Recently, we have business update with VPower. IBO pipeline and Myanmar JV experienced some delay in 4Q20 due to increasing infections in Southeast Asia, while SI shipment maintained stable growth in 2020E. We trim earnings projection for 2020-21E by 28.9%/35.1% to reflect slower capacity addition pace as well as higher LNG purchasing costs. We expect VPower to still deliver rapid earnings growth of 78.3% in 2020E. Our DCF TP is cut by 26.9% to HK$4.00. Trading at 8.7x 2021E PER, we think VPower is at attractive valuation. Maintain BUY.
- Pandemic impacts emerged in 4Q20. As infection cases surged high in Southeast Asia countries (see Fig. 1), IBO pipelines had experienced some delay in Myanmar, Sri Lanka and Indonesia. Local electricity demand in those IBO services coverage area was also dragged, which may have caused output impacts for ongoing IBO projects. UK peak shaving project is also dragged by country lockdown measures as well as Brexit progress. We think VPower’s IBO pipeline will have 3-6 months’ delay, and we trim our pipeline releasing assumption at more conservative pace.
- Myanmar JV to boost profit growth. Though a little bit delay in capacity ramp up schedule due to COVID-19, we think the Myanmar JV is still progressing towards target. In Nov 2020, Aung San Suu Kyi and her National League for Democracy won the election again, which we think will further secure the Myanmar JV’s operation, since those 3 JV projects are important power supply source to the country. Other than the favorable election results, the JV also had a LNG floating storage unit (FSU) arrived in Myanmar in late Nov 2020, marking an important milestone of the JV. We trim down the JV’s share profit contribution by 25.9%/44.7% to HK$230/423mn in 2020/21E, based on more conservative utilization and LNG price assumptions.
- SI sales to accelerate. VPower signed distribution agreement with MTU for gen-set sales in China. The Company had realized stable growth track for SI sales revenue in the past few years. In view of increasing demand from data center, 5G station, marine gas turbine and renewables peak shaving units, we expect SI business to maintain its growing momentum. We expect SI sales to maintain low teens growth in 2020-21E.
- FY20E earnings to surge 78.3%. We trim earnings forecast by 28.9%-35.1% in 2020-22E mainly based on more conservative outlook due to pandemic impacts. We expect VPower can still deliver impressive growth, however, as Myanmar JV and new IBO projects started generating contribution. We expect the Company to have 78.3%/50.1% earnings growth in FY20/21E, and the Company will likely to have positive profit announcement come in shortly. Maintain BUY with DCF TP cut by 26.9% to HK$4.00.
