BUY. China Suntien Green Energy [0956.HK] January 25, 2016

Transcription

1 China Suntien Green Energy [0956.HK] Profit decline largely due to provision; Current valuation of 0.4x PBR already reflected significant impairment Suntien preannounced that its net profit in 2015 would drop 45-60% YoY. While the earnings decline looks substantial, we believe the major factor is an impairment provision for the account receivable. We expect the operating performance to improve in 2016E, given (1) 400MW of new wind power capacity was completed in 2015 and will make contributions this year, (2) grid curtailment rate in Hebei remains low at 8% which offers room for improvement in utilization hours; and (3) gas sales volume is expected to stabilized as we expect more gas tariff cut. We took our earnings estimates down by 30%/30%/24% for 2015E/2016E/2017E to reflect lower utilization hours and gas sales growth assumptions. Our DCF-based TP is revised down to HK$1.20 from HK$ E net profit down 45-60% YoY to RMB134m-184m. Suntien explained that the profit decline was due to (1) significant drop of natural gas sales volume; (2) impairment provision for the relatively large account receivable; and (3) drop in wind power utilization hours. Weak utilization hours largely due to weak wind resources. We estimate the wind power utilization to be ~1,900 hours in 2015E (-5% YoY), largely due to the weak wind speed in Q4 as we understand that the grid curtailment rate in Hebei remains low at ~8%. That said, we estimate the wind power generation still increased ~13% in 2015E given the increased operating capacity. Impairment provision should be the key of profit decline. We expect the natural gas sales volume to have dropped 26% YoY. Besides, we understand that certain customers of Suntien, such as some glass manufacturers, have been delaying their payment for more than a year, which resulted in a need for impairment provision. Maintain BUY as the valuation largely reflected the weakness. The account receivable with past due for six months or above was ~RMB680m as of end-june 2015 (for both wind power and gas). Assuming a worse case scenario that this amount is to be written off totally, the book value will be reduced by 9%. We think the current valuation of 0.4x PBR looks overly bearish. Major risks: (1) Significant impairment; (2) further weakness in gas demand; (3) unexpected decline in wind speed; (4) project delay; (5) policy change. Key financials (RMB m) E 2016E 2017E Revenue 4,661 5,149 4,336 4,020 4,462 Change (YoY) 25.9% 10.5% -15.8% -7.3% 11.0% Other income Adjusted EBIT 1,194 1, ,020 1,157 Change (YoY) 19.4% -10.6% -29.8% 36.0% 13.4% Recurring net profit Change (YoY) -3.7% -20.3% -25.1% 14.2% 23.2% Recurring EPS Change (YoY) -3.7% -29.8% -25.8% 14.2% 23.2% PER (x) Dividend yield 5.8% 3.9% 0.8% 1.6% 1.9% PBR (x) EV/EBITDA (x) Net debt/equity 101.8% 89.7% 124.8% 130.7% 135.7% ROE 8.3% 5.7% 3.9% 4.3% 5.1% January 25, 2016 Wind Power & Gas Sector BUY (Unchanged) Close: HK$1.00 (Jan 22, 2016) Target Price: HK$1.20 (+20%) Share Price Performance Market Cap US$477m Shares Outstanding 3,715m Auditor Ernst & Young Free Float 49.5% 52W range HK$ M average daily T/O US$0.68m Major Shareholding HECIC (50.5%) Wayne Fung, CFA Analyst (852) waynefung@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) cmwong@chinastock.com.hk 1

2 Oct-10 Jan-11 Apr-11 Aug-11 Nov-11 Feb-12 May-12 Sep-12 Dec-12 Mar-13 Jun-13 Oct-13 Jan-14 Apr-14 Jul-14 Nov-14 Feb-15 May-15 Aug-15 Dec-15 Figure 1: DCF valuation Figure 2: Suntien PER Band (RMB m) Enterprise Value 13,049 Net cash / (net debt) (7,859) Minority interest (1,403) Equity Value 3,788 Fair value (Rmb/shr) 1.02 RMB/HK$ 1.18 TP (HK$/shr) 1.20 HKD DCF Assumptions Risk free rate 3.5% Risk premium 9.7% Beta 1.0 Cost of equity 13.2% After tax cost of debt 5.0% Debt/total capital 60.0% WACC 8.3% Terminal growth rate 1% x 19x 15x 11x 7x Sources: Company, Bloomberg, CGIS Research estimates Figure 3: Suntien s utilization hours versus wind speed in Hebei Figure 4: Monthly wind speed in Hebei 40% 30% 20% 10% 0% -10% -20% -30% -40% Hebei average wind speed (Change YoY) Suntien's utilization hours (Change YoY) 6 30% 5 19% 18% 18% 20% 14% 12% 13% 14% 12% 16% 12% 17% 9% 11% 12% 4 10% 7% 7% 5% 6% 6% 4% -1% 0% 2% 3% 4%5% 5% -6% -4% -5% -5% -4%-4% -2% 1% 3% 7% 5% 3% 6% -6% -2% 0% 1% 0% 3-7% -8%-7%-6% -12% -11% -10% -10% 2-16% -16% -15% -16% -16% -20% -24% 1-29% -30% 0 Hebei wind speed (m/s) - LHS Change (YoY) 33% 40% 30% -40% Sources: Bloomberg, CGIS Research 2

