HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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

We think there are three developments at <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> that driven its recent strength and will stay supportive to the share price. They are: 1.) positive debut of <a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a>, 2.) approval from SASAC on merger with <a href="https://www.smartkarma.com/entities/inner-mongolia-pingzhuang-eng-resources" target="_blank" data-smartkarma-citation="entities:4267:1" rel="noopener">Pingzhuang Energy (000780 CH)</a>, and 3.) solid May and 5M21 generation. In particular, the positive performance of the IPO of CTGR is the most important factor, in our view. With potential further upside at CTGR in the near term, we believe Longyuan's strength will likely to hold as well.SASAC's approval also marked an important step in Longyuan's proposed absorption and merger with Pingzhuang Energy, allowing it to access the liquidity in the domestic market. This adds to the continued solid wind and overall power generation in May, sustaining the encouraging trend of good underlying business momentum. With Longyuan currently trading on 13.5x FY21F PER, compared with CTGR's 19.5x, we believe its valuation is demanding at all.

We think there are three developments at China Longyuan Power Group Corp (916 HK) that driven its recent strength and will stay supportive to the share price. They are: 1.) positive debut of China Three Gorges Renewables (600905 CH), 2.) approval from SASAC on merger with Pingzhuang Energy (000780 CH), and 3.) solid May and 5M21 generation. In particular, the positive performance of the IPO of CTGR is the most important factor, in our view. With potential further upside at CTGR in the near term, we believe Longyuan's strength will likely to hold as well.SASAC's approval also marked an important step in Longyuan's proposed absorption and merger with Pingzhuang Energy, allowing it to access the liquidity in the domestic market. This adds to the continued solid wind and overall power generation in May, sustaining the encouraging trend of good underlying business momentum. With Longyuan currently trading on 13.5x FY21F PER, compared with CTGR's 19.5x, we believe its valuation is demanding at all. 

China Longyuan (916 HK): Three Recent Positive Developments

Equity Capital Markets

China Three Gorges Renewables / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a> (CTGR) will formally kick off its IPO today at Rmb2.65 per share. Relative to its peers, we see the stock's valuations appealing given its growth outlook, sizeable scale and large market capitalisation. The 36.7x subscription rate for institutional interest during the price consultation period also indicated good demand from professional investors.The online IPO roadshow on 28 May also painted a positive picture for CTGR. The company addressed the issues on removal of subsidies, cost advantages, market expansion, business segment outlook and ROE prospects, and generally the takeaways are not disappointing. Mainland China-listed peers are sitting on an average of 21x PER and 1.5x P/B for FY21F, and this makes CTGR's proposed multiple - 13.6x (weighted average) and 1.1x P/B not too demanding.

China Three Gorges Renewables (600905 CH) (CTGR) will formally kick off its IPO today at Rmb2.65 per share. Relative to its peers, we see the stock's valuations appealing given its growth outlook, sizeable scale and large market capitalisation. The 36.7x subscription rate for institutional interest during the price consultation period also indicated good demand from professional investors.The online IPO roadshow on 28 May also painted a positive picture for CTGR. The company addressed the issues on removal of subsidies, cost advantages, market expansion, business segment outlook and ROE prospects, and generally the takeaways are not disappointing. Mainland China-listed peers are sitting on an average of 21x PER and 1.5x P/B for FY21F, and this makes CTGR's proposed multiple - 13.6x (weighted average) and 1.1x P/B not too demanding.

China Three Gorges Renewables (600905 CH) A-Share IPO: Kick-Start of IPO and Post-Roadshow Updates

<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> continued to post good generation figures - up by 22.8% YoY in Apr, sustaining the encouraging track set in 1Q21 (+26.9%). Versus 4M19, the 4M21 generation growth was 26.6% higher, signaling that low base effect is not a reason for the good growth. After recording a 28.2% net profit growth for 1Q21, we believe Longyuan will be able to sustain its profit trend on the back of capacity addition and improvement in power demand.We also see positive implications from the upcoming IPO of <a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a> (CTGR) in the A-share market. CTGR is expected to be listed in early-Jun, and it is fetching valuations of 13.6x PER (weighted average) or 15.5x (fully-diluted) for FY21 based on its IPO price. With a smaller presence than Longyuan in wind power, lesser net profit and lower ROE, its IPO market cap is 4% higher than Longyuan and PERs are richer than Longyuan's 12.1x. In our view, these figures highlight that Longyuan's currently valuations are still undemanding.   Please read this Insight together with <a href="https://www.smartkarma.com/insights/china-three-gorges-renewables-a-share-pre-ipo-initial-thoughts" target="_blank" data-smartkarma-citation="insights:38547" rel="noopener">China Three Gorges Renewables A-Share Pre-IPO: Initial Thoughts</a> and <a href="https://www.smartkarma.com/insights/china-three-gorges-renewables-600905-ch-a-share-ipo-set-for-late-may-and-thoughts-on-valuations" target="_blank" data-smartkarma-citation="insights:51199" rel="noopener">China Three Gorges Renewables (600905 CH) A-Share IPO: Set for Late-May and Thoughts on Valuations</a>.

