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渐飞研究报告 - http://bg.panlv.net
Contents
6) C P New Energy......................................................................................................................................................................... 16
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INDUSTRY OUTLOOK ÍÎ
Tariff hike is on the way, but spot coal price rally will come first.
Power demand growth to mitigate, with 8% in 4Q10.
Thermal IPPs to face sell off pressure.
Renewable energy will boom in 12th 5-year plan; top pick: CLYPG.
. 3
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渐飞研究报告
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FOR INFORMATION PURPOSES.
WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.
28 October 2010
NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES
NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR
渐飞研究报告
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Wind turbine generator contribution: With the preparation of the facilities and
technologies in place, what’s the realistic date for the wind-turbine generator business
to contribute to the financials?
Answers: Significant sales are expected in our wind turbine business in the second
half of the year. We expect to begin delivery of 2.0MW or larger turbines to customers
in the second half of 2010. We are building a platform that will establish A-Power as
an emerging leader in both distributed power and alternative power generation
systems and are working aggressively to capitalize on the long-term growth
opportunities in these areas.
Q2: Cooperation with external parties: Earlier in August 2010, the company signed
cooperative agreements with The United Steelworkers (USW). How can we expect
the benefits from this cooperation? And also regarding the company’s agreement with
Fuhrlander, what’s the detail about this agreement?
Answers: Earlier in August, 2010, the company signed cooperative agreements with
The United Steelworkers (USW) and Shenyang Power Group (SPG). A-Power and
SPG anticipate purchasing over time approximately 50,000 tonnes of steel from
suppliers with employees represented by the USW. The USW will also guide and
work collaboratively on all aspects of A-Power's US market strategies including
manufacturing, assembly, component sourcing, distribution and wind energy project
development. The company expects that the cooperation with USW will benefit the
development of its projects including the planning of a wind turbine assembly plant in
Nevada and the ongoing development of the supply chain for the expected delivery of
wind turbines to the 615MW wind farm under development in Texas. (2010IR) In July
2010, the company renewed its license agreement with German wind technology
company Fuhrlander AG (Fuhrlander), and obtained the right to manufacture, operate,
service and sell 2.7MW wind turbines throughout China using Furhlander's F2500
technology. With the license agreement with Fuhrlander, the Company expects to
bolster its position in the market of high capacity 2.7MW turbines, as the wind industry
is increasingly shifting to higher capacity turbines.
Q3: Projects in Texas: Can the company give us some detail on what the next steps
will be in West Texas? How many wind turbines will be delivered and when?
Answers: With regards to the Texas project, currently everything is progressing very
smoothly as planned. Now we are readying all the documents related to the Texas
project; we project that by the end of September, that is 30 September, we could
have one sample machine shipped to Texas. And by the end of this year, between 30
units to 50 units will be ready for shipment. By the first half next year or may be the
second half of next year, we plan to get 100 units ready for wind farm projects. And
also, we project that by the end of the first half of 2012, we could finally complete this
project. This is our schedule and timetable subject to some changes, and it's really
depending on the onsite situation and changes in US laws.
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4.00
40 Mature but still growing fast
20 For FY10, turnover of China Gas amounted to HKD10,212m, up 61.5%
3.00 0 from the same period last year. Gross profit amounted to HKD2,116m, an
2.00 (20) increase of 48.1%. Profit for the year was HKD1,016m, an increase of
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 658.1%. Overall net profit margin and EPS were 9.9%, significantly up
from 2.1%, and HKD0.2619 from HKD0.0311.
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 3.2 7.3 36.7 New projects and expansion
Relative to country (%) (1.5) (2.3) 28.4 For new-project developments, China Gas secured 50 new city gas
Next results December 2010 projects in 10 provinces/autonomous regions/directly-administered cities
Mkt cap (USD m) 1,994 over the past year. The company started five in Liaoning Province; two in
Heilongjiang Province; one in the Inner Mongolia Autonomous Region;
3m avg daily turnover (USD m) 1.5
one in Jiangsu Province, two in Hunan Province, one in Jiangxi Province;
Free float (%) 60.0
five in the Guangxi Zhuang Autonomous Region; one in Anhui Province
Major shareholder Xu Xau Lan (19%) and three were in Guangdong Province. China Gas completed a 49%
12m high/low (HKD) 5.03/3.03 equity interest in the Fujian Anran Gas Investment Co during the financial
Source : Bloomberg year of 2010 which led to the operation and management of its 29-city,
piped-gas projects. This transaction has significantly expanded the
company’s natural gas user base and sales volume, and also
underpinned its position in Fujiian Province’s gas market.
WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.
28 October 2010
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Natural gas price hike: Given the possibility of upstream natural gas price hike
in 2010-11, what’s the potential impact on the company’s business?
Answers: Given residential gas sales is only 11.6% of total gas sales, the impact of
the recent 24.9% wellhead natural gas price hike on 2010-11 earnings should be
immaterial.