3 Figure 5: Key assumptions change on wind power segment 2015E 2016E 2017E Wind Power Wind power installed capacity (MW) Consolidated New 2,097 2,397 2,597 Old 2,147 2,447 2,647 chg -2.3% -2.0% -1.9% Average New 1,629 1,973 2,243 Old 1,629 2,082 2,367 chg 0.0% -5.3% -5.3% Average utilization hours New 1,900 2,000 2,100 Old 2,120 2,120 2,149 chg -10.4% -5.7% -2.3% Weighted average tariff (Rmb/kwh, incl. VAT) New Old chg 0.0% -0.1% -0.1% Sources: CGIS Research estimates Figure 6: Key assumptions change on natural gas segment 2015E 2016E 2017E Natural gas Sales Wholesale Sales volume (m cubic meter) New Old chg 0.0% -2.8% -2.8% Retail Sales volume (m cubic meter) New Old chg 0.0% -5.6% -5.6% CNG Sales volume (m cubic meter) New Old chg 0.0% 0.0% 0.0% Total Sales volume (m cubic meter) New 1,128 1,181 1,240 Old 1,128 1,220 1,281 chg 0.0% -3.2% -3.2% Sources: CGIS Research estimates 3

4 Figure 7: Key Assumptions (Wind Power Segment) E 2016E 2017E Wind power installed capacity (MW) Consolidated ,201 1,346 1,445 1,697 2,097 2,397 2,597 Change YoY % 74.1% 110.2% 40.5% 12.1% 7.4% 17.4% 23.6% 14.3% 8.3% Annual addition Average ,104 1,266 1,373 1,629 1,973 2,243 Change YoY % 168.1% 82.7% 67.9% 29.1% 14.7% 8.4% 18.7% 21.1% 13.7% Consolidated power generation (GWh) Gross ,202 1,751 2,528 2,927 2,740 3,096 3,945 4,710 Change YoY % 186.6% 89.4% 45.7% 44.4% 15.8% -6.4% 13.0% 27.4% 19.4% Net ,099 1,672 2,443 2,861 2,661 2,926 3,768 4,498 Change YoY % 233.0% 98.2% 52.1% 46.1% 17.1% -7.0% 9.9% 28.8% 19.4% Average utilization hours 2,045 2,130 2,276 2,360 2,048 2,290 2,312 1,996 1,900 2,000 2,100 Change YoY - 4.1% 6.9% 3.7% -13.2% 11.8% 1.0% -13.7% -4.8% 5.3% 5.0% Weighted average on-grid tariff (Rmb/kwh, Incl-VAT) Weighted average on-grid tariff (Rmb/kwh, ex-vat) Change YoY % -3.0% -1.7% -2.6% 1.1% 0.5% 0.6% 0.2% -0.8% -0.2% (RMB m) Revenue Sales of electricity ,128 1,328 1,240 1,368 1,748 2,082 Others Total ,133 1,333 1,246 1,369 1,748 2,082 COGS (20) (37) (119) (203) (336) (450) (533) (596) (682) (902) (1,060) Gross profit ,022 Operating expenses (8) (21) (25) (60) (73) (134) (118) (116) (99) (136) (162) EBITDA ,025 1,182 1,078 1,210 1,513 1,804 Adjusted EBITDA ,160 1,053 1,188 1,489 1,772 D&A (20) (35) (111) (190) (318) (409) (477) (518) (599) (780) (912) EBIT Adjusted EBIT Gross margin 46% 57% 55% 61% 56% 60% 60% 52% 50% 48% 49% EBITDA margin 101% 93% 106% 102% 104% 91% 89% 87% 88% 87% 87% Adjusted EBITDA margin 77% 72% 88% 86% 88% 85% 87% 85% 87% 85% 85% EBIT margin 48% 53% 64% 65% 62% 55% 53% 45% 45% 42% 43% Adjusted EBIT margin 25% 32% 46% 49% 47% 49% 51% 43% 43% 41% 41% 4

