中國燃煤IPPs展望：挑選黑馬

1、16 January 2019ChinaEQUITIESELECTRIC UTILITIES2019 outlook: Picking a dark horseChina coal-fired IPPsBE ChinaEQUITIESELECTRIC UTILITIES2019 outlook: Picking a dark horseChina coal-fired IPPsDeclining coal price should be the main theme in 2019; other factors look mixed: utilisation flat and slight t

2、ariffdownsideCoal IPPs should continue to enjoy a recovery in profitability but not at the same pace, thus staying selective is thekeyon a Falling coal price points to profitability recovery in 2019e. A of decliningdemandandispushingChinascoalaclearplus for the producers We expect the coal spot to f

3、all 4% in 2019, a lift to IPP sector. But a better coal is not make all for all the that relymoreonthespotcontractedcoaldobetter.More than just the coal price. We expect thermal utilisation to stay flat while IPPs blended tariffs are likely to edge down slightly. Together, these things point to aver

4、age ROEs continuing to recover to 8% in 2020e, similar to the levels in 2006-17. How much each IPP benefits would depend on its geographic exposure, coal purchase strategy and other factors. We suggest investors be selective on the sector.Introduce our non-consensus top pick Datang Power. We initiat

5、e coverage of Datang Power (DTP) at Buy/Reduce for the H/A shares. In our view, DTP is best- positioned to benefit from the falling coal price (-6% year-on-year in unit fuel cost vs.-2 to -4% for peers). However, DTP-H underperformed in 2018 (-20%) and is currently undervalued at 0.55x 2019e PB (1.3

6、SD or 30% below historical mean PB since 2013). This makes DTP-H our preferred pick over Huaneng Power (HNP; H/A: Hold/Reduce) and Huadian Power (HDP; H/A: Hold/Reduce), which were the markets favourites in 2018 but have less attractive risk/reward, in our view, given richer valuation but slower ROE

7、 recovery. We look for a rerating for DTP-H amid improving profitability and effective de-gearing.Valuation/rating changes and risks. We like defensiveness for its meaningful diversification into wind and quality yield outlook. We also see value in China Power International (CPI, upgrade to Buy from

8、 Hold) for its unjustified low valuation and potential revival of hydro output. In this report, we also change our valuation method on coal IPPs from DCF to PB-based, which we believe captures the cyclical nature of the sector better. Key up/downside risks: weaker/stronger-than- expected coalprices.

9、With this report, Daniel Yang assumes primary coverage of CRP, HNP, HDP and CPI.Daniel Yang* AnalystThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:daniel.h.yang.hk daniel.h.yang.hk+852 2996 6976Evan Li*of&The Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:

10、evan.m.h.li.hk evan.m.h.li.hk+852 2996 6619Charlotte Xia* Associate Shanghai* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulationsof We an on to a Disclosures & DisclaimerThis report must be read with the disclosures and the anal

11、yst 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 Researchat: HYPERLINK / Contents HYPERLINK l _bookmark0 Falling coal price is the main HYPERLINK l _bookmark0 themein

12、 20195 HYPERLINK l _bookmark1 Recovery in profitability could HYPERLINK l _bookmark1 continue, but atdifferingrates9 HYPERLINK l _bookmark2 Our preference within the sector HYPERLINK l _bookmark2 and how weare different11 HYPERLINK l _bookmark3 DatangPowerInternational17 HYPERLINK l _bookmark4 Inves

13、tmentthesis17 HYPERLINK l _bookmark5 Likely winner in unit fuel cost HYPERLINK l _bookmark5 andutilisation18 HYPERLINK l _bookmark6 Financials20 HYPERLINK l _bookmark7 Valuation25 HYPERLINK l _bookmark8 Up/downsiderisks26 HYPERLINK l _bookmark9 Companyprofile27 HYPERLINK l _bookmark10 ChinaResources

