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1、Top picks,Buy,Buy,Buy,Buy,Buy,Date,demand,Deutsche BankMarkets Research,AsiaChinaUtilitiesUtilities,IndustryChina IPPs,Date25 October 2012Industry UpdateMichael Tong,CFAEric Cheng,CFA,Diving into datapoints amid industry,Research Analyst(+852)2203 6167,Research Analyst(+852)2203 6202,up-cycleMore up
2、beat after analysis of industry datapointsWith IPPs entering an earnings up-cycle,we resume publication of a quarterlyupdate on sector datapoints,providing the latest trends in power consumption,coal prices,new capacity and utilisation.We believe investors will be moreassured regarding a continued e
3、arnings rise in 2013E after getting abreast ofthe sequential data series through 2012.We retain our view that IPPs are in abright spot due to a weak coal price outlook amid a potential utilisation pick-up.Sector valuations remain attractive at 0.6-1.2x P/B vs.FY13E ROE of 10-17%.Also,FCF is turning
4、positive for the first time in many years,securingdecent dividend yield.Our top picks are CR Power and Huaneng Power.Power demand growth remains sluggish;up 2.9%in SeptChinas power consumption in 1-9M12 was up 4.8%yoy,while the Sept risewas only 2.9%yoy.The sluggish demand growth YTD is due to weak
5、powerdemand in the secondary and primary sectors,which rose 2.9%and-0.3%respectively.Power demand in the commercial and residential sectors remainsstrong and registered double-digit growth of c.11%.For 4Q,we expect powerdemand to steadily pick up and we forecast 5.8%yoy growth for 2012.Thermal outpu
6、t growth negative for six consecutive monthsMonthly thermal power output has declined for six consecutive months,withSept down 8%yoy.This decline has been driven by strong hydro output thisyear(+52%in Sept),and weak power demand.YTD,thermal utilization fell 7%yoy while hydro utilization rose 17%yoy.
7、Thus,we believe thermal IPPearnings have more upside potential when the hydro situation normalizes.,eric-Kai-Ting Wong,CFAResearch Analyst(+852)2203 6235kai-Huaneng Power Intl(0902.HK),HKD6.01China Resources Power(0836.HK),HKD16.36Companies FeaturedDatang Intl Power(0991.HK),HKD2.87 Buy2011A 2012E 2
8、013EP/E(x)13.77 9.28 6.11EV/EBITDA(x)10.0 8.7 7.5Price/book(x)0.7 0.8 0.7Huaneng Power Intl(0902.HK),HKD6.01 Buy2011A 2012E 2013EP/E(x)39.59 10.68 6.76EV/EBITDA(x)9.7 7.7 5.9Price/book(x)0.9 1.2 1.1China Resources Power,New thermal capacity additions down 22%YTDIn 1-9M12,China added 41GW of new capa
9、city,considerably lower than in thesame period last year.During the 1H and 3Q conference calls,the China IPPsguided lower capex for new thermal capacity,due to low profitability and fuelcost uncertainty.On the other hand,new hydro capacity has increased 7%to,(0836.HK),HKD16.36P/E(x)EV/EBITDA(x)Price
10、/book(x),2011A 2012E 2013E18.36 12.07 8.898.9 8.3 6.51.3 1.3 1.2,9GW.The slower thermal capacity growth is beneficial for China IPPs as it willraise utilization levels after demand picks up.,China Power Intl(2380.HK),HKD2.172011A 2012E 2013E,Coal prices continue to be weak;coal inventory has hit all