No impact on commercial & industrial gas sales (represents 81.1% of users for
China Gas): automatic 100% pass-through
Low elasticity: retail price hike of only RMB0.23/m3 and we anticipate residential
users can absorb with minimal impact on demand
Q2: Competition in LPG supply: Sales of LPG currently accounted for around half of
the company’s total revenue, but current market share still suggests great potential.
What is management’s outlook on the LPG business of the Group?
Answers: Currently, we are the largest and the only vertically integrated LPG
provider in China, linking the procurement and import in the upstream, storage and
distribution in the midstream and the retail and sales system in the downstream. We
will continue to strengthen our unique vertically integrated LPG industry chain. In our
upstream resource integration, we have entered into direct procurement contracts
with a number of refineries to reduce the cost of procurement. In our downstream
market, we will accelerate the pace of asset acquisitions in the LPG market and invest
more to build up our class three stations network with brand reputation and
economies of scale.
Q3: Future growth potential: After such fast growth in this reporting period, what’s
the group’s projection for the growth over the next few years, and what catalysts can
be expected for driving growth?
Answers:
Natural gas:
faster CNG stations rollout: To reach at least 180 CNG stations in 50 cities by
2012 – improving overall operating margins of gas sale.
LPG:
wider distribution network: To cover nine provinces with wholesale and retail
supply;
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渐飞研究报告 - http://bg.panlv.net
China Longyuan
TARGET HKD10.88
916 HK PRIOR TP
CLOSE
HKD10.88
HKD7.93
BUY
CHINA / INDEPENDENT POWER PRODUCERS UP/DOWNSIDE +37.2% UNCHANGED
(HKD) China Longyuan (%) Hainan and Shandong. As of 30 June 2010, the pipeline capacity of the
Rel to MSCI China company reached 50GW.
27
10 Low-wind farm – the next to focus
7 CLYPG has entered the low-speed, wind-farm development arena. The
8
company signed a cooperation agreement with the Chuzhou government
6 (13) to develop four low-wind farm projects, with total 600MW installed
Dec-09 Mar-10 Jun-10 Sep-10 capacity. We believe low-wind farms will have several competitive
advantages such as low grid connection restriction; high on-grid wind-
Share price performance 1 Month 3 Month 12 Month power tariffs (RMB0.61/kWh); and convenient distance transmitted to
Absolute (%) 2.0 2.6 - end-users. Even though the construction cost of low-wind farms is 5-10%
higher than for normal-wind farms, we estimate that high on-grid tariffs
Relative to country (%) (5.3) (9.9) -
and stable utilization hours will provide a similar return to the company.
Next results April 2011
Mkt cap (USD m) 7,628 Further progress in CDM
3m avg daily turnover (USD m) 13.6 By June 2010, there are 11 projects registered as CDM (Clean
Free float (%) 36 Development Mechanism) for China Longyuan, for a total installed
Major shareholder China Guodian Group (64%)
capacity of 488MW, 26% ahead of our previous expectation.
12m high/low (HKD) 10.90/6.72
Offshore wind farm is an additional plus: BUY
3m historic vol. (%) 35.2
We do not factor in offshore wind farms in our earnings model. We
ADR ticker CLPXF US
expect Dafeng’s offshore wind farm to boost CLYPG’s wind-installed
ADR closing price (USD; 27 July 2010) 1.06 capacity by 4.4%. In addition, we believe the proposed asset injection
Sources: Bloomberg consensus; BNP Paribas estimates from its parent company should be another share-price catalyst. CLYPG
is trading at 22.0x P/E and 9.7x EV/EBITDA on our 2011 estimates. We
find the current valuations undemanding compared to our forecast of
54% earnings CAGR and 28% EPS CAGR for the next three years. We
reiterate our BUY call on CLYPG, with a DCF-based TP of HKD10.88.
Our DCF assumptions include a risk-free rate of 2.9%, a market risk
premium of 9.1%, and a terminal growth rate of 3.5%. Key downside risks
to our TP are lower utilisation hours if grid connections lag and any
change in the government’s support policies.
28 October 2010
渐飞研究报告 - http://bg.panlv.net
CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Off-shore wind farm bidding: Longyuan Power has participated in the bidding of
all four projects in the recent off-shore wind farm tendering in Jiangsu province.
What’s the current progress of this bidding?
Answers: Just before the conference, Longyuan Power won the 200MW Dafeng
inter-tidal wind-farm project, and will work with Xinjiang Goldwind as its wind-turbine
supplier. CLYPG’s bidding price for Dafeng project was RMB0.6396/kWh, in the
median range of the bids. The other three projects were won by Datang New Energy-
Sinovel, China Power Investment- Sinovel and Shandong Luneng-Shanghai Electric.
We expect the IRR of this project to be above 12%, which is the threshold we set for
all our new projects. The construction cost for this project is around RMB14,000 per
MW including cable cost. The utilization hour is estimated to be in the range of 2,400
to 2,500 hours.
Q2: Utilization estimation for the full year: The utilization hours for the wind-power
plants for the first half appears to be low compared to last year. What’s the major
reason behind the decrease and what is outlook for the utilization hours in the second
half?
