CRP (836 HK): Diverse Energy Powering Chinese Utilities Company

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

No-moat China Resources Power’s, or CRP’s, 2016 results slightly missed, with recurring net profit declining 38% to HKD 9 billion. The higher-than-expected coal cost was a little disappointing, and the company saw its unit coal cost increased sequentially by 41% in second-half 2016, versus the 38% hike for the benchmark Bohai Steam-coal Price Index, or BSPI. However, despite the weak earnings, CRP still increased its annual dividend by 3% to HKD 0.875 per share, and committed to maintain stable absolute dividend payouts through 2017-18, which we think, will be supported by reductions in capital expenditure and an improving profit outlook.We lower our fair value estimate slightly to HKD 16.00 per share from HKD 17.00 per share, to factor in the higher costs, and expect CRP’s recurring net profit to fall a further 23% to HKD 6.9 billion in 2017; while maintaining our mid-cycle assumption, with normalized BSPI of CNY 508 per tonne and utilization of 5,000 hours in 2021. We think the shares, currently trading at one time price/book, are valued close to our fair value estimate. But the dividend yield is attractive at 6%, which the highest among the coal-fired power producers we cover.Analysts: Jennifer Song and Lorraine Tan, CFA

No-moat China Resources Power’s, or CRP’s, 2016 results slightly missed, with recurring net profit declining 38% to HKD 9 billion. The higher-than-expected coal cost was a little disappointing, and the company saw its unit coal cost increased sequentially by 41% in second-half 2016, versus the 38% hike for the benchmark Bohai Steam-coal Price Index, or BSPI. However, despite the weak earnings, CRP still increased its annual dividend by 3% to HKD 0.875 per share, and committed to maintain stable absolute dividend payouts through 2017-18, which we think, will be supported by reductions in capital expenditure and an improving profit outlook.We lower our fair value estimate slightly to HKD 16.00 per share from HKD 17.00 per share, to factor in the higher costs, and expect CRP’s recurring net profit to fall a further 23% to HKD 6.9 billion in 2017; while maintaining our mid-cycle assumption, with normalized BSPI of CNY 508 per tonne and utilization of 5,000 hours in 2021. We think the shares, currently trading at one time price/book, are valued close to our fair value estimate. But the dividend yield is attractive at 6%, which the highest among the coal-fired power producers we cover.Analysts: Jennifer Song and Lorraine Tan, CFA

CRP's 2016 Slightly Missed on Higher Coal Cost; But Dividend Commitment Is Positive to Shareholders