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CGN Meiya Power 1811 HK Summary

Core Content

CGN Meiya Power Holdings (Meiya) is a diversified Asian independent power producer (IPP) and is positioned as the sole global platform for clean and renewable power under its parent company, China General Nuclear Power Corporation (CGNPC). The report initiates coverage with an Outperform (2) rating and forecasts a 2014-17 net-profit CAGR of 22%, driven by the planned asset injections from CGNPC.

Main Viewpoints

• Asset Injections: Meiya aims to acquire 3-5GW of clean and renewable power generation assets from CGNPC over the next four years. The first 1GW is expected to be completed before the end of 2015, and the second batch of 1GW by the end of 2016.
• Upside Potential: These asset injections could lead to an 80-140% upside in terms of Meiya's installed capacity from end-2014.
• Diversified Portfolio: Meiya's clean and renewable energy units (including gas-fired and hydro power) accounted for 52% of its attributable installed capacity as of end-2014, while conventional energy (coal, cogen, oil) made up the remaining 49%.
• Valuation: The current stock price of HKD2.99 on 10 June 2015 implies a 13.3x PER for 2016, which is in line with its clean-energy peers. The DCF-based target price of HKD3.40 suggests a 15x PER for 2016, indicating the stock may be undervalued.
• PBR: The current 2015E PBR is 2.1x, which is relatively low, making the asset injections potentially value accretive.

Key Information

• Target Price: HKD3.40
• Upside: 13.8%
• 10 Jun 2015 Price: HKD2.99
• Forecasted Net Profit CAGR (2014-17): 22%
• Projected Installed Capacity (2017): 5,579MW
• Projected Net Profit (2017): USD156m
• Projected EPS (2017): USD0.036
• Projected Net Profit Margin (2017): 8.8%
• Projected EBITDA Margin (2017): 28.4%

Catalysts

• Increased Clean Energy Proportion: The asset injections are expected to raise Meiya's clean and renewable energy capacity to almost 70% of its total capacity by end-2016.
• Value Accretion: The asset injections are likely to be value accretive, given the current PBR of 2.1x for 2015.

Risks

• Regulatory Delays: Asset injection may be delayed if regulatory approvals are not secured on time.
• Equity Dilution: The high financial cost of asset injections could lead to equity dilution, affecting shareholder value.

Financial Highlights

Company Profile

• Established: 1995
• Parent Company: CGNPC (China General Nuclear Power Corporation)
• Market Position: Meiya has a strong presence in the Korea electricity market, which accounted for 55.8% of its attributable installed capacity and nearly 78% of its total revenue in 2014.
• Management: Meiya's chairman, Mr. Chen Sui, was appointed in 2014 to ensure the smooth transfer of power assets to Meiya. The company plans to have core staff and key development teams for all CGNPC's renewable assets on board by end-2015.

Parental Support

• CGNPC's Subsidiaries: Meiya, CGN Energy Development (hydro), CGN Wind Energy (wind), and CGN Solar Energy (solar) are the main subsidiaries involved in clean energy projects.
• CGNPC's Clean Energy Capacity: As of 2014, CGNPC had a total of 8.823GW of operating hydro/wind/solar projects, with 1.986GW under construction and 3.141GW in the pipeline.
• CGN Wind: Ranked No.5 in cumulative wind power installed capacity and No.3 in newly connected wind power capacity in 2014. It holds 7.542GW of cumulative wind power installed capacity, with a 6.6% market share.

Key Ratios

Conclusion

The report highlights Meiya's potential to grow significantly through asset injections from its parent, CGNPC, and its diversified portfolio. It argues that the company is undervalued, with a low PBR and strong potential for value accretion. The Outperform rating is based on the projected growth and the company's strong position in the Korea electricity market and its parental support. However, the report also acknowledges the risks associated with regulatory delays and equity dilution.