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China Renewable Energy Sector Summary

Core Content

The document provides an overview of the current state of China's renewable energy sector, particularly focusing on solar and wind power, alongside financial performance summaries of several listed companies in the Hong Kong stock market, including Tongda, Galaxy Entertainment, CITIC Bank, and others.

Renewable Energy Sector Highlights

Solar Power

• Curtailment Issue: In 2015, China's solar sector had a curtailment rate of 10%, with Xinjiang and Gansu being the worst-affected provinces at 26% and 31%, respectively.
• Short-term Outlook: No meaningful improvement in curtailment is expected in the near term.
• Long-term Solutions: Mr. Peng Libin proposed three long-term solutions to alleviate the curtailment issue:
  1. Replacing coal-fired captive power plants with renewable power.
  2. Increasing direct sales of renewable power within each province.
  3. Prioritizing green power generation and dispatch.
• Implementation Challenges: These policies may involve costs, such as compensating coal-fired power plants and selling renewable power at discounts.
• UHV Impact: The development of Ultra-High-Voltage (UHV) lines is not expected to significantly improve renewable energy utilization due to long construction timelines and limited renewable energy transmission capacity through UHV lines.

Wind Power

• RPS Impact: Under the Renewable Portfolio Standard (RPS), wind power is expected to benefit more than solar power. This is due to wind power's cost advantage and higher utilization hours, allowing it to withstand lower market prices and remain profitable.

Distributed Solar

• Market Prospects: Distributed solar power generation shows brighter prospects than utility-scale solar.
• Price and Curtailment: There is no curtailment or price competition in the East and South regions, and no expected tariff cuts for distributed solar in the near term.
• Financing Challenges: The biggest challenge for distributed solar is the difficulty in securing financing, particularly from banks.

Financial Performance of Listed Companies

Tongda (698 HK)

• 1Q16 Revenue: RMB1.4 billion, up 16.7% YoY.
• Earnings Performance:
  • NPAT dropped 57% YoY and 63% QoQ.
  • Revenue from top 4 handset customers grew 38% YoY, with Oppo becoming the second-largest customer.
• Key Models: Huawei Maimang 4, OPPO A53/R9, Xiaomi Redmi 3/Redmi Note 3/Xiaomi 4c.
• Catalysts: Launch of flagship models V8 and R9 in 2Q, potential for growth.
• Valuation: Trading at 9.0x FY16E P/E, with a target price of HK$1.73 (10.0x FY16E P/E).

Galaxy Entertainment (27 HK)

• 1Q16 EBITDA: HK$2,433 million, up 6% YoY and flat QoQ.
• Performance: Both VIP and mass GGR increased QoQ by 4% and 1%, respectively.
• Valuation: Trading at 1.20x FY16E P/B and 12.77x FY16E P/E, considered undemanding compared to historical and sector averages.
• Rating: BUY, with a target price of HK$32.60.

CITIC Bank (998 HK)

• 1Q16 NPAT: RMB11.2 billion, up 2.5% YoY but missing forecasts.
• Asset Quality: NPL ratio increased to 1.40%, with higher credit costs dragging down NPAT.
• Valuation: Trading at 0.62x FY16E P/B and 5.21x FY16E P/E, with downside risks due to weak fundamentals.
• Rating: SELL, with a target price of HK$3.92.

Market Trends and Analysis

Smartphone Market

• IDC Data: Global smartphone shipments in 1Q16 were 334.9 million units, slightly up from 334.3 million in 1Q15.
• Chinese Brands Growth: Huawei, OPPO, and Vivo showed strong growth with 58%, 153%, and 124% YoY increases, respectively.
• Market Share: Combined market share of these three brands increased to 18% from 9.3% in 1Q15.
• Positive Impact: Strong growth is positive for component suppliers like Sunny Optical, Tongda, and Truly.

What to Watch

Economic Data

• US: Fed policy decision, GDP, and employment data are to be released.
• Japan: Household spending, unemployment rate, and industrial output data.
• Germany: Inflation data.
• China: Non-Manufacturing PMI and Manufacturing PMI data.

Company Events

• Multiple companies reported their 1Q16 results on April 28, 2016, including major players in various sectors.

Research Coverage List

Technology, Media & Telecom

Key Takeaways

• Solar Sector: Curtailment remains a challenge, with no near-term improvements expected. Distributed solar shows better prospects than utility-scale solar.
• Wind Power: Expected to benefit more from the RPS policy due to cost advantage and higher utilization.
• Tongda: Strong growth in handset-related revenue, but facing challenges in non-handset segments. Positive outlook with strong customer relationships.
• Galaxy Entertainment: Maintains stable performance, with tight cost control. Positive valuation relative to sector.
• CITIC Bank: Weak performance due to asset quality deterioration and credit costs. Downside risks expected.
• Smartphone Market: Strong growth for Huawei, OPPO, and Vivo, positive for component suppliers.
• Market Outlook: Investors should watch for economic data and company results for further insights.