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1、December 8, 2009China: Utilities: Power - IPPsOut of favor shouldnt mean off the radar; Buy Guodian, CRP (CL)Regulatory/commodities risks shouldnt rule out alpha generation We think the government will continue to slow down coal-fired power generation capacity growth and accelerate development of cl
2、ean energy in a world which is de-emphasizing carbon. We believe the government may try to rein in undesirable coal-fired capacity growth by delaying approvals of new coal-fired power plants and fuel cost pass-through when coal costs rise. We upgrade Guodian to Buy (from Neutral) and maintain Buys o
3、n CRP (C- List) and Yangtze as we think they can better weather coal price hikes.2010 tariff hikes/coal investments help mitigate rising coal prices Coal prices have risen faster than expected lately. We see further rises in 2010 due to: 1) rising coal demand as the economy recovers; 2) temporary co
4、nsolidation of small mines; and 3) tighter coal supply keeping priceshigh. Goldman Sachs now expects spot/contract prices to rise by 25%/15% yoyin 2010 (to Rmb750/t, Rmb600/t) and 2%/2% yoy in 2011. Adopting these and expecting coal use efficiency gain, we now assume IPP unit coal costs rise byKEY C
5、HANGESRating upgradeTo Buy from Neutral: GuodianRating downgradeTo Sell from Neutral: Huadian (A)To Neutral from Buy: Huadian (H)KEY ASSUMPTIONSTariffs (coal-fired): Rmb0.02 (inclusive 17% VAT) on May 1 and Nov. 1 (or an average 5% yoy in2010E and full-year impact of 5% yoy in 2011E). Unit coal cost
6、s: 16% yoy increase in 2010E and no change in 2011E.Utilization: 3% increase in 2010E and 2011Esame-plant utilization.VALUATION SUMMARY16% yoy in 2010E (previously flat) and remain flat in 2011.Stock 12-m targetP/E (X)Company Ticker rating price 2010E 2011EWithout tariff adjustments, we forecast suc
7、h coal cost hikes would result in a total net loss of almost Rmb1bn by about half of our coverage. Based on the above analysis, we think it is reasonable to assume two tariff hikes each of Rmb0.02 (inclusive 17% VAT) effective May 1 and Nov. 1, 2010 (average 5% yoy in 2010 and full-year impact of an
8、other 5% in 2011).We favor IPPs with natural hedges to coal and diversifying fuelCRP 836.HK Buy* Huaneng (H) 902.HK Buy Huadian (H) 1071.HK Neutral CPI 2380.HK Neutral Datang (H) 991.HK Neutral Yangtze Power 600900.SS Buy Guodian 600795.SS Buy Huaneng (A) 600011.SS Neutral Shenergy 600642.SS Neutral
9、 Guangdong Electric 000539.SZ Neutral Huadian (A) 600027.SS Sell Datang (A) 601991.SS SellHK$ HK$ HK$ HK$ HK$ Rmb Rmb Rmb Rmb Rmb Rmb Rmb21.006.002.402.303.6016.408.706.9012.008.003.504.3016 1025 1044 940 1143 1619 1919 1550 1923 2225 19132 28136 51Incorporating higher coal prices, tariffs and other
10、 smaller adjustments, we revise our stocks 12-month DCF-based target prices by -23% to +24% and2009E-2011E EPS estimates by -80% to +65%. We downgrade Huadian (A)to Sell from Neutral and (H) to Neutral from Buy on risk/reward.Theme 1: well-positioned coal mines profit from rising coal costs. We like
11、 CRP (Buy, CL) for its 2010 upside earnings risk to its Shanxi coal mines. Contrarily, we worry about downside risks to Datangs (Neutral) coal/ chemical projects as they lack clarity in terms of execution progress.Theme 2: higher non-coal fuel mix lessens earnings sensitivity to coal costs. We like
12、Guodian (Buy) and Yangtze Power (Buy) as their higher non-coal fuel mix results in lower earnings sensitivity to rising coal costs. Besides this, we think their hydro plants may benefit from the long-term trend of rising hydro power tariffs.* This stock is on our regional Conviction list.Up/downside
13、 risks to our DCF-based 12-month target prices:tariffs/utilization/coal costs different from our assumed levels.Source: Datastream, Company data, Gao Hua SecuritiesResearch estimates.Franklin Chow, CFA+86(21)2401-8923 | Beijing Gao Hua Securities Company LimitedThe Goldman Sachs Group, Inc. does an
14、d seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decis
15、ion. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.The Goldman Sachs Group, Inc. Global Investment ResearchTable of contentsSnapshot of changes in ratings, target prices, earnings estimat
