In this briefing:
- Zenith Energy’s Offer From Pacific Equity
- BGRIM: Limited Impact from Drought and COVID-19 Outbreak
- CGN New Energy: The Latest SOE Clean Energy Play
- CGN New Energy’s Potential SOE Privatisation Bid
- RATCH: Stern and Steady Player in Thai Utility Sector
Remote power generator Zenith Energy Ltd (ZEN AU) specialist has announced an Offer, by way of a Scheme from Elemental Infrastructure BidCo, a Pacific Equity Partners (PEP) entity, at $1.01/share in cash, a 45.3% premium to last close.
The Offer has been unanimously recommended by Zenith’s board of directors, and values Zenith’s equity at ~A$150mn (US$98mn) and an enterprise value of ~$250mn.
Rollover shareholders – including Chairman Doug Walker, MD Hamish Moffat and COO Graham Cooper – collectively holding 23%, will be able to elect to receive at least 66% of their Scheme Consideration as scrip consideration.
For the purpose of the Scheme, these shareholders form a separate class of shareholder, therefore there will be two Scheme Meetings – the rollover shareholders will be entitled to vote only at their own Scheme Meeting. Both Scheme Meetings will need to pass resolutions approving the Scheme. A similar structure was tabled in Quadrant Cues QMS Offer In OOH Return.
This appears a relatively straightforward Scheme. It is now a question whether a competing Offer, as transpired in the Pacific Energy (PEA AU) transaction last year, will unfold.
Yesterday analyst meeting came out in a positive tone. Expect 2020E earnings to remain healthy backed by profit recognition from 633MWe project added in 2019.
- Expect 1Q20 earnings to grow both YoY and QoQ, given the profit recognition from 633MWe capacity expansion in 2019
- Positive 2020-22E earnings outlook backed by full year operating results from 633 MW projects COD in 2019 and 412 MWe in pipeline, representing 28% growth from current level.
- The share price fall 30% from January’s peak of Bt65.5 due to negative sentiments from drought impact and expected economic slowdown from COVID-19 spread. However, we see this have only a minimal impact to BGRIM, thus recommend hold due to limited upside to our target price.
We maintain the HOLD rating based on a target price of Bt48 derived using DCF valuation (6.9% WACC and 1% TG). Our valuation implies 36.6x PE’20, which is equivalent to 1.2x PEG for 2020-22E, lower than its peers’ 1.6x PEG.
After suspending the shares for yesterday’s trading pursuant to the Code on Takeovers and Mergers, CGN New Energy Holdings (1811 HK) its parent SOE-China General Nuclear Power Corporation (CGNPC), currently holding 72.29%, is considering privatising the company.
Should a firm Offer unfold, this would be the fourth Hong Kong-listed, clean-energy company subject to a privatisation or change of control in less than a year, after:
No price was announced for CGNPC’s proposal. The Offer, should it unfold, will be by way of a Scheme. No single shareholders has the requisite 10% blocking stake of 2.771% of shares out.
CGN is incorporated in Bermuda, therefore the headcount test applies.
Expect shares to pop today. The premiums to last close for 735 HK and 958 HK were 41.90% and 46.08% respectively. That places a possible Offer Price at ~HK$1.70/share.
CGN New Energy Holdings (1811 HK)’s assets comprise wind, solar, gas-fired, coal-fired, oil-fired, hydro, cogen and fuel cell projects as well as a steam project, which is operating in China and Korea power markets. On 2 March, it announced a possible privatisation bid from China General Nuclear Power Corporation. China General Nuclear Power Corporation, an SOE, is the controlling shareholder with a 72.29% stake. This potential privatisation joins a list of recent SOE privatisations of clean energy companies – Huaneng Renewables Corp H (958 HK) and CP Clean Energy.
The offer if forthcoming could lead to the privatisation and the delisting of CGN New Energy. While the details and terms of the possible offer remain under wraps, we believe an offer north of HK$1.60 per share will be needed to ensure broad acceptance.
Yesterday analyst meeting came out in a neutral tone. Expect 2020E earnings to remain healthy backed by profit contribution from newly COD projects in 2019.
- Expect 1Q20 earnings to improve both YoY and QoQ, given the profit recognition from 290MW capacity expansion in 2019.
- Positive Long term (2020-21) earnings outlook backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.
- Estimate 7% CAGR EPS growth in 2020-22E.
- The share has fallen 17% since early 2020 due to the negative sentiments of expected economic slowdown from COVID-19 spread. We believe this should be a short-term impact and recommend to accumulate the stock for 12-month period.
We maintain the BUY rating with a target price of Bt74.5 is based on sum-of-the-parts (SOTP) methodology, implying 16.6xPE’20E or 0.71x relative PE to Thai utility sector.