11、-time highDespite the Daqin maintenance that was carried out on 8 Oct and additionalseasonal coal demand from winter stockpiling,coal prices only edged up,P/E(x)EV/EBITDA(x)Price/book(x),14.3612.50.6,7.969.10.6,6.187.30.6,Rmb10/t WoW to Rmb640/t.The current spot coal price is 17%yoy lower thanin 1H1
12、2.Coal inventory at power plants has also reached an all-time high of 31,Huadian Power(1071.HK),HKD2.142011A 2012E 2013E,days vs.the historical average of 15-20 days.We expect coal prices to remainweak due to high inventory and increased coal supply,as FAI in coal mininghas been increasing at a doub
13、le-digit pace for the past few years,while,P/E(x)EV/EBITDA(x)Price/book(x),11.80.5,8.677.30.6,4.975.70.6,thermal capacity addition has slowed to single-digit pace.We expect theaverage spot coal price to decline 14%and 9%in 2012 and 2013,respectively.,Related recent research,DCF-based target prices;k
14、ey risks,Recovery on track despiteweaker-than-expected power,15 Oct 2012,We value the sector using DCF through 2020,assuming WACCs of 8.8-9.4%.Key downside risks include a coal price rebound,falling utilization rates,equityplacement and non-power business delays._Deutsche Bank AG/Hong KongAll prices
15、 are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its re
16、search reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX
17、 1.MICA(P)072/04/2012.,Jan/11,Feb/11,Mar/11,Apr/11,May/11,Jun/11,Jul/11,Aug/11,Sep/11,Oct/11,Nov/11,Dec/11,Jan/12,Feb/12,Mar/12,Apr/12,May/12,Jun/12,Jul/12,Aug/12,Sep/12,Jan-11,Feb-11,Mar-11,Apr-11,May-11,Jun-11,Jul-11,Aug-11,Sep-11,Oct-11,Nov-11,Dec-11,Jan-12,Feb-12,Mar-12,Apr-12,May-12,Jun-12,Jul-
18、12,Aug-12,Sep-12,1-2M10,Mar-10,Apr-10,May-10,Jun-10,Jul-10,Aug-10,Sep-10,Oct-10,Nov-10,Dec-10,1-2M11,Mar-11,Apr-11,May-11,Jun-11,Jul-11,Aug-11,Sep-11,Oct-11,Nov-11,Dec-11,1-2M12,Mar-12,Apr-12,May-12,Jun-12,Jul-12,Aug-12,Sep-12,25 October 2012UtilitiesChina IPPsMonthly power sector updatePower consum
19、ption remains weak;up 2.9%yoy in SeptAccording to the CEC,Chinas power consumption increased 2.9%yoy in Sept2012.Since April,Chinas power consumption growth has remained at lessthan 6%yoy,vs.its double-digit growth in 2011.In 1-9M12,power demandwas up 4.8%yoy.Decoding by source of consumption,primar
20、y industry demand growth wasweakest,at-0.3%in 1-9M12,followed by secondary industry at a mere 2.9%yoy.Commercial and residential demand remains strong and was up 11.3%and 11.6%yoy,respectively.We project 5.8%yoy growth for 2012,and 8.6%yoy growth for 2013.,Figure 1:Monthly power consumption total,Fi
21、gure 2:Monthly power consumption industrial,500,Total(bn kWh),YoY growth,30%,400,Industry(bn kWh),yoy,30%,450400350300250200Source:Deutsche Bank,Wind,25%20%15%10%5%0%,350300250200150100500Source:Deutsche Bank,Wind,25%20%15%10%5%0%-5%,Figure 3:Monthly yoy power consumption growth rate by industry,YTD
