CLY released quarter results. 9M20 net profit after perpetual interest distribution was RMB3,718mn, up 11.7% YoY, on track with our full year projection. Capacity installation was above 1.2GW. Mgmt. intended to boost capacity target up from 2.3GW to 2.5GW in 2020 to secure more high return projects. For recent subsidy policy update, mgmt. thought reasonable utilization hours would have mild impact on existing projects’ return, and admitted that the policy would likely lead to a solution for subsidy shortfall. We think the solution will come shortly. Reiterate BUY rating with TP unchanged at HK$7.38.
- 9M20 results on track. 3Q20 revenue read slight declined by 2.5% due to lower tariff from coal-fired power and power generation decline from other renewables segment. 9M20 revenue was flat. 9M20 Operating expenses was down 3.0% YoY due to less coal fuel and trading costs, and finance expenses maintained declining trend at 7.5% lower YoY. After deducting perpetual interest distribution, 9M20 net profit of RMB3,718mn was up 11.7%, on track with our 2020E earnings growth projection of 11.7%.
- Subsidy collection was RMB3bn. According to mgmt., CLY collected RMB3bn subsidy receivables in 9M20. The figure was significantly accelerated comparing with 1H20 results briefing. For recent subsidy policy update, mgmt. addressed that a subsidy cap is now fixed by end-2020, which could be seen as a meaningful sign for a total solution for renewable subsidy funding shortfall. Mgmt. expected subsidy collection to remain slow at RMB3.5bn in 2020E, but saw chance for accelerating collection from 2021E.
- Renewables capacity to double by 2025. CLY set ambitious target in 14th FYP to accelerate wind and solar projects investments. The Company expected renewables capacity to reach 40GW by 2025, implying capacity to double from existing level. Other than several offshore wind farms, all the new onshore wind and solar projects commence operation from 2021 will be grid-parity. We expect CAPEX budget to maintain high in the coming few years.
- Reiterate BUY on silver lining for subsidy collection. We think mgmt.’s comment reaffirms our view that a solution for subsidy shortfall will come shortly, which will boost market sentiment and trigger sector re-rating. We maintained our earnings forecasts unchangecd, and reiterate BUY rating on the Company. Our TP is maintained at HK$7.38 per share, reflecting 8.8x/7.6x 2021/22E PER.
