We raised HDFX’s FY19E earnings slightly by 1.6% based on operating updates, and we expect FY19E earnings to surge 21.9% YoY, highest among HK listed wind operators. Due to disruption of COVID-19, we think HDFX’s performance will have uncertainties in 2020. Based on current valuation at distress value, however, we still believe HDFX is undervalued. Maintain BUY with TP unchanged at HK$2.00.
- FY19E earnings to surge 21.9% YoY. We revised HDFX’s FY19E earnings up slightly by 1.6% to RMB2,431mn (perp int. excluded) based on updated operating figures including nuclear power generation. Key earnings growth were driven by strong hydro power rebound and coal-fired power turn around. We think HDFX will have the highest earnings growth among peers in FY19E.
- Hydro power output surged 63.4% YoY. Hydro power generation resumed normal in FY19E. Utilization rebounded from a multi-year low of 2,331 hours in 2018 to 3,775 in 2019, according to our calculation.
- Coal-fired power earnings to rebound. Coal-fired power output down 8.5% YoY in 2019 due to a squeeze by hydro power. We expect the segment to experience a rebound in earnings contribution, however, backed by coal cost reduction. We expect HDFX to have unit fuel cost to decline by 10% in FY19E, which would likely help improve segment performance.
- Nuclear to suffer a drag from Sanmen Unit 2#. Sanmen Unit 2# suffered unexpected pump outage. Maintenance work lasted for most of the year in 2019. As such, we expect HDFX’s nuclear investment to suffer a drag from earnings contribution of RMB868mn in 2018 to RMB779mn in 2019, albeit Fuqing Nuclear refreshed record high power sales.
- 2020 Outlook with uncertainties. HDFX recorded power output dived by 18.5% in Jan and increased 7.1% in Feb, on a YoY basis. 2M20 power output still declined 7.3% YoY. In 2020, we think HDFX’s performance has high uncertainties as economic outlook is now in cloud.
- Valuation at distress level. Trading at FY19E only 0.44x PBR, we believe market is valuating HDFX at distress asset value. Though we think 2020 will be bumpy, we don’t expect the Company will meet financial difficulties given its well diversified power generating portfolios. Maintain BUY with TP unchanged at HK$2.00.
