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渐飞研究报告 - http://bg.panlv.

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CORPORATE TAKEAWAYS: CHINA POWER

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渐飞研究报告 - http://bg.panlv.net

DAISY ZHANG, CFA CHINA POWER 28 OCTOBER 2010

Contents

1) A-Power Energy .......................................................................................................................................................................... 4

2) China Gas Holdings .................................................................................................................................................................... 6

3) China Longyuan .......................................................................................................................................................................... 8

4) China Power Int’l ....................................................................................................................................................................... 12

5) China Wind Power..................................................................................................................................................................... 14

6) C P New Energy......................................................................................................................................................................... 16

7) Datang Int’l Power ..................................................................................................................................................................... 18

8) ENN Energy ............................................................................................................................................................................... 22

9) Hong Kong Energy.................................................................................................................................................................... 24

10) Hyflux Ltd................................................................................................................................................................................. 26

11) ZhongDe Waste Tech.............................................................................................................................................................. 28

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CHINA/POWER 28 OCTOBER 2010


Company BBG code Rating Share TP Chg Mkt cap P/E Yld
price in TP FY1 FY2 FY1
(HKD) (HKD) (%) (USDm) (x) (x) (%)
China Longyuan 916 HK BUY 7.93 10.88 - 7,608 27.3 22.0 0.0
Datang Int'l Power 991 HK BUY 3.16 3.65 - 11,164 17.5 15.0 2.6
CR Power 836 HK BUY 15.06 20.30 - 9,050 14.0 12.4 2.2
Huaneng Power 902 HK BUY 4.39 5.28 - 10,404 10.7 9.8 4.7
Huadian Power 1071 HK REDUCE 1.81 1.69 - 3,637 59.3 8.9 0.5
Prices as at 27 October 2010; Source: Bloomberg, BNP Paribas estimates

INDUSTRY OUTLOOK ÍÎ

ƒ Tariff hike is on the way, but spot coal price rally will come first.
ƒ Power demand growth to mitigate, with 8% in 4Q10.
ƒ Thermal IPPs to face sell off pressure.
ƒ Renewable energy will boom in 12th 5-year plan; top pick: CLYPG.

Renewable energy boom


Key message from China Conference
Daisy Zhang, CFA
Several utility companies attended our China Conference in Guilin, including
+8621 6096 9025 China Longyuan Power Group (CLYPG), Datang Power Int’l, China Power
daisy.zhang@asia.bnpparibas.com International, etc. Most companies expect weak growth in power demand in the
near future, with 8% & 10% y-y increase in 4Q10 and 2011E, respectively.
Though, we do not expect weak spot coal price for the rest of the year given the
Alvin Cheng following: 1) the need for heating will go up in winter; extremely cold weather
+8621 6096 9029
Alvin.h.cheng@asia.bnpparibas.com spreading across China will further push heating demand; 2) this is the most
sensitive period for both power & coal players, given the upcoming annual
contract coal negotiation; Usually coal players restrict coal production during the
period, in order to get the barginning power for contract coal negotiation. Most
companies admitted that local pricing bureaus are investigating with local power
plants, regarding coal cost hike and percentage of loss for plants. Though we
believe IPPs’ price performance will face some pressure with an expected spot
coal price rally.

Wind power - bright prospect


With the upcoming renewable energy target for the 12th Five-Year Plan, we
expect hydro power, wind power, and nuclear power will become the next growth
engines for China power categories. With the government focusing on power grid
transmission network upgrade, we expect wind power grid connection restriction
problem to be gradually solved in the next couple of years. We expect CLYPG to
record flat utilization hour in 2010, despite 9.6% y-y decline in 1H10.

Upbeat on renewables; CLYPG is our TOP Pick


In the utility sector, we prefer renewable players most, given the government
support and upcoming 12th Five-Year Plan. We expect CLYPG to record strong
capacity expansion, resilient earings growth. For thermal IPPs, we expect the
sector to face sell-off pressure, given the strong spot coal price rally, upcoming
cold weather across China, and tight coal transportation capability at
Qinghuangdao Port.

. 3
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

A-Power Energy APWR US NON-RATED


CHINA / ELECTRIC UTILITIES CLOSE USD7.52

WHERE IS THE STREET? Wings added to the core


Consensus
Target Price (USD) 10.00 ƒ Tops the distributed-generation systems in China.
EPS 2011 (USD) 1.08 ƒ Improved margin via structural improvement and export.
EPS 2012 (USD) N/A ƒ Ready for wind-turbine generator manufacturing.
Positive Neutral Negative
ƒ Alliance with top-notch partner in R&D.
Market Recs. 2 0 0
Leading provider of distributed-
KEY STOCK DATA & CONSENSUS EARNINGS
generation systems
YE Dec (USD m) 2008 2009 2010E Distributed-generation (DG) systems are
Revenue 265 311 441 small-scale, electricity-production facilities
Rec. net profit 29 (17) 35 that provide power to meet local demand.
Recurring EPS (USD) 1.02 (0.49) 0.74 The most common DG power system in
China converts industrial waste gas and
EPS growth (%) (45.2) (148.0) nm
heat to electricity by using a steam turbine.
Recurring P/E (x) 7.4 (15.3) 10.0
A-Power, through its China-based
Dividend yield (%) - - N/A operating subsidiaries, is a leading Daisy Zhang, CFA
+8621 6096 9025
EV/EBITDA (x) 11.4 8.2 6.8 provider of DG systems in China, focusing daisy.zhang@asia.bnpparibas.com
Price/book (x) 1.6 1.4 N/A on energy-efficient and environment
ROE (%) 30.6 (9.1) N/A
friendly DG projects from 25MW to
400MW, targeting industries such as steel,
Sources : A-Power Energy; Bloomberg Consensus
chemical, cement, and food processing.
(USD) A-Power Energy (%) The company has also tapped into international markets in Southeast
25 Rel to MSCI China 150 Asia, the Middle East, Africa and Eastern Europe.
100
20 Improved margin via structural improvement and export
50
15 A-Power’s revenue in 2Q10 increased 30.1% to USD74.8m from
0 USD57.5m in 2Q09. The increase was primarily due to higher revenue
10 (50) recognised in the company's core DG business, with 2.3% of the total
5 (100) revenue attributable to the sale of PV solar equipment. Within the DG
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 business segment, domestic sales represented approximately 67.4% of
total revenue while international DG sales represented 32.6% of total DG
Share price performance 1 Month 3 Month 12 Month revenue. Gross profit in the second quarter increased 51.1% to
Absolute (%) (0.3) (10.1) (31.9) USD11.6m from USD7.7m in the same period of the prior year. Gross
Relative to country (%) (3.7) (15.3) (38.7) margin was 15.5%, up from 13.4% in the same quarter of 2009. The
Next results December 2010 improvement in gross margin was attributable to an increase in large-
Mkt cap (USD m) 337 scale DG orders as well as higher international sales, which typically
3m avg daily turnover (USD m) 5.8 carry slightly higher margins.
Free float (%) 73
Fast-growing manufacturer of wind-turbine generators
Major shareholder Jinxiang Lu (23%) A-Power also operates one of the largest wind turbine manufacturing
12m high/low (USD) 21.04/5.72 facilities in China. The 320,000 sqft Shenyang facility has a total annual
Source : Bloomberg capacity of 1GW (300 units of 2.7MW and 400 units of 750KW turbines).
A-Power secured higher profile partners in wind-turbine manufacturing
technologies: Fuhrlander AG of Germany and Norwin AS of Denmark will
assist with selection of suppliers, training, design and operation of the
assembly facility, installation of turbines and follow-up maintenance. In
March 2009, A-Power also signed a JV agreement with GE Drivetrain to
produce gearboxes in China. Highly respected Chinese institutes,
including China Academy of Science and Tsinghua University, are also in
R&D cooperation with A-Power in both wind-turbine and other new-
energy technologies.