14、Power30 HYPERLINK l _bookmark11 Investmentthesis30 HYPERLINK l _bookmark12 Earningsrevisions30 HYPERLINK l _bookmark13 Valuationand risks31 HYPERLINK l _bookmark14 HuanengPower34 HYPERLINK l _bookmark15 Investmentthesis34 HYPERLINK l _bookmark16 Earningsrevisions34 HYPERLINK l _bookmark17 Valuationa

15、nd risks35 HYPERLINK l _bookmark18 HuadianPower39 HYPERLINK l _bookmark19 Investmentthesis39 HYPERLINK l _bookmark20 Earningsrevisions39 HYPERLINK l _bookmark21 Valuationandrisks40 HYPERLINK l _bookmark22 ChinaPowerInternational44 HYPERLINK l _bookmark23 Investmentthesis44 HYPERLINK l _bookmark24 Ea

16、rningsrevisions44 HYPERLINK l _bookmark25 Valuationandrisks45 HYPERLINK l _bookmark26 Appendix: Factoring in the HYPERLINK l _bookmark26 carbon impact48 HYPERLINK l _bookmark27 Chinas emissionsincontext48 HYPERLINK l _bookmark28 Chinas commitment to climate HYPERLINK l _bookmark28 change HYPERLINK l

17、 _bookmark29 Implications forcoalIPPs48 HYPERLINK l _bookmark30 Disclosureappendix49 HYPERLINK l _bookmark31 Disclaimer52Exhibit 1. Valuation tableUpside/ Marketcap PE ROE PB Dividend yieldCompany TickerCurrencyRatingPriceTPDownside(USDm)19e20e19e20e19e20e18e19eHNP-H902 HKHKDHold5.25.1-1%13,91116.9x

18、13.1x5%6%0.8x0.7x2.5%4.3%HNP-A600011 CHRMBReduce7.04.5-35%14,42426.4x20.5x5%6%1.2x1.1x1.6%2.7%CRP836 HKHKDBuy15.918.919%9,7329.7x7.9x10%11%0.9x0.9x5.5%5.5%CPI2380 HKHKDBuy1.82.326%2,2896.3x5.1x8%9%0.5x0.5x5.7%7.9%HDP-H1071 HKHKDHold3.63.85%6,21410.9x8.9x6%7%0.7x0.6x2.8%3.8%HDP-A600027 CHRMBReduce4.5

19、3.4-24%6,21715.7x12.7x6%7%1.0 x0.9x1.9%2.6%DTP-H991 HKHKDBuy1.92.742%7,3476.8x6.1x8%9%0.5x0.5x4.7%7.4%DTP-A601991 CHRMBReduce3.22.4-25%7,35413.3x11.8x8%9%1.0 x1.0 x2.4%3.8%Source: HSBC estimates, Bloomberg. Prices as of 11 Jan 2019Exhibit 2. Coal-fired IPPs: sector average ROE and coal priceExhibit

20、3. Coal-fired IPPs: ROE should recover but at differing pace20062009201220151,000800600400200-HNPHDPDTPCRPCPIAverageROEQHD5,500 spot price(RMB/t)20172018e2019e2020eAverage 2013-18Source: Company,HSBC estimatesSource: Company, HSBCestimatesExhibit 4. Datang Power is best-positioned to benefit from fa

21、lling coal price given lowest contracted coal purchaseExhibit 5. Coal-fired IPPs: forward PB (x)DTPHDPHNPCPI0%55%60%55%60%45%90%85%-4%-6%-8%1.2Performance in 2018: HDP-H: 24%,Performance in 2018: HDP-H: 24%,CRP:3%, HNP-H: 2%, CPI: -13%, DTP-H: -20%1.0Jan-18Apr-18Jul-18Oct-18Jan-19Exposure to contrac

22、ted coal purchase 2018e(LHS)Unit fuel cost 2019e (YoY)HNP-HHDP-HDTP-HCRPCPISource: Company,HSBCestimatesSource: Bloomberg,HSBCExhibit 6. Changes to our ratings and target prices TP Rating _ Valuation methodNameTickerCurrencyPriceNewOldNewOldNewOldCRP836 HKHKD15.918.916.6BuyBuyPBR DCFHNP-H902 HKHKDHo

