CLY delivered 1Q20 operating and financial performance in line with our estimates. We think share price may face short-term headwinds due to potential “reasonable utilization hours” to be introduced as subsidy calculation mechanism. We maintain our estimates and rating unchanged at the moment, as the concept is not yet confirmed and details are still missing. If the policy comes true, however, we think CLY will suffer impacts from project cash flow and returns.
- 1Q20 net profit increased 6.3% YoY. Revenue increased 1.3% YoY to RMB7,184mn, matching with power generation growth. Operating expenses read 5.8% YoY decline due to lower coal costs and trading. Deducting minority interest and perpetual interests distribution, net profit attributable to common shareholders was RMB1,930mn, up 6.3% YoY, accounting for 41.1% of our annual earnings estimates. We believe CLY’s 1Q20 results were in line with consensus and our estimates.
- 1Q20 operating performance in line. Wind power generated 11,612GWh, up 7.4% YoY. Coal-fired power generated 1,950GWh, down 24.0% YoY due to grid control for weak demand caused by COVID-19. Other power generation also read YoY decline by 41.0%. Overall, CLY’s total power generation in 1Q20 was 13,693GWh, up 1.0% YoY.
- Sufficient buffer for supply chain disruption. Mgmt. disclosed wind blade may subject to 1-2 months delay due to COVID-19’s impact to wind turbine’s global supply chain. Fortunately, CLY set sufficient buffer with target delivery schedule concentrated in Jun-Aug, implying limit impacts to its wind farm installation plan in 2020. Mgmt. was confident to fulfill 2.15GW new capacity target.
- Market concerns focus on reasonable utilization hours. MoF intends to introduce a “reasonable utilization hours” concept associated with renewable subsidy calculation. The Concept raised market concerns on altering project IRR and future subsidy cash flows expectation on existing project. Mgmt. thought the concept was not yet clear, and needed further policy details for a more comprehensive interpretation.
- Valuation at bottom range. We think market concerns had already factored in current valuation, and are likely to suppress share price in short term until the potential policy negative is cleared. We maintain our earnings forecast unchanged. TP is maintained at HK$4.73, maintain BUY.
