HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

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

Thematic (Sector/Industry)

<ul>
<li>Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. </li>
<li>A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.</li>
<li>Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.</li>
</ul>


Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. 
A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.


China NPC: Implications of Government Working Report 2023

<ul>
<li>We think the underperformance of <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) against the market in this year is unjustified given a projected improvement in profitability.</li>
<li>CPI has secured coal supply with more than 60% of contracts on annual long-term basis within the benchmark price range. Also, power tariff is expected to be on an uptrend.</li>
<li>The proposed new management incentive scheme will better align management's and shareholders' interests. CPI also indicated good room to lower leverage in this year while sustaining growth. </li>
</ul>


We think the underperformance of China Power International (2380 HK) (CPI) against the market in this year is unjustified given a projected improvement in profitability.
CPI has secured coal supply with more than 60% of contracts on annual long-term basis within the benchmark price range. Also, power tariff is expected to be on an uptrend.
The proposed new management incentive scheme will better align management's and shareholders' interests. CPI also indicated good room to lower leverage in this year while sustaining growth. 


China Power International (2380 HK): Moving in the Right Direction

<ul>
<li>2H21 is bad for <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> as coal price surged. But the positive news is that its wind and solar segments logged a 50.6% full-year profit growth.</li>
<li>There is good progress on transformation and it has 7GW of clean energy capacity to come on stream in FY22. This is equivalent to 46% of the existing capacity.</li>
<li>CPI said coal-fired plants are marginally profitable in Jan-Feb; meanwhile, hydropower will do better in this year. Overall, these set the stage for a turnaround.</li>
</ul>


2H21 is bad for China Power International (2380 HK) as coal price surged. But the positive news is that its wind and solar segments logged a 50.6% full-year profit growth.
There is good progress on transformation and it has 7GW of clean energy capacity to come on stream in FY22. This is equivalent to 46% of the existing capacity.
CPI said coal-fired plants are marginally profitable in Jan-Feb; meanwhile, hydropower will do better in this year. Overall, these set the stage for a turnaround.


China Power International (2380 HK): Transformation to Soon Bear Fruits

China

China Longyuan Power Group Corp Ltd designs, develops, manages, and operates wind farms.  The Company also sells the electricity generated by the wind farms.

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China Longyuan Power (916 HK)

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

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Power International (2380 HK): Moving in the Right Direction

We think there is good room for CPI's performance to catch up as we see its profitability to improve on better tariff and capacity expansion. Its...

Osbert Tang, CFA

China Power International (2380 HK): Transformation to Soon Bear Fruits

CPI is making good progress in transformation into a clean energy play. Profitability will improve in FY22, providing room for valuations to catch...

Osbert Tang, CFA

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