2017 results miss expectation
CGN New Energy announced 2017 revenue was US$1.1bn, up 3.2%YoY; net profit was US$61.9mn, down 22.1% YoY, or US$0.0144 pershare. The results missed market & CICC estimates by 24%.
The company recommended a DPS of US$0.0036 or HK$0.0281 for2017, implying 25% payout.
Trends to watch
Disappointing results in 2017 due to 47%/34% profit decrease ofgas/coal-fired segment. Gas-fired profit dropped 47% YoY toUS$24mn, due to 1） 15% YoY utilization decrease for Korea powerplants driven by severe power oversupply, and 2） increased gas price（+11% YoY） but partially offset by higher SMP （+5% YoY）。 Thecoal-fired segment was affected by soaring coal prices （+39% YoY）despite a 5% YoY tariff hike.
Renewable energy stood out to support earnings. Wind and solarsegments delivered respective 146% & 52% YoY profit increases in2017, mainly attributable to wind and solar utilization recovery （+15%& +12% YoY） given lower curtailment in Gansu and Western China.
Long-awaited asset restructuring may come to fruition. Thecompany announced plans to dispose of weakly profitable gas andoil-fired projects to CGN Group and to acquire 51% of CGN WindPower from the parentco instead. We are positive on the assetreorganization which may help boost earnings and bring a revaluationopportunity for the company. However, we need to await moretransaction details since the plan is still in the early stage.
Earnings forecast
Considering the delay in wind asset injection, we lower our earningsforecast by 27% to US$0.017 and forecast 2019 EPS at US$0.021.
Valuation and recommendation
We maintain our BUY rating and HK$1.50 target price. We mayadjust our rating and TP if management provide more details on assetrestructuring during the briefing.
Risks
Higher-than-expected coal prices