HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Power International / Equity Bottom-Up

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<li>
<a href="https://www.smartkarma.com/entities/china-power-international" target="_blank" data-smartkarma-citation="entities:15548:1" rel="noopener">China Power International (2380 HK)</a> has 20-30GW of potential clean energy project pipeline, and with its coal-fired power disposal plan, it has a strong case to achieve clean energy transformation. </li>
<li>Adjustment in tariff in Oct and new mechanism for 2022 tariff will see coal-fired profitability rebound. Potential asset injection from parent SPIC will also be positive long-term catalyst for CPI.  </li>
<li>We project its clean energy capacity growth may reach a CAGR of 44% in the 14th 5-year Plan, driving earnings momentum. Despite sharp rally YTD, valuations are still below peers. </li>
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China Power International (2380 HK) has 20-30GW of potential clean energy project pipeline, and with its coal-fired power disposal plan, it has a strong case to achieve clean energy transformation. 
Adjustment in tariff in Oct and new mechanism for 2022 tariff will see coal-fired profitability rebound. Potential asset injection from parent SPIC will also be positive long-term catalyst for CPI.  
We project its clean energy capacity growth may reach a CAGR of 44% in the 14th 5-year Plan, driving earnings momentum. Despite sharp rally YTD, valuations are still below peers. 


China Power International (2380 HK): Updates on an Ambitious Roadmap

Xinjiang Goldwind Science & Technology / Equity Bottom-Up

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<li>
<a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind Science &amp; Technology H (2208 HK)</a> is a prime candidate to benefit from the growth in demand for wind power installation and generation in China's "Dual Carbon" policy.</li>
<li>It has healthy order backlog equals to 1.3x FY20 sales, potential for better margin from business mix and product upgrade and sustained wind power capacity growth with solid construction pipeline.</li>
<li>Goldwind is a laggard in YTD performance, and trading on undemanding multiples relative to peers. We also see room for narrowing its underperformance against its A-share in next year.</li>
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Xinjiang Goldwind Science &amp; Technology H (2208 HK) is a prime candidate to benefit from the growth in demand for wind power installation and generation in China's "Dual Carbon" policy.
It has healthy order backlog equals to 1.3x FY20 sales, potential for better margin from business mix and product upgrade and sustained wind power capacity growth with solid construction pipeline.
Goldwind is a laggard in YTD performance, and trading on undemanding multiples relative to peers. We also see room for narrowing its underperformance against its A-share in next year.


2022 High Conviction: Xinjiang Goldwind (2208 HK) - Riding The "Dual Carbon" Tailwinds

<a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a> achieved a 13.2% YoY growth in power generation for Oct, with wind power generation up by 11.2%. We consider this as a healthy pace as we calculated that the CAGR in wind power is still growing at a CAGR of 12.6% vs. Oct 2019, while it is just 5.6% for coal-fired generation. An earlier-and-colder winter, increase in capacity and lower curtailment are factors driving the 4Q21 outlook, in our view.   In the 3Q21 post-result call, Longyuan indicated that all major operating indicators are performing well - utilisation hours increased, curtailment rate dropped and on-grid tariff improved. While margin has contracted marginally, this is mostly the result from the coal segment, as depreciation and repair and maintenance costs for wind power are just growing in line with capacity. We think these takeaways are positive.

China Longyuan Power Group Corp (916 HK) achieved a 13.2% YoY growth in power generation for Oct, with wind power generation up by 11.2%. We consider this as a healthy pace as we calculated that the CAGR in wind power is still growing at a CAGR of 12.6% vs. Oct 2019, while it is just 5.6% for coal-fired generation. An earlier-and-colder winter, increase in capacity and lower curtailment are factors driving the 4Q21 outlook, in our view.   In the 3Q21 post-result call, Longyuan indicated that all major operating indicators are performing well - utilisation hours increased, curtailment rate dropped and on-grid tariff improved. While margin has contracted marginally, this is mostly the result from the coal segment, as depreciation and repair and maintenance costs for wind power are just growing in line with capacity. We think these takeaways are positive.

