Company Reports

China Resources Power, or CR Power, is one of China's leading independent power producers, with high efficiency power generation assets and an established operation track record. As of end-2023, the firm had a total attributable operational generation capacity of about 59.8 gigawatts, or GW. Thermal power plants accounted for 62.2% of its total capacity, with the remainder from wind, photovoltaic and hydro power. Given the significant proportion of thermal power plants, CR Power's profitability is subject to underlying coal price swings, thus increasing earnings volatility.

China Resources Power’s, or CR Power’s, 2023 net profit of HKD 11.0 billion trails our estimate, mainly due to asset impairment losses of HKD 2.7 billion, but key generation numbers were in line with our expectations. We cut our fair value estimate to HKD 23 per share from HKD 25 to factor in lower renewable tariffs and higher near-term capital expenditure, or capex. Nonetheless, we think CR Power is undervalued, with continued improvement in the thermal power segment’s profitability and an estimated 2024 yield of more than 5%.

Year-to-date share price performance of China utilities under our coverage was generally lackluster, and we believe the market remains concerned about slow subsidy settlements and falling tariffs. We maintained our fair value estimates per share for CGN Power (HKD 2.24); China Longyuan (HKD 12.00); China Resources Power, or CR Power (HKD 25.00); China Suntien Green Energy (HKD 3.66); China Three Gorges Renewables, or CTGR (CNY 4.68); and Datang Renewable, or DR (HKD 2.94). Our preference among the renewable players is China Longyuan given its strong capacity growth and leadership position in the sector. Meanwhile, CR Power is our pick for investors who like exposure to coal-fired power, as the recovery in profitability for the thermal power segment should continue in 2024.

To celebrate its 20th listing anniversary and readmittance as a constituent in the Hang Seng Index, China Resources Power, or CR Power, will pay a special dividend of HKD 0.50 per share. The amount is not significant as the firm still needs to conserve cash for its capital expenditure, in our view. We keep our earnings forecasts largely unchanged and maintain our fair value estimate at HKD 25. We think CR Power is undervalued, trading at 2024 price/book ratio of 0.6 times and price/earnings of around 6 times. We believe the recovery in profitability for the thermal power segment and the pending listing of its renewable energy segment should support share price performance. We lower CR Power’s Morningstar Uncertainty Rating to High from Very High as we think the firm will benefit from the government's commitment to support the renewable energy industry.

China Resources Power, or CR Power, is one of China's leading independent power producers, with high efficiency power generation assets and an established operation track record. As of end-2022, the firm had a total attributable operational generation capacity of about 52.6 gigawatts, or GW. Thermal power plants accounted for 67.7% of its total capacity, with the remainder from wind, photovoltaic and hydro power. Given the significant proportion of thermal power plants, CR Power's profitability is subject to underlying coal price swings, thus increasing earnings volatility.

China Resources Power’s, or CR Power’s, first-half 2023 net profit rose 54% year on year to HKD 6.7 billion. The result beats our expectations largely due to a better performance from the thermal power segment, which delivered earnings of HKD 726 million, from a loss of HKD 1.4 billion, a year ago. We expect the thermal power segment to further improve in second-half 2023 on the back of weak coal prices. After incorporating the latest results in our model, we increase our 2023-25 earnings forecasts by 6%-13% and raise our fair value estimate to HKD 25 from HKD 22. We think CR Power is undervalued, with recovery in profitability and the pending listing of its renewable energy segment likely to support share price performance.

China Resources Power, or CR Power, is one of China's leading independent power producers, with high efficiency power generation assets and an established operation track record. As of end-2022, the firm had a total attributable operational generation capacity of about 52.6 gigawatts, or GW. Thermal power plants accounted for 67.7% of its total capacity, with the remainder from wind, photovoltaic and hydro power. Given the significant proportion of thermal power plants, CR Power's profitability is subject to underlying coal price swings, thus increasing earnings volatility.

China Resources Power, or CR Power, provided more details on the proposed listing of its renewable segment. We keep our fair value estimate at HKD 22, and we believe CR Power is undervalued currently, with earnings expected to recover further in 2023 on the back of falling coal prices. CR Power’s key generation numbers for the first five months of 2023 were in line with our expectations and this should continue to underpin earnings.

China Resources Power’s, or CR Power’s, 2022 net profit rose significantly to HKD 7.0 billion from HKD 2.1 billion in 2021 on the back of lower loss from its thermal power segment. However, this is below our expectation due to higher-than-expected coal costs. We expect earnings from the thermal power segment to further improve in 2023 given falling coal prices and a higher volume sourced from long-term lower-priced coal contracts. After rolling forward our earnings forecasts and considering the stronger Chinese yuan, we raise our fair value estimate to HKD 22.00 from HKD 20.50. We think CR Power is undervalued, with recovery in profitability and the pending listing of its renewable energy segment likely to support share price performance.

China Resources Power, or CR Power, is one of China's leading independent power producers, with high efficiency power generation assets and an established operation track record. As of end-2022, the firm had a total attributable operational generation capacity of about 52.6 gigawatts, or GW. Thermal power plants accounted for 67.7% of its total capacity, with the remainder from wind, photovoltaic and hydro power. Given the significant proportion of thermal power plants, CR Power's profitability is subject to underlying coal price swings, thus increasing earnings volatility.

