20210831-招银国际-龙源电力-00916.HK-1H21_rapid_earnings_growth_in_line__2H21E_to_maintain_decent_growth_5页_921kb

China Longyuan Power (916 HK) Company Update Summary

Core Content

China Longyuan Power (CLY) reported strong 1H21 results, with net profit surging by 37.7% YoY to RMB4,420 million and revenue increasing by 25.7% YoY to RMB17.8 billion, exceeding expectations. The company's excellent operational performance and expansion efforts in the 14th Five-Year Plan (FYP) contributed to the results. Wind power generation was a key growth driver, with output reaching 27,407 GWh, up 20.4% YoY and utilization hours increasing by 110 hours to 1,297 hours. The company also guided a 46.9 TWh wind power generation target for FY21E, which analysts believe is slightly conservative given the strong performance even during traditional off-season months.

Coal-fired power segment also performed well, with segment profit reaching RMB272 million, despite a 24.5% increase in coal fuel costs. This was attributed to the company's strong coal trading activities.

Key Financial Highlights

Key Viewpoints

• Earnings Growth: CLY's 1H21 results were in line with estimates, with continued strong performance expected in 2H21E, driven by wind power generation momentum.
• Wind Power Performance: Wind power generation showed robust growth, with a favorable run rate in July, indicating that the growth trend is likely to continue in the second half of the year.
• Coal Power Segment: Despite higher coal costs, coal-fired power segment profit exceeded expectations, highlighting the company's strong coal trading capabilities.
• Subsidy Collection: Subsidy receivables were RMB29.3 billion, but only RMB133 million was collected in 1H21. Management expects full-year collection to reach RMB4.3 billion, with potential to exceed RMB30 billion by year-end.
• Target Price: The target price (TP) was raised to HK$19.0, up 12% from the previous HK$17.0, reflecting continued re-rating expectations due to its leadership in renewables and operational excellence.
• Valuation Metrics: The DCF valuation model suggests that the company's fair value is HK$19.0, with Free Cash Flow expected to grow significantly over the next few years.

Key Information

• Target Price: HK$19.0 (up 12% from previous TP of HK$17.0)
• Current Price: HK$16.26
• Market Cap: HK$113,795 million
• Shareholding Structure:
  • Wellington Mgmt Group: 11.9%
  • BlackRock Inc.: 9.9%
• Share Performance:
  • 1-month: 4.1% (absolute), 7.8% (relative)
  • 3-months: 28.5% (absolute), 47.3% (relative)
  • 6-months: 24.3% (absolute), 41.8% (relative)
  • 12-months: 193.4% (absolute), 193.5% (relative)
• DCF Valuation: Terminal value of RMB462,223 million, with Free Cash Flow expected to grow significantly over the next 9 years.
• WACC: Calculated at 8.4%, based on a cost of debt of 4.5%, cost of equity of 16.5%, and a tax rate of 20.0%.
• Dividend Yield: Expected to increase from 1.1% in FY21E to 1.4% in FY23E.
• Debt-to-Equity Ratio: Increased from 156.3% in FY21E to 199.3% in FY23E, indicating a rising leverage level.
• ROE: Expected to rise from 10.9% in FY21E to 11.4% in FY23E.

Analyst Recommendation

• Rating: BUY (maintained)
• Reasoning: CLY's strong performance in wind power generation, excellent operational execution, and leading position in renewable energy make it an attractive investment. The company is well-positioned to benefit from China's net-zero targets and potential revenue from CCER and carbon trading.

Summary

China Longyuan Power demonstrated strong performance in the first half of 2021, with net profit and revenue both growing significantly. Wind power generation was a key driver, with a strong run rate even during off-peak months. Coal power also performed well, attributed to efficient trading activities. Despite challenges in subsidy collection, the company is expected to see improvements throughout the year. The target price has been raised to HK$19.0, and the company is recommended as a BUY due to its leadership in renewables and solid financial performance. The DCF model supports this valuation, with a fair share price of HK$19.0.