5 Figure 8: Key Assumptions (Natural Gas Segment) E 2016E 2017E Natural gas Sales Wholesale Sales volume (m cubic meter) ASP (Rmb/cubic meter; Ex-VAT) Revenue (Rmb m) ,057 1,311 1,234 1,457 1,890 1,881 1,389 1,459 Retail Sales volume (m cubic meter) ASP (Rmb/cubic meter; Ex-VAT) Revenue (Rmb m) ,086 1,605 1, CNG Sales volume (m cubic meter) ASP (Rmb/cubic meter; Ex-VAT) Revenue (Rmb m) Gas sales volume growth rate Wholesale n/a 42% 29% 30% 16% -6% 9% 11% -5% 5% 5% Retail n/a 52% 38% 29% 71% 15% 35% -8% -58% 2% 5% CNG n/a 24% 6% 7% -4% 28% 3% 11% 6% 10% 5% Average n/a 43% 30% 28% 30% 3% 19% 3% -26% 5% 5% Gas revenue growth rate Wholesale n/a 54% 31% 41% 24% -6% 18% 30% 0% -26% 5% Retail n/a 81% 40% 45% 78% 18% 48% 2% -56% -23% 5% CNG n/a 27% 13% 18% 7% 19% 12% 33% 17% -15% 5% Average n/a 58% 32% 40% 40% 5% 31% 16% -24% -25% 5% Total gas sales Volume (m cubic meter) ,213 1,246 1,484 1,523 1,128 1,181 1,240 ASP (Rmb/cubic meter; Ex-VAT) Revenue (Rmb m) ,192 1,673 2,343 2,449 3,207 3,718 2,834 2,138 2,245 Construction and connection of natural gas pipelines Revenue (Rmb m) Provision of gas transportation services annd others Revenue (Rmb m) Total Revenue (Rmb m) ,253 1,727 2,405 2,569 3,327 3,903 2,968 2,272 2,379 Gas COGS (506) (730) (972) (1,378) (1,921) (2,014) (2,669) (3,259) (2,534) (1,857) (1,961) Gross profit Operating expenses (27) (35) (45) (32) (67) (86) (112) (98) (297) (125) (131) EBITDA D&A (34) (35) (41) (47) (50) (58) (72) (76) (76) (94) (111) EBIT Gross margin 14% 22% 22% 20% 20% 22% 20% 17% 15% 18% 18% EBITDA margin 16% 22% 22% 21% 19% 21% 19% 16% 7% 17% 17% EBIT margin 10% 18% 19% 18% 17% 18% 16% 14% 5% 13% 12% 5

6 Income Statement Projection (RMB m) E 2016E 2017E Revenue 4,661 5,149 4,336 4,020 4,462 Sales of electricity 1,328 1,240 1,368 1,748 2,082 Sales of natural gas 3,207 3,718 2,834 2,138 2,245 Construction & connection of natural gas pipelines Natural gas transportation revenue and others Wind power services COGS (3,202) (3,854) (3,216) (2,759) (3,021) Gross profit 1,459 1,296 1,120 1,261 1,440 Other net income VERs income, net VAT refunds Others Bank interest income Operating expenses (274) (259) (395) (261) (293) EBITDA 1,767 1,690 1,507 2,004 2,303 Adjusted EBITDA 1,745 1,665 1,485 1,980 2,271 D&A (550) (598) (735) (960) (1,115) EBIT 1,216 1, ,044 1,189 Adjusted EBIT 1,194 1, ,020 1,157 Finance expenses (424) (487) (608) (640) (659) Share of profit/(loss) of JV and associates Pretax profit Income tax (158) (176) (46) (92) (123) After tax profit Minority interest (215) (163) (50) (92) (120) Net profit Recurring net profit Recurring EPS (RMB) EPS (RMB) DPS (RMB) Note: Adjusted EBITDA and adjusted EBIT exclude "other net income" Net interest coverage = EBITDA/net finance expenses Growth rates (YoY) E 2016E 2017E Revenue 25.9% 10.5% -15.8% -7.3% 11.0% Sales of electricity 17.7% -6.6% 10.3% 27.8% 19.1% Sales of natural gas 30.9% 15.9% -23.8% -24.5% 5.0% Gross profit 17.8% -11.2% -13.5% 12.6% 14.2% EBITDA 15.1% -4.3% -10.8% 32.9% 14.9% Adjusted EBITDA 18.8% -4.6% -10.8% 33.3% 14.7% EBIT 14.0% -10.2% -29.4% 35.2% 13.9% Adjusted EBIT 19.4% -10.6% -29.8% 36.0% 13.4% Pretax profit 3.6% -18.9% -59.7% 87.8% 26.3% After tax profit -15.2% -26.2% -54.7% 85.6% 24.8% Net profit -16.4% -27.1% -47.4% 85.6% 23.2% Recurring net profit -3.7% -20.3% -25.1% 14.2% 23.2% Recurring EPS -3.7% -29.8% -25.8% 14.2% 23.2% EPS -16.4% -35.8% -48.0% 85.6% 23.2% Margins E 2016E 2017E Gross margin 31.3% 25.2% 25.8% 31.4% 32.3% EBITDA margin 37.9% 32.8% 34.8% 49.8% 51.6% Adjusted EBITDA margin 37.4% 32.3% 34.3% 49.2% 50.9% EBIT margin 26.1% 21.2% 17.8% 26.0% 26.6% Adjusted EBIT margin 25.6% 20.7% 17.3% 25.4% 25.9% Pretax profit margin 17.9% 13.1% 6.3% 12.7% 14.5% After tax profit margin 14.5% 9.7% 5.2% 10.4% 11.7% Net margin 9.9% 6.5% 4.1% 8.1% 9.0% Recurring net margin 10.3% 7.4% 6.6% 8.1% 9.0% Net Interest coverage

