at all.

We think there are three developments at China Longyuan Power Group Corp (916 HK) that driven its recent strength and will stay supportive to the share price. They are: 1.) positive debut of China Three Gorges Renewables (600905 CH), 2.) approval from SASAC on merger with Pingzhuang Energy (000780 CH), and 3.) solid May and 5M21 generation. In particular, the positive performance of the IPO of CTGR is the most important factor, in our view. With potential further upside at CTGR in the near term, we believe Longyuan's strength will likely to hold as well.SASAC's approval also marked an important step in Longyuan's proposed absorption and merger with Pingzhuang Energy, allowing it to access the liquidity in the domestic market. This adds to the continued solid wind and overall power generation in May, sustaining the encouraging trend of good underlying business momentum. With Longyuan currently trading on 13.5x FY21F PER, compared with CTGR's 19.5x, we believe its valuation is demanding at all. 

China Longyuan (916 HK): Three Recent Positive Developments

Equity Capital Markets

China Three Gorges Renewables / Equity Capital Markets

China Three Gorges Renewables (600905 CH)

<a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a> (CTGR) will formally kick off its IPO today at Rmb2.65 per share. Relative to its peers, we see the stock's valuations appealing given its growth outlook, sizeable scale and large market capitalisation. The 36.7x subscription rate for institutional interest during the price consultation period also indicated good demand from professional investors.The online IPO roadshow on 28 May also painted a positive picture for CTGR. The company addressed the issues on removal of subsidies, cost advantages, market expansion, business segment outlook and ROE prospects, and generally the takeaways are not disappointing. Mainland China-listed peers are sitting on an average of 21x PER and 1.5x P/B for FY21F, and this makes CTGR's proposed multiple - 13.6x (weighted average) and 1.1x P/B not too demanding.

China Three Gorges Renewables (600905 CH) (CTGR) will formally kick off its IPO today at Rmb2.65 per share. Relative to its peers, we see the stock's valuations appealing given its growth outlook, sizeable scale and large market capitalisation. The 36.7x subscription rate for institutional interest during the price consultation period also indicated good demand from professional investors.The online IPO roadshow on 28 May also painted a positive picture for CTGR. The company addressed the issues on removal of subsidies, cost advantages, market expansion, business segment outlook and ROE prospects, and generally the takeaways are not disappointing. Mainland China-listed peers are sitting on an average of 21x PER and 1.5x P/B for FY21F, and this makes CTGR's proposed multiple - 13.6x (weighted average) and 1.1x P/B not too demanding.

China Three Gorges Renewables (600905 CH) A-Share IPO: Kick-Start of IPO and Post-Roadshow Updates

China

China Datang Renewable Power is a leading operator in China's renewable energy sector, primarily engaged in the development, investment, construction, and management of wind and solar power projects. The company also focuses on low-carbon technology research and renewable energy equipment services. It was founded in 2004 and is headquartered in Beijing, People's Republic of China.

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China Datang Renewable Power (1798 HK)

2022 High Conviction: Xinjiang Goldwind (2208 HK) - Riding The "Dual Carbon" Tailwinds

Goldwind should ride on solid demand for wind power installation, margin expansion and commissioning of own wind farms. Valuations are undemanding...

Osbert Tang, CFA

China Longyuan (916 HK): Gathering Pace in 4Q21

Longyuan sustained a healthy generation growth in wind and overall generation for Oct. With the traditional peak season in 4Q21, an earlier-and...

Osbert Tang, CFA

China Longyuan (916 HK): Takeaways from Management Update

We think China Longyuan's update is positive, especially it highlights on track to achieve full-year utilisation hours and downplays the impact of...

Osbert Tang, CFA

China Longyuan (916 HK): Three Recent Positive Developments

We see the positive debut of CTGR, approval of the Pingzhuang merger and good May/5M21 generation figures are the key drivers behind Longyuan's...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

2022 High Conviction: Xinjiang Goldwind (2208 HK) - Riding The "Dual Carbon" Tailwinds

Goldwind should ride on solid demand for wind power installation, margin expansion and commissioning of own wind farms. Valuations are undemanding...

Osbert Tang, CFA

China Longyuan (916 HK): Gathering Pace in 4Q21

Longyuan sustained a healthy generation growth in wind and overall generation for Oct. With the traditional peak season in 4Q21, an earlier-and...

Osbert Tang, CFA

China Longyuan (916 HK): Takeaways from Management Update

We think China Longyuan's update is positive, especially it highlights on track to achieve full-year utilisation hours and downplays the impact of...

Osbert Tang, CFA

China Longyuan (916 HK): Three Recent Positive Developments

We see the positive debut of CTGR, approval of the Pingzhuang merger and good May/5M21 generation figures are the key drivers behind Longyuan's...

Osbert Tang, CFA

China Three Gorges Renewables (600905 CH) A-Share IPO: Kick-Start of IPO and Post-Roadshow Updates

CTGR's IPO looks appealing on both fundamental and relative valuation perspectives. Its online IPO roadshow also addressed may investor concerns...

Osbert Tang, CFA