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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA A-POWER ENERGY 28 OCTOBER 2010

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.

Q4: Future plan for alternative energy: In addition to wind-turbine generator


manufacturing, what is the other type of new energy the company is looking into at
the moment?
Answers: Joint venture with the China Science Academy, a respected research
institution in Asia with track record of developing new energy technologies. Expertise in
wind, solar, magnetic, geothermal, tidal and biomass. A-Power will own 70% rights to
new technologies.

5
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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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

China Gas Holdings 384 HK NON-RATED


CHINA / GAS UTILITIES CLOSE HKD4.25

WHERE IS THE STREET? A leader on the rise


Consensus
Target Price (HKD) 4.58 ƒ Leader in the China natural-gas distribution segment.
EPS 2011 (HKD) 0.27 ƒ Largest and only vertically integrated LPG supplier.
EPS 2012(HKD) 0.35 ƒ 2010 results show significant growth.
Positive Neutral Negative
ƒ Good number of diversified new projects.
Market Recs. 10 5 2
Dominance in China gas supply
KEY STOCK DATA & CONSENSUS EARNINGS
China Gas Holdings (China Gas) is the
YE Mar (HKD m) 2008 2009 2010E leader in natural-gas distribution and
Revenue 2,552 6,324 11,035 refilling stations. The company has been
Rec. net profit 141 104 532 operating in China since 2002 when
Recurring EPS (HKD) 0.04 0.03 0.16
China decided to construct the West-East
Pipeline. By FY10 (year-end March),
EPS growth (%) (34.5) (29.2) 411.3
China Gas is operating in 134 city
Recurring P/E (x) 96.8 136.7 26.7 concessions and possesses a pipeline
Dividend yield (%) 0.3 0.3 0.8 network of more than 31,943 km serving Daisy Zhang, CFA
approximately 5.1m household users and +8621 6096 9025
EV/EBITDA (x) 34.6 24.7 16.3 daisy.zhang@asia.bnpparibas.com
Price/book (x) 4.5 4.4 3.9 nearly 35,481 industrial and commercial
users. The company is also the only
ROE (%) 5.1 3.3 14.6
vertically integrated LPG operator in
Sources : China Gas Holdings ; Bloomberg Consensus China with 11 LPG-receiving terminals,
(HKD) China Gas Holdings (%) 275,000 m3 of LPG storage capacity, and coverage in Guangdong,
6.00 Rel to MSCI China 80 Guangxi, Fujian, Zhejiang, Jiangsu and Anhui provinces. The company’s
share of the LPG market has grown steadily to 5% from 4% last year.
5.00 60

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
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA CHINA GAS HOLDINGS 28 OCTOBER 2010

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.

ƒ No impact on commercial & industrial gas sales (represents 81.1% of users for
China Gas): automatic 100% pass-through

ƒ Low elasticity: retail price hike of only RMB0.23/m3 and we anticipate residential
users can absorb with minimal impact on demand

ƒ On a macro-view, price hike will stimulate upstream domestic production and


encourage LNG imports, further easing near-term shortage of supply

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:

ƒ increase in penetration rate: to reach 43% by 2012 – enhanced connection fee


income;

ƒ more industrial connections; more gas to connect industrial customers in backlog –


further increase gas sale volume;

ƒ faster CNG stations rollout: To reach at least 180 CNG stations in 50 cities by
2012 – improving overall operating margins of gas sale.

LPG:

ƒ wider distribution network: To cover nine provinces with wholesale and retail
supply;

ƒ increase in sale volume: to reach at least 2m tonnes by 2012; improved margins:


to reach 15% gross margin and 5% net margin by 2012.

7
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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

HOW WE DIFFER FROM THE STREET


ADR TICKER: CLPXF US NEW INFORMATION
BNP Consensus % Diff
Target Price (HKD)
EPS 2010 (RMB)
10.88
0.25
9.77
0.24
11.4
4.2
Up with wind
EPS 2011 (RMB) 0.31 0.34 (8.8) ƒ Wind, the main growth engine.
Positive Neutral Negative ƒ 1H10 – stellar results beat consensus.
Market Recs. 15 4 2 ƒ Solar energy – remarkable growth potential.
KEY STOCK DATA ƒ Further progress in CDM.
YE Dec (RMB m) 2010E 2011E 2012E Wind: blow further with 12th
Revenue 13,244 15,840 17,992 Five-Year Plan
Rec. net profit 1,865 2,768 3,267 Starting from 2003, the total installed
Recurring EPS (RMB) 0.25 0.31 0.36 capacity of China Longyuan (CLYPG) has
Prior rec. EPS (RMB) 0.25 0.31 0.36 been consistently growing at a high pace.
Chg. In EPS est. (%) 0.0 0.0 0.0 By 1H10, total attributable installed
EPS growth (%) 43.5 23.6 18.0
capacity reached 3,808MW and
contributed operating profit of over
Recurring P/E (x) 27.3 22.0 18.7
RMB1.5b. Geographical diversification
Dividend yield (%) 0.0 0.5 0.7
was also achieved: in addition to the six
EV/EBITDA (x) 9.7 9.7 9.1 major areas (Northeast provinces, Inner Daisy Zhang, CFA
+8621 6096 9025
Price/book (x) 2.1 1.5 1.4 Mongolia, the southeast coastal provinces, daisy.zhang@asia.bnpparibas.com
Net debt/Equity 116.8 72.3 91.1 Hebei, Gansu and Xinjiang), wind power Alvin H Cheng
ROE (%) 8.2 8.6 7.8 projects were further developed in +8621 6096 9029
Yunnan, Tianjin, Anhui, Shanxi, Ningxia, Alvin.h.cheng@asia.bnpparibas.com

(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

DAISY ZHANG, CFA CHINA LONGYUAN 28 OCTOBER 2010

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.