Answers: During the first half of 2010, the average utilisation hours of the Group’s
wind power generating units was 1,086 hours while certain regions still experienced
limitations on electricity output. The attributable capacity or China Longyuan has
grown by 66% y-y in the first half while generation has grown by 56% – 10% lower
than capacity growth. The limitation on electricity output was estimated to account for
approximately 4.9% of the accumulated wind power electricity output. Also, for some
of the capacity complete at the beginning of this year, adjustments and pilot runs are
required, this also caused limited power generation from these capacity.
Q3: Planned projects: In 1H10, the company only added 49.5MW to its wind-power
installed capacity. How is the company planning to complete its full-year target given
the low base in the first half?
Answers: Longyuan Power is confident of completing its full year new installation
target. The construction of new projects will accelerate after this October. The
company has over 2,330 MW of capacity in the pipeline. And some of those wind
farms have already completed construction, and others are expected to commence
operation in 4Q10. By comparison, more than 60% of 2000 MW were added in 4Q09.
So we believe the company is on track with its expansion plan, to achieve its 2,000
MW target.
Q4: Technology: Now we see a trend of using larger and larger wind turbines in
China. What is Longyuan’s mix in its current installed turbines and what will be the
main turbines Longyuan will use in the future?
Answers: Of our total installed capacity, 60% is from 1.5MW or above turbines. The
1.5MW turbine remains our main force contributing more than half of our installed
capacity. For larger turbines such as 3MW and above, we need to be cautious. The
European countries stayed at the 1.5MW to 2.0MW stage for as long as 4-5 years,
while it only has been around two years since China begin to use such turbines in the
mainstream. For larger turbines, reliability and technology maturity still need to be
approved. In the near future, we can see us still purchasing 1.5 to 2MW turbines as our
main choices.
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FINANCIAL STATEMENTS
China Longyuan
Profit and Loss (RMB m) Strong wind power
Year Ending Dec 2008A 2009A 2010E 2011E 2012E contribution is the main
Revenue 8,555 9,744 13,244 15,840 17,992 growth engine
Cost of sales ex depreciation (6,441) (5,869) (6,657) (6,983) (7,228)
Gross profit ex depreciation 2,113 3,875 6,587 8,857 10,763
Other operating income 390 574 765 980 1,286
Operating costs 0 0 0 0 0
Operating EBITDA 2,504 4,449 7,352 9,837 12,050
Depreciation (1,083) (1,590) (2,395) (2,686) (3,371)
Goodwill amortisation 0 0 0 0 0
Operating EBIT 1,421 2,859 4,957 7,152 8,678
Net financing costs (857) (1,020) (1,370) (1,664) (2,047)
Associates 53 105 105 105 105
Recurring non operating income 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 616 1,944 3,692 5,593 6,736
Tax (2) (296) (498) (811) (1,044)
Profit after tax 614 1,647 3,194 4,782 5,692
Minority interests (276) (753) (1,329) (2,013) (2,425)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 337 894 1,865 2,768 3,267
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 337 894 1,865 2,768 3,267
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China Longyuan
Cash Flow (RMB m)
Year Ending Dec 2008A 2009A 2010E 2011E 2012E
Recurring net profit 337 894 1,865 2,768 3,267
Depreciation 1,083 1,590 2,395 2,686 3,371
Associates & minorities 224 648 1,224 1,908 2,320
Other non-cash items 878 976 1,475 1,770 2,153
Recurring cash flow 2,522 4,108 6,959 9,132 11,111
Change in working capital 317 (23) 509 68 65
Capex - maintenance 0 0 0 0 0
Capex – new investment (11,603) (16,184) (22,500) (21,500) (21,500)
Free cash flow to equity (8,764) (12,100) (15,032) (12,300) (10,324)
Net acquisitions & disposals (228) (276) 0 0 0
Dividends paid (358) (322) 0 (280) (415)
Non recurring cash flows 745 1,305 (963) (938) (940)
Net cash flow (8,604) (11,393) (15,994) (13,518) (11,680)
Equity finance 1,951 17,514 0 14,400 0
Debt finance 6,851 9,383 9,591 11,272 10,891
Movement in cash 198 15,505 (6,403) 12,155 (789)
Per share (RMB)
Recurring cash flow per share 0.50 0.80 0.93 1.02 1.24
FCF to equity per share (1.75) (2.35) (2.01) (1.37) (1.15)
Balance Sheet (RMB m)
Year Ending Dec 2008A 2009A 2010E 2011E 2012E
Working capital assets 3,325 3,372 3,667 4,474 5,102
Working capital liabilities (4,727) (6,605) (7,417) (8,293) (8,987)
Net working capital (1,401) (3,233) (3,749) (3,819) (3,886)
Tangible fixed assets 24,291 37,305 57,749 76,944 95,494
Operating invested capital 22,889 34,072 54,000 73,124 91,608
Goodwill 0 0 0 0 0
Other intangible assets 5,083 6,086 6,528 6,937 7,311
Investments 1,083 1,540 1,719 1,894 2,065
