Suntien released 2Q20 operating performance. Overall performance was stable, with retail gas rapid growth as a highlight in 1H20, demonstrating Suntien’s operating resilience. Share price was quite volatile after Suntien-A’s listing. However, we remain confident that southbound trading will stabilize share price and gradually boost valuation. We expect 1H20 earnings to be soft, and market is well aware. We think the next catalyst would be re-declaration of FY19 dividend during 1H20 results announcement. Maintain BUY with TP unchanged at HK$2.84.
- 1H20 power generation/sales increased 4.48%/4.13% YoY. Wind power generation was 4,990GWh, up 4.42% YoY, which was slower than our full year growth projection of 12.8% YoY as curtailment rate experienced a hike caused by COVID-19. Solar power generation increased 8.0% YoY to 92.7GWh. Average on-grid tariff had a surprising increase of 2.28% YoY to RMB0.47/KWh during 1H20, according to Suntien’s announcement. We estimate the power generating segment revenue to increase 7.0% YoY in 1H20, while we trim wind utilization hours from 2,375 to 2,300 based on operating updates. We now project FY20E overall power generation to increase 9.4% YoY.
- Retail gas sales performed surprisingly good. 1H20 gas sales volume reached 1,870mcbm, up 13.3% YoY. Retail gas volume was a highlight with a YoY increase of 29.7% in 1H20, and growth pace was accelerating as retail gas volume surged 34.3% in 2Q20. The outstanding retail gas performance was attributable to Suntien’s gas pipeline extending service coverage to reach more industrial retail clients, in our view, especially the newly commenced Gaoyi-Zanhuang pipeline connecting several ceramic users. We expect wholesale gas price to decline, as Hebei government directed a 5% cut on pipeline transmission fee in 1H20. The impacts could be partially offset by higher margin retail gas sales. But given that wholesale gas still accounted for majority of Suntien’s gas sales volume, we still expect the gas segment to suffer short term earnings impact.
- Earnings to pick up in 2H20. We think Suntien has delivered quite resilient operating performance under the backdrop of pandemic. We estimate Suntien’s 1H20E earnings to decline 9.2% YoY, but we think market is aware of the potential earnings decline from the Company’s preliminary earnings 1H20 projection after A-share listing. Considering the recovery outlook from wind curtailment rate and pipeline transmission fee, we expect Suntien’s earnings to pick up growth in 2H20E. Our TP remains unchanged at HK$2.84. We think potential re-declaration of FY19 dividend could be a catalyst. Maintain BUY.