9
2 BNP PARIBAS
渐飞研究报告 - http://bg.panlv.net

DAISY ZHANG, CFA CHINA LONGYUAN 28 OCTOBER 2010

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

Per share (RMB)


Recurring EPS * 0.07 0.17 0.25 0.31 0.36
Reported EPS 0.07 0.17 0.25 0.31 0.36
DPS 0.07 0.06 0.00 0.03 0.05
Growth
Revenue (%) 22.9 13.9 35.9 19.6 13.6
Operating EBITDA (%) 31.9 77.7 65.3 33.8 22.5
Operating EBIT (%) 26.9 101.2 73.4 44.3 21.3
Recurring EPS (%) 56.4 157.9 43.5 23.6 18.0
Reported EPS (%) 56.4 157.9 43.5 23.6 18.0
Operating performance
Gross margin inc depreciation (%) 12.0 23.5 31.7 39.0 41.1
Operating EBITDA margin (%) 29.3 45.7 55.5 62.1 67.0
Operating EBIT margin (%) 16.6 29.3 37.4 45.1 48.2
Net margin (%) 3.9 9.2 14.1 17.5 18.2
Effective tax rate (%) 0.3 15.3 13.5 14.5 15.5
Dividend payout on recurring profit (%) 106.2 36.0 0.0 10.1 12.7
Interest cover (x) 1.7 2.9 3.7 4.4 4.3
Inventory days 13.7 19.0 17.9 16.8 16.0
Debtor days 44.9 64.1 60.1 56.9 60.5
Creditor days 127.7 145.3 120.2 144.5 168.7
Operating ROIC (%) 6.6 8.7 9.6 9.5 8.8
Operating ROIC – WACC (%) - - - - -
ROIC (%) 5.1 6.9 7.9 8.2 7.8
ROIC – WACC (%) - - - - -
ROE (%) 10.0 6.9 8.2 8.6 7.8
ROA (%) 4.5 4.9 5.8 6.2 5.9
* Pre exceptional, pre-goodwill and fully diluted
Revenue By Division (RMB m) 2008A 2009A 2010E 2011E 2012E
electricity 5,752 6,467 9,998 12,376 14,509
Sales of steam 121 230 163 163 163
concession 2,200 883 750 750 750
Sales electricity equipt. 264 128 130 131 133
Sales of coal 0 1,648 1,800 2,000 2,000
Others 218 388 404 420 437
0 0 0 0 0
0 0 0 0 0
Sources: China Longyuan; BNP Paribas estimates

10
3 BNP PARIBAS
渐飞研究报告 - http://bg.panlv.net

DAISY ZHANG, CFA CHINA LONGYUAN 28 OCTOBER 2010

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

11
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China Power Int’l 2380 HK NON-RATED


CHINA / INDEPENDENT POWER PRODUCERS CLOSE HKD1.75

WHERE IS THE STREET? A growing hydro giant


Consensus
Target Price (HKD) 1.96 ƒ A strong growth in net generation of 45% y-y in 1H.
EPS 2011 (RMB) 0.14 ƒ Consolidation of Wuling Hydro improved margins.
EPS 2012 (RMB) 0.17 ƒ Cost is up, but still under control.
Positive Neutral Negative
ƒ New power plants under construction.
Market Recs. 9 11 1
Strong growth in generation
KEY STOCK DATA & CONSENSUS EARNINGS
Given the acquisition of Wuling Power
YE Dec (RMB m) 2008 2009 2010E and the increasing power demand, China
Revenue 9,632 10,937 14,597 Power’s net generation in the first half of
Rec. net profit (689) 519 553 2010 surged by 7,130,966MWh compared
Recurring EPS (RMB) (0.19) 0.14 0.10
with the year-ago period, representing a
glorious 45% y-y growth, twice the
EPS growth (%) (218.8) (173.7) (26.4)
national level of 22%. Revenue and net
Recurring P/E (x) (7.9) 10.8 14.6 profit for the company went up by 41%
Dividend yield (%) - 3.0 2.7 and 84%, respectively. Daisy Zhang, CFA
+8621 6096 9025
EV/EBITDA (x) 43.1 22.4 10.5
Consolidation of Wuling Power
daisy.zhang@asia.bnpparibas.com
Price/book (x) 0.7 0.6 0.6
drives profit
ROE (%) (7.2) 5.1 4.6
In 1H10, China Power consolidated the
Sources : China Power Int’l ; Bloomberg Consensus full period result of Wuling Power for the
(HKD) China Power Int'l (%) first time. After the consolidation, hydro power accounted for 36% of the
2.50 Rel to MSCI China 10 total consolidated capacity, while its operating profit recorded 69% of the
total. The operating margin of the hydro-power business in 1H10 was
0 72%, over ten times higher than the thermal-power business.
2.00
(10)
1.50 Effective cost management through secure contracts
(20) At the beginning of 2010, cold weather and little rainfall led to a
1.00 (30) significant increase in domestic coal demand, thus causing the price of
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 coal to climb. The unit fuel cost for China Power increased by 10.05% y-
y as a result. However, the magnitude of such an increase is noticeably
Share price performance 1 Month 3 Month 12 Month lower than its peers and below management’s estimate of 14% at the
Absolute (%) 1.2 4.2 (23.2) beginning of 2010. This relative victory in coal-cost management can be
Relative to country (%) (2.4) (5.7) (26.5) attributed to China Power’s high, contract-coal portion (over 85%) and
Next results April 2011 low default rate (less than 5%).
Mkt cap (USD m) 8,937
New power plants under construction
3m avg daily turnover (USD m) 11.3
China Power currently has Sichuan Fuxi Power and Guangzhou Lixin
Free float (%) 31.0
Industry Company in its coal-fired electricity projects under construction.
Major shareholder China Power Development (39%) These two plants’ total installed capacities are 1,800MW, of which the
12m high/low (HKD) 2.35/1.52 company’s attributable installed capacity accounts for 912MW. With
Source : Bloomberg respect to the hydro-power projects under construction, the company has
the Baishi Power Plant, Tuokou Power Plant, and the Heimifeng Power
Plant with a total installed capacity of 1,850MW, of which the company’s
attributable installed capacity accounts for 1,126MW. Currently, all
projects are running smoothly.

WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.

12

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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA CHINA POWER INT’L 28 OCTOBER 2010

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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渐飞研究报告
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FOR INFORMATION PURPOSES.

