China Resources Power: More Details on Proposed Listing of Renewable Segment; Shares Undervalued

China Resources Power 00836 provided more details on the proposed listing of its renewable segment. We keep our fair value estimate at HKD 22 and 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.

CR Power plans to spin off its renewable segment (with more than 15 gigawatts of attributable wind generation capacity and more than 1.1 GW of attributable photovoltaic generation capacity) through the SpinCo in the A-share market. SpinCo will issue new A-shares amounting to 15%-30% of its enlarged issued share capital, with CR Power holding not less than 70% of the SpinCo after listing. Hence, SpinCo will remain a subsidiary of CR Power and its results will be consolidated. The spinoff proposal is still subject to regulatory and shareholder approvals and it is expected that SpinCo will make the submission of the A-share listing application to the Shenzhen Stock Exchange during the second half of 2023.

We are positive on the proposed spinoff as it could help CR Power fund its aggressive expansion plans and take advantage of the higher valuations for renewable energy stocks in the A-share market. The SpinCo will use about 70% of the net proceeds for the construction of over 30 additional wind farms and photovoltaic power plant projects during the next three to five years. The remaining 30% will be used for general working capital purposes.