Other assets 712 2,656 2,697 2,735 2,771
Invested capital 29,768 44,355 64,944 84,690 103,754
Cash & equivalents (1,555) (16,995) (10,591) (22,747) (21,960)
Short term debt 4,686 17,087 23,087 31,087 38,087
Long term debt * 17,345 16,219 21,219 26,219 32,219
Net debt 20,476 16,312 33,715 34,559 48,346
Deferred tax 23 45 45 45 45
Other liabilities 50 50 50 50 50
Total equity 3,875 21,900 23,757 40,645 43,497
Minority interests 3,198 3,780 5,109 7,123 9,548
Invested capital 29,768 44,354 64,944 84,690 103,754
* includes convertibles and preferred stock which is being treated as debt
Per share (RMB)
Book value per share 0.78 4.26 3.18 4.53 4.85
Tangible book value per share (0.24) 3.08 2.31 3.76 4.04
Financial strength
Net debt/equity (%) 289.5 63.5 116.8 72.3 91.1
Net debt/total assets (%) 56.8 24.0 40.6 29.9 35.9
Current ratio (x) 0.5 0.9 0.5 0.7 0.6
CF interest cover (x) 4.3 5.0 6.5 6.5 6.5
Valuation 2008A 2009A 2010E 2011E 2012E
Recurring P/E (x) * 100.9 39.1 27.3 22.0 18.7
Recurring P/E @ target price (x) * 138.4 53.7 37.4 30.2 25.6
Reported P/E (x) 100.9 39.1 27.3 22.0 18.7
Dividend yield (%) 1.1 0.9 0.0 0.5 0.7
P/CF (x) 13.5 8.5 7.3 6.7 5.5
P/FCF (x) (3.9) (2.9) (3.4) (5.0) (5.9)
Price/book (x) 8.8 1.6 2.1 1.5 1.4
Price/tangible book (x) (28.2) 2.2 3.0 1.8 1.7
EV/EBITDA (x) ** 21.0 12.4 9.7 9.7 9.1
EV/EBITDA @ target price (x) ** 24.0 14.1 10.8 10.9 10.2
EV/invested capital (x) 1.9 1.2 1.4 1.2 1.1
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Sources: China Longyuan; BNP Paribas estimates
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Generation growth: As net generation grew by 45% y-y in the first half, the
outlook for full-year growth appears somewhat optimistic. What is management’s
estimate for the full-year power demand?
Answers: The extraordinary 45% y-y growth should be largely attributed to the full
consolidation of Wuling Power. Thermal power recorded an 11% y-y growth. After the
power rationing, the power generation volume is not as good as we previously
expected. But the results from the first several days of October showed a clear
rebound. For the full year, we expect the growth in total power generation by the
thermal plants to be around 10-11%.
Q2: CDM revenue: What’s the company’s progress for CDM projects and what will be
the potential contribution from these CDM projects?
Answers: We currently have two CDM projects on small-to-mid size hydro plants
registered through NDRC. They are expected to contribute RMB30m-50m revenue
per year for the company.
Q3: Capacity expansion: What is the planned capacity expansion for the company?
And given the company’s initiative to increase hydro-power exposure, what would be
the share of hydro power in the total planned capacity?
Answers: The company is looking to expand the total installed capacity to 150GW by
the end of 2012, representing another ~30% growth over the current level. For hydro
power, we hope it could reach ~25% share within our total installed capacity, higher
than the current 19% level. The total capacity expansion for hydro power is estimated
to be around 1,500MW. To achieve the target , we will further develop hydro power
resources via the Wuling Platform, particularly in the Hunan province and in southwest
China.
Q4: Coal mine integration: To mitigate the risk of the coal-price hike, many IPPs in
China are actively looking into the possibility of owning coal mines. How is the
company’s progress in terms of coal-mine integration?
Answers: We plan to pursue potential upstream integration opportunities at a suitable
time, particularly focusing on the coal mines adjacent to our coal fired power plants. We
are currently negotiating with a very good coal mine within Shanxi province.
13
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14
28 October 2010
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Wind farm resource reserve: To fully capitalize on the growth potential of the
wind-power sector in China, securing as much wind-power resource as possible is
important to the long-term development of the company. What progress was made
last year in terms of wind-power resources?
Answers: CWP has enhanced its strength in order to secure as many quality wind
resources as possible. At the end of 1H10, CWP had obtained exclusive wind
resources totaling 10.5GW, which is higher than 9.5GW at the end of 2009. We
believe the CWP’s fundamentals will remain solid for at least the next 2-3 years.
Answers: CWP plans to add at least 600MW installed wind power capacity in 2012,
which will require approximately HKD900m (assuming 60% ownership) each year.
Q3: Initiatives other than wind power: In addition to the company’s near-term focus
on on-shore wind-power projects, does the company have any near-term or long-term
plans to engage in any other type of alternative energy projects?
