20160831-美银美林-华电国际电力股份-01071.HK-1H_profit_down_30__YoY_UHV,nuclear_DPS_competition_rising_in_Shandong_15页_852kb
报告摘要
Huadian Power International Summary
Core Content
Huadian Power International (HDI), a major Chinese independent power producer (IPP), reported a 30.6% year-over-year (YoY) decline in first-half (1H16) net income to Rmb2,469 million, which is in line with the analyst's estimate of Rmb2,500 million but 19% below the market consensus. After adjusting for one-off items, HDI's recurring profit dropped 29% YoY to Rmb2,560 million, and its recurring Return on Invested Capital (RoIC) fell to 6.4% from 8.8% in 1H15 and 9.6% in FY15. This is lower than the RoIC of its peers, including Huaneng (HNP) at 8.1%, China Resources Power (CRP) at 8.7%, and China Power International (CPID) at 9.3%.
The company's debt-to-capital ratio remained stable at 67.2% in 1H16 compared to 67.0% in FY15. Its average cost of debt decreased from 5.6% in 1H15 to 4.4% in 1H16, although this is still higher than HNP's 4.3% and CPID's 4.7%. The analyst maintains their Underperform rating for both H and A shares, with unchanged price objectives (PO) of HK$3.1 and Rmb3.3 respectively. HDI is currently trading at 6.96-7.1x 2016-17E EV/EBITDA, which is slightly higher than the PO implied EV/EBITDA of 6.79-6.92x.
Main Points
- Profit Decline: HDI's 1H16 net income dropped 30.6% YoY, 19% below consensus.
- Recurring Profit: Net of one-off items, recurring profit fell 29% YoY to Rmb2,560 million.
- RoIC Decline: Recurring RoIC dropped to 6.4% from 8.8% and 9.6% in prior periods.
- Tariff and Utilization: The analyst assumes a 7.6% YoY tariff drop and a 9.5% YoY utilization drop for 2016.
- Fuel Cost: HDI's unit fuel cost fell 18.7% YoY, slightly better than CRP but less than HNP and CPID.
- DPS Competition: DPS (Direct Power Sales) volume and tariff discounts are expected to increase competition in Shandong, with HDI selling around 20% of its output at a 12-13% discount in 1H16.
- Market Outlook: The analyst expects HDI's RoIC to decline further to 6.4% and 5.8% in FY16 and FY17, respectively.
- Valuation Metrics: HDI's 2016-17E EV/EBITDA is trading at 6.96-7.1x, higher than the PO implied 6.79-6.92x.
- EPS Estimates: The analyst's 2016-17 EPS estimates are 16.2-10.7% below consensus.
- Investment Rationale: The Underperform rating is due to falling thermal utilization hours, potential tariff cuts, and coal price increases.
Key Information
- Company Description: HDI is a 50.6% subsidiary of China Huadian Corp., one of China's five major power groups. It operates primarily in thermal power and is listed in Hong Kong and Shanghai.
- Market Trends: The PRC is undergoing power transmission tariff reforms, increasing cross-province competition. This is expected to further impact thermal power utilization and profitability.
- Coal Price: QHD coal price rose 2.4% week-over-week (WoW) to Rmb472/ton in mid-August 2016, but the coal price index suggests a continued decline over the last month.
- Power Consumption and Generation: PRC's gross power consumption grew by 3.6% YoY in 7M16, with thermal power utilization hours declining by 8.7% YoY. Cross-region power transmission volume increased by 9.5% YoY, with some regions showing significant growth.
- Competitive Landscape: HDI's DPS volume and discount are lower than those of HNP and CRP, but higher than CPID. The company's performance is compared with other PRC IPPs and nuclear operators in terms of RoIC and valuation metrics.
- Analyst Contact: Angello Chan and Xiaobing Wang are the research analysts from Merrill Lynch (Hong Kong) responsible for the report.
Valuation Table (2014A–2018E)
| Metric | 2014A | 2015A | 2016E | 2017E | 2018E |
|---|---|---|---|---|---|
| Net Income (Adjusted - mn) | 5,959 | 7,329 | 5,234 | 4,750 | 3,465 |
| EPS | 0.677 | 0.743 | 0.531 | 0.482 | 0.351 |
| EPS Change (YoY) | 21.7% | 9.8% | -28.6% | -9.3% | -27.0% |
| Dividend / Share | 0.270 | 0.294 | 0.193 | 0.175 | 0.128 |
| Free Cash Flow / Share | (0.196) | 0.988 | (0.605) | 0.636 | 0.786 |
| P/E | 4.30x | 4.10x | 5.91x | 6.51x | 8.92x |
| Dividend Yield | 9.27% | 9.63% | 6.15% | 5.58% | 4.07% |
| EV / EBITDA* | 7.37x | 6.17x | 6.96x | 7.09x | 7.68x |
| Free Cash Flow Yield* | -5.74% | 32.46% | -21.62% | 22.71% | 28.09% |
Operating Data Comparison (1H16)
| Metric | Huadian (1071 HK) | CR Power (836 HK) | CPID (2380 HK) | Huaneng (902 HK) |
|---|---|---|---|---|
| Coal-fired unit fuel cost (Rmb/MWh) | 123.9 | 128.4 | 126.0 | 133.7 |
| Utilization hours (thermal) | 2,099 | 2,315 | 1,794 | 1,926 |
| Coal-fired tariff (Rmb/MWh) w/o VAT | n.a. | 317.6 | 311.6 | 378.9 |
| ROE | 11.8% | 14.9% | 15.0% | 20.5% |
| RoIC | 6.4% | 8.8% | 9.6% | 10.5% |
| Debt to capital | 67.2% | 72.2% | 67.0% | 58.6% |
| Average cost of debt | 4.4% | 5.6% | 5.8% | 4.4% |
| EBITDA/Interest expense | 4.6 | 4.0 | 4.1 | 5.5 |
Key Risks
- Tariff Cuts: Potential for further tariff reductions due to government policies.
- Coal Price Volatility: Expected rise in coal prices in 2017 could impact profitability.
- Equity Funding: Risk of higher equity funding due to increased capital expenditure.
- Execution Risk: Potential issues in implementing the vertical integration strategy.
Conclusion
The report highlights a decline in HDI's profitability and a challenging environment due to increasing competition from UHV, nuclear, and DPS in Shandong, as well as expected tariff cuts and rising coal prices. Despite some improvements in fuel cost, the company's performance is expected to continue declining, leading to a maintenance of the Underperform rating and unchanged price objectives.
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