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1、 Please read carefully the important disclosures at the end of this publication. SECTOR UPDATE 7 May 2010 OVERWEIGHT Upgraded IPP Anticipating a hike in tariff CHINA/ HONG KONG Keith Li +852 2532 1110 - Upgrading to OVERWEIGHT; buy CRP and Datang. We upgrade our sector view from Neutral to OVERWEIG
2、HT. We think the hike in coal prices YTD has reduced IPPs profit margins at such an alarming level that a tariff hike has become inevitable and urgently needed. With the governments tightening economic policies, we expect some market interests to be diverted to defensive utility plays, including IPP
3、s. We expect the on-grid tariff to be raised by 5% in mid-10, which will significantly improve IPPs earnings prospectsand trigger the sectors outperformance. We revise up earnings and target prices of the five listed IPPs. We reiterate our OUTPERFORM call for CRP and raise its target price from HK$1
4、9.89 to HK$20.56. Although CRP has a low sensitivity to tariff hikes, it still looks more attractive with a 17% EPS CAGR in FY09-12, high EBITDA margin and a fast- growing coal portfolio. We also upgrade Datang and CPI from Neutral to OUTPERFORM due to our earnings upgrades. Datang is highly sensiti
5、ve to tariff changes and will be the key beneficiary of a tariff hike. Its SOP-based target price is raised from HK$3.00 to HK$3.72. CPI will see fuller benefits from a tariff hike next year when its new power plants are commissioned. We expect the tariff hike and the end of the drought in south-wes
6、tern China to act as catalysts. CPIs DCF-based target price is raised from HK$1.77 to HK$2.05. Maintaining power consumption growth forecast of 8%. Power demand has been strong YTD with power consumption rising 24% yoy in 1Q10. We expect the growth momentum to ease for the rest of the year on the ba
7、ck of last years high base, the absence of unusual weather (snowstorms in northern China in Jan 10) and the governments tightened economic policies aimed at cooling overheated sectors. We expect power consumption to grow at 3-4% in Apr-Dec 10, leading to 8% growth for 2010. Expecting a 5% tariff hik
8、e. High coal prices have placed pressure on the IPPs costs and have significantly squeezed their profit margins. The dark spread (i.e. the difference between tariff and unit fuel cost) has fallen to a level similar to 1H08, the period right before a tariff hike was allowed on 1 Jul 08. We expect tar
9、iffs to be lifted by 5% in mid-10, before the arrival of the summer peak in power consumption. Such increments have a limited impact on inflation and are acceptable to regulators. FY10-12 EPS estimates raised. We revise our FY10-12 EPS estimates for the five listed IPPs. Our revisions include (1) ra
10、ising this years spot coal price growth forecast from 10% to 15% to align with the high coal price YTD, and (2) anticipation a 5% tariff hike in mid-10. Datang and Huaneng have the biggest earnings upgrades of 13-37% due to their high sensitivity to tariff changes. Sector comparisons Target Core 3-y
11、r EPS P/BV ROE Div Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%) ticker Recom. (Local) (Local) (US$ m) CY2010 CY2011 (%) CY2010 CY2010 CY2010 China Resources 836 HK O 15.16 20.56 9,160 12.5 8.9 16.9 1.7 14.3 2.4 Huaneng Power - H 902 HK N 4.39 4.90 6,810 11.5 9.4 (0.1) 1.1 9.4 4.3 Dat
12、ang International 991 HK O 3.03 3.72 4,799 13.8 9.1 35.3 1.1 8.2 2.8 Huadian Power 1071 HK N 1.76 1.85 1,533 11.5 9.9 (8.8) 0.6 5.5 1.7 CPI 2380 HK O 1.72 2.05 1,130 12.4 8.3 1.4 0.6 4.9 2.6 Simple average 12.4 9.2 8.9 1.0 8.5 2.8 O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and T
13、S = Trading Sell Source: Company, CIMB Research 渐飞研究报告 - http:/ 2 Update Power consumption this year Strong power consumption in 1Q10. Chinas power consumption remained robust in 1Q10, growing 24.2% yoy. A key growth driver was the recovery of power consumption by heavy industries, which jumped 30.5
14、% yoy during the period. Heavy industries are major power consumers, accounting for 72% of the countrys total power consumption. The exceptionally high consumption growth was also due to last years low base as industrial activities were hit by the global financial crisis. Figure 1: Power consumption
15、 growth by users -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Jan- 09 Feb- 09 Mar- 09 Apr- 09 May- 09 Jun- 09 Jul-09 Aug- 09 Sep- 09 Oct- 09 Nov- 09 Dec- 09 Jan- 10 Feb- 10 Mar- 10 SectorPrimary Secondary industriesTertiary industries Residential Source: China Electricity Council, CIMB Research Maintai
16、ning power consumption growth forecast of 8%. With the exceptionally high 1Q10 numbers, we estimate full-year power consumption growth of 8%, implying a 3.7% yoy growth in the remaining nine months. We expect yoy power consumption growth to fall in 2Q-4Q10: (1) Power consumption growth recovered quickly in 2H09, setting a high comparison base for 2H10. (2) Despite the strong PMI so far this year, the governments tightening economi
