Suntien’s FY19 earnings increased 8.4% YoY, in line with our estimates. The Company didn’t announce final dividend with FY19 results release. Mgmt. explained 1) it was a decision based on CSRC’s requirements for A-share listing, and 2) the Company will distribute FY19 final dividend after A-share listing targeting in 3Q20 with ~40% payout ratio. We think market overreacted to the dividend delay (we estimated potential dividend yield of ~11%). Trading at only FY20E 3.2x/0.4x PER/PBR, we think Suntien is a conviction pick. Reiterate BUY with TP trimmed to HK$2.30 based on lower multiples for gas segment.
- Net profit increased 8.4% YoY. Revenue surged 19.7% YoY to RMB11,943mn, driven by 15.4%/21.8% YoY sales growth from wind and gas segment, respectively. Major expenses remained in good control, while other gains and other expense were significantly better than our estimates. Share profit from associates experienced decline by 25.8% due to Jing Tang LNG project contribution fall by ~RMB60mn. Net profit was RMB1,344mn, in line with our estimates, but 9.2% lower than consensus estimates.
- A-Share listing is top priority. Management suspended dividend distribution as to comply with CSRC’s listing rules. Mgmt. emphasized FY19 dividend will be delayed till A-share listing, and payout ratio will maintain with reference to past two years, implying ~40%. Suntien will submit FY19 audited earnings with other feedbacks to CSRC’s comments shortly after FY19 results announcement. Mgmt. set 3Q20 a target timeline for A-share listing.
- Conservative FY20 guidance due to COVID-19. Mgmt. expected 1) gas sales volume growth to slow from 23.0% in FY19 to 8-9% in FY20E due to virus outbreak, while 2) wind hours to remain relatively stable at range from 2,350 – 2,400 hours. With reference to history, we expect Suntien to perform better than guidance, and we estimate gas volume/power generation to increase by 11.1%/12.8% YoY in 2020. In a longer term period, we expect continues coal to gas conversion and new gas pipeline will boost gas sales and profit contribution.
- Conviction BUY at extremely low valuation. We expect Suntien’s will have resilient earnings performance in 2020, albeit economy of Hebei may suffer quite severe impacts from COVID-19. Trading at extremely low valuation at FY20E 0.4x PBR, we think the panic market had created perfect entry point. We believe Suntien’s A-share listing and future dividend payout expectation will help restore the Company’s valuation. Our SOTP TP is trimmed to HK$2.30 due to downward revision of gas segment multiple to 10x. Reiterate BUY.