22、,residential and,35%,Industry,Residential,Commercial,commercial power usages,30%,have been more resilient,than industrial usage.25%20%15%10%5%0%Source:Deutsche Bank,Wind,Page 2,Deutsche Bank AG/Hong Kong,Dec-03,Mar-04,Jun-04,Sep-04,Dec-04,Mar-05,Jun-05,Sep-05,Dec-05,Mar-06,Jun-06,Sep-06,Dec-06,Mar-0
23、7,Jun-07,Sep-07,Dec-07,Mar-08,Jun-08,Sep-08,Dec-08,Mar-09,Jun-09,Sep-09,Dec-09,Mar-10,Jun-10,Sep-10,Dec-10,Mar-11,Jun-11,Sep-11,Dec-11,Mar-12,Jun-12,Sep-12,InnerMongolia,Hubei,Liaoning,Zhejiang,Hainan,Hunan,Henan,Fujian,Shanghai,Guangxi,Heilongjiang,Guangdong,Shandong,Chongqing,Guizhou,Xinjiang,Tian
24、jin,Shanxi,Gansu,Shaanxi,Ningxia,Sichuan,Anhui,Tibet,Qinghai,Yunnan,Jiangxi,Jiangsu,Beijing,Hebei,Jilin,2.5,13%,25 October 2012UtilitiesChina IPPs,Figure 4:Power consumption growth vs.GDP growth(quarterly),The elasticity ratio has,2.01.51.00.5,Elasticity of Electricity production growth,GDP growth,E
25、lectricity Production Growth30%25%20%15%10%5%,declined significantly thisyear to 0.7x in 1-3Q12.Weexpect elasticity to return to1.0 x in 2013E as industrialsector activity picks up.,0%,0.0-0.5Source:Deutsche Bank,WindFigure 5:Power generation growth by province(1-9M12)30%25%20%,-5%-10%,25%23%,15%10%
26、5%,1%1%1%2%,2%2%3%3%,5%5%5%5%,6%7%7%8%8%,10%11%,0%,-5%-10%,-7%,-6%-4%,-4%,-3%-3%-2%,0%,-15%,-10%,Source:Deutsche Bank,WindPower generation growth is highest in the western provinces,such as Qinghaiand Xinjiang,due in part to Chinas western development strategy and tomanufacturing relocations.Power g
27、eneration growth in the coastal regions has been relatively weak,withnegative growth for Shanghai,Tianjin and Zhejiang due to weak exportdemand.Chinas power consumption mix continues to be dominated by secondaryindustry,accounting for 73%of total demand in 1-9M12(Figure 5).Chinas power generation co
28、ntinues to be mainly dominated by coal-firedgeneration,accounting for 79%of 1-9M12 output.,Deutsche Bank AG/Hong Kong,Page 3,Jan-95,Jul-95,Jan-96,Jul-96,Jan-97,Jul-97,Jan-98,Jul-98,Jan-99,Jul-99,Jan-00,Jul-00,Jan-01,Jul-01,Jan-02,Jul-02,Jan-03,Jul-03,Jan-04,Jul-04,Jan-05,Jul-05,Jan-06,Jul-06,Jan-07,
29、Jul-07,Jan-08,Jul-08,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Jan-11,Jan-12,Jan-09,Jan-10,Jul-09,Jul-10,Jul-11,Sep-09,Sep-10,Sep-11,Jul-12,May-09,May-10,May-11,May-12,Sep-12,Nov-09,Nov-10,Nov-11,Mar-09,Mar-10,Mar-11,Mar-12,Jul-09,Jul-10,Jul-11,Jan-09,Jan-10,Jan-11,Sep-11,Jan-12,Sep-09
30、,Nov-09,Sep-10,Nov-10,Nov-11,Mar-12,Mar-09,Mar-10,Mar-11,Jul-12,May-09,May-10,May-11,May-12,Sep-12,25 October 2012UtilitiesChina IPPs,Figure 6:Power consumption mix(1-9M12),Figure 7:Power generation mix(1-9M12),Residential13%,Primaryindustry2%,Nuclear2%,Others3%,Hydro,16%Commercial12%Secondary,Sourc
31、e:Deutsche Bank,CEICPower generationFigure 8:Monthly power generation,industry73%,Thermal79%Source:Deutsche Bank,Wind,bn kWh500450400350300250200150100500Source:Deutsche Bank,China Electricity Council,Power generation,yoy(%),40%30%20%10%0%-10%-20%,Figure 9:Thermal generation output,Figure 10:Hydro g
