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CSCI-Wind power-Wind power monthly：2018 Outlook-Solid growth momentum seen in 2017 to continue-20180118

Wind Power Monthly

2018 Outlook: Solid growth momentum seen in 2017 to continue

• Against the backdrop of the development plan as set out under the 13^th FYP to enhance the proportion of non-fossil energy consumption, we forecast on-grid wind power generation to grow c.17.6% YoY in 2018 versus 2017. Thus, its share in China’s total power generation is estimated to expand to 5.34% from 4.75% in 2017E.
• In our view, the elevated days of Account Receivables (ARs) will become the “new normal” for the wind power industry in 2018, on the back of a double-digit power generation growth rate as well as continuous improvement of the curtailment rate.
• On such basis, we maintain our BUY rating on both LYP (916.HK) and HNR (958.HK). We think entering the first quarter, a windy season of each year, rapid on-grid power generation growth as well as the potential of a continuous decline in the curtailment rate will drive the revaluation of the wind power industry.

 

2017 Review: A year of continuous improvement of curtailment rate but rising AR days. In our view, China’s wind power sector has made solid progress in the past year, with total power generation estimated to have increased 25.6% YoY in 2017, posting another year of rapid growth following a 30.1% YoY increase in 2016. More importantly, the curtailment rate has come down by c.4ppts in 2017E from 17.1% in 2016A, based on our calculation. Driven by the volume growth, the wind farms’ revenues are estimated to record growth in the range of +/-10% for the year, based on their respective comparable bases. On the other hand, the wind farms’ AR days had extended by 40 days to 5-6 months in 2017E from 3-4 months in 2016A, due to the rapid growth of on-grid power generation and improvement in the curtailment rate.

2018 Outlook: another solid year of growth to follow. Against the backdrop of the supply-side structural reform, we estimate grid-connected capacity addition will slow down to c.15GW in 2018E, lower than c.17GW in 2017E. Also, we expect the share of the Three-North as a percentage of total new capacity addition will likely drop to below 50% in 2018 and that of Southern/Eastern/Central China will rise in due course. In addition, against the backdrop of the target to raise the proportion of non-fossil energy consumption in 2018, we project on-grid wind power generation will grow 17.6% YoY in 2018 with the share in China’s total power generation estimated to expand to 5.34% from 4.75% in 2017E. Along with the slow-down in capacity addition as well as growth in power generation, we think the sector’s utilisation hour will further improve by +100 hours.

LYP (916.HK): LYP’s total net power generation grew 12.4% YoY in 2017 (wind power +15.0% YoY). Looking forward, we estimate LYP’s net power generation will grow 10.7% YoY in 2018 (wind power +14.1% YoY). In line with the top-line growth, we forecast the company’s FY17E/18E EPS to come in at RMB0.42/0.47, up 11.9%/12.8% YoY respectively. The company currently trades at PBR 0.9/0.8x 2017/18E, versus our target of 1.2/1.1x.

HNR (958.HK): NHR’s 2017 generation volume recorded 15.4% YoY growth in 2017 (wind +15.0% YoY, solar +23.9%). Looking forward, we estimate HNR’s generation volume will grow by 8.9% YoY (wind +8.4% YoY, solar +16.6%) in 2018. In line with the top line growth, we forecast the company’s FY17E/FY18E EPS (after placement) will come in at RMB0.28/0.31, up 2%/12% respectively. The company currently trades at PBR 0.9/0.8x 2017/18E, versus our target of 1.1/1.0x.