China Longyuan (916 HK): Gathering Pace in 4Q21

<a href="https://www.smartkarma.com/entities/china-power-international" target="_blank" data-smartkarma-citation="entities:15548:1" rel="noopener">China Power International (2380 HK)</a> (CPI) thinks that power storage in China will stay on in the near term, as supply-side structural issues are further exacerbated by cyclical demand issues. That said, the reform in power tariff will be a major policy direction in the future and will lead to a more market driven power sector in China. In our view, new/renewable energy sub-segment is likely to better place in the industry and we still prefer <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a>.However, we think CPI is more interesting than many power conglomerates. It has the highest proportion of clean/renewable installed capacity (47.1%) when compared with <a href="https://www.smartkarma.com/entities/china-resources-power-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:5385:1" rel="noopener">China Resources Power (836 HK)</a>, <a href="https://www.smartkarma.com/entities/datang-international-power-generation-company-h" target="_blank" data-smartkarma-citation="entities:3664:1" rel="noopener">Datang International (991 HK)</a>, <a href="https://www.smartkarma.com/entities/huaneng-power-intl-inc-h" target="_blank" data-smartkarma-citation="entities:28:1" rel="noopener">Huaneng Power Intl (902 HK)</a> and <a href="https://www.smartkarma.com/entities/huadian-power-intl-corp-h" target="_blank" data-smartkarma-citation="entities:2506:1" rel="noopener">Huadian Power Intl (1071 HK)</a>, and this has also protected its 1H21 profit. Its plan to speed up disposal of coal-fired power plants also adds justification to its valuations. Relative to new energy plays' average of 18x PER and 2.1x P/B FY21F, CPI's 11.9x and 0.9x are clearly not expensive.

China Power International (2380 HK) (CPI) thinks that power storage in China will stay on in the near term, as supply-side structural issues are further exacerbated by cyclical demand issues. That said, the reform in power tariff will be a major policy direction in the future and will lead to a more market driven power sector in China. In our view, new/renewable energy sub-segment is likely to better place in the industry and we still prefer China Longyuan Power Group Corp (916 HK).However, we think CPI is more interesting than many power conglomerates. It has the highest proportion of clean/renewable installed capacity (47.1%) when compared with China Resources Power (836 HK), Datang International (991 HK), Huaneng Power Intl (902 HK) and Huadian Power Intl (1071 HK), and this has also protected its 1H21 profit. Its plan to speed up disposal of coal-fired power plants also adds justification to its valuations. Relative to new energy plays' average of 18x PER and 2.1x P/B FY21F, CPI's 11.9x and 0.9x are clearly not expensive. 

China Power International (2380 HK): Industry and Company Updates, Looks Relatively Inexpensive

<a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a> achieved an impressive 39.4% YoY growth in wind power generation in 2M21 on a low base a year ago. However, even as we compared 2M21 generation with 2M19, the CAGR still reach a resilient 18.4%. This suggested that the low base effect is not a key reason for the surge in generation, but instead, the underlying demand is resilient. Longyuan has taken a beating on the back of the concerns on future tariff, on-grid capacity and profitability if the proposal in the consultation paper released by the National Energy Association is fully implemented. However, with its valuation now back to the end-2020 level (10x PER), we see a lot of uncertainties have been discounted. With a 34% plunge in share price in just 5 trading days and 49% from its peak, the market has already turned from overly bullish to overly bearish, in our view.

China Longyuan Power Group Corp (916 HK) achieved an impressive 39.4% YoY growth in wind power generation in 2M21 on a low base a year ago. However, even as we compared 2M21 generation with 2M19, the CAGR still reach a resilient 18.4%. This suggested that the low base effect is not a key reason for the surge in generation, but instead, the underlying demand is resilient. Longyuan has taken a beating on the back of the concerns on future tariff, on-grid capacity and profitability if the proposal in the consultation paper released by the National Energy Association is fully implemented. However, with its valuation now back to the end-2020 level (10x PER), we see a lot of uncertainties have been discounted. With a 34% plunge in share price in just 5 trading days and 49% from its peak, the market has already turned from overly bullish to overly bearish, in our view. 

China Longyuan (916 HK): Things Aren't that Bad

Hong Kong

CGN New Energy Holdings Co Ltd is a diversified independent power producer in Asia. The Company has a portfolio of gas-fired, coal-fired, oil-fired, hydro, cogen and fuel cell power generation projects in the People's Republic of China and Korea.

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CGN New Energy Holdings (1811 HK)

China Power International (2380 HK): Updates on an Ambitious Roadmap

Clean energy transformation will be supported by pipeline projects on hand and potential asset injection from parent. Coal-fired profitability...

Osbert Tang, CFA

2022 High Conviction: Xinjiang Goldwind (2208 HK) - Riding The "Dual Carbon" Tailwinds

Goldwind should ride on solid demand for wind power installation, margin expansion and commissioning of own wind farms. Valuations are undemanding...

Osbert Tang, CFA

China Longyuan (916 HK): Gathering Pace in 4Q21

Longyuan sustained a healthy generation growth in wind and overall generation for Oct. With the traditional peak season in 4Q21, an earlier-and...

Osbert Tang, CFA

China Power International (2380 HK): Industry and Company Updates, Looks Relatively Inexpensive

China Power Intl is interesting as a new/renewable energy play among the traditional large power conglomerates in China. It has a high 47.1%...

Osbert Tang, CFA

China Longyuan (916 HK): Things Aren't that Bad

Longyuan has achieved good generation in 2M21, suggesting excellent underlying demand. The recent weakness in share price has largely discounted...

Osbert Tang, CFA

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