32、eneration output,500450400350300250200150100500,Thermal(bn kWh),YoY(%),50403020100-10-20,1009080706050403020100,Hydro(bn kWh),YoY(%),6050403020100-10-20-30,Source:Deutsche Bank,China Electricity CouncilPage 4,Source:Deutsche Bank,China Electricity Council,Deutsche Bank AG/Hong Kong,Jul-09,Aug-09,Sep
33、-09,Oct-09,Nov-09,Dec-09,Jan-Feb10,Mar-10,Apr-10,May-10,Jun-10,Jul-10,Aug-10,Sep-10,Oct-10,Nov-10,Dec-10,Jan-Feb11,Mar-11,Apr-11,May-11,Jun-11,Jul-11,Aug-11,Sep-11,Oct-11,Nov-11,Dec-11,Jan-Feb12,Mar-12,Apr-12,May-12,Jun-12,Jul-12,Aug-12,Sep-12,1-2M09,1-3M12,1-9M08,1-4M09,1-6M09,1-8M09,1-3M10,1-5M10,
34、1-7M10,1-9M10,1-2M11,1-4M11,1-6M11,1-8M11,1-5M12,1-7M12,1-11M08,1-10M09,1-12M09,1-11M10,1-10M11,1-12M11,1-9M12,20,15,10,5,0,25 October 2012UtilitiesChina IPPsThermal power generation continues to be very weak,and has experiencednegative growth for six consecutive months.In Sept,thermal power outputw
35、as down 8%yoy.The weak thermal generation in the past few months was largely due to thesignificant increase in hydro generation this year.As a result,some of thethermal plants in the rich hydro provinces,such as Hunan,Yunnan,andChongqing,are making losses.New capacity,Figure 11:Monthly new installed
36、 capacity(May 2009 to Sept 2012),41GW of new capacity was,Total new capacity,Hydro,Coal,added in 1-9M12,much,lower than 1-9M11s,30,49.6GW.,25Thermal and hydro installedcapacity increased by25.8GW and 9.4GW,respectively.The thermal capacityaddition was 22%lower,Source:Deutsche Bank,CEICFigure 12:Accu
37、mulative newly installed capacity,than the same period lastyear while hydro was 7%higher.,Total new capacity,Hydro,Coal,120100806040200Source:Deutsche Bank,CEICCoal power plants accounted for 72%of Chinas total installed capacity in 1-9M12(Figure 13).However,the mix is changing,with more investment
38、being poured intorenewable energy,such as wind,solar and hydro.,Deutsche Bank AG/Hong Kong,Page 5,Apr-08,Apr-09,Apr-10,Apr-11,Apr-12,Jan-11,Jan-08,Jan-09,Jan-10,Jan-12,Jul-08,Jul-09,Jul-10,Jul-11,Oct-08,Oct-09,Oct-10,Oct-11,Jul-12,25 October 2012UtilitiesChina IPPs,Figure 13:1-9M12 installed capacit
39、y mix,Figure 14:1-9M newly installed capacity mix,Wind4%,Others2%,Wind,13%,Others,2%,Thermal72%Source:Deutsche Bank,CEICUtilization rateFigure 15:Average utilization aggregated,Hydro22%,Thermal,62%Source:Deutsche Bank,CEIC,Hydro,23%National utilization rate:52%in 1-9M12 vs.51%,54%,57%,2008,2009,2010
40、,2011,2012,and 55%during the same,55%53%51%49%47%45%,period in 2009,2010,and2011,respectively.,1-2M,1-3M,1-4M,1-5M,1-6M,1-7M,1-8M,1-9M,1-10M,1-11M,1-12M,Source:Deutsche Bank,WindFigure 16:Utilization rate trend(single month),70%60%50%40%30%20%10%0%,Thermal,Hydro,There is a strong seasonalityin hydro
