20180619-广发证券_香港_-2H18_Utilities_Sector_Outlook_8页_794kb

2H18 Utilities Sector Outlook Summary

Core Content Overview

The document provides an outlook on the utilities sector in the second half of 2018, focusing on urban gas, wind power, solar power, and environmental protection. It includes analysis of market trends, policy impacts, and investment recommendations.

Wind Power Sector

Key Points

• Improved Profitability: Since 2018, the national wind power curtailment rate has decreased, leading to a significant rise in utilization hours and power generation volume.
• Policy Impact: The Renewable Energy Quota Policy is seen as effective in reducing curtailment. The Bidding Procedure Policy has a limited impact on wind power operators with large approved capacity.
• Investment Recommendations:
  • Huaneng Renewables (958 HK)
  • Suntien Green Energy (956 HK)
  • Datang Renewable Power (1798 HK)
  • Longyuan Power (916 HK)

Sensitivity Analysis

• A decline in the wind curtailment rate positively impacts net profit for wind power operators.
• The sensitivity test shows that a 1pp decline in the curtailment rate leads to net profit increases ranging from +2.83% to +7.30% for the listed companies.
• A 6pp decline in curtailment rate results in net profit increases of +16.97% to +43.83%.

Tariff Impact Analysis

• A reduction in power tariffs for newly installed capacity negatively affects net profit, with the impact varying by company and scenario.
• Scenario 1 (15% down in 2019, 20% in 2020): Net profit declines range from -0.56% to -3.44%.
• Scenario 4 (no change in 2019, 15% down in 2020): Net profit declines range from -0.57% to -1.42%.

Urban Gas Sector

Key Points

• Coal-to-Gas Substitution: Continued efforts on coal-to-gas substitution are expected, driven by air pollution control.
• Positive Business Outlook: The sector is anticipated to have promising conditions in the medium to long-term due to cost-effectiveness in industrial and commercial areas.
• Dual-Pricing System Impact: The dual-pricing system for city gate prices is expected to have a limited effect on the price spread for urban gas operators in the short-term.
• Investment Recommendations:
  • China Gas Holdings (384 HK)
  • ENN Energy Holdings (2688 HK)
  • Tian Lun Gas (1600 HK)

Environmental Protection Sector

Key Points

• Hazardous Waste Disposal: Policies have increased demand for hazardous waste treatment, with a >30% shortage estimated in the market.

• Collaborative Treatment: Cement kiln projects offer a cost-effective solution for hazardous waste treatment.

• Investment Recommendations:

  • Conch Venture (586 HK)
  • China Everbright Greentech (1257 HK)

• Black and Smelly Water Treatment: PPPs are the primary method for addressing this issue. Beijing Enterprises Water (371 HK) is suggested for monitoring.

Solar Power Sector

Key Points

• Policy Restriction: The NDRC, Ministry of Finance, and National Energy Administration issued a stringent policy on May 31, 2018, aiming to curb the growth of the solar power sector by reducing new capacity installation.
• Subsidy Reduction: The national renewable energy fund subsidy for solar power has decreased significantly.
• New Capacity Estimate: Revised down to 35GW in 2018, a 34% YoY decline from 2017.
• Price Correction: Industry consolidation is expected to accelerate due to price corrections across the supply chain.

Risks

• Policy Uncertainty: Changes in new energy policies may affect the sector.
• Coal-to-Gas Substitution: If not met, could impact the growth of the urban gas sector.
• Power Tariff Cuts: May affect profitability of wind and solar operators.
• Natural Gas Supply Shortages: Could create challenges for urban gas operators.
• Operational Risks: In hazardous waste disposal projects.
• NIMBY Effect: May hinder the progress of environmental projects.
• PPP Project Delays: Could slow down the development of black and smelly water treatment.

Sector Ratings

Rating	Description
Positive	Sector expected to outperform the benchmark by more than 10%
Neutral	Expected sector relative performance ranges between -10% and 10%
Cautious	Sector expected to underperform the benchmark by more than 10%

Investment Recommendations

• Wind Power: Huaneng Renewables (958 HK), Suntien Green Energy (956 HK), Datang Renewable Power (1798 HK), Longyuan Power (916 HK)
• Urban Gas: China Gas Holdings (384 HK), ENN Energy Holdings (2688 HK), Tian Lun Gas (1600 HK)
• Hazardous Waste Disposal: Conch Venture (586 HK), China Everbright Greentech (1257 HK)
• Black and Smelly Water Treatment: Beijing Enterprises Water (371 HK)

Figures and Data Highlights

• Figure 1 & 2: Show the decline in national wind curtailment rates from 1Q16 to 1Q18.
• Figure 3: Sensitivity test of net profit changes based on wind curtailment rate declines.
• Figure 4 & 5: Display national wind power utilization hours and generation volume from 2014 to 2018.
• Figure 6: 2017A and 2018E wind power generation data for listed operators.
• Figure 7: Sensitivity test of net profit changes due to power tariff cuts.
• Figure 8 & 9: Estimate of national wind power new capacity installation and market cap per approved/cumulative installed capacity.
• Figure 10: Urban gas consumption data from 2015 to 2020E.
• Figure 11: Clean heating rate and market size estimate for coal-to-gas substitution in northern regions.
• Figure 12: Impact of dual-pricing system on urban gas price spreads.
• Figure 13: Insufficient capacity utilization rate of licensed units.
• Figure 14: Market size estimate for national "black and smelly" water treatment.
• Figure 15: On-grid tariff and subsidy changes for solar power plants from 2011 to 2018.
• Figure 16 & 17: New and installed solar power capacity data from 2013 to 1Q18.
• Figure 18: Estimated new solar power capacity installation from 2013 to 2019E.

Analyst Certification and Disclosure

• The analyst certifies that all views reflect personal opinions and that no remuneration is directly or indirectly linked to specific recommendations.
• GF Securities (Hong Kong) does not hold shares in the mentioned securities.
• No investment banking relationship exists with the mentioned companies in the past 12 months.
• No financial interests or affiliations are held by the analysts or associates.

Disclaimer

• The report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information may be subject to change without notice.
• No liability is accepted for any loss arising from the use of the materials.
• Recipients should not rely solely on this report and should seek professional advice.