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" 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

<ul>
<li>Nov and Dec wind generation continue to accelerate on a YoY basis, and it is also noteworthy that other renewable energy generation surged 346% MoM and 992% YoY in Dec.</li>
<li>SASAC's latest guidance for the centrally-owned SOEs on installed renewable capacity target of over 50% of total by 2025 is another signal of strong government support on wind power.</li>
<li>Acceptance by Shenzhen Stock Exchange of <a href="https://www.smartkarma.com/entities/inner-mongolia-pingzhuang-energy-resources-co-ltd" target="_blank" data-smartkarma-citation="entities:4267:1" rel="noopener">Inner Mongolia PingZhuang Energy Resources (000780 CH)</a> listing withdrawal application marks another step towards <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> return to A-share.</li>
</ul>


Nov and Dec wind generation continue to accelerate on a YoY basis, and it is also noteworthy that other renewable energy generation surged 346% MoM and 992% YoY in Dec.
SASAC's latest guidance for the centrally-owned SOEs on installed renewable capacity target of over 50% of total by 2025 is another signal of strong government support on wind power.
Acceptance by Shenzhen Stock Exchange of Inner Mongolia PingZhuang Energy Resources (000780 CH) listing withdrawal application marks another step towards China Longyuan Power Group Corp (916 HK) return to A-share.


China Longyuan (916 HK): The Trend Is Your Friend

Thematic (Sector/Industry)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a>, <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> and <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> are the three stocks that made the most money in 2021 based on our call.</li>
<li>
<a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> is the best-performing one with 52.3% return, and this is followed by <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 (916 HK)</a> at 45.1% and <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> at 33.9%.</li>
<li>We continue to like all of them into 2022 as they will be benefited by sustained growth of city-gas projects, government's push for wind power and infrastructure investments, respectively.</li>
</ul>



Kunlun Energy (135 HK), China Longyuan Power (916 HK) and China Communications Construction (1800 HK) are the three stocks that made the most money in 2021 based on our call.

Kunlun Energy (135 HK) is the best-performing one with 52.3% return, and this is followed by China Longyuan (916 HK) at 45.1% and China Communications Construction (1800 HK) at 33.9%.
We continue to like all of them into 2022 as they will be benefited by sustained growth of city-gas projects, government's push for wind power and infrastructure investments, respectively.


The Three Names that We Made the Most Money in 2021 and How They Will Fare in 2022

China Power International / Equity Bottom-Up

<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

In a management update by <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>, the company highlights that outlook stays positive and see no company- and industry-specific reasons for the recent retreat in share price. In fact, Longyuan believes that it is on track to reach its target to achieve utilisation hours of 2,240 for the full-year and the Sep generation figures (+21.7% YoY for wind generation and +15.8% YoY) remain very decent performance.Longyuan also shared that there will not be significant impact of the recent rise in coal price on its coal-fired power stations, thanks to its own coal trading business which provides a hedge. Other positive developments including the good progress on A-share listing, derived benefit from relaxation of coal-fired power tariffs and increase in power trading. However, offshore wind project will remain on elevated capital costs but Longyuan notes that it is in a good position to secure new projects.

In a management update by China Longyuan Power Group Corp (916 HK), the company highlights that outlook stays positive and see no company- and industry-specific reasons for the recent retreat in share price. In fact, Longyuan believes that it is on track to reach its target to achieve utilisation hours of 2,240 for the full-year and the Sep generation figures (+21.7% YoY for wind generation and +15.8% YoY) remain very decent performance.Longyuan also shared that there will not be significant impact of the recent rise in coal price on its coal-fired power stations, thanks to its own coal trading business which provides a hedge. Other positive developments including the good progress on A-share listing, derived benefit from relaxation of coal-fired power tariffs and increase in power trading. However, offshore wind project will remain on elevated capital costs but Longyuan notes that it is in a good position to secure new projects.  

China Longyuan (916 HK): Takeaways from Management Update

China

Inner Mongolia PingZhuang Energy Resources Co.,Ltd mines coal.

Inner Mongolia PingZhuang Energy Resources (000780 CH)

Inner Mongolia PingZhuang Energy Resources

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Inner Mongolia PingZhuang Energy Resources (000780 CH)

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 Longyuan (916 HK): The Trend Is Your Friend

Good generation trend is positive, particularly a sharp improvement in other renewables. SASAC's latest SOEs energy targets and a step closer to...

Osbert Tang, CFA

The Three Names that We Made the Most Money in 2021 and How They Will Fare in 2022

Going into 2022, we continue to like the three best-performing stocks based on our call in 2021, namely Kunlun Energy, China Longyuan Power 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): Takeaways from Management Update

We think China Longyuan's update is positive, especially it highlights on track to achieve full-year utilisation hours and downplays the impact of...

Osbert Tang, CFA

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