中国燃煤IPPs：隧道尽头出现曙光

1、ChinaEquitiesElectric UtilitiesFinally, some light at the end of the tunnelChina coal-fired IPPsTHIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINAWith better visibility, we now believe the tariff for 2020 will be better than the market expectsEarnings recovery story continues, with potentially a

2、more sustainable outlook from new supply-side reformTurning positive. CRP our preferred pick: upgrade to Buy from Hold, new TP HKD15 for 38% upside; upgrade both HNP H/A and HDP H/A to Buy/Hold from Hold/ReduceNew tariff could be less negative than market expects: Although coal IPPs enjoyed another

3、year of earnings recovery in 2019, investors sold down their shares on concerns that the governments new tariff system would lead to a significant retreat in profitability this year. Based on our sensitivity analysis, the current coal IPPs valuation at the lowest level of the past 10 years implies t

4、he market has priced in more than 10% y-o-y decline in tariff in 2020. But with provincial governments gradually issuing their implementation plans for the new tariff system, we have better visibility and estimate a much lower 2-3%y-o-y drop in tariff for listed coal IPPs.Earnings recovery cycle to

5、continue this year: Unlike tariff, we expect unit fuel cost and utilisation to be on favourable trends for coal IPPs in 2020: 1) unit fuel cost to maintain its falling momentum, while 2) utilisation bottoms out amid retreating hydro output. These two factors can more than offset the weak tariff this

6、 year, we think, and deliver an average 16% growth in earnings, with sector ROE back to 8%.Latest supply-side pilot reform provides longer-term rerating potential: The governments recently announced initiative to consolidate coal power capacity will be an effective way to rebalance power demand/supp

7、ly, in our view. We estimate China could trim 14% of its current thermal power fleet, leading to the first decline of coal power capacity in history during 2021-22. There is likely to be a more sustainable earnings recovery of coal IPPs from better utilisation and tariff beyond 2020.Turning positive

8、 on coal IPPs from a more cautious stance previously. We believe the release of strong 2019 results in March could be a positive catalyst in the near term. In addition, increasing visibility on tariff going forward (from local news and 1Q19 results) should help confirm our thesis and remove the sect

9、ors share price overhang. Current dividend yields of 5-10% are also attractive to us. Within the space, CR Power is now our preferred pick for its liquidity, higher coastal province exposure and faster market-based power sales progress. We upgrade our rating from Hold to Buy and lift our TP to HKD15

10、 (was HKD11.5) for 38% implied upside. We also upgrade Huaneng H/A and Huadian H/A to Buy/Hold from Hold/Reduce (see table overleaf for target price changes).13 January 2020Daniel Yang* AnalystThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:daniel.h.yang.hk daniel.h.yang.hk+85

11、2 299 66976Evan Li*Head, Asia Utilities and Conglomerates ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:evan.m.h.li.hk evan.m.h.li.hk+852 2996 6619Yun Lin* Associate GuangzhouEmployed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualifie

12、d pursuant to FINRA regulationsDisclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Issuer of report: The Hongkong and Shanghai Banking Corporation LimitedView HSBC Global Rese

13、arch at:https: HYPERLINK / /China coal-fired IPPs: Comparative valuation tableTPUpside/Marketcap PE ROE PB Dividend yieldCompanyTickerCcyRatingPriceDownside(USDm)19e20e19e20e19e20e19e20eH-sharesCRP836 HKHKDBuy10.98 15.0037%6,8016.4x5.7x11.1%11.5%0.7x0.6x6.2%7.0%HNP902 HKHKDBuy3.90 6.1056%10,84211.4x

14、9.3x5.0%5.9%0.6x0.5x4.4%5.4%DTP991 HKHKDBuy1.48 2.1042%5,6078.9x7.2x5.4%6.4%0.5x0.5x7.6%6.9%HDP1071 HKHKDBuy2.84 3.9037%4,9017.6x6.6x6.1%6.8%0.5x0.5x6.6%7.6%CPI2380 HKHKDBuy1.66 2.1027%2,0966.4x4.8x7.4%9.6%0.5x0.4x7.8%10.5%A-sharesHNP600011 CHRMBHold5.59 5.600%10,84214.6x12.2x6.2%7.0%0.9x0.8x3.4%4.1

15、%DTP601991 CHRMBReduce2.48 1.90-23%6,80115.0 x12.0 x6.0%7.2%0.9x0.9x4.0%4.2%HDP600027 CHRMBHold3.63 3.60-1%4,90110.9x9.5x6.1%6.8%0.8x0.8x4.6%5.3%Note: CRP = China Resources Power; HNP = Huaneng Power Intl; DTP = Datang Power; HDP = Huadian Power Intl; CPI = China Power International Source: HSBC est

