2018 results miss
CGN New Energy （CGN） released 2018 results. Revenue rose 23%YoY to US$1.4bn. Net profit rose 43% YoY to US$88mn, below ourand market estimates of around US$110mn. We attribute this mainlyto a 39% YoY decline in core profit in the PRC coal-fired, cogen, andgas-fired （PRC thermal） segment, excluding one-off impairment anddisposal losses in cogen PPE of US$23.4mn and 2.9mn. The companydecided on a final dividend of US$0.51 cents （HK$4.01 cents） for2018, implying a 25% payout.
Trends to watch
PRC thermal disappoints…PRC thermal segment profit fell 39% YoY in2018 due on a higher standard coal price （+7% YoY） and lower cogenutilization （-6% YoY）， despite a 15% YoY rise in coal-fired utilization.
… however, renewables and Korea gas-fired segments make positivecontributions. Wind and solar power segments delivered profitgrowth of 44% and 34% YoY in 2018, thanks to: 1） wind utilizationimprovement （+17% YoY to 1,894 hours）； and 2） 113.4MW and224MW in new wind and solar projects. Korea gas-fired core profitrose 24% YoY, excluding one-off income from the sale of a carbonemission quota, mainly attributable to 19% and 15% YoY increases inutilization hours and average tariffs led by cold weather and higherdemand for clean energy.
Strong wind pipeline; watch possible asset restructuring. Asannounced, CGN has accumulated over 8GW of offshore windprojects as of December 2018, including those under management, atthe preparatory stage, or under construction. Those projects aremainly located in Guangdong, Jiangsu, and Zhejiang Province. Weexpect CGN to complete long-promised wind asset acquisitions fromits parentco, further strengthening asset quality and project returns.
Earnings forecast
We maintain our 2019 and 2020 earnings forecasts at US$134mn andUS$139mn, eyeing further guidance on March 21.
Valuation and recommendation
The stock trades at 5.2x and 5.0x 2019/20e P/E. We maintain BUY andTP of HK$1.5 （implying 6.2x and 6.0x 2019/20e P/E） offering 19%upside.
Risks
Lower-than-expected wind utilization; delays in subsidy collection.