CLY’s 1H20 results were in line with our estimates. Net profit was resilient despite impacts from COVID-19. We did some estimates for potential impacts on subsidy collection rate for CLY (page 5-7). We think special green bond is feasible. Once the plan comes true, it will save CLY interest costs and boost free cash flow. Our earnings forecasts remain largely unchanged, but we factored in some expectation for accelerating subsidy collection. We raised CLY’s TP by 34.0% to HK$7.38 per share.
- 1H20 earnings in line. CLY’s revenue increased 1.3% YoY to RMB14.2bn, matching with power generation growth. Revenue from wind power was up 6.9% while coal-fired power revenue declined 11.3% due to drag of COVID-19 on power generation, which declined 13.4%. Operating expenses declined 0.9% YoY, supported by lower fuel costs and coal sales costs, but a boost from repair and maintenance. Financial costs declined 2.3% YoY to RMB1.73bn despite the fact that CLY’s borrowings increased RMB5.5bn to RMB83.4bn (+7.1% YoY). Effective tax rate was 17.8% in 1H20, 1.3ppt higher than our estimates. Net profit (deducted perp. interests) was RMB3,210mn, up 4.0% YoY and in line with our estimates.
- Subsidy receivables climbed high to RMB22.8bn. The account had increased RMB5.8bn during 1H20, while CLY received only RMB532mn during the period. For FY20, mgmt. expects to collect only RMB3.5bn based on MoF’s subsidy distribution budget, implying the receivables figure will be significantly higher (likely another RMB2bn) if nothing changes. We think the subsidy receivables issue has become a problem that is not negligible, and market has placed key fundamental focus on solving the issue.
- Raising capacity/CAPEX target. Mgmt. raised FY20 capacity addition target from 2.15GW to 2.3GW on smooth construction progress, CAPEX budget also increased from RMB19.3bn to RMB21.1bn accordingly. Other than that, CLY also accelerated development pace for Solar projects through winning 460MW solar farm projects through tariff bidding. CLY guided 2GW capacity addition in FY21.
- Raise TP by 34% to HK$7.38. We roll over DCF valuation to FY21E with a base TP of HK$6.00. We also factored in another HK$1.38 per share for an expectation that CLY will collect RMB10bn from outstanding subsidy receivables. Our TP is raised by 34% to HK$7.38, reflecting FY20/21E 11.0/9.1x PER and 1.03/0.94x PBR. Maintain BUY.
