HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd-49b9d808-e8c9-4049-a85a-5380de9f21ad" target="_blank" data-smartkarma-citation="entities:35558:1" rel="noopener"></a>YTD, <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 (916 HK)</a> has seen its share price weak, but we believe focus should not be on the poor FY22 result and the moderate 1Q23 generation growth.</li>
<li>Based on 5.5-6.5GW planned capacity expansion in FY23, this will mean a solid growth of 17.7-20.9% YoY. Coupled with efficiency improvement, we expect a sharp rebound in FY23 profit.</li>
<li>With impairment on Ukraine mostly made and reversal of exchange and trading losses, there will be a big swing in bottom line. We welcome the improvement in cash flow too.</li>
</ul>



YTD, China Longyuan Power (916 HK) has seen its share price weak, but we believe focus should not be on the poor FY22 result and the moderate 1Q23 generation growth.
Based on 5.5-6.5GW planned capacity expansion in FY23, this will mean a solid growth of 17.7-20.9% YoY. Coupled with efficiency improvement, we expect a sharp rebound in FY23 profit.
With impairment on Ukraine mostly made and reversal of exchange and trading losses, there will be a big swing in bottom line. We welcome the improvement in cash flow too.


China Longyuan (916 HK): We Stay on the Bull Camp

<ul>
<li>
<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> is expected to see an exciting year on the back of faster capacity growth, increase in utilisation hours and higher average tariff.</li>
<li>Potential asset injection from its parent CHN Energy remains a wild card. It may grow its capacity by an average of 30% over the next three years if materialises.</li>
<li>Lower funding costs and the return to A-share are positive to Longyuan's expansion. We think consensus forecasts for next 2 years are too low and represent potential upside surprises.</li>
</ul>



China Longyuan Power Group Corp (916 HK) is expected to see an exciting year on the back of faster capacity growth, increase in utilisation hours and higher average tariff.
Potential asset injection from its parent CHN Energy remains a wild card. It may grow its capacity by an average of 30% over the next three years if materialises.
Lower funding costs and the return to A-share are positive to Longyuan's expansion. We think consensus forecasts for next 2 years are too low and represent potential upside surprises.


China Longyuan (916 HK): It Deserves the Premium

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Cross Asset Strategy

<ul>
<li>AI is poised to drive a large increase in power consumption on the mainland.  Data demand from generative AI necessitates more data centers and consequently more power.</li>
<li>China energy consumption is at the beginning of a super cycle as AI becomes integral to everyday corporate and eventually personal lives.</li>
<li>China's clean energy names will benefit from the China's energy strategy as its power needs from data centers surge.</li>
</ul>


AI is poised to drive a large increase in power consumption on the mainland.  Data demand from generative AI necessitates more data centers and consequently more power.
China energy consumption is at the beginning of a super cycle as AI becomes integral to everyday corporate and eventually personal lives.
China's clean energy names will benefit from the China's energy strategy as its power needs from data centers surge.


China Power International / Equity Bottom-Up

<ul>
<li>The Rmb10.8bn acquisition of clean energy assets from parent by <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> is positive in raising its clean energy proportion to over 70% of total capacity.</li>
<li>The drop in share price reflects concerns about elevation of gearing and the need for potential equity funding. However, even all equity financing scenario will only dilute EPS by 1%.</li>
<li>We think its earnings quality will improve, balance sheet will be enhanced and profitability will be raised. Its 1H23 positive profit alert also showed a recovery in operational performance. </li>
</ul>


The Rmb10.8bn acquisition of clean energy assets from parent by China Power International (2380 HK) is positive in raising its clean energy proportion to over 70% of total capacity.
The drop in share price reflects concerns about elevation of gearing and the need for potential equity funding. However, even all equity financing scenario will only dilute EPS by 1%.
We think its earnings quality will improve, balance sheet will be enhanced and profitability will be raised. Its 1H23 positive profit alert also showed a recovery in operational performance. 


China Power International (2380 HK): A Major Move to Raise Clean Energy Exposure

<ul>
<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> will enjoy another year of strong earnings improvement in FY23, as coal-fired segment returns to profit and new energy capacity drives growth.</li>
<li>Solar and wind capacity will increase 66.5% and 23.1%, respectively, raising new energy's proportion to over 70%. Profitability for hydropower also looks to recover in this year.</li>
<li>There is huge room for asset injection from SPIC given the parent's new energy capacity of 139GW, with only 20GW in CPI. Its FY23 PER of 8.4x PER is attractive. </li>
</ul>



China Power International (2380 HK) will enjoy another year of strong earnings improvement in FY23, as coal-fired segment returns to profit and new energy capacity drives growth.
Solar and wind capacity will increase 66.5% and 23.1%, respectively, raising new energy's proportion to over 70%. Profitability for hydropower also looks to recover in this year.
There is huge room for asset injection from SPIC given the parent's new energy capacity of 139GW, with only 20GW in CPI. Its FY23 PER of 8.4x PER is attractive. 


China Power International (2380 HK): This Will Be a Rewarding Year

China

China Datang Corporation Renewable Power Company Ltd. generates electricity from renewable resources.  The Company operates wind farms and hydroelectric power plants.

China Datang Corp Renewable Power (1798 HK)

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China Datang Corp Renewable Power (1798 HK)

China Longyuan (916 HK): We Stay on the Bull Camp

Capacity expansion of 17.7-20.9% YoY, coupled with efficiency improvement will mean sharp rebound in FY23 profit. Reduction in impairment and...

Osbert Tang, CFA

China Longyuan (916 HK): It Deserves the Premium

FY22 will be an exciting year - higher utilisation, improvement in tariff, faster capacity growth and potential asset injection. All these factors...

Osbert Tang, CFA

CHINA: Do You Like AI? BUY Utilities!

AI is creating an opportunity to benefit from the surge in power needs of China. Rapid growth in data centers to power AI will benefit China power...

David Mudd

China Power International (2380 HK): A Major Move to Raise Clean Energy Exposure

CPI's Rmb10.8bn acquisition from its parent will make clean energy reach 70% of total capacity. The move will enhance earnings by 10% and an all...

Osbert Tang, CFA

China Power International (2380 HK): This Will Be a Rewarding Year

FY23 will be an exciting year for CPI as coal-fired, wind & solar, hydro and new innovation segments will all see better profitability. Potential...

Osbert Tang, CFA

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