Category

Utilities Sector

Brief Utlilities: Azure Power – Earnings Flash – Q3 FY 2019-20 Results – Lucror Analytics and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. Azure Power – Earnings Flash – Q3 FY 2019-20 Results – Lucror Analytics
  2. Morning Views Asia: Azure Power Global Ltd, Powerlong Commercial Management Holdings, Softbank Corp
  3. BCPG: Upside from Second Hydro Power Plant Acquisition in Laos
  4. Huaneng Renew: Unconditional In All Respects
  5. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

1. Azure Power – Earnings Flash – Q3 FY 2019-20 Results – Lucror Analytics

Azure Power’s Q3/19-20 results were short of expectations (in terms of both revenues and earnings) for a second consecutive quarter. This was driven partly by power curtailment in Andhra Pradesh and regulatory issues facing the Rooftop business. That said, cash flows improved on the back of more favourable working capital development, especially for receivables. The financial risk profile continued to deteriorate relative to FYE 2018-19 as the green bond issuance drove debt up, and EBITDA growth lagged the increase in debt. That said, it improved relative to Q2/19-20. Liquidity is adequate, supported by the USD 350 mn green bond issuance in Q2 and the USD 75 mn equity injection from its largest shareholder in Q3. We expect little ratings pressure.

2. Morning Views Asia: Azure Power Global Ltd, Powerlong Commercial Management Holdings, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

3. BCPG: Upside from Second Hydro Power Plant Acquisition in Laos

2

BCPG announced acquisition of new 45 MW hydro power plant in Laos. The project is roughly estimated to bring a positive upside of Bt1.0 to our target price. We maintain the BUY rating given the significant upside to our target price of Bt22.1 (excluding the Nam San 3B’s value).

Updates:

  • BCPG announced acquisition of 100% stake in 45MW hydro power plant in Laos increasing the firm’s total operating capacity to 449 MWe (+11%).
  • Expect the transaction to be settled in 1Q20 and estimate the new power plant will bring a positive upside of Bt1.0 per share to our TP, based on 12% EIRR and 1:1 debt to equity ratio.
  • 4Q19 will be a weak quarter due to seasonality factor. While 1Q20 earnings looks bright, given the full quarter and partial earnings recognition from 69MW Nam San 3A and 45 MW Nam San 3B projects respectively acquired in Laos.

We believe the correction in BCPG share price is a chance to accumulate in 12-month period, backed by strong earnings outlook in 2020E.

4. Huaneng Renew: Unconditional In All Respects

On the 20 Janaury, the First Closing Date, China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfied the 90% “acceptance condition” attached to the Offer. The transaction appeared all done bar the shouting.

The Offer remained conditional on necessary approvals/consents from NDRC/MOFCOM/SAFE, but this was China Huaneng – no one expected an issue with the authorities.

Time dragged. The Anhui Conch Cement Co Ltd H (914 HK) / West China Cement (2233 HK) situation in 2016 was discussed, wherein the regulatory approvals, for whatever reason, were never received.

And with the 10 February fast approaching – 21 days after the first close, therefore entitling shareholders who had tendered, to un-tender – it was coming down to the wire. An extended Chinese New Year holiday due to the coronavirus further muddied matters. The SFC, for their part, had yet to provide a closing date for the Offer.

Last night China Huaneng and HRC announced that all the conditions of the Offer have been fulfilled and the Offer has been declared unconditional in all respects.

This is a done deal and remains open to acceptances. If you can buy at $3.15, do so.

5. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: Morning Views Asia: Azure Power Global Ltd, Powerlong Commercial Management Holdings, Softbank Corp and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. Morning Views Asia: Azure Power Global Ltd, Powerlong Commercial Management Holdings, Softbank Corp
  2. BCPG: Upside from Second Hydro Power Plant Acquisition in Laos
  3. Huaneng Renew: Unconditional In All Respects
  4. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

1. Morning Views Asia: Azure Power Global Ltd, Powerlong Commercial Management Holdings, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

2. BCPG: Upside from Second Hydro Power Plant Acquisition in Laos

2

BCPG announced acquisition of new 45 MW hydro power plant in Laos. The project is roughly estimated to bring a positive upside of Bt1.0 to our target price. We maintain the BUY rating given the significant upside to our target price of Bt22.1 (excluding the Nam San 3B’s value).