16、imates, Refinitiv. Prices as of 10 Jan 2020.Changes to our ratings and target prices TP Rating NameTickerCurrencyPriceNewOld% changeNewOldCRP836 HKHKD10.7215.0011.5030%BuyHoldHNP-H902 HKHKD3.886.104.4039%BuyHoldHNP-A600011 CHRMB5.595.604.0040%HoldReduceDTP-H991 HKHKD1.462.102.40-13%BuyBuyDTP-A601991

17、 CHRMB2.471.902.00-5%ReduceReduceHDP-H1071 HKHKD2.843.903.2022%BuyHoldHDP-A600027 CHRMB3.633.602.9024%HoldReduceCPI2380 HKHKD1.652.102.40-13%BuyBuySource: HSBC estimatesChanges to our EPS estimates New Old Change Company Currency2019e2020e2021e2019e2020e2021e2019e2020e2021eCRPHKD1.711.932.141.591.69

18、1.848%14%16%HNPRMB0.380.460.550.310.380.4025%22%37%DTPRMB2-10%-11%-2%HDPRMB0.330.380.410.280.370.3819%5%7%CPIRMB0.220.270.350.230.310.37-4%-12%-8%Source: HSBC estimatesHSBC estimates vs consensus HSBC New Consensus HSBC/Consensus Company Currency2019e2020e2021e2019e2020e2021e2

19、019e2020e2021eCRPHKD1.711.932.141.511.761.8813%9%14%HNPRMB0.380.460.550.360.420.457%9%21%DTPRMB920%5%13%HDPRMB0.330.380.410.320.380.425%0%-3%CPIRMB0.220.270.350.210.260.338%8%5%Source: Bloomberg, HSBC estimatesStock market has priced in a very bearish tariff for this yearCurre

20、nt trough valuation suggests investors are prepared for a sharp drop in profitability this yearwhich implies a more than 10% y-o-y decline in tariffDespite a decent earnings recovery in 2019 driven by falling coal prices, the share prices of coal-fired H-share IPPs dropped by an average of 18% over

21、the past year the worst performing sector within Chinas utilities space. This, in our view, was mainly due to market concerns on the tariff outlook this year since the NDRC announced it would introduce a new tariff system for 2020.With this, coal IPPs are trading at their lowest valuation levels in

22、the past 10 years in both A- and H-shares. Their average H-share forward PB ratio is now 2SD below mean, even lower than the period when the listed companies were barely breaking even. That said, investors are expecting a significant retreat in profitability this year, otherwise it would not be just

23、ified in view of the current earnings recovery cycle.Based on our sensitivity analysis, a decline in tariff of around 12% y-o-y would be required to drag the sector average ROE from 7% in 2019e to 3% in 2020e (around the same level as the bottom in 2017). Therefore, we believe the stock market has p

24、riced in a very bearish tariff scenario for the year.Coal IPPs are trading at the lowest valuations for the past 10 years despite current earnings recovery cycle-1SD PBmean PB+1SD PB1.501.301.100.900.700.500.3012Jan-13Jan-14Jan-15Jan-16Jan-17J 12 month fwd PB12 month fwd ROEJan-10Jan-11Jan-20%18%16%

25、14%12%10%8%6%4%2%0%an-18Jan-19Jan-20Source: Bloomberg, Company, HSBC estimatesOur sensitivity analysis implies current valuations have priced in a very bearish tariff assumption for 2020e2020e tariff (YoY)2020e average sector ROEComment-1%8.2%-3%7.3%Around the same level as 2019e-5%6.4%-7%5.4%-9%4.5

26、%-10%4.0%Around the same level as the bottom in 2011-11%3.5%-12%3.0%Around the same level as the bottom in 2017-13%2.5%-15%1.5%Source: Company, HSBC estimatesWe see a less negative tariff outlook than market expectationsWe believe the new “standard+ floating” tariff will be at similar level with the

27、 market- based tariffsleading to a 2-3% YoY decline in average tariff of coal IPPs this year less negative than current market expectationsMore visibility to remove share price overhang in the near termQuantifying the impact of the new tariff systemWith the NDRCs new coal power tariff system due to

28、come into effect in 2020, we now expect to see the following in listed coal IPPs power sales mix this year:20-30% power sold at the new tariff.50-60% under previous market-based arrangement (same as in 2019, as per NDRC).The remaining 10-20% power sold at the old benchmark tariff (for agricultural/r

29、esidential users).Around 10 provinces have released their implementation plan on the new tariff system so far, following the NDRCs guidance in October 2019. However, none of these provincial governments provides a detailed formula for the “floating component” in the new tariff. Instead, they are ena

30、bling electricity end users to negotiate and finalise the new tariff with IPPs directly. Without overly inflexible rules, the new tariff in our view should work in a similar manner to current marked-based power sales arrangements, and share similar discounts as the old benchmark tariff.The market-ba

