We expect CLY to suffer limited impact for wind power generation from COVID-19. For wind farm installation, however, we think installation rush is now facing uncertainties caused by construction delay, as whether Chinese government would extend the cut off timeline (onshore projects: Dec 31 2020) is not yet clear. As for capital market operations, we think CLY has privatization potential following HNR and CGN NE’s move, since CNH Energy Group has large scale of wind farm assets available for assets restructure. As such, we expect CLY to draw some market attention, which would likely sustain share price in a volatile market. We cut FY19E earnings by 6.5%. Maintain HOLD.
- FY19E seems like another flat year. We trim FY19E earnings by 6.5% to RMB4,104mn to reflect 1) higher-than-expected finance expenses; 2) significant declining share profit from associates; and 3) operating updates. Our projection is 1.8% lower than consensus FY19E EPS. It seems like another flat year with only 4.6% earnings growth, albeit that we expect CLY will recognize significant lower impairment loss.
- Short-term driver: privatization expectation. Guodian Group and Shenhua Group merged into CHN Energy in 2017. After the merge, CHN Energy has more than 35.9GW wind farm assets, indicating ~17GW potential wind farm assets of the corporation can be restructured with CLY for enhancing efficiency and streamlining corporate structure. Trading at only 0.7x PBR, CLY is unable to raise equity for new project development on one hand, and has hands tied by market expectation such as gearing control and dividend payout etc., on the other hand. After the merge is done from the corporate level, we think CHN Energy has motivation to move further to subsidiary assets consolidation, and that will likely sustain CLY’s share price, in our view.
- Capacity addition at risks. CLY planned to install at least 2GW wind farm in China. Virus outbreak has caused construction delay for new wind farm, while project cutoff time at 31 Dec 2020 will be critical for securing tariff for most of the projects. It is uncertain whether Chinese government would extend the deadline, which put project return for the rushing installing capacity at risks. Based on current COVID-19 control measures, we believe CLY would run 1.5 months behind overall construction schedule.
- Valuation rollover. We lift TP slightly to HK$4.73 based on DCF rollover to 2020. Maintain HOLD on CLY.