China Longyuan Power Group Corp (916 HK) continued to post good generation figures - up by 22.8% YoY in Apr, sustaining the encouraging track set in 1Q21 (+26.9%). Versus 4M19, the 4M21 generation growth was 26.6% higher, signaling that low base effect is not a reason for the good growth. After recording a 28.2% net profit growth for 1Q21, we believe Longyuan will be able to sustain its profit trend on the back of capacity addition and improvement in power demand.We also see positive implications from the upcoming IPO of China Three Gorges Renewables (600905 CH) (CTGR) in the A-share market. CTGR is expected to be listed in early-Jun, and it is fetching valuations of 13.6x PER (weighted average) or 15.5x (fully-diluted) for FY21 based on its IPO price. With a smaller presence than Longyuan in wind power, lesser net profit and lower ROE, its IPO market cap is 4% higher than Longyuan and PERs are richer than Longyuan's 12.1x. In our view, these figures highlight that Longyuan's currently valuations are still undemanding.   Please read this Insight together with China Three Gorges Renewables A-Share Pre-IPO: Initial Thoughts and China Three Gorges Renewables (600905 CH) A-Share IPO: Set for Late-May and Thoughts on Valuations.

China Longyuan (916 HK): Good Apr Generation and Implications of China Three Gorges Renewables IPO

<a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a> (CTGR) has just published on 7-May its initial IPO price of Rmb2.65, aiming to raise net proceeds of Rmb22.5bn, giving it a gigantic market cap of Rmb75.7bn. The IPO is expected to take place by end-May with trading commences in early-Jun. After posting a 26.4% YoY net profit growth for FY20, its 1Q21 net profit will still increase by 15.1-24.6% based on its guidance. In our view, this indicated sustained quality earnings stream at CTGR. Our earnings projections suggested that CTGR will achieve a 3-year earnings growth of 22%, putting the IPO price at 13.6x (weighted average) and 15.5x (fully-diluted) for FY21. Relative to an average of 20.4x for its A-share peers, such multiples are undemanding. Moreover, its huge market cap should attract good institutional interests, as it will be the largest renewable (ex-hydro) play in China. For our views on the key positives and negatives on CTGR, please refer to <a href="https://www.smartkarma.com/insights/china-three-gorges-renewables-a-share-pre-ipo-initial-thoughts" target="_blank" data-smartkarma-citation="insights:38547" rel="noopener">China Three Gorges Renewables A-Share Pre-IPO: Initial Thoughts</a>.

China Three Gorges Renewables (600905 CH) (CTGR) has just published on 7-May its initial IPO price of Rmb2.65, aiming to raise net proceeds of Rmb22.5bn, giving it a gigantic market cap of Rmb75.7bn. The IPO is expected to take place by end-May with trading commences in early-Jun. After posting a 26.4% YoY net profit growth for FY20, its 1Q21 net profit will still increase by 15.1-24.6% based on its guidance. In our view, this indicated sustained quality earnings stream at CTGR. Our earnings projections suggested that CTGR will achieve a 3-year earnings growth of 22%, putting the IPO price at 13.6x (weighted average) and 15.5x (fully-diluted) for FY21. Relative to an average of 20.4x for its A-share peers, such multiples are undemanding. Moreover, its huge market cap should attract good institutional interests, as it will be the largest renewable (ex-hydro) play in China. For our views on the key positives and negatives on CTGR, please refer to China Three Gorges Renewables A-Share Pre-IPO: Initial Thoughts. 

China Three Gorges Renewables (600905 CH) A-Share IPO: Set for Late-May and Thoughts on Valuations

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): 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 Longyuan (916 HK): Three Recent Positive Developments

We see the positive debut of CTGR, approval of the Pingzhuang merger and good May/5M21 generation figures are the key drivers behind Longyuan's...

Osbert Tang, CFA

China Longyuan (916 HK): Good Apr Generation and Implications of China Three Gorges Renewables IPO

Apr stayed as a positive month for Longyuan with 22.8% generation growth. We also see CTGR's upcoming IPO to establish a good comparable and...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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 Longyuan (916 HK): Three Recent Positive Developments

We see the positive debut of CTGR, approval of the Pingzhuang merger and good May/5M21 generation figures are the key drivers behind Longyuan's...

Osbert Tang, CFA

China Three Gorges Renewables (600905 CH) A-Share IPO: Kick-Start of IPO and Post-Roadshow Updates

CTGR's IPO looks appealing on both fundamental and relative valuation perspectives. Its online IPO roadshow also addressed may investor concerns...

Osbert Tang, CFA

China Longyuan (916 HK): Good Apr Generation and Implications of China Three Gorges Renewables IPO

Apr stayed as a positive month for Longyuan with 22.8% generation growth. We also see CTGR's upcoming IPO to establish a good comparable and...

Osbert Tang, CFA

China Three Gorges Renewables (600905 CH) A-Share IPO: Set for Late-May and Thoughts on Valuations

We think IPO multiples of CTGR are inexpensive relative to growth prospects and peer valuations. Its gigantic market cap of Rmb75.7bn (on IPO...

Osbert Tang, CFA