Updates:

  • BCPG announced acquisition of 100% stake in 45MW hydro power plant in Laos increasing the firm’s total operating capacity to 449 MWe (+11%).
  • Expect the transaction to be settled in 1Q20 and estimate the new power plant will bring a positive upside of Bt1.0 per share to our TP, based on 12% EIRR and 1:1 debt to equity ratio.
  • 4Q19 will be a weak quarter due to seasonality factor. While 1Q20 earnings looks bright, given the full quarter and partial earnings recognition from 69MW Nam San 3A and 45 MW Nam San 3B projects respectively acquired in Laos.

We believe the correction in BCPG share price is a chance to accumulate in 12-month period, backed by strong earnings outlook in 2020E.

3. Huaneng Renew: Unconditional In All Respects

On the 20 Janaury, the First Closing Date, China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfied the 90% “acceptance condition” attached to the Offer. The transaction appeared all done bar the shouting.

The Offer remained conditional on necessary approvals/consents from NDRC/MOFCOM/SAFE, but this was China Huaneng – no one expected an issue with the authorities.

Time dragged. The Anhui Conch Cement Co Ltd H (914 HK) / West China Cement (2233 HK) situation in 2016 was discussed, wherein the regulatory approvals, for whatever reason, were never received.

And with the 10 February fast approaching – 21 days after the first close, therefore entitling shareholders who had tendered, to un-tender – it was coming down to the wire. An extended Chinese New Year holiday due to the coronavirus further muddied matters. The SFC, for their part, had yet to provide a closing date for the Offer.

Last night China Huaneng and HRC announced that all the conditions of the Offer have been fulfilled and the Offer has been declared unconditional in all respects.

This is a done deal and remains open to acceptances. If you can buy at $3.15, do so.

4. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: BCPG: Upside from Second Hydro Power Plant Acquisition in Laos and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. BCPG: Upside from Second Hydro Power Plant Acquisition in Laos
  2. Huaneng Renew: Unconditional In All Respects
  3. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

1. BCPG: Upside from Second Hydro Power Plant Acquisition in Laos

2

BCPG announced acquisition of new 45 MW hydro power plant in Laos. The project is roughly estimated to bring a positive upside of Bt1.0 to our target price. We maintain the BUY rating given the significant upside to our target price of Bt22.1 (excluding the Nam San 3B’s value).

Updates:

  • BCPG announced acquisition of 100% stake in 45MW hydro power plant in Laos increasing the firm’s total operating capacity to 449 MWe (+11%).
  • Expect the transaction to be settled in 1Q20 and estimate the new power plant will bring a positive upside of Bt1.0 per share to our TP, based on 12% EIRR and 1:1 debt to equity ratio.
  • 4Q19 will be a weak quarter due to seasonality factor. While 1Q20 earnings looks bright, given the full quarter and partial earnings recognition from 69MW Nam San 3A and 45 MW Nam San 3B projects respectively acquired in Laos.

We believe the correction in BCPG share price is a chance to accumulate in 12-month period, backed by strong earnings outlook in 2020E.

2. Huaneng Renew: Unconditional In All Respects

On the 20 Janaury, the First Closing Date, China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfied the 90% “acceptance condition” attached to the Offer. The transaction appeared all done bar the shouting.

The Offer remained conditional on necessary approvals/consents from NDRC/MOFCOM/SAFE, but this was China Huaneng – no one expected an issue with the authorities.

Time dragged. The Anhui Conch Cement Co Ltd H (914 HK) / West China Cement (2233 HK) situation in 2016 was discussed, wherein the regulatory approvals, for whatever reason, were never received.

And with the 10 February fast approaching – 21 days after the first close, therefore entitling shareholders who had tendered, to un-tender – it was coming down to the wire. An extended Chinese New Year holiday due to the coronavirus further muddied matters. The SFC, for their part, had yet to provide a closing date for the Offer.

Last night China Huaneng and HRC announced that all the conditions of the Offer have been fulfilled and the Offer has been declared unconditional in all respects.

This is a done deal and remains open to acceptances. If you can buy at $3.15, do so.

3. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: Huaneng Renew: Unconditional In All Respects and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. Huaneng Renew: Unconditional In All Respects
  2. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional
  3. RATCH: Slow but Steady 2020-21 Earnings Outlook
  4. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

1. Huaneng Renew: Unconditional In All Respects

On the 20 Janaury, the First Closing Date, China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfied the 90% “acceptance condition” attached to the Offer. The transaction appeared all done bar the shouting.

The Offer remained conditional on necessary approvals/consents from NDRC/MOFCOM/SAFE, but this was China Huaneng – no one expected an issue with the authorities.

Time dragged. The Anhui Conch Cement Co Ltd H (914 HK) / West China Cement (2233 HK) situation in 2016 was discussed, wherein the regulatory approvals, for whatever reason, were never received.

And with the 10 February fast approaching – 21 days after the first close, therefore entitling shareholders who had tendered, to un-tender – it was coming down to the wire. An extended Chinese New Year holiday due to the coronavirus further muddied matters. The SFC, for their part, had yet to provide a closing date for the Offer.

Last night China Huaneng and HRC announced that all the conditions of the Offer have been fulfilled and the Offer has been declared unconditional in all respects.

This is a done deal and remains open to acceptances. If you can buy at $3.15, do so.

2. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

3. RATCH: Slow but Steady 2020-21 Earnings Outlook

Reven

We downgrade RATCH to HOLD rating to reflect the earnings revision. We also cut our target price by 9% to Bt74.5 derived from sum-of-the-parts (SOTP) methodology, implying 16.5xPE’20E or 0.74x relative PE to Thai utility sector.

  • Trimming the earnings forecast for FY2019-21 to factor in the lower than expected sales revenue growth from the aged IPP power plants, and equity income form associates.
  • Expect 4Q19 earnings to recover YoY, given the profit recognition from 228 MW capacity (2H18-1H19). and  decline QoQ due to seasonality factor. 
  • Maintain positive view towards the 2020-21 earnings backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.

It was a good call to initiate RATCH in 3Q19, as the share price rallied up 12% touching our previous target price of Bt81.5 in 4Q19. However the price slashed later due to lower than expected earnings growth and negative sentiments from sale of 49% stake in 1,400 MW Hin Kong to GULF.

4. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

Eastw%20update%204

We maintain EASTW with a BUY rating with a target price of Bt16, which is derived from the DCF methodology (WACC 7% and terminal growth of 1%) or a tentative to 21xPE’20E

The story:

• 5-15% raw water price readjustment is the key earnings driver in 2020
• Trimmed 2019-21E earnings by 5-13% to reflect weaker-than-expected margin

Risks: (1) Drought conditions lead to raw-material shortage

            (2) Electricity outages

            (3) Conflict with community related to EASTW’s operations

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional
  2. RATCH: Slow but Steady 2020-21 Earnings Outlook
  3. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

1. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

2. RATCH: Slow but Steady 2020-21 Earnings Outlook

Reven

We downgrade RATCH to HOLD rating to reflect the earnings revision. We also cut our target price by 9% to Bt74.5 derived from sum-of-the-parts (SOTP) methodology, implying 16.5xPE’20E or 0.74x relative PE to Thai utility sector.

  • Trimming the earnings forecast for FY2019-21 to factor in the lower than expected sales revenue growth from the aged IPP power plants, and equity income form associates.
  • Expect 4Q19 earnings to recover YoY, given the profit recognition from 228 MW capacity (2H18-1H19). and  decline QoQ due to seasonality factor. 
  • Maintain positive view towards the 2020-21 earnings backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.

It was a good call to initiate RATCH in 3Q19, as the share price rallied up 12% touching our previous target price of Bt81.5 in 4Q19. However the price slashed later due to lower than expected earnings growth and negative sentiments from sale of 49% stake in 1,400 MW Hin Kong to GULF.

3. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

Eastw%20update%204

We maintain EASTW with a BUY rating with a target price of Bt16, which is derived from the DCF methodology (WACC 7% and terminal growth of 1%) or a tentative to 21xPE’20E

The story:

• 5-15% raw water price readjustment is the key earnings driver in 2020
• Trimmed 2019-21E earnings by 5-13% to reflect weaker-than-expected margin

Risks: (1) Drought conditions lead to raw-material shortage

            (2) Electricity outages

            (3) Conflict with community related to EASTW’s operations

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional
  2. RATCH: Slow but Steady 2020-21 Earnings Outlook
  3. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19
  4. JSW Energy- Small Puddles Across Investments Path

1. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

2. RATCH: Slow but Steady 2020-21 Earnings Outlook

Reven

We downgrade RATCH to HOLD rating to reflect the earnings revision. We also cut our target price by 9% to Bt74.5 derived from sum-of-the-parts (SOTP) methodology, implying 16.5xPE’20E or 0.74x relative PE to Thai utility sector.

  • Trimming the earnings forecast for FY2019-21 to factor in the lower than expected sales revenue growth from the aged IPP power plants, and equity income form associates.
  • Expect 4Q19 earnings to recover YoY, given the profit recognition from 228 MW capacity (2H18-1H19). and  decline QoQ due to seasonality factor. 
  • Maintain positive view towards the 2020-21 earnings backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.

It was a good call to initiate RATCH in 3Q19, as the share price rallied up 12% touching our previous target price of Bt81.5 in 4Q19. However the price slashed later due to lower than expected earnings growth and negative sentiments from sale of 49% stake in 1,400 MW Hin Kong to GULF.

3. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

Eastw%20update%204

We maintain EASTW with a BUY rating with a target price of Bt16, which is derived from the DCF methodology (WACC 7% and terminal growth of 1%) or a tentative to 21xPE’20E

The story:

• 5-15% raw water price readjustment is the key earnings driver in 2020
• Trimmed 2019-21E earnings by 5-13% to reflect weaker-than-expected margin

Risks: (1) Drought conditions lead to raw-material shortage

            (2) Electricity outages

            (3) Conflict with community related to EASTW’s operations

4. JSW Energy- Small Puddles Across Investments Path

JSW Energy Ltd (JSW IN)  has made few investments in the past few years, however, most of the investments have been written off or impaired. This raises doubts about the capital allocation strategy of the company. However, on a positive note, the balance sheet still continues to get deleveraged while receivables are not in a comforting zone.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: Why Huaneng Renewables Is Not Another “Harbin Electric” and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. Why Huaneng Renewables Is Not Another “Harbin Electric”

1. Why Huaneng Renewables Is Not Another “Harbin Electric”

Image 18443073821576095383526

Back on the 3 October, Huaneng Renewables Corp H (958 HK) (HRC) announced a privatisation Offer from parent China Huaneng, by way of a Merger by Absorption, at $3.17/share, an 18.73% premium to last close and a 46.08% premium to the closing price when shares were suspended on the 30 August. The Offer price – which is “okay”, having traded around that level in June last year – is Final. 

As HRC is PRC incorporated, the takeover takes the form of a hybrid offer as its shares cannot be compulsorily acquired. This two-step mechanism involves a scheme-like vote from independent H-shareholders ( ≥ 75% for, ≤10% against) followed by a tendering acceptance condition of 90% of H shares in issue. 

China Huaneng and connected parties hold 52.71%, therefore, a blocking stake at the shareholder meeting is 4.729% or 499.7mn shares. No single independent shareholder holds a sufficient quantity of shares to block the scheme.

The H Share Class Meeting will be held on the 6 January. The First closing date is the 20 January – 60 days from the Composite Doc.

The key risk to the deal is a repeat of the Harbin Electric Co Ltd H (1133 HK) failed privatisation attempt (Post-Mortem on Harbin Electric) earlier this year, in which 88.32% of shares out tendered at the close of the Offer – despite an unprecedented two-month extension.

However, the financial advisor to HRC appears to have learnt valuable lessons from the Harbin transaction towards facilitating the acceptance condition.

Plus there are subtle differences between HRC and Huaneng; the fact Harbin fell short of being privatised by just 1.68%, subtle differences will be meaningful in the HRC deal.

More detail below.


