Suntien announced its Tangshang LNG terminal project and auxiliary “Caofeidian – Baodi” pipeline were approved by NDRC. The total investment for Tangshan LNG terminal and Cao-Bao pipeline will be RMB25.4bn and RMB6.4bn respectively. Tangshan LNG terminal will be a subsidiary of Suntien with long term capacity reaching 12mn tonnes per year. We believe it will be a solid step for shifting business to natural gas distribution in Hebei province, and a warm up for the Company’s upcoming A-share listing.
- Project Phase 1 will commence operation by end-2022. The LNG terminal will have 3 phases of construction, with annual LNG processing capacity of 5/5/2mn tonnes per year and commence target timeline at 2022/2025/2030. We estimate phase 1 capacity will offer a maximum of 6.8bcm additional gas supply to Hebei Province, 2.6 times of Suntien’s gas sales volume in 2018. Cao-Bao pipeline will be an ancillary pipeline connecting new LNG terminal, with gas transmission capacity of 11.2bcm and same construction timeline as terminal phase 1 project.
- Potential plan to introduce strategic investors to the LNG Terminal. At current stage, both terminal and pipeline will be fully owned by Suntien. Mgmt. disclosed CAEPX budget for phase 1 terminal and pipeline costs RMB8.1bn and RMB6.4bn respectively, and the Company plans to invest 30% equity funding in 2020-22 with total RMB1.3-1.4bn equity investment per year. Suntien will raise the remaining funding through social capital, and mgmt. would also consider introducing strategic investors to the LNG terminal and pipeline. We expect that will ease Suntien’s financial burden from such large scale project investment.
- Optimistic project return outlook. With reference to Suntien’s existing investment to Jingtang LNG Terminal (attributable 11% shareholdings), we are optimistic on returns from Tangshan terminal. Jingtang Terminal made profit in the second year after commencement, and earned 21.7%/26.9% ROA/ROE in 2018. Though we believe construction costs will be higher, we still have optimistic return outlook once the terminal ramp up operating leverage along with rapid gas consumption growth in Hebei.
- A solid shift towards gas distribution business. Other than raising gas segment CAPEX from RMB800mn to RMB3bn in FY21E, we kept our FY19-21E financial forecasts unchanged. Our STOP TP remains HK$2.74 per share. Suntien is trading at 4.8x FY20E PER with 7.5/8.4% FY19/20E dividend yield. The valuation reflects only wind operators multiple. We expect Suntien will be re-rated once its business shift is recognized by the market. Maintain BUY.
