Company Reports

We cut our fair value estimates of China Longyuan and Datang Renewable by 23% and 15%, respectively, to HKD 7.60 and HKD 1.62 per share to account for their weak first half. Overall, we expect to see slower earnings growth due to rising curtailments and lower tariffs. Consequently, we reduce our 2024-26 earnings forecasts for Longyuan by 22%-30% and for DR by 6%-24%. After the revisions, we think DR is overvalued, given its poorer asset quality that will continue to see higher curtailment risk. Meanwhile, Longyuan is still undervalued—although we think its recent run of underperforming expectations could sideline investor interest in the near term. Progress on subsidy settlements remains slow, but we expect improved collection in the second half, in line with the historical trend.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 84% of total installed capacity as of the end of 2023, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 9% per year, lagging industry average of 19%.

The year-to-date share price performance of China utilities under our coverage have generally staged a strong recovery since May, given improving sentiment in the Hong Kong equity market and their cheap valuations. In addition, the market is expecting more positive policy measures from the upcoming third plenary session in July. We have seen the National Energy Administration calling for increased investment in the national grid recently to avoid curtailment risk on the back of the significant rise in renewable energy capacity. While we are positive about this in the longer term, we caution that the concerns about slow subsidy settlements and falling tariffs will remain in the near term.

We cut our fair value estimate for no-moat Datang Renewable to HKD 1.90 per share from HKD 2 after factoring in a lower average tariff, which reduced our 2024-26 earnings estimates by an average of 2%. Based on a 2024 price/book ratio of 0.3 times and price/earnings of around 4.3 times, DR looks inexpensive. However, its high debt remains a concern, and we think DR is fairly valued. Our top pick in renewable energy is China Longyuan, given its leadership position and strong execution record. With slow subsidy settlements and concerns about declining tariffs, we believe renewable energy stocks' price performance could remain lackluster in the near term.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 84% of total installed capacity as of the end of 2023, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 9% per year, lagging industry average of 19%.

We cut our fair value estimate for Datang Renewable, or DR, to HKD 2.00 per share from HKD 2.94 to account for worse-than-expected 2023 net profit, which fell 24% year on year to CNY 2.2 billion. The fall was mainly due to impairment losses, higher operating costs, and lower tariff. As a result, we cut our 2024-26 earnings forecasts by 17%-23%. With shares trading at a 2024 price/book ratio of 0.3 times, we think DR is undervalued. However, we think investors will stay on the sidelines until the firm’s tariff stabilizes and there are signs of quicker subsidy settlement by the government.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 84% of total installed capacity as of the end of 2023, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 9% per year, lagging industry average of 19%.

Year-to-date share price performance of China utilities under our coverage was generally lackluster, and we believe the market remains concerned about slow subsidy settlements and falling tariffs. We maintained our fair value estimates per share for CGN Power (HKD 2.24); China Longyuan (HKD 12.00); China Resources Power, or CR Power (HKD 25.00); China Suntien Green Energy (HKD 3.66); China Three Gorges Renewables, or CTGR (CNY 4.68); and Datang Renewable, or DR (HKD 2.94). Our preference among the renewable players is China Longyuan given its strong capacity growth and leadership position in the sector. Meanwhile, CR Power is our pick for investors who like exposure to coal-fired power, as the recovery in profitability for the thermal power segment should continue in 2024.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 89% of total installed capacity as of the end of 2022, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 8% per year, lagging industry average of 20%.

We keep our fair value estimate for no-moat Datang Renewable, or DR, at HKD 2.94. Trading at a 2024 price/book ratio of 0.3 times and 2024 price/earnings of around 4 times, we believe DR is undervalued. We expect net income to grow at a CAGR of 10.7% during 2022-27, mainly attributable to rising installed capacity. Nonetheless, our top pick for the renewable energy players is China Longyuan, given the firm’s leadership position and strong execution track record. Subsidy settlement has been slow, and we believe positive development on this front could help to rerate the sector. We lower DR’s Morningstar Uncertainty Rating to High from Very High as we think the firm will benefit from the government's commitment to support the renewable energy industry.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 89% of total installed capacity as of the end of 2022, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 8% per year, lagging industry average of 20%.