China Wind Power 182 HK NON-RATED


CHINA / INDEPENDENT POWER PRODUCERS CLOSE HKD0.80

WHERE IS THE STREET? Vertical competence


Consensus
Target Price (HKD) 1.08 ƒ Most complete service line within the industry.
EPS 2011 (HKD) 0.06 ƒ Expanded investment and high income growth.
EPS 2012 (HKD) 0.09 ƒ Revenue and profit in 1H10 more than doubled.
Positive Neutral Negative
ƒ Focusing on on-shore wind farms in near term.
Market Recs. 7 0 0
Full line services in wind power
KEY STOCK DATA & CONSENSUS EARNINGS
To date, China Wind Power (CWP) has
YE Dec (HKD m) 2008 2009 2010E invested in more than 20 wind farms in
Revenue 216 379 989 Beijing, Liaoning, Jilin, Inner Mongolia,
Rec. net profit 100 117 314 Gansu, Hebei and Nanjing with total
Recurring EPS (HKD) 0.03 0.02 0.04
attributable installed capacity over
250MW. More than that, CWP owns
EPS growth (%) 8.6 (30.0) 116.7
power-project construction and installation
Recurring P/E (x) 27.6 39.4 18.2 companies, professional wind-power plant
Dividend yield (%) - - - operations, repair and maintenance Daisy Zhang, CFA
companies, a wind-turbine, tower-tube +8621 6096 9025
EV/EBITDA (x) 72.2 71.3 20.3 daisy.zhang@asia.bnpparibas.com
Price/book (x) 1.9 2.0 1.6 manufacturing company and a gearbox
components manufacturing company.
ROE (%) 10.2 5.3 9.3
CWP also has qualifications in
Sources: China Wind Power; Bloomberg Consensus consultation and design for field-of-wind
(HKD) China Wind Power (%) power, and overall contracting of electric-power projects. At 30 June
1.10 Rel to MSCI China 30 2010, CWP’s attributable capacity reached 258MW. In 1H10, CWP
constructed 12 projects, provided 137 design and consultancy reports,
1.00 20
contracted 13 operating and maintenance projects, and manufactured
0.90 10 142 tower tubes.
0.80 0
0.70 (10) Expanding investments and high growth
0.60 (20) In 1H10, CWP enlarged its investment in wind-power projects, and
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 initiated the construction of six wind power plants (total capacity of
297MW). At 30 June 2010, 10 wind-power plants (total capacity of
Share price performance 1 Month 3 Month 12 Month 647MW) were under construction. CWP has now invested in a total of 22
Absolute (%) (7.0) 3.9 (1.2) wind-power plants, with a cumulative capacity of 1,213MW and an
Relative to country (%) (10.3) (5.9) (5.5) attributable capacity of 681MW. 12 of these wind-power plants, with a
Next results April 2011 total capacity of 566MW, are in operation. As the projects under
Mkt cap (USD m) 762.1 construction will have newer turbines, with much improved performance,
3m avg daily turnover (USD m) 2.3
and as their construction cost will be lower, their returns on investment
are expected to be raised.
Free float (%) 45.3
Major shareholder China Wind Power Investment (28%) In 1H10, the CWP’s consolidated income amounted to HKD349m, an
12m high/low (HKD) 1.03/0.65 increase of 153% as compared to 1H09. The company’s net profit
Source : Bloomberg
attributable to equity holders was recorded at HKD133m, up 113% from
1H09.

Focus on on-shore wind power in the near term


CWP plans to add at least 600MW of installed wind-power capacity in
2011 and 2012. In the next two years, a grid curtailment problem could
temporarily become more serious in certain regions. The company plans
to expand and diversify to southern China where grid connection and
curtailment are less of an issue.

WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.

14

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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA CHINA WIND POWER 28 OCTOBER 2010

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.

Q2: Capital requirements: According to CWP’s planned addition of new, wind-power


plants, how much investment is required in the coming 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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NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR
渐飞研究报告
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

C P New Energy 735 HK NON-RATED


CHINA / INDEPENDENT POWER PRODUCERS CLOSE HKD0.78

WHERE IS THE STREET? All-around in green arena


Consensus
Target Price (HKD) 1.13 ƒ Clear focus on clean energy.
EPS 2011 (HKD) 0.05 ƒ Diversified new energy plants across China.
EPS 2012 (HKD) 0.08 ƒ Turnover and net profit doubled in 1H10.
Positive Neutral Negative
ƒ Government initiatives support future growth.
Market Recs. 6 0 0
Focus on clean energy
KEY STOCK DATA & CONSENSUS EARNINGS
C P New Energy (CPNE) develops and
YE Dec (HKD m) 2008 2009 2010E operates clean-energy power plants in
Revenue 952 1,580 2,048 China including wind-power generation,
Rec. net profit 7 153 300 hydro-power generation, waste-to-energy-
Recurring EPS (HKD) 0.001 0.022 0.039
power generation, natural gas and oil-
power generation, etc. These plants are
EPS growth (%) (109.3) 1,569.2 79.7
mainly situated in Guangdong, Fujian and
Recurring P/E (x) 600.0 35.9 20.0 Gansu, and the electricity generated is
Dividend yield (%) - - - sold to the Southern Power Grid, the East Daisy Zhang, CFA
EV/EBITDA (x) 38.8 16.4 12.3 China Power Grid and the Northwest +8621 6096 9025
daisy.zhang@asia.bnpparibas.com
Price/book (x) 1.3 1.2 1.1 Power Grid. CPNE is also engaged in
ROE (%) 0.3 3.3 5.0
investment holdings in the clean-energy
power industry, the sale of clean-energy,
Sources : C P New Energy ; Bloomberg Consensus
power-generating equipment and property
(HKD) C P New Energy (%) investments.
1.00 Rel to MSCI China 100
0.90 80 Diversified portfolio in clean energy
0.80 60 Wind power: By 30 June 2010, two phases in Gansu were operating
0.70 40 smoothly. Another two news projects in Gansu, one project in Shanghai,
0.60 20 and two projects in Heilongjiang are under construction. Hydro-electric
0.50 0 power: Plants in Shouning and Zhangping of Fujian Province are in
0.40 (20) operation. Waste-to-energy-power generation: Plants in Dongguan and
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Deqing of Guangdong Province are in operation, the Kunming plant is
under trial and the Haikou plant is under construction. Biomass power
Share price performance 1 Month 3 Month 12 Month generation: The Zhongdian Hongze plant is in operation. Natural gas
Absolute (%) 0.0 2.6 44.4 power generation: The Dongguan plant is in operation.
Relative to country (%) (3.6) (7.1) 38.2
Next results March 2011 Revenue and profit double in 1H10
Mkt cap (USD m) 715.9 For 1H10, the group recorded revenue and tariff adjustments of
3m avg daily turnover (USD m) 3.6
approximately RMB809.21m (1H09: RMB493.91m), the growth of which
was primarily attributed to the increase in volume of electricity sold.
Free float (%) 44
Major shareholder China Power New Energy Ltd (28%) CPNE’s profit for the period was approximately RMB152m (1H09:
12m high/low (HKD) 1.02/0.49 RMB66m) and the company’s recorded profit attributable to equity
Source : Bloomberg
holders amounted to approximately RMB126m (1H09: RMB50m). Basic
EPS was approximately RMB0.018 (1H09: RMB0.007).

Bright outlook for alternative energy


In November 2009, the Chinese government had announced the initiative
to increase the use of non-fossil energy to account for nearly 15% of its
one-off energy consumption by 2020. Meanwhile, the government has
continued to improve the structure of the nation’s energy consumption
with strong emphasis on development of new energy forms and
renewable energy, which contributed to the growth of CNPE in 1H10.
We believe this momentum will persist.

WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.

16

. 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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA C P NEW ENERGY 28 OCTOBER 2010

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.