23、ldHoldPBR DCFHNP-A600011 CHRMB7.04.54.2ReduceReducePBR DCFHDP-H1071 HKHKDHoldHoldPBR DCFHDP-A600027 CHRMBReduceReducePBR DCFCPI2380 HKHKDBuyHoldPBR DCFDTP-H991 HKHKDNA2.7NABuyNAPBRNADTP-A601991 CHRMBNA2.4NAReduceNAPBRNASource: HSBC estimatesExhibit 7. Changes to our EPS estimates New Old Change Comp

24、anyCurrency2018e2019e 2020e2018e2019e2020e2018e2019e 2020eCRPHKD1.411.642.001.251.4113%16%8%HNPRMB0.160.270.350.200.40-21%-32%-27%HDPRMB0.210.290.350.190.3014%-4%0%CPIRMB10.140.20-9%23%19%DTPSource: HSBC estimatesRMB7NANANANANANAExhibit 8. HSBC estimates vs consensusCompanyCurr

25、ency HSBCnew Consensus 2019e2018e2019e2020e HSBC/Consensus 2018e2019e2020eCR PowerHKD1.411.642.001.361.692.033%-3%-1%Huaneng PowerRMB0.160.270.350.220.360.47-27%-25%-26%Huadian PowerRMB0.210.290.350.220.330.41-5%-13%-14%China Power InternationalRMB8-6%15%11%Datang PowerRMB5-3%16%10%Source: Bloomberg

26、, HSBC estimatesExhibit 9. Our new PB-based valuation Currentvaluation Performancein20182019ePBvs.historical ROE OurPB-basedvaluation 13-18e19-20eBasisvs.historicalTP (HKD)UpsideRatingDTP-H-20%0.55x-1.3SD3%8%0.77xMean2.742%BuyCRP3%0.92x-0.8SD11%11%1.10 xMean18.919%BuyCPI-13%0.51x-1.4SD10%8%0.65x-0.5

27、SD2.326%BuyHDP-H24%0.70 x-0.5SD10%7%0.70 x-0.5SD3.85%HoldHNP-H2%0.78x-1.0SD10%5%0.77x-1SD5.1-1%HoldSource: Bloomberg, HSBC estimatesFalling coal price is the main theme in 2019We estimate the coal spot price will drop 4% year-on- year in 2019eDecline in coal price in 2019 now looks more certain The

28、high coal price has been the biggest drag on earnings for Chinas Independent power producers (IPPs) for the past two years or so. That appears to be changing and we think it will continue to do so in 2019-20e. Indeed, the benchmark QHD5,500k/cal thermal coal spot price is now 13% lower than its peak

29、 in mid-October 2018. HSBCs Metals and Mining team expects it to gradually trend down to an average of RMB620/ton during the year, 4% loweryear-on-year.Chinas power demand growth is cooling in our view, and that should, in turn, translate into lower demand for thermal coal. A potential recovery in h

30、ydro output in 2019 could further affect demand for coal while a gradual ramping up of new coal capacity is likely to undermine prices. That doesnt necessarily mean a deep correction in the coal price, argues Jeff Yuan, HSBCs head of HK/China Metals and Mining, because of 1) production disruption am

31、id environmental and safety checks and 2) potential tightening of import policy.Coal price indexBohai indexCoal price indexBohai indexQinghuangdao spot price(RMB/ton)750700650600550500450Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Source: SXcoal, HSBCJan-17Mar-17May

32、-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Exhibit 11. HSBCs thermal coal price forecast20152016201720182019e2020e2021e2022eLT5,500kcal (RMB/t)411470639647620600600610570Year-on-year14%36%1%-4%-3%0%2%-7%Source: SXcoal, HSBC estimatesIPPs that rely less on contracted coal purchase