We cut our fair value estimate for no-moat Datang Renewable, or DR, to HKD 2.94 from HKD 3.38 to factor in the depreciation of the Chinese yuan and higher tax rates. We also increase our midcycle accounts receivable days to 210 from 180, given the slow subsidy collection. We think the shares are undervalued, with 2023 price/earnings of around 5 times and a price/book ratio of 0.5 times based on the Aug. 29 closing price. We expect net income to grow at a five-year compound annual rate of 10.7% during 2022-27, mainly attributable to rising installed capacity.

We keep Datang Renewable’s, or DR’s, fair value estimate at HKD 3.38 per share following its largely in-line first-quarter 2023 results. Trading at a 2023 price/book ratio of 0.6 times and 2023 price/earnings of around 6 times, we believe there is still upside for DR’s share price performance. However, we think a higher margin of safety is warranted, given DR’s aggressive expansion plan, which could stretch its financial position. Our top pick in the sector is China Longyuan, given the firm’s leadership position and strong execution track record.

We raise our fair value estimate for Datang Renewable, or DR, to HKD 3.38 from HKD 2.98 to account for better-than-expected 2022 results. 2022 net profit rose 93.8% year on year to CNY 2.9 billion, mainly attributable to lower impairment losses, better operating efficiency, a CNY 322.7 million compensation from wind turbine suppliers, and a drop in income tax expenses. Trading at 2023 price/earnings of around 6 times and price/book ratio of 0.6 times, we think the shares are currently undervalued, but we think a higher margin of safety is warranted, given DR’s high gearing. We expect recovery in profitability and positive development on subsidy settlement to support share price performance.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 89% of total installed capacity as of the end of 2022, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 8% per year, lagging industry average of 20%.

We raise our fair value estimate for Datang Renewable, or DR, to HKD 2.98 from HKD 2.74 to account for the better-than-expected generation volume in 2022 and the appreciation of the Chinese yuan. We think the shares are fairly valued now and positive development on subsidy settlement will be a catalyst for the firm.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 92% of total installed capacity as of the end of 2021, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 9% per year, lagging industry average of 22%.

We keep our fair value estimate for Datang Renewable, or DR, at HKD 2.74 per share. Trading at a 2022 price/book ratio of 0.5 times and 2023 price/earnings of around 7 times, we believe DR presents decent upside . However, we think a higher margin of safety is warranted, given DR’s aggressive expansion plan, which could stretch its financial position. Our top pick in the sector is China Longyuan, given the firm’s leadership position and strong execution track record. We believe positive development on subsidy settlement will continue to be a catalyst for the sector, but we think state-owned enterprises will receive priority treatment over private players. Hence, although Xinyi Energy—a private solar farm developer—is undervalued now, the delay in subsidy settlement and the rising interest rate concerns would continue to cap its near-term performance.

Datang Renewable is one of China’s earliest renewable fuel source independent power producers. With wind power accounting for about 92% of total installed capacity as of the end of 2021, DR is poised to benefit from China’s plans to cut carbon-based pollution and ambitious targets in renewable power development. However, the company’s high financial leverage has been hindering its growth. Over the past 10 years, DR’s wind capacity rose at an average of 9% per year, lagging industry average of 22%.

We've raised our fair value estimate for no-moat Datang Renewable to HKD 2.74 per share from HKD 2.62 on the back of quicker subsidy collection and better cost management. We think the shares are undervalued, with 2022 price/earnings of around 7 times and price/book ratio of 0.4 times based on the Aug. 31 closing price. We expect adjusted EBITDA to grow at a five-year compound annual rate of 13.9% during 2021-26, mainly attributable to rising installed capacity. The firm still expects to add 2.0 gigawatts of renewable capacity in 2022 (it added 849 megawatts in 2021).