41、 power utilizationthroughout the year.The hydro utilization rate inSept 2012 was 56.7%,muchhigher than in previousyears.,Source:Deutsche Bank,Wind,Page 6,Deutsche Bank AG/Hong Kong,May,Sep,Mar,Nov,Aug,Dec,Jun,Feb,Jan,Apr,Oct,Jul,Jan-09,Mar-09,May-09,Jul-09,Sep-09,Nov-09,Jan-10,Mar-10,May-10,Jul-10,S
42、ep-10,Nov-10,Jan-11,Mar-11,May-11,Jul-11,Sep-11,Nov-11,Jan-12,Mar-12,May-12,Jul-12,Sep-12,50,45,40,35,25 October 2012UtilitiesChina IPPs,Figure 17:Wind utilization(Longyuan proxy),Monthly wind utilization has,300,hrs,2010,2011,2012,been lower than in previousyears on grid curtailment,and lower wind
43、speed.25020015010050Source:Deutsche Bank,Company data,Figure 18:Aggregated utilization hours(1-9M12),Utilization hours in 1-9M12were down 164hrs or 5%yoy.Hydro was up 400hrs or,4,0003,500,Average utilization hrs,yoy growth,25%20%,17%,and thermal was down279hrs or 7%.,3,000,15%,2,5002,0001,5001,00050
44、00,3,439-5%Total,3,707-7%Thermal,17%2,788Hydro,10%5%0%-5%-10%,Source:Deutsche Bank,Wind,Figure 19:Daily water-flow in Chinas Three Gorges,Water-flow levels in Chinas,Three Gorges Water outflow(LHS,000cm/s),Three,Gorges,is,302520151050Source:Deutsche Bank,WindDeutsche Bank AG/Hong Kong,Three Gorges D
45、am water level(RHS,m),180175170165160155150145140,substantially higher in 2012than in 2011 and marginallyhigher than the historicalaverage.Page 7,Apr-10,Aug-10,Apr-11,Aug-11,Apr-12,Aug-12,Dec-09,Dec-10,Dec-11,Feb-10,Feb-11,Feb-12,Jun-12,Jun-10,Jun-11,Oct-10,Oct-11,Oct-12,Oct-10,Jan-11,Feb-11,Mar-11,
46、Jun-11,Oct-11,Jan-12,Feb-12,Mar-12,May-11,May-12,Apr-11,Aug-11,Apr-12,Jun-12,Nov-10,Nov-11,Aug-12,Jul-11,Sep-11,Jul-12,Dec-11,Dec-10,Sep-12,May-12,Mar-10,May-10,Mar-11,May-11,Nov-10,Nov-11,Mar-12,Sep-10,Jan-10,Jan-11,Sep-11,Jan-12,Sep-12,Jul-10,Jul-11,Jul-12,25 October 2012UtilitiesChina IPPsSpot co
47、al price and sea freight,Figure 20:Qinhuangdao spot coal price,Qinhuangdao spot coal price,Rmb/t950900850800,Datong Premium(6,000kCal),Shanxi Premium(5,500kCal),(5,500kcal Datong premium)has weakened substantiallysince end-May,fromRmb785/t to Rmb615/t inmid-July.,750,700650600,Coal prices have since
48、stabilized at Rmb640-650/t,between August andOctober.Source:Deutsche Bank,Wind,Figure 21:Bohai Rim coal index,The Bohai-Rim coal price,Rmb/t900850800750700650600Source:Deutsche Bank,Wind,Bohai Rim,index,which tracks thermalcoal prices at six ports,alsoregistered similar declines inspot coal prices.,
49、Figure 22:Qinhuangdao Newcastle spot coal price comparison,Despite the rapid decline in,US$/ton14013012011010090,Datong Premium(5,500kCal)(US$/t),Newcastle(FOB,US$/t)(5,500kCal),Qinhuangdaos coal pricesince May,the internationalcoal price has weakenedsignificantly since late Septand the price gap wi
50、th thedomestic spot coal price hasexpanded again.,80Source:Deutsche Bank,Wind,Page 8,Deutsche Bank AG/Hong Kong,May-10,May-11,May-12,Sep-09,Nov-09,Sep-10,Nov-10,Sep-11,Nov-11,Jul-12,Jul-09,Jul-10,Jul-11,Mar-10,Mar-11,Mar-12,Sep-12,Jan-10,Jan-11,Jan-12,Rmb/t,25 October 2012UtilitiesChina IPPs,Figure