Answers: The Group has already initiated some preliminary engagements including
signing of development agreement, solar test, and feasibility study on wind/solar
hybrid generation for solar power generation projects in Gansu, Inner Mongolia,
Liaoning, and Jilin. In addition, the group will participate in off‐shore wind generation
and offshore wind power bidding. This move is considered as the Group’s prospective
and farsighted strategic measure.
Q4: Status of the CDM projects: CDM is a hot topic and potentially a revenue
generator for the company. What is the current status of the company’s CDM projects’
applications and registrations?
Answers: CWP signed contracts for the 17 wind power plant’s CER sales agreement,
15 of which have obtained approval from the National Development and Reform
Commission, and six projects have secured registration with the United Nations.
15
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16
. 28 October 2010
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Support from the parent group: The parent company, China Power
International, is one of the five largest power generators in China. Can we expect any
support from the parent company?
Answers: Apart from organic growth and acquisitions from independent third parties,
CPNE will pursue growth through acquisitions from CPI, which had about 20GW
clean energy capacity by end-2009. Wind and hydropower capacities are estimated at
1GW and 10GW, respectively. Aside from asset injections of some of its initial
portfolio from the CPI group since late 2006, CPNE has recently acquired the
remaining 10% interest in phase 1 of Jiuquan project in Gansu from CPI at nil
consideration. This was done to gain a better control over this project.
Q2: Capacity expansion: What’s the company’s plan regarding capacity expansion
in the next few years? And what is the mix that can be expected across different types
of technologies?
Answers: Through organic growth, parental asset injections or acquisitions from third
parties, CPNE plans to expand its power portfolio in China with total installed capacity
reaching 2GW by 2011E, up significantly from 1GW in 2009. This implies total
installed capacity CAGR of 41% in 2010-11E. For this year and the next, the focus will
be to develop wind energy as it is the most cost competitive renewable energy source.
At present, apart from operating two onshore wind projects of 150MW in Gansu, it
holds 24% stake in the country's first large-scale offshore wind project (i.e. the
Donghai project) in Shanghai, which became fully operational in 1H10. Capacity
contribution of wind energy to exceed 50% in 2011E. CPNE expects to raise the
capacity contribution of wind energy from 15% in 2009 to 52% by 2011E. Wind
projects of an aggregate 400MW are under construction. Of which, 300MW would be
in Gansu and 100MW in Heilongjiang. They are expected to be commissioned in late
2010E or early 2011E.
Q3: Grid connection: A considerable portion of CPNE’s wind power asset will be
located in Gansu province. Will grid connection be the bottle neck for those assets to
generate revenue for CPNE?
Answers: With Gansu being one of the seven 10GW level wind energy bases, the
Gansu Electric Power Corp is keen to upgrade its grid connection technology to
resolve the grid bottleneck problem in the province. Apart from the building of the
above-mentioned 750KW grid line, the provincial power grid company has recently
joined with State Grid Power Research Institute to develop China's first active power
intelligent control system for ensuring power grid system stability. The system has
been in operation since mid March 2010. With the ability to optimize the rate of
change of power output due to change in wind speed, it can control load flow and grid
voltage stability. This in turn allows higher penetration of heavily fluctuating wind
energy in the grid system.
Q4: Hydro power growth: For 1H10, we witnessed significant growth in generation
from CPNE’s hydro-power plants. What is the main driver behind this growth?
Answers: Heavy rains in Fujian lead to improved operating efficiency of hydropower.
All of CPNE's hydropower plants are located in Fujian, where water resource is rich.
However, its hydropower performed badly in 2009 due to drought. In contrast to last
year, precipitation in Fujian since the beginning of this year is 28% more than the
previous years or 60% higher than last year. Specifically, rainfall along Minjiang (where
CPNE's largest hydro plant – Shaxikou plant – is located) and Tingjiang is 20-40%
more than the previous years. So, we expect CPNE's hydropower plants to post strong
utilisation recovery of nearly 30% y-y this year.
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Q&A Summary
Q1: Coal price: Coal price increases during 1H10 dragged the performance of the
IPPs significantly in the first half. What’s the possibility of another round of price hike
in coal in the 2H10?
Answer: In 1H10, domestic spot coal price recorded a significant increase. However,
due to lack of a driving force, we expect flat to moderate increase in the 2H10. As a
result of government policy toward encouraging energy savings, emission reductions
and holding back heavy industries, coal demand will subside in 2H10. The self
sufficient ratio of coal and coal production of IPPs will increase in the rest of the year,
which will break away the monopoly of coal sectors in coal pricing. The increase in
railway capacity will also help ease bottlenecks in domestic coal transportation.
Q2: High gearing: The net gearing of Datang is high; can we expect easing of the
ratio in the near term?
Answer: In 1H10, Datang Power’s capex was RMB8.7b, far below its previous full-
year 2010 target of RMB21b. In addition, the company aims to complete its second
share placement, of no more than 1b non-public ‘A’ shares, at no less than
RMB6.74/share (140% premium to the current H share price). As such, we estimate
its net gearing ratio to improve in 2011.
