HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Power International / Equity Bottom-Up

<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

<ul>
<li>2H21 is bad for <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> as coal price surged. But the positive news is that its wind and solar segments logged a 50.6% full-year profit growth.</li>
<li>There is good progress on transformation and it has 7GW of clean energy capacity to come on stream in FY22. This is equivalent to 46% of the existing capacity.</li>
<li>CPI said coal-fired plants are marginally profitable in Jan-Feb; meanwhile, hydropower will do better in this year. Overall, these set the stage for a turnaround.</li>
</ul>


2H21 is bad for China Power International (2380 HK) as coal price surged. But the positive news is that its wind and solar segments logged a 50.6% full-year profit growth.
There is good progress on transformation and it has 7GW of clean energy capacity to come on stream in FY22. This is equivalent to 46% of the existing capacity.
CPI said coal-fired plants are marginally profitable in Jan-Feb; meanwhile, hydropower will do better in this year. Overall, these set the stage for a turnaround.


China Power International (2380 HK): Transformation to Soon Bear Fruits

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

Equity Capital Markets

China Three Gorges Renewables / Equity Capital Markets

<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

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking <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> private. </li>
<li>CGN New Energy shares have underperformed the median peer's shares since the announcement of CGN's previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.</li>
<li>The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.</li>
</ul>


Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking CGN New Energy Holdings (1811 HK) private. 
CGN New Energy shares have underperformed the median peer's shares since the announcement of CGN's previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.
The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.


CGN New Energy (1811 HK): Evaluating a Potential Privatisation

China

China Datang Corporation Renewable Power Company Ltd. generates electricity from renewable resources.  The Company operates wind farms and hydroelectric power plants.

China Datang Corp Renewable Power (1798 HK)

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China Datang Corp Renewable Power (1798 HK)

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

China Power International (2380 HK): Transformation to Soon Bear Fruits

CPI is making good progress in transformation into a clean energy play. Profitability will improve in FY22, providing room for valuations to catch...

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

CGN New Energy (1811 HK): Evaluating a Potential Privatisation

The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer...

Arun George

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

China Power International (2380 HK): Transformation to Soon Bear Fruits

CPI is making good progress in transformation into a clean energy play. Profitability will improve in FY22, providing room for valuations to catch...

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 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

CGN New Energy (1811 HK): Evaluating a Potential Privatisation

The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer...

Arun George