CLY released 1H20 operating performance. Total power generation increased 2.4% YoY in 1H20, of which wind power generation delivered 6.2% YoY growth. We think overall operating performance was largely on track. For earnings performance, we estimate 1H20 net income to increase 7.3% YoY, and we expect earnings growth to accelerate in 2H20 on the back of 1) wind capacity addition, 2) stable operating performance, 3) improving coal costs, and 4) significant improved financial costs. We raised CLY’s TP by 16.5% to HK$5.51 per share. Maintain BUY rating.
- 1H20 operating performance on track. Wind power generated 22.78TWh, up 6.2% YoY; coal-fired power generated 3.97TWh, down 13.4% YoY; other renewables generated 480GWh, down 29.4% YoY. We think CLY’s wind power was on track with our FY20 growth projection of 8.2%, while coal-fired power and other renewables segments were lagging behind. We trim FY20 utilization hours of coal-fired power and other renewables by 100/400 hours to 4,700/1,600 hours to reflect 1H20 operating updates. Overall, we think CLY’s 1H20 performance was largely on track.
- Improving fundamentals from coal and financial costs. We think cheap coal price in 1H20 helped compensate utilization hours decline in the coal-fired power segment, with unit fuel costs declined by ~10% in 1H20. Other than that, we also observed significant decline in finance costs. Recent new issue of ultra short-term debentures declined ~100bps in costs comparing to 4Q19, and CLY also adjusted 2017 green bond coupon rate down from 4.9% to 2.5%. We think CLY’s overall costs of financing can be reduced by at least 50bps in FY20, and that will help boost earnings performance.
- 1H20 earnings to increase 7.3%. We estimate 1H20 earnings to reach RMB3,312mn, up 7.3%, based on operating updates and assumptions revision (details in Figure 3). We expect earnings growth to accelerate in 2H20, as most of costs saving from financing will come effective in 2H20. We raise FY20-22E EPS by 5.1-9.1% mainly on improving financial costs structure, and our estimates are 5.8%/17.3%/26.1% higher than consensus.
- Raise TP to HK$5.51. We believe market sentiment is shifting stronger on 1) privatization speculations, and 2) improving fundamentals, despite the fact that renewables subsidy issue showed no improvement. Our revised DCF TP is raised by 16.5% to HK$5.51. Maintain BUY.