We are reinitiating coverage of China Resources Power, or CR Power, with no-moat and stable moat trend ratings and a fair value estimate of HKD 20.50 per share. We think the shares are undervalued, with 2023 price/earnings of around 7.7 times and price/book ratio of 0.6 times, based on the Dec. 2 closing price. We believe positive development in subsidy settlement and the recovery in the thermal power segment’s profitability could help lift CR Power’s near-term share price performance.

China Resources Power, or CR Power, is one of China's leading independent power producers, with high efficiency power generation assets and an established operation track record. As of end-2021, the firm had a total attributable operational generation capacity of about 48 gigawatts, or GW. Thermal power plants accounted for 67.8% of its total capacity, with the remainder from wind, photovoltaic and hydro power. Given the significant proportion of thermal power plants, CR Power's profitability is subject to underlying coal price swings, thus increasing earnings volatility.

We are placing China Resources Power under review, pending a change in analyst coverage.

China Resources Power is one of China's leading independent power producers. It has high-quality power assets and a strong management team, and it has delivered sustainable returns compared with industry peers. The company owns and operates power plants with total attributable capacity of 43,365 megawatts at the end of 2020, with 74% of its capacity running on thermal coal. Given its reliance on coal-fired generation, CRP's profitability is subject to underlying coal price swings, meaning there is considerable volatility in margins.

CRP’s 4.4 GW capacity addition in wind and solar projects in 2020 well exceeded prior guidance of 3.5 GW and surpassed our expectation. In total, the plan to add another 40 GW in renewable capacity over the next five years implies a five-year CAGR of 36%. We think the plan is aggressive but should be slightly offset by lower on-grid tariff and lower investment return for the new projects. As such, we raise our earnings forecast and now expect net profit to grow at a CAGR of 14% from HKD 8 billion in 2020 to HKD 15 billion in 2025. However, in tandem with its planned spending, we also expect a more aggressive increase in annual capital expenditure in the next five years to an average of HKD 36 billion from HKD 31 billion in 2020. Given stable cash flow from renewable power whose contribution to group net profit already rose to 50% in 2020, we expect its operating cash flow to increase to HKD 36 billion in midcycle, which should cover capital expenditure needs. We expect the pace of capacity expansion to gradually slow over the long term, and we maintain our fair value estimate at HKD 13.30 per share, after rolling our model forward. Our capital allocation rating is Standard.

The National Energy Administration of China’s, or NEA’s, release of a draft plan on competitive allocation of wind and solar power has raised concerns over an unfavorable policy shift that may dampen renewable energy's growth and profit outlook, leading to a steep fall in renewable operators’ share prices in the past week. In our view, the draft paper delivers two key messages: 1) China’s renewable targets remain unchanged, and the NEA expects total power consumption in 2030 to reach 11,000 TWh, with non-hydro renewable mix of 25.9% by 2030. This implies about an average of 120-130 GW annual capacity additions for wind and solar between 2020 and 2030, compared to 50.5 GW per year over the past 10 years; 2) No immediate solution on the deficit of the Renewable Energy Fund, and renewable operators are encouraged to waive part of their rights for subsidy grants in exchange for quality projects with guaranteed grid connection. This indicates a rising marketization of the renewable power sector, amid competitive-bid for guaranteed grid-connected projects or expanding sales through power trading platforms, which we think implies lower effective tariffs and rising competitiveness of renewable power over coal-fired power generation.

The share prices of the coal-fired independent power producers, or IPPs, have underperformed the broader market since the beginning of October despite China’s electricity consumption continuing its robust recovery, China Resources Power’s, or CRP’s, share price has fallen about 8% compared with the Hang Seng Index’s 13% rise. We think this reflects market concern over the recent rise in coal prices, which remains above CNY 600 per metric ton since October and is approaching CNY 700 currently, compared with an average of CNY 552 in the first three quarters. In addition, China’s “net zero” emission target in 2060 could double China’s renewable capacity and dampen the demand for coal-fired power.

We maintain our fair value estimate of HKD 13.30 per share for China Resources Power, or CRP, following in line first-half results. Net profit rose 12.7% year over year to HKD 4.5 billion, with growth largely driven by renewable capacity additions, partly offset by a weaker Chinese yuan against the Hong Kong dollar and a one-off impairment. However, its coal-fired power segment operations lagged the industry average, reflecting rising pressure from cross-provincial power supply amid stricter environmental control in coastal regions. In addition, CRP was also poorly positioned amid the coronavirus pandemic, as thermal output in Hubei province, which accounts for 12% of the company’s total thermal output in the first half, saw a sharp 22% fall in power output compared with 2% nationwide decline.

We maintain our no-moat rating on China's independent coal-fired power producers, or IPPs, under our coverage, but downgrade moat trend ratings to negative from stable, amid worsening supply and demand dynamics. As China's GDP growth slows and the economy moves toward a more sustainable growth model over the next five to ten years, we expect power demand growth to slow. Falling renewable energy costs, and rising climate concerns, are shifting the fuel mix toward cleaner energy. We think weakening demand growth, expanding clean and renewable energy, and stricter emission regulations will crowd out coal-fired power generation's competitiveness, with utilization hours under pressure over the next decade.

China Resources Power is one of China's leading independent power producers. It has high-quality power assets and a strong management team, and it has delivered sustainable returns compared with industry peers. The company owns and operates power plants with total attributable capacity of 40,392 megawatts at the end of 2019, with 77% of its capacity running on thermal coal. Given its reliance on coal-fired generation, CRP's profitability is subject to underlying coal price swings, meaning there is considerable volatility in margins.