For much more in-depth coverage of M&A Rules, Regulations, Practices, and Protocols in Hong Kong, please refer to Quiddity Hong Kong M&A Guide 2019.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: RATCH: Slow but Steady 2020-21 Earnings Outlook and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. RATCH: Slow but Steady 2020-21 Earnings Outlook
  2. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19
  3. JSW Energy- Small Puddles Across Investments Path
  4. GUNKUL: Leading Fully Integrated Player in the Renewables Value Chain
  5. Morning Views Asia: Azure Power Global Ltd, Panda Green, Sawit Sumbermas Sarana

1. RATCH: Slow but Steady 2020-21 Earnings Outlook

Picture2

We downgrade RATCH to HOLD rating to reflect the earnings revision. We also cut our target price by 9% to Bt74.5 derived from sum-of-the-parts (SOTP) methodology, implying 16.5xPE’20E or 0.74x relative PE to Thai utility sector.

  • Trimming the earnings forecast for FY2019-21 to factor in the lower than expected sales revenue growth from the aged IPP power plants, and equity income form associates.
  • Expect 4Q19 earnings to recover YoY, given the profit recognition from 228 MW capacity (2H18-1H19). and  decline QoQ due to seasonality factor. 
  • Maintain positive view towards the 2020-21 earnings backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.

It was a good call to initiate RATCH in 3Q19, as the share price rallied up 12% touching our previous target price of Bt81.5 in 4Q19. However the price slashed later due to lower than expected earnings growth and negative sentiments from sale of 49% stake in 1,400 MW Hin Kong to GULF.

2. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

Eastw%20update%204

We maintain EASTW with a BUY rating with a target price of Bt16, which is derived from the DCF methodology (WACC 7% and terminal growth of 1%) or a tentative to 21xPE’20E

The story:

• 5-15% raw water price readjustment is the key earnings driver in 2020
• Trimmed 2019-21E earnings by 5-13% to reflect weaker-than-expected margin

Risks: (1) Drought conditions lead to raw-material shortage

            (2) Electricity outages

            (3) Conflict with community related to EASTW’s operations

3. JSW Energy- Small Puddles Across Investments Path

JSW Energy Ltd (JSW IN)  has made few investments in the past few years, however, most of the investments have been written off or impaired. This raises doubts about the capital allocation strategy of the company. However, on a positive note, the balance sheet still continues to get deleveraged while receivables are not in a comforting zone.

4. GUNKUL: Leading Fully Integrated Player in the Renewables Value Chain

P41m1

We initiate coverage of GUNKUL with a BUY rating, based on a 2020E target price of Bt3.55, derived from a discounted cash flow valuation (WACC of 7.8% and TG of 1.0%). Our valuation implies 11.2xPE’20, or a 0.5 relative PE to the Thai Utilities sector.

The story:

  • Expect 13% EPS CAGR during 2020-22E
  • Secured stable earnings growth from a 60% capacity expansion in 2019-22E
  • Bt8bn EPC backlog to support revenue growth
  • Potential upside from expansion of power-generation business

Risks:

  • Delays in new projects
  • Exchange rate fluctuation
  • PPA termination

5. Morning Views Asia: Azure Power Global Ltd, Panda Green, Sawit Sumbermas Sarana

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19 and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19
  2. JSW Energy- Small Puddles Across Investments Path
  3. GUNKUL: Leading Fully Integrated Player in the Renewables Value Chain
  4. Morning Views Asia: Azure Power Global Ltd, Panda Green, Sawit Sumbermas Sarana
  5. Why Huaneng Renewables Is Not Another “Harbin Electric”

1. EASTW: Surging Electricity Cost Pressured Margin at Least Until 4Q19

Eastw%20update%204

We maintain EASTW with a BUY rating with a target price of Bt16, which is derived from the DCF methodology (WACC 7% and terminal growth of 1%) or a tentative to 21xPE’20E

The story:

• 5-15% raw water price readjustment is the key earnings driver in 2020
• Trimmed 2019-21E earnings by 5-13% to reflect weaker-than-expected margin

Risks: (1) Drought conditions lead to raw-material shortage

            (2) Electricity outages

            (3) Conflict with community related to EASTW’s operations

2. JSW Energy- Small Puddles Across Investments Path

JSW Energy Ltd (JSW IN)  has made few investments in the past few years, however, most of the investments have been written off or impaired. This raises doubts about the capital allocation strategy of the company. However, on a positive note, the balance sheet still continues to get deleveraged while receivables are not in a comforting zone.

