Top China wind power producer shines as fewer turbines idled

BEIJING • The Chinese government’s moves to ramp up renewable energy (RE) consumption have sparked optimism over the future of China Longyuan Power Group Corp, the country’s biggest wind power producer.

Around half of the 29 analysts cove ring Longyuan have raised their price targets for its Hong Konglisted stock over the past month, according to data compiled by Bloomberg.

Following a 29% rally this year, which far outperforms a 3% gain in the benchmark Hang Seng Index, the stock is still trading about 14% below the 12month analyst consen sus target of HK$8.22 (RM4.17).

Driving the bullishness on Long yuan and other Chinese wind power producers like Huaneng Renewables Corp and China Datang Corp.

Renewable Power Co is a series of initiatives taken by the government recently to boost RE demand and ease curtailment — a problem caused by overly rapid wind turbine instal lation and infrastructure bottlenecks.

Grid operators have been forced to cut back on purchases as they are unable to fully absorb the intermit tent power from renewables such as wind and solar.

China, the world’s largest wind power producer, is considering set ting a national target to reduce ave rage wind curtailment rates to less than 10% next year and to about 5% by 2020, according to an April 12 govern ment policy proposal document.

The country is rolling out a clean-energy quota system to require minimum levels of renewable power use, holding regional grids, power distributors and generators responsible.

In addition, China is clamping down on the ability of local authori ties to plan new wind power projects in regions where the most turbines stand idle, slowing the expansion of the industry to a pace manageable for the electricity grid.

Longyuan shares jumped as much as 3.9% to HK$7.22 last Wednesday, the biggest increase this month, and was at HK$7.19 at 11:54am yesterday in Hong Kong. Huaneng Renewables gained as much as 2.7%, while the Hang Seng Index slipped about 1%.

In light of the recent improvement in the overall wind power industry, China is expected to build more wind farms this year to meet rising demand. Zhou Yiyi, a Shanghai based analyst at Bloomberg New Energy Finance, said she expected China to add 21.3GW of onshore wind capacity this year, compared to 16.8GW in 2017.

“Longyuan’s valuation is recove ring as its profit is expected to rise with less curtailment,” said Louis Sun, an analyst at BOCOM Interna tional Holdings Co in Shanghai. “It may still have upside potential,” said Sun, who has a target price of HK$8.66 on Longyuan.

The idle rate at Longyuan’s wind farms will drop to about 7% in 2018 from 10.43% last year and 15.76% in 2016, president Li Enyi said in March.

The company reported a 67% rise in net income in the first quarter on higher wind power output.

Longyuan’s earnings per share growth is expected to accelerate to 30% this year from 15% in 2017, before slowing to 13% in 2019, according to consensus forecasts compiled by Bloomberg.

To be sure, Longyuan’s longterm profit outlook is still uncertain given China’s renewable power industry remains heavily subsidised by the government and the company has suffered from subsidy payment delays in the last few years.

The company’s accounts receiva bles, most of which are government subsidies, accounted for 29% of its revenue in 2017.

Nevertheless, Longyuan is a stand out in terms of current profitability.

Its trailing 12month operating margin of 33.9% and return on equity of 9.73% beat almost threequarters of its peers in AsiaPacific emerging markets, according to data compiled by Bloomberg.

Yet, its price-to-earnings ratio, now at 12.35 times, is lower than 86% of those peers. — Bloomberg