17
2 BNP PARIBAS
渐飞研究报告 - http://bg.panlv.net

Datang Int'l Power


TARGET HKD3.65
991 HK PRIOR TP
CLOSE
HKD3.65
HKD3.16
BUY
CHINA / INDEPENDENT POWER PRODUCERS UP/DOWNSIDE +15.4% UNCHANGED

HOW WE DIFFER FROM THE STREET


ADR TICKER: DIPGY US NEW INFORMATION
BNP Consensus % Diff
Target Price (HKD)
EPS 2010 (RMB)
3.65
0.15
3.48
0.15
4.9
0.0
More than power
EPS 2011 (RMB) 0.18 0.22 (18.2) ƒ Coal mining business to become the growth engine.
Positive Neutral Negative ƒ Coal chemical project development right on track.
Market Recs. 7 15 4 ƒ Coal gas project to offer future upside.
KEY STOCK DATA ƒ Leader in energy savings and emission reduction.
YE Dec (RMB m) 2010E 2011E 2012E
Revenue 54,233 60,161 62,730 Coal mining business to become
Rec. net profit 1,904 2,412 3,043 the growth engine
Recurring EPS (RMB) 0.15 0.18 0.23 In 1H10, the coal segment contributed
Prior rec. EPS (RMB) 0.15 0.18 0.23
25% to the company’s total profit. We
estimate the coal segment will contribute
Chg. In EPS est. (%) 0.0 0.0 0.0
about 30% of profit in 2011-12, on the
EPS growth (%) 13.0 17.1 26.2
back of increasing coal production from
Recurring P/E (x) 17.5 15.0 11.9 the Shengli II, Baoli, Tashan and Yuzhou
Dividend yield (%) 2.6 3.0 3.8 coal mines.
EV/EBITDA (x) 9.9 9.3 9.3 Daisy Zhang, CFA
Price/book (x) 1.1 0.9 0.9 Coal chemical and coal-gas +8621 6096 9025
daisy.zhang@asia.bnpparibas.com
Net debt/Equity 244.8 230.1 259.9 projects to offer future upside
Alvin H Cheng
ROE (%) 6.8 7.0 7.5 Our site visits in August to the Datang’s +8621 6096 9029
Duolun coal chemical project and the Keqi Alvin.h.cheng@asia.bnpparibas.com

(HKD) Datang Int'l Power (%) coal-gas project indicated that


Rel to MSCI China construction at both projects is proceeding on schedule.
(6)
4.00
(16)
The Duolun project is still under construction and the company expects it
to start producing the final product by the end of this year. We expect this
3.00
(26) coal-chemical project to deliver 0.28m tonnes, 0.37m tonnes, and 0.46m
2.00 (36)
tonnes of its final product, polypropylene, over 2011-12. The current ASP
of polypropylene is RMB11,000-12,000/tonne. According to
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
management, the total cost for polypropylene is RMB6,800/tonne.
Share price performance 1 Month 3 Month 12 Month
The Keqi coal-gas project commenced construction last August, and the
Absolute (%) (2.9) 0.6 (16.9) installation of air separation and gasification facilities has been finalized.
Relative to country (%) (10.2) (13.9) (24.4) We expect it to produce 1.3b, 2.7b, and 4.0b cubic metres of gas over
Next results March 2011 2012-14, which will be transmitted to Beijing. The current ASP of natural
Mkt cap (USD m) 11,164
gas is RMB1.48-1.88/cubic metre. We estimate the total production cost
is around RMB1.27/cubic metre, including transportation.
3m avg daily turnover (USD m) 12.5
Free float (%) 66 Leader in energy savings and emission reduction
Major shareholder China Datang Corporation (34%) Datang is one of the IPPs that are demonstrating a strong focus on
12m high/low (HKD) 3.93/2.78 energy savings and emission reductions. In its coal-fired generating units,
3m historic vol. (%) 28.2 the company has achieved a 100% desulphurisation facility installation
ADR ticker DIPGY US rate. The company claims that its emission rates for sulphur dioxide
ADR closing price (USD; 26 October 2010) 8.33 (0.46g/kWh), nitrogen oxides (1.41g/kWh), smoke ash (0.13g/kWh), and
waster water (86g/kWh) are far below national average levels.
Sources: Bloomberg consensus; BNP Paribas estimates

Resuming growth with attractive valuations; BUY


We maintain Datang Power as BUY with a TP of HKD3.65, as we estimate a
more-than 30% earnings contribution from the non-power segment in
2011-12 and believe the current 2011E valuations, 15.0x P/E and 0.9x
P/BV, are really attractive.

18

28 October 2010
渐飞研究报告 - http://bg.panlv.net

DAISY ZHANG, CFA DATANG INT'L POWER 28 OCTOBER 2010

CONFERENCE TAKEAWAYS

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.

19
2 BNP PARIBAS
渐飞研究报告 - http://bg.panlv.net

DAISY ZHANG, CFA DATANG INT'L POWER 28 OCTOBER 2010

FINANCIAL STATEMENTS

Datang Int'l Power


Profit and Loss (RMB m)
Year Ending Dec 2008A 2009A 2010E 2011E 2012E
Revenue 36,900 47,943 54,233 60,161 62,730
Cost of sales ex depreciation (24,493) (29,199) (34,141) (39,161) (38,805)
Gross profit ex depreciation 12,407 18,744 20,092 21,000 23,925
Other operating income 0 0 0 0 0
Operating costs (3,309) (4,492) (6,274) (6,205) (6,433)
Operating EBITDA 9,098 14,251 13,818 14,795 17,491
Depreciation (6,206) (7,507) (6,240) (7,593) (9,723)
Goodwill amortisation 0 0 0 0 0 We estimate coal
Operating EBIT 2,892 6,744 7,578 7,202 7,768 segment contribution to
Net financing costs (3,612) (4,077) (4,692) (2,659) (1,985)
Associates 371 409 742 816 979
boost associate income
Recurring non operating income 949 155 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 600 3,231 3,628 5,359 6,763
Tax (72) (639) (653) (1,340) (1,691)
Profit after tax 528 2,592 2,975 4,020 5,072
Minority interests 221 (980) (1,071) (1,608) (2,029)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 749 1,612 1,904 2,412 3,043
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 749 1,612 1,904 2,412 3,043

Per share (RMB)


Recurring EPS * 0.06 0.14 0.15 0.18 0.23
Reported EPS 0.06 0.14 0.15 0.18 0.23
DPS 0.11 0.07 0.07 0.08 0.10
Growth
Revenue (%) 12.6 29.9 13.1 10.9 4.3
Operating EBITDA (%) (29.1) 56.6 (3.0) 7.1 18.2
Operating EBIT (%) (63.5) 133.2 12.4 (5.0) 7.9
Recurring EPS (%) (79.0) 114.6 13.0 17.1 26.2
Reported EPS (%) (79.0) 114.6 13.0 17.1 26.2
Operating performance
Gross margin inc depreciation (%) 16.8 23.4 25.5 22.3 22.6
Operating EBITDA margin (%) 24.7 29.7 25.5 24.6 27.9
Operating EBIT margin (%) 7.8 14.1 14.0 12.0 12.4
Net margin (%) 2.0 3.4 3.5 4.0 4.9
Effective tax rate (%) 12.0 19.8 18.0 25.0 25.0
Dividend payout on recurring profit (%) 172.9 53.4 45.0 45.0 45.0
Interest cover (x) 1.2 1.8 1.8 3.0 4.4
Inventory days 23.4 25.0 18.4 15.6 16.9
Debtor days 67.3 76.5 77.5 57.3 53.9
Creditor days 172.0 170.4 125.8 91.5 94.6
Operating ROIC (%) 2.7 5.0 4.9 4.1 3.9
Operating ROIC – WACC (%) (5.1) (2.9) (2.9) (3.7) (3.9)
ROIC (%) 3.7 5.0 4.9 4.1 4.0
ROIC – WACC (%) (4.1) (2.8) (2.9) (3.7) (3.8)
ROE (%) 2.7 6.1 6.8 7.0 7.5
ROA (%) 3.0 3.9 3.8 3.0 2.7
* Pre exceptional, pre-goodwill and fully diluted
Revenue By Division (RMB m) 2008A 2009A 2010E 2011E 2012E
Electricity 35,990 42,043 44,199 49,533 50,878
Heat 220 383 460 506 556
Others 304 174 500 0 0
Sale of coal 385 5,144 6,275 6,903 7,593
Transportation service fees 0 0 0 0 0
Sales of materials 0 199 2,800 3,220 3,703
0 0 0 0 0
0 0 0 0 0
Sources: Datang Int'l Power; BNP Paribas estimates