7 Balance Sheet, Cash Flow Projection and Key Ratios Balance Sheet Cash Flow Statement (RMB m) E 2016E 2017E (RMB m) E 2016E 2017E Non current assets PP&E 10,180 11,731 14,814 16,822 17,926 Pretax profit Prepaid land lease payments Income tax (136) (164) (46) (92) (123) Goodwill Depreciation ,012 Intangible assets 2,247 2,163 2,060 1,957 1,855 Amortization Investment in associates and JV ,070 1,156 1,249 Interest expense Others Interest income (9) (31) (25) (20) (10) Deferred tax assets Share of profit / (loss) of JV and associates (40) (69) (108) (107) (116) Prepayments and other receivables Change in working capital (47) (598) (26) 637 (483) Total non current assets 14,291 16,279 19,346 21,336 22,431 Others 29 (5) Operating cash flow 1, ,411 2,529 1,688 Current assets Inventories Purchase/(disposal) of PP&E and intangible assets (1,192) (1,844) (3,880) (2,890) (2,060) Trade receivables 846 1,402 1, ,253 Payments for acquisition of subsidiaries/disposal of subsidiaries Prepayments, depositis and other receivables Investment in/(disposal of) financial assets, JV & associates (63) Prepaid land lease payments Others (15) (489) Pledged depositis Investing cash flow (1,270) (2,333) (3,834) (2,849) (2,027) Cash 1,670 3,167 1,754 1, Available for sale investments Net proceeds from issuance of shares 0 1, Total current assets 3,123 5,331 3,944 3,523 2,726 Capital contribution - HECIC and HECIC Water Capital contribution - minority interest Total assets 17,414 21,610 23,290 24,860 25,157 Proceeds from /(repayment of) borrowings 1,398 2,067 1, Interest paid (487) (566) (676) (695) (716) Current liabilities Dividend paid to minority interest (184) (61) Borrowings 1,359 1,730 2,530 3,130 2,930 Dividend paid to equity owner (65) (171) (115) (26) (49) Trade and bill payable Others 0 (26) Tax payable Financing cash flow 728 2,610 1, (765) Other payables and accruals 1,122 1,311 1,408 1,535 1,581 Total current liabilities 2,744 3,531 4,100 5,077 4,700 Net change in cash 1,055 1,162 (1,414) (242) (1,105) Non current liabilities Borrowings 7,545 9,296 10,296 10,496 10,696 Valuation Other payables and accruals PER (recurring) Total non current liabilities 7,563 9,317 10,317 10,517 10,717 Dividend yield 5.8% 3.9% 0.8% 1.6% 1.9% PBR Equity EV/EBITDA Share capital & Reserves 5,966 7,360 7,421 7,721 8,074 Attributable to equity owner 5,966 7,360 7,421 7,721 8,074 Ratios Minority interests 1,141 1,403 1,452 1,545 1,665 Recurring net margin 10.3% 7.4% 6.6% 8.1% 9.0% 7,107 8,762 8,873 9,266 9,739 ROE 8.3% 5.7% 3.9% 4.3% 5.1% ROA 2.9% 2.0% 1.3% 1.4% 1.6% Total equity and liabilities 17,414 21,610 23,290 24,860 25,157 Net debt / Equity 101.8% 89.7% 124.8% 130.7% 135.7% Current ratio BVPS (RMB) Days inventories Days receivables Days payables

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