20180822-申万宏源研究_香港_-中广核电力-01816.HK-减速前行_7页_1mb

CGN POWER (1816:HK) Research Summary

Core Content

This document is a research report on CGN POWER (1816:HK), issued by Vincent Yu, CFA, on August 22, 2018. The report provides an analysis of the company's financial performance, valuation metrics, and investment outlook. It includes market data, financial statements, key financial ratios, and investment ratings. The report also includes disclaimers and information disclosure statements regarding the analyst's independence and potential conflicts of interest.

Main Points

Financial Performance (2016–2020E)

• Revenue:

  • 2016: Rmb32,890m
  • 2017: Rmb45,616m
  • 2018E: Rmb49,443m (+8.4% YoY)
  • 2019E: Rmb54,628m (+10.5% YoY)
  • 2020E: Rmb57,292m (+4.9% YoY)

• Net Income:

  • 2016: Rmb7,286.9m
  • 2017: Rmb9,500.3m
  • 2018E: Rmb8,480.0m (-10.7% YoY)
  • 2019E: Rmb9,688.0m (+14.2% YoY)
  • 2020E: Rmb10,505.4m (+8.4% YoY)

• EPS (Earnings Per Share):

  • 2018E: Rmb0.19 (-9.5% YoY)
  • 2019E: Rmb0.21 (+10.5% YoY)
  • 2020E: Rmb0.23 (+9.5% YoY)

• Gross Profit Margin:

  • 2016: 43.7%
  • 2017: 42.9%
  • 2018E: 45.1%
  • 2019E: 45.5%
  • 2020E: 44.9%

• EBITDA Margin:

  • 2016: 55.9%
  • 2017: 59.9%
  • 2018E: 59.1%
  • 2019E: 59.3%
  • 2020E: 59.1%

• ROE (Return on Equity):

  • 2016: 11.1%
  • 2017: 13.6%
  • 2018E: 12.6%
  • 2019E: 13.1%
  • 2020E: 12.6%

• Debt-to-Asset Ratio:

  • 2016: 71.5%
  • 2017: 71.5%
  • 2018E: 70.0%
  • 2019E: 68.2%
  • 2020E: 66.2%

Key Financial Ratios (2016–2020E)

• PE (Price-to-Earnings):

  • 2016: 10.2x
  • 2017: 7.9x
  • 2018E: 8.8x
  • 2019E: 7.7x
  • 2020E: 7.1x

• PB (Price-to-Book):

  • 2016: 1.3x
  • 2017: 1.1x
  • 2018E: 1.0x
  • 2019E: 1.0x
  • 2020E: 0.9x

• EV/EBITDA:

  • 2016: 14.4x
  • 2017: 11.7x
  • 2018E: 11.2x
  • 2019E: 10.4x
  • 2020E: 10.2x

Investment Recommendation

• Rating: Maintain Outperform (or 增持 in Chinese)
• Target Price: HK$2.30
• Upside Potential: 13.9% from current price
• Reasoning: Based on 10x 18E PE and 1.2x 18E PB, or 8.8x 19E PE and 1.1x 19E PB

Profitability Analysis

• Profit Decline in 2018: Net profit dropped by 28.1% YoY due to increased sales and service costs.
• One-time Gains: In 2017, the company recorded a one-time gain of Rmb1.8bn from Ningde Nuclear, which is not expected to recur.
• Cost Breakdown:
  • Design and construction contracts: +52% YoY to Rmb1.3bn
  • Other sales and service costs: +29.4% YoY to Rmb3.5bn

Dividend and Valuation

• Dividend Yield:

  • 2016: 3.1%
  • 2017: 4.1%
  • 2018E: 3.7%
  • 2019E: 4.3%
  • 2020E: 4.6%

• Dividend per Share:

  • 2016: Rmb0.05
  • 2017: Rmb0.07
  • 2018E: Rmb0.06
  • 2019E: Rmb0.07
  • 2020E: Rmb0.08

Financing and Capital Structure

• Bank Borrowings (June 2018): Rmb222.4bn
• Debt-to-Equity Ratio:
  • 2017: 203.4%
  • 2018E: 189.6%
• Leverage: Still high despite the decline in the debt-to-equity ratio
• IPO Plan: The company plans to issue A-shares up to 10% of total share capital to raise funds for future nuclear projects

Cash Flow Analysis

• Operating Cash Flow:

  • 2016: Rmb16,753m
  • 2017: Rmb26,797m
  • 2018E: Rmb42,062m
  • 2019E: Rmb29,600m
  • 2020E: Rmb30,467m

• Investing Cash Flow:

  • 2016: -Rmb19,243m
  • 2017: -Rmb24,527m
  • 2018E: -Rmb26,872m
  • 2019E: -Rmb22,265m
  • 2020E: -Rmb22,265m

• Financing Cash Flow:

  • 2016: -Rmb588m
  • 2017: -Rmb250m
  • 2018E: -Rmb6,533m
  • 2019E: -Rmb8,740m
  • 2020E: -Rmb9,113m

• Net Cash Flow:

  • 2016: -Rmb3,078m
  • 2017: +Rmb2,020m
  • 2018E: +Rmb8,657m
  • 2019E: -Rmb1,406m
  • 2020E: -Rmb912m

Investment Rating Definitions

• Outperform: Expected to generate 10–20% upside over a 12-month period
• Hold: Expected to generate between -10% and +10% over a 12-month period
• Underperform: Expected to generate 10–20% downside over a 12-month period
• Sell: Expected to generate more than 20% downside over a 12-month period

Key Information

• The report includes a detailed financial summary, cash flow statement, and balance sheet.
• The analyst, Vincent Yu, is a registered CFA and Securities Analyst.
• The report is issued by Shenwan Hongyuan Securities, a qualified securities investment consulting institute.
• The report is subject to disclaimers and disclosure requirements to ensure transparency and independence.
• The report is only for professional investors in Hong Kong and the UK.
• The company is not involved in market making activities and does not have financial interests in the listed company.

Conclusion

CGN POWER (1816:HK) is a major player in the Chinese nuclear power sector, with a strong focus on nuclear energy generation. Despite a decline in net income and gross margin in 2018, the company's financial structure and future growth prospects remain positive. The analyst maintains an Outperform rating, with a target price of HK$2.30, indicating a 13.9% upside from the current price. The company is planning an A-share IPO to raise capital for new nuclear projects, and its financial performance is expected to improve in the coming years.