Suntien beat our expectation with flat 1H20 earnings, indicating its resilient performance. In view of massive CAPEX for LNG terminal investments, the Company plans to raise additional capital through A-share market after 6 months from IPO, while mgmt. also intends to maintain stable dividend payout to stabilize investors’ expectation. Looking ahead to 2H20, we expect earnings growth to pick up on additional wind capacity and normalization of gas transmission fee. Valuation lacks catalyst in near term, but we remain positive for attractive dividend yield. Maintain BUY with TP unchanged at HK$2.84.
- 1H20 earnings was flat. Net profit (deducted perp. distribution) was RMB908mn, down 2.9% YoY, beating our estimate by 6.9%. Results beat was mainly on better-than-expected administrative expenses and other gains and gross profit margin decline of only 1.6ppt to 28.7%, which was 1.5ppt higher than our estimate. Revenue and other major expenses were largely in line. We think Suntien has proved its resilience through 1H20 results.
- Pending to raise more funding for CAPEX acceleration. Suntien had RMB4.9bn CAPEX in 1H20, mostly for wind capacity addition. Mgmt. maintains full year RMB10bn CAPEX budget unchanged, and expects most of funding in 2H20 will be spent on Tangshan LNG terminal. The Company added 321MW wind capacity in 1H20, and expects to have another 180MW wind farm to commence operation in 2H20. For Tangshan LNG terminal, we expect the Company to invest another RMB25bn in 2020-22E, which is likely to bring pressures on cash flow. Mgmt. plans to raise capital through A-share placement, and we observed the Company had entered storage tank cooperation to share investment costs.
- Maintain stable dividend payout. Suntien intends to maintain dividend payout ratio to stabilize investors’ expectation (35-41% in 2017-19). Based on 35% payout assumption, we estimate FY20E dividend yield at 7.0% at current share price, which we see attractive among wind and gas peers.
- Earnings to pick up in 2H20. Mgmt. guided 10TWh power generation and gas volume growth to increase 10% YoY with slight improved gas dollar margin outlook in 2020. We revised our FY20-22E EPS slightly by 0.6%/-1.8%/-2.0% to reflect operating update. We maintain our view that earnings will resume growth track on the back of additional wind farm contribution and normalization of gas transmission fee.
- Maintain TP at HK$2.84. After A-share listing, inclusion into Southbound trading, and declaration of FY19 dividend, we think Suntien is running out of short-term catalyst. Our view shifts to longer-term growth. Suntien is still undervalued for its resilient earrings and attractive dividend yield, as well as long term growth potential driven by its LNG terminal business. Maintain BUY.