20
3 BNP PARIBAS
渐飞研究报告 - http://bg.panlv.net

DAISY ZHANG, CFA DATANG INT'L POWER 28 OCTOBER 2010

Datang Int'l Power


Cash Flow (RMB m)
Year Ending Dec 2008A 2009A 2010E 2011E 2012E
Recurring net profit 749 1,612 1,904 2,412 3,043
Depreciation 6,206 7,507 6,240 7,593 9,723
Associates & minorities (591) 571 329 792 1,049
Other non-cash items 3,161 3,455 4,305 2,092 1,221
Recurring cash flow 9,525 13,145 12,778 12,888 15,036
Change in working capital 3,275 (7,010) 1,652 (2,592) (1,403)
Capex - maintenance 0 0 0 0 0
Capex – new investment (33,176) (27,500) (21,720) (20,551) (22,967)
Free cash flow to equity (20,377) (21,365) (7,291) (10,255) (9,334)
Net acquisitions & disposals 553 158 50 50 50
Dividends paid 0 0 0 0 0
Non recurring cash flows (1,502) (1,233) (970) (970) (970)
Net cash flow (21,325) (22,440) (8,211) (11,175) (10,254)
Equity finance 198 2,004 3,393 7,277 421
Debt finance 32,545 14,503 36,680 (2,369) 62,567
Movement in cash 11,417 (5,933) 31,862 (6,268) 52,735
Per share (RMB)
Recurring cash flow per share 0.81 1.12 1.04 0.97 1.13
FCF to equity per share (1.73) (1.81) (0.59) (0.77) (0.70)
Balance Sheet (RMB m)
Year Ending Dec 2008A 2009A 2010E 2011E 2012E
Working capital assets 10,456 15,173 11,397 10,840 11,289
Working capital liabilities (24,117) (21,825) (19,701) (16,551) (15,597)
Net working capital (13,662) (6,652) (8,304) (5,711) (4,308)
Tangible fixed assets 134,820 156,001 168,734 194,463 208,367
Operating invested capital 121,159 149,350 160,430 188,752 204,059
Goodwill 2,031 2,123 2,123 2,123 2,123
Other intangible assets 1,463 1,687 2,165 2,599 3,114
Investments 4,028 6,749 9,007 11,323 14,303
Other assets 841 984 5,263 4,793 4,373
Invested capital 129,523 160,892 178,988 209,590 227,972
Cash & equivalents (5,078) (1,506) (17,093) (5,952) (43,733)
Short term debt 29,604 19,569 65,860 84,860 87,860
Long term debt * 69,026 99,507 42,806 31,911 94,219
Net debt 93,552 117,569 91,573 110,820 138,347
Deferred tax 396 324 362 347 332
Other liabilities 4,170 9,676 49,646 50,257 36,055
Total equity 26,252 26,198 29,686 38,838 41,881
Minority interests 4,654 6,650 7,721 9,328 11,357
Invested capital 129,523 160,892 178,988 209,590 227,972
* includes convertibles and preferred stock which is being treated as debt
Per share (RMB)
Book value per share 2.23 2.22 2.41 2.92 3.15
Tangible book value per share 1.94 1.90 2.06 2.56 2.75
Financial strength
Net debt/equity (%) 302.7 357.9 244.8 230.1 259.9
Net debt/total assets (%) 58.9 63.8 42.4 47.7 48.2
Current ratio (x) 0.3 0.4 0.3 0.2 0.5
CF interest cover (x) 4.5 2.5 4.1 4.9 7.9
Valuation 2008A 2009A 2010E 2011E 2012E
Recurring P/E (x) * 42.5 19.8 17.5 15.0 11.9
Recurring P/E @ target price (x) * 49.1 22.9 20.2 17.3 13.7
Reported P/E (x) 42.5 19.8 17.5 15.0 11.9
Dividend yield (%) 4.1 2.7 2.6 3.0 3.8
P/CF (x) 3.3 2.4 2.6 2.8 2.4
P/FCF (x) (1.6) (1.5) (4.6) (3.5) (3.9)
Price/book (x) 1.2 1.2 1.1 0.9 0.9
Price/tangible book (x) 1.4 1.4 1.3 1.1 1.0
EV/EBITDA (x) ** 11.0 9.7 9.9 9.3 9.3
EV/EBITDA @ target price (x) ** 10.5 9.2 9.6 8.9 8.8
EV/invested capital (x) 1.0 1.0 0.7 0.7 0.8
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Sources: Datang Int'l Power; BNP Paribas estimates

21
4 BNP PARIBAS
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

ENN Energy 2688 HK NON-RATED


CHINA / GAS UTILITIES CLOSE HKD23.00

WHERE IS THE STREET? Steady and healthy growth


Consensus
Target Price (HKD) 24.40 ƒ Strong revenue and profit growth in 1H10.
EPS 2011 (RMB) 1.23 ƒ Pipeline construction income remains healthy and accountable.
EPS 2012 (RMB) 1.44 ƒ Gas sales becoming even more important for Xin’ao Gas.
Positive Neutral Negative
ƒ Penetration into the overseas market offers further upside.
Market Recs. 15 4 0
Strong growth in 1H10
KEY STOCK DATA & CONSENSUS EARNINGS
ENN Energy’s (formerly known as Xin’ao
YE Dec (RMB m) 2008 2009 2010E Gas) main business portfolio consists of
Revenue 8,266 8,413 10,248 city pipeline natural gas, LPG and vehicle
Rec. net profit 631 801 1,080 refuelling gas (CNG, LPG and DME)
Recurring EPS (RMB) 0.63 0.78 1.02
distribution. Revenue and net profit in
1H10 came in at RMB5,044m and
EPS growth (%) 21.8 24.0 31.0
RMB533m, representing 25.6% and
Recurring P/E (x) 31.7 25.6 19.5 42.5% y-y growth.
Dividend yield (%) 0.8 1.0 1.3 Daisy Zhang, CFA
EV/EBITDA (x) 20.3 15.6 11.4 Pipeline construction maintains +8621 6096 9025

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
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA ENN ENERGY 28 OCTOBER 2010

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
2 BNP PARIBAS
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