33、s are best-positioned in the declining coal price themeObviously, coal IPPs benefit when coal prices fall, but the extent to which they do depends on their coal purchase structure. In our view, companies that rely less on contracted coal purchases (yearly/monthly contracts) should benefit most. This

34、 is mainly because contracted prices are partially fixed and thus move at less magnitude than spot prices.In this context, we believe Datang Power is best-positioned among peers, as we estimate 45% of the coal consumption of the company was sourced from yearly/monthly contracts in 2018, compared wit

35、h 55%, 60%, 85% and 90%, respectively, for Huadian, Huaneng, CPI and CR Power. Moreover, given that contracted coal prices are normally at a discount to spot prices, Datang Power should see more upside in increasing the exposure to contracted purchase going forward, thus bringing down the blended co

36、al cost more. In other words, Datang Powers unit fuel cost should be most sensitive to a decline in the coal price. We estimate that Datang Power will enjoy a 6% year-on-year decline in unit fuel cost this year compared with -4% for HDP/HNP and -2% for CRP/CPI.Exhibit 12. Datang Power has the lowest

37、 exposure to contracted coal purchase (2018e)DatangPowerHuadianPowerHuanengPowerCPICR Exposuretocontractedcoalpurchase2018e(LHS)Unit fuel cost 2019e(YoY)0%45%60%45%60%55%90%85%-2%-3%-4%-5%-6%-7%Source: Company, HSBC estimatesChinas power demand and supply are growing at similar rates in 2019-20eFlat

38、 utilisation amid power demand/supply is balancing outAs we have already said, Chinas power consumption growth is likely to cool in the next two years. We estimate a 5.6% CAGR during 2018-20e vs. 7.2% in 2016-18e. In our view, this is mainly due to a slowing economy and a high base effect last year.

39、 But we dont see much downside to our estimates, given that Chinas 1) coal-to-power programme (for instance, replacing coal boilers with electricity boilers), or in other word, more electrification and 2) rural grid upgrade are gradually playing out and should contribute to over 2% year-on-year grow

40、th each year by themselves.On the supply side, we estimate that Chinas power generation capacity will also register a slower rate of 5.8% CAGR during 2018-20e, the lowest since 2000. In our view, the governments current tight control on new coal-fired units will remain in place till 2020e. By 1H18,

41、359GW of new units (37% of current operating capacity) in the pipeline was shelved and we believe China is on track to contain its coal-fired power capacity within its targeted 1,100GW by end-2020. On the other hand, expansion in renewables, especially solar, should pick up in the next two years ami

42、d fast-dropping development costs and greater policy visibility.In conclusion, we believe Chinas power demand and supply will be growing at similar rates in 2019-20e (5.6% vs. 5.8% CAGR, respectively), which should lead to a flat utilisation of thermal units from the 2018 level. A main downside risk

43、 to thermal utilisation is an increase in hydro output given a potential recovery in water inflows this year.Exhibit 13. China power demand and supply is balancing out in 2019-20e7.2%6.3%5.2%5.7%6.1%5.1%201020112012201320142015201620172018e2019e2020ePower capcitygrowth(YoY)Power consumption growth(Y

44、oY)Source: NEA, CEC, HSBC estimatesNorthern China is most resilient while central China faces more downside risk in thermal utilisationMarket-based power sales exposure is expanding while discount has stabilizedFrom a region perspective, we believe northern China will have a more resilient outlook i

45、n terms of thermal utilisation because it is the focus of the coal-to-power programme. On the contrary, coal-fired units in the central provinces face more utilisation risk in case of a revival in hydro output from a low base in 2018. We note that the World Meteorological Organisation says there is

46、a strong chance of a new El Nino forming in early 2019 that could result in a rise in rainfall.In a glance at the major IPPs geographical presence, Datang Power stands out again for its highest exposure to northern China and lowest exposure to central China in thermal capacity. Thus if our thesis is

