China Suntien Green Energy Earnings: Broadly In Line; Shares Remain Attractive

We keep China Suntien Green Energy’s 00956 fair value estimate at HKD 3.66 following largely in-line third-quarter 2023 results. Trading at 2024 price/earnings of around 5 times, we think the shares are attractive currently, supported by decent five-year net profit CAGR of 8.8% and over 7.0% dividend yield.

There are no major surprises in the results. We forecast Suntien to add 450 megawatts in renewable capacity in 2023, in line with guidance of between 400 MW and 500 MW. Suntien collected CNY 553 million of subsidies it was owed in the first nine months, accelerating from the first half’s CNY 73 million. About 90% of its subsidized projects are included in the audited project list, so there should be limited concerns about the government’s subsidy audit.

Phase I of the Tangshan LNG project is still undergoing trial operation and should have limited impact on 2023 earnings. The firm keep its total gas transmission volume growth target of 2%-5% for 2023, which we think is achievable given incremental sales volume from the LNG project. Third-quarter dollar margin for the natural gas segment was CNY 0.31 per cubic meter, a slight increase from CNY 0.30 in the first half. Management expects the dollar margin outlook for the coming winter season to be better year on year, which is in line with ENN Energy’s view.

Suntien’s cumulative nine-month net profit fell 9.5% year on year to CNY 1.51 billion despite a 0.6% rise in revenue, due to higher operating costs and research and development expenses. However, the firm is benefiting from lower domestic borrowing rates, with finance costs falling 10.1% year on year. On-grid power generation grew 1.4% while total gas transmission volume rose 3.8%. The renewable energy segment is the main earnings contributor, making up more than 70% of total net profit. In particular, the average on-grid tariff (tax exclusive) fell 1.2%, mainly due to higher power trading volume, which accounted for 39.6% of power sales, up from 21.8% a year ago.