20210812-招银国际-龙源电力-00916.HK-1H21_results_preview__earnings_to_boom_with_good_power_generation_performance_6页_952kb

CMB International Securities | Equity Research | Company Update Summary

Core Content

This report provides an equity research update on China Longyuan Power (916 HK), focusing on its 1H21 earnings performance, operational highlights, financial projections, and valuation. The analysis highlights the strong performance in wind power generation, potential earnings growth, and the impact of coal power segment on profitability. The report also discusses the updated target price and investment ratings.

Main Points

1H21 Performance Overview

• Wind Power Generation:

  • 1H21 wind power generation surged 20.4% YoY to 24.011 GWh.
  • 7M21 wind generation growth accelerated to 21.5% YoY.
  • Wind utilization hours increased to 2,428 hours, lifting FY21E wind power generation by 18.0% YoY.
  • Curtailment rate improved to a multi-year low of 2.3% in July 2021.
  • New high-efficient wind turbines are believed to have contributed significantly to the improved performance.

• Coal Power Segment:

  • Coal power generation rose 32.6% YoY to 5,259 GWh.
  • High coal prices increased by 40% YoY, potentially sustaining pressure in 2H21E.
  • Coal consumption costs rose, impacting overall profitability.

• Earnings:

  • 1H21E net profit is estimated to increase by 42.1% YoY to RMB4,561 million, close to FY20 earnings of RMB4,726 million.
  • Earnings per share (EPS) for 1H21E is expected to be RMB0.77, compared to RMB0.68 in 1H20.
  • Profit before tax rose 66.4% YoY to RMB8,746 million.

Valuation and Target Price

• Target Price (TP) was lifted by 31% to HK$17.0, reflecting a 18.3x FY21E P/E and 2.0x FY21E P/B.
• DCF Valuation was updated, with a revised equity value of HK$115.5 billion.
• Free cash flow is expected to increase over time, with positive outlook for future growth.

Earnings Projections (FY21E–FY23E)

Key Drivers for Growth

• Return to A-share market.
• Potential renewables asset injection from CNH Energy group.
• Positive outlook from new grid-parity wind projects.
• Improved wind turbine efficiency and low curtailment rates.

Key Financial Metrics

Revenue and Net Income

• Revenue is expected to grow from RMB27,541 million (FY19A) to RMB39,577 million (FY23E).
• Net income is projected to increase from RMB4,325 million (FY19A) to RMB7,848 million (FY23E).

Profit Margins

• Operating margin improved to 38.2% (FY21E) from 35.1% (FY20A).
• Net margin increased to 19.1% (FY21E) from 16.5% (FY20A).

Valuation Ratios

• P/E ratio is expected to drop from 15.6 (FY21E) to 12.3 (FY23E).
• P/B ratio is expected to decline from 1.70 (FY21E) to 1.40 (FY23E).
• ROE is expected to rise to 11.4% (FY23E) from 10.9% (FY21E).

Key Ratios and Financial Position

Conclusion and Investment Recommendation

• Rating: BUY (Maintain).
• Target Price: HK$17.0 (up from previous HK$12.98).
• Outlook: Positive due to strong wind generation performance, renewables asset injection, and return to A-share market.
• Catalysts: Potential for renewables expansion, improved wind turbine technology, and subsidy concerns easing.
• Investor Note: The report acknowledges the uncertainty in investment returns and market risks, recommending independent evaluation and consultation with financial advisors.

Appendices and Additional Information

• Auditor: Ernst & Young.

• Related Reports:

  • "China Longyuan (916 HK) - FY20 results in line; cloudy subsidy collection outlook" - 1 Apr 2021.

• CMBIS Ratings:

  • BUY: Stock with potential return of over 15% over next 12 months.
  • HOLD: Stock with potential return of +15% to -10% over next 12 months.
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.

• Company Information:

  • CMBIS is a wholly owned subsidiary of China Merchants Bank.
  • Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong.

Disclaimer and Risk Note

• The report is not investment advice and is based on publicly available data.
• Risks involved in securities trading, and actual results may differ.
• CMBIS is not liable for any losses or damages arising from reliance on the report.
• Investors are advised to consult with financial advisors and evaluate independently.