Hong Kong Energy 987 HK NON-RATED


CHINA / INDEPENDENT POWER PRODUCERS CLOSE HKD0.66

WHERE IS THE STREET? Prepared with ambition


Consensus
Target Price (HKD) 0.77 ƒ Alternative energy flagship of HKC after asset injection.
EPS 2011 (HKD) 0.05 ƒ Partnership with CECEP expected to be beneficial.
EPS 2012 (HKD) 0.08 ƒ Contribution from alternative energy on the way.
Positive Neutral Negative
ƒ 2000MW capacity to be added in the next five years.
Market Recs. 2 0 0
Alternative energy platform of
KEY STOCK DATA & CONSENSUS EARNINGS
HKC
YE Dec (HKD m) 2008 2009 2010E On 26 July 2010, a significant asset
Revenue 14 11 170 injection to Hong Kong Energy (HKE),
Rec. net profit (90) (10) 82 from its parent company HKC Holdings
Recurring EPS (HKD) (0.11) (0.01) 0.03 (HKC), was voted in by independent
shareholders. This restructuring turned
EPS growth (%) (139.3) (88.4) (366.9)
HKE into a key alternative, energy-
Recurring P/E (x) (6.2) (53.4) 20.0
platform business of HKC. As proposed in
Dividend yield (%) - - N/A the sale and purchase agreement, HKC is Daisy Zhang, CFA
+8621 6096 9025
EV/EBITDA (x) (13.2) (17.7) 7.1 injecting its 261MW wind-power business daisy.zhang@asia.bnpparibas.com
Price/book (x) 1.8 1.8 0.9 and a 10MW waste-to-energy plant into
ROE (%) 14 11 170
HKE at a 25% discount to fair value for
HKD1,018m. As a group, HKC/HKE
Sources: Hong Kong Enerrgy; Bloomberg Consensus
entered the wind power business in 2005
(HKD) Hong Kong Energy (%) when it established its Mudanjiang wind farm in Heilongjiang province.
0.90 Rel to MSCI China 40 The group was one of the first movers in wind farms and has since grown
0.80 30 its portfolio to 341MW of attributable capacity covering Hebei, Gansu,
20 Heilongjiang and Inner Mongolia.
0.70
10
0.60
0 A beneficial partnership with CECEP
0.50 (10) The China Energy Conservation and Environmental Protection Group
0.40 (20) (CECEP, formerly known as the China Energy Conservation Investment
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Corp or CECIC) is the largest China SOE in energy conservation and
environmental protection, founded directly by the State Council and
Share price performance 1 Month 3 Month 12 Month reporting to the central SASAC. Currently, HKE has entered into a
Absolute (%) 20.0 10.0 6.8 partnership with CECEP for projects in Hebei and Gansu (over 500MW
Relative to country (%) 15.7 (0.4) 2.2 capacity in total), where HKE holds 30-40% stakes. With CECEP’s
Next results March 2011 favorable background with the government and its large amount of
Mkt cap (USD m) 72.8 developable, wind-power resource across China, the partnership is
3m avg daily turnover (USD m) 0.1 expected to benefit HKE.
Free float (%) 35.2
Meaningful profit yet to come, but be prepared
Major shareholder HKC Holdings Ltd (51%) The company’s current turnover came solely from the software business,
12m high/low (HKD) 0.87/0.52 which will no longer be the strategic business focus, and does not reflect
Source : Bloomberg the major developments in wind power. Following the acquisition,
announced on 12 May 2010 and approved by shareholders on 26 July
2010, the wind-farm projects in Mudanjiang and Muling of Heilongjiang
province and Siziwang Qi of Inner Mongolia will be majority and wholly
owned by HKE, respectively, after acquisition. It is expected that these
assets will start making a revenue contribution to the group in the 2H10.
The group is also expected to benefit from the good performance of a
waste-to-energy plant in Linyi of Shandong province as well as wind
farms in Danjinghe and Lunaobao of Hebei province and Changma of
Gansu province. HKE has also pledged to add to its installed capacity,
bringing it to 2,000MW over the next five years.

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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA HONG KONG ENERGY 28 OCTOBER 2010

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.

Q3: Generation growth curve: According to the current construction and


development plan for HKE, what level of generation volume can be expected for the
next years?

Answers: Based on the current pipelines, we expect HKE’s attributable capacity to


rise from 68MW as of end-2009 to 341MW as of end-2010 and 481MW as of end-
2011. Of particular note is that 241MW in attributable capacity alone will be
commissioned in 2H10, and a large part of the 2011 increment will also be
commissioned in the second half. This skew means that the growth of wind power
generation could be higher in 2011 and 2012 due to the carryover effect. We expect
generation to rise at a 105% CAGR during 2010-12 on an attributable basis.

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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FOR INFORMATION PURPOSES.

Hyflux Ltd HYF SP NON-RATED


SINGAPORE / WATER UTILITIES CLOSE SGD3.13

WHERE IS THE STREET? Growth with clear focus


Consensus
Target Price (SGD) 3.56 ƒ Complete service line in water treatment.
EPS 2011 (SGD) 0.17 ƒ Municipal projects and MENA ensures growth.
EPS 2012 (SGD) 0.18 ƒ Joint venture with Mitsui to offer capital gain.
Positive Neutral Negative
ƒ Delay in Libyan projects potentially hampers earnings.
Market Recs. 5 4 1
Complete service line in water
KEY STOCK DATA & CONSENSUS EARNINGS
treatment
YE Dec (SGD m) 2008 2009 2010E Since its foundation as a small, water-
Revenue 554 525 598 treatment company in 1989, Hyflux has
Rec. net profit 59 75 80 now grown into a regional top player
Recurring EPS (SGD) 0.11 0.14 0.14 offering a comprehensive suite of services
in the water and renewable resources
EPS growth (%) 78.0 26.8 0.3
sectors. To date, Hyflux’s membranes and
Recurring P/E (x) 27.8 21.9 21.9
systems have been installed in more than
Dividend yield (%) 1.1 1.6 1.5 1,000 plants in over 400 locations across Daisy Zhang, CFA
+8621 6096 9025
EV/EBITDA (x) 28.4 19.0 17.6 the globe. daisy.zhang@asia.bnpparibas.com
Price/book (x) 5.5 4.5 4.3
Hyflux’s water business covers seawater
ROE (%) 22.0 22.6 20.3
desalination, water recycling, wastewater
Sources: Hyflux Ltd ; Bloomberg Consensus treatment and membrane bioreactor
(SGD) Hyflux Ltd (%) technology and portable water treatment. The renewable resources
4.00 Rel to MSCI Singapore 30
management business explores the utilisation of Hyflux’s membrane
technologies in various applications including: separation, concentration,
3.50 20
purification of manufacturing process streams and energy reclamation
10 (such as oil recovery and recycling).
3.00
0
2.50 (10) Municipal projects and MENA underpins growth
2.00 (20) In 1H10, Hyflux’s revenue increased 9% y-y to SGD241.7m while net
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 profit rose 9% y-y to SGD33.7m. The growth was mainly attributable to
the progress of its desalination project in Magtaa, Algeria. With this, the
Share price performance 1 Month 3 Month 12 Month Middle East and North Africa (MENA) region now makes up 77% of total
Absolute (%) (0.9) (0.3) 4.3 group revenue. Municipal sales continue to be the key driver, contributing
Relative to country (%) (1.3) (4.9) (10.0) 86% of the total revenue, the same as in the corresponding period last
Next results November 2010 year. Gross and net margin in the 1H10 remained at 42% and 14%,
Mkt cap (USD m) 1,372 respectively, similar to the same period last year.
3m avg daily turnover (USD m) 2.2
Joint venture with Mitsui & Co to offer capital gain
Free float (%) 68.5 On 2 August, Hyflux and Mitsui & Co announced a new proposed 50:50
Major shareholder Ooi Lin Lum (31%) joint venture (JV) called Galaxy Newspring Pte Ltd. Initially, the JV’s
12m high/low (SGD) 3.77/2.68 project portfolio will comprise the four water treatment plants acquired
Source : Bloomberg directly from Hyflux’s wholly-owned subsidiary, Spring China Utility Ltd,
for USD53.1m. This transaction should be positive for Hyflux because it
should recognise about SGD6m in capital gains and receive about
SGD71.9m in cash, which it could recycle back into the business,
enabling the company to bid for new projects. Furthermore, the set up of
the JV lays the foundation for accelerated future growth in China.