31、sed tariffs of coal IPPs have stabilised at around a 10% discount to the benchmark tariff in 2018-19, which we expect to remain largely stable again in 2020e. We note good indications from two pilot provinces for market-based power sales, Guangdong and Jiangsu, which have recently finalised their ye

32、arly contracted direct power supply tariffs for 2020 at similar rate (exclusive of VAT) as in 2019. In view of the above, we forecast the new tariff system to lower listed coal IPPs average tariff by 2-3% y-o-y in 2020e, which is less than the stock market is currently preparing for in our view.In 1

33、Q19, we would expect to see our thesis above confirmed, with local news regarding how the new tariff system works and the actual downside. The release of 1Q results in April from listed coal IPPs should also provide better visibility on the tariff outlook. With this, we think the current share price

34、 overhang of coal IPPs could be removed gradually in the near term.Market-based tariffs are likely to stay stable in 2020Yearly direct supply contracted tariff (VAT exclusive) Discount to benchmark 2019202020192020Jiangsu0.320.32-5%-6%Guangdong0.350.36-10%-10%Source: Provincial governments, HSBCList

35、ed coal IPPs power sales mix100%90%80%70%60%50%40%30%20%10%0%50-60%50-60%20-30%10-20%40-50%2019e2020eMarket-based tariffNew standard+floating tariffOld benchmark tariffSource: Company, HSBC estimatesFalling unit fuel cost and recovery and utilisation could more than offset the impactof lower tariff

36、in coal IPPs earnings in 2020eListed coal IPPs can still see earnings recovery in 2020eThe issue of tariffs looks to us to be the only potential earnings drag for coal IPPs this year, as unit fuel cost and utilisation should both be on favourable trends. The thermal coal spot price was down 5% durin

37、g 2019 to RMB551/t. Assuming it stays at the current level throughout 2020, this implies an average of 6% y-o-y decline this year. As for the utilisation of coal IPPs, after seeing a significant decline last year, we expect it to bottom out in 2020, with a potentially mild y-o-y upside amid retreati

38、ng hydro output. Putting all these factors together, we forecast listed coal IPPs to continue to deliver positive earnings growth in 2020e, with average sector ROE recovering to around 8%, from 3% in 2017.Falling thermal coal price in ChinaEarnings recovery of the sector shouldcontinue in 2020e520 R

39、MB/t510500490480470460Jan-19Jun-19Nov-1910%5%0%-5%-10%-15%10%9%8%7%6%5%4%3%2%1%0%2016 2017 2018 2019e 2020e 2021e200%8.8%8.0% 1516150%100%50%0%-50%-100%China Thermal Coal Price IndexYoYROENet profit growth (RHS)Source: NDRC, HSBCSource: Company, HSBC estimatesHSBC assumptions on coal-fired IPPs2019e

40、 YoY2020e YoYHNPCoal power utilisation hour-6.0%2.0%Coal power tariff0.0%-2.6%Unit fuel cost-7.0%-5.0%CPICoal power utilisation hour-4.0%2.0%Coal power tariff0.0%-2.3%Unit fuel cost-2.3%-2.0%CRPCoal power utilisation hour-10.0%2.0%Coal power tariff0.0%-2.0%Unit fuel cost-7.0%-5.0%DTPCoal power utili

41、sation hour-6.0%2.0%Coal power tariff0.0%-2.5%Unit fuel cost-5.0%-4.0%HDPCoal power utilisation hour-4.0%2.0%Coal power tariff-1.0%-2.5%Unit fuel cost-3.5%-3.0%Note: CRP = China Resources Power; HNP = Huaneng Power Intl; DTP = Datang Power; HDP = Huadian Power Intl; CPI = China Power International S

42、ource: HSBC estimatesNew supply-side reform to bring more sustainable earnings recoveryChina aims to cut 3-4% coal power capacity in 2021eand possibly a further 7-10% in 2022eMore sustainable earnings recovery provides a rerating potential in the medium termThe governments latest initiative to cut c

43、oal power capacityTo boost the profitability of coal IPPs, the SASAC recently required the five largest power groups to first consolidate their coal power units in five northwestern provinces (Xinjiang, Qinghai, Ningxia, Gansu and Shaanxi), and then reduce their capacity in the region by one- quarte

44、r to one-third by end-2021 (around 3-4% of Chinas total thermal capacity by end-2021e).There is uncertainty around the implementation of this directive, and potential write-offs for power groups seem inevitable in the near term. But we believe this new government measure is a much more direct and ef

45、fective way to eliminate less competitive capacity, which reminds us of the successful de-capacity program in the coal mining sector in 2016.According to the Chinese government, such an effort can be introduced in another 11 provinces where coal IPPs are struggling to make a profit. If this goes liv

