Suntien posted 3Q20 results with a net loss (deducted perp. distribution) of RMB25mn. 9M20 earnings was RMB884mn, down 12.0% YoY. 3Q20 results miss was mainly dragged by gas dollar margin squeeze due to fierce competition with LNG market supply, while the commencement of operation of several new wind farms in slow wind season also boosted overall depreciation costs. Suntien’s share price suffered a sharp decline after posting 3Q20 results. With reference to the Company’s historical performance, 3Q is traditional low season for both wind power and gas sales business. We think the market had overreacted to the quarter results. Suntien now trades at only 4.4/3.7x FY20/21E PER, but offers attractive yield at 7.9% for FY20E. We cut Suntien’s TP to HK$2.50. Maintain BUY.
- 9M20 earnings declined 12.0% YoY. 3Q20 revenue growth was 1.2% only, unmatched with power/gas sales growth of 13.93%/6.36% respectively. Total operating costs surged 9.4% YoY during the quarter, which led to an operating loss of RMB65mn during the quarter. Other operating expenses were largely in line with our expectation. Aggregating 9M20 financial, Suntien recorded net profit (deducted perp. interests) of RMB884mn, down 12.0% YoY. The results came a bit surprising and missed our earnings projection.
- Gas dollar margin was squeezed due to fierce competition. Suntien’s wholesale gas price was cut by 5% (RMB1.10 cents) based on Hebei DRC’s requirement to mitigate COVID-19’s impacts. For retail gas sales, in view of fierce competition from extremely low costs LNG supply, the Company offers significant discount to retain industrial users. We estimate retail gas dollar margin discount could reach up to 15%, leading to significant decline of blended dollar margin from RMB0.332 to ~RMB0.28. Looking ahead to 4Q20, as LNG price jumped back to normal level, we expect Suntien to see some gas dollar margin recovery.
- New wind farm contribution to boost 4Q20 power generation. Mgmt. maintained 10TWh power generation guidance unchanged, with target utilization hours range 2,300-2,350. The Company also confirmed that wind capacity installation will exceed 500MW in view of smooth capacity installation progress. In 3Q20, new capacity commenced operation in slow wind season, leading to a surge in depreciation costs. In 4Q20, as the new capacity ramps up output, we expect wind power sector to resume normal and to contribute earnings growth.
- Valuation turned extremely attractive. After recent corrections, Suntien is trading at FY20/21E 4.4x/3.7x PER, while offering attractive yield at 7.9%/9.6% respectively. We think market overreaction on Suntien creates a good opportunity for accumulation. Our SOTP TP is cut to HK$2.50. Maintain BUY.
