20141107-高盛-Recent_industry_rally_has_left_limited_upside_for_the_stock__Neutral_11页_332kb

Huaneng Renewables Corporation (0958.HK) Summary

Core Content

Huaneng Renewables Corporation (HRC) is a company operating in the renewable energy sector, primarily focusing on wind and solar power. The report outlines the company's current performance, future projections, and valuation metrics, with a neutral rating due to various risks and market conditions.

Main Points

• Rating and Target Price: The company is rated Neutral, and the 12-month target price remains at HK$3.0, unchanged from the previous year's estimate.
• Tariff Cut: A wind power tariff cut of Rmb0.02/kWh for new capacity is expected to take effect from July 1, 2015, reducing future project returns.
• Utilization and Capacity Growth: Wind farm utilization is forecasted to fall by 4.5% year-over-year (YoY) in 2014 to 1,937 hours, but is expected to recover by 4.5% YoY in 2015 and 2.5% YoY in 2016. Wind farm capacity growth is projected at 1.8GW in 2015 and 1.7GW in 2016.
• EPS Revisions: The 2014/2015/2016 EPS estimates are revised by -7% / +1% / +2%, respectively.
• Valuation Metrics:
  • P/E Ratio: The company trades at 11X P/E on 2015 estimates, lower than the Bloomberg consensus of 14X.
  • P/B Ratio: The company trades at 1.2X P/B, with a 11% ROE.
• EPS Growth: Expected to grow at 38.8% in 2015 and 36.4% in 2016.
• Dividend Yield: Expected to increase from 1.0% in 2014 to 2.1% in 2016.
• Gearing and Funding: The company may face increased gearing and funding needs due to the acceleration of installations in 2015 to avoid the tariff cut.

Key Forecasts

• Wind Power Business:
  • Installed capacity is expected to grow significantly from 3,523 MW in 2010 to 11,471 MW in 2016.
  • Wind power utilization is projected to rise from 1,937 hours in 2014 to 2,074 hours in 2016.
  • Wind power tariffs are expected to decrease slightly, from Rmb0.516/kWh in 2014 to Rmb0.506/kWh in 2016.
• Solar Power Business:
  • Solar power installed capacity is expected to increase from 330 MW in 2013 to 1,280 MW in 2020E.
  • Solar utilization is expected to remain stable at 1,500 hours.

Risks

• Tariff Risk: The potential for higher or lower-than-expected wind power tariffs.
• Utilization Risk: The possibility of lower utilization due to oversupply in the China power market.
• Profit Margin Risk: The impact of changes in profit margins due to operational or market conditions.
• Capacity Risk: Variability in the actual capacity installed and its effect on earnings.

Financial Highlights

Market Context

• Wind Power Growth: Wind power's share of total generation capacity is expected to rise from 3% in 2010 to 12% in 2020E.
• Power Generation Mix: Wind power is expected to increase its contribution to the total power generation mix from 1% in 2010 to 6% in 2020E.
• Utilization Trends: Power plant utilization is projected to gradually decline from 4,650 hours in 2010 to 4,215 hours in 2016.

Investment Profile

• ROE: Expected to rise from 6.9% in 2013 to 12.4% in 2016.
• CROCI: Expected to increase from 10.6% in 2013 to 10.9% in 2016.
• Dividend Yield: Expected to increase from 1.0% in 2014 to 2.1% in 2016.

Summary

Huaneng Renewables Corporation is a key player in China's renewable energy sector, particularly in wind power. The company is rated Neutral due to the risks associated with potential tariff cuts and the volatility of wind resource utilization. The report highlights the expected recovery in wind farm utilization in 2015 and 2016, alongside a moderate increase in installed capacity. Despite these growth expectations, the company's valuation remains below the Bloomberg consensus, indicating limited upside potential in the current market environment. The company's financial performance is expected to show consistent EPS growth, but it faces challenges related to gearing and potential oversupply in the power market.