46、e in 2021, we estimate it can further trim 7-10% of coal power fleets in the country. Whats more, we expect China to continue restricting new builds of coal power in 2021-22, the first two years of the 14th FYP period.Considering all these factors, it is possible that China will see the first declin

47、e in its thermal capacity in history during 2021-22.Better demand/supply could bring a more sustainable earnings recovery from 2021eAs power demand is growing at a moderate rate in China, an effective supply-side reform on coal power would further improve Chinas power demand/supply. Therefore, we sh

48、ould see less pressure or even upside in utilisation and market-based tariffs for coal power units from 2021 onwards. This implies a more sustainable earnings recovery for coal IPPs, rather than largely relying on falling coal prices in these two years, which is subject to volatility.Reducing one-qu

49、arter to one-third of coal power capacity in potentially 16 provincesCurrent coal powerProvinceStatuscapacity (GW)1/4 of capacity (GW)1/3 of capacity (GW)XinjiangFirst batch pilot run54.213.618.1QinghaiFirst batch pilot run3.91.01.3NingxiaFirst batch pilot run30.27.610.1GansuFirst batch pilot run21.

50、05.37.0ShaanxiFirst batch pilot run43.510.914.5HenanPotential for second batch72.018.024.0GuizhouPotential for second batch33.48.311.1YunnanPotential for second batchJilinPotential for second batchLiaoningPotential for second batch34.38.611.4HeilongjiangPotential for second batch

51、ShanghaiPotential for second batchGuangxiPotential for second batchSichuanPotential for second batchChongqingPotential for second batchInner MongoliaPotential for second batch86.421.628.8TotalPotential for second batch510.3127.6170.1As of Chinas tota

52、l coal power capacity 2019e43%11%14%Source: SASAC, Wind, HSBC estimatesPossible decline in Chinas thermal power capacity during 2021-22e, the first time in history1,3001,2501,2001,1501,1001,0501,000950900850800GW1,2151,180 -51,1991,140-51-892019eAddition Retirement 2020eAddition Retirement 2021eAddi

53、tion Retirement 2022eSource: HSBC estimatesTurning positive on coal IPPsCRP is now our preferred pick in the spaceCRP (836 HK): Upgrade to Buy, lifting TP to HKD15.00We upgrade CRP from Hold to Buy, and lift our PB-based TP by 37% from HKD11.50 to HKD15.00, implying c37% upside. Our new TP is based

54、on 0.85x PB (at past five years mean) from 0.72x (-1SD below historical mean), as we expect the overhang on tariff should be removed soon and Chinas latest supply-side reform could lead to a more sustainable earnings outlook in the longer term. We also roll over our valuation to 2020e BVPS.CRP is no

55、w our preferred pick among the coal IPPs, for its: 1) better liquidity, 2) higher coastal province exposure, and 3) market-based power sales exposure (thus less tariff downside).We raise our net profit forecasts by 8-16% in 2019-21e on the following changes in our assumptions for 2019-21e: 1) unit f

56、uel cost: -3% to +2%, 2) coal-fired tariff: -1% to +3%, and 3)utilisation hour: -5% to +1%.Downside risks: Lower-than-expected tariffs; stronger-than-expected unit fuel cost, potentially due to higher import coal prices from Australia.HNP (902 HK/600011 CH): Upgrade to Buy/Hold, lift TPs to HKD6.10/

57、RMB5.60We upgrade HNP-H from Hold to Buy, and lift our PB-based TP by 39% from HKD4.40 to HKD6.10, with 56% implied upside. Our new TP is based on 0.85x 2020e PB (the past five years mean) from 0.65x (1SD below historical mean) as we expect the overhang on tariff should be removed soon and Chinas la

58、test supply-side reform could lead to more sustainable earnings outlook in the longer term. We also roll over our valuation to 2020e BVPS.We upgrade HNP-A from Reduce to Hold. Our new A-share TP of RMB5.60 (from RMB4.00) is converted from our H-share TP based on our FX teams latest end-2020 forecast

59、 for RMB-HKD of 1.09 (previously end-2019: 1.08).We hike our net profit estimates by 22%-37% in 2019-21e on the following changes in our assumptions for 2019-21e: 1) unit fuel cost: -3% to +1.5%, 2) coal-fired tariff: -1.6% to +2% and3) utilisation hour: -4% to +2%.Downside risks (H/A shares): Lower

60、-than-expected tariffs; stronger-than-expected unit fuel cost, potentially due to higher import coal prices from Australia.Upside risks (A share): Weaker-than-expected coal price; higher-than-expected tariff; stronger-than-expected utilisation.DTP (991 HK/600991 CH): Maintain Buy/Reduce, cut TPs to