3. GUNKUL: Leading Fully Integrated Player in the Renewables Value Chain

P41m1

We initiate coverage of GUNKUL with a BUY rating, based on a 2020E target price of Bt3.55, derived from a discounted cash flow valuation (WACC of 7.8% and TG of 1.0%). Our valuation implies 11.2xPE’20, or a 0.5 relative PE to the Thai Utilities sector.

The story:

  • Expect 13% EPS CAGR during 2020-22E
  • Secured stable earnings growth from a 60% capacity expansion in 2019-22E
  • Bt8bn EPC backlog to support revenue growth
  • Potential upside from expansion of power-generation business

Risks:

  • Delays in new projects
  • Exchange rate fluctuation
  • PPA termination

4. Morning Views Asia: Azure Power Global Ltd, Panda Green, Sawit Sumbermas Sarana

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

5. Why Huaneng Renewables Is Not Another “Harbin Electric”

Image 18443073821576095383526

Back on the 3 October, Huaneng Renewables Corp H (958 HK) (HRC) announced a privatisation Offer from parent China Huaneng, by way of a Merger by Absorption, at $3.17/share, an 18.73% premium to last close and a 46.08% premium to the closing price when shares were suspended on the 30 August. The Offer price – which is “okay”, having traded around that level in June last year – is Final. 

As HRC is PRC incorporated, the takeover takes the form of a hybrid offer as its shares cannot be compulsorily acquired. This two-step mechanism involves a scheme-like vote from independent H-shareholders ( ≥ 75% for, ≤10% against) followed by a tendering acceptance condition of 90% of H shares in issue. 

China Huaneng and connected parties hold 52.71%, therefore, a blocking stake at the shareholder meeting is 4.729% or 499.7mn shares. No single independent shareholder holds a sufficient quantity of shares to block the scheme.

The H Share Class Meeting will be held on the 6 January. The First closing date is the 20 January – 60 days from the Composite Doc.

The key risk to the deal is a repeat of the Harbin Electric Co Ltd H (1133 HK) failed privatisation attempt (Post-Mortem on Harbin Electric) earlier this year, in which 88.32% of shares out tendered at the close of the Offer – despite an unprecedented two-month extension.

However, the financial advisor to HRC appears to have learnt valuable lessons from the Harbin transaction towards facilitating the acceptance condition.

Plus there are subtle differences between HRC and Huaneng; the fact Harbin fell short of being privatised by just 1.68%, subtle differences will be meaningful in the HRC deal.

More detail below.


For much more in-depth coverage of M&A Rules, Regulations, Practices, and Protocols in Hong Kong, please refer to Quiddity Hong Kong M&A Guide 2019.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Utlilities: India – Stake Sale Candidate Shortlist and more

By | Daily Briefs, Utilities Sector

In this briefing:

  1. India – Stake Sale Candidate Shortlist
  2. Huaneng Renewables: Thoughts on the IFA Valuation

1. India – Stake Sale Candidate Shortlist

Image

The Government of India has already blown through the estimated full year fiscal deficit in the first seven months of the financial year due to lower than expected revenues and higher expenditure. To bridge the fiscal deficit and keep it within 3.4% of GDP, the Government is looking to sell its stakes in various PSUs to raise cash.

From announcements made so far, the Government is looking to sell stakes in Bharat Petroleum Corp (BPCL IN), Container Corp Of India (CCRI IN) and Shipping Corp Of India (SCI IN). Bharat Petroleum Corp (BPCL IN) and Shipping Corp Of India (SCI IN) have rallied on news of privatisation and removal of the overhang of piecemeal divestment.

In this Insight, we look at other stocks that the Government of India holds majority stakes in that they could sell. This should cause some of the stocks to re-rate and could provide decent returns to investors.

2. Huaneng Renewables: Thoughts on the IFA Valuation

Precedents

Huaneng Renewables Corp H (958 HK)/HN Renewables is the largest producer of wind power in China by revenue. On 3 October, HN Renewables disclosed that China Huaneng had a made a voluntary conditional cash offer to acquire all the issued H Shares for HK$3.17 per share. Predictably, in the composite document, the independent board committee and the independent financial advisor (IFA) recommended independent H shareholders to accept the offer.

In our previous note, we stated that the offer is attractive with a strong chance to cross the high threshold required for a successful privatisation proposal in Hong Kong. In this note, we provide our thoughts on the IFA’s valuation methodology. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.