Q3: Nuclear power plants: What’s the progress on the construction of the nuclear
power plants under Datang?
Answer: During 1H10, the nuclear island of unit 1 of Ningde Nuclear Project has
finalized construction and entered the installation period. The nuclear island of unit 2 is
under construction. On February, the unit 3 started construction.
Q4: Self sufficient rate: Datang has been active in coal mining business. What is the
current self sufficient rate for Datang and with current plan, what is the outlook for the
ratio in future?
Answer: Total coal production reached 66m tonnes in 2009 with self sufficient rate at
20%. In 1H10, the total coal production reached 80m tons. We have set a target of 40%
self sufficient rate in 2015.
Q5: Conflict between alternative and traditional energy: As China is putting more
and more efforts to develop nuclear power, hydro power and other renewable energy,
will they be a potential threat to the future of coal power business.
Answer: We do not expect the alternative energy to threat the coal power business.
Alternative energy is needed for China, not only from the business perspective, but
also for the environment and sustainable growth in the long run. But China still needs
coal in the foreseeable future. The generation capacity of wind, solar, biomass or
other type of new energy is still very limited compared to coal. For nuclear power,
China has to rely on imports of nuclear fuel. So we believe coal power is still
indispensable to China.
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FINANCIAL STATEMENTS
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NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR
渐飞研究报告
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FOR INFORMATION PURPOSES.
healthy momentum
daisy.zhang@asia.bnpparibas.com
Price/book (x) 4.7 4.0 3.4
During 1H10, gas connection fee revenue
ROE (%) 15.8 17.0 18.6
reached RMB1,273m, an increase of
Sources: ENN Energy ; Bloomberg Consensus 7.6% over 1H09 and accounting for
(HKD) ENN Energy (%) 25.2% of the total group revenue. The average connection fees for
30 Rel to MSCI China 60 residential households and C/I (commercial/industrial) customers were
RMB2,610 and RMB150 (per m3), respectively, remaining at a similar
25 40 level to last year. The new piped natural gas connections made to
20 20 residential households and the designed daily capacity for C/I customers,
newly installed during 1H10, increased by 19.5% and 70.3%, respectively,
15 0 compared to the corresponding period last year.
10 (20)
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Gas sales soared
For 1H10, piped gas sales revenue reached RMB3,041m, representing
Share price performance 1 Month 3 Month 12 Month an increase of 69.7% over the corresponding period last year and
Absolute (%) 2.2 26.2 35.1 accounting for 60.3% of the total revenue. Sales of piped gas and vehicle
Relative to country (%) (1.4) 14.3 29.3 gas continue to accelerate, contributing to 71.3% of the total revenue in
Next results March 2011 aggregate. As compared with the percentage of 54.5% in 1H09, gas
Mkt cap (USD m) 3,113 sales revenue has increased significantly to become the major source of
3m avg daily turnover (USD m) 6.6
revenue for the company. The number of vehicle gas refuelling stations
also increased from 141 to 176 compared with the same period last year,
Free float (%) 69
while the number of refuelling stations that are under construction was 30.
Major shareholder Xinao Group Int’l (31%) As a result, gas sales to vehicles increased 39.2% compared to1H09.
12m high/low (HKD) 25.80/13.66
Source : Bloomberg Tapping into international markets
In the first half of the year, the company formally established business
cooperation with The Vietnam Oil and Gas Group (PetroVietnam) to
develop piped gas and vehicle gas refuelling businesses in the near
future. The company’s joint venture in Vietnam has obtained rights to
operate piped natural gas projects in every city in Vietnam, among which
ENN Energy will be the first to begin operation in the most economically
developed cities, including Hanoi, Ho Chi Minh and Da Nang. As an
emerging market, Vietnam offers a huge development potential and
considerable growth rate, and such cooperation is the prelude to
breaking into the international market by the company.
WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.
22
28 October 2010
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Dipping gross margin: Overall gross margin and net profit margin in 1H10 were
28.2% compared with 30.5% in 1H09. What’s the major issue behind such a decline in
profitability?
Answers: The gross margin drop was mainly due to a dip in the proportion of revenue
from higher margin one-off connection fee. However, the proportion of total revenue
from lower margin recurring gas sales revenue has increased. Although gross margin
has dropped, ENN Energy’s earnings quality is improving, due to increased reliance on
recurring income.
Q2: Improving net margin: The net margin (before minority interest) has increased to
13.8% in 1H10 from 12.3% in 1H09, why is the net margin increasing?
Answers: As for the increase in net profit margin, apart from effective cost controls
maintained by the group, the substantial decrease in provision for bad debts, one-off
loss and impairment of fixed assets have also played a significant role. Moreover, in
light of the further growth in the business of the group, the share of results of jointly
controlled entities increased by 67.5% as compared to the corresponding period last
year, which in turn provides a good foundation for the group’s profits and cash flows.
