20160601-招商证券_香港_-China_Wind_Power_Sector_Minimum_utilization_hours_finalized_–upside_risk_for_wind_utilization_beyond_FY16E_12页_494kb

China Wind Power Sector Summary

Core Content

The document provides an industry analysis of the China wind power sector, focusing on the impact of the finalized minimum utilization hours policy on wind farm operators. It outlines the policy's implications, earnings forecasts, and stock valuations for key players in the sector.

Main Points

• Minimum Utilization Hours Policy: The policy sets minimum utilization hours for wind power in different zones, which is in-line with market expectations. The final document implies a project IRR of 7-10% for wind projects, with zone I-III provinces requiring the largest increases in utilization hours compared to 2015 levels.

• Utilization Hours by Province:

  • Gansu: +616 hours (+52%)
  • Xinjiang: +329 hours (+21%)
  • Jilin: +370 hours (+26%)
  • Heilongjiang: +380 hours (+25%)

• Impact on Wind Farm Operators:

  • The policy is expected to benefit wind farm operators, particularly those with significant exposure to zone I-III areas.
  • Datang Renewable (1798 HK) is the most sensitive to changes in utilization hours, followed by Longyuan (916 HK) and HN Renewables (958 HK).
  • The policy is expected to take effect from 2017E, with the positive impact unlikely to be realized in the near term due to the complexity of policy execution and negotiations.

• Earnings Revisions:

  • Earnings for FY17E and FY18E have been revised upwards for HN Renewables, Longyuan, and Datang Renewable to reflect the higher wind utilization.
  • HN Renewables' FY17E net profit forecast was raised by 13%, Longyuan by 5%, and Datang Renewable by 124%.

• Target Prices and Upside:

  • Target prices (TP) for HN Renewables, Longyuan, and Datang Renewable have been adjusted to HK$3.0/share, HK$7.8/share, and HK$0.9/share respectively.
  • The upside for these companies is estimated at 27%, 46%, and 10% respectively.

• Valuation and Recommendations:

  • HN Renewables is highlighted as the top pick due to its attractive valuation (FY16E PE: 8.6x, 1.1 SD below historical mean) and high earnings visibility.
  • Longyuan is also recommended due to its attractive valuation (FY16E PE: 10.5x, 1.8 SD below historical mean) and well-diversified wind portfolio.
  • Datang Renewable is rated as NEUTRAL due to its high net gearing and low interest coverage ratio, which introduce earnings volatility.

Key Information

• Policy Impact: The minimum utilization hours policy is expected to positively impact the wind sector, but the execution and timing remain uncertain.
• Zone I-III Impact: All provinces in zone I-III will see an increase in utilization hours, with Gansu, Xinjiang, Jilin, and Heilongjiang showing the largest increases.
• Earnings and Valuation: Earnings for HN Renewables, Longyuan, and Datang Renewable have been revised upwards for FY17E and FY18E, with HN Renewables being the most favored due to its valuation and earnings visibility.
• Trading Opportunities: Datang Renewable may benefit from the policy in the short term, but its high financial leverage raises concerns about its earnings stability.

Financial Highlights

Conclusion

The minimum utilization hours policy is a positive development for the wind power sector, particularly for companies with significant exposure to zone I-III areas. While the impact is expected to be more pronounced from 2017E onwards, the current execution details remain unclear. HN Renewables is highlighted as the top-pick due to its favorable valuation and earnings visibility, while Longyuan is also recommended for its attractive valuation and diversified portfolio. Datang Renewable, though a major beneficiary, is rated NEUTRAL due to its financial leverage and potential earnings volatility.