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Equity Bottom-Up

China Renewable Energy Investment / Equity Bottom-Up

China Renewable Energy Investment (987 HK)

CRE reported mixed results for the first half ended June 2017 as revenues increased by about 2% to HK$66.6 mn while EPS declined by 22.3% to HK1.47 cents. Excluding the after-tax value of approximately HK$4.9 mn of non-recurring income, the decline in EPS would have been even higher at about 33% YoY. The increase in revenue came on the back of improved performance from the company’s consolidated windfarms, especially the Siziwang Qi windfarm in Inner Mongolia, which benefitted from lower curtailment despite lower wind resources. A decrease in depreciation and other expenses resulted in a 20% increase in gross profits from HK$21.9 mn in 1H2016 to HK$26.3 mn in 1H2017. However, lower wind resources affected the performance of CRE’s associate windfarms which resulted in a decline in the company’s earnings. For the period, CRE reported HK$33.6 mn in income from associates vs. HK$49.1 mn in 1H2016, representing a decrease of 31.6% YoY.
Based on the lower income generated from the associate windfarms in the first half, we revise our FY2017 EPS estimate downwards by about 8% to HK1.98 cents [previous estimate: HK2.16 cents]. We maintain our 12-month price target on the stock of HK$0.50 per share, which represents an upside of about 117% over the current stock price. Our price target is based on DCF and&nbsp;EV/EBITDA methodologies. Our DCF model, which assumes a WACC of 10.7% and a terminal growth rate of 2.5%, gives a price of HK$0.46 per share. Applying a 7x multiple to our FY2018 total attributable EBITDA estimate of HK$366.4 mn gives a price of HK$0.53 per share. On a P/B basis, our price target implies a 2018E P/B multiple of 0.77x.
Analyst: Ajeya Patil

CRE reported mixed results for the first half ended June 2017 as revenues increased by about 2% to HK$66.6 mn while EPS declined by 22.3% to HK1.47 cents. Excluding the after-tax value of approximately HK$4.9 mn of non-recurring income, the decline in EPS would have been even higher at about 33% YoY. The increase in revenue came on the back of improved performance from the company’s consolidated windfarms, especially the Siziwang Qi windfarm in Inner Mongolia, which benefitted from lower curtailment despite lower wind resources. A decrease in depreciation and other expenses resulted in a 20% increase in gross profits from HK$21.9 mn in 1H2016 to HK$26.3 mn in 1H2017. However, lower wind resources affected the performance of CRE’s associate windfarms which resulted in a decline in the company’s earnings. For the period, CRE reported HK$33.6 mn in income from associates vs. HK$49.1 mn in 1H2016, representing a decrease of 31.6% YoY.
Based on the lower income generated from the associate windfarms in the first half, we revise our FY2017 EPS estimate downwards by about 8% to HK1.98 cents [previous estimate: HK2.16 cents]. We maintain our 12-month price target on the stock of HK$0.50 per share, which represents an upside of about 117% over the current stock price. Our price target is based on DCF and&nbsp;EV/EBITDA methodologies. Our DCF model, which assumes a WACC of 10.7% and a terminal growth rate of 2.5%, gives a price of HK$0.46 per share. Applying a 7x multiple to our FY2018 total attributable EBITDA estimate of HK$366.4 mn gives a price of HK$0.53 per share. On a P/B basis, our price target implies a 2018E P/B multiple of 0.77x.
Analyst: Ajeya Patil

China Renewable Energy Investment: Earnings Update [H1FY2017]