On the other hand, sound financial management by the group was another factor for the
increase in net profit margin. The group has raised USD150m syndicated loan at the
end of 2009 which was mainly used for repaying the short-term loans in China. Such
syndicated loan bears interest at a rate much lower than the lending rate in China.
During the period, the finance costs of the group decreased by 13.6% as compared to
the corresponding period last year.
Q3: Geographical selection for new projects: Reviewing the new piped gas projects
of the company in 1H10, we saw a high concentration in the Guangdong province
(seven out of 10 projects). Why does the group place such an emphasis in Guangdong
province?
Answers: The commercial and industrial development in these project cities in China
are relatively robust, in particular, the gross domestic product per capita in the
Guangzhou Huadu District in Guangdong Province reached RMB66,870 in 2008,
significantly above the national average. The pillar industries in Huadu included
automobile, port economy and jewellery. The other six projects in the Guangdong
province are also especially well-developed in both industrial and commercial sectors,
with particularly robust industries including electronics, textile, chemical, mineral
processing, paper-making and machining, and all these industries have played a
significant role in boosting the gas sales of the group.
Q4: Penetration of gas connections: What is the current gas connection penetration
of the projects owned by ENN Energy? What’s the potential growth of the penetration
rate?
Answers: Given the group’s strategy of acquiring projects with low gas penetration
rates, as of 30 June 2010, the overall gas penetration rate of the group’s China projects
is 33.9% only. From the group’s past experience, the gas penetration rates can reach
as high as 80% to 90%. In view of the huge number of connectable but not yet
connected population under the coverage of the group’s projects which have obtained
exclusive operational rights, the low gas penetration rate not only shows that the group
is still at a rapid development stage, but also ensures good revenue in the future.
23
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NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR
渐飞研究报告
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FOR INFORMATION PURPOSES.
WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.
24
28 October 2010
NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES
NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR
渐飞研究报告
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Wind power pipeline: With the focus of the company shifting toward wind power
in the coming years, what’s the outlook for the total wind power installed capacity of
the company?
Answers: HKE claims a high‐quality wind project pipeline that amounts to nearly
2.6GW, or nearly 4x of the current total of 660MW is scheduled to be operational this
year. This portends rapid growth and high visibility for a capacity build-up. HKE targets
to ramp up its gross operating capacity to at least 1,660MW in the next five years,
implying a 26% wind power capacity CAGR for 2010-14. The projects in the pipeline
are currently in different stages of development, such as negotiations with
governments for non-binding MOUs, non-binding MOU signings, and preliminary
analysis of project information or pre-development. Of these project reserves, about
700MW in Inner Mongolia and Jilin will become operational by 2012.
Q2: Geographical spread: In addition to wind farms in the traditional “Three North”
regions and Inner Mongolia, will HKE look into other regions for long-term
development?
Answers: In addition to our pipeline projects in Inner Mongolia, Jilin and Liaoning, we
are also looking into regions for sustained growth. We currently have pipeline projects
in Guangdong, Yunnan and Hainan province, with planned capacity of 167MW,
150MW and 100MW, respectively.
Q4: Value-chain extension: Can we expect something more than wind farms when
the wind-power business reaches certain levels in the long term?
Answers: When its wind power business reaches the critical mass level, HKE may look
into other parts of the wind power value chain and other renewable energy businesses,
such as providing EPC, and operation and maintenance services to its own and third-
party projects. The expansion of business scope into these integrated services at
various stages of wind power project development could not only expand revenue
streams, but also allow faster construction of power plants with effective cost control
and quality assurance.
25
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渐飞研究报告
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28 October 2010
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Capex of new projects: With the government of China and India putting more
emphasize on the water treatment sector, what is the expected capital expenditure on
new desalination projects for the next few years?
Answers: The municipal sector will continue to be the main driver of the group’s
revenue. Both the MENA region and China will remain as key markets for the group in
the municipal sector where Hyflux has established a strong track record in
desalination and in wastewater treatment and recycling. We are hopeful that China will
be a stronger earnings contributor going forward. Management said the global
recession in 2008 has hurt business volumes at industrial estates in China, in turn
affecting off‐take for water. With the economic outlook improving, it will rekindle
projects in China that have been put on hold. EPC orderbook for China stands at
about SGD125m and the group is developing some 40 BOT plants.
Q3: Plan for the renewable resources sector: The water-treatment business has
been a powerhouse for the company since its foundation. With the extension of the
renewable resources business, what is the technology the company is offering to the
market? What can be leveraged from the current successful water treatment business?
27
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China
The Datong project, ZhongDe's first, large-scale EPC project, is
operating smoothly and has passed the off-gas test taken by government
authorities in China. The energy-from-waste plant has been visited by
many high-ranking officials from China's central government and the
Shanxi Province authorities, as well as Chinese and foreign partners and
potential clients. The EU-standard, energy-from-waste plant was
regarded as a model green plant by the high-ranking officers for the
green economy of China. These visits also received extensive media
coverage, which has created an excellent reputation for ZhongDe Waste
Technology AG, both in China and in other countries.
WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.
28
28 October 2010
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CONFERENCE TAKEAWAYS
Q&A Summary
Q1: Project status: With the Datong project receiving so much credit, we hope that
the completion of other projects will sustain the positive momentum. What is the
current construction status of ZhongDe’s other EPC and BOT projects?
Answers: Zhucheng EPC Project – The main structure of the complex building has
been completed; Dingzhou EPC Project – The civil engineering work for the
complex building has been carried out; Feicheng BOT Project – The complex
building for the Feicheng project has been finished and accepted; Zhoukou BOT
Project – Interior coating and construction of the foundations for indoor equipment
have been carried out; Kunming BOT Project – The main structure for the complex
building has been completed; Beijing R&D Centre and Manufacture Project – The
constructions for the separation wall and the peripheral structure of the technical
building have been finished and accepted.
Q2: Order Development: What’s the development of the order intake and backlog
status of ZhongDe and what is the expected impact when the company shifts focus
toward larger-scale projects?
Order backlog also increased strongly by 36% y-y to EUR187.8m, although the order
backlog for 2009 was greatly amended from EUR39.5m to EUR138.5m in view of the
retrospective application of IFRIC 12 to BOT projects.
The investigation work and negotiations for large-scale projects take more time than
for small- and medium-sized projects, especially the preparation of international
contracts. Currently, we are negotiating additional large-scale projects that have
already entered the approval stage.
Q3: R&D resource and initiatives: To maintain the competitive edge in the fast-
growing industry environment, research is the life line of all the competitors. What's
the resource ZhongDe allocated to R&D and what are the current R&D initiatives?
Answers: More than 10% of ZhongDe Group employees work in research and
development. This also involves construction work customising incinerators to the
individual needs of customers. Research and development at the ZhongDe Group
encompasses the following functions:
improving pyrolytic incinerators for household waste with fluctuating heat values;
improving waste feeds; for example pre-sorting waste to improve the quality of
waste mixes as this accelerates waste incineration.
The ZhongDe Group also considers it of prime importance to continuously gauge and
improve the effect of incinerators on the environment.
29
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ANALYST(S)
Daisy Zhang, CFA, BNP Paribas Equities (Asia) Ltd, Shanghai Representative Office, +8621 6096 9025,
daisy.zhang@asia.bnpparibas.com.
Alvin H Cheng, BNP Paribas Equities (Asia) Ltd, Shanghai Representative Office, +8621 6096 9029,
Alvin.h.cheng@asia.bnpparibas.com.
1
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use of any person or entity that is not a major institutional investor. Where this report has been distributed by BNP Paribas Securities Corp, a U.S.
broker dealer, it will have been reviewed by a FINRA S16 qualified registered supervisory analyst or a S24 qualified and authorized person, in
accordance with FINRA requirements concerning third party affiliated research.
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Distribution or publication of this report in any other places to persons which are not permitted under the applicable laws or regulations of such
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No portion of this report was prepared by BNP Paribas Securities Corp personnel.
Disclosure and Analyst Certification
For a complete set of required disclosures relating to the companies that are the subject of this report, please mail a request to BNP Paribas
Compliance Department, 787 Seventh Avenue, New York, NY 10019.
BNP Paribas represents that:
BNPP or its affiliates beneficially own 1% or more the market capitalization of Huaneng Power.
BNPP or its affiliates makes a market in the securities of China Longyuan, Huaneng Power.
Within the next three months, BNPP or its affiliates may receive or seek compensation in connection with an investment banking relationship with
one or more of the companies referenced herein.
The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with
regard to any and all of the subject securities and companies mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, or
will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) BNPP is not aware of any other actual or
material conflicts of interest concerning any of the subject securities and companies referenced herein as of the time of publication of the research
report.
A detailed discussion of the valuation methodologies used to derive our target prices and the risks that could impede their achievement for stocks
recommended in the report is available on request from the analyst(s) named in this report.
Recommendation structure
All share prices are as at market close on 27 October 2010 unless otherwise stated. Stock recommendations are based on absolute upside
(downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If the
downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside is less than 10%, the recommendation is
HOLD. In addition, we have key buy and key sell lists in each market, which are our most commercial and/or actionable BUY and REDUCE calls
and are limited to at most five key buys and five key sells in each market at any point in time.
Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a
temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market
will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases,
therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.
Rating distribution (as at 27 October 2010)
Out of 502 rated stocks in the BNP Paribas coverage universe, 312 have BUY ratings, 130 are rated HOLD and 60 are rated REDUCE. Within
these rating categories, 5.13% of the BUY-rated companies either currently are or have been BNP Paribas clients in the past 12 months, 5.38% of
the HOLD-rated companies are or have been clients in the past 12 months, and 8.33% of the REDUCE-rated companies are or have been clients in
the past 12 months
Should you require additional information please contact the relevant BNP Paribas research team or the author(s) of this report.
© 2010 BNP Paribas Group
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