Investment in conventional power generating infrastructure is expectedto continue to decline. Official figures from NEA revealed that newly addedthermal and hydro capacity dropped respectively by 29.6% and 32.6% duringthe first 11 months of 2016. Investment in power generating infrastructure inChina during the period totaled RMB 268.9 bn, down YoY by 12.7%. We expectthe investment in traditional power sources to further decline going forward.
SOE reform will be a critical theme in 2017. The recently issued 13thFive-Year Electricity Development Plan indicated that the development inpower infrastructure over the next few years will be concentrated on increasingthe capacity of renewable energy and on upgrading existing coal fired powerplants. More than 150 GW of coal fired power projects are expected to becalled off or indefinitely postponed during the 13th Five-Year Plan period.
Earnings forecasts were adjusted given a better-than-expected result in1H16. The net earnings of RMB 130 mn recorded in 1H16 (up YoY by 35.7%)were above our and market expectation, therefore we have adjusted ourassumptions and earnings forecasts. Our revised EPS from FY16 to FY18 isRMB 0.174, RMB 0.193 and RMB 0.228, respectively.
We raise our TP of HK$ 3.50 but maintain the investment rating of“Neutral”. The new TP corresponds to 16.2x FY17 PER or 0.3x FY17 PBR.