47、 correct, Datang Power should be subject to the least downside risk to utilisation among its peers.Exhibit 14. China IPPs geographic exposure of thermal unitsRegionCommentHNPHDPDTPCPICRPNorthMost resilient utilisation outlook28%44%45%11%20%Northeast11%0%10%0%3%Northwest3%8%1%0%0%EastJiangsu and Zhej

48、iang to cap coal consumption28%18%30%51%39%South13%2%8%0%22%CentralHighest utilisation risk17%28%6%38%16%Source: Company, HSBCMild downside for tariffsAny hike in benchmark tariffs for coal-fired units is unlikely in the medium term in our view, given that the Chinese government is likely to continu

49、e to cap energy prices as a form of economic stimulus. A meaningful cut in benchmark tariffs, on the other hand, is also highly unlikely in our view unless coal prices drop much faster than expected. That said, coal-fired IPPs effective on- grid tariffs will depend largely on their market-based powe

50、r sales portions and discounts (to the benchmark tariff).In mid-2018, Chinas National Development and Reform Commission (NDRC) issued a document requiring all electricity users from four energy-intensive industries (coal mining, steel, metals and building materials) to join market-based power purcha

51、se contracts. This would help to fuel up the continued expansion of market-based electricity trading, which we expect to account for 30%, 40% and 50% of Chinas total power generation in 2018-20e, respectively, from 26% in 2017.Exhibit 15. Market-based power sales exposure in China and some key provi

52、nces20172018e2019e2020eJiangsu33%42%NA65%Guangdong29%32%40%NAHenan25%30%NANAHebei24%26%NANAShandong20%30%NA60%Zhejiang30%33%NA60%National average26%30%40%50%Source: NDRC, HSBC estimatesWhile the portion of market-based power sales is increasing nationwide, the discount to the benchmark tariff has na

53、rrowed from the level in 2016-17 and stabilized. This is mainly because IPPs now compete more rationally and the customer base is expanding (like the policy mentioned above). For instance in Guangdong, a pilot run province for power trading, monthly bidding prices in 2018 were largely stable at arou

54、nd a 10% discount while the yearly contract price for 2019 has also come down to a similar level.Exhibit 16. Discount in Guangdongs monthly/yearly power trading is stabilisingFeb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 MonthlydiscountYearlydiscountSource: Guan

55、gdong DRC, HSBCCoal IPPs should face a similar decline in blended coal-fired tariffsTo sum up, we believe coal IPPs in China will face a roughly 1% year-on-year decline in blended tariff in 2019e when market-based power sales exposure goes up by 10ppt while the discount is flat at 10%. Although prov

56、inces are in different stages of power market reform, the expansion of market-based trading should be at a similar pace, in our view. As such, we expect major coal IPPs under our coverage to face a similar tariff downside regardless of their geographic exposure.Exhibit 17. China IPPs: market-based p

57、ower sales exposure60%50%40%30%20%10%0%201620172018eHNPHDPDTPCRPSource: Company, HSBC estimatesRecovery in profitability could continue, but at differingratesof in in inforin be flat or in in Fortunately, the declining coal price (-4% CAGR in 2018-20e) is likely to be the new and main driver to prof

58、itability recovery in the next two years. According to our estimates, unit fuel costs show the second highest sensitivity to IPPs earnings, just after tariffs. In conclusion, we estimate the average ROE of the major coal IPPs under our coverage will continue to gradually expand from 5% in 2018e to 8

59、% in 2020e, similar to the average level in 2006-17.But as mentioned above, each driver may have different impacts on each coal IPP. Together with different geographic exposure, diversification, coal purchase strategy and so on, the profitability of each coal IPP under our coverage will recover at a

60、 pace specific to these different circumstances.For instance, we estimate Datang Powers ROE will reach 8% in 2019-20e, well above the average of 3% in 2013-17 when the company suffered from the weak performance of its coal chemical segment. In contrast, Huanengs ROE of 5-6% in 2019-20e on our estima