CGN New Energy reported 1H18 revenue of US$690.7m （+31.7% YoY） and net profit of US$68.8m（+101.8% YoY）， beating market expectations on the back of the firm’s outstanding wind powerperformance. As a result, we revise up our EPS forecasts from US$0.016 to US$0.027 in 18E （+92.9%YoY）， from US$0.017 to US$0.032 in 19E （+18.5% YoY）， and from US$0.019 to US$0.035 in 20E（+9.4% YoY）。 We also lift our target price from HK$1.00 to HK$1.38, representing 6.5x 18E PE and0.8x 18E PB. With 16% upside, we upgrade our rating from Hold to Outperform.
Improving fundamentals. We see that for 1H18, the revenue from most sectors have increased,especially for Korea gas-fired and oil-fired projects （US$443m, +41.5% YoY）， PRC coal-fired, cogenand gas-fired projects （US$111m, +22.4% YoY） and PRC wind projects （US$87.9m, +27.8% YoY）。 Therevenue rally was mainly because the extremely cold weather in Korea last winter boost thedemand for power generation, leading to the increase of power output by Yulchon I & II projects. Inaddition, we see that the wind sector also performs well due to the curtailment rate improvement.
The wind power utilization hour increased by 26.3% YoY to 1,052 hours for 1H18. The operatingprofit margin slightly declined from 17.1% in 1H17 to 15.6% in 1H18 mainly due to the 48.4%increase of coal, oil and gas expense to US$420.8m. For 1H18, the company declare no dividend.
Steady growth. For 1H18, the capital expenditure for the company increased by US$131.4m toUS$148.1m compared with 1H17. The capex was mainly used in wind power projects and the Koreabiomass energy project. For 1H18, we see that the company newly installed 113.4MW for windcapacity. With c.60% of total wind power capacity located in Gansu province, the curtailmentimprovement brought notable profit contribution for the company. The net income attributed fromwind segment increased by 82.5% YoY to US$34.5m for 1H18. The net income from Korea gas-firedand oil-fired projects has increased from US$16m in 1H17 to US$34m 1H18, mainly due to the oneoffpost tax gains of c.US$17.8m from the sales of carbon emission quota.
Upgrade to Outperform. We revise up our EPS forecasts from US$0.016 to US$0.027 in 18E （+92.9%YoY）， from US$0.017 to US$0.032 in 19E （+18.5% YoY）， and from US$0.019 to US$0.035 in 20E（+9.4% YoY）。 We also lift our target price from HK$1.00 to HK$1.38, representing 6.5x 18E PE and0.8x 18E PB. With 16% upside, we upgrade our rating from Hold to Outperform.