Projects in Libya misses schedule


With continued delays on the potential SGD1.2b worth of projects from
Libya, the company has removed guidance on the expected timeline, but
said that it is still in talks with the counterparty. The absence of the
Libyan projects would be felt in 2011 and 2012.

WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.

26

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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA HYFLUX LTD 28 OCTOBER 2010

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: We do expect the total capital expenditure on desalination projects to rise


with the increasing number of new projects. Through 2010 to 2015, we expect our
capital expenditure on desalination projects to be in the range of SGD8b to SGD20b
range. The largest share will be spent on SWRO, followed by MED, MSF and other
membranes. The capital expenditure will increase from SGD8b in 2010 to steadily
reach SGD20b in 2015.

Q2: Future geographic expansion: A large portion of current revenue is generated


from the MENA region. Looking forward, is there any other region the company would
particularly prioritize?

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?

Answers: Regard to the renewable resources business, we have several initiatives


including: development of membrane applications in resource recovery, waste
recycling and energy reclamation, including applications such as used oil recovery
and recycling; development and commercialisation of specialty materials, such as L-
lactic acid from natural renewable resources; and separation, concentration and
purification treatments for manufacturing process streams.

27
2 BNP PARIBAS
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

ZhongDe Waste Tech ZEF GR NON-RATED


HONG KONG / WATER UTILITIES CLOSE EUR13.50

WHERE IS THE STREET? Turning waste to treasure


Consensus
Target Price (EUR) N/A ƒ Business based on waste processing.
EPS 2011 (EUR) N/A ƒ Shifting toward large-scale, waste-to-energy projects.
EPS 2012 (EUR) N/A ƒ 2Q performance starts to pick up.
Positive Neutral Negative
ƒ Datong EPC project.
Market Recs. N/A N/A N/A
Business based on waste
KEY STOCK DATA & CONSENSUS EARNINGS
processing
YE Dec (EUR m) 2008 2009 2010E The ZhongDe Group is now active in the
Revenue 46 40 N/A field of waste-to-energy EPC (Engineering,
Rec. net profit 22 6 N/A Procurement and Construction) and BOT
Recurring EPS (EUR) 1.73 0.44 N/A (Build, Operate, Transfer) projects and is
a manufacturer of mass-burn units in
EPS growth (%) 17.7 (74.6) N/A
China. The company’s name: “Zhong” –
Recurring P/E (x) 7.8 30.7 N/A
from the Chinese words for China and
Dividend yield (%) 1.1 1.1 N/A “De” – the abbreviation for Germany, Daisy Zhang, CFA
+8621 6096 9025
EV/EBITDA (x) 2.7 6.7 N/A reflects the company’s ambition to daisy.zhang@asia.bnpparibas.com
Price/book (x) 1.4 1.4 N/A achieve German technology standards
ROE (%) 19.8 4.5 N/A
and Chinese pricing strategies in the
delivery of global services. Since 1996,
Sources: ZhongDe Waste Tech ; Bloomberg Consensus
the ZhongDe Group has completed
(EUR) ZhongDe Waste Tech (%) approximately 200 waste- disposal projects in about 13 provinces in
18 Rel to MSCI Hong Kong 50 China, of which more than 120 projects have been completed in the last
40 three years.
16 30
14
20 Strategic shifts, 2Q performance picks up
10 In the first quarter of 2010, revenues fell from EUR10.9m to EUR3.7m,
12 0
representing a decrease of 65.9% vs the same period in 2009. The main
(10)
10 (20) reason is that the company focused on large-scale, waste-to-energy
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 facilities, because the small- to medium-size incinerators market is yet to
recover in China. Because the large-scale, waste-to-energy,
Share price performance 1 Month 3 Month 12 Month construction-in-progress projects are located in North China, the
Absolute (%) 2.0 2.3 15.4 company had to interrupt construction work on large-scale projects during
Relative to country (%) (2.5) (3.3) (1.0) the extremely cold weather conditions in the first quarter of 2010 and
Next results November 2010 over the Chinese Spring Festival vacation. The operating performance
Mkt cap (USD m) 242 was much better in 2Q10 than in 1Q10. It was also better than the
performance in 2Q09. In 2Q10, ZhongDe successfully realized a net
3m avg daily turnover (USD m) 0.1
profit. Revenues increased 15% in 2Q10 to EUR11.3m. This increase
Free float (%) 38
was driven by BOT and EPC projects. Meanwhile, the company is also
Major shareholder CHEN Zefeng (51%) focusing on the marketing and negotiation of potential waste-to-energy
12m high/low (EUR) 17.85/10.83 project contracts.
Datong project regarded as a model green plant in
Source : Bloomberg

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
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
RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY - http://bg.panlv.net
FOR INFORMATION PURPOSES.

DAISY ZHANG, CFA ZHONGDE WASTE TECH 28 OCTOBER 2010

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?

Answers: Order intake increased significantly from EUR1.1m in 2Q09 to EUR25.5m


in 2Q10. The main reason for the increase was the company signing a new EPC
contract with Shouguang Fuyuan Waste to Power Co, Ltd in 2Q10, and the total
contract value was RMB270m (EUR29.8m using average exchange rate for 1H of
RMB9.0678) including tax.

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:

Ongoing development of incineration techniques such as:

ƒ improving pyrolytic incinerators for household waste with fluctuating heat values;

ƒ matching pyrolytic processes to the incineration of waste generated in the


aviation industry (aviation waste);

ƒ improving the performance of gas processing;

ƒ improving waste feeds; for example pre-sorting waste to improve the quality of
waste mixes as this accelerates waste incineration.

A small research team is currently working on the long-term development of new


methods for enriching and purifying gas for generating power.

The ZhongDe Group also considers it of prime importance to continuously gauge and
improve the effect of incinerators on the environment.

29
2 BNP PARIBAS
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DAISY ZHANG, CFA CHINA POWER 28 OCTOBER 2010

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30
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DAISY ZHANG, CFA CHINA POWER 28 OCTOBER 2010

DISCLAIMERS